General
Management's Discussion and Analysis of Financial Condition and Results of Operations at September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is intended to assist in understanding our financial condition and results of operations. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements of the Company and the notes thereto appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q as well as the business and financial information included in the Company's Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2021.
Cautionary Note Regarding Forward-Looking Statements
Certain matters in this Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of words such as "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would," and "could." These forward-looking statements include, but are not limited to:
? statements of our goals, intentions and expectations;
? statements regarding our business plans, prospects, growth and operating
strategies;
? statements regarding the quality of our loan and investment portfolios; and
? estimates of our risks and future costs and benefits.
You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These forward-looking statements are based on our current beliefs and expectations and, by their nature, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
Important factors that could cause our actual results to differ materially from the results anticipated or projected, include, but are not limited to, the following:
? general economic conditions, either nationally or in our market areas, that are
different than expected;
conditions relating to the COVID-19 pandemic, or other infectious disease
? outbreaks, including the severity and duration of the associated economic
slowdown, either nationally or in our market areas, that are worse than
expected;
? changes in the level and direction of loan delinquencies and charge-offs and
changes in estimates of the adequacy of the allowance for loan losses;
? our ability to access cost-effective funding;
major catastrophes such as hurricanes, floods or other natural disasters, the
? related disruption to local, regional and global economic activity and
financial markets, and the impact that any of the foregoing may have on us and
our customers and other constituencies;
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? technological changes that may be more difficult or expensive than expected;
? success or consummation of new business initiatives may be more difficult or
expensive than expected;
? the inability of third party service providers to perform;
? fluctuations in real estate values and both residential and commercial real
estate market conditions;
? demand for loans and deposits in our market area;
? our ability to continue to implement our business strategies;
? competition among depository and other financial institutions;
inflation and changes in the interest rate environment that reduce our margins
? and yields, reduce the fair value of financial instruments or reduce the
origination levels in our lending business, or increase the level of defaults,
losses and prepayments on loans;
? adverse changes in the securities markets;
? changes in laws or government regulations or policies affecting financial
institutions, including changes in regulatory fees and capital requirements;
? our ability to manage market risk, credit risk and operational risk in the
current economic conditions;
? our ability to enter new markets successfully and capitalize on growth
opportunities;
our ability to successfully integrate any assets, liabilities, customers,
? systems and management personnel we may acquire into our operations and our
ability to realize related revenue synergies and cost savings within expected
time frames and any goodwill charges related thereto;
? changes in consumer spending, borrowing and savings habits;
changes in accounting policies and practices, as may be adopted by the bank
? regulatory agencies, the Financial Accounting Standards Board, the U. S.
Securities and Exchange Commission or the Public Company Accounting Oversight
Board;
? our ability to retain key employees; and our compensation expense associated
with equity allocated or awarded to our employees.
We undertake no obligation to publicly update or revise any forward-looking
statements included in this report or to update the reasons why actual results
could differ from those contained in such statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking statements discussed in this report might
not occur and you should not put undue reliance on any forward-looking
statements.
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Overview
Catalyst Bancorp, Inc. ("Catalyst Bancorp" or the "Company") is the holding
company for Catalyst Bank (the "Bank"), formerly known as St. Landry Homestead
Federal Savings Bank. The Company was incorporated by the Bank in February 2021
as part of the conversion of the Bank from the mutual to the stock form of
organization (the "Conversion"). The Conversion was completed on October 12,
2021, at which time the Company acquired all of the issued and outstanding
shares of common stock of the Bank and became the holding company for the Bank.
As a result of the Conversion, the Bank is a wholly owned subsidiary of Catalyst
Bancorp. The Company was not engaged in operations and had not issued any shares
of stock prior to the completion of the Conversion.
Founded in 1922, the Bank is a community-oriented savings bank serving the
banking needs of customers in the Acadiana region of south-central Louisiana. We
are headquartered in Opelousas, Louisiana and serve our customers through six
full-service branches located in Carencro, Eunice, Lafayette, Opelousas, and
Port Barre. Our primary business consists of attracting deposits from the
general public and using those funds together with funds we borrow from the
Federal Home Loan Bank ("FHLB") of Dallas and other sources to originate loans
to our customers and invest in securities. Historically, we operated as a
traditional thrift relying on long-term, single-family residential mortgage
loans secured by properties located primarily in St. Landry Parish and adjoining
areas to generate interest income. We have re-focused our business strategy to a
relationship-based community bank model targeting small- to mid-sized businesses
and business professionals in our market areas while continuing to serve our
traditional customer base. The Conversion and offering were important factors in
our efforts to become a more dynamic, profitable and growing institution.
At September 30, 2022, total assets were $283.4 million, including total loans
of $131.7 million and total investment securities of $92.0 million, total
deposits were $184.2 million and total shareholders' equity was $89.3 million.
The Company reported net income of $139,000 for the three months ended September
30, 2022, compared to net income of $1.4 million for the three months ended
September 30, 2021. For the nine months ended September 30, 2022, the Company
reported net income of $26,000, compared to net income of $1.8 million for the
nine months ended September 30, 2021. During the three and nine months ended
September 30, 2021, the Company received a $1.8 million grant from the Community
Development Financial Institution ("CDFI") Rapid Response Program and recognized
the amount in non-interest income. During the nine months ended September 30,
2022, the Company received and recognized into income a $171,000 Bank Enterprise
Award ("BEA") Program grant from the CDFI Fund. Professional fees associated
with the grant totaled $26,000 and were recorded in non-interest expense in the
same period. The Bank also rebranded and officially changed its name to Catalyst
Bank during the 2022 period. Pre-tax costs associated with the rebranding of the
Bank totaled $270,000 for the nine months ended September 30, 2022.
Our results of operations depend, to a large extent, on net interest income,
which is the difference between the income earned on our loan and investment
portfolios and interest expense on deposits and borrowings. Our net interest
income is largely determined by our net interest spread, which is the difference
between the average yield earned on interest-earning assets and the average rate
paid on interest-bearing liabilities, and the relative amounts of
interest-earning assets and interest-bearing liabilities. Results of operations
are also affected by our provisions for loan losses, fee income and other
non-interest income and non-interest expense. Non-interest expense principally
consists of compensation, office occupancy and equipment expense, data
processing, advertising and business promotion and other expense. We expect that
our non-interest expenses will continue to increase as we grow and expand our
operations. In addition, our compensation expense will increase due to the new
stock benefit plans we adopted and implemented in 2022. Our results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in interest rates, the impact of the COVID-19
pandemic, government policies and actions of regulatory authorities. Future
changes in applicable law, regulations or government policies may materially
impact our financial condition and results of operations.
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Critical Accounting Estimates
In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our consolidated financial statements included in the Company's Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2021. Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an emerging growth company, we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We are taking advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods. Allowance for Loan Losses. We have identified the evaluation of the allowance
for loan losses as a critical accounting policy where amounts are sensitive to
material variation. The allowance for loan losses represents management's
estimate for probable losses that are inherent in our loan portfolio but which
have not yet been realized as of the date of our balance sheet. It is
established through a provision for loan losses charged to earnings. Loans, or
portions of loans, are charged off against the allowance in the period that such
loans, or portions thereof, are deemed uncollectible. Subsequent recoveries are
added to the allowance. The allowance is an amount that management believes will
cover probable and reasonably estimable losses in the loan portfolio based on
evaluations of the collectability of loans. The evaluations take into
consideration such factors as changes in the types and amount of loans in the
loan portfolio, historical loss experience, adverse situations that may affect
the borrower's ability to repay, estimated value of any underlying collateral,
estimated losses relating to specifically identified loans, and current economic
conditions. This evaluation is inherently subjective as it requires material
estimates including, among others, exposure at default, the amount and timing of
expected future cash flows on impacted loans, value of collateral, estimated
losses on our commercial and residential loan portfolios and general amounts for
historical loss experience. All of these estimates may be susceptible to
significant changes as more information becomes available. The allowance for
loans losses totaled $1.8 million, or 1.37% of total loans, at September 30,
2022 and $2.3 million, or 1.73% of total loans, at December 31, 2021. The
decrease in the allowance for loan losses largely reflects the reversal of
certain provisions made for estimated loan losses during 2020 associated with
our initial assessment of COVID-19's impact on credit risk.
While management uses the best information available to make loan loss allowance
evaluations, adjustments to the allowance may be necessary based on changes in
economic and other conditions or changes in accounting guidance. In addition,
the Office of the Comptroller of the Currency as an integral part of their
examination processes periodically reviews our allowance for loan losses. While
management is responsible for the establishment of the allowance for loan losses
and for adjusting such allowance through provisions for loan losses, management
may determine, as a result of such regulatory reviews, that an increase or
decrease in the allowance or provision for loan losses may be necessary or that
loan charge-offs are needed. To the extent that actual outcomes differ from
management's estimates, additional provisions to the allowance for loan losses
may be required that would adversely impact earnings in future periods.
Investment Securities. Available-for-sale securities consist of investment
securities not classified as trading securities or held-to-maturity securities.
Available-for-sale securities are reported at fair value and unrealized holding
gains and losses, net of tax, on available-for-sale securities are included in
other comprehensive income. The fair market values of investment securities are
obtained from a third party service provider, whose prices are based on a
combination of observed market prices for identical or similar instruments and
various matrix pricing programs. The fair market values of investment securities
are classified within Level 2 of the fair value hierarchy.
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Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. The term "other-than-temporary" is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Declines in the estimated fair value of individual investment securities below their cost that are considered other-than-temporary are recognized as realized losses in the statement of income. Factors affecting the determination of whether an other-than-temporary impairment has occurred include, among other things, (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) that the Company does not intend to sell these securities, and (4) it is more likely than not that the Company will not be required to sell before a period of time sufficient to allow for any anticipated recovery in fair value. Unrealized holding gains and losses, net of tax, on available-for-sale securities are included in other comprehensive income. At September 30, 2022 and December 31, 2021, net unrealized losses on available-for-sale securities totaled $12.6 million and $864,000, respectively. The increase in unrealized losses on available-for-sale securities relates principally to the increases in market rates of similar types of securities. No declines in fair value of available-for-sale securities were deemed to be other-than-temporary. Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws. Realizing our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances if our judgments change.
COVID-19
The CARES Act, enacted in March of 2020 in response to the economic disruption
brought about by the COVID-19 pandemic, contains many provisions related to
banking, lending, mortgage forbearance and taxation. Under the provisions of the
act, we supported our customers through the Small Business Administration's
("SBA") Paycheck Protection Program ("PPP"), loan modifications and loan
deferrals. We funded 240 SBA PPP loans totaling $8.5 million with an average
initial loan balance of $36,000 to existing customers and key prospects located
primarily in our markets in south central Louisiana. As of December 31, 2021,
the unpaid principal balance of PPP loans totaled $2.8 million. During the nine
months ended September 30, 2022, all of our outstanding PPP loans were fully
repaid.
In addition, we granted modifications, generally in the form of three-month
deferrals of principal payments and a three-month extension of the maturity
date, to 204 loans with principal balances totaling $28.2 million under the
CARES Act. In accordance with guidance from the Federal Deposit Insurance
Corporation (the "FDIC"), borrowers who were current prior to becoming affected
by COVID-19, that received loan modifications as a result of the pandemic,
generally were not reported as past due or categorized as troubled debt
restructurings. This relief provided by the CARES Act expired January 1, 2022.
At December 31, 2021, we had no loans under deferral or extension agreements due
to COVID-19.
Management's assumptions and estimates, such as the allowance for loan losses,
may be negatively impacted as the Company continues to evaluate and consider the
effects of the COVID-19 pandemic. However, it is difficult to assess or predict
how and to what extent COVID-19 will affect the Company in the future.
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Comparison of Financial Condition at September 30, 2022 and December 31, 2021
Total Assets. Total assets decreased $1.9 million, or 0.7%, to $283.4 million at September 30, 2022 from $285.3 million at December 31, 2021. The decrease resulted primarily from declines in available-for-sale investment securities, down $9.8 million, and in cash and cash equivalents, down $4.7 million, partially offset by an increase in bank-owned life insurance of $10.2 million. Loans. Total loans receivable fell by $141,000, or 0.1%, to $131.7 million at September 30, 2022, compared to $131.8 million at December 31, 2021. Commercial and industrial and residential mortgage loan growth was entirely offset by net declines across the other segments of the portfolio. All PPP loans were fully paid off during the nine months ended September 30, 2022. The total unpaid principal balance of PPP loans, included in commercial and industrial loans, amounted to $2.8 million at December 31, 2021.
The following table summarizes the changes in the composition of our loan portfolio by type of loan as of the dates indicated.
September 30, 2022 December 31, 2021
(Dollars in thousands) Amount % Amount % Change
Real estate loans
One- to four-family
residential $ 88,327 67.1 % $ 87,303 66.2 % $ 1,024 1.2 %
Commercial real estate 21,073 16.0 23,112 17.5 (2,039) (8.8)
Construction and land 4,450 3.4 4,079 3.1 371 9.1
Multi-family
residential 3,252 2.5 4,589 3.5 (1,337) (29.1)
Total real estate
loans 117,102 89.0 119,083 90.3 (1,981) (1.7)
Other loans
Commercial and
industrial 11,087 8.4 8,374 6.4 2,713 32.4
Consumer 3,512 2.6 4,385 3.3 (873) (19.9)
Total other loans 14,599 11.0 12,759 9.7 1,840 14.4
Total loans $ 131,701 100.0 % 131,842 100.0 % $ (141) (0.1) %
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Allowance for Loan Losses. The allowance for loans losses totaled $1.8 million,
or 1.37% of total loans, at September 30, 2022 and $2.3 million, or 1.73% of
total loans, at December 31, 2021. The decline in the allowance for loan losses
primarily reflects the reversal of provisions made for estimated loan losses
during 2020 associated with our initial assessment of COVID-19's impact on
credit risk and a $79,000 decrease in reserves for loans individually evaluated
for impairment. During the nine months ended September 30, 2022, net loan
charge-offs totaled $97,000 and the Company recorded a reversal to the allowance
for loan losses of $375,000.
The following table presents the changes in the allowance for loan losses and other related data for the periods indicated.
Year
Ended
December
Nine Months Ended September 30, 31,(Dollars in thousands) 2022 2021 2021 Allowance for loan losses, beginning of period $ 2,276 $ 3,022 $ 3,022 Provision for (reversal of) loan losses (375) (286) (660) Net loan charge-offs: One- to four-family residential (84) (72) (69) Commercial real estate - - - Construction and land - - - Multi-family residential - - - Commercial and industrial (2) - - Consumer (11) (18) (17) Total net charge-offs (97) (90) (86) Allowance for loan losses, end of period $ 1,804
$ 2,646 $ 2,276
Total loans at end of period $ 131,701 $ 136,720 $ 131,842 Total non-accrual loans at end of period 1,221 752 890 Total non-performing loans at end of period 1,600 917 891 Total average loans 132,052
143,075 141,592
Allowance for loan losses as a percent of:
Total loans 1.37 % 1.94 % 1.73 %
Non-accrual loans 147.75 351.86 255.73
Non-performing loans 112.75 288.55 255.44
Net annualized charge-offs as a percent of
average loans by portfolio:
One- to four-family residential (0.13) % (0.10) % (0.07) %
Commercial real estate - - -
Construction and land - - -
Multi-family residential - - -
Commercial and industrial (0.03) - -
Consumer (0.36) (0.53) (0.37)
Total loans (0.10) (0.08) (0.06)
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Non-performing Assets. The following table shows the amounts of our non-performing assets, which include non-accruing loans, accruing loans 90 days or more past due and real estate owned at the dates indicated, and our performing TDRs.
September 30, December 31,
(Dollars in thousands) 2022 2021
Non-accruing loans
One- to four-family residential $ 1,124 $791 Commercial real estate 50 - Construction and land 36 68 Multi-family residential - - Commercial and industrial - 18 Consumer 11 13 Total non-accruing loans 1,221 890 Accruing loans 90 days or more past due One- to four-family residential 287
- Commercial real estate 92 - Construction and land - - Multi-family residential - - Commercial and industrial - - Consumer - 1
Total accruing loans 90 days or more past due 379
1 Total non-performing loans 1,600 891 Foreclosed assets 320 340 Total non-performing assets 1,920 1,231
Performing troubled debt restructurings 891
1,873
Total non-performing assets and performing TDRs $ 2,811 $
3,104
Total loans $ 131,701 $ 131,842
Total assets $ 283,414 $ 285,349
Total non-accruing loans as a percentage of total
loans 0.93 % 0.68 %
Total non-performing loans as a percentage of total
loans 1.21 % 0.68 %
Total non-performing loans as a percentage of total
assets 0.56 % 0.31 %
Total non-performing assets as a percentage of
total assets 0.68 % 0.43 %
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Investment Securities. Our total investment securities, available-for-sale and
held-to-maturity, amounted to $92.0 million at September 30, 2022, a decrease of
$9.8 million, or 9.6%, compared to $101.8 million in investment securities at
December 31, 2021. Net unrealized losses on securities available-for-sale
totaled $12.6 million at September 30, 2022, compared to $864,000 at December
31, 2021. The increase in unrealized losses on available-for-sale securities
related principally to increases in market interest rates for similar
securities. At September 30, 2022, 87% of total investment securities, based on
amortized cost, or $91.2 million, were classified as available-for-sale. Our
investment securities portfolio at such date consisted primarily of debt
obligations issued by the U.S. government and government agencies and
government-sponsored mortgage-backed securities. During the nine months ended
September 30, 2022, purchases of $10.9 million of investment securities exceeded
$8.5 million of maturities, calls and principal repayments.
The following table presents the amortized cost of our total investment securities portfolio that mature during each of the periods indicated and the weighted average yields for each range of maturities at September 30, 2022.
Contractual Maturity as of September 30, 2022
After One Through After Five Through (Dollars in thousands) One Year or Less Five Years Ten Years Over Ten Years Total Total investment securities Mortgage-backed securities $ - $ 2,331 $ 11,740 $ 60,691 $ 74,762 U.S. Government and agency obligations - 9,977 10,000 4,009 23,986 Municipal obligations - 1,429 1,947 2,559 5,935 Total $ - $ 13,737 $ 23,687 $ 67,259 $ 104,683 Weighted average yield Mortgage-backed securities - % 2.27 % 1.82 % 1.56 % 1.62 % U.S. Government and agency obligations - 1.03 1.23 2.13 1.30 Municipal obligations - 0.83 2.29 1.35 1.53 Total weighted average yield - % 1.22 % 1.61 % 1.58 % 1.54 %
Securities are classified according to their contractual maturities without
consideration of principal amortization, potential prepayments, or call options.
The expected maturities may differ from contractual maturities because of the
exercise of call options and potential paydowns. Accordingly, actual maturities
may differ from contractual maturities. Weighted average yields are calculated
by dividing the estimated annual income divided by the average amortized cost of
the applicable securities.
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Deposits. Our total deposits amounted to $184.2 million at September 30, 2022,
an increase of $7.4 million, or 4.2%, compared to December 31, 2021. This
increase resulted primarily from increases in NOW account balances, partially
offset by declines in certificates of deposit.
The following table presents total deposits by account type for the dates
indicated.
September 30, 2022 December 31, 2021
(Dollars in thousands) Amount % Amount % Change
Non-interest-bearing
demand deposits $ 31,988 17.4 % $ 30,299 17.1 % $ 1,689 5.6 %
Negotiable order of
withdrawal ("NOW") 50,547 27.4 34,357 19.4 16,190 47.1
Money market 17,129 9.3 18,878 10.7 (1,749) (9.3)
Savings 26,874 14.6 26,698 15.1 176 0.7
Certificates of
deposit 57,689 31.3 66,563 37.7 (8,874) (13.3)
Total deposits $ 184,227 100 % $ 176,795 100 % $ 7,432 4.2
Borrowings. Our borrowings, which consist of FHLB advances, amounted to $9.2
million at September 30, 2022, compared to $9.0 million at December 31, 2021.
The increase in the carrying value of our FHLB advances reflects the
amortization of deferred prepayment penalties on $10.0 million in advances
restructured in December of 2020. Deferred prepayment penalties on our FHLB
advances totaled $847,000 and $982,000 at September 30, 2022 and December 31,
2021, respectively.
Shareholders' Equity. Shareholders' equity decreased $9.0 million, or 9.2%, to
$89.3 million at September 30, 2022 compared to $98.3 million at December 31,
2021. The primary reason for the decrease in total shareholders' equity was a
$9.3 million increase in the Company's accumulated other comprehensive loss
position due to unrealized losses on available-for-sale securities. At September
30, 2022, our ratio of total shareholders' equity to total assets was 31.5%
compared to 34.5% at December 31, 2021.
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Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The
following tables show for the periods indicated the total dollar amount of
interest income from average interest-earning assets and the resulting yields,
as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates, and the net interest margin. Taxable
equivalent ("TE") yields have been calculated using a marginal tax rate of 21%.
All average balances are based on daily balances.
Three Months Ended September 30,
2022 2021
Average Average Average Average
(Dollars in thousands) Balance Interest Yield/Rate Balance Interest Yield/Rate
Interest-earning assets:
Loans receivable(1) $ 131,583 $ 1,466 4.42 % $ 137,031 $ 1,671 4.84 %
Investment
securities(TE)(2) 104,403 381 1.48 61,912 172 1.13
Other interest-earning
assets 34,548 185 2.12 36,504 13 0.14
Total interest-earning
assets(TE) 270,534 2,032 2.99 235,447 1,856 3.13
Non-interest-earning
assets 17,518 17,729
Total assets $ 288,052 $ 253,176
Interest-bearing
liabilities:
Savings, NOW and money
market accounts 91,738 29 0.13 81,650 26 0.12
Certificates of deposit 59,833 64 0.43 69,076 98 0.56
Total interest-bearing
deposits 151,571 93 0.24 150,726 124 0.33
FHLB advances 9,126 69 2.99 8,966 68 3.04
Total interest-bearing
liabilities 160,697 162 0.40 159,692 192 0.48
Non-interest-bearing
liabilities 34,591 42,534
Total liabilities 195,288 202,226
Shareholders' equity 92,764 50,950
Total liabilities and
shareholders' equity $ 288,052 $ 253,176
Net interest-earning
assets $ 109,837 $ 75,755
Net interest income;
average interest rate
spread(TE) $ 1,870 2.59 % $ 1,664 2.65 %
Net interest
margin(TE)(3) 2.75 % 2.81 %
Average interest-earning
assets to average
interest-bearing
liabilities 168.35 % 147.44 %
(1) Includes non-accrual loans during the respective periods. Calculated net of
deferred fees and discounts and loans in process.
(2) Average investment securities does not include unrealized holding gains/
losses on available-for-sale securities.
(3) Equals net interest income divided by average interest-earning assets.
Taxable equivalent yields are calculated using a marginal tax rate of 21%.
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Nine Months Ended September 30,
2022 2021
Average Average Average Average
(Dollars in thousands) Balance Interest Yield/Rate Balance Interest Yield/Rate
Interest-earning assets:
Loans receivable(1) $ 132,052 $ 4,584 4.64 % $ 143,075 $ 5,344 4.99 %
Investment
securities(TE)(2) 104,061 1,062 1.37 50,894 434 1.16
Other interest-earning
assets 34,735 262 1.01 30,904 37 0.16
Total interest-earning
assets(TE) 270,848 5,908 2.92 224,873 5,815 3.46
Non-interest-earning
assets 16,152 15,472
Total assets $ 287,000 $ 240,345
Interest-bearing
liabilities:
Savings, NOW and money
market accounts 86,459 77 0.12 77,928 84 0.14
Certificates of deposit 63,547 195 0.41 69,157 330 0.64
Total interest-bearing
deposits 150,006 272 0.24 147,085 414 0.38
FHLB advances 9,080 205 3.00 8,907 204 3.06
Total interest-bearing
liabilities 159,086 477 0.40 155,992 618 0.53
Non-interest-bearing
liabilities 33,514 33,675
Total liabilities 192,600 189,667
Shareholders' equity 94,400 50,678
Total liabilities and
shareholders' equity $ 287,000 $ 240,345
Net interest-earning
assets $ 111,762 $ 68,881
Net interest income;
average interest rate
spread(TE) $ 5,431 2.52 % $ 5,197 2.93 %
Net interest
margin(TE)(3) 2.69 % 3.09 %
Average interest-earning
assets to average
interest-bearing
liabilities 170.25 % 144.16 %
(1) Includes non-accrual loans during the respective periods. Calculated net of
deferred fees and discounts and loans in process.
(2) Average investment securities does not include unrealized holding gains/
losses on available-for-sale securities.
(3) Equals net interest income divided by average interest-earning assets.
Taxable equivalent yields are calculated using a marginal tax rate of 21%.
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Rate/Volume Analysis. The following tables show the extent to which changes in
interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities affected our interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) changes in rate, which is the change in rate multiplied by prior year
volume, and (2) changes in volume, which is the change in volume multiplied by
prior year rate. The combined effect of changes in both rate and volume has been
allocated proportionately to the change due to rate and the change due to
volume.
Three Months Ended Nine Months Ended
September 30, 2022 vs 2021 September 30, 2022 vs 2021
Increase (Decrease) Due to Total Increase (Decrease) Due to Total
Increase Increase
(Dollars in thousands) Rate Volume (Decrease) Rate Volume (Decrease)
Interest income:
Loans receivable $ (140) $ (65) $ (205) $ (363) $ (397) $ (760)
Investment securities 66 143 209 101 527 628
Other interest-earning
assets 172 - 172 220 5 225
Total interest income 98 78 176 (42) 135 93
Interest expense:
Savings, NOW and money
market accounts - 3 3 (15) 8 (7)
Certificates of deposit (22) (12) (34) (110) (25) (135)
Total deposits (22) (9) (31) (125) (17) (142)
FHLB advances and other
borrowings (1) 2 1 (3) 4 1
Total interest expense (23) (7) (30) (128) (13) (141)
Increase (decrease) in net
interest income $ 121 $ 85 $ 206 $ 86 $ 148 $ 234
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Comparison of Results of Operations for the Three Months Ended September 30, 2022 and 2021.
General. For the three months ended September 30, 2022, the Company reported net
income of $139,000, compared to net income of $1.4 million for the three months
ended September 30, 2021. During the three months ended September 30, 2021, we
received and recognized into non-interest income $1.8 million related to a CDFI
Rapid Response Program grant. During the three months ended September 30, 2022,
the Company recorded a reversal to the allowance for loan losses of $115,000,
compared to no provision for or reversal of loan losses for the three months
ended September 30, 2021.
Interest Income. Total interest income increased $176,000, or 9.5%, to $2.0
million for the three months ended September 30, 2022, compared to the three
months ended September 30, 2021. This increase was primarily attributable to a
$209,000 increase in interest income on investment securities and a $172,000
increase in other interest income, partially offset by a decrease in interest
income on loans of $205,000.
The average loan yield was 4.42% for the three months ended September 30, 2022,
down from 4.84% for the three months ended September 30, 2021. Average loans
were $131.6 million for the three months ended September 30, 2022, down $5.4
million, or 4.0%, compared to the same period in 2021. Interest income on loans
for the three months ended September 30, 2021 included $70,000 of recognized
deferred PPP loan fees. PPP loans were fully paid-off in 2022 and no deferred
fee income was earned from PPP loans during the three months ended September 30,
2022.
The increase in interest income on investment securities was primarily due to an
increase in the average volume of our securities portfolio. The average
amortized cost balance of our investment securities portfolio was up $42.5
million, or 68.6%, for the three months ended September 30, 2022, compared to
the same period in 2021. During the fourth quarter of 2021, the Company deployed
$41.9 million of the proceeds from our IPO into the investment securities
portfolio.
Interest Expense. Total interest expense decreased $30,000, or 15.6%, to
$162,000 for the three months ended September 30, 2022 from $192,000 for the
three months ended September 30, 2021. Interest expense on deposits was $93,000
during the three months ended September 30, 2022, down $31,000, or 25.0%, from
$124,000 for the three months ended September 30, 2021. While the average
balance of our total interest-bearing deposits increased by $845,000, or 0.6%,
to $151.6 million for the three months ended September 30, 2022 compared to the
three months ended September 30, 2021, the average rate paid on interest-bearing
deposits was down nine basis points to 0.24% for the three months ended
September 30, 2022 compared to the three months ended September 30, 2021.
Net Interest Income. Net interest income was $1.9 million for the three months
ended September 30, 2022, up $206,000, or 12.4%, from the three months ended
September 30, 2021. Our interest rate spread was 2.59% and 2.65% for the three
months ended September 30, 2022 and 2021, respectively. Our net interest margin
was 2.75% and 2.81% for the three months ended September 30, 2022 and 2021,
respectively. The decline in interest rate spread and net interest margin over
the prior comparable periods was primarily the result of lower average yields
earned on loans and a shift in the mix of our interest-earning assets as we grew
our investment securities portfolio and experienced a decline in total loans
outstanding. The impact on yield due to these factors more than offset the
increase in yield on other interest-earning assets and the reduction in the
average cost of our interest-bearing liabilities.
Provision for Loan Losses. During the three months ended September 30, 2022,
the Company recorded a reversal to the allowance for loan losses of $115,000. We
recorded no provision or reversal to the allowance for loan losses for the three
months ended September 30, 2021. The reversal during the 2022 period primarily
reflects the release of reserve builds recorded during 2020 for the estimated
effects of the COVID-19 pandemic on credit quality.
Non-interest Income. Non-interest income totaled $296,000 for the three months
ended September 30, 2022, compared to $2.0 million for the three months ended
September 30, 2021. Non-interest income in the 2021 period primarily reflects
the receipt of a $1.8 million grant from the U.S. Treasury Department's CDFI
Rapid Response Program. The CDFI Rapid Response Program is designed to quickly
deploy capital to community development financial institutions, such as the
Bank, in order to provide them with resources to help counter the economic
impact created by the COVID-19 pandemic in distressed and underserved
communities.
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Non-interest Expense. Non-interest expense increased $244,000, or 13.0%, to
$2.1 million for the three months ended September 30, 2022, compared to $1.9
million for the three months ended September 30, 2021. The increase in
non-interest expense primarily reflects the additional costs associated with
operating as a public company since the completion of our IPO in October 2021
and additional resources needed to expand our business.
Salaries and employee benefits expense totaled $1.2 million for the three months
ended September 30, 2022, an increase of $84,000, or 7.7%, over the comparable
period in 2021 primarily due to stock compensation expense recognized in the
2022 period. Allocations under the Company's ESOP commenced during the fourth
quarter of 2021 and the Company granted awards under the 2022 Stock Option Plan
and 2022 Recognition and Retention Plan and Trust Agreement in September 2022.
Data processing and communication expense totaled $216,000 for the three months
ended September 30, 2022, an increase of $15,000, or 7.5%, over the comparable
period in 2021 primarily due to the cost of technology resources for additional
personnel and our newest branch location.
Professional fees totaled $157,000 for the three months ended September 30, 2022, an increase of $69,000, or 78.4%, over the comparable period in 2021 primarily due to public company consulting, legal services and other professional fees.
Advertising and marketing expense totaled $36,000 for the three months ended
September 30, 2022, an increase of $22,000 over the comparable period in 2021
primarily due to an increased focus on in-person promotional efforts to
familiarize our market with the Bank's new name and mission.
Franchise and shares tax expense totaled $15,000 for the three months ended
September 30, 2022. As a result of the mutual-to-stock conversion of the Bank
and the establishment of Catalyst Bancorp as its holding company, the Company
became subject to franchise tax and the Bank became subject to Louisiana shares
tax for 2022.
Income Tax Expense. The Company reported an income tax expense of $14,000 for
the three months ended September 30, 2022, compared to income tax expense of
$372,000 for the three months ended September 30, 2021. The change in income tax
expense over the comparable three-month periods was primarily due to the change
in taxable earnings.
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Comparison of Results of Operations for the Nine Months Ended September 30, 2022 and 2021.
General. For the nine months ended September 30, 2022, the Company reported net
income of $26,000, compared to net income of $1.8 million for the nine months
ended September 30, 2021. During the nine months ended September 30, 2021, the
Company received a $1.8 million Rapid Response Program grant from the CDFI Fund
and recognized the amount in non-interest income. During the nine months ended
September 30, 2022, the Company received and recognized into non-interest income
a $171,000 BEA Program grant from the CDFI Fund. The Bank also rebranded and
officially changed its name to Catalyst Bank during the 2022 period. Pre-tax
costs associated with the rebranding of the Bank totaled $270,000 for the nine
months ended September 30, 2022. Professional fees associated with the grant
totaled $26,000 and were recorded in non-interest expense in the same period.
Interest Income. Total interest income increased $93,000, or 1.6%, to $5.9
million for the nine months ended September 30, 2022, from $5.8 million for the
nine months ended September 30, 2021. This increase was primarily attributable
to a $628,000 increase in interest income on investment securities and a
$225,000 increase in other interest income, partially offset by a decrease in
interest income on loans of $760,000.
The average loan yield was 4.64% for the nine months ended September 30, 2022,
down from 4.99% for the nine months ended September 30, 2021. In addition,
average loans were $132.1 million for the nine months ended September 30, 2022,
down $11.0 million, or 7.7%, compared to the same period in 2021. Loan income
from the recognition of deferred PPP loan fees totaled $186,000 for the nine
months ended September 30, 2022, down $94,000, or 33.6%, from $280,000
recognized in the same period in 2021.
The increase in interest income on investment securities was primarily due to an
increase in the average volume of our securities portfolio. The average
amortized cost balance of our investment securities was up $53.2 million, or
104.5%, for the nine months ended September 30, 2022, compared to the same
period in 2021. During the fourth quarter of 2021, the Company deployed $41.9
million of the proceeds from our IPO into the investment securities portfolio.
Interest Expense. Total interest expense decreased $141,000, or 22.8%, to
$477,000 for the nine months ended September 30, 2022 from $618,000 for the nine
months ended September 30, 2021. Interest expense on deposits was $272,000
during the nine months ended September 30, 2022, down $142,000, or 34.3%, from
$414,000 for the nine months ended September 30, 2021. While the average
balance of our total interest-bearing deposits increased by $2.9 million, or
2.0%, to $150.0 million for the nine months ended September 30, 2022 compared to
the nine months ended September 30, 2021, the average rate paid on
interest-bearing deposits decreased by 14 basis points to 0.24% for the nine
months ended September 30, 2022 compared to the nine months ended September 30,
2021.
Net Interest Income. Net interest income was $5.4 million for the nine months
ended September 30, 2022, an increase of $234,000, or 4.5%, compared to the nine
months ended September 30, 2021. Our average interest rate spread was 2.52% and
2.93% for the nine months ended September 30, 2022 and 2021, respectively. Our
net interest margin was 2.69% and 3.09% for the nine months ended September 30,
2022 and 2021, respectively. The decline in interest rate spread and net
interest margin over the prior comparable periods was primarily the result of
lower average yield on loans and a shift in the mix of our interest-earning
assets as we grew our investment securities portfolio and experienced a decline
in total loans. The impact on yield due to these factors more than offset the
increase in yield on other interest-earning assets and the reduction in the
average cost of our interest-bearing liabilities.
Provision for Loan Losses. During the nine months ended September 30, 2022 and
2021, the Company recorded reversals to the allowance for loan losses of
$375,000 and $286,000, respectively. The amounts recorded during both periods
primarily reflect the release of reserve builds recorded during 2020 for the
estimated effects of the COVID-19 pandemic on credit quality.
Non-interest Income. Non-interest income decreased by $1.5 million, or 63.7%,
to $872,000 for the nine months ended September 30, 2022 from $2.4 million for
the nine months ended September 30, 2021. In August 2021, the Bank was awarded a
$1.8 million grant from the U.S. Treasury Department's CDFI Rapid Response
Program, which was recognized as non-interest income.
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During the nine months ended September 30, 2022, the Company received and recognized into non-interest income a $171,000 BEA Program grant from the CDFI Fund. BOLI income increased by $149,000 to $216,000 for the nine months ended September 30, 2022, compared to the same period in 2021, largely due to an aggregate of $10.0 million in additional BOLI policies purchased in March and April of 2022. During the 2022 period, the Company also recorded losses on the disposal of fixed assets with a total net book value of $77,000. Of the assets disposed, $55,000 was attributable to branch signage that was replaced due to the Bank's rebranding. Non-interest Expense. Non-interest expense increased $1.1 million, or 20.1%, to $6.7 million for the nine months ended September 30, 2022, compared to $5.6 million for the nine months ended September 30, 2021. Total non-interest expense for the nine months ended September 30, 2022 included $215,000 of rebranding-related expenses. The increase in non-interest expense also reflects additional costs associated with operating as a public company and additional resources needed to expand our business. Salaries and employee benefits expense totaled $3.6 million for the nine months ended September 30, 2022, an increase of $316,000, or 9.5%, over the comparable period in 2021 primarily due to stock compensation expense and new personnel in the 2022 period. Allocations under the Company's ESOP commenced during the fourth quarter of 2021 and the Company granted awards under the 2022 Stock Option Plan and 2022 Recognition and Retention Plan and Trust Agreement in September 2022. Data processing and communication expense totaled $666,000 for the nine months ended September 30, 2022, an increase of $110,000, or 19.8%, over the comparable period in 2021 primarily due to the cost of technology resources for additional personnel and our newest branch location during the 2022 period. Data processing and communication expense also included $30,000 of rebranding-related expenses during the 2022 period. Professional fees totaled $472,000 for the nine months ended September 30, 2022, an increase of $217,000, or 85.1%, over the comparable period in 2021 primarily due to public company consulting and legal services. Advertising and marketing expense totaled $187,000 for the nine months ended September 30, 2022, an increase of $152,000 over the comparable period in 2021 primarily due to rebranding-related expenses of $124,000 incurred during the nine months ended September 30, 2022. Franchise and shares tax expense totaled $131,000 for the nine months ended September 30, 2022. As a result of the mutual-to-stock conversion of the Bank and the establishment of Catalyst Bancorp as its holding company, the Company became subject to franchise tax and the Bank became subject to Louisiana shares tax for 2022. Income Tax Expense. The Company reported an income tax benefit of $45,000 for
the nine months ended September 30, 2022, compared to income tax expense of
$465,000 for the nine months ended September 30, 2021. The change in income tax
expense over the comparable nine-month periods was primarily due to the change
in taxable earnings.
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Liquidity and Capital Resources
The Company maintains levels of liquid assets deemed adequate by management. We
adjust our liquidity levels to fund deposit outflows, repay our borrowings, and
to fund loan commitments. We also adjust liquidity, as appropriate, to meet
asset and liability management objectives.
Liquidity describes our ability to meet the financial obligations that arise in
the ordinary course of business. Liquidity is primarily needed to meet the
borrowing and deposit withdrawal requirements of our customers and to fund
current and planned expenditures. Our primary sources of funds are deposits,
principal and interest payments on loans and securities, and proceeds from
maturities of securities. We also have the ability to borrow from the FHLB. At
September 30, 2022, we had outstanding advances from the FHLB with a carrying
value of $9.2 million, and had the capacity to borrow approximately an
additional $37.6 million from the FHLB and an additional $17.8 million on a line
of credit with First National Bankers Bank at such date.
While maturities and scheduled amortization of loans and securities are
predictable sources of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions, and competition. Our
most liquid assets are cash and short-term investments. The levels of these
assets are dependent on our operating, financing, lending, and investing
activities during any given period.
Our cash flows are comprised of three primary classifications: cash flows from
operating activities, investing activities, and financing activities. Net cash
provided by operating activities was $376,000 for the nine months ended
September 30, 2022. Net cash used in investing activities, which consists
primarily of net changes in loans receivable, investment securities and other
assets, such as bank-owned life insurance, was $12.5 million for the nine months
ended September 30, 2022. Net cash provided by financing activities, consisting
of the net change in deposits, was $7.4 million for the nine months ended
September 30, 2022.
We are committed to maintaining a strong liquidity position. We monitor our
liquidity position frequently and anticipate that we will have sufficient funds
to meet our current funding commitments. Based on our deposit retention
experience and current pricing strategy, we anticipate that the majority of
maturing time deposits will be retained. We also anticipate continued use of
FHLB advances.
The Bank exceeded all regulatory capital requirements and was categorized as
well-capitalized at September 30, 2022 and December 31, 2021. Management is not
aware of any conditions or events since the most recent notification that would
change our category. The following table presents actual and required capital.
To be Well Capitalized
under the Prompt Corrective
Actual Action Provision
(Dollars in thousands) Amount Ratio Amount Ratio
As of September 30, 2022Common Equity Tier 1 Capital $ 77,997 57.84 % $
8,765 >6.5 % Tier 1 Risk-Based Capital 77,997 57.84 10,788 >8.0 Total Risk-Based Capital 79,684 59.09 13,485 >10.0 Tier 1 Leverage Capital 77,997 28.29 13,784 >5.0 As of December 31, 2021
Common Equity Tier 1 Capital $ 77,819 63.51 % $
7,965 >6.5 %
Tier 1 Risk-Based Capital 77,819 63.51 9,803 >8.0
Total Risk-Based Capital 79,360 64.77 12,253 >10.0
Tier 1 Leverage Capital 77,819 27.38 14,210 >5.0
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At September 30, 2022, we had $872,000 of outstanding commitments to originate
loans and $3.7 million of remaining funds to be disbursed on construction loans
in process. Our total unused lines of credit, unused overdraft privilege amounts
and letters of credit totaled $12.9 million at September 30, 2022. Certificates
of deposit that are scheduled to mature in less than one year from September 30,
2022, totaled $45.7 million. Management expects that a majority of the maturing
certificates of deposit will be retained. However, if a substantial portion of
these deposits is not retained, we may utilize FHLB advances or raise interest
rates on deposits to attract new accounts, which may result in higher levels of
interest expense.
The following table summarizes our outstanding commitments to originate loans
and to advance additional amounts pursuant to outstanding letters of credit,
lines of credit and undisbursed construction loans at September 30, 2022.
Amount of Commitment Expiration - Per Period
Total Amounts Committed
(Dollars in thousands) at September 30, 2022 To 1 Year 1 - 3 Years 3 - 5 Years After 5 Years
Commitments to originate loans $ 872 $ 872 $ - $ - $ -
Undisbursed portion of
construction loans in process 3,730 2,075 1,655 - -
Unused lines of credit 11,771 6,978 3,408 - 1,385
Unused overdraft privilege
amounts 1,117 - - - 1,117
Letters of credit 4 4 - - -
Total commitments $ 17,494 $ 9,929 $ 5,063 $ - $ 2,502
The following table summarizes our contractual cash obligations at September 30,
2022.
Payments Due By Period
Total at After 5
(Dollars in thousands) September 30, 2022 To 1 Year 1 - 3 Years 3 - 5 Years Years
Certificates of deposit $ 57,689 $ 45,702 $ 11,408 $ 579 $ -
FHLB advances 10,000 - - 3,000 7,000
Total long-term debt 67,689 45,702 11,408 3,579 7,000
Operating lease obligations - - - - -
Total contractual obligations $ 67,689 $ 45,702 $ 11,408 $ 3,579 $ 7,000Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see Note 3 of the notes to our financial statements.
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