Catalyst Bancorp, Inc. — 2021 Form 10-K
Reporting period: Year ended December 31, 2021; comparisons are with the year ended December 31, 2020. Catalyst Bancorp was formed in February 2021 and completed the mutual-to-stock conversion and IPO on October 12, 2021. Accordingly, periods before the conversion reflect the Bank’s operations, while 2021 results include the holding company. The Bank serves south-central Louisiana through six full-service branches.
Financial performance and condition
| Metric | 2021 | 2020 |
|---|---|---|
| Total assets, year-end | $285.3 million | $224.7 million |
| Net interest income | $6.9 million | $6.8 million |
| Net income (loss) | $1.9 million | ($703,000) |
| Net interest margin | 2.91% | 3.09% |
| Return on average assets | 0.76% | (0.30%) |
| Return on average equity | 3.14% | (1.36%) |
| Operating cash flow | $3.4 million | $857,000 |
| Cash and cash equivalents, year-end | $40.9 million | $25.2 million |
- Interest income declined 9.3% to $7.7 million, while interest expense fell 53.4% to $795,000. Net interest income rose 1.8%, but the net interest margin narrowed 18 basis points.
- The 2021 results included $1.826 million of federal community development grant income and a $660,000 reversal of the loan-loss provision. In 2020, results included $1.510 million of FHLB prepayment penalties and a $985,000 loan-loss provision.
- Year-end loans were $131.8 million, down 13.1%; deposits were $176.8 million, up 7.4%; investment securities were $101.8 million, up $63.6 million; and FHLB advances were $9.0 million. Shareholders’ equity rose to $98.3 million, largely reflecting $50.8 million of net IPO proceeds.
- Net cash used in investing activities was $46.6 million, principally reflecting securities purchases; financing activities provided $58.8 million, including IPO proceeds. Free cash flow is not presented as a filing metric.
- The Bank was well capitalized. At year-end, its reported common equity Tier 1 ratio was 63.51% and Tier 1 leverage ratio was 27.38%. The Bank reported approximately $50.5 million of additional FHLB borrowing capacity and an unused $17.8 million credit line.
- No common-stock dividends had been declared through the filing. Basic 2021 earnings per share were $0.40.
Material changes and credit quality
- Total assets grew 27.0%, primarily from IPO cash, increased securities holdings, and cash balances; loan balances contracted as repayments exceeded originations.
- Residential mortgages remained 66.2% of loans. Management intends to diversify toward commercial real estate, commercial and industrial, and multifamily lending.
- Nonperforming assets declined to $1.231 million, or 0.43% of assets, from $1.625 million, or 0.72%. Substandard loans fell to $3.6 million from $6.1 million. The allowance for loan losses decreased to $2.276 million, or 1.73% of loans, from $3.022 million, or 1.99%.
- Net unrealized losses on available-for-sale securities were $864,000 at year-end, versus net unrealized gains of $134,000 a year earlier; management attributed the change mainly to interest-rate movements and recorded no other-than-temporary impairment.
Outlook, risks, and unusual items
- Management’s strategy is to build a relationship-oriented community bank, expand commercial lending and business relationships, invest in technology and staff, grow organically and potentially through acquisitions, and eventually rebrand the Bank. These are strategic intentions, not quantified earnings guidance.
- Management expects non-interest expense to increase in 2022, citing public-company costs, a full year of ESOP expense, possible stock-based benefit plans, and rebranding costs.
- Interest-rate changes could pressure margins and securities values. The filing’s model estimated 12-month net interest income would rise 4.9% under an immediate, sustained 300-basis-point rate increase, but fall 10.3% under a 200-basis-point decline; these are model estimates, not forecasts.
- Credit risk includes geographic and industry concentration in rural Louisiana markets exposed to agriculture and oil and gas, as well as commercial real estate, construction, and business lending. The loan portfolio’s collectability and the allowance depend on management estimates and local economic conditions.
- The Bank granted COVID-related payment relief on 204 loans totaling $28.2 million through year-end; none remained under deferral or extension at December 31, 2021. It had originated 240 PPP loans totaling approximately $8.5 million. The CDFI grant and 2020 FHLB penalties materially affected comparisons.
- Deposits included $48.9 million reported as uninsured, and $50.1 million of certificates of deposit were scheduled to mature in 2022. Management expected substantial renewal but noted that nonrenewal could require higher-cost funding or deposit pricing.
- The company was an emerging growth company and elected the extended transition period for new accounting standards. CECL adoption was planned for January 2023; its impact was not yet known and could be material. The auditor did not attest to internal control over financial reporting because of the new-public-company transition exemption. The filing reports effective disclosure controls.
- Management reported no material pending legal proceedings; ordinary-course legal matters were not expected to materially affect financial statements. The filing’s “Risk Factors” item is marked “Not applicable,” while its forward-looking statements identify economic, competitive, interest-rate, credit-loss, COVID-19, and regulatory risks.
Most important facts for investors to verify
- How much of 2021 profitability depended on the $1.826 million CDFI grant and the $660,000 loan-loss reversal, and what earnings look like without these items.
- Whether loan growth and diversification into commercial lending can offset residential mortgage runoff without weakening underwriting or asset quality.
- The sensitivity of net interest income and securities values to changing rates, including the effect of the large, long-maturity securities portfolio.
- The concentration, renewal behavior, and funding cost of uninsured deposits and 2022 certificate maturities.
- The effect of planned staffing, ESOP and other stock-benefit plans, public-company costs, and rebranding on future operating expenses.
- The eventual CECL transition impact, and the status and terms of any shareholder-approved benefit plans or future dividend policy.