Catalyst Bancorp, Inc. — FY2022 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2022, with comparisons to FY2021. Catalyst Bancorp is the holding company for Catalyst Bank, a community bank operating six branches in south-central Louisiana. The bank is shifting from a traditional residential-mortgage focus toward a relationship-based community-bank model serving small and mid-sized businesses and professionals. Figures below are consolidated unless noted.
Key financial metrics
| Metric | FY2022 / Dec. 31, 2022 | FY2021 / Dec. 31, 2021 |
|---|---|---|
| Total assets | $263.3 million | $285.6 million |
| Total loans | $133.6 million | $132.1 million |
| Investment securities, carrying value | $93.1 million | $101.8 million |
| Total deposits | $165.1 million | $176.8 million |
| FHLB advances, carrying value | $9.2 million | $9.0 million |
| Shareholders’ equity | $88.5 million | $98.6 million |
| Net interest income | $7.3 million | $6.9 million |
| Net income | $180,000 | $1.9 million |
| Net interest margin | 2.75% | 2.91% |
| Efficiency ratio | 102.55% | 81.76% |
| Net cash from operating activities | $772,000 | $3.4 million |
- Earnings and margins: Interest income rose 4.1% to $8.0 million, while interest expense fell 14.1% to $683,000. Net interest income increased 6.2%, but net income fell to $180,000. Return on average assets was 0.06% and return on average equity was 0.19%, versus 0.76% and 3.11% in 2021.
- Cash flow and liquidity: Cash and cash equivalents declined $27.4 million to $13.5 million. Investing activities used $14.1 million and financing activities used $14.0 million. The bank reported borrowing capacity of approximately $34.2 million from the FHLB and $17.8 million under an unused line with First National Bankers Bank.
- Debt and deposits: FHLB advances had $10.0 million contractual principal, with maturities in 2025, 2027 and 2028; the reported carrying value reflects an unamortized debt-modification discount. Certificates of deposit due within one year totaled $40.1 million. Estimated uninsured deposits were $59.1 million, up from $48.9 million.
- Capital and credit: The bank was classified as well-capitalized. At year-end, its total risk-based capital ratio was 57.42% and Tier 1 leverage ratio was 30.37%. Non-performing assets rose to $2.0 million, or 0.76% of assets, from $1.2 million, or 0.43%. The allowance for loan losses was $1.8 million, or 1.35% of loans, versus $2.3 million, or 1.72%.
Material changes versus FY2021
- Net income decreased by approximately $1.7 million. FY2021 included a $1.8 million CDFI Rapid Response grant; FY2022 included a $171,000 CDFI Bank Enterprise Award grant.
- Non-interest expense increased 11.9% to $8.7 million, reflecting public-company and growth-related costs, stock compensation, taxes, and rebranding. The bank reported $269,000 of pretax rebranding costs in its discussion and separately identified $214,000 of rebranding-related expense in non-interest expense.
- Loans grew 1.1%, with commercial and industrial loans increasing 65.3% to $13.8 million. Single-family residential loans remained the largest category at $87.5 million, or 65.5% of loans.
- Deposits declined 6.6%, mainly because certificates of deposit fell $14.1 million. Cash fell substantially, partly reflecting the deposit decline and $10.0 million spent on bank-owned life insurance.
- Rising market rates drove available-for-sale securities’ net unrealized losses to $11.5 million from $864,000. The loss was recorded through other comprehensive income; management reported no securities impairment as other-than-temporary. Accumulated other comprehensive loss reached $9.1 million, contributing to the decline in equity.
- The bank’s net interest margin and spread narrowed despite higher net interest income, as lower loan yields and a shift toward securities weighed on returns. The efficiency ratio exceeded 100%.
Outlook, risks, contingencies, and unusual items
- Strategy and outlook: Management emphasizes prudent organic growth, commercial lending, enhanced products and technology, recruiting, and possible acquisitions. No quantified earnings or operating guidance is provided.
- Interest-rate risk: The bank’s model estimated that an immediate, sustained 100-basis-point rate increase would reduce the following 12 months’ net interest income by 1.9%; a 300-basis-point increase was estimated to reduce it by 2.5%. The filing notes that fixed-rate securities and loans, deposit competition, and borrower sensitivity can affect results.
- Credit and economic risks: Management cited inflation, reduced government stimulus, rising rates, and a slowing economy as uncertainties. Lending is concentrated in rural Louisiana markets exposed to agriculture and oil and gas activity; real estate-secured loans form most of the portfolio. Commercial, construction and land lending carry additional credit risks.
- CECL adoption: The company expected the new credit-loss standard, adopted in January 2023, to increase the loan-loss allowance by 10%–20% and liabilities by $200,000–$250,000 for expected losses on unfunded commitments. These are estimates, not reported realized impacts.
- Commitments and legal matters: Off-balance-sheet commitments totaled $22.8 million, including $7.2 million of undisbursed construction loans and $12.5 million of unused lines of credit. Management did not expect routine legal matters or other contingencies to have a material adverse effect.
- Unusual accounting item: The company corrected its presentation of income on financed sales of foreclosed assets. The 2021 statements were restated to conform: beginning retained earnings increased $219,000 and 2021 net income decreased $12,000. The company said it no longer finances such sales.
- Shareholder returns: No common dividends had been declared. The company repurchased 179,808 shares in 2022 at an average $13.01 per share to fund its recognition and retention plan; it announced a separate plan in January 2023 authorizing repurchases of up to 265,000 shares.
Important facts for investors to verify
- Whether deposit retention and pricing remain sufficient as $40.1 million of certificates mature within one year, particularly given $59.1 million of estimated uninsured deposits.
- Whether the increase in non-performing loans and the lower allowance coverage of non-performing loans are followed by additional losses or reserve needs.
- How the $11.5 million of unrealized available-for-sale securities losses and any future rate movements affect tangible equity, liquidity, and securities-sale flexibility.
- Actual effects of CECL adoption compared with management’s estimated allowance and unfunded-commitment impacts.
- Whether commercial lending growth and planned investment in staff, technology, and expansion improve earnings enough to offset expenses and the loss of prior-year grant income.
- The filing reports an unqualified audit opinion on the financial statements and effective management-assessed internal control over financial reporting; the auditor did not provide an attestation on internal-control effectiveness.