Form 10-Q Catalyst Bancorp, Inc. For: Jun 30
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E-mailUNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended | |
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to |
Commission file number:
(Exact name of registrant as specified in its charter)
| ||
(State or other jurisdiction of incorporation | (I.R.S. Employer Identification No.) |
(Address of principal executive offices; Zip Code)
(
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
There were
CATALYST BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
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Management's Discussion and Analysis of Financial Condition and Results of Operations | 24 | ||
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i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
| (Unaudited) | |||||
June 30, | December 31, | |||||
(Dollars in thousands) | 2022 | 2021 | ||||
ASSETS |
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Non-interest-bearing cash | $ | | $ | | ||
Interest-bearing cash and due from banks |
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Total cash and cash equivalents |
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Investment securities: |
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Securities available-for-sale, at fair value |
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Securities held-to-maturity (fair values of $ |
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Loans receivable, net of unearned income |
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Allowance for loan losses |
| ( |
| ( | ||
Loans receivable, net |
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Accrued interest receivable |
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Foreclosed assets |
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Premises and equipment, net |
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Stock in correspondent banks, at cost |
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Bank-owned life insurance |
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Other assets |
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TOTAL ASSETS | $ | | $ | | ||
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LIABILITIES |
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Deposits |
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Non-interest-bearing | $ | | $ | | ||
Interest-bearing |
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Total deposits |
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Advances from Federal Home Loan Bank |
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Other liabilities |
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TOTAL LIABILITIES |
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SHAREHOLDERS' EQUITY |
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Preferred stock, $ | ||||||
Common stock, $ | | | ||||
Additional paid-in capital | | | ||||
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") | ( | ( | ||||
Retained earnings |
| |
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Accumulated other comprehensive income (loss) |
| ( |
| ( | ||
TOTAL SHAREHOLDERS' EQUITY |
| |
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | | $ | | ||
The accompanying Notes are an integral part of these financial statements.
1
CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
(Dollars in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||
INTEREST INCOME |
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Loans receivable, including fees | $ | | $ | | $ | | $ | | ||||
Investment securities |
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Other |
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Total interest income |
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INTEREST EXPENSE |
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Deposits |
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Advances from Federal Home Loan Bank |
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Total interest expense |
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Net interest income |
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Provision for (reversal of) loan losses |
| ( |
| ( |
| ( |
| ( | ||||
Net interest income after provision for (reversal of) loan losses |
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NON-INTEREST INCOME |
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Service charges on deposit accounts |
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Gain (loss) on disposals and sales of fixed assets |
| ( |
| - |
| ( |
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Bank-owned life insurance |
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| | ||||
Federal community development grant |
| |
| - |
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| - | ||||
Other |
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Total non-interest income |
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NON-INTEREST EXPENSE |
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Salaries and employee benefits |
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Occupancy and equipment |
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Data processing and communication |
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Professional fees |
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Directors’ fees |
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ATM and debit card |
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Foreclosed assets, net |
| ( |
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| ( |
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Advertising and marketing |
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Franchise and shares tax | | - | | - | ||||||||
Regulatory fees and assessments | | | | | ||||||||
Insurance | | | | | ||||||||
Printing, supplies and postage | | | | | ||||||||
Other |
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Total non-interest expense |
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Income (loss) before income tax expense (benefit) |
| ( |
| |
| ( |
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Income tax expense (benefit) |
| ( |
| |
| ( |
| | ||||
NET INCOME (LOSS) | $ | | $ | | $ | ( | $ | | ||||
Earnings (loss) per share - basic | $ | | $ | N/A | $ | ( | $ | N/A | ||||
The accompanying Notes are an integral part of these financial statements.
2
CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
(Dollars in thousands) | 2022 |
| 2021 | 2022 |
| 2021 | |||||||
Net income (loss) | $ | | $ | | $ | ( | $ | | |||||
Net change in unrealized gains (losses) on available-for-sale securities |
| ( |
| |
| ( |
| ( | |||||
Income tax effect |
| |
| ( |
| |
| | |||||
Total other comprehensive income (loss) |
| ( |
| |
| ( |
| ( | |||||
Total comprehensive income (loss) | $ | ( | $ | | $ | ( | $ | | |||||
The accompanying Notes are an integral part of these financial statements.
3
CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(Dollars in thousands) | Common Stock | Additional Paid-in Capital | Unallocated Common Stock Held by ESOP | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||
BALANCE, MARCH 31, 2021 | $ | - | $ | - | $ | - | $ | | $ | ( | $ | | ||||||
Net income (loss) |
| - |
| - |
| - |
| |
| - |
| | ||||||
Other comprehensive income (loss) |
| - |
| - |
| - |
| - | |
| | |||||||
BALANCE, JUNE 30, 2021 | $ | - | $ | - | $ | - | $ | | $ | ( | $ | | ||||||
BALANCE, MARCH 31, 2022 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Net income (loss) |
| - |
| - |
| - |
| |
| - |
| | ||||||
Other comprehensive income (loss) |
| - |
| - |
| - |
| - | ( |
| ( | |||||||
ESOP shares released for allocation |
| - |
| |
| |
| - | - |
| | |||||||
BALANCE, JUNE 30, 2022 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
BALANCE, DECEMBER 31, 2020 | $ | - | $ | - | $ | - | $ | | $ | | $ | | ||||||
Net income (loss) |
| - |
| - |
| - |
| |
| - |
| | ||||||
Other comprehensive income (loss) |
| - |
| - |
| - |
| - | ( |
| ( | |||||||
BALANCE, JUNE 30, 2021 | $ | - | $ | - | $ | - | $ | | $ | ( | $ | | ||||||
BALANCE, DECEMBER 31, 2021 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Net income (loss) |
| - |
| - |
| - |
| ( |
| - |
| ( | ||||||
Other comprehensive income (loss) |
| - |
| - |
| - |
| - | ( |
| ( | |||||||
ESOP shares released for allocation |
| - |
| |
| |
| - | - |
| | |||||||
BALANCE, JUNE 30, 2022 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
The accompanying Notes are an integral part of these financial statements.
4
CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, | ||||||
(Dollars in thousands) | 2022 |
| 2021 | |||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
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Net income (loss) | $ | ( | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Investment securities amortization, net |
| |
| | ||
Federal Home Loan Bank stock dividends |
| ( |
| ( | ||
Amortization of prepayment penalties on debt restructuring | | | ||||
Provision for (reversal of) loan losses |
| ( |
| ( | ||
Net loss (gain) on disposals and sales of premises and equipment |
| |
| ( | ||
Increase in cash surrender value of bank-owned life insurance | ( | ( | ||||
Stock-based compensation | | - | ||||
Depreciation of premises and equipment |
| |
| | ||
Net writedowns and losses (gains) on the sale of foreclosed assets |
| ( |
| | ||
Deferred income tax expense (benefit) |
| |
| ( | ||
(Increase) decrease in other assets |
| ( |
| ( | ||
Increase (decrease) in other liabilities |
| ( |
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Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Activity in available-for-sale securities: |
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Proceeds from maturities, calls, and paydowns |
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Purchases |
| ( |
| ( | ||
Activity in held-to-maturity securities: |
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Proceeds from maturities and calls |
| - |
| | ||
Net (increase) decrease in loans |
| ( |
| | ||
Proceeds from sale of foreclosed assets |
| |
| - | ||
Purchases of premises and equipment |
| ( |
| ( | ||
Proceeds from sale of premises and equipment |
| - |
| | ||
Purchase of bank-owned life insurance |
| ( |
| - | ||
Net cash used in investing activities |
| ( |
| ( | ||
CASH FLOWS FROM FINANCING ACTIVITIES |
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Net increase in deposits |
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Net cash provided by financing activities |
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NET CHANGE IN CASH AND CASH EQUIVALENTS |
| ( |
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CASH AND CASH EQUIVALENTS, beginning of period |
| |
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CASH AND CASH EQUIVALENTS, end of period | $ | | $ | | ||
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES |
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Loans originated to facilitate the sale of real estate owned | $ | - | $ | - | ||
Acquisition of real estate in settlement of loans | $ | - | $ | | ||
SUPPLEMENTAL SCHEDULE OF INTEREST AND TAXES PAID |
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Cash paid for interest | $ | | $ | | ||
Cash paid for income taxes | $ | | $ | - | ||
The accompanying Notes are an integral part of these financial statements.
5
CATALYST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
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 Bank has been in operation in the Acadiana region of south-central Louisiana since 1922 and offers commercial and retail banking products through six full-service locations.
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 and became the holding company for the Bank. Shares of the Company’s common stock were issued and sold in an offering to certain depositors of the Bank and others. The Company was not engaged in operations and had not issued any shares of stock prior to the completion of the Conversion.
As used in this report, unless the context otherwise requires, the terms “we,” “our,” “us,” or the “Company” refer to Catalyst Bancorp, and the term the “Bank” refers to Catalyst Bank, the wholly owned subsidiary of the Company. In addition, unless the context otherwise requires, references to the operations of the Company include the operations of the Bank.
The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three and six months ended June 30, 2022 and 2021 are not necessarily indicative of the results which may be expected for the entire fiscal year. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2021.
There have been no material changes from the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.
Certain amounts reported in prior periods may have been reclassified to conform to the current period presentation. Such reclassifications had no effect on previously reported equity or net income.
NOTE 2. COMPLETION OF STOCK OFFERING
The Company completed its initial public offering (“IPO”) of stock in connection with the Bank’s conversion from the mutual to the stock form of organization on October 12, 2021. Information for periods prior to the completion of the Conversion are for the Bank only.
The Company issued a total of
6
The costs of issuing the common stock were deferred and deducted from the sales proceeds of the IPO at December 31, 2021. Conversion costs totaled $
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (ASC 326), Measurement of Credit Losses on Financial Instruments. The amendments introduce an impairment model that is based on current expected credit losses (“CECL”), rather than incurred losses, to estimate credit losses on certain types of financial instruments, including loans, held-to-maturity securities and certain off-balance sheet financial instruments. The CECL should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. Financial instruments with similar risk characteristics may be grouped together when estimating the CECL. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial estimate of expected credit loss would be recognized through an allowance for credit losses with an offset to the purchase price at acquisition. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. The ASU also amends the current available-for-sale security impairment model for debt securities whereby credit losses related to available-for-sale debt securities should be recorded through an allowance for credit losses. The amendments will be applied through a modified retrospective approach, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. On October 18, 2019, FASB approved an effective date delay applicable to smaller reporting companies and non-public business entities until January 2023. The Company has elected to delay implementation of the standard until January 2023. Currently, the Company has implemented a software application to assist in determining our allowance for loan losses under the CECL model and is in the process of evaluating certain methodologies. The impact upon adoption of this ASU is not known and may have a material effect on the Company’s consolidated financial statements
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASC 326), Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures. The amendments in this ASU respond to feedback received by the FASB during the post-implementation review of the amendments included in ASU 2016-13. The amendments in ASU 2022-02 eliminate the accounting guidance for TDRs by creditors in ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors and enhance disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Stakeholders have observed that the additional designation of a loan modification as a TDR and the related accounting under current GAAP are unnecessarily complex and do not provide decision-useful information after the adoption of ASU 2016-13 since credit losses from TDRs are incorporated under the CECL model. Under the amendments in ASU 2022-02, an entity must apply the guidance under ASC 310-20 to determine whether a modification results in a new loan or a continuation of an existing loan rather than applying the guidance for TDRs. For public business entities, the amendments in ASU 2022-02 also require an entity to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The amendments in ASU 2022-02 are effective at the time of adoption of the amendments in ASU 2016-13. The Company is currently evaluating the provisions of the amendment; however, we do not expect the adoption of ASU 2022-02 to have a material effect on the Company’s consolidated financial statements.
7
NOTE 4. EARNINGS PER SHARE
Earnings (loss) per common share was computed based on the following:
Three Months Ended June 30, | Six Months Ended June 30, | |||||
(In thousands, except per share data) | 2022 | 2022 | ||||
Numerator |
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Net income (loss) available to common shareholders | $ | | $ | ( | ||
Denominator |
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Weighted average common shares outstanding |
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Weighted average unallocated ESOP shares | ( | ( | ||||
Weighted average shares | | | ||||
Basic earnings (loss) per common share | $ | | $ | ( | ||
During the three and six months ended June 30, 2022, there were
8
NOTE 5. INVESTMENT SECURITIES
Investment securities have been classified according to management’s intent. The amortized cost of securities and their approximate fair values are as follows:
| June 30, 2022 | |||||||||||
(Dollars in thousands) | Amortized Cost |
| Gross Unrealized Gains |
| Gross Unrealized Losses |
| Fair Value | |||||
Securities available-for-sale |
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Mortgage-backed securities | $ | | $ | | $ | ( | $ | | ||||
U.S. Government and agency obligations |
| |
| - |
| ( |
| | ||||
Municipal obligations |
| |
| |
| ( |
| | ||||
Total available-for-sale | $ | | $ | | $ | ( | $ | | ||||
Securities held-to-maturity |
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|
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U.S. Government and agency obligations | $ | | $ | - | $ | ( | $ | | ||||
Municipal obligations |
| |
| - |
| ( |
| | ||||
Total held-to-maturity | $ | | $ | - | $ | ( | $ | | ||||
| December 31, 2021 | |||||||||||
(Dollars in thousands) | Amortized Cost |
| Gross Unrealized Gains |
| Gross Unrealized Losses |
| Fair Value | |||||
Securities available-for-sale |
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| |||||
Mortgage-backed securities | $ | | $ | | $ | ( | $ | | ||||
U.S. Government and agency obligations |
| |
| |
| ( |
| | ||||
Municipal obligations |
| |
| - |
| ( |
| | ||||
Total available-for-sale | $ | | $ | | $ | ( | $ | | ||||
Securities held-to-maturity |
|
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U.S. Government and agency obligations | $ | | $ | | $ | ( | $ | | ||||
Municipal obligations |
| |
| |
| - |
| | ||||
Total held-to-maturity | $ | | $ | | $ | ( | $ | | ||||
There were
Investment securities with a carrying amount of approximately $
9
The following is a summary of maturities of securities held-to-maturity and available-for-sale at June 30, 2022 and December 31, 2021:
June 30, 2022 | ||||||||||||
Available-for-Sale | Held-to-Maturity | |||||||||||
(Dollars in thousands) | Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | |||||
Amounts maturing in: |
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One year or less | $ | - | $ | - | $ | - | $ | - | ||||
After one through five years |
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| - |
| - | ||||
After five through ten years |
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After ten years |
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Total | $ | | $ | | $ | | $ | | ||||
December 31, 2021 | ||||||||||||
Available-for-Sale | Held-to-Maturity | |||||||||||
(Dollars in thousands) |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Amounts maturing in: |
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|
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One year or less | $ | - | $ | - | $ | - | $ | - | ||||
After one through five years |
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| - |
| - | ||||
After five through ten years |
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| |
| |
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After ten years |
| |
| |
| |
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Total | $ | | $ | | $ | | $ | | ||||
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.
10
Information pertaining to securities with gross unrealized losses at June 30, 2022 and December 31, 2021 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:
June 30, 2022 | ||||||||||||||||||
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||
(Dollars in thousands) |
| Fair Value |
| Gross Unrealized Losses |
| Fair Value |
| Gross Unrealized Losses |
| Fair Value |
| Gross Unrealized Losses | ||||||
Securities available-for-sale |
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| ||||||||
Mortgage-backed securities | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
U.S. Government and agency obligations |
| |
| ( |
| |
| ( |
| |
| ( | ||||||
Municipal obligations |
| |
| ( |
| |
| ( |
| |
| ( | ||||||
Total available-for-sale | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
Securities held-to-maturity |
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|
| ||||||
U.S. Government and agency obligations | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
Municipal obligations |
| |
| ( |
| - |
| - |
| |
| ( | ||||||
Total held-to-maturity | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
Total | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
| December 31, 2021 | |||||||||||||||||
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||
(Dollars in thousands) |
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
U.S. Government and agency obligations |
| |
| ( |
| |
| ( |
| |
| ( | ||||||
Municipal obligations |
| |
| ( |
| |
| ( |
| |
| ( | ||||||
Total available-for-sale | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
Securities held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Government and agency obligations | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
Municipal obligations |
| - |
| - |
| - |
| - |
| - |
| - | ||||||
Total held-to-maturity | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
Total | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which that fair value has been 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 of time sufficient to allow for any anticipated recovery in fair value.
At June 30, 2022, the Company held
11
NOTE 6. LOANS RECEIVABLE
Loans receivable at June 30, 2022 and December 31, 2021 are summarized as follows:
June 30, | December 31, | |||||
(Dollars in thousands) | 2022 | 2021 | ||||
Real estate loans |
|
|
|
| ||
One- to four-family residential | $ | | $ | | ||
Commercial real estate |
| |
| | ||
Construction and land |
| |
| | ||
Multi-family residential |
| |
| | ||
Total real estate loans | | | ||||
Other loans | ||||||
Commercial and industrial | | | ||||
Consumer |
| |
| | ||
Total other loans | | | ||||
Total loans | | | ||||
Less: Allowance for loan losses | ( | ( | ||||
Net loans | $ | | $ | | ||
The following tables outline the changes in the allowance for loan losses by collateral type for the six months ended June 30, 2022 and 2021.
For the Six Months Ended June 30, 2022 | |||||||||||||||
(Dollars in thousands) |
| Beginning Balance |
| Provision (Reversal) |
| Charge-offs |
| Recoveries |
| Ending Balance | |||||
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
| |||||
One- to four-family residential | $ | | $ | ( | $ | ( | $ | | $ | | |||||
Commercial real estate |
| |
| ( |
| - |
| - |
| | |||||
Construction and land |
| |
| ( |
| - |
| - |
| | |||||
Multi-family residential |
| |
| ( |
| - |
| - |
| | |||||
Commercial and industrial |
| |
| |
| ( |
| |
| | |||||
Consumer |
| |
| ( |
| ( |
| |
| | |||||
Total | $ | | $ | ( | $ | ( | $ | | $ | | |||||
| For the Six Months Ended June 30, 2021 | ||||||||||||||
(Dollars in thousands) |
| Beginning Balance |
| Provision (Reversal) |
| Charge-offs |
| Recoveries |
| Ending Balance | |||||
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
| |||||
One- to four-family residential | $ | | $ | ( | $ | ( | $ | | $ | | |||||
Commercial real estate |
| |
| ( |
| - |
| - |
| | |||||
Construction and land |
| |
| ( |
| - |
| - |
| | |||||
Multi-family residential |
| |
| ( |
| - |
| - |
| | |||||
Commercial and industrial |
| |
| |
| - |
| - |
| | |||||
Consumer |
| |
| ( |
| ( |
| |
| | |||||
Unallocated |
| |
| ( |
| - |
| - |
| | |||||
Total | $ | | $ | ( | $ | ( | $ | | $ | | |||||
12
The following tables outline the changes in the allowance for loan losses individually and collectively evaluated for impairment, and the amount of loans individually and collectively evaluated for impairment at June 30, 2022 and December 31, 2021.
| June 30, 2022 |
| December 31, 2021 | |||||||||||||||
(Dollars in thousands) | Individually Evaluated | Collectively Evaluated | Total | Individually Evaluated | Collectively Evaluated | Total | ||||||||||||
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
| |||||||
One- to four-family residential | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Commercial real estate | - |
| |
| |
| - |
| |
| | |||||||
Construction and land | - |
| |
| |
| - |
| |
| | |||||||
Multi-family residential | - |
| |
| |
| - |
| |
| | |||||||
Commercial and industrial | - |
| |
| |
| |
| |
| | |||||||
Consumer | - |
| |
| |
| - |
| |
| | |||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Loans |
|
|
|
|
|
|
|
|
|
| ||||||||
One- to four-family residential | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Commercial real estate |
| |
| |
| |
| - | |
| | |||||||
Construction and land |
| |
| |
| |
| |
| |
| | ||||||
Multi-family residential |
| - |
| |
| |
| - |
| |
| | ||||||
Commercial and industrial |
| - |
| |
| |
| |
| |
| | ||||||
Consumer |
| - | |
| |
| - |
| |
| | |||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
13
A summary of current, past due and nonaccrual loans as of June 30, 2022 and December 31, 2021 follows:
| As of June 30, 2022 | ||||||||||||||||||||
(Dollars in thousands) | Past Due 30-89 Days and Accruing |
| Past Due Over 90 Days and Accruing |
| Past Due Over 30 Days and Non-accruing |
| Total Past Due |
| Current and Accruing |
| Current and Non-accruing |
| Total Loans | ||||||||
One- to four-family residential | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
Commercial real estate |
| |
| - |
| |
| |
| |
| - |
| | |||||||
Construction and land |
| - |
| - |
| |
| |
| |
| |
| | |||||||
Multi-family residential |
| - |
| - |
| - |
| - |
| |
| - |
| | |||||||
Commercial and industrial |
| |
| - |
| - |
| |
| |
| - |
| | |||||||
Consumer |
| |
| - |
| - |
| |
| |
| - |
| | |||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
As of December 31, 2021 | |||||||||||||||||||||
(Dollars in thousands) |
| Past Due 30-89 Days and Accruing |
| Past Due Over 90 Days and Accruing |
| Past Due Over 30 Days and Non-accruing |
| Total Past Due |
| Current and Accruing |
| Current and Non-accruing |
| Total Loans | |||||||
One- to four-family residential | $ | | $ | - | $ | | $ | | $ | | $ | | $ | | |||||||
Commercial real estate |
| |
| - |
| - |
| |
| |
| - |
| | |||||||
Construction and land |
| |
| - |
| |
| |
| |
| |
| | |||||||
Multi-family residential |
| - |
| - |
| - |
| - |
| |
| - |
| | |||||||
Commercial and industrial |
| - |
| - |
| |
| |
| |
| |
| | |||||||
Consumer |
| |
| |
| |
| |
| |
| - |
| | |||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
The Company was not committed to lend any additional funds on nonaccrual loans at June 30, 2022 or December 31, 2021. At June 30, 2022 and December 31, 2021, loans secured by residential real estate for which formal foreclosure proceedings were in process totaled $
14
A Troubled Debt Restructuring (“TDR”) is considered such if the lender, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. During the six months ended June 30, 2022,
Recorded Investment | ||||||||
(Dollars in thousands) | Number of Contracts | Pre-modification | Post-modification | |||||
December 31, 2021 |
|
|
|
|
|
| ||
One- to four-family residential |
| | $ | | $ | | ||
Total |
| | $ | | $ | | ||
Troubled debt restructured loans were modified to defer principal and extend maturity on average for
Information on impaired loans as of June 30, 2022 and December 31, 2021 follows:
| June 30, 2022 | |||||||||||
(Dollars in thousands) | Recorded Investment Without an Allowance | Recorded Investment With an Allowance | Unpaid Principal | Related Allowance | ||||||||
One- to four-family residential | $ | | $ | | $ | | $ | | ||||
Commercial real estate |
| |
| - |
| |
| - | ||||
Construction and land |
| |
| - |
| |
| - | ||||
Multi-family residential |
| - |
| - |
| - |
| - | ||||
Commercial and industrial |
| - |
| - |
| - |
| - | ||||
Consumer |
| - |
| - |
| - |
| - | ||||
Total | $ | | $ | | $ | | $ | | ||||
| December 31, 2021 | |||||||||||
(Dollars in thousands) | Recorded Investment Without an Allowance | Recorded Investment With an Allowance | Unpaid Principal | Related Allowance | ||||||||
One- to four-family residential | $ | | $ | | $ | | $ | | ||||
Commercial real estate |
| - |
| - |
| - |
| - | ||||
Construction and land |
| |
| - |
| |
| - | ||||
Multi-family residential |
| - |
| - |
| - |
| - | ||||
Commercial and industrial |
| |
| |
| |
| | ||||
Consumer |
| - |
| - |
| - |
| - | ||||
Total | $ | | $ | | $ | | $ | | ||||
15
The tables below present the average balances and interest income for impaired loans for the three and six months ended June 30, 2022 and 2021.
| Three Months Ended | |||||||||||
June 30, 2022 | June 30, 2021 | |||||||||||
(Dollars in thousands) | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | ||||||||
One- to four-family residential | $ | | $ | | $ | | $ | | ||||
Commercial real estate |
| |
| - |
| - |
| - | ||||
Construction and land |
| |
| - |
| |
| - | ||||
Multi-family residential |
| - |
| - |
| |
| | ||||
Commercial and industrial |
| - |
| - |
| |
| - | ||||
Consumer |
| - |
| - |
| - |
| - | ||||
Total | $ | | $ | | $ | | $ | | ||||
| Six Months Ended | |||||||||||
June 30, 2022 | June 30, 2021 | |||||||||||
(Dollars in thousands) | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | ||||||||
One- to four-family residential | $ | | $ | | $ | | $ | | ||||
Commercial real estate |
| |
| - |
| - |
| - | ||||
Construction and land |
| |
| - |
| |
| - | ||||
Multi-family residential |
| - |
| - |
| |
| | ||||
Commercial and industrial |
| - |
| - |
| |
| - | ||||
Consumer |
| - |
| - |
| - |
| - | ||||
Total | $ | | $ | | $ | | $ | | ||||
16
Loans are categorized by credit quality indicators based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Credit quality classifications follow regulatory guidelines and can generally be described as follows:
Pass – Loans in this category have strong asset quality and liquidity along with a multi-year track record of profitability.
Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss – Loans classified as loss have been identified as uncollectible and are generally charged-off in the period identified.
The information for each of the credit quality indicators is updated at least quarterly in conjunction with the determination of the adequacy of the allowance for loan losses.
June 30, 2022 | |||||||||||||||
(Dollars in thousands) |
| Pass |
| Special Mention |
| Substandard |
| Doubtful |
| Total | |||||
One- to four-family residential | $ | | $ | | $ | | $ | - | $ | | |||||
Commercial real estate |
| |
| |
| |
| - |
| | |||||
Construction and land |
| |
| - |
| |
| - |
| | |||||
Multi-family residential |
| |
| - |
| - |
| - |
| | |||||
Commercial and industrial |
| |
| |
| - |
| - |
| | |||||
Consumer |
| |
| |
| - |
| - |
| | |||||
Total | $ | | $ | | $ | | $ | - | $ | | |||||
December 31, 2021 | |||||||||||||||
(Dollars in thousands) |
| Pass |
| Special Mention |
| Substandard |
| Doubtful |
| Total | |||||
One- to four-family residential | $ | | $ | | $ | | $ | - | $ | | |||||
Commercial real estate |
| |
| |
| |
| - |
| | |||||
Construction and land |
| |
| - |
| |
| - |
| | |||||
Multi-family residential |
| |
| |
| - |
| - |
| | |||||
Commercial and industrial |
| |
| - |
| |
| - |
| | |||||
Consumer |
| |
| - |
| |
| - |
| | |||||
Total | $ | | $ | | $ | | $ | - | $ | | |||||
17
NOTE 7. CAPITAL REQUIREMENTS AND OTHER REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by its primary federal regulator, the Office of the Comptroller of the Currency (“OCC”). Failure to meet minimum regulatory capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements of the Company and the Bank. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of: total risk-based capital, Tier 1 Capital to risk-weighted assets, and Tier 1 Capital to adjusted total assets. As of June 30, 2022 and December 31, 2021, the Bank met all of the capital adequacy requirements to which it is subject.
At June 30, 2022 and December 31, 2021, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the most recent notification that management believes have changed the Bank’s prompt corrective action category. The following table presents actual and required capital ratios for the Bank.
Actual | To be Well Capitalized under the Prompt Corrective Action Provision | |||||||||||
(Dollars in thousands) |
| Amount |
| Ratio | Amount |
| Ratio | |||||
As of June 30, 2022 | ||||||||||||
Common Equity Tier 1 Capital | $ | | | % | $ | | > | % | ||||
Tier 1 Risk-Based Capital |
| | |
| | > | ||||||
Total Risk-Based Capital |
| | |
| | > | ||||||
Tier 1 Leverage Capital |
| | |
| | > | ||||||
As of December 31, 2021 |
|
|
|
|
|
| ||||||
Common Equity Tier 1 Capital | $ | | | % | $ | | > | % | ||||
Tier 1 Risk-Based Capital |
| | |
| | > | ||||||
Total Risk-Based Capital |
| | |
| | > | ||||||
Tier 1 Leverage Capital |
| | |
| | > | ||||||
18
NOTE 8. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding commitments and contingent liabilities that are not reflected in the accompanying financial statements. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the financial statements.
The Company is not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at June 30, 2022, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist of commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the statement of financial position. The contract or notional amounts of these instruments reflect the extent of the Company’s involvement in particular classes of instruments.
NOTE 9. FAIR VALUE MEASUREMENTS
In accordance with fair value guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 — Valuation is based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 — Valuation is based on inputs other than quoted prices included with Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term for the asset or liability.
Level 3 — Valuation is based on unobservable income inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.
19
Fair values of assets and liabilities measured on a recurring basis at June 30, 2022 and December 31, 2021 follows:
Fair Value Measurements at Reporting Date Using | ||||||||||||
(Dollars in thousands) |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||
June 30, 2022 |
|
|
|
| ||||||||
Available-for-sale securities | $ | | $ | - | $ | | $ | - | ||||
December 31, 2021 |
|
|
|
| ||||||||
Available-for-sale securities | $ | | $ | - | $ | | $ | - | ||||
Fair values of assets and liabilities measured on a nonrecurring basis at June 30, 2022 and December 31, 2021 follows:
Fair Value Measurements at Reporting Date Using | ||||||||||||
(Dollars in thousands) |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||
June 30, 2022 |
|
|
|
| ||||||||
Impaired loans | $ | | $ | - | $ | - | $ | | ||||
Foreclosed assets | |
| - |
| - |
| | |||||
Total | $ | | $ | - | $ | - | $ | | ||||
December 31, 2021 |
| |||||||||||
Impaired loans | $ | | $ | - | $ | - | $ | | ||||
Foreclosed assets | | - | - | | ||||||||
Total | $ | | $ | - | $ | - | $ | | ||||
At June 30, 2022 and December 31, 2021, impaired loans with a recorded investment of $
The fair value of impaired loans and foreclosed assets is estimated using third-party appraisals of the collateral or asset held less estimated costs to sell and discounts to reflect current conditions.
20
NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company follows the guidance of FASB ASC 825, Financial Instruments, and FASB ASC 820, Fair Value Measurement. This guidance permits entities to measure many financial instruments and certain other items at fair value. No assets have been elected to be reported at fair value. The objective is to improve financial reporting by providing the Company with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or to transfer a liability in an orderly transaction between market participants. Under this guidance, fair value measurements are not adjusted for transaction costs. This guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quotes priced in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Accounting Standards Codification 825-10, Recognition and Measurement of Financial Assets and Financial Liabilities requires that the Company disclose estimated fair values for its financial instruments, whether or not recognized in the statement of financial condition. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Certain financial instruments and all nonfinancial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments of which it is practicable to estimate that value:
Cash and Cash Equivalents - The carrying amounts reported in the statements of financial condition for cash and cash equivalents approximate those assets’ fair values and are classified within Level 1 of the fair value hierarchy.
Investment Securities - The fair market values of investments 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.
Loans Receivable, net - Loans are valued using the methodology developed for Economic Value of Equity pricing, with a build-up for loans based on the U.S. Treasury yield curve, a credit risk spread and an overhead coverage rate. Loans receivable are classified within Level 3 of the fair value hierarchy.
Bank-owned Life Insurance - The cash surrender value of bank-owned life insurance approximates its fair value and is classified within Level 2 of the fair value hierarchy.
Non-maturity Deposit Liabilities - Under ASC 825-10, the fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, NOW, money market and checking accounts, is equal to the amount payable on demand at the reporting date. These non-maturity deposit liabilities are classified within Level 2 of the fair value hierarchy.
Certificates of Deposit - All certificates are assumed to remain on the Company’s books until maturity without any change in coupon. Fair values are estimated using market pricing data for new CDs of similar structure and remaining maturity. Certificates of deposit are classified within Level 2 of the fair value hierarchy.
Federal Home Loan Bank Borrowings - Data is taken from the Company’s FHLB Customer Profile report. All borrowings are priced using current advance pricing data from the FHLB’s website for new borrowings of similar structure and remaining maturity. FHLB borrowings are classified within Level 2 of the fair value hierarchy.
Other Assets and Liabilities - All other assets and liabilities are reported at current book value unless noted otherwise.
21
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
The estimated fair values of the Company’s financial instruments as of June 30, 2022 and December 31, 2021 are as follows:
June 30, 2022 | |||||||||||||||
(Dollars in thousands) |
| Carrying Amount |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial Assets: |
|
|
|
|
| ||||||||||
Cash and cash equivalents | $ | | $ | | $ | |
| $ | - |
| $ | - | |||
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Available-for-sale |
| |
| |
| - |
|
| |
|
| - | |||
Held-to-maturity |
| |
| |
| - |
|
| |
|
| - | |||
Loans receivable, net |
| |
| |
| - |
|
| - |
|
| | |||
Bank-owned life insurance | | | - | | - | ||||||||||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Deposits |
| |
| |
| - |
|
| |
|
| - | |||
Borrowed funds |
| |
| |
| - |
|
| |
|
| - | |||
December 31, 2021 | |||||||||||||||
(Dollars in thousands) |
| Carrying Amount |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents | $ | | $ | | $ | |
| $ | - |
| $ | - | |||
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Available-for-sale |
| |
| |
| - |
|
| |
|
| - | |||
Held-to-maturity |
| |
| |
| - |
|
| |
|
| - | |||
Loans receivable, net |
| |
| |
| - |
|
| - |
|
| | |||
Bank-owned life insurance | | | - | | - | ||||||||||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Deposits |
| |
| |
| - |
|
| |
|
| - | |||
Borrowed funds |
| |
| |
| - |
|
| |
|
| - | |||
The carrying amounts in the preceding table are included in the statement of financial condition under the applicable captions. It is not practical to estimate the fair value of Federal Home Loan Bank (“FHLB”) and First National Bankers Bank stock because they are not marketable. The carrying amount of investments without readily determinable fair value are reported in the Consolidated Statements of Financial Condition at historical cost.
22
NOTE 11. SUBSEQUENT EVENTS
On March 23, 2022, the Board of Directors adopted the 2022 Stock Option Plan and the 2022 Recognition and Retention Plan and Trust Agreement (“2022 Recognition and Retention Plan”), which were approved by shareholders at our annual meeting on May 17, 2022. Under the terms of both plans, officers, employees and directors selected by the Compensation Committee of the Board of Directors are eligible to receive benefits. A total of
As of the date of this filing,
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management’s discussion and analysis of financial condition and results of operations at June 30, 2022 and for the three and six months ended June 30, 2022 and 2021 is intended to assist in understanding our financial condition and results of operations. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements of the Company and the notes thereto appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q as well as the business and financial information included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2021.
Cautionary Note Regarding Forward-Looking Statements
Certain matters in this Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of words such as “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could.” These forward-looking statements include, but are not limited to:
| ● | statements of our goals, intentions and expectations; |
| ● | statements regarding our business plans, prospects, growth and operating strategies; |
| ● | statements regarding the quality of our loan and investment portfolios; and |
| ● | estimates of our risks and future costs and benefits. |
You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These forward-looking statements are based on our current beliefs and expectations and, by their nature, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
Important factors that could cause our actual results to differ materially from the results anticipated or projected, include, but are not limited to, the following:
| ● | general economic conditions, either nationally or in our market areas, that are different than expected; |
| ● | conditions relating to the COVID-19 pandemic, or other infectious disease outbreaks, including the severity and duration of the associated economic slowdown, either nationally or in our market areas, that are worse than expected; |
| ● | changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses; |
| ● | our ability to access cost-effective funding; |
| ● | major catastrophes such as hurricanes, floods or other natural disasters, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies; |
24
| ● | technological changes that may be more difficult or expensive than expected; |
| ● | success or consummation of new business initiatives may be more difficult or expensive than expected; |
| ● | the inability of third party service providers to perform; |
| ● | fluctuations in real estate values and both residential and commercial real estate market conditions; |
| ● | demand for loans and deposits in our market area; |
| ● | our ability to continue to implement our business strategies; |
| ● | competition among depository and other financial institutions; |
| ● | inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans; |
| ● | adverse changes in the securities markets; |
| ● | changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; |
| ● | our ability to manage market risk, credit risk and operational risk in the current economic conditions; |
| ● | our ability to enter new markets successfully and capitalize on growth opportunities; |
| ● | our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; |
| ● | changes in consumer spending, borrowing and savings habits; |
| ● | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the U. S. Securities and Exchange Commission or the Public Company Accounting Oversight Board; |
| ● | our ability to retain key employees; and our compensation expense associated with equity allocated or awarded to our employees. |
We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.
25
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 and became the holding company for the Bank. As a result of the Conversion, the Bank is a wholly owned subsidiary of Catalyst Bancorp. The Company was not engaged in operations and had not issued any shares of stock prior to the completion of the Conversion.
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 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. We have 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.
At June 30, 2022, total assets were $281.0 million, including total loans of $133.6 million and total investment securities of $95.8 million, total deposits were $178.7 million and total shareholders’ equity was $92.4 million. The Company reported net income of $18,000 for the three months ended June 30, 2022, compared to net income of $260,000 for the three months ended June 30, 2021. For the six months ended June 30, 2022, the Company reported a net loss of $113,000, compared to net income of $411,000 for the six months ended June 30, 2021. The decrease in net income over the comparable prior periods was primarily due to increases in non-interest expense, partially offset by increases in non-interest income. On June 23, 2022, the Bank rebranded and officially changed its name to Catalyst Bank. Pre-tax costs associated with the rebranding of the Bank totaled $208,000 and $242,000 for the three and six months ended June 30, 2022, respectively. The Company also received and recognized into income a $171,000 Bank Enterprise Award (“BEA”) Program grant from the Community Development Financial Institution (“CDFI”) Fund during the three months ended June 30, 2022. Professional fees associated with the grant totaled $26,000 and were recorded in non-interest expense in the same period.
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 loan 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, advertising and business promotion and other expense. We expect that our non-interest expenses will continue to increase as we grow and expand our operations. In addition, our compensation expense will increase due to the new stock benefit plans we intend to implement. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, the impact of the COVID-19 pandemic, 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.
26
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 the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2021. 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 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 Loan Losses. We have identified the evaluation of the allowance for loan losses as a critical accounting policy where amounts are sensitive to material variation. The allowance for loan losses represents management’s estimate for probable losses that are inherent in our loan portfolio but which have not yet been realized as of the date of our balance sheet. It is established through a provision for loan 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 is an amount that management believes will cover probable and reasonably estimable losses in the loan portfolio based on evaluations of the collectability of loans. The evaluations take into consideration such factors 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, and current economic conditions. This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impacted loans, value of collateral, estimated losses on our commercial and residential loan portfolios and general amounts for historical loss experience. All of these estimates may be susceptible to significant changes as more information becomes available. The allowance for loans losses totaled $2.0 million, or 1.48% of total loans, at June 30, 2022 and $2.3 million, or 1.73% of total loans, at December 31, 2021. The decrease in the allowance for loan losses primarily related to improvements in our assessment of the impact of the COVID-19 pandemic on our borrowers and a decrease in reserves for loans individually evaluated for impairment.
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. Historically, our estimates of the allowance for loan loss have not required significant adjustments from management’s initial estimates. In addition, the Office of the Comptroller of the Currency as an integral part of their examination processes periodically reviews our allowance for loan losses. While management is responsible for the establishment of the allowance for loan losses and for adjusting such allowance through provisions for loan losses, management may determine, as a result of such regulatory reviews, that an increase or decrease in the allowance or provision for loan 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 loan losses may be required that would adversely impact earnings in future periods.
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
27
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.
Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. The term “other-than-temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Declines in the estimated fair value of individual investment securities below their cost that are considered other-than-temporary are recognized as realized losses in the statement of income. Factors affecting the determination of whether an other-than-temporary impairment has occurred include, among other things, (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) that the Company does not intend to sell these securities, and (4) it is more likely than not that the Company will not be required to sell before a period of time sufficient to allow for any anticipated recovery in fair value. Unrealized holding gains and losses, net of tax, on available-for-sale securities are included in other comprehensive income. At June 30, 2022 and December 31, 2021, net unrealized losses on available-for-sale securities totaled $8.4 million and $864,000, respectively. The increase in unrealized losses on available-for-sale securities relates principally to the change in interest rates for similar types of securities. No declines in fair value of available-for-sale securities were deemed to be other-than-temporary.
Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is 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. 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.
COVID-19
The CARES Act, enacted in March of 2020 in response to the economic disruption brought about by the COVID-19 pandemic, contains many provisions related to banking, lending, mortgage forbearance and taxation. Under the provisions of the act, we supported our customers through the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), loan modifications and loan deferrals. We funded 240 SBA PPP loans totaling $8.5 million with an average initial loan balance of $36,000 to existing customers and key prospects located primarily in our markets in south central Louisiana. As of June 30, 2022 and December 31, 2021, the total unpaid principal balance of PPP loans totaled $22,000 and $2.8 million, respectively.
In addition, we granted modifications, generally in the form of three-month deferrals of principal payments and a three-month extension of the maturity date, to 204 loans with principal balances totaling $28.2 million under the CARES Act. In accordance with guidance from the Federal Deposit Insurance Corporation (the “FDIC”), borrowers who were current prior to becoming affected by COVID-19, that received loan modifications as a result of the pandemic, generally were not reported as past due or categorized as troubled debt restructurings. This relief provided by the CARES Act expired January 1, 2022. At December 31, 2021, we had no loans under deferral or extension agreements due to COVID-19.
Management’s assumptions and estimates, such as the allowance for loan losses, may be negatively impacted as the Company continues to evaluate and consider the effects of the COVID-19 pandemic. However, it is difficult to assess or predict how and to what extent COVID-19 will affect the Company in the future.
28
Comparison of Financial Condition at June 30, 2022 and December 31, 2021
Total Assets. Total assets decreased $4.4 million, or 1.5%, to $281.0 million at June 30, 2022 from $285.3 million at December 31, 2021. The decrease resulted primarily from declines in cash and cash equivalents, down $11.7 million, and available-for-sale investment securities, down $6.1 million, partially offset by an increase in bank-owned life insurance of $10.1 million and an increase in total loans of $1.8 million.
Loans. Total loans receivable increased by $1.8 million, or 1.4%, to $133.6 million at June 30, 2022, compared to $131.8 million at December 31, 2021. Loan growth during the six months ended June 30, 2022 was primarily fueled by new originations of commercial and industrial loans and residential mortgage loans, partially offset by net declines in commercial real estate and multifamily loans. The total unpaid principal balance of PPP loans, included in commercial and industrial loans, amounted to $22,000 at June 30, 2022, down from $2.8 million at December 31, 2021.
The following table summarizes the changes in the composition of our loan portfolio by type of loan as of the dates indicated.
June 30, 2022 | December 31, 2021 | |||||||||||||||||
(Dollars in thousands) |
| Amount |
| % |
| Amount |
| % | Change | |||||||||
Real estate loans | ||||||||||||||||||
One- to four-family residential | $ | 89,531 |
| 67.0 | % | $ | 87,303 |
| 66.2 | % | $ | 2,228 | 2.6 | % | ||||
Commercial real estate |
| 21,521 |
| 16.1 |
| 23,112 |
| 17.5 |
| (1,591) | (6.9) | |||||||
Construction and land |
| 3,843 |
| 2.9 |
| 4,079 |
| 3.1 |
| (236) | (5.8) | |||||||
Multi-family residential |
| 3,315 |
| 2.5 |
| 4,589 |
| 3.5 |
| (1,274) | (27.8) | |||||||
Total real estate loans | 118,210 |
| 88.5 | 119,083 |
| 90.3 | (873) | (0.7) | ||||||||||
Other loans |
|
| ||||||||||||||||
Commercial and industrial | 11,410 |
| 8.5 | 8,374 |
| 6.4 | 3,036 | 36.3 | ||||||||||
Consumer | 4,004 |
| 3.0 | 4,385 |
| 3.3 | (381) | (8.7) | ||||||||||
Total other loans | 15,414 |
| 11.5 | 12,759 |
| 9.7 | 2,655 | 20.8 | ||||||||||
Total loans | $ | 133,624 |
| 100.0 | % | 131,842 |
| 100.0 | % | $ | 1,782 | 1.4 | % | |||||
29
Allowance for Loan Losses. The allowance for loans losses totaled $2.0 million, or 1.48% of total loans, at June 30, 2022 and $2.3 million, or 1.73% of total loans, at December 31, 2021. The decline in the allowance for loan losses primarily reflects the reversal of provisions made for estimated loan losses during 2020 associated with our initial assessment of COVID-19’s impact on credit risk and a $56,000 decrease in reserves for loans individually evaluated for impairment. During the six months ended June 30, 2022, net loan charge-offs totaled $36,000 and the Company recorded a reversal to the allowance for loan losses of $260,000.
The following table presents the changes in the allowance for loan losses and other related data for the periods indicated.
Six Months Ended June 30, | Year Ended December 31, | |||||||||||
(Dollars in thousands) |
| 2022 | 2021 | 2021 | ||||||||
Allowance for loan losses, beginning of period | $ | 2,276 |
| $ | 3,022 | $ | 3,022 | |||||
Provision for (reversal of) loan losses |
| (260) |
| (286) | (660) | |||||||
Net loan charge-offs: |
|
|
|
| ||||||||
One- to four-family residential |
| (14) |
| (82) | (69) | |||||||
Commercial real estate |
| - |
| - | - | |||||||
Construction and land |
| - |
| - | - | |||||||
Multi-family residential |
| - |
| - | - | |||||||
Commercial and industrial |
| (14) |
| - | - | |||||||
Consumer |
| (8) |
| (5) | (17) | |||||||
Total net charge-offs |
| (36) |
| (87) | (86) | |||||||
Allowance for loan losses, end of period | $ | 1,980 |
| $ | 2,649 | $ | 2,276 | |||||
Total loans at end of period | $ | 133,624 |
| $ | 140,288 | $ | 131,842 | |||||
Total non-accrual loans at end of period |
| 1,246 |
| 754 | 890 | |||||||
Total non-performing loans at end of period |
| 1,287 |
| 897 | 891 | |||||||
Total average loans | 132,291 | 146,148 | 141,592 | |||||||||
Allowance for loan losses as a percent of: | ||||||||||||
Total loans |
| 1.48 | % | 1.89 | % | 1.73 | % | |||||
Non-accrual loans |
| 158.91 | 351.33 | 255.73 | ||||||||
Non-performing loans |
| 153.85 | 295.32 | 255.44 | ||||||||
Net annualized charge-offs as a percent of average loans by portfolio: | ||||||||||||
One- to four-family residential | (0.03) | % | (0.17) | % | (0.07) | % | ||||||
Commercial real estate | - | - | - | |||||||||
Construction and land | - | - | - | |||||||||
Multi-family residential | - | - | - | |||||||||
Commercial and industrial | (0.30) | - | - | |||||||||
Consumer | (0.38) | (0.23) | (0.37) | |||||||||
Total loans | (0.05) | (0.12) | (0.06) | |||||||||
30
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 real estate owned at the dates indicated, and our performing TDRs.
| June 30, | December 31, | ||||||
(Dollars in thousands) | 2022 | 2021 | ||||||
Non-accruing loans |
|
|
|
| ||||
One- to four-family residential | $ | 1,132 | $ | 791 | ||||
Commercial real estate |
| 51 |
| - | ||||
Construction and land |
| 63 |
| 68 | ||||
Multi-family residential |
| - |
| - | ||||
Commercial and industrial |
| - |
| 18 | ||||
Consumer |
| - |
| 13 | ||||
Total non-accruing loans |
| 1,246 | 890 | |||||
Accruing loans 90 days or more past due |
|
|
|
| ||||
One- to four-family residential |
| 41 |
| - | ||||
Commercial real estate |
| - |
| - | ||||
Construction and land |
| - |
| - | ||||
Multi-family residential |
| - |
| - | ||||
Commercial and industrial |
| - |
| - | ||||
Consumer |
| - |
| 1 | ||||
Total accruing loans 90 days or more past due | 41 |
| 1 | |||||
Total non-performing loans | 1,287 | 891 | ||||||
Foreclosed assets | 320 | 340 | ||||||
Total non-performing assets | 1,607 | 1,231 | ||||||
Performing troubled debt restructurings | 1,126 | 1,873 | ||||||
Total non-performing assets and performing TDRs | $ | 2,733 | $ | 3,104 | ||||
Total loans | $ | 133,624 | $ | 131,842 | ||||
Total assets | $ | 280,983 | $ | 285,349 | ||||
Total non-accruing loans as a percentage of total loans | 0.93 | % |
| 0.68 | % | |||
Total non-performing loans as a percentage of total loans | 0.96 | % |
| 0.68 | % | |||
Total non-performing loans as a percentage of total assets | 0.46 | % |
| 0.31 | % | |||
Total non-performing assets as a percentage of total assets | 0.57 | % |
| 0.43 | % | |||
31
Investment Securities. Our total investment securities, available-for-sale and held-to-maturity, amounted to $95.8 million at June 30, 2022, a decrease of $6.1 million, or 6.0%, compared to $101.8 million in investment securities at December 31, 2021. Net unrealized losses on securities available-for-sale totaled $8.4 million at June 30, 2022, compared to $864,000 at December 31, 2021. The increase in unrealized losses on available-for-sale securities related principally to increases in market interest rates for similar securities. At June 30, 2022, $82.3 million, or 85.9%, of our total investment securities were classified as available-for-sale. Our investment securities portfolio at such date consisted primarily of debt obligations issued by the U.S. government and government agencies and government-sponsored mortgage-backed securities. During the six months ended June 30, 2022, purchases of $7.7 million of investment securities exceeded $6.0 million of maturities, calls and principal repayments.
The following table presents the amortized cost of our total investment securities portfolio that mature during each of the periods indicated and the weighted average yields for each range of maturities at June 30, 2022.
Contractual Maturity as of June 30, 2022 | ||||||||||||||||||||
(Dollars in thousands) | One Year or Less | After One Through Five Years | After Five Through Ten Years | Over Ten Years | Total | |||||||||||||||
Total investment securities | ||||||||||||||||||||
Mortgage-backed securities | $ | - | $ | 1,312 | $ | 10,061 | $ | 62,857 | $ | 74,230 | ||||||||||
U.S. Government and agency obligations |
| - |
| 8,976 |
| 11,000 |
| 4,013 |
| 23,989 | ||||||||||
Municipal obligations | - | 1,083 | 2,302 | 2,569 | 5,954 | |||||||||||||||
Total | $ | - | $ | 11,371 | $ | 23,363 | $ | 69,439 | $ | 104,173 | ||||||||||
Weighted average yield |
|
|
|
|
|
|
|
|
|
| ||||||||||
Mortgage-backed securities |
| - | % |
| 1.19 | % |
| 1.33 | % |
| 1.50 | % |
| 1.47 | % | |||||
U.S. Government and agency obligations |
| - |
| 1.03 |
| 1.21 |
| 2.13 |
| 1.30 | ||||||||||
Municipal obligations |
| - |
| 0.83 |
| 2.06 |
| 1.35 |
| 1.53 | ||||||||||
Total weighted average yield |
| - | % |
| 1.03 | % |
| 1.35 | % |
| 1.53 | % |
| 1.44 | % | |||||
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.
32
Deposits. Our total deposits amounted to $178.7 million at June 30, 2022, an increase of $1.9 million, or 1.1%, compared to December 31, 2021. This increase resulted primarily from increases in NOW, money market and savings account balances, partially offset by declines in certificates of deposit.
The following table presents total deposits by account type for the dates indicated.
June 30, 2022 | December 31, 2021 | |||||||||||||||||
(Dollars in thousands) |
| Amount |
| % |
| Amount |
| % | Change | |||||||||
Non-interest-bearing demand deposits | $ | 30,400 |
| 17.0 | % | $ | 30,299 |
| 17.1 | % | $ | 101 | 0.3 | % | ||||
Negotiable order of withdrawal (“NOW”) |
| 39,454 |
| 22.1 |
| 34,357 |
| 19.4 |
| 5,097 | 14.8 | |||||||
Money market |
| 19,525 |
| 10.9 |
| 18,878 |
| 10.7 |
| 647 | 3.4 | |||||||
Savings |
| 27,388 |
| 15.3 |
| 26,698 |
| 15.1 |
| 690 | 2.6 | |||||||
Certificates of deposit | 61,968 |
| 34.7 | 66,563 |
| 37.7 | (4,595) | (6.9) | ||||||||||
Total deposits | $ | 178,735 |
| 100 | % | $ | 176,795 |
| 100 | % | $ | 1,940 | 1.1 | |||||
Borrowings. Our borrowings, which consist of FHLB advances, amounted to $9.1 million at June 30, 2022, compared to $9.0 million at December 31, 2021. The increase 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 $892,000 and $982,000 at June 30, 2022 and December 31, 2021, respectively.
Shareholders’ Equity. Shareholders’ equity decreased $5.9 million to $92.4 million at June 30, 2022 compared to $98.3 million at December 31, 2021. The primary reason for the decrease in total shareholders’ equity was a $6.0 million increase in the Company’s accumulated other comprehensive loss position due to unrealized losses on available-for-sale securities. At June 30, 2022, our ratio of total shareholders’ equity to total assets was 32.9% compared to 34.5% at December 31, 2021.
33
Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following tables show for the periods indicated the total dollar amount of interest 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.
Three Months Ended June 30, | ||||||||||||||||||
2022 | 2021 | |||||||||||||||||
(Dollars in thousands) |
| Average Balance |
| Interest |
| Average Yield/Rate | Average Balance |
| Interest |
| Average Yield/Rate | |||||||
Interest-earning assets: |
| |||||||||||||||||
Loans receivable(1) |
| $ | 133,810 | $ | 1,555 |
| 4.66 | % | $ | 143,145 | $ | 1,865 |
| 5.23 | % | |||
Investment securities(TE)(2) |
|
| 104,137 |
| 352 |
| 1.37 |
| 50,105 |
| 141 |
| 1.15 | |||||
Other interest-earning assets |
|
| 30,108 |
| 58 |
| 0.78 |
| 30,193 |
| 10 |
| 0.13 | |||||
Total interest-earning assets(TE) |
| 268,055 |
| 1,965 |
| 2.94 |
| 223,443 |
| 2,016 |
| 3.62 | ||||||
Non-interest-earning assets |
| 18,233 |
| 14,483 | ||||||||||||||
Total assets | $ | 286,288 | $ | 237,926 | ||||||||||||||
Interest-bearing liabilities: |
| |||||||||||||||||
Savings, NOW and money market accounts |
|
| 85,646 |
| 24 |
| 0.11 |
| 78,600 |
| 26 |
| 0.13 | |||||
Certificates of deposit |
|
| 64,936 |
| 63 |
| 0.39 |
| 69,314 |
| 109 |
| 0.63 | |||||
Total interest-bearing deposits |
|
| 150,582 |
| 87 |
| 0.23 |
| 147,914 |
| 135 |
| 0.37 | |||||
FHLB advances |
|
| 9,079 |
| 68 |
| 3.00 |
| 8,898 |
| 68 |
| 3.07 | |||||
Total interest-bearing liabilities |
| 159,661 |
| 155 |
| 0.39 |
| 156,812 |
| 203 |
| 0.52 | ||||||
Non-interest-bearing liabilities |
| 33,309 |
| 30,740 | ||||||||||||||
Total liabilities |
| 192,970 |
| 187,552 | ||||||||||||||
Shareholders' equity |
| 93,318 |
| 50,374 | ||||||||||||||
Total liabilities and shareholders' equity | $ | 286,288 | $ | 237,926 | ||||||||||||||
Net interest-earning assets | $ | 108,394 | $ | 66,631 | ||||||||||||||
Net interest income; average interest rate spread(TE) | $ | 1,810 |
| 2.55 | % | $ | 1,813 |
| 3.10 | % | ||||||||
Net interest margin(TE)(3) |
| 2.71 | % |
| 3.26 | % | ||||||||||||
Average interest-earning assets to average interest-bearing liabilities |
| 167.89 | % |
| 142.49 | % | ||||||||||||
| (1) | Includes non-accrual loans during the respective periods. Calculated net of deferred fees and discounts and loans in process. |
| (2) | Average investment securities does not include unrealized holding gains/ losses on available-for-sale securities. |
| (3) | Equals net interest income divided by average interest-earning assets. Taxable equivalent yields are calculated using a marginal tax rate of 21%. |
34
Six Months Ended June 30, | ||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
(Dollars in thousands) | Average Balance | Interest | Average Yield/Rate | Average Balance | Interest | Average Yield/Rate | ||||||||||||
Interest-earning assets: | ||||||||||||||||||
Loans receivable(1) | $ | 132,291 | $ | 3,118 |
| 4.75 | % | $ | 146,148 | $ | 3,673 |
| 5.07 | % | ||||
Investment securities(TE)(2) |
| 103,888 |
| 681 |
| 1.32 |
| 45,293 |
| 262 |
| 1.18 | ||||||
Other interest-earning assets |
| 34,830 |
| 77 |
| 0.45 |
| 28,058 |
| 24 |
| 0.17 | ||||||
Total interest-earning assets(TE) |
| 271,009 |
| 3,876 |
| 2.88 |
| 219,499 |
| 3,959 |
| 3.64 | ||||||
Non-interest-earning assets |
| 15,457 |
| 14,324 | ||||||||||||||
Total assets | $ | 286,466 | $ | 233,823 | ||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||
Savings, NOW and money market accounts |
| 83,776 |
| 48 |
| 0.12 |
| 76,037 |
| 58 |
| 0.15 | ||||||
Certificates of deposit |
| 65,434 |
| 131 |
| 0.40 |
| 69,199 |
| 232 |
| 0.68 | ||||||
Total interest-bearing deposits |
| 149,210 |
| 179 |
| 0.24 |
| 145,236 |
| 290 |
| 0.40 | ||||||
FHLB advances |
| 9,057 |
| 136 |
| 3.01 |
| 8,876 |
| 136 |
| 3.07 | ||||||
Total interest-bearing liabilities |
| 158,267 |
| 315 |
| 0.40 |
| 154,112 |
| 426 |
| 0.56 | ||||||
Non-interest-bearing liabilities |
| 32,968 |
| 29,173 | ||||||||||||||
Total liabilities |
| 191,235 |
| 183,285 | ||||||||||||||
Shareholders' equity |
| 95,231 |
| 50,538 | ||||||||||||||
Total liabilities and shareholders' equity | $ | 286,466 | $ | 233,823 | ||||||||||||||
Net interest-earning assets | $ | 112,742 | $ | 65,387 | ||||||||||||||
Net interest income; average interest rate spread(TE) | $ | 3,561 |
| 2.48 | % | $ | 3,533 |
| 3.08 | % | ||||||||
Net interest margin(TE)(3) |
| 2.65 | % |
| 3.25 | % | ||||||||||||
Average interest-earning assets to average interest-bearing liabilities |
| 171.24 | % |
| 142.43 | % | ||||||||||||
| (1) | Includes non-accrual loans during the respective periods. Calculated net of deferred fees and discounts and loans in process. |
| (2) | Average investment securities does not include unrealized holding gains/ losses on available-for-sale securities. |
| (3) | Equals net interest income divided by average interest-earning assets. Taxable equivalent yields are calculated using a marginal tax rate of 21%. |
35
Rate/Volume Analysis. The following tables show 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 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.
| Three Months Ended |
| Six Months Ended | |||||||||||||||
June 30, 2022 vs 2021 | June 30, 2022 vs 2021 | |||||||||||||||||
Increase (Decrease) Due to | Total | Increase (Decrease) Due to | Total | |||||||||||||||
(Dollars in thousands) | Rate | Volume | Increase (Decrease) | Rate | Volume | Increase (Decrease) | ||||||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans receivable | $ | (194) | $ | (116) | $ | (310) | $ | (220) | $ | (335) | $ | (555) | ||||||
Investment securities |
| 33 |
| 178 |
| 211 |
| 39 |
| 380 |
| 419 | ||||||
Other interest-earning assets |
| 48 |
| - |
| 48 |
| 46 |
| 7 |
| 53 | ||||||
Total interest income |
| (113) |
| 62 |
| (51) |
| (135) |
| 52 |
| (83) | ||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Savings, NOW and money market accounts |
| (4) |
| 2 |
| (2) |
| (15) |
| 5 |
| (10) | ||||||
Certificates of deposit |
| (39) |
| (7) |
| (46) |
| (89) |
| (12) |
| (101) | ||||||
Total deposits |
| (43) |
| (5) |
| (48) |
| (104) |
| (7) |
| (111) | ||||||
FHLB advances and other borrowings |
| (1) |
| 1 |
| - |
| (2) |
| 2 |
| — | ||||||
Total interest expense |
| (44) |
| (4) |
| (48) |
| (106) |
| (5) |
| (111) | ||||||
Increase (decrease) in net interest income | $ | (69) | $ | 66 | $ | (3) | $ | (29) | $ | 57 | $ | 28 | ||||||
36
Comparison of Results of Operations for the Three Months Ended June 30, 2022 and 2021.
General. For the three months ended June 30, 2022, the Company reported net income of $18,000, compared to net income of $260,000 for the three months ended June 30, 2021. The decrease in net income over the comparable three-month periods was primarily due to an increase in non-interest expense of $415,000, or 21.1%, and a $97,000, or 33.9%, decline in our reversal of the allowance for loan losses, partially offset by an increase in non-interest income of $189,000, or 99.5%. During the three months ended June 30, 2022, pre-tax costs associated with the rebranding of the Bank to Catalyst Bank totaled $208,000 and the Company received and recognized into non-interest income a $171,000 BEA Program grant from the CDFI Fund. Professional fees associated with the grant totaled $26,000 and were recorded in non-interest expense in the same period.
Interest Income. Total interest income decreased $51,000, or 2.5%, to $2.0 million for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. This decrease was primarily attributable to a $310,000 decrease in interest income on loans receivable, partially offset by an increase in income on investment securities of $211,000 and an increase in other interest income of $48,000.
The average loan yield was 4.66% for the three months ended June 30, 2022, down from 5.23% for the three months ended June 30, 2021. In addition, average loans were $133.8 million for the three months ended June 30, 2022, down $9.3 million, or 6.5%, compared to the same period in 2021. Loan income from the recognition of deferred PPP loan fees totaled $96,000 for the three months ended June 30, 2022, down $78,000, or 44.5%, from $174,000 recognized in the same period in 2021.
The increase in interest income on investment securities was primarily due to an increase in the average volume of our securities portfolio. The average amortized cost of our investment securities was up $54.0 million, or 107.8%, for the three months ended June 30, 2022, compared to the same period in 2021. During the fourth quarter of 2021, the Company deployed $41.9 million of the proceeds from our IPO into the investment securities portfolio.
Interest Expense. Total interest expense decreased $48,000, or 23.6%, to $155,000 for the three months ended June 30, 2022 from $203,000 for the three months ended June 30, 2021. Interest expense on deposits was $87,000 during the three months ended June 30, 2022, down $48,000, or 35.6%, from $135,000 for the three months ended June 30, 2021. While the average balance of our total interest-bearing deposits increased by $2.7 million, or 1.8%, to $150.6 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, the average rate paid on interest-bearing deposits was down 14 basis points to 0.23% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.
Net Interest Income. Net interest income was $1.8 million for both the three months ended June 30, 2022 and 2021. Our interest rate spread was 2.55% and 3.10% for the three months ended June 30, 2022 and 2021, respectively. Our net interest margin was 2.71% and 3.26% for the three months ended June 30, 2022 and 2021, respectively. The decline in interest rate spread and net interest margin over the prior comparable periods was primarily the result of lower average yields on loans and a shift in the mix of our interest-earning assets as we grew our investment securities portfolio and experienced a decline in total loans. These factors reduced the average yield earned on total interest-earning assets in an amount which more than offset the reduction in the average cost of our interest-bearing liabilities.
Provision for Loan Losses. During the three months ended June 30, 2022 and 2021, the Company recorded reversals to the allowance for loan losses of $189,000 and $286,000, respectively. The amounts recorded during both periods primarily reflect the release of reserve builds recorded during 2020 for the anticipated effects of the COVID-19 pandemic on credit quality.
Non-interest Income. Non-interest income increased $189,000, or 99.5%, to $379,000 for the three months ended June 30, 2022 from $190,000 for the three months ended June 30, 2021. During the three months ended June 30, 2022, the Company received and recognized into income a $171,000 BEA Program grant from the 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. In addition, income from bank-owned life insurance (“BOLI”) increased by $75,000 to $98,000 for the three months ended June 30, 2022, compared to the same
37
period in 2021 largely due to an aggregate of $10.0 million in additional BOLI policies purchased in March and April of 2022.
The increases in non-interest income due to the BEA Program grant and BOLI were partially offset by losses on the disposal of fixed assets with a total net book value of $77,000 during the three months ended June 30, 2022. Of the assets disposed, $55,000 was attributable to branch signage that was replaced due to our rebranding.
Non-interest Expense. Non-interest expense increased $415,000, or 21.1%, to $2.4 million for the three months ended June 30, 2022, compared to $2.0 million for the three months ended June 30, 2021. Total non-interest expense for the three months ended June 30, 2022 included $153,000 of rebranding-related expenses. The increase in non-interest expense also reflects the additional costs associated with operating as a public company since the completion of our IPO in October 2021 and additional resources needed to expand our business.
Salaries and employee benefits expense totaled $1.2 million for the three months ended June 30, 2022, an increase of $38,000, or 3.2%, over the comparable period in 2021 primarily due to ESOP compensation expense recognized in the 2022 period. Allocations under the Company’s ESOP commenced during the fourth quarter of 2021.
Occupancy and equipment expense totaled $227,000 for the three months ended June 30, 2022, an increase of $55,000, or 32.0%, over the comparable period in 2021 primarily due to expenses related to an additional branch location opened in November 2021 and rebranding-related expenses of $14,000.
Data processing and communication expense totaled $242,000 for the three months ended June 30, 2022, an increase of $61,000, or 33.7%, over the comparable period in 2021 primarily due to rebranding-related expenses of $32,000 for project support provided by our core software vendor and the cost of technology resources for additional personnel and our newest branch location.
Professional fees totaled $175,000 for the three months ended June 30, 2022, an increase of $81,000, or 86.2%, over the comparable period in 2021 primarily due to public company consulting and legal services and professional fees of $26,000 incurred for assistance with the BEA Program grant application during the three months ended June 30, 2022.
Advertising and marketing expense totaled $109,000 for the three months ended June 30, 2022, an increase of $97,000 over the comparable period in 2021 primarily due to rebranding-related expenses of $87,000.
Franchise and shares tax expense totaled $58,000 for the three months ended June 30, 2022. As a result of the mutual-to-stock conversion of the Bank and the establishment of Catalyst Bancorp as its holding company, the Company became subject to franchise tax and the Bank became subject to Louisiana shares tax for 2022.
Income Tax Expense. The Company reported an income tax benefit of $21,000 for the three months ended June 30, 2022, compared to income tax expense of $63,000 for the three months ended June 30, 2021. The change in income tax expense over the comparable three-month periods was primarily due to the change in taxable earnings.
38
Comparison of Results of Operations for the Six Months Ended June 30, 2022 and 2021.
General. For the six months ended June 30, 2022, the Company reported a net loss of $113,000, compared to net income of $411,000 for the six months ended June 30, 2021. The decrease in net income over the comparable periods was primarily due to an increase in non-interest expense of $877,000, or 23.8%, partially offset by an increase in non-interest income of $199,000, or 52.8%. During the six months ended June 30, 2022, pre-tax costs associated with the rebranding of the Bank to Catalyst Bank totaled $242,000 and the Company received and recognized into income the $171,000 BEA Program grant from the CDFI Fund. Professional fees associated with the grant totaled $26,000 and were recorded in non-interest income in the same period.
Interest Income. Total interest income decreased $83,000, or 2.1%, to $3.9 million for the six months ended June 30, 2022, from $4.0 million for the six months ended June 30, 2021. This decrease was primarily attributable to a $555,000 decrease in interest income on loans receivable, partially offset by an increase in income on investment securities of $419,000 and an increase in other interest income of $53,000.
The average loan yield was 4.75% for the six months ended June 30, 2022, down from 5.07% for the six months ended June 30, 2021. In addition, average loans were $132.3 million for the six months ended June 30, 2022, down $13.9 million, or 9.5%, compared to the same period in 2021. Loan income from the recognition of deferred PPP loan fees totaled $186,000 for the six months ended June 30, 2022, down $24,000, or 11.4%, from $210,000 recognized in the same period in 2021.
The increase in interest income on investment securities was primarily due to an increase in the average volume of our securities portfolio. The average amortized cost of our investment securities was up $58.6 million, or 129.4%, for the six months ended June 30, 2022, compared to the same period in 2021. During the fourth quarter of 2021, the Company deployed $41.9 million of the proceeds from our IPO into the investment securities portfolio.
Interest Expense. Total interest expense decreased $111,000, or 26.1%, to $315,000 for the six months ended June 30, 2022 from $426,000 for the six months ended June 30, 2021. Interest expense on deposits was $179,000 during the six months ended June 30, 2022, down $111,000, or 38.3%, from $290,000 for the six months ended June 30, 2021. While the average balance of our total interest-bearing deposits increased by $4.0 million, or 2.7%, to $149.2 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, the average rate paid on interest-bearing deposits decreased by 16 basis points to 0.24% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.
Net Interest Income. Net interest income was $3.6 million for the six months ended June 30, 2022, an increase of $28,000, or 0.8%, compared to the six months ended June 30, 2021. Our interest rate spread was 2.48% and 3.08% for the six months ended June 30, 2022 and 2021, respectively. Our net interest margin was 2.65% and 3.25% for the six months ended June 30, 2022 and 2021, respectively. The decline in interest rate spread and net interest margin over the prior comparable periods was primarily the result of lower average yield on loans and a shift in the mix of our interest-earning assets as we grew our investment securities portfolio and experienced a decline in total loans. These factors reduced the average yield earned on total interest-earning assets in an amount which more than offset the reduction in the average cost of our interest-bearing liabilities.
Provision for Loan Losses. During the six months ended June 30, 2022 and 2021, the Company recorded reversals to the allowance for loan losses of $260,000 and $286,000, respectively. The amounts recorded during both periods primarily reflect the release of reserve builds recorded during 2020 for the anticipated effects of the COVID-19 pandemic on credit quality.
Non-interest Income. Non-interest income increased $199,000, or 52.8%, to $576,000 for the six months ended June 30, 2022 from $377,000 for the six months ended June 30, 2021. The Company received and recognized into income a $171,000 BEA Program grant from the CDFI Fund during the six months ended June 30, 2022. In addition, BOLI income increased by $74,000 to $119,000 for the six months ended June 30, 2022, compared to the same period in 2021 largely due to an aggregate of $10.0 million in additional BOLI policies purchased in March and April of 2022.
39
The increases in non-interest income due to the BEA Program grant and BOLI were partially offset by losses on the disposal of fixed assets with a total net book value of $77,000 during the six months ended June 30, 2022. Of the assets disposed, $55,000 was attributable to branch signage that was replaced due to our rebranding.
Non-interest Expense. Non-interest expense increased $877,000, or 23.8%, to $4.6 million for the six months ended June 30, 2022, compared to $3.7 million for the six months ended June 30, 2021. Total non-interest expense for the six months ended June 30, 2022 included $187,000 of rebranding-related expenses. The increase in non-interest expense also reflects additional costs associated with operating as a public company and additional resources needed to expand our business.
Salaries and employee benefits expense totaled $2.5 million for the six months ended June 30, 2022, an increase of $232,000, or 10.3%, over the comparable period in 2021 primarily due to ESOP compensation expense and new personnel in the 2022 period. Allocations under the Company’s ESOP commenced during the fourth quarter of 2021.
Professional fees totaled $315,000 for the six months ended June 30, 2022, an increase of $148,000, or 88.6%, over the comparable period in 2021 primarily due to public company consulting and legal services and professional fees of $26,000 incurred for assistance with the BEA Program grant application during the six months ended June 30, 2022.
Advertising and marketing expense totaled $151,000 for the six months ended June 30, 2022, an increase of $130,000 over the comparable period in 2021 primarily due to rebranding-related expenses of $121,000 incurred during the six months ended June 30, 2022.
Franchise and shares tax expense totaled $116,000 for the six months ended June 30, 2022. As a result of the mutual-to-stock conversion of the Bank and the establishment of Catalyst Bancorp as its holding company, the Company became subject to franchise tax and the Bank became subject to Louisiana shares tax for 2022.
Income Tax Expense. The Company reported an income tax benefit of $59,000 for the six months ended June 30, 2022, compared to income tax expense of $93,000 for the six months ended June 30, 2021. The change in income tax expense over the comparable six-month periods was primarily due to the change in taxable earnings.
40
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 of securities. We also have the ability to borrow from the FHLB. At June 30, 2022, we had outstanding advances from the FHLB with a carrying value of $9.1 million, and had the capacity to borrow approximately an additional $45.0 million from the FHLB and an additional $17.8 million on a line of credit with First National Bankers Bank at such date.
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. Net cash provided by operating activities was $51,000 for the six months ended June 30, 2022. Net cash used in investing activities, which consists primarily of net changes in loans receivable, investment securities and other assets, such as bank-owned life insurance, was $13.7 million for the six months ended June 30, 2022. Net cash provided by financing activities, consisting of the net change in deposits, was $1.9 million for the six months ended June 30, 2022.
We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily. We 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 a significant portion of maturing time deposits will be retained. We also anticipate continued use of FHLB advances.
The Bank exceeded all regulatory capital requirements and was categorized as well-capitalized at June 30, 2022 and December 31, 2021. Management is not aware of any conditions or events since the most recent notification that would change our category. The following table presents actual and required capital.
Actual | To be Well Capitalized under the Prompt Corrective Action Provision | |||||||||||
(Dollars in thousands) |
| Amount |
| Ratio | Amount |
| Ratio | |||||
As of June 30, 2022 | ||||||||||||
Common Equity Tier 1 Capital | $ | 77,779 | 58.51 | % | $ | 8,641 | >6.5 | % | ||||
Tier 1 Risk-Based Capital |
| 77,779 | 58.51 |
| 10,635 | >8.0 | ||||||
Total Risk-Based Capital |
| 79,445 | 59.76 |
| 13,293 | >10.0 | ||||||
Tier 1 Leverage Capital |
| 77,779 | 28.43 |
| 13,681 | >5.0 | ||||||
As of December 31, 2021 |
|
|
|
|
|
| ||||||
Common Equity Tier 1 Capital | $ | 77,819 | 63.51 | % | $ | 7,965 | >6.5 | % | ||||
Tier 1 Risk-Based Capital |
| 77,819 | 63.51 |
| 9,803 | >8.0 | ||||||
Total Risk-Based Capital |
| 79,360 | 64.77 |
| 12,253 | >10.0 | ||||||
Tier 1 Leverage Capital |
| 77,819 | 27.38 |
| 14,210 | >5.0 | ||||||
41
At June 30, 2022, we had $6.7 million of outstanding commitments to originate loans and $2.1 million of remaining funds to be disbursed on construction loans in process. Our total unused lines of credit, unused overdraft privilege amounts and letters of credit totaled $5.7 million at June 30, 2022. Certificates of deposit that are scheduled to mature in less than one year from June 30, 2022, totaled $50.5 million. Management expects that a substantial portion of the maturing certificates of deposit will be retained. However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.
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 June 30, 2022.
Amount of Commitment Expiration — Per Period | |||||||||||||||
(Dollars in thousands) | Total Amounts Committed at June 30, 2022 | To 1 Year | 1 - 3 Years | 3 - 5 Years | After 5 Years | ||||||||||
Commitments to originate loans | $ | 6,744 | $ | 6,744 | $ | - | $ | - | $ | - | |||||
Undisbursed portion of construction loans in process |
| 2,056 |
| 1,758 |
| 298 |
| - |
| - | |||||
Unused lines of credit |
| 4,534 |
| 1,173 |
| 2,046 |
| - |
| 1,315 | |||||
Unused overdraft privilege amounts |
| 1,116 |
| - |
| - |
| - |
| 1,116 | |||||
Letters of credit | 4 | 4 | - | - | - | ||||||||||
Total commitments | $ | 14,454 | $ | 9,679 | $ | 2,344 | $ | - | $ | 2,431 | |||||
The following table summarizes our contractual cash obligations at June 30, 2022.
Payments Due By Period | |||||||||||||||
(Dollars in thousands) | Total at June 30, 2022 | To 1 Year | 1 - 3 Years | 3 - 5 Years | After 5 Years | ||||||||||
Certificates of deposit | $ | 61,968 | $ | 50,530 | $ | 10,587 | $ | 851 | $ | - | |||||
FHLB advances |
| 10,000 |
| - |
| - |
| 3,000 |
| 7,000 | |||||
Total long-term debt |
| 71,968 |
| 50,530 |
| 10,587 |
| 3,851 |
| 7,000 | |||||
Operating lease obligations |
| - |
| - |
| - |
| - |
| - | |||||
Total contractual obligations | $ | 71,968 | $ | 50,530 | $ | 10,587 | $ | 3,851 | $ | 7,000 | |||||
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see Note 3 of the notes to our financial statements.
42
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Act”)) as of June 30, 2022, was carried out under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and several other members of our senior management. Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures in effect as of June 30, 2022, were effective. In addition, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We do not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all errors and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
43
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at June 30, 2022, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Nothing to report.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Nothing to report.
44
ITEM 6. EXHIBITS
31.1 | |
31.2 | |
32.0 | |
101.INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definitions Linkbase Document |
104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
45
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CATALYST BANCORP, INC. | ||
Date: August 12, 2022 | By: | /s/ Joseph B. Zanco |
Joseph B. Zanco | ||
President and Chief Executive Officer | ||
(Duly Authorized Officer) | ||
Date: August 12, 2022 | By: | /s/ Jacques L. J. Bourque |
Jacques L. J. Bourque | ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) | ||
46
EXHIBIT 31.1
RULE 13A-14(A) CERTIFICATION
I, Joseph B. Zanco, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Catalyst Bancorp, Inc. (the “Company”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
4. | The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | [Paragraph omitted in accordance with Exchange Act Rule 13a-14(a)]; |
c) | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
5. | The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the Company’s auditors and the audit committee of the Company’s Board of Directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
Date: August 12, 2022 | By: | /s/ Joseph B. Zanco |
| | Joseph B. Zanco |
| | President and Chief Executive Officer |
EXHIBIT 31.2
RULE 13A-14(A) CERTIFICATION
I, Jacques L. J. Bourque, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Catalyst Bancorp, Inc. (the “Company”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
4. | The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | [Paragraph omitted in accordance with Exchange Act Rule 13a-14(a)]; |
c) | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
5. | The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the Company’s auditors and the audit committee of the Company’s Board of Directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
Date: August 12, 2022 | By: | /s/ Jacques L. J. Bourque |
| | Jacques L. J. Bourque |
| | Chief Financial Officer |
EXHIBIT 32.0
SECTION 1350 CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 each of the undersigned hereby certifies in his or her capacity as an officer of Catalyst Bancorp, Inc. (the “Company”) that the Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2022, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly represents, in all material respects, the financial statements included in such report.
Date: August 12, 2022 |
| /s/ Joseph B. Zanco |
|
| Joseph B. Zanco |
|
| President and Chief Executive Officer |
|
|
|
Date: August 12, 2022 |
| /s/ Jacques L. J. Bourque |
|
| Jacques L. J. Bourque |
| | Chief Financial Officer |
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