Catalyst Bancorp, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The unaudited financial statements are those of St. Landry Homestead Federal Savings Bank; Catalyst Bancorp had not begun operations or issued shares by quarter-end. The Bank’s mutual-to-stock conversion and Catalyst’s initial public offering closed October 12, 2021; trading began October 13 under CLST.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net interest income | $1.664 million | $1.739 million | $5.197 million | $5.164 million |
| Provision for (reversal of) loan losses | $0 | $0.600 million | ($0.286 million) | $0.665 million |
| Non-interest income | $2.025 million | $0.188 million | $2.402 million | $0.545 million |
| Non-interest expense | $1.883 million | $1.837 million | $5.576 million | $5.000 million |
| Net income (loss) | $1.433 million | ($0.404 million) | $1.844 million | $0.011 million |
| Net interest margin | 2.84% | 3.08% | 3.13% | 3.20% |
| Interest rate spread | 2.69% | 2.78% | 2.97% | 2.88% |
The $1.826 million CDFI Rapid Response Program grant, recognized in Q3 non-interest income after the Bank met program performance requirements, was the primary driver of the year-over-year earnings improvement. Excluding this unusual grant, reported profitability would have been materially lower; the filing does not provide adjusted earnings excluding it. Q3 net interest income declined 4.3%, while nine-month net interest income rose 0.6%.
Financial position, cash flow and capital
- At September 30, total assets were $311.6 million, up 38.7% from December 31, 2020. Cash and cash equivalents were $100.4 million; net loans were $134.1 million; investment securities totaled $63.2 million.
- Deposits were $249.5 million, up $84.9 million, and FHLB advances were $9.0 million. The deposit and cash increases chiefly reflect $72.9 million of IPO share-subscription funds held at the Bank at quarter-end, rather than ordinary deposit growth.
- Total equity was $52.0 million and 16.7% of assets. The Bank reported well-capitalized status: Tier 1 leverage ratio 20.65% and total risk-based capital ratio 40.20%.
- For the first nine months, operating cash flow was $2.5 million, investing cash outflow was $12.2 million, and financing cash inflow was $84.9 million, primarily from deposit growth that included the IPO subscriptions. Cash increased $75.2 million to $100.4 million.
- Reported net loans fell 9.9% from year-end, primarily as residential real estate loans declined. Allowance for loan losses was $2.646 million, or 1.94% of gross loans, down from $3.022 million at year-end.
- Non-performing assets were $1.828 million, or 0.59% of assets, versus $2.087 million, or 0.93%, at year-end. Performing troubled debt restructurings were $3.142 million. There were two payment defaults among previously modified loans as of September 30.
Changes, outlook and risks
- The Bank is shifting from a traditional thrift focused on single-family mortgages toward a relationship-based community bank model. It operated six full-service offices by the filing date, including a Lafayette Parish office opened in November 2021.
- The October offering sold 5.29 million shares at $10 each for $52.9 million gross proceeds and $50.9 million net proceeds. Approximately $25.4 million of net proceeds were contributed to the Bank; the offering proceeds are to be reflected in company equity at December 31, 2021.
- Management expects higher non-interest costs from public-company operations, additional personnel, the ESOP, and possible stock-based benefit plans in 2022, subject to shareholder approval. No quantitative earnings or revenue guidance is provided.
- Liquidity sources include deposits, loan and securities cash flows, and borrowing capacity. At quarter-end, the Bank reported approximately $52.6 million of additional FHLB capacity and $17.8 million available on a line of credit. It expected sufficient funding for current commitments and anticipated retaining a substantial portion of maturing time deposits.
- Certificates of deposit totaling $57.9 million mature within one year. If significant amounts are not renewed, the Bank may need to borrow or raise deposit rates, increasing funding costs. Outstanding commitments totaled $10.9 million.
- Management cited uncertainty from COVID-19, economic conditions, interest-rate changes, loan quality and allowance estimates, real estate values, competition, funding access, and natural disasters including hurricanes and floods. No material change to disclosed market-risk information was reported. Management stated routine legal matters were not expected to materially affect results.
- The Bank had no COVID-related payment deferrals outstanding at September 30, 2021. It had previously provided relief on 201 loans with $28.0 million of principal. CECL adoption was deferred until January 2023; management said adoption could materially affect the financial statements.
Key facts for investors to verify
- How much of subsequent deposit, cash and asset trends reflects ongoing banking activity versus temporary IPO subscription funds, and how the offering proceeds were deployed after closing.
- Underlying earnings and recurring profitability excluding the $1.826 million grant, including future public-company, ESOP and stock-plan costs.
- Loan portfolio performance, especially the residential, past-due and substandard exposures; allowance adequacy; and resolution of the modified-loan defaults.
- Deposit retention and funding costs as $57.9 million of certificates mature within one year, and the Bank’s actual use of available borrowing capacity.
- Effects of the strategic shift toward relationship banking, branch expansion and CECL adoption on growth, margins, expenses and capital.