Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to enhance your understanding of the financial condition and results of operations of Catalyst Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, Catalyst Bank (the “Bank”). The information in this section has been derived from the audited financial statements, which appear in Item 8 of this Annual Report on Form 10-K. The information in this section should be read in conjunction with the Consolidated Financial Statements and related notes included herein in “Item 8. Financial Statements and Supplementary Data” and the description of our business included herein in “Item 1. Business”.
Overview
Catalyst Bancorp, Inc. (“Catalyst Bancorp” or the “Company”) is the holding company for Catalyst Bank (the “Bank”), formerly known as St. Landry Homestead Federal Savings Bank. The Company was incorporated by the Bank in February 2021 as part of the conversion of the Bank from the mutual to the stock form of organization (the “Conversion”). The Conversion was completed on October 12, 2021, at which time the Company acquired all of the issued and outstanding shares of common stock of the Bank, which became the wholly-owned subsidiary of Catalyst Bancorp. The Bank officially changed its name to Catalyst Bank in June 2022.
Founded in 1922, the Bank is a community-oriented savings bank serving the banking needs of customers in the Acadiana region of south-central Louisiana. We are headquartered in Opelousas, Louisiana and serve our customers through six full-service branches located in Carencro, Eunice, Lafayette, Opelousas, and Port Barre. Our primary business consists of attracting deposits from the general public and using those funds together with funds we borrow from the Federal Home Loan Bank (“FHLB”) of Dallas, Federal Reserve Bank of Atlanta, and other sources to originate loans to our customers and invest in securities.
Historically, we operated as a traditional thrift relying on long-term, single-family residential mortgage loans secured by properties located primarily in St. Landry Parish and adjoining areas to generate interest income. In 2021, we re-focused our business strategy to a relationship-based community bank model targeting small- to mid-sized businesses and business professionals in our market areas while continuing to serve our traditional customer base. The Conversion and offering were important factors in our efforts to become a more dynamic, profitable and growing institution.
The following is an overview of financial results for the year ended December 31, 2024, compared to December 31, 2023:
● Total assets of $276.7 million at December 31, 2024, up $5.8 million or 2.1%
● Borrowings of $9.6 million at December 31, 2024, down $9.8 million or 50.7%
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Our results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on our loan and investment portfolios and interest expense on deposits and borrowings. Our net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. Results of operations are also affected by our provisions for credit losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation, office occupancy and equipment expense, data processing, and other expense. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact our financial condition and results of operations.
Business Strategy
Our business strategy is focused on embracing a relationship-oriented community bank model targeting small- to mid-sized businesses and business professionals in our market areas while continuing to serve our traditional customer base. Highlights of our business strategy, which is designed to facilitate our ability to operate and grow as a profitable community-based banking institution, include the following:
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Critical Accounting Estimates
In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our consolidated financial statements included in Item 8 of this Form 10-K. Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The JOBS Act of 2012 contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an emerging growth company, we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We are taking advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.
The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.
Allowance for Credit Losses. We have identified the evaluation of the allowance for credit losses as a critical accounting policy where amounts are sensitive to material variation. On January 1, 2023, the Company adopted the guidance under ASU No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The main provisions of the ASU have been codified by the FASB under ASC 326. The amendments introduced an impairment model that is based on current expected credit losses, rather than incurred losses, to estimate credit losses on loans. For reporting periods beginning on or after January 1, 2023, the allowance for credit losses reflects management’s current estimate of expected credit losses over the remaining life of its loans as of the end of the reporting period.
The allowance for credit losses includes the allowance for loan losses and the allowance for credit losses on unfunded lending commitments, which is recorded in other liabilities on the statement of financial condition. The allowance for credit losses is established through a provision for credit losses charged to earnings. Loans, or portions of loans, are charged off against the allowance in the period that such loans, or portions thereof, are deemed uncollectible. Subsequent recoveries are added to the allowance. The allowance for loan losses totaled $2.5 million, or 1.51% of total loans, at December 31, 2024 and $2.1 million, or 1.47% of total loans, at December 31, 2023. The increase in the allowance for loan losses from December 31, 2023 largely reflects the impact of loan growth in 2024.
Management’s estimate of the allowance for credit losses considers factors such as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, current and future economic conditions, and forecasted information. This evaluation is inherently subjective as it requires material estimates including, among others, average historical loss experience, expected future loss rates, the amount and timing of expected future pay-downs on existing loans and fundings on unfunded commitments, and the value of underlying collateral. All of these estimates may be susceptible to significant changes as more information becomes available.
While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. In addition, the Office of the Comptroller of the Currency as an integral part of their examination processes periodically reviews our allowance for credit losses. While management is responsible for the establishment of the allowance for credit losses and for adjusting such allowance through provisions for credit losses, management may determine, as a result of such regulatory reviews, that an increase or decrease in the allowance or provision for credit losses may be necessary or that loan charge-offs are needed. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for credit losses may be required that would adversely impact earnings in future periods.
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Investment Securities. Available-for-sale securities consist of investment securities not classified as trading securities or held-to-maturity securities. Available-for-sale securities are reported at fair value and unrealized holding gains and losses, net of tax, on available-for-sale securities are included in other comprehensive income. The fair market values of investment securities are obtained from a third-party service provider, whose prices are based on a combination of observed market prices for identical or similar instruments and various matrix pricing programs. The fair market values of investment securities are classified within Level 2 of the fair value hierarchy. At December 31, 2024 and 2023, net unrealized losses on available-for-sale securities totaled $4.5 million and $9.2 million, respectively. Unrealized losses on our available-for-sale securities relate principally to the increases in market rates of similar types of securities. During the year ended December 31, 2024, the Company sold 50 available- for-sale investment securities for a total loss of $5.5 million, which is reported in the consolidated statements of income. Proceeds from the investment sales totaled $42.6 million, inclusive of accrued interest.
The adoption of ASC 326 amended the guidance applicable to measuring and recognizing losses on available-for-sale securities. Under ASC 326, expected credit related losses for available-for-sale debt securities are recorded through an allowance for credit losses, while non-credit related losses will continue to be recognized through other comprehensive income as unrealized holding gains and losses, net of tax.
For reporting periods on or after January 1, 2023 and the adoption of ASC 326, management evaluates available-for-sale securities in unrealized loss positions to determine if the decline in the fair value of each security below its amortized cost basis is due to credit-related factors or noncredit-related factors. Consideration is given to the extent to which that fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period sufficient to allow for any anticipated recovery in fair value. Similarly, ASC 326 requires held-to-maturity debt securities to be presented at an amount net of a current estimate of expected credit losses, though the held-to-maturity debt securities are still reported at amortized cost under the new guidance.
Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method.During the three months ended March 31, 2024, the measurement of the Company’s deferred income tax assets and liabilities was identified as a critical accounting estimate. Deferred income tax assets and liabilities are determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws. At December 31, 2024, the Company’s net deferred tax asset totaled $1.5 million and is included in other assets on the statement of financial condition. The most significant portions of the net deferred tax asset are the deferred tax benefits related to the Company’s net operating loss for 2024 and unrealized losses on available-for-sale securities.
According to Subtopic 740-10 of the Accounting Standards Codification (“ASC 740-10”), the measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. At December 31, 2024, the Company has not recorded a valuation allowance for its deferred tax assets. Realizing our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances if our judgments change, which may impact total income tax expense in future periods.
Revision of Prior Period Financial Statements
As discussed in detail in Note 1 of the notes to our consolidated financial statements included in Item 8 of this Form 10-K, during June of 2024, the Bank became aware of interest owed by it to a deposit customer that was not properly accrued or paid by the Bank during the period beginning August 1, 2022 and ending March 31, 2024. Accordingly, management revised the prior period financial statements, related disclosures and supplemental information presented in this filing to correct the misstatement. The Company will also revise previously reported financial information for these immaterial errors in its future filings, as applicable. The information in this Item 7 and throughout this Annual Report on Form 10-K has been adjusted to reflect these revisions as described in Note 1 to the Company’s financial statements of this Annual Report on Form 10-K.
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Selected Financial and Other Data
Set forth below is selected financial and other data of the Company at and for the dates indicated. The following is only a summary and should be read in conjunction with the business and financial information regarding the Company included elsewhere herein, including the financial statements included in Item 8 of this Annual Report on Form 10-K. The information at and for the years ended December 31, 2024 and 2023 is derived from the audited financial statements that appear elsewhere in this Annual Report on Form 10-K.
At December 31,
Selected Financial Condition Data:
Investment securities:
Allowance for loan losses 2,522 2,124
Year Ended December 31,
Selected Operating Data:
Provision for credit losses 531 128
Net interest income after provision for credit losses 9,014 7,577
Total non-interest income (loss) (3,840) 1,589
Total non-interest expense 9,157 8,579
Income (loss) before income taxes (3,983) 587
Income tax expense (benefit) (894) 61
Net income (loss) $ (3,089) $ 526
Selected Performance Ratios:(1)
Average yield on interest-earning assets 5.30 % 3.83 %
Average rate on interest-bearing liabilities 2.54 1.33
Average interest rate spread(2) 2.76 2.50
Net interest margin(2) 3.65 3.06
Total non-interest expense to average assets 3.25 3.22
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At or For the
Year Ended December 31,
Asset Quality Ratios:(4)
Non-accrual loans as a percent of total loans outstanding 0.94 % 1.36 %
Non-performing assets as a percent of total assets(5) 0.66 0.76
Net (charge-offs) recoveries to average loans receivable (0.17) 0.02
Capital Ratios:(6)
Common equity Tier 1 capital 45.81 % 52.34 %
Total risk-based capital 47.06 53.59
Average equity to average assets 28.91 31.79
Other Data:
Banking offices 6 6
Full-time equivalent employees 49 48
(6) Capital ratios are end of period ratios for the Bank only.
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Comparison of Financial Condition at December 31, 2024 and December 31, 2023
Total Assets. Total assets increased $5.8 million, or 2.1%, to $276.7 million at December 31, 2024 from $270.9 million at December 31, 2023. The increase was largely due to an increase in cash from deposit growth, which was partially offset by the repayment of outstanding borrowings under the BTFP and repurchases of common stock.
Loans. The following table summarizes the changes in the composition of our loan portfolio by type of loan as of the dates indicated.
December 31,
(Dollars in thousands) Amount % Amount % Change
Real estate loans
Other loans
During 2024, loan growth was primarily driven by commercial construction and non-real estate commercial loan growth. This was largely the result of our focused business strategy. Since 2021, we have increased our commercial lending activities to grow the loan portfolio with greater diversification.
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The following table presents certain major segments of our commercial real estate, construction and land, and commercial and industrial loan balances as of the dates indicated.
December 31,
(Dollars in thousands) 2024 2023 Change
Commercial real estate
Oilfield services 402 437 (35) (8.0)
Construction and land
Hospitality 2,716 2,716 - -
Other commercial construction and land 4,364 4,312 52 1.2
Consumer residential construction and land 3,585 2,954 631 21.4
Commercial and industrial
The following table shows the scheduled contractual maturities of our loans as of December 31, 2024. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. The amounts shown below do not take into account loan prepayments.
Amounts due after December 31, 2024 in
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The following table shows the dollar amount of our loans at December 31, 2024, due after December 31, 2025, as shown in the preceding table, which have fixed interest rates or which have floating or adjustable interest rates.
(Dollars in thousands) Fixed-Rate Floating or Adjustable-Rate Total
Amounts due after December 31, 2025
Multi-family residential - 2,570 2,570
Allowance for Credit Losses. At December 31, 2024, the allowance for loan losses totaled $2.5 million, or 1.51% of total loans, compared to 1.47% of total loans at December 31, 2023. The allowance for credit losses on unfunded commitments totaled $121,000, down $136,000 from December 31, 2023. The total provision for credit losses on loans and unfunded commitments was $531,000 for 2024 and was largely attributable to commercial loan growth and an increase in the allowance for credit losses on individually evaluated loans.
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The following table shows changes in our allowance for loan losses and other related data for the periods indicated.
Year Ended December 31,
Allowance for loan losses:
Balance, beginning of period $ 2,124 $ 1,807
Impact of adoption of ASC 326 - 209
Provision for loan losses 667 87
Net loan (charge-offs) recoveries:
One- to four-family residential (92) 42
Commercial real estate (14) -
Construction and land - -
Multi-family residential - -
Commercial and industrial (128) 1
Consumer (35) (22)
Total net (charge-offs) recoveries (269) 21
Balance, end of period $ 2,522 $ 2,124
Allowance for credit losses on unfunded lending commitments:
Balance, beginning of period $ 257 $ -
Impact of adoption of ASC 326 - 216
Balance, end of period $ 121 $ 257
Total allowance for credit losses, end of period $ 2,643 $ 2,381
Total provision for credit losses 531 128
Total non-accrual loans at end of period 1,567 1,967
Total non-performing loans at end of period 1,631 1,991
Allowance for loan losses as a percent of:
Total loans 1.51 % 1.47 %
One- to four-family residential (0.11) % 0.05 %
Commercial real estate (0.06) -
Construction and land - -
Multi-family residential - -
Commercial and industrial (0.56) 0.01
Consumer (1.51) (0.71)
Total loans (0.17) 0.02
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Non-performing Assets. The following table shows the amounts of our non-performing assets, which include non-accruing loans, accruing loans 90 days or more past due and foreclosed assets at the dates indicated.
At December 31,
Non-accruing loans
One- to four-family residential $ 1,530 $ 1,875
Commercial real estate - 50
Construction and land 37 42
Multi-family residential - -
Commercial and industrial - -
Consumer - -
Total non-accruing loans 1,567 1,967
Accruing loans 90 days or more past due
One- to four-family residential 64 24
Commercial real estate - -
Construction and land - -
Multi-family residential - -
Commercial and industrial - -
Consumer - -
Total accruing loans 90 days or more past due 64 24
Total non-performing loans 1,631 1,991
Foreclosed assets 194 60
Total non-performing assets $ 1,825 $ 2,051
Total non-accruing loans as a percentage of total loans 0.94 % 1.36 %
Total non-performing loans as a percentage of total loans 0.98 1.37
Total non-performing loans as a percentage of total assets 0.59 0.73
The following table shows how our allowance for loan losses is allocated by type of loan at each of the dates indicated.
December 31,
Unallocated 205 8.1 - - - -
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Investment Securities. Total investment securities, available-for-sale and held-to-maturity, amounted to $42.2 million at December 31, 2024, down $41.8 million, or 49.8%, compared to $84.0 million in investment securities at December 31, 2023. Net unrealized losses on securities available-for-sale totaled $4.5 million at December 31, 2024, compared to $9.2 million at December 31, 2023. Unrealized losses on available-for-sale securities relate principally to increases in market interest rates for similar securities. Our investment securities portfolio consists primarily of debt obligations issued by the U.S. government and government agencies and government-sponsored mortgage-backed securities.
During the three months ended March 31, 2024, the Company sold 50 available-for-sale investment securities for a total pre-tax loss of $5.5 million. Proceeds from the sales totaled $42.6 million, inclusive of accrued interest. During the nine-month period ending December 31, 2024, the Company re-deployed a portion of the sales proceeds by purchasing $7.9 million of fixed-rate government-sponsored mortgage-backed securities.
The following table sets forth the composition of our securities portfolio as of the dates indicated.
December 31,
Securities available-for-sale
U.S. Government and agency obligations - - - 7,999 8.6 7,388
Securities held-to-maturity
The following table presents the amortized cost of our total investment securities portfolio that matures during each of the periods indicated and the weighted average yields for each range of maturities at December 31, 2024.
Contractual Maturity as of December 31, 2024
Total investment securities
Municipal obligations - 1,075 - 1,076 2,151
Weighted average yield
Mortgage-backed securities - % 4.56 % 4.55 % 2.17 % 2.61 %
U.S. Government and agency obligations - 1.00 1.47 2.42 1.61
Municipal obligations - 3.33 - 1.41 2.37
Total weighted average yield - 3.56 1.63 2.17 2.32
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Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments, or call options. The expected maturities may differ from contractual maturities because of the exercise of call options and potential paydowns. Accordingly, actual maturities may differ from contractual maturities. Weighted average yields are calculated by dividing the estimated annual income divided by the average amortized cost of the applicable securities.
The following table sets forth the dollar value of our investment securities which have fixed interest rates or which have floating or adjustable interest rates at each of the dates indicated.
December 31,
Fixed-rate
Adjustable-rate
Available-for-sale 33 42
Held-to-maturity - -
Total adjustable-rate 33 42
Deposits. The following table presents total deposits by account type as of the dates indicated.
December 31,
(Dollars in thousands) Amount % Amount % Change
The ratio of the Company’s total loans to deposits was 90.0% and 87.5% as of December 31, 2024 and 2023, respectively.
The increase in interest-bearing demand deposits was largely due to a seasonal increase in public funds. Total public fund deposits totaled $35.6 million, or 19.2% of total deposits, at December 31, 2024, compared to $23.3 million, or 14.1% of total deposits, at December 31, 2023. At December 31, 2024, approximately 83% of our total public fund deposits consisted of non-interest-bearing and interest-bearing demand deposits from municipalities within our market, compared to 78% at December 31, 2023. The increase in savings deposits was largely driven by rate specials offered to depositors during 2024, while the increase in certificates of deposit was primarily due to the acquisition of brokered funding during the fourth quarter of 2024.
The estimated amount of our total uninsured deposits (that is deposits in excess of the FDIC’s insurance limit), inclusive of public funds, was approximately $53.7 million at December 31, 2024 and $44.6 million at December 31, 2023. Total uninsured non-public funds deposits were approximately $22.5 million and $26.3 million at December 31, 2024 and 2023, respectively. At December 31, 2024, the full amount of our public fund deposits in excess of the FDIC’s insurance limit were secured by either pledged investment securities of $15.1 million or $25.0 million of a custodial letter of credit granted by the Federal Home Loan Bank of Dallas.
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The following table shows the average balance of each type of deposit and the average rate paid on each type of interest-bearing deposit for the periods indicated.
Year Ended December 31,
The following table shows the maturities and weighted average contractual interest rates of our total certificates of deposit at December 31, 2024 by time remaining to maturity.
(Dollars in thousands) Amount Weighted Average Rate
Balance at December 31, 2024 maturing in:
Over three months through six months 18,274 3.16
Total certificates of deposit $ 60,691 3.23
The following table shows the maturities and weighted average contractual interest rates of our certificates of deposit in excess of the FDIC insurance limit (generally, $250,000) at December 31, 2024 by time remaining to maturity.
(Dollars in thousands) Amount Weighted Average Rate
Balance at December 31, 2024 maturing in:
Three months or less $ 5,260 4.51 %
Over three months through six months 7,723 3.05
Borrowings.Total borrowings at December 31, 2024 were $9.6 million, down $9.8 million, or 50.7%, from December 31, 2023. During the fourth quarter of 2023, the Bank began borrowing from the Federal Reserve Bank of Atlanta through its Bank Term Funding Program (“BTFP”), and at December 31, 2023, the Bank had one $10.0 million BTFP loan outstanding. The BTFP debt was repaid during 2024 and the Bank had no outstanding borrowings under the program at December 31, 2024.
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Borrowings outstanding at December 31, 2024 consisted of FHLB advances totaling $9.6 million, compared to $9.4 million at December 31, 2023. The change in the carrying value of our FHLB advances reflects the amortization of deferred prepayment penalties on $10.0 million in advances restructured in December of 2020. Deferred prepayment penalties on our FHLB advances totaled $442,000 and $622,000 at December 31, 2024 and 2023, respectively.
The following table shows certain information regarding our borrowings at or for the dates indicated:
At or For the Year Ended
December 31,
Advance from Federal Reserve Bank of Atlanta
Maximum balance at any month-end during the period 21,000 10,000
Balance at end of period - 10,000
Average interest rate during the period 4.81 % 4.95 %
Weighted average interest rate at end of period(1) - 4.83
Advances from FHLB
Maximum balance at any month-end during the period 10,261 9,378
Balance at end of period 9,558 9,378
Average interest rate during the period 2.89 % 2.94 %
Weighted average interest rate at end of period(1) 0.93 0.93
(1) Reflects the weighted average contractual rate of advances.
Shareholders’ Equity. Shareholders’ equity totaled $80.2 million, or 29.0% of total assets, at December 31, 2024, down $4.4 million, or 5.2%, from $84.6 million, or 31.2% of total assets, at December 31, 2023. During 2024, shareholders’ equity decreased by $5.8 million due to the Company’s repurchases of its common stock. The Company’s net loss of $3.1 million for 2024 was offset by other comprehensive income of $3.7 million, which was largely the result of the reclassification adjustment for realized losses on available-for-sale securities sold during the first quarter of 2024.
During the year ended December 31, 2024, the Company repurchased 483,176 shares of its common stock at an average cost of $11.91 per share. Of those shares, 228,326 shares were repurchased under the Company’s November 2023 Repurchase Plan and 227,000 shares were repurchased under the May 2024 Repurchase Plan. The remaining 27,850 shares were repurchased pursuant to the Company’s fifth repurchase plan announced in November 2024 (the “November 2024 Repurchase Plan”). Under the November 2024 Repurchase Plan, 187,150 shares of the Company’s common stock were available for repurchase at December 31, 2024.
Since the announcement of our first share repurchase plan on January 26, 2023 and through December 31, 2024, the Company has repurchased a total of 1,011,850 shares of its common stock, or approximately 19% of the common shares originally issued, at an average cost per share of $11.93. At December 31, 2024, the Company had common shares outstanding of 4,278,150.
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Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Taxable equivalent (“TE”) yields have been calculated using a marginal tax rate of 21%. All average balances are based on daily balances.
Year Ended December 31,
Interest-earning assets:
Non-interest-earning assets 20,163 14,077
Interest-bearing liabilities:
Non-interest-bearing liabilities 30,694 35,387
Total liabilities 200,337 181,916
Shareholders' equity 81,480 84,777
Net interest-earning assets $ 92,011 $ 106,087
Net interest margin(3) 3.65 3.06
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Rate/Volume Analysis. The following table shows the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities affected our interest income and interest expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in volume, which is the change in volume multiplied by prior year rate. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.
Year Ended
Increase (Decrease) Due to Total
(Dollars in thousands) Rate Volume Increase (Decrease)
Interest income:
Interest expense:
Demand deposits, money market and savings accounts 764 12 776
Increase (decrease) in net interest income $ 608 $ 1,232 $ 1,840
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Comparison of Results of Operation for the Years Ended December 31, 2024 and 2023
General.For the year ended December 31, 2024, the Company reported a net loss of $3.1 million, compared to net income of $526,000 for the year ended December 31, 2023. Net interest income for 2024 was up $1.8 million, or 23.9%, compared to 2023. The provision for credit losses totaled $531,000 in 2024, compared to $128,000 in 2023. Non-interest income for 2024 was down $5.4 million compared to 2023, primarily due to losses on the sales of investment securities. Non-interest expense for 2024 was up $578,000, or 6.7%, compared to 2023, primarily due to expenses associated with the Company’s upgrade to a new core processing system.
Interest Income.Total interest income increased $4.2 million, or 43.5%, to $13.9 million for the year ended December 31, 2024, compared to 2023. Interest income on loans and other interest-earning assets were up by $2.9 million and $1.9 million, respectively, for the year ended December 31, 2024, compared to 2023. These increases were partially offset by a decrease in interest income on investment securities of $580,000 over the same comparable periods.
The average loan yield was 6.50% for the year ended December 31, 2024, up from 5.33% for 2023. Average loans were $155.9 million for the year ended December 31, 2024, up $20.2 million, or 14.9%, compared to 2023. At December 31, 2024, approximately 50% of our total loans have adjustable rates and approximately 50% of total loans are scheduled to re-price or mature during the next 12 months.
The decrease in interest income on investment securities was primarily due to the decrease in the average balance of total investment securities due to the sales executed during the three months ended March 31, 2024. The average balance of total investment securities for 2024 was down $46.1 million, or 45.9%, compared to 2023. The average rate earned on our investment securities portfolio was 1.97% for the year ended December 31, 2024, up 31 basis points compared to 1.66% for 2023 primarily due to investment securities purchased during 2024.
The increase in interest income on other interest-earning assets, consisting primarily of interest-earning cash and deposits at other financial institutions, was mainly due to the re-investment of proceeds from investment securities sales discussed previously, as well as the impact of higher average short-term interest rates during 2024 compared to 2023.
Interest Expense. Total interest expense increased $2.4 million, or 120.7%, to $4.3 million for the year ended December 31, 2024, compared to $2.0 million for 2023. Interest expense on deposits was $3.2 million during 2024, up $1.6 million, or 97.3%, from $1.6 million for 2023. The average rate paid on interest-bearing deposits was 2.25% during 2024, up 105 basis points from 1.20% during 2023. Interest expense on borrowings increased by $769,000 during the year ended December 31, 2024, compared to 2023 largely due to interest expense on BTFP advances.
Net Interest Income. Net interest income was $9.5 million for the year ended December 31, 2024, up $1.8 million, or 23.9%, compared to 2023. Our interest rate spread was 2.76% and 2.50% for the years ended December 31, 2024 and 2023, respectively. Our net interest margin was 3.65% and 3.06% for the years ended December 31, 2024 and 2023, respectively. The increase in net interest margin and net interest income over the comparable periods was primarily the result of an increase in the yield and a change in the mix of our interest-earning assets, partially offset by the impact of an increase in the average volume and average rate paid on interest-bearing liabilities.
Provision for Credit Losses. The total provision for credit losses on loans and unfunded commitments was $531,000 for the year ended December 31, 2024, compared to $128,000 in 2023. In 2024, the provision for credit losses was largely attributable to commercial loan growth and an increase in the allowance for credit losses on individually evaluated loans.
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Non-interest Income. Non-interest income for the year ended December 31, 2024 was down $5.4 million from $1.6 million for 2023. Non-interest income for 2024 includes the $5.5 million loss on the sales of investment securities discussed previously. During 2023, the Company reported a loss on the sale of investment securities of $92,000.
During 2024 and 2023, the Company recognized income of $280,000 and $437,000, respectively, due to the Bank Enterprise Award (“BEA”) Program grants received from the Community Financial Institution (“CDFI”) Fund. The BEA Program grants awards to depository institutions that have successfully increased their investments in economically distressed communities through certain qualified activities, including investments in CDFIs and providing loans, investments and financial services to businesses and residents located in distressed communities.
Non-interest Expense. Non-interest expense totaled $9.2 million for the year ended December 31, 2024, up $578,000, or 6.7%, compared to 2023. Non-interest expense for 2024 included $531,000 of data conversion and other associated expenses related to the Company’s upgrade to a new core processing system, which occurred during the first three months of 2024.
Salaries and employee benefits expense totaled $4.8 million for the year ended December 31, 2024, up $159,000, or 3.4%, compared to 2023. The increase was primarily due to an increase in bonus expense and annual raises during 2024. Stock compensation expense also contributed to the increase in salaries and employee benefits expense due to additional grants under the 2022 stock compensation plans.
Data processing and communication expense totaled $1.3 million for the year ended December 31, 2024, up $438,000, or 48.1%, compared to 2023. Data processing and communication expense for 2024 included $509,000 of data conversion and other associated expenses associated with the Company’s upgrade to a new core processing system.
Professional fees totaled $469,00 for the year ended December 31, 2024, down $17,000, or 3.5%, from 2023. Professional fees associated with obtaining our 2024 and 2023 BEA grants totaled $42,000 and $66,000, respectively.
ATM and debit card expense totaled $141,000 for the year ended December 31, 2024, down $109,000, or 43.6%, compared to 2023. The decline is largely the result of reductions in debit card processing costs after the Company’s upgrade to a new core processing system during 2024.
Other non-interest expense totaled $533,000 for the year ended December 31, 2024, up $172,000, or 47.6%, compared to 2023 primarily due to increased loan collection expenses, service charges from correspondent banks and fraud losses during the 2024 period.
Income Tax Expense. The Company reported an income tax benefit of $894,000 for the year ended December 31, 2024, compared to income tax expense of $61,000 for the year ended December 31, 2023. The change in income taxes over the comparable periods was largely due to the loss on sales of investment securities in 2024.
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Exposure to Changes in Interest Rates
Our ability to maintain net interest income depends upon our ability to earn a higher yield on interest-earning assets than the rates we pay on deposits and borrowings. Consequently, our ability to maintain a positive spread between the interest earned on assets and the interest paid on deposits and borrowings can be adversely affected when market rates of interest change. Interest rate sensitivity is monitored by management through the use of models which generate estimates of changes in net interest income and the economic value of our assets and liabilities over a range of interest rate scenarios.
Net Interest Income Analysis. We model and analyze potential changes to net interest income over a twelve-month period under rising and falling interest rate scenarios. Our primary model used to analyze the impact of changes in interest rates on net interest income assumes a static balance sheet, applies immediate and sustained rate shocks and assumes no management intervention over the forecast period. The following table summarizes the results of our net interest income model as of December 31, 2024, which estimates the impact of immediate and sustained changes in interest rates on net interest income over the following twelve months.
(Dollars in thousands) Net Interest Income $ Change % Change
Change in Interest Rates in Basis Points (Rate Shock):
The above table indicates that as of December 31, 2024, in the event of an immediate and sustained 100 basis point decrease in interest rates, our net interest income for the 12 months ending December 31, 2025 would be expected to decrease by $200,000 or 1.9%. During the first quarter of 2024, the Company executed a strategy involving the sale of a substantial portion of its available-for-sale investment securities. The Company sold 50 available-for-sale investment securities for a pre-tax loss of $5.5 million and collected proceeds from the sales of $42.6 million. The Company deployed the net sales proceeds into a mix of cash and higher-yielding earning assets to improve net interest income and our exposure to interest rate risk.
Economic Value of Equity. Economic value of equity (“EVE”) represents the market value of portfolio equity, which is different from book value, and is equal to the market value of assets minus the market value of liabilities (that is, the difference between incoming and outgoing discounted cash flows of assets and liabilities) with adjustments made for off-balance sheet items. The EVE ratio, under any interest rate scenario, is defined as the EVE in that scenario divided by the market value of assets in the same scenario. The following table sets forth our EVE as of December 31, 2024 and reflects the changes to EVE as a result of immediate and sustained changes in interest rates as indicated.
Economic Value of Equity EVE as % of Fair Value of Assets
(Dollars in thousands) Amount $ Change % Change EVE Ratio Change
Change in Interest Rates In Basis Points (Rate Shock):
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Liquidity and Capital Resources
The Company maintains levels of liquid assets deemed adequate by management. We adjust our liquidity levels to fund deposit outflows, repay our borrowings, and to fund loan commitments. We also adjust liquidity, as appropriate, to meet asset and liability management objectives.
Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities or sales of securities. We also have the ability to borrow from the FHLB, Federal Reserve Bank of Atlanta, and our primary correspondent bank.
At December 31, 2024, our borrowed funds consisted of FHLB advances with a net carrying value of $9.6 million. The table below summarizes our unused and available liquidity sources as of December 31, 2024.
Advances from the Federal Home Loan Bank of Dallas $ 45,719
Line of credit with primary correspondent bank 17,800
Unpledged available-for-sale investment securities, at fair value 19,088
Total unused and available liquidity $ 82,607
The Bank’s available borrowing capacity with the FHLB is secured though a blanket floating lien on real estate loans. For more detail on loans pledged to the FHLB, refer to Note 4 of the financial statements included in Item 8 of this Form 10-K. The Company also has a $25.0 million custodial letter of credit outstanding from the FHLB as of December 31, 2024, which is included in the calculation of our available capacity with the FHLB. The Company can allocate portions of this letter of credit to collateralize certain deposit balances in excess of the FDIC’s insurance limit as an alternative to pledging investment securities for the same purpose. At December 31, 2024, the Company used $25.0 million of the FHLB custodial letter of credit to collateralize public fund deposits.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. The details of these cash flow classifications are presented on the statement of cash flows included in Item 8 of this Form 10-K. The most significant uses and sources of cash flows during the year ended December 31, 2024 included:
● $22.7 million net outflow due to an increase in total loans,
● $20.1 million net inflow due to an increase in deposits
● $10.0 million net outflow due to the repayment of BTFP advances,
● $5.8 million in outflows for the repurchase of the Company’s common stock.
We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily and anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that the majority of maturing time deposits will be retained. We also anticipate continued use of our secondary funding sources.
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The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans at December 31, 2024.
Amount of Commitment Expiration — Per Period
Commitments to originate loans $ 11,979 $ 11,979 $ - $ - $ -
Unused overdraft privilege amounts 1,167 - - - 1,167
Letters of credit 19 19 - - -
The following table summarizes our contractual cash obligations at December 31, 2024.
Payments Due By Period
Management expects that a majority of the maturing certificates of deposit will be retained. However, if a substantial portion of these deposits is not retained, we may utilize borrowings from our secondary funding sources or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.
The Bank exceeded all regulatory capital requirements and was categorized as well-capitalized at December 31, 2024 and December 31, 2023. Management is not aware of any conditions or events since the most recent notification that would change our category. Refer to Note 9 of the financial statements included in Item 8 of this Form 10-K for more detail on the Bank’s capital.
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see Note 1 of the notes to our financial statements included in Item 8 of this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Not applicable
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Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Catalyst Bancorp, Inc.
Opelousas, LA
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Catalyst Bancorp, Inc. and Subsidiary (the Company) as of December 31, 2024 and 2023, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Castaing, Hussey & Lolan, LLC
We have served as the Company’s auditor since 2020.
New Iberia, LA
March 28, 2025
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CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
ASSETS
Non-interest-bearing cash $ 4,076 $ 3,654
Interest-bearing cash and due from banks 40,219 15,357
Investment securities:
Allowance for loan losses (2,522) (2,124)
Accrued interest receivable 851 906
Foreclosed assets 194 60
Premises and equipment, net 6,085 6,072
Stock in correspondent banks, at cost 1,961 1,878
LIABILITIES
Deposits
SHAREHOLDERS' EQUITY
Unallocated common stock held by benefit plans (5,702) (6,221)
Accumulated other comprehensive income (loss) (3,558) (7,237)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 276,697 $ 270,932
The accompanying Notes are an integral part of these financial statements.
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CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
INTEREST INCOME
Loans receivable, including fees $ 10,128 $ 7,238
Cash and due from banks 2,585 708
Other earning assets 86 72
INTEREST EXPENSE
Provision for credit losses 531 128
Net interest income after provision for credit losses 9,014 7,577
NON-INTEREST INCOME
Service charges on deposit accounts 798 774
Bank-owned life insurance 463 409
Gain (loss) on sales of investment securities (5,507) (92)
Gain (loss) on disposals and sales of fixed assets 6 -
Federal community development grant 280 437
Total non-interest income (loss) (3,840) 1,589
NON-INTEREST EXPENSE
Salaries and employee benefits 4,830 4,671
Occupancy and equipment 765 802
Data processing and communication 1,349 911
Foreclosed assets, net 74 72
Advertising and marketing 129 100
Franchise and shares tax 67 81
Regulatory fees and assessments 149 131
Printing, supplies and postage 87 145
Total non-interest expense 9,157 8,579
Income (loss) before income tax expense (benefit) (3,983) 587
Income tax expense (benefit) (894) 61
NET INCOME (LOSS) $ (3,089) $ 526
Earnings (loss) per share - basic $ (0.78) $ 0.12
Earnings (loss) per share - diluted (0.78) 0.12
The accompanying Notes are an integral part of these financial statements.
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CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31,
Net income (loss) $ (3,089) $ 526
Reclassification adjustment for losses included in net income 5,507 92
Income tax effect (979) (488)
Total other comprehensive income 3,679 1,837
Total comprehensive income $ 590 $ 2,363
The accompanying Notes are an integral part of these financial statements.
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CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Impact of adoption of ASC 326 - - - (335) - (335)
Net income - - - 526 - 526
Other comprehensive income - - - - 1,837 1,837
ESOP shares released for allocation - 34 212 - - 246
Stock compensation expense - 523 - - - 523
Repurchase of common stock (5) (6,310) - - - (6,315)
Net income (loss) - - - (3,089) - (3,089)
Other comprehensive income - - - - 3,679 3,679
ESOP shares released for allocation - 35 212 - - 247
Stock compensation expense - 565 - - - 565
Repurchase of common stock (5) (5,752) - - - (5,757)
The accompanying Notes are an integral part of these financial statements.
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CATALSYT BANCORP, INC. AND SUBSIDIARY