Catalyst Bancorp, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Catalyst Bancorp is the holding company for Catalyst Bank, a community bank serving south-central Louisiana through six branches. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Financial performance and position
- Q3 earnings: Net income was $170,000, versus $135,000 in Q3 2022; diluted EPS was $0.03 in both periods. Nine-month net income was $282,000, versus $9,000 in 2022; diluted EPS was $0.06 versus $0.01.
- Interest and margins: Q3 net interest income increased 5.5% to $1.97 million. Tax-equivalent net interest margin was 3.13%, up from 2.75%, while the interest-rate spread narrowed to 2.53% from 2.59%. For the first nine months, net interest income increased 7.5% to $5.84 million and margin rose to 3.08% from 2.68%.
- Income and expenses: Q3 interest income was $2.47 million, up 21.5%, but interest expense rose 206.8% to $497,000, mainly as deposit costs increased. Non-interest income was $306,000 and non-interest expense was $2.08 million. Nine-month non-interest income was $917,000 and expense was $6.46 million.
- Credit costs and asset quality: No net provision for credit losses was recorded in Q3 or the first nine months of 2023; the comparable 2022 periods included reversals of $115,000 and $375,000. The loan-loss allowance was $2.04 million, or 1.50% of loans, and the allowance for unfunded commitments was $280,000. Non-performing loans increased to $2.09 million from $1.69 million at year-end 2022; non-performing assets were $2.13 million.
- Balance sheet: Total assets were $257.9 million, down 2.1% from December 31, 2022. Loans were $135.7 million, up 1.5%; commercial and industrial loans grew 41.8% to $19.6 million, while one- to four-family residential loans declined 4.0% to $84.0 million. Deposits were essentially flat at $165.2 million. Shareholders’ equity fell to $82.2 million from $88.5 million, primarily reflecting $5.3 million of share repurchases and a larger accumulated other comprehensive loss.
- Cash flow and liquidity: For the nine months, operating activities provided $1.08 million and investing activities provided $4.34 million; financing activities used $5.63 million. Cash and cash equivalents ended at $13.27 million. FHLB advances were $9.33 million. The Bank reported $48.0 million of available FHLB capacity and $17.8 million under an unused correspondent-bank facility; other Federal Reserve borrowing capacity was also available.
- Capital: The Bank reported that it exceeded regulatory requirements and was “well capitalized.” At September 30, its reported total risk-based capital ratio was 56.23% and Tier 1 leverage ratio was 31.08%.
Material changes and notable items
- Higher asset yields lifted interest income and margins, but deposit repricing sharply increased funding costs. The average rate paid on interest-bearing deposits was 1.27% in Q3, compared with 0.24% a year earlier.
- The 2022 nine-month comparison included a $171,000 community-development grant, a $375,000 credit-loss reversal, $270,000 of bank-rebranding costs, and $186,000 of deferred PPP loan fees in loan interest income. These items affect comparability with 2023.
- The company adopted CECL on January 1, 2023. Adoption increased the loan-loss allowance by $209,000 and established a $216,000 allowance for unfunded commitments, reducing beginning retained earnings by $335,000 after tax. Management reported no material effect from adopting related troubled-debt-restructuring guidance.
- Available-for-sale securities had $12.8 million of net unrealized losses, versus $11.5 million at year-end 2022, principally attributed to higher market interest rates. The company reported no credit-loss allowance on securities and said it did not intend, and was not likely required, to sell securities before recovery.
- The company repurchased 441,710 shares during the first nine months at an average $12.08 per share. The remaining authorization was completed by November 6, 2023.
Outlook, risks and contingencies
- Management expected to receive and recognize a $437,000 BEA Program grant in Q4 2023, with $66,000 of related consulting fees to be expensed in the same quarter. This is a stated expected item, not ongoing operating guidance; the filing gives no earnings or revenue forecast.
- Management said it expected to retain most maturing certificates of deposit and anticipated sufficient funds for current commitments, while also expecting continued use of secondary funding sources. A substantial loss of maturing deposits could require higher deposit rates or additional borrowing, increasing interest expense.
- Key disclosed risks include economic and interest-rate changes, funding costs and access, loan delinquencies and credit-loss estimates, real-estate values, Louisiana weather events, competition, regulation, and operational or third-party service disruptions. Management noted that allowance estimates depend on assumptions and could require future adjustment.
- Unfunded lending commitments totaled $33.5 million, with a $280,000 related allowance. Management stated routine legal matters were not expected to have a material adverse effect and reported no material pending legal proceedings. Disclosure controls were concluded effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether deposit repricing and competition for deposits continue to pressure net interest income and margins, and how much of the $42.2 million of certificates scheduled to mature within one year is retained.
- Trends in non-performing loans, especially residential mortgages, and whether the CECL allowance remains adequate as economic forecasts and loan performance change.
- The magnitude and duration of unrealized securities losses, potential liquidity effects, and the company’s ability to avoid selling securities before recovery.
- Receipt and timing of the expected $437,000 grant and the related $66,000 expense; assess the impact of these nonrecurring items on reported Q4 results.
- Share-repurchase effects on equity, share count and capital, and the reported liquidity and capital measures alongside the company’s uninsured deposits and funding commitments.