Catalyst Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2021. Catalyst Bancorp was formed as the holding company for St. Landry Homestead Federal Savings Bank in connection with a planned mutual-to-stock conversion. At quarter-end, the holding company had no assets or liabilities and had conducted no business beyond organizational activities; the reported financial results are those of the Bank. The filing was signed September 17, 2021.
Financial performance and condition
- Assets and funding: Total assets were $238.6 million, up 6.2% from December 31, 2020. Deposits were $177.9 million, up 8.1%; FHLB advances were $8.9 million, compared with $8.8 million. Total equity was $50.7 million, and equity equaled 21.3% of assets.
- Loans and securities: Net loans were $138.0 million, down 7.3% from year-end, reflecting lower real estate lending and customer mortgage refinancing. Total investment securities were $57.4 million, up 50.0%, including $41.9 million available-for-sale. Cash and cash equivalents were $29.1 million, up 15.2%.
- Q2 results: Net interest income was $1.64 million, down 3.9% year over year; net income was $260,000, unchanged. The net interest margin was 2.98%, versus 3.17% a year earlier, and the interest rate spread was 2.83%, versus 2.84%. A $286,000 reversal of the loan-loss provision, higher non-interest income, and lower tax expense offset weaker net interest income and higher expenses.
- First-half results: Net interest income was $3.32 million, down 3.0%; net income was $411,000, compared with $415,000. Net interest margin was 3.09%, versus 3.26%, and spread was 2.93%, versus 2.94%. Interest income fell 13.4% to $3.75 million, while interest expense declined 52.9% to $426,000.
- Other income and expenses: First-half non-interest income rose 64.4% to $587,000, mainly on increased SBA fee income. Non-interest expense rose 16.7% to $3.69 million, including higher compensation, occupancy, legal/accounting and technology costs. A $50,000 wire-transfer fraud loss was recorded in the first half.
- Cash flow and liquidity: For the first half, operating cash flow was $459,000; investing activities used $9.9 million, including securities purchases; financing activities provided $13.3 million, principally from deposit growth. The Bank reported $52.8 million of additional FHLB borrowing capacity and a further $17.8 million available under a line of credit. Management said it monitors liquidity daily and expects sufficient funds for current commitments.
- Credit quality and capital: Non-performing assets were $2.0 million, or 0.83% of assets, compared with $2.1 million, or 0.93%, at year-end. The allowance for loan losses was $2.65 million, down from $3.02 million. The Bank was categorized as well capitalized: Tier 1 leverage was 21.34% and total risk-based capital was 43.07%, above the stated well-capitalized thresholds of 5.0% and 10.0%, respectively.
Material changes and developments
- Deposit growth and loan repayments increased cash, while the Bank shifted funds into securities: available-for-sale securities increased by $21.1 million from year-end. Securities purchases totaled $25.4 million in the first half, exceeding maturities, calls and principal repayments.
- The Bank’s traditional thrift focus on single-family mortgages is being repositioned toward a relationship-based community-bank model. It operated five full-service offices and expected to open an additional purchased Lafayette Parish office by year-end 2021.
- During the first half, the Bank funded 240 PPP loans totaling approximately $8.5 million. PPP loans were approximately $3.9 million at June 30, versus $3.5 million at year-end.
- The filing describes a January 2021 conversion plan and related stock offering at $10 per share, subject to regulatory and member approvals and an independent appraisal. The company reported no common shares issued and outstanding as of September 16, 2021.
Outlook, risks and unusual items
- No formal earnings or financial forecast is provided. Management anticipated recording a significant portion of an awarded $1.8 million U.S. Treasury CDFI Rapid Response grant as non-interest income over the following 12 months, with the remainder by December 31, 2023, subject to program performance goals and measures.
- Management expects expenses to rise after the conversion and stock offering due to public-company costs, additional staffing, the employee stock ownership plan and any shareholder-approved stock-based benefit plan.
- Key risks identified include the effects of COVID-19 and economic conditions; loan delinquencies, charge-offs and allowance estimates; interest-rate and securities-market changes; real estate values; competition and funding costs; natural disasters; technology and third-party service risks; and regulatory or accounting changes.
- At June 30, two COVID-related loans totaling $249,000 remained on deferral. The Bank reported 199 pandemic-related loan modifications with $28.0 million in principal balances through that date. The filing notes that pandemic effects on customers and the allowance remain difficult to predict.
- Other items to monitor include $56.0 million of certificates of deposit maturing within one year, approximately $9.2 million of total commitments, and the grant’s conditions. Management stated that routine legal proceedings were not expected to materially affect the Bank. The Bank elected to delay adoption of CECL until 2023; it said adoption may materially affect its financial statements.
Important facts for investors to verify
- Conversion and offering status, approvals, final valuation, share count and use of proceeds; the filing’s cover page also indicates the registrant had not been subject to Exchange Act reporting requirements for the preceding 12 months.
- Whether the $1.8 million CDFI grant’s performance requirements are met and when grant income is recognized.
- Whether deposit growth and the expected renewal of maturing certificates continue, and how any deposit outflows affect funding costs and liquidity.
- Whether loan quality, pandemic-related deferrals and the allowance remain consistent with management’s estimates, especially as CECL adoption approaches.
- Progress on the additional branch opening and the costs of the community-bank strategy, conversion, public-company status and employee stock plans.