UNITED 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 | 29 | ||
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i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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September 30, | December 31, | |||||
(Dollars in thousands) | 2024 | 2023 | ||||
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 (amortized cost of $ |
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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 |
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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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Borrowings |
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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 benefit plans | ( | ( | ||||
Retained earnings |
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Accumulated other comprehensive income (loss) |
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TOTAL SHAREHOLDERS' EQUITY |
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | | $ | | ||
The accompanying Notes are an integral part of these financial statements.
2
CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(Dollars in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||
INTEREST INCOME |
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Loans receivable, including fees | $ | | $ | | $ | | $ | | ||||
Investment securities |
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Other earning assets |
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Total interest income |
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INTEREST EXPENSE |
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Deposits |
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Borrowings |
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Total interest expense |
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Net interest income |
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Provision for credit losses |
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Net interest income after provision for credit losses |
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NON-INTEREST INCOME |
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Service charges on deposit accounts |
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Bank-owned life insurance |
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Gain (loss) on sales of investment securities |
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Gain (loss) on disposals and sales of fixed assets |
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Federal community development grant |
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Other |
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Total non-interest income (loss) |
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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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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) |
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NET INCOME (LOSS) | $ | | $ | | $ | ( | $ | | ||||
Earnings (loss) per share - basic | $ | | $ | | $ | ( | $ | | ||||
Earnings (loss) per share - diluted | | | ( | | ||||||||
The accompanying Notes are an integral part of these financial statements.
3
CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(Dollars in thousands) | 2024 |
| 2023 | 2024 |
| 2023 | ||||||
Net income (loss) | $ | | $ | | $ | ( | $ | | ||||
Net change in unrealized gains (losses) on available-for-sale securities |
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Reclassification adjustment for losses included in net income | - | - | | - | ||||||||
Income tax effect |
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Total other comprehensive income (loss) |
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Total comprehensive income (loss) | $ | | $ | ( | $ | | $ | ( | ||||
The accompanying Notes are an integral part of these financial statements.
4
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 Benefit Plans | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||
BALANCE, JUNE 30, 2023 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Net income |
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Other comprehensive income (loss) |
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ESOP shares released for allocation |
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2022 Recognition and Retention Plan shares released for allocation | - | ( | | - | - | - | ||||||||||||
Stock compensation expense |
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Repurchase of common stock |
| ( |
| ( |
| - |
| - | - |
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BALANCE, SEPTEMBER 30, 2023 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
BALANCE, JUNE 30, 2024 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Net income |
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Other comprehensive income (loss) |
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ESOP shares released for allocation |
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2022 Recognition and Retention Plan shares released for allocation |
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Stock compensation expense |
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Repurchase of common stock |
| ( | ( | - | - | - |
| ( | ||||||||||
BALANCE, SEPTEMBER 30, 2024 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
BALANCE, DECEMBER 31, 2022 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Impact of adoption of ASC 326 |
| - | - | - | ( | - |
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Net income |
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Other comprehensive income |
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Stock purchased to fund the 2022 Recognition and Retention Plan | - | - | ( | - | - | ( | ||||||||||||
ESOP shares released for allocation |
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2022 Recognition and Retention Plan shares released for allocation | - | ( | | - | - | - | ||||||||||||
Stock compensation expense |
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Repurchase of common stock |
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BALANCE, SEPTEMBER 30, 2023 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
BALANCE, DECEMBER 31, 2023 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Net income (loss) |
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| ( |
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Other comprehensive income |
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ESOP shares released for allocation |
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2022 Recognition and Retention Plan shares released for allocation |
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Stock compensation expense |
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Repurchase of common stock |
| ( | ( | - | - | - | ( | |||||||||||
BALANCE, SEPTEMBER 30, 2024 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
The accompanying Notes are an integral part of these financial statements.
5
CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30, | ||||||
(Dollars in thousands) | 2024 |
| 2023 | |||
CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income (loss) | $ | ( | $ | | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Investment securities amortization, net |
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Federal Home Loan Bank stock dividends |
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Amortization of prepayment penalties on debt restructuring | | | ||||
Provision for credit losses |
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Increase in cash surrender value of bank-owned life insurance | ( | ( | ||||
Loss on sales of investment securities |
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Gain on disposals and sales of premises and equipment |
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Stock-based compensation | | | ||||
Depreciation of premises and equipment |
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Net write-downs and losses on the sale of foreclosed assets |
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Deferred income tax expense (benefit) |
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(Increase) decrease in other assets |
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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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Proceeds from sales | | - | ||||
Purchases |
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Net (increase) decrease in loans |
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Proceeds from sale of foreclosed assets |
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Purchases of premises and equipment |
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Proceeds from sale of premises and equipment |
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Net cash provided by investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Net increase in deposits |
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Net advances from the Federal Reserve Bank of Atlanta | | - | ||||
Purchase of stock to fund the 2022 Recognition and Retention Plan | - | ( | ||||
Repurchase of common stock | ( | ( | ||||
Net cash provided by (used in) 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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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.
6
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
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 (“GAAP”). 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 nine months ended September 30, 2024 and 2023 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, 2023.
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.
Revision of Prior Period Financial Statements
During the three months ended June 30, 2024, it was discovered that the rate of interest paid on one interest-bearing checking account did not reconcile with the contract with the customer. The checking account is a public fund deposit with a negotiated arrangement managed by a lead financial institution that billed the Bank periodically for interest then owed to the municipality. The Bank is a party to the agreement with the municipality but participated in only a portion of the total funds deposited by the municipality and did not deal directly with the municipality with respect to the funds deposited or the interest paid. These responsibilities are handled indirectly through the lead institution. During June of 2024, the Bank became aware of the additional interest owed by it pursuant to the agreement. As a result of the error, $
7
The following highlights the primary changes to prior period financial statements presented in this Form 10-Q caused by the correction of the misstated interest expense:
(Dollars in thousands) | As Reported | Adjustment | As Revised | ||||||
Revised Consolidated Statements of Condition as of December 31, 2023 | |||||||||
Other liabilities | $ | | $ | | $ | | |||
Retained earnings | | ( | | ||||||
Total shareholders' equity | | ( | | ||||||
Revised Consolidated Statements of Income for the Three Months Ended September 30, 2023 | |||||||||
Interest expense - Deposits | $ | | $ | | $ | | |||
Total interest expense | | | | ||||||
Net interest income | | ( | | ||||||
Income tax expense (benefit) | | ( | | ||||||
Net income (loss) | | ( | | ||||||
Revised Consolidated Statements of Income for the Nine Months Ended September 30, 2023 | |||||||||
Interest expense - Deposits | $ | | $ | | $ | | |||
Total interest expense | | | | ||||||
Net interest income | | ( | | ||||||
Income tax expense (benefit) | | ( | | ||||||
Net income (loss) | | ( | | ||||||
Revised Consolidated Statements of Changes in Shareholders' Equity | |||||||||
Retained earnings, as of December 31, 2022 | $ | | $ | ( | $ | | |||
Retained earnings, as of June 30, 2023 | | ( | | ||||||
Retained earnings, as of September 30, 2023 | | ( | | ||||||
Revised Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 | |||||||||
Increase (decrease) in other liabilities | $ | | $ | | $ | | |||
Management performed a review of all similar contracts with deposit customers and verified that the error was isolated to this unique deposit account. Management and the Audit Committee also assessed the error’s impact on internal controls over financial reporting and did not identify any material weaknesses. For further information on Management’s evaluation of the Company’s internal controls, see Item 4 of this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Estimates
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could reflect materially different results under different assumptions and conditions. Methodologies the Company uses when applying critical accounting policies and developing critical estimates are included in its Annual Report on Form 10-K for the year ended December 31, 2023. Our accounting policies for allowance for credit losses, investment securities, and income taxes comprise those that management believes involve the most critical estimates and aid in fully understanding and evaluating our reported financial results.
During the three months ended March 31, 2024, the measurement of the Company’s deferred income tax assets and liabilities was identified as a critical accounting estimate. Deferred income tax assets and liabilities are determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws. At September 30, 2024, the Company’s net deferred tax asset totaled $
8
expected to be realized. At September 30, 2024, the Company has not recorded a valuation allowance for its deferred tax assets. Realizing our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances if our judgments change, which may impact total income tax expense in future periods.
There were no other material changes from the significant accounting policies or critical accounting estimates previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. 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.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Standards Updates Issued, but Not Adopted
ASU No. 2023-09. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU add specific requirements for income tax disclosures to improve transparency and decision usefulness. The guidance in ASU 2023-09 requires that public business entities disclose specific categories in the income tax rate reconciliation and provide additional qualitative information for reconciling items that meet a quantitative threshold. In addition, the amendments in ASU 2023-09 require that all entities disclose the amount of income taxes paid disaggregated by federal, state, and foreign taxes and disaggregated by individual jurisdictions. The ASU also includes other disclosure amendments related to the disaggregation of income tax expense between federal, state and foreign taxes. The Company expects to adopt the amendments in ASU 2023-09 for periods beginning after December 31, 2024.
9
NOTE 3. EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share was computed based on the following:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
(In thousands, except per share data) | 2024 |
| 2023 | 2024 |
| 2023 | ||||||
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 common stock held by benefit plans | ( | ( | ( | ( | ||||||||
Weighted average shares - basic | | | | | ||||||||
Effect of dilutive stock-based awards(1): | ||||||||||||
Stock options | - | - | - | - | ||||||||
Restricted stock | | | - | | ||||||||
Weighted average shares - assuming dilution | | | | | ||||||||
Basic earnings (loss) per common share | $ | | $ | | $ | ( | $ | | ||||
Diluted earnings (loss) per common share | | | ( | | ||||||||
| (1) | The computation of diluted earnings (loss) per common share for the nine months ended September 30, 2024 does not include the impact of dilutive stock-based awards because to do so would be antidilutive for a period with a net loss. |
The weighted average of potentially dilutive common shares attributable to outstanding stock options that were anti-dilutive totaled
The weighted average of potentially dilutive common shares attributable to outstanding stock options that were anti-dilutive totaled
10
NOTE 4. 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:
| September 30, 2024 | |||||||||||
(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 |
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| ( |
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Municipal obligations |
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| ( |
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Total available-for-sale | $ | | $ | | $ | ( | $ | | ||||
Securities held-to-maturity |
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U.S. Government and agency obligations | $ | | $ | - | $ | ( | $ | | ||||
Municipal obligations |
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Total held-to-maturity | $ | | $ | - | $ | ( | $ | | ||||
| December 31, 2023 | |||||||||||
(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 |
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| ( |
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Municipal obligations |
| |
| |
| ( |
| | ||||
Total available-for-sale | $ | | $ | | $ | ( | $ | | ||||
Securities held-to-maturity |
|
|
|
|
|
|
|
| ||||
U.S. Government and agency obligations | $ | | $ | - | $ | ( | $ | | ||||
Municipal obligations |
| |
| - |
| ( |
| | ||||
Total held-to-maturity | $ | | $ | - | $ | ( | $ | | ||||
There were
Accrued interest receivable on the Company’s investment securities totaled $
At September 30, 2024 and December 31, 2023, investment securities totaling $
Investment securities totaling $
11
The following is a summary of maturities of securities available-for-sale and held-to-maturity at September 30, 2024 and December 31, 2023:
September 30, 2024 | ||||||||||||
Available-for-Sale | Held-to-Maturity | |||||||||||
(Dollars in thousands) | Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | |||||
Amounts maturing in: |
|
|
|
|
|
|
|
| ||||
One year or less | $ | | $ | | $ | - | $ | - | ||||
After one through five years |
| |
| |
| |
| | ||||
After five through ten years |
| |
| |
| |
| | ||||
After ten years |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | | $ | | ||||
December 31, 2023 | ||||||||||||
Available-for-Sale | Held-to-Maturity | |||||||||||
(Dollars in thousands) |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Amounts maturing in: |
|
|
|
|
|
|
|
| ||||
One year or less | $ | | $ | | $ | - | $ | - | ||||
After one through five years |
| |
| |
| |
| | ||||
After five through ten years |
| |
| |
| |
| | ||||
After ten years |
| |
| |
| |
| | ||||
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.
12
Information pertaining to securities with gross unrealized losses at September 30, 2024 and December 31, 2023 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:
September 30, 2024 | ||||||||||||||||||
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 | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
| December 31, 2023 | |||||||||||||||||
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 | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
At September 30, 2024 and December 31, 2023, the Company held
13
NOTE 5. LOANS RECEIVABLE
Loans receivable at September 30, 2024 and December 31, 2023 are summarized as follows:
September 30, | December 31, | |||||
(Dollars in thousands) | 2024 | 2023 | ||||
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 | $ | | $ | | ||
At September 30, 2024 and December 31, 2023, real estate loans totaling $
Accrued interest receivable on the Company’s loans totaled $
The following tables outline the changes in the allowance for credit losses for the nine months ended September 30, 2024 and 2023.
For the Nine Months Ended September 30, 2024 | ||||||||||||||||||
(Dollars in thousands) |
|
| Beginning Balance | Provision (Reversal) |
| Charge-offs |
| Recoveries |
| Ending Balance | ||||||||
Allowance for credit losses |
|
|
|
|
|
|
|
|
|
| ||||||||
One- to four-family residential | $ | | $ | | $ | ( | $ | | $ | | ||||||||
Commercial real estate |
| |
| |
| ( |
| |
| | ||||||||
Construction and land |
| |
| |
| - |
| - |
| | ||||||||
Multi-family residential |
| |
| ( |
| - |
| - |
| | ||||||||
Commercial and industrial |
| |
| |
| ( |
| |
| | ||||||||
Consumer |
| |
| |
| ( |
| |
| | ||||||||
Total for loans | $ | | $ | | $ | ( | $ | | $ | | ||||||||
Unfunded lending commitments(1) | | ( | - | - | | |||||||||||||
Total | $ | | $ | | $ | ( | $ | | $ | | ||||||||
| (1) | The allowance for credit losses on unfunded lending commitments is recorded within “other liabilities” on the statement of financial condition. The related provision for credit losses for unfunded lending commitments is recorded with the provision for loan losses and reported in aggregate as the provision for credit losses on the income statement. |
14
| For the Nine Months Ended September 30, 2023 | |||||||||||||||||
(Dollars in thousands) |
| Beginning Balance |
| ASC 326 Adoption Impact | Provision (Reversal) |
| Charge-offs |
| Recoveries |
| Ending Balance | |||||||
Allowance for credit losses |
|
|
|
|
|
|
|
|
|
| ||||||||
One- to four-family residential | $ | | $ | | $ | ( | $ | - | $ | | $ | | ||||||
Commercial real estate |
| |
| ( |
| ( |
| - |
| - |
| | ||||||
Construction and land |
| |
| |
| |
| - |
| - |
| | ||||||
Multi-family residential |
| |
| |
| ( |
| - |
| - |
| | ||||||
Commercial and industrial |
| |
| |
| |
| - |
| |
| | ||||||
Consumer |
| |
| |
| |
| ( |
| |
| | ||||||
Unallocated |
| - |
| - |
| |
| - |
| - |
| | ||||||
Total for loans | $ | | $ | | $ | ( | $ | ( | $ | | $ | | ||||||
Unfunded lending commitments | - | | | - | - | | ||||||||||||
Total | $ | | $ | | $ | - | $ | ( | $ | | $ | | ||||||
The following tables outline the allowance for loan losses and the balance of loans by method of loss evaluation at September 30, 2024 and December 31, 2023.
| September 30, 2024 |
| December 31, 2023 | |||||||||||||||
(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 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
At September 30, 2024 and December 31, 2023, all one- to four family residential and construction and land loans individually evaluated for credit losses were considered collateral-dependent financial assets under ASC 326. Loans are considered collateral-dependent and individually evaluated when, based on management’s assessment as of the reporting date, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. Collateral-dependent loans primarily consist of loans secured by one- to four-family residential properties and land located in our market.
15
A summary of current, past due and non-accrual loans as of September 30, 2024 and December 31, 2023 follows:
| As of September 30, 2024 | ||||||||||||||||||||
(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, 2023 | |||||||||||||||||||||
(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 | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
A summary of total non-accrual loans as of September 30, 2024 and December 31, 2023 follows:
September 30, 2024 | December 31, 2023 | |||||||||||||||||
(Dollars in thousands) | With Allowance for Credit Loss | Without Allowance for Credit Loss | Total | With Allowance for Credit Loss | Without Allowance for Credit Loss | Total | ||||||||||||
Non-accrual 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 non-accrual loans at September 30, 2024 or December 31, 2023. The Company does not recognize interest income while loans are on non-accrual status. All payments received while on non-accrual status are applied against the principal balance of non-accrual loans.
At September 30, 2024, loans secured by residential real estate for which formal foreclosure proceedings were in process totaled $
16
Occasionally loans are modified to assist borrowers experiencing financial difficulty. We consider modifications such as term extensions, principal forgiveness, payment delays or alternate payment schedules, and alternate interest rate terms. At September 30, 2024 and December 31, 2023, loans with modifications for borrowers experiencing financial difficulty totaled $
During the nine months ended September 30, 2024, the Company granted one loan modification to a borrower experiencing financial difficulty that resulted in a more than minor change in the timing or amount of contractual cash flows. The maturity date was extended by
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 credit losses.
17
The following table presents the Company’s loan portfolio by credit quality classification and origination year as of September 30, 2024. The Company uses the latter of origination or renewal date to classify term loans into vintages.
Line-of-credit | |||||||||||||||||||||||||||
Arrangements | |||||||||||||||||||||||||||
Term Loans by Origination Year | Line-of-credit | Converted to | |||||||||||||||||||||||||
(Dollars in thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Arrangements | Term Loans | Total | ||||||||||||||||||
One- to four-family residential | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
Special Mention | - | - | - | | | | - | - | | ||||||||||||||||||
Substandard | - | | - | - | | | - | - | | ||||||||||||||||||
Doubtful | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
Commercial real estate | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | - | $ | | $ | | |||||||||
Special Mention | - | - | | | - | - | - | - | | ||||||||||||||||||
Substandard | | - | - | - | - | - | - | - | | ||||||||||||||||||
Doubtful | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | - | $ | | $ | | |||||||||
Construction and land | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | - | $ | | |||||||||
Special Mention | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Substandard | - | - | - | | - | | - | - | | ||||||||||||||||||
Doubtful | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | - | $ | | |||||||||
Multi-family residential | |||||||||||||||||||||||||||
Pass | $ | - | $ | - | $ | - | $ | | $ | - | $ | | $ | - | $ | - | $ | | |||||||||
Special Mention | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Substandard | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Doubtful | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | - | $ | - | $ | - | $ | | $ | - | $ | | $ | - | $ | - | $ | | |||||||||
Commercial and industrial | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | - | $ | | |||||||||
Special Mention | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Substandard | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Doubtful | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | - | $ | | |||||||||
Consumer | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | - | $ | - | $ | | |||||||||
Special Mention | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Substandard | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Doubtful | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | - | $ | - | $ | | |||||||||
Total | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
Special Mention | - | - | | | | | - | - | | ||||||||||||||||||
Substandard | | | - | | | | - | - | | ||||||||||||||||||
Doubtful | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
18
The following table presents the Company’s loan portfolio by credit quality classification and origination year as of December 31, 2023. The Company uses the latter of origination or renewal date to classify term loans into vintages.
Line-of-credit | |||||||||||||||||||||||||||
Arrangements | |||||||||||||||||||||||||||
Term Loans by Origination Year | Line-of-credit | Converted to | |||||||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Arrangements | Term Loans | Total | ||||||||||||||||||
One- to four-family residential | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
Special Mention | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Substandard | | - | | | | | - | - | | ||||||||||||||||||
Doubtful | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
Commercial real estate | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
Special Mention | - | | | - | - | - | - | - | | ||||||||||||||||||
Substandard | | - | - | - | - | | - | - | | ||||||||||||||||||
Doubtful | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
Construction and land | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | - | $ | | |||||||||
Special Mention | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Substandard | - | | - | | - | | - | - | | ||||||||||||||||||
Doubtful | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | - | $ | | |||||||||
Multi-family residential | |||||||||||||||||||||||||||
Pass | $ | | $ | - | $ | | $ | - | $ | | $ | | $ | - | $ | - | $ | | |||||||||
Special Mention | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Substandard | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Doubtful | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | | $ | - | $ | | $ | - | $ | | $ | | $ | - | $ | - | $ | | |||||||||
Commercial and industrial | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | - | $ | | |||||||||
Special Mention | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Substandard | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Doubtful | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | - | $ | | |||||||||
Consumer | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | - | $ | - | $ | | |||||||||
Special Mention | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Substandard | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Doubtful | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | - | $ | - | $ | | |||||||||
Total | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
Special Mention | - | | | - | - | - | - | - | | ||||||||||||||||||
Substandard | | | | | | | - | - | | ||||||||||||||||||
Doubtful | - | - | - | - | - | - | - | - | - | ||||||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
19
The following table presents gross charge-offs and recoveries for the nine months ended September 30, 2024 by origination year of the related loans. The Company uses the latter of origination or renewal date to classify loans into vintages.
Loan Origination Year | |||||||||||||||||||||
(Dollars in thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Total | ||||||||||||||
Charge-offs | |||||||||||||||||||||
One- to four-family residential | $ | - | $ | - | $ | - | $ | - | $ | - | $ | | $ | | |||||||
Commercial real estate | - | - | - | - | - | | | ||||||||||||||
Commercial and industrial | | | | - | - | - | | ||||||||||||||
Consumer | | | | | - | | | ||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | - | $ | | $ | | |||||||
Recoveries | |||||||||||||||||||||
One- to four-family residential | $ | - | $ | - | $ | - | $ | - | $ | | $ | | $ | | |||||||
Commercial real estate | - | - | - | - | - | | | ||||||||||||||
Commercial and industrial | - | | - | - | - | - | | ||||||||||||||
Consumer | | - | - | | - | | | ||||||||||||||
Total | $ | | $ | | $ | - | $ | | $ | | $ | | $ | | |||||||
The following table presents gross charge-offs and recoveries for the nine months ended September 30, 2023 by origination year of the related loans. The Company uses the latter of origination or renewal date to classify loans into vintages.
Loan Origination Year | |||||||||||||||||||||
(Dollars in thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Total | ||||||||||||||
Charge-offs | |||||||||||||||||||||
Consumer | | | | | | | | ||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
Recoveries | |||||||||||||||||||||
One- to four-family residential | $ | - | $ | - | $ | - | $ | - | $ | - | $ | | $ | | |||||||
Commercial and industrial | - | - | - | - | - | | | ||||||||||||||
Consumer | - | - | | | - | | | ||||||||||||||
Total | $ | - | $ | - | $ | | $ | | $ | - | $ | | $ | | |||||||
20
NOTE 6. DEPOSITS
Deposits at September 30, 2024 and December 31, 2023 are summarized as follows:
September 30, 2024 | December 31, 2023 | |||||||||||
(Dollars in thousands) | Amount |
| Percent | Amount |
| Percent | ||||||
Non-interest-bearing demand deposits | $ | |
| | % | $ | |
| | % | ||
Interest-bearing demand deposits |
| |
| |
| |
| | ||||
Money market |
| |
| |
| |
| | ||||
Savings |
| |
| |
| |
| | ||||
Certificates of deposit |
| |
| |
| |
| | ||||
Total deposits | $ | |
| | % | $ | |
| | % | ||
The estimated amount of our total uninsured deposits (that is, deposits in excess of the FDIC’s insurance limit) was $
At September 30, 2024 scheduled maturities of certificates of deposits were as follows:
(Dollars in thousands) | Amount | ||
2024 | $ | | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
2028 |
| | |
2029 |
| | |
Total | $ | | |
21
NOTE 7. BORROWED FUNDS
Borrowed funds and the weighted-average contractual interest rate on borrowings at September 30, 2024 and December 31, 2023 are summarized as follows:
September 30, 2024 | December 31, 2023 | |||||||||||
(Dollars in thousands) |
| Rate |
| Amount |
| Rate |
| Amount | ||||
Advance from Federal Reserve Bank of Atlanta |
| | % | $ | |
| | % | $ | | ||
Advances from Federal Home Loan Bank of Dallas |
| | % | $ | |
| | % | $ | | ||
Debt modification discount on FHLB Advances |
| ( |
| ( | ||||||||
| | |||||||||||
Total borrowings | $ | | $ | | ||||||||
During the fourth quarter of 2023, the Bank began borrowing from the Federal Reserve Bank of Atlanta through its Bank Term Funding Program (“BTFP”). In December of 2020, the Bank restructured $
Interest payments are due at maturity for the advance from the Federal Reserve Bank of Atlanta and are due monthly for FHLB advances. A schedule of maturities for borrowings outstanding at September 30, 2024 are as follows:
(Dollars in thousands) |
| Amount | |
Amounts maturing in: | |||
2024 | $ | - | |
2025 | | ||
2026 | - | ||
2027 | | ||
2028 |
| | |
Total | $ | | |
At September 30, 2024 and December 31, 2023, the Company had $
At September 30, 2024, the Company had
Other available funding includes an Unsecured Federal Funds Master Purchase Agreement with First National Bankers Bank for $
22
NOTE 8. CAPITAL AND 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 September 30, 2024 and December 31, 2023, the Bank met all of the capital adequacy requirements to which it is subject.
At September 30, 2024 and December 31, 2023, 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 September 30, 2024 | ||||||||||||
Common Equity Tier 1 Capital | $ | | | % | $ | | > | % | ||||
Tier 1 Risk-Based Capital |
| | |
| | > | ||||||
Total Risk-Based Capital |
| | |
| | > | ||||||
Tier 1 Leverage Capital |
| | |
| | > | ||||||
As of December 31, 2023 |
|
|
|
|
|
| ||||||
Common Equity Tier 1 Capital | $ | | | % | $ | | > | % | ||||
Tier 1 Risk-Based Capital |
| | |
| | > | ||||||
Total Risk-Based Capital |
| | |
| | > | ||||||
Tier 1 Leverage Capital |
| | |
| | > | ||||||
Share Repurchase Plans
The Company repurchased
23
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.
24
Fair values of assets and liabilities measured on a recurring basis at September 30, 2024 and December 31, 2023 follows:
Fair Value Measurements at Reporting Date Using | ||||||||||||
(Dollars in thousands) |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||
September 30, 2024 |
|
|
|
| ||||||||
Available-for-sale securities | $ | | $ | - | $ | | $ | - | ||||
December 31, 2023 |
|
|
|
| ||||||||
Available-for-sale securities | $ | | $ | - | $ | | $ | - | ||||
Fair values of assets and liabilities measured on a nonrecurring basis at September 30, 2024 and December 31, 2023 follows:
Fair Value Measurements at Reporting Date Using | ||||||||||||
(Dollars in thousands) |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||
September 30, 2024 |
|
|
|
| ||||||||
Loans individually evaluated for credit losses | $ | | $ | - | $ | - | $ | | ||||
Foreclosed assets | |
| - |
| - |
| | |||||
Total | $ | | $ | - | $ | - | $ | | ||||
December 31, 2023 |
| |||||||||||
Loans individually evaluated for credit losses | $ | | $ | - | $ | - | $ | | ||||
Foreclosed assets | | - | - | | ||||||||
Total | $ | | $ | - | $ | - | $ | | ||||
At September 30, 2024 and December 31, 2023, individually evaluated loans with a recorded investment of $
The fair value of foreclosed assets is estimated using third-party appraisals of the asset held less estimated costs to sell and discounts to reflect current conditions. The fair value of collateral-dependent loans individually evaluated for credit losses is estimated using third-party appraisals of the collateral less estimated costs to sell and discounts to reflect current conditions. The fair value of other loans individually evaluated for credit losses is estimated by discounting expected cash flows using discount rates determined with reference to current market rates at which similar loans would be made.
25
NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company follows the guidance of ASC 825, Financial Instruments, and ASC 820, Fair Value Measurements. 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 – The fair value of loans are generally determined by discounting scheduled cash flows using discount rates determined with reference to current market rates at which similar loans would be made. Loans receivable are classified within Level 3 of the fair value hierarchy.
Loans individually evaluated for credit losses - The fair value of loans individually evaluated for credit losses is measured by the fair value of the collateral if the loan is collateral dependent. Fair value of the collateral is determined by appraisals or by independent valuation. Loans individually evaluated for credit losses 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 – Fair values are estimated by discounting scheduled cash flows using the rates currently offered for deposits of similar remaining maturities. Certificates of deposit are classified within Level 2 of the fair value hierarchy.
Borrowings – The fair value is estimated by discounting the future contractual cash flows using current market rates at which debt with similar terms could be obtained. Borrowings are classified within Level 2 of the fair value hierarchy.
26
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 or the value of assets and liabilities that are not considered financial instruments.
The estimated fair values of the Company’s financial instruments as of September 30, 2024 and December 31, 2023 are as follows:
September 30, 2024 | |||||||||||||||
(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, 2023 | |||||||||||||||
(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 stock in correspondent banks because the equity securities are not marketable. The carrying amount of investments without readily determinable fair value are reported in the statements of financial condition at historical cost.
27
NOTE 11. 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 our 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 September 30, 2024, 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 unfunded 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.
28
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 September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 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, 2023.
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.
29
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 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 credit 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; |
| ● | 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.
Overview
Catalyst Bancorp, Inc. (“Catalyst Bancorp” or the “Company”) is the holding company for Catalyst Bank (the “Bank”), formerly known as St. Landry Homestead Federal Savings Bank. The Company was incorporated by the Bank in February 2021 as part of the conversion of the Bank from the mutual to the stock form of organization (the “Conversion”). The Conversion was completed on October 12, 2021, at which time the Company acquired all of the issued and outstanding shares of common stock of the Bank, which became the wholly-owned subsidiary of Catalyst Bancorp. The Bank officially changed its name to Catalyst Bank in June 2022.
Founded in 1922, the Bank is a community-oriented savings bank serving the banking needs of customers in the Acadiana region of south-central Louisiana. We are headquartered in Opelousas, Louisiana and serve our customers through six full-service branches located in Carencro, Eunice, Lafayette, Opelousas, and Port Barre. Our primary business consists of attracting deposits from the general public and using those funds together with funds we borrow from the Federal Home Loan Bank (“FHLB”) of Dallas, Federal Reserve Bank of Atlanta, and other sources to originate loans to our customers and invest in securities.
30
Historically, we operated as a traditional thrift relying on long-term, single-family residential mortgage loans secured by properties located primarily in St. Landry Parish and adjoining areas to generate interest income. In 2021, we re-focused our business strategy to a relationship-based community bank model targeting small- to mid-sized businesses and business professionals in our market areas while continuing to serve our traditional customer base. The Conversion and offering were important factors in our efforts to become a more dynamic, profitable and growing institution.
The following is an overview of financial results for the three and nine months ended September 30, 2024:
| ● | Total assets of $280.6 million at September 30, 2024, up $9.7 million, or 3.6%, from December 31, 2023 |
| ● | Loans of $165.9 million at September 30, 2024, up $21.0 million, or 14.5%, from December 31, 2023 |
| ● | Non-performing assets of $1.6 million at September 30, 2024, down $440,000, or 21.5%, from December 31, 2023 |
| ● | Investment securities of $45.6 million at September 30, 2024, down $38.4 million, or 45.7%, from December 31, 2023 |
| ● | Deposits of $167.4 million at September 30, 2024, up $1.8 million, or 1.1%, from December 31, 2023 |
| ● | Borrowings of $29.5 million at September 30, 2024, up $10.1 million, or 52.3%, from December 31, 2023 |
| ● | Total shareholders’ equity of $81.7 million at September 30, 2024, down $2.9 million, or 3.4%, from December 31, 2023 |
| ● | Net interest income of $2.5 million and net interest margin of 3.86% for the three months ended September 30, 2024, up $584,000, or 30.0%, and up 77 basis points (“bps”), respectively, compared to the same period in 2023 |
| ● | Net interest income of $7.1 million and net interest margin of 3.56% for the nine months ended September 30, 2024, up $1.3 million, or 22.8%, and up 52 bps, respectively, compared to the same period in 2023 |
| ● | Loss on the sales of investment securities of $5.5 million for the nine months ended September 30, 2024 |
| ● | Non-interest expense of $2.3 million for the three months ended September 30, 2024, up $179,000, or 8.6%, compared to the same period in 2023 |
| ● | Non-interest expense of $7.1 million for the nine months ended September 30, 2024, up $662,000, or 10.3%, compared to the same period in 2023, primarily due to expenses related to the Company’s upgrade to a new core processing system |
| ● | Net income of $447,000 for the three months ended September 30, 2024, up $296,000, or 196.0%, compared to the same period in 2023 |
| ● | A net loss of $3.7 million for the nine months ended September 30, 2024, compared to net income of $219,000 for the same period in 2023 |
Our results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on our loan and investment portfolios and interest expense on deposits and borrowings. Our net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. Results of operations are also affected by our provisions for credit losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation, office occupancy and equipment expense, data processing, and other expense. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact our financial condition and results of operations.
31
Critical Accounting Policies and Estimates
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could reflect materially different results under different assumptions and conditions. Methodologies the Company uses when applying critical accounting policies and developing critical estimates are included in its Annual Report on Form 10-K for the year ended December 31, 2023. Our accounting policies for allowance for credit losses, investment securities, and income taxes comprise those that management believes involve the most critical estimates and aid in fully understanding and evaluating our reported financial results.
During the three months ended March 31, 2024, the measurement of the Company’s deferred income tax assets and liabilities was identified as a critical accounting estimate. Deferred income tax assets and liabilities are determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws. At September 30, 2024, the Company’s net deferred tax asset totaled $1.4 million and is included in other assets on the statement of financial condition. According to Subtopic 740-10 of the Accounting Standards Codification (“ASC 740-10”), the measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. At September 30, 2024, the Company has not recorded a valuation allowance for its deferred tax assets. Realizing our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances if our judgments change, which may impact total income tax expense in future periods.
Additionally, as discussed in detail in Note 1 to the Company’s financial statements reported in this Quarterly Report on Form 10-Q, during June of 2024, the Bank became aware of interest owed by it to a deposit customer that was not properly accrued or paid by the Bank during the period beginning August 1, 2022 and ending March 31, 2024. Accordingly, management revised the prior period financial statements, related disclosures and supplemental information presented in this filing to correct the misstatement. The Company will also revise previously reported financial information for these immaterial errors in its future filings, as applicable. The information in this Item 2 and throughout this Quarterly Report on Form 10-Q has been adjusted to reflect these revisions as described in Note 1 to the Company’s financial statements of this Quarterly Report on Form 10-Q.
There were no other material changes from the significant accounting policies or critical accounting estimates previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. 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.
32
Comparison of Financial Condition at September 30, 2024 and December 31, 2023
Total Assets. Total assets increased $9.7 million, or 3.6%, to $280.6 million at September 30, 2024 from $270.9 million at December 31, 2023. The increase was primarily due to an increase in cash as a result of additional borrowings under the Bank Term Funding Program (“BTFP”).
Loans. The following table summarizes the changes in the composition of our loan portfolio by type of loan as of the dates indicated.
September 30, 2024 | December 31, 2023 | |||||||||||||||||
(Dollars in thousands) |
| Amount |
| % |
| Amount |
| % | Change | |||||||||
Real estate loans | ||||||||||||||||||
One- to four-family residential | $ | 81,433 |
| 49.1 | % | $ | 83,623 |
| 57.7 | % | $ | (2,190) | (2.6) | % | ||||
Commercial real estate |
| 22,704 |
| 13.7 |
| 21,478 |
| 14.8 |
| 1,226 | 5.7 | |||||||
Construction and land |
| 30,310 |
| 18.3 |
| 13,857 |
| 9.6 |
| 16,453 | 118.7 | |||||||
Multi-family residential |
| 2,622 |
| 1.6 |
| 3,373 |
| 2.3 |
| (751) | (22.3) | |||||||
Total real estate loans | 137,069 |
| 82.7 | 122,331 |
| 84.4 | 14,738 | 12.0 | ||||||||||
Other loans |
|
| ||||||||||||||||
Commercial and industrial | 26,507 |
| 16.0 | 19,984 |
| 13.8 | 6,523 | 32.6 | ||||||||||
Consumer | 2,306 |
| 1.3 | 2,605 |
| 1.8 | (299) | (11.5) | ||||||||||
Total other loans | 28,813 |
| 17.3 | 22,589 |
| 15.6 | 6,224 | 27.6 | ||||||||||
Total loans | $ | 165,882 |
| 100.0 | % | $ | 144,920 |
| 100.0 | % | $ | 20,962 | 14.5 | |||||
Our loan growth has largely been the result of our re-focused business strategy. Since 2021, we have been targeting small- to mid-sized businesses and business professionals in our market areas while continuing to serve our traditional customer base. The following table presents certain major segments of our commercial real estate, construction and land, and commercial and industrial loan balances as of the dates indicated.
(Dollars in thousands) | September 30, 2024 | December 31, 2023 | Change | |||||||||
Commercial real estate | ||||||||||||
Retail | $ | 4,154 | $ | 4,825 | $ | (671) | (13.9) | % | ||||
Hospitality | 3,594 | 4,003 | (409) | (10.2) | ||||||||
Restaurants | 1,112 | 1,037 | 75 | 7.2 | ||||||||
Oilfield services | 411 | 437 | (26) | (5.9) | ||||||||
Other non-owner occupied | 2,780 | 2,908 | (128) | (4.4) | ||||||||
Other owner occupied | 10,653 | 8,268 | 2,385 | 28.8 | ||||||||
Total commercial real estate | $ | 22,704 | $ | 21,478 | $ | 1,226 | 5.7 | |||||
Construction and land | ||||||||||||
Multi-family residential | $ | 8,353 | $ | 1,406 | $ | 6,947 | 494.1 | % | ||||
Health service facilities | 7,073 | 2,469 | 4,604 | 186.5 | ||||||||
Hospitality | 2,716 | 2,716 | - | - | ||||||||
Retail | 3,339 | - | 3,339 | - | ||||||||
Other commercial construction and land | 4,846 | 4,312 | 534 | 12.4 | ||||||||
Consumer residential construction and land | 3,983 | 2,954 | 1,029 | 34.8 | ||||||||
Total construction and land | $ | 30,310 | $ | 13,857 | $ | 16,453 | 118.7 | |||||
Commercial and industrial | ||||||||||||
Oilfield services | $ | 14,010 | $ | 6,254 | $ | 7,756 | 124.0 | % | ||||
Industrial equipment | 3,882 | 3,453 | 429 | 12.4 | ||||||||
Professional services | 2,910 | 2,792 | 118 | 4.2 | ||||||||
Communications | - | 2,823 | (2,823) | (100.0) | ||||||||
Other commercial and industrial | 5,705 | 4,662 | 1,043 | 22.4 | ||||||||
Total commercial and industrial loans | $ | 26,507 | $ | 19,984 | $ | 6,523 | 32.6 | |||||
33
Allowance for Credit Losses. At September 30, 2024, the allowance for loan losses totaled $2.4 million, or 1.46% of total loans, compared to 1.47% of total loans at December 31, 2023. The allowance for credit losses on unfunded commitments totaled $231,000, down $26,000 from December 31, 2023. The provision for credit losses, inclusive of the provision for unfunded commitments, for the nine months ended September 30, 2024 totaled $531,000 and was largely attributable to commercial loan growth.
The following table presents the changes in the allowance for loan losses and other related data for the periods indicated.
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||
(Dollars in thousands) |
| 2024 | 2023 | 2023 | ||||||||
Allowance for loan losses: | ||||||||||||
Balance, beginning of period | $ | 2,124 |
| $ | 1,807 | $ | 1,807 | |||||
Impact of adoption of ASC 326 | - | 209 | 209 | |||||||||
Provision for (reversal of) loan losses |
| 557 |
| (64) | 87 | |||||||
Net loan (charge-offs) recoveries: |
|
|
|
| ||||||||
One- to four-family residential |
| (92) |
| 98 | 42 | |||||||
Commercial real estate |
| (14) |
| - | - | |||||||
Construction and land |
| - |
| - | - | |||||||
Multi-family residential |
| - |
| - | - | |||||||
Commercial and industrial |
| (129) |
| 1 | 1 | |||||||
Consumer |
| (32) |
| (15) | (22) | |||||||
Total net (charge-offs) recoveries |
| (267) |
| 84 | 21 | |||||||
Balance, end of period | $ | 2,414 |
| $ | 2,036 | $ | 2,124 | |||||
Allowance for credit losses on unfunded lending commitments: | ||||||||||||
Balance, beginning of period | $ | 257 |
| $ | - | $ | - | |||||
Impact of adoption of ASC 326 | - | 216 | 216 | |||||||||
Provision for (reversal of) credit losses on unfunded lending commitments | (26) |
| 64 | 41 | ||||||||
Balance, end of period | $ | 231 | $ | 280 | $ | 257 | ||||||
Total allowance for credit losses, end of period | $ | 2,645 | $ | 2,316 | $ | 2,381 | ||||||
Total provision for (reversal of) credit losses | 531 | - | 128 | |||||||||
Total loans at end of period | $ | 165,882 |
| $ | 135,672 | $ | 144,920 | |||||
Total non-accrual loans at end of period |
| 1,423 |
| 1,961 | 1,967 | |||||||
Total non-performing loans at end of period |
| 1,438 |
| 2,088 | 1,991 | |||||||
Total average loans | 152,066 | 134,013 | 135,713 | |||||||||
Allowance for loan losses as a percent of: | ||||||||||||
Total loans |
| 1.46 | % | 1.50 | % | 1.47 | % | |||||
Non-accrual loans |
| 169.64 | 103.82 | 107.98 | ||||||||
Non-performing loans |
| 167.87 | 97.51 | 106.68 | ||||||||
Net annualized (charge-offs) recoveries as a percent of average loans by portfolio: | ||||||||||||
One- to four-family residential | (0.15) | % | 0.15 | % | 0.05 | % | ||||||
Commercial real estate | (0.08) | - | - | |||||||||
Construction and land | - | - | - | |||||||||
Multi-family residential | - | - | - | |||||||||
Commercial and industrial | (0.80) | 0.01 | 0.01 | |||||||||
Consumer | (1.77) | (0.63) | (0.71) | |||||||||
Total loans | (0.23) | 0.08 | 0.02 | |||||||||
34
Non-performing Assets. The following table shows the amounts of our non-performing assets, which include non-accruing loans, accruing loans 90 days or more past due and foreclosed assets at the dates indicated.
| September 30, | December 31, | ||||||
(Dollars in thousands) | 2024 | 2023 | ||||||
Non-accruing loans |
|
|
|
| ||||
One- to four-family residential | $ | 1,398 | $ | 1,875 | ||||
Commercial real estate |
| - |
| 50 | ||||
Construction and land |
| 25 |
| 42 | ||||
Multi-family residential |
| - |
| - | ||||
Commercial and industrial |
| - |
| - | ||||
Consumer |
| - |
| - | ||||
Total non-accruing loans |
| 1,423 | 1,967 | |||||
Accruing loans 90 days or more past due |
|
|
|
| ||||
One- to four-family residential |
| 15 |
| 24 | ||||
Commercial real estate |
| - |
| - | ||||
Construction and land |
| - |
| - | ||||
Multi-family residential |
| - |
| - | ||||
Commercial and industrial |
| - |
| - | ||||
Consumer |
| - |
| - | ||||
Total accruing loans 90 days or more past due | 15 |
| 24 | |||||
Total non-performing loans | 1,438 | 1,991 | ||||||
Foreclosed assets | 173 | 60 | ||||||
Total non-performing assets | $ | 1,611 | $ | 2,051 | ||||
Total loans | $ | 165,882 | $ | 144,920 | ||||
Total assets | 280,617 | 270,932 | ||||||
Total non-accruing loans as a percentage of total loans | 0.86 | % |
| 1.36 | % | |||
Total non-performing loans as a percentage of total loans | 0.87 |
| 1.37 | |||||
Total non-performing loans as a percentage of total assets | 0.51 |
| 0.73 | |||||
Total non-performing assets as a percentage of total assets | 0.57 |
| 0.76 | |||||
35
Investment Securities. Total investment securities were $45.6 million at September 30, 2024, down $38.4 million, or 45.7%, compared to $84.0 million at December 31, 2023. Net unrealized losses on securities available-for-sale totaled $3.4 million at September 30, 2024, compared to $9.2 million at December 31, 2023. Unrealized losses on available-for-sale securities relate principally to increases in market interest rates for similar securities. Our investment securities portfolio consists primarily of debt obligations issued by the U.S. government and government agencies and government-sponsored mortgage-backed securities.
During the three months ended March 31, 2024, the Company sold 50 available-for-sale investment securities for a total pre-tax loss of $5.5 million. Proceeds from the sales totaled $42.6 million, inclusive of accrued interest. During the six-month period ending September 30, 2024, the Company re-deployed a portion of the sales proceeds by purchasing $7.9 million of fixed-rate government-sponsored mortgage-backed securities.
The following table 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 September 30, 2024.
Contractual Maturity as of September 30, 2024 | ||||||||||||||||||||
(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 | $ | - | $ | 3,870 | $ | 1,956 | $ | 26,356 | $ | 32,182 | ||||||||||
U.S. Government and agency obligations |
| 1,000 |
| 2,000 |
| 7,000 |
| 4,000 |
| 14,000 | ||||||||||
Municipal obligations | 700 | 450 | 627 | 1,080 | 2,857 | |||||||||||||||
Total | $ | 1,700 | $ | 6,320 | $ | 9,583 | $ | 31,436 | $ | 49,039 | ||||||||||
Weighted average yield |
|
|
|
|
|
|
|
|
|
| ||||||||||
Mortgage-backed securities |
| - | % |
| 4.68 | % |
| 4.39 | % |
| 2.15 | % |
| 2.59 | % | |||||
U.S. Government and agency obligations |
| 0.92 |
| 1.00 |
| 1.31 |
| 2.37 |
| 1.54 | ||||||||||
Municipal obligations |
| 0.80 |
| 1.12 |
| 4.90 |
| 1.41 |
| 1.98 | ||||||||||
Total weighted average yield |
| 0.87 |
| 3.26 |
| 2.17 |
| 2.15 |
| 2.26 | ||||||||||
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.
36
Deposits. The following table presents total deposits by account type for the dates indicated.
September 30, 2024 | December 31, 2023 | |||||||||||||||||
(Dollars in thousands) |
| Amount |
| % |
| Amount |
| % | Change | |||||||||
Non-interest-bearing demand deposits | $ | 27,904 |
| 16.7 | % | $ | 28,183 |
| 17.0 | % | $ | (279) | (1.0) | % | ||||
Interest-bearing demand deposits |
| 33,751 |
| 20.2 |
| 36,867 |
| 22.3 |
| (3,116) | (8.5) | |||||||
Money market |
| 13,372 |
| 8.0 |
| 15,126 |
| 9.1 |
| (1,754) | (11.6) | |||||||
Savings |
| 36,798 |
| 22.0 |
| 31,518 |
| 19.0 |
| 5,280 | 16.8 | |||||||
Certificates of deposit | 55,611 |
| 33.1 | 53,928 |
| 32.6 | 1,683 | 3.1 | ||||||||||
Total deposits | $ | 167,436 |
| 100.0 | % | $ | 165,622 |
| 100.0 | % | $ | 1,814 | 1.1 | |||||
The ratio of the Company’s total loans to total deposits was 99.1% and 87.5% as of September 30, 2024 and December 31, 2023, respectively.
Total public fund deposits amounted to $21.0 million, or 13% of total deposits, at September 30, 2024, compared to $23.3 million, or 14% of total deposits, at December 31, 2023. At September 30, 2024, approximately 74% of our total public fund deposits consisted of non-interest-bearing and interest-bearing demand deposits from municipalities within our market.
Our total uninsured deposits (that is deposits in excess of the FDIC’s insurance limit), inclusive of public funds, were approximately $40.2 million at September 30, 2024 and $44.6 million at December 31, 2023. Total uninsured non-public fund deposits were approximately $23.6 million and $26.3 million at September 30, 2024 and December 31, 2023, respectively. At September 30, 2024, the full amount of our public fund deposits in excess of the FDIC’s insurance limit were secured by either pledged investment securities of $14.4 million or $19.0 million of a custodial letter of credit granted by the Federal Home Loan Bank of Dallas.
Borrowings. Total borrowings at September 30, 2024 were $29.5 million, up $10.1 million from December 31, 2023. During the first three months of 2024, the Bank increased its borrowings from the Federal Reserve Bank of Atlanta through the BTFP. At September 30, 2024, the Bank had one $20.0 million BTFP advance outstanding with a contractual interest rate of 4.76% and a maturity date of January 15, 2025.
Other borrowings outstanding consisted of FHLB advances totaling $9.5 million at September 30, 2024 and $9.4 million at December 31, 2023. Deferred prepayment penalties on our FHLB advances totaled $487,000 and $622,000 at September 30, 2024 and December 31, 2023, respectively.
Shareholders’ Equity. Shareholders’ equity totaled $81.7 million, or 29.1% of total assets, at September 30, 2024, down $2.9 million, or 3.4%, from $84.6 million, or 31.2% of total assets, at December 31, 2023. During the nine months ended September 30, 2024, shareholders’ equity decreased by $4.3 million due to the Company’s repurchases of its common stock. The Company’s net loss of $3.7 million for the nine months ended September 30, 2024 was offset by other comprehensive income of $4.6 million, which was the result of the change in unrealized losses on available-for-sale investment securities during the first nine months of 2024.
The Company repurchased 362,199 shares of its common stock at an average cost per share of $11.98 during the nine months ended September 30, 2024. Under the May 2024 Repurchase Plan, 93,127 shares of the Company’s common stock were available for repurchase at September 30, 2024. Since the announcement of our first share repurchase plan on January 26, 2023 and through September 30, 2024, the Company has repurchased a total of 890,873 shares of its common stock, or approximately 17% of the common shares originally issued, at an average cost per share of $11.96.
37
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 income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Taxable equivalent (“TE”) yields have been calculated using a marginal tax rate of 21%. All average balances are based on daily balances.
Three Months Ended September 30, | ||||||||||||||||||
2024 | 2023 | |||||||||||||||||
(Dollars in thousands) |
| Average Balance |
| Interest |
| Average Yield/Rate(TE) | Average Balance |
| Interest |
| Average Yield/Rate(TE) | |||||||
Interest-earning assets: |
| |||||||||||||||||
Loans receivable(1) |
| $ | 161,410 | $ | 2,717 |
| 6.70 | % | $ | 134,851 | $ | 1,852 |
| 5.45 | % | |||
Investment securities(2) |
|
| 48,517 |
| 255 |
| 2.11 |
| 99,373 |
| 403 |
| 1.64 | |||||
Other interest-earning assets |
|
| 51,142 |
| 699 |
| 5.45 |
| 16,915 |
| 214 |
| 5.02 | |||||
Total interest-earning assets |
| 261,069 |
| 3,671 |
| 5.60 |
| 251,139 |
| 2,469 |
| 3.91 | ||||||
Non-interest-earning assets |
| 21,371 |
| 13,956 | ||||||||||||||
Total assets | $ | 282,440 | $ | 265,095 | ||||||||||||||
Interest-bearing liabilities: |
| |||||||||||||||||
Demand deposits, money market and savings accounts |
|
| 85,164 |
| 382 |
| 1.78 |
| 83,051 |
| 178 |
| 0.85 | |||||
Certificates of deposit |
|
| 55,910 |
| 448 |
| 3.19 |
| 50,526 |
| 274 |
| 2.15 | |||||
Total interest-bearing deposits |
|
| 141,074 |
| 830 |
| 2.34 |
| 133,577 |
| 452 |
| 1.34 | |||||
Borrowings |
|
| 29,502 |
| 309 |
| 4.17 |
| 9,306 |
| 69 |
| 2.93 | |||||
Total interest-bearing liabilities |
| 170,576 |
| 1,139 |
| 2.66 |
| 142,883 |
| 521 |
| 1.45 | ||||||
Non-interest-bearing liabilities |
| 30,557 |
| 38,153 | ||||||||||||||
Total liabilities |
| 201,133 |
| 181,036 | ||||||||||||||
Shareholders' equity |
| 81,307 |
| 84,059 | ||||||||||||||
Total liabilities and shareholders' equity | $ | 282,440 | $ | 265,095 | ||||||||||||||
Net interest-earning assets | $ | 90,493 | $ | 108,256 | ||||||||||||||
Net interest income; average interest rate spread | $ | 2,532 |
| 2.94 | % | $ | 1,948 |
| 2.46 | % | ||||||||
Net interest margin(3) |
| 3.86 |
| 3.09 | ||||||||||||||
Average interest-earning assets to average interest-bearing liabilities |
| 153.05 |
| 175.77 | ||||||||||||||
| (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%. |
38
Nine Months Ended September 30, | ||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||
(Dollars in thousands) | Average Balance | Interest | Average Yield/Rate(TE) | Average Balance | Interest | Average Yield/Rate(TE) | ||||||||||||
Interest-earning assets: | ||||||||||||||||||
Loans receivable(1) | $ | 152,066 | $ | 7,314 |
| 6.42 | % | $ | 134,013 | $ | 5,172 |
| 5.16 | % | ||||
Investment securities(2) |
| 56,408 |
| 790 |
| 1.88 |
| 101,564 |
| 1,243 |
| 1.65 | ||||||
Other interest-earning assets |
| 56,738 |
| 2,247 |
| 5.29 |
| 18,369 |
| 643 |
| 4.68 | ||||||
Total interest-earning assets |
| 265,212 |
| 10,351 |
| 5.22 |
| 253,946 |
| 7,058 |
| 3.72 | ||||||
Non-interest-earning assets |
| 19,752 |
| 14,431 | ||||||||||||||
Total assets | $ | 284,964 | $ | 268,377 | ||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||
Demand deposits, money market and savings accounts |
| 87,300 |
| 1,040 |
| 1.59 | % |
| 85,966 |
| 456 |
| 0.71 | % | ||||
Certificates of deposit |
| 56,319 |
| 1,330 |
| 3.15 |
| 51,076 |
| 636 |
| 1.66 | ||||||
Total interest-bearing deposits |
| 143,619 |
| 2,370 |
| 2.20 |
| 137,042 |
| 1,092 |
| 1.06 | ||||||
Borrowings |
| 28,989 |
| 908 |
| 4.18 |
| 9,262 |
| 205 |
| 2.95 | ||||||
Total interest-bearing liabilities |
| 172,608 |
| 3,278 |
| 2.54 |
| 146,304 |
| 1,297 |
| 1.18 | ||||||
Non-interest-bearing liabilities |
| 30,711 |
| 36,450 | ||||||||||||||
Total liabilities |
| 203,319 |
| 182,754 | ||||||||||||||
Shareholders' equity |
| 81,645 |
| 85,623 | ||||||||||||||
Total liabilities and shareholders' equity | $ | 284,964 | $ | 268,377 | ||||||||||||||
Net interest-earning assets | $ | 92,604 | $ | 107,642 | ||||||||||||||
Net interest income; average interest rate spread | $ | 7,073 |
| 2.68 | % | $ | 5,761 |
| 2.54 | % | ||||||||
Net interest margin(3) |
| 3.56 |
| 3.04 | ||||||||||||||
Average interest-earning assets to average interest-bearing liabilities |
| 153.65 |
| 173.57 | ||||||||||||||
| (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%. |
39
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 |
| Nine Months Ended | |||||||||||||||
September 30, 2024 vs 2023 | September 30, 2024 vs 2023 | |||||||||||||||||
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 | $ | 462 | $ | 403 | $ | 865 | $ | 1,385 | $ | 757 | $ | 2,142 | ||||||
Investment securities |
| 95 |
| (243) |
| (148) |
| 158 |
| (611) |
| (453) | ||||||
Other interest-earning assets | 15 |
| 470 |
| 485 |
| 85 |
| 1,519 |
| 1,604 | |||||||
Total interest income |
| 572 |
| 630 |
| 1,202 |
| 1,628 |
| 1,665 |
| 3,293 | ||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
| |||||||
Demand deposits, money market and savings accounts |
| 199 |
| 5 |
| 204 |
| 577 |
| 7 |
| 584 | ||||||
Certificates of deposit |
| 143 |
| 31 |
| 174 |
| 623 |
| 71 |
| 694 | ||||||
Total deposits |
| 342 |
| 36 |
| 378 |
| 1,200 |
| 78 |
| 1,278 | ||||||
Borrowings |
| - |
| 240 |
| 240 |
| (3) |
| 706 |
| 703 | ||||||
Total interest expense |
| 342 |
| 276 |
| 618 |
| 1,197 |
| 784 |
| 1,981 | ||||||
Increase (decrease) in net interest income | $ | 230 | $ | 354 | $ | 584 | $ | 431 | $ | 881 | $ | 1,312 | ||||||
Comparison of Results of Operations for the Three Months Ended September 30, 2024 and 2023.
General. For the three months ended September 30, 2024, the Company reported net income of $447,000, compared to net income of $151,000 for the three months ended September 30, 2023. Net interest income was up $584,000, or 30.0%, for the three months ended September 30, 2024, compared to the same period in 2023. The provision for credit losses totaled $337,000 for the three months ended September 30, 2024, compared to zero provision for the same period in 2023. Non-interest income was up $314,000, or 102.6%, for the three months ended September 30, 2024, compared to the same period in 2023. Non-interest income for the 2024 period included grant income of $280,000 due to a Bank Enterprise Award (“BEA”) Program grant from the Community Development Financial Institution (“CDFI”) Fund. Non-interest expense for the three months ended September 30, 2024 was up $179,000, or 8.6%, compared to the same period in 2023.
Interest Income. Total interest income increased $1.2 million, or 48.7%, to $3.7 million for the three months ended September 30, 2024, compared to the same period in 2023. Interest income on loans and other interest-earning assets were up $865,000 and $485,000, respectively, for the three months ended September 30, 2024, compared to the same period in 2023. These increases were partially offset by a decrease in interest income on investment securities of $148,000 for the three months ended September 30, 2024, compared to the same period in 2023.
The average loan yield was 6.70% for the three months ended September 30, 2024, up from 5.45% for the same period in 2023. Average loans were $161.4 million for the three months ended September 30, 2024, up $26.6 million, or 19.7%, compared to the same period in 2023. At September 30, 2024, approximately 50% of our total loans have adjustable rates and approximately 51% of total loans are scheduled to re-price or mature during the next 12 months.
The decrease in interest income on investment securities was primarily due to the decrease in the average balance of total investment securities due to the sales executed during the three months ended March 31, 2024. The average rate earned on our investment securities portfolio was 2.11% for the three months ended September 30, 2024, up 47 basis points compared to the same period 2023 primarily due to investment securities purchased during 2024.
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Interest income on other interest-earning assets, consisting primarily of interest-earning cash and deposits at other financial institutions, increased mainly due to the re-investment of proceeds from investment securities sales executed during the first three months of 2024.
Interest Expense. Total interest expense increased $618,000, or 118.6%, to $1.1 million for the three months ended September 30, 2024, compared to $521,000 for the same period in 2023. Interest expense on deposits was $830,000 during the three months ended September 30, 2024, up $378,000, or 83.6%, compared to the same period in 2023. The average rate paid on interest-bearing deposits was 2.34% during the three months ended September 30, 2024, up 100 basis points compared to the same period in 2023. Interest expense on borrowings increased by $240,000 during the three months ended September 30, 2024 compared to the same period in 2023 mainly due to interest expense on BTFP advances.
Net Interest Income. Net interest income was $2.5 million for the three months ended September 30, 2024, up $584,000, or 30.0%, compared to 2023. Our interest rate spread was 2.94% and 2.46% for the three months ended September 30, 2024 and 2023, respectively. Our net interest margin was 3.86% and 3.09% for the three months ended September 30, 2024 and 2023, respectively. The increase in net interest margin and net interest income over the comparable periods was primarily the result of increased yields on our interest-earning assets, partially offset by the rising cost of interest-bearing liabilities.
Provision for Credit Losses. The total provision for credit losses on loans and unfunded commitments was $337,000 for the three months ended September 30, 2024, compared to zero provision for the same period in 2023. In 2024, the provision for credit losses was largely attributable to commercial loan growth.
Non-interest Income. Non-interest income for the three months ended September 30, 2024 totaled $620,000, up $314,000, or 102.6%, compared to the same period in 2023. The Company recognized as income a $280,000 Bank Enterprise Award (“BEA”) Program grant from the CDFI Fund during the three months ended September 30, 2024.
Non-interest Expense. Non-interest expense totaled $2.3 million for the three months ended September 30, 2024, up $179,000, or 8.6%, compared to the three months ended September 30, 2023.
Salaries and employee benefits expense totaled $1.2 million for the three months ended September 30, 2024, up $59,000, or 5.2%, compared to the same period in 2023 primarily due to raises that became effective at the start of the 2024 period.
Professional fees totaled $151,000 for the three months ended September 30, 2024, up $51,000, or 51.0%, compared to the same period in 2023. Professional fees associated with obtaining the BEA Program grant totaled $42,000 and were expensed during the three months ended September 30, 2024.
ATM and debit card expense totaled $24,000 for the three months ended September 30, 2024, down $44,000, or 64.7%, compared to the same period in 2023. During the first three months of 2024, the Company upgraded to a new core processing system which largely contributed to reductions in debit card processing costs during the three months ended September 30, 2024.
Foreclosed assets expense totaled $33,000 for the three months ended September 30, 2024, up $31,000 compared to the same period in 2023. During the three months ended September 30, 2024, the Company recorded net write-downs on foreclosed assets of $39,000.
Other non-interest expense totaled $184,000 for the three months ended September 30, 2024, up $87,000, or 89.7%, compared to the same period in 2023 primarily due to increased loan collection expenses and fraud losses during the 2024 period.
Income Tax Expense. The Company reported income tax expense of $108,000 for the three months ended September 30, 2024 compared to $22,000 for the three months ended September 30, 2023. The change in income taxes over the comparable prior period was largely due to the change in taxable earnings over the comparable periods.
Comparison of Results of Operations for the Nine Months Ended September 30, 2024 and 2023.
General. For the nine months ended September 30, 2024, the Company reported a net loss of $3.7 million, compared to net income of $219,000 for the nine months ended September 30, 2023. Net interest income was up $1.3 million, or 22.8%, for the nine months ended September 30, 2024, compared to the same period in 2023. The provision for credit losses totaled $531,000 for the nine months ended September 30, 2024, compared to zero provision for the same period in 2023. Non-interest income was down $5.1 million for the nine
41
months ended September 30, 2024, compared to the same period in 2023, primarily due to losses on the sales of investment securities. Non-interest expense for the nine months ended September 30, 2024 was up $662,000, or 10.3%, compared to the same period in 2023, primarily due to expenses associated with the Company’s upgrade to a new core processing system.
Interest Income. Total interest income increased $3.3 million, or 46.7%, to $10.4 million for the nine months ended September 30, 2024, compared to the same period in 2023. Interest income on loans and other interest-earning assets were up $2.1 million and $1.6 million, respectively. These increases were partially offset by a $453,000 decrease in interest income on investment securities.
The average loan yield was 6.42% for the nine months ended September 30, 2024, up from 5.16% for the same period in 2023. Average loans were $152.1 million for the nine months ended September 30, 2024, up $18.1 million, or 13.5%, compared to the same period in 2023.
The decrease in interest income on investment securities was primarily due to the decrease in the average balance of total investment securities due to the sales executed during the three months ended March 31, 2024. The average rate earned on our investment securities portfolio was 1.88% for the nine months ended September 30, 2024, up 23 basis points compared to the same period in 2023 primarily due to investment securities purchased during 2024.
Interest income on other interest-earning assets, consisting primarily of interest-earning cash and deposits at other financial institutions, increased mainly due to the re-investment of proceeds from investment securities sales executed during the first three months of 2024.
Interest Expense. Total interest expense increased $2.0 million, or 152.7%, to $3.3 million for the nine months ended September 30, 2024, compared to $1.3 million for the same period in 2023. Interest expense on deposits was $2.4 million during the nine months ended September 30, 2024, up $1.3 million, or 117.0%, compared to the same period in 2023. The average rate paid on interest-bearing deposits was 2.20% during the nine months ended September 30, 2024, up 114 basis points compared to the same period in 2023. Interest expense on borrowings increased by $703,000 during the nine months ended September 30, 2024 compared to the same period in 2023 mainly due to interest expense on BTFP advances.
Net Interest Income. Net interest income was $7.1 million for the nine months ended September 30, 2024, up $1.3 million, or 22.8%, compared to 2023. Our interest rate spread was 2.68% and 2.54% for the nine months ended September 30, 2024 and 2023, respectively. Our net interest margin was 3.56% and 3.04% for the nine months ended September 30, 2024 and 2023, respectively. The increase in net interest margin and net interest income over the comparable periods was primarily the result of increased yields on our interest-earning assets, partially offset by the rising cost of interest-bearing liabilities.
Provision for Credit Losses. The total provision for credit losses on loans and unfunded commitments was $531,000 for the nine months ended September 30, 2024, compared to no provision for the same period in 2023. In 2024, the provision for credit losses was largely attributable to commercial loan growth and an increase in the allowance for credit losses on individually evaluated loans.
Non-interest Income. Non-interest income for the nine months ended September 30, 2024 was down $5.1 million compared to $917,000 for the same period in 2023. Non-interest income for 2024 includes the $5.5 million loss on the sales of investment securities discussed previously.
Non-interest Expense. Non-interest expense totaled $7.1 million for the nine months ended September 30, 2024, up $662,000, or 10.3%, compared to the same period in 2023. Non-interest expense for the nine months ended September 30, 2024 includes $531,000 of data conversion and other associated expenses related to the Company’s upgrade to a new core processing system, which occurred during the first three months of 2024. Most of these costs are included in data processing and communication expense. Data processing and communication expense was up $495,000, or 73.3%, for the nine months ended September 30, 2024 compared to the same period in 2023.
Income Tax Expense. The Company reported an income tax benefit of $1.0 million for the nine months ended September 30, 2024, compared to income tax expense of $2,000 for the nine months ended September 30, 2023. The change in income taxes over the comparable prior period was largely due to the loss on sales of investment securities in 2024.
42
Liquidity and Capital Resources
The Company maintains levels of liquid assets deemed adequate by management. We adjust our liquidity levels to fund deposit outflows, repay our borrowings, and to fund loan commitments. We also adjust liquidity, as appropriate, to meet asset and liability management objectives.
Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities or sales of securities. We also have the ability to borrow from the FHLB, Federal Reserve Bank of Atlanta, and our primary correspondent bank.
At September 30, 2024, our borrowed funds consisted of a $20 million BTFP advance and FHLB advances with a total net carrying value of $9.5 million. The table below summarizes our unused and available liquidity sources as of September 30, 2024.
(Dollars in thousands) | September 30, 2024 | ||
Advances from the Federal Home Loan Bank of Dallas | $ | 43,237 | |
Line of credit with primary correspondent bank | 17,800 | ||
Unpledged available-for-sale investment securities, at fair value | 10,634 | ||
Total unused and available liquidity | $ | 71,671 | |
The Company also has a $25.0 million custodial letter of credit outstanding from the FHLB as of September 30, 2024, which is included in the calculation of our available capacity with the FHLB indicated above. The Company can allocate portions of this letter of credit to collateralize certain deposit balances in excess of the FDIC’s insurance limit as an alternative to pledging investment securities for the same purpose. At September 30, 2024, the Company used $19.0 million of the FHLB custodial letter of credit to collateralize public fund deposits.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. The most significant uses and sources of cash flows during the nine months ended September 30, 2024 included:
| ● | $46.4 million in proceeds from maturities, paydowns, and sales of investment securities, |
| ● | $21.5 million net outflow due to an increase in total loans, |
| ● | $10.0 million in proceeds from BTFP advances, and |
| ● | $7.9 million net outflow due to purchases of investment securities. |
We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily and anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that the majority of maturing time deposits will be retained. We also anticipate continued use of our secondary funding sources.
43
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 September 30, 2024.
Amount of Commitment Expiration — Per Period | |||||||||||||||
(Dollars in thousands) | Total Amounts Committed at September 30, 2024 | To 1 Year | 1 - 3 Years | 3 - 5 Years | After 5 Years | ||||||||||
Commitments to originate loans | $ | 525 | $ | 525 | $ | - | $ | - | $ | - | |||||
Undisbursed portion of construction loans in process |
| 12,992 |
| 8,602 |
| 4,390 |
| - |
| - | |||||
Unused lines of credit |
| 17,715 |
| 14,116 |
| 2,324 |
| - |
| 1,275 | |||||
Unused overdraft privilege amounts |
| 1,153 |
| - |
| - |
| - |
| 1,153 | |||||
Letters of credit | 19 | 19 | - | - | - | ||||||||||
Total commitments | $ | 32,404 | $ | 23,262 | $ | 6,714 | $ | - | $ | 2,428 | |||||
The following table summarizes our contractual cash obligations at September 30, 2024.
Payments Due By Period | |||||||||||||||
(Dollars in thousands) | Total at September 30, 2024 | To 1 Year | 1 - 3 Years | 3 - 5 Years | After 5 Years | ||||||||||
Certificates of deposit | $ | 55,611 | $ | 50,430 | $ | 4,533 | $ | 648 | $ | - | |||||
Borrowings |
| 30,000 |
| 20,000 |
| 3,000 |
| 7,000 |
| - | |||||
Total term debt | $ | 85,611 | $ | 70,430 | $ | 7,533 | $ | 7,648 | $ | - | |||||
Management expects that a majority of the maturing certificates of deposit will be retained. However, if a substantial portion of these deposits is not retained, we may utilize borrowings from our secondary funding sources or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see Note 2 of the notes to our financial statements.
44
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 4. CONTROLS AND PROCEDURES
During the three months ended June 30, 2024, management identified a deficiency in the Company’s system of internal controls which led to the misstatement described in Note 1 of the consolidated financial statements. After implementing a process to resolve the deficiency and assess its cause and resulting impact on our disclosure controls and procedures, Management and the Audit Committee concluded that the deficiency did not represent a material weakness in the Company’s internal controls over financial reporting since the deficiency was isolated to a unique deposit account that required certain controls that were not required for oversight of any other of the Bank’s deposit accounts at June 30, 2024. Therefore, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures in effect as of the date of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2024, other than the identified deficiency, were effective as of that date. The control deficiency was remediated in July 2024.
An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Act”)) as of September 30, 2024, 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. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms. Except for the previously identified deficiency that was remediated in July 2024, there have been no other changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the three months ended September 30, 2024, 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.
45
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 September 30, 2024, 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
The Company’s purchases of its common stock made during the three months ended September 30, 2024 consisted of share repurchases under the Company’s approved plans and are set forth in the following table.
For the Month Ended | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet be Purchased Under Plans or Programs | ||||||||
July 31, 2024 | 33,611 | $ | 11.73 | 33,611 | 138,916 | |||||||
August 31, 2024 | 16,626 | 11.78 | 16,626 | 122,290 | ||||||||
September 30, 2024 | 29,163 | 11.29 | 29,163 | 93,127 | ||||||||
Total | 79,400 | $ | 11.58 | 79,400 | ||||||||
On May 2, 2024, The Company announced that its Board of Directors approved the Company’s fourth share repurchase plan (the “May 2024 Repurchase Plan”). Under the May 2024 Repurchase Plan, the Company may purchase up to 227,000 shares, or approximately 5%, of the Company’s outstanding shares of common stock. At June 30, 2024, 172,527 shares were available for repurchase under the May 2024 Repurchase Plan. Following the repurchases of common stock made during the three months ended September 30, 2024, 93,127 shares were still available on September 30, 2024, for repurchase under the May 2024 Repurchase Plan.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Nothing to report.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
46
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) |
47
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: November 13, 2024 | By: | /s/ Joseph B. Zanco |
Joseph B. Zanco | ||
President and Chief Executive Officer | ||
(Duly Authorized Officer) | ||
Date: November 13, 2024 | By: | /s/ Jacques L. J. Bourque |
Jacques L. J. Bourque | ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) | ||
48