Catalyst Bancorp, Inc. — FY2023 Form 10-K
Business context and period. This audited annual filing covers the year ended December 31, 2023, compared with FY2022; it does not provide standalone fourth-quarter results. Catalyst Bancorp is the holding company for Catalyst Bank, a community bank operating six branches in south-central Louisiana. The Bank is shifting from a traditional residential-mortgage focus toward a relationship-based community bank model serving small and mid-sized businesses and professionals.
Financial performance and condition
| Metric | FY2023 / Dec. 31, 2023 | FY2022 / Dec. 31, 2022 |
|---|---|---|
| Total assets | $270.9 million | $263.4 million |
| Total loans | $144.9 million; up 8.5% | $133.6 million |
| Total deposits | $165.6 million; up 0.3% | $165.1 million |
| Borrowings | $19.4 million | $9.2 million |
| Shareholders’ equity | $84.7 million; 31.2% of assets | $88.5 million; 33.6% of assets |
| Total interest income | $9.7 million | $8.0 million |
| Net interest income | $7.8 million | $7.3 million |
| Provision for (reversal of) credit losses | $128,000 | $(375,000) |
| Non-interest income / expense | $1.6 million / $8.6 million | $1.2 million / $8.7 million |
| Net income | $602,000; $0.14 diluted EPS | $180,000; $0.04 diluted EPS |
| Net interest margin | 3.10% | 2.75% |
| Return on average assets / equity | 0.23% / 0.71% | 0.06% / 0.19% |
| Operating cash flow | $2.0 million | $772,000 |
Cash and cash equivalents were $19.0 million at year-end, versus $13.5 million a year earlier. FY2023 investing cash flow was a $267,000 use and financing cash flow was a $3.8 million source; cash increased $5.5 million overall. Management reported $93.8 million of unused and available liquidity sources at year-end, including borrowing capacity and unpledged available-for-sale securities.
The Bank’s regulatory capital ratios remained well above “well-capitalized” thresholds: common equity Tier 1 and Tier 1 risk-based capital were each 52.34%, total risk-based capital was 53.59%, and Tier 1 leverage capital was 31.67%.
Material changes versus FY2022
- Net income rose $422,000. Net interest income grew 6.4%, as higher yields on loans and other earning assets more than offset sharply higher funding costs. The average rate paid on interest-bearing deposits increased to 1.13% from 0.27%; total interest expense rose 172.3%.
- The average yield on interest-earning assets increased to 3.83% from 3.00%; net interest margin expanded 35 basis points. The reported interest-rate spread was unchanged at 2.56%.
- Loan growth was concentrated in commercial activity: construction and land loans increased 124.5% to $13.9 million, and commercial and industrial loans increased 44.4% to $20.0 million. Single-family residential loans fell 4.4% to $83.6 million but remained 57.7% of the portfolio.
- Deposits were nearly flat, but non-interest-bearing demand deposits declined $5.5 million; savings and certificates of deposit increased. Year-end uninsured deposits were approximately $44.6 million, including public funds.
- Borrowings increased $10.2 million, primarily due to a $10.0 million Federal Reserve Bank Term Funding Program (BTFP) advance. Equity fell 4.4%, including $6.3 million of common-stock repurchases; 528,674 shares were repurchased during 2023 at an average $11.94 per share.
- Available-for-sale securities had $9.2 million of net unrealized losses at year-end, down from $11.5 million in 2022. The Company sold two securities in Q4 for a $92,000 pretax loss.
Outlook, risks, contingencies, and unusual items
- Strategy and outlook: Management emphasizes prudent loan growth and diversification, stronger business relationships, enhanced products and technology, and possible acquisitions. A core processing system conversion was planned for Q1 2024. No quantitative earnings or revenue guidance is provided. Management anticipated retaining most maturing time deposits and continuing to use secondary funding sources.
- Subsequent securities sales: In Q1 2024, the Company decided to sell approximately half its available-for-sale portfolio. By March 22, 2024, it had sold $38.5 million of securities for a $4.8 million pretax loss. Management expects to redeploy proceeds into cash and higher-yielding earning assets to improve net interest income and manage interest-rate risk.
- Subsequent borrowing: By March 22, 2024, the Bank had refinanced and increased BTFP borrowing to $20.0 million at 4.76%, maturing January 15, 2025; the year-end BTFP balance was $10.0 million at 4.83%.
- Credit quality: Nonperforming assets were $2.1 million, or 0.76% of assets, versus $2.0 million and the same 0.76% ratio in 2022. Nonaccrual loans increased to $2.0 million from $1.5 million, mainly due to residential borrowers affected by persistent inflation and reduced state assistance. The allowance for loan losses was $2.1 million, or 1.47% of loans. Construction and commercial lending carry higher risks than residential lending, and the portfolio is concentrated in the local Acadiana economy.
- Interest-rate and securities risks: Management’s model estimated net interest income would decline 1.9% under an immediate, sustained 100-basis-point rate decrease. Much of the securities portfolio is long-dated and fixed-rate; unrealized losses can affect equity and liquidity, and sales can realize losses. The Q1 2024 sales resulted in the reported $4.8 million pretax loss.
- Liquidity and funding: The Bank relies on customer deposits, including municipal and uninsured balances, and secondary borrowing facilities. A substantial portion of certificates of deposit—$45.5 million—was scheduled to mature within one year. Deposit competition, withdrawals, and borrowing availability are risks.
- Accounting and other items: Adoption of CECL on January 1, 2023 increased the allowance for credit losses by $425,000, including $216,000 for unfunded commitments, and reduced retained earnings by $335,000 after tax. FY2023 included $437,000 of CDFI community-development grant income. The filing reports no material pending litigation or material contingencies and no cybersecurity incident that materially affected the Company as of the filing date.
Important facts for investors to verify
- Track the realized total cost and subsequent earnings impact of the $38.5 million securities sale, and whether redeployment improves net interest income as management expects.
- Review deposit retention, the pace and cost of certificate maturities, uninsured and municipal deposit exposure, and use of the $20.0 million BTFP advance.
- Monitor nonaccrual and criticized loans, foreclosures, construction-loan performance, and whether the CECL allowance remains adequate as commercial lending grows.
- Assess whether loan growth and the planned technology conversion support sustained profitability without further deterioration in funding costs or operating expenses.
- Consider the effect of continued share repurchases on capital and per-share results; the Company had no declared common-stock dividends through year-end 2023.