Catalyst Bancorp, Inc. — Q1 2022 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2022. Catalyst is the holding company for St. Landry Homestead Federal Savings Bank, a community bank serving south-central Louisiana. It is shifting from a traditional residential-thrift model toward relationship-based community banking for businesses and professionals. The bank completed its mutual-to-stock conversion and IPO in October 2021; Q1 2021 results therefore cover the bank before the holding company’s conversion, and the company had no common shares outstanding then.
Financial results and position
Unless stated otherwise, amounts are in millions of dollars. Q1 2022 compared with Q1 2021: interest income was $1.911 million versus $1.943 million; net interest income was $1.751 million versus $1.720 million; and net income was a loss of $131,000 versus income of $151,000. Basic loss per share was $0.03; 2021 EPS is not applicable. Non-interest income was $197,000 versus $187,000, while non-interest expense rose to $2.188 million from $1.726 million. A $71,000 reversal of loan-loss provision contributed to net interest income after provision of $1.822 million.
- Margins: Net interest margin declined to 2.61% from 3.24%; interest-rate spread fell to 2.44% from 3.06%. Management attributed the declines to a low-rate environment and a shift in asset mix toward securities and away from loans.
- Cash flow: Operating cash use was $123,000; investing cash use was $6.954 million, including a $5.5 million bank-owned life insurance purchase; financing cash inflow was $6.289 million, mainly from deposit growth. Cash and equivalents ended at $40.096 million, down $788,000 from year-end.
- Balance sheet at March 31: Assets were $287.272 million, loans net of allowance were $129.830 million, investment securities totaled $98.141 million, deposits were $183.084 million, FHLB advances were $9.063 million, and shareholders’ equity was $94.462 million.
- Credit and asset quality: The allowance was $2.173 million, or 1.65% of loans, versus $2.276 million, or 1.73%, at year-end. Net charge-offs were $32,000. Nonperforming assets were $1.589 million (0.55% of assets), versus $1.231 million (0.43%) at year-end.
- Securities and equity: Available-for-sale securities had $5.7 million of net unrealized losses at quarter-end, compared with $864,000 at year-end, principally reflecting higher market rates. The quarterly after-tax other comprehensive loss was $3.825 million; equity fell $3.9 million from year-end, primarily due to this securities-related loss.
- Capital and liquidity: The bank was categorized as well-capitalized. Actual capital ratios included 57.98% Common Equity Tier 1 and 28.39% Tier 1 leverage. Management reported approximately $47.5 million of additional FHLB borrowing capacity and $17.8 million available under a line of credit.
Material changes, outlook, and risks
The shift to a net loss was primarily driven by the $462,000 increase in non-interest expense, partly offset by a $102,000 increase in net interest income after the loan-loss reversal. Expense increases reflected public-company costs, additional personnel and ESOP compensation, a new branch, professional services, rebranding, and new franchise and shares taxes. The $5.5 million purchase of bank-owned life insurance also contributed to the change in the balance sheet.
Deposits increased $6.3 million, or 3.6%, from year-end; loans were nearly flat, while commercial and industrial loans rose to $10.1 million. Management said it expected sufficient funds to meet current commitments, expected a substantial portion of maturing time deposits to renew, and anticipated continued use of FHLB advances. No specific earnings or growth guidance was provided. Management expects non-interest expenses to rise as the business grows and due to planned stock benefit plans.
Risks cited include interest-rate and securities-market movements, funding costs and deposit retention, loan delinquencies and losses, real-estate conditions, economic and COVID-19 effects, competition, operational and technology risks, and natural disasters. The filing reports no COVID-related loan deferrals at quarter-end. The company plans to adopt CECL in January 2023; the impact was not yet known and may be material. Management did not consider securities losses other-than-temporary, citing its intent and ability to hold them. Routine commitments and contingencies were reported, with no material pending legal proceedings identified.
Important facts for investors to verify
- Whether rising rates further affect the fair value of the securities portfolio, accumulated other comprehensive loss, and reported equity.
- Whether margin pressure persists and whether loan growth supports the bank’s community-business strategy.
- Trends in nonperforming loans, charge-offs, and the adequacy of the allowance, including the effect of CECL adoption.
- Deposit retention and funding costs as $51.4 million of certificates of deposit were due within one year; compare this with available borrowing capacity and commitments.
- Whether expense growth, including public-company, staffing, branch, and planned stock-plan costs, moderates enough to restore profitability.
- Interpret year-over-year earnings comparisons cautiously because Q1 2021 preceded the October 2021 conversion and IPO.