Catalyst Bancorp, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; financial statements are unaudited. Catalyst Bancorp is the holding company for Catalyst Bank, a community bank serving south-central Louisiana through six branches. Unless stated otherwise, dollar amounts below are in millions.
Financial results and condition
- Earnings: Net loss was $4.68 million, or $1.14 per diluted share, versus net income of $73,000, or $0.02 per share, in Q1 2023. The loss primarily reflects a $5.51 million pretax loss from selling available-for-sale securities.
- Interest income and margins: Interest income increased 39.2% to $3.16 million; net interest income rose 7.2% to $2.11 million. Net interest margin improved to 3.15% from 3.10%, while the interest-rate spread narrowed to 2.29% from 2.77%. Interest expense increased to $1.05 million from $301,000, reflecting higher deposit costs and borrowings.
- Other income and expenses: Non-interest income was a loss of $5.16 million, compared with income of $294,000 a year earlier, chiefly because of the securities-sale loss. Non-interest expense increased 27.7% to $2.79 million. A new core-processing system accounted for $560,000 of conversion and related costs; management estimates annual savings above $200,000.
- Assets and loans: Total assets were $282.0 million, up 4.1% from year-end 2023. Gross loans were $143.5 million, down 1.0%; construction and land loans grew 39.8% to $19.4 million, while commercial and industrial loans fell 21.4% to $15.7 million. Investment securities declined 53.6% to $39.0 million following the sales.
- Credit quality: Non-performing assets fell to $1.72 million from $2.05 million at year-end; non-performing assets were 0.61% of total assets. The allowance for loan losses was $2.07 million, or 1.44% of loans, and the total allowance including unfunded commitments was $2.38 million. Q1 provision for credit losses was $95,000, largely related to growth in construction commitments.
- Deposits, debt and liquidity: Deposits increased 2.4% to $169.6 million; estimated uninsured deposits were $41.7 million. Borrowings rose 51.8% to $29.4 million, including a $20 million Federal Reserve Bank advance at 4.76% maturing January 15, 2025. Cash and cash equivalents were $76.0 million, up from $19.0 million at year-end. Reported unused and available liquidity sources totaled $61.2 million.
- Cash flow: Operating cash flow was $247,000, versus use of $116,000 in Q1 2023. Investing activities provided $45.2 million, primarily reflecting securities-sale proceeds; financing activities provided $11.6 million. Cash increased $57.0 million during the quarter.
- Equity and capital: Shareholders’ equity was $81.4 million, or 28.8% of assets, down 3.9% from year-end. The company repurchased 202,997 shares for approximately $2.46 million. The Bank remained categorized as well capitalized; its reported common equity Tier 1 ratio was 52.09%.
Material changes and unusual items
- The company sold 50 available-for-sale securities for proceeds of approximately $42.6 million and recorded a $5.51 million pretax loss. Available-for-sale securities fell to $25.5 million from $70.5 million; net unrealized losses on that portfolio were $4.6 million at quarter-end, compared with $9.2 million at year-end.
- Higher yields on loans and other interest-earning assets supported interest income, but increased deposit and borrowing costs pressured the spread. The company said approximately 52% of loans have adjustable rates and 49% are scheduled to reprice or mature within 12 months.
- Q1 included higher data-processing expense tied to the core-system upgrade. Management expects annual savings above $200,000, but the filing provides no earnings or revenue guidance.
- After quarter-end, the prior repurchase plan was completed in April. On May 2, 2024, the Board authorized a new plan for up to 227,000 shares, approximately 5% of outstanding common stock.
Outlook, risks and contingencies
Management said it expects sufficient funds to meet current commitments, anticipates retaining the majority of maturing time deposits, and expects continued use of secondary funding sources. If deposit retention is weaker than expected, the bank may need to borrow or raise deposit rates, increasing interest expense. Key disclosed risks include economic and interest-rate changes, access to cost-effective funding, loan delinquencies and losses, real-estate values, competition, natural disasters including hurricanes and floods, and reliance on technology and third-party providers. The company reported no material pending legal proceedings and said ordinary-course commitments are not expected to have a material adverse effect. Management identified realization of a $1.8 million net deferred tax asset as dependent principally on future taxable income; no valuation allowance was recorded. Disclosure controls were concluded effective, with no material quarterly change in internal control over financial reporting reported.
Important facts for investors to verify
- Whether the securities sale was a one-time balance-sheet and liquidity action, and how the reduced securities portfolio affects future interest income and unrealized-loss exposure.
- Deposit retention, deposit pricing and the mix and cost of funding as certificates mature; also monitor the $20 million Federal Reserve advance due in January 2025 and remaining borrowing capacity.
- Whether core-system savings materialize and whether elevated processing costs persist after the conversion period.
- Construction-loan growth, undisbursed commitments, commercial real-estate exposure, and trends in delinquencies, nonaccrual loans and credit-loss provisions.
- The assumptions supporting the deferred tax asset and the sustainability of earnings excluding the securities-sale loss and system-conversion costs.