Catalyst Bancorp, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are with December 31, 2022. Unaudited consolidated results cover Catalyst Bancorp and its wholly owned Catalyst Bank, a community bank operating six branches in south-central Louisiana. Dollar amounts below are in millions unless stated otherwise.
Financial performance and position
- Earnings: Net income was $0.073 million, or $0.02 per diluted share, versus a net loss of $0.141 million, or $0.03 per basic share, in Q1 2022.
- Income and margins: Net interest income increased 12.3% to $1.966 million. Total interest income was $2.267 million, up 18.6%; interest expense rose 88.1% to $0.301 million as deposit costs increased. Net interest margin improved to 3.10% from 2.59%; net interest rate spread was 2.77% versus 2.41%. Non-interest income increased 49.2% to $0.294 million, while non-interest expense edged down 0.7% to $2.185 million.
- Credit costs and asset quality: No credit-loss provision or reversal was recorded in Q1 2023, compared with a $0.071 million reversal in Q1 2022. The loan-loss allowance was $2.070 million, or 1.56% of loans, at quarter-end. Nonperforming loans were $1.687 million (1.27% of loans), nearly unchanged from year-end; nonaccrual loans rose to $1.618 million from $1.494 million.
- Balance sheet: Assets grew 4.7% to $275.8 million. Loans declined 0.7% to $132.7 million; deposits rose 8.9% to $179.7 million, primarily due to public funds. Cash and cash equivalents increased to $27.5 million from $13.5 million. Shareholders’ equity was $86.1 million, down 2.7% from year-end.
- Debt and liquidity: FHLB advances were $9.2 million. The company reported additional borrowing capacity of approximately $34.3 million from the FHLB and $17.8 million under a correspondent-bank credit line. Cash flow was negative $0.116 million from operations, positive $2.923 million from investing and positive $11.248 million from financing; cash increased $14.055 million during the quarter.
- Capital: The Bank met regulatory capital requirements and was categorized as well capitalized. Reported March 31 ratios included 56.43% common equity Tier 1 and 30.11% Tier 1 leverage.
Changes, outlook and risks
- Q1 earnings improved from a year-earlier loss, supported by higher net interest income and non-interest income. Higher market rates lifted asset yields, while deposit costs also increased. BOLI income rose to $0.097 million, partly reflecting policies purchased in 2022.
- The company adopted CECL (ASC 326) on January 1, 2023. Adoption increased the loan-loss allowance by $0.209 million and added a $0.216 million reserve for unfunded commitments; the after-tax reduction to opening retained earnings was $0.335 million. Management reported no Q1 provision for credit losses.
- At March 31, estimated uninsured deposits were $59.7 million, including public funds; public-fund balances were $40.1 million. Management said public funds exceeding FDIC coverage are collateralized. Certificates of deposit totaling $41.5 million mature within one year; management expects to retain most, but noted replacement funding or higher deposit rates could increase expense.
- Available-for-sale securities had $10.160 million of gross unrealized losses; held-to-maturity securities had $2.352 million. Management attributed losses principally to interest rates, reported no securities credit-loss allowance, and said it did not intend or expect to be required to sell securities before recovery.
- The January 2023 repurchase plan authorized 265,000 shares and was completed in April; a second plan announced in April authorized up to 252,000 shares. The filing reports different Q1 share-purchase totals for plan repurchases and total purchases, including shares used to fund the employee recognition and retention plan; investors should distinguish these figures.
- Management anticipated sufficient liquidity, expected most maturing time deposits to be retained, and anticipated continued use of FHLB advances. The filing provides no quantitative earnings guidance. Risks identified include interest-rate and funding pressures, credit quality, real-estate values, local economic conditions, competition, operational and technology risks, and natural disasters. Management reported no material pending legal proceedings and effective disclosure controls as of March 31.
Important facts for investors to verify
- Deposit stability and the cost of retaining or replacing the $41.5 million of CDs maturing within one year, alongside the $59.7 million uninsured-deposit estimate.
- Interest-rate sensitivity of the securities portfolio, including unrealized losses and the ability to hold securities until recovery.
- Credit quality trends, especially nonaccrual loans, past-due loans and the adequacy of the CECL allowance as forecasts change.
- The effects of share repurchases on capital and per-share results, and reconciliation of reported Q1 repurchase counts and average prices.
- Whether improved net interest margin persists as deposit costs reprice and adjustable-rate loans reset.