Company Overview

Catalyst Bancorp, Inc. (NASDAQ: CLST) is a Louisiana-based bank holding company that has undergone a remarkable transformation over the past few years. Founded in 1922 as St. Landry Homestead Federal Savings Bank, the company has evolved from a traditional thrift institution into a dynamic, community-oriented bank serving the Acadiana region of south-central Louisiana.

In 2021, the company completed its conversion from a mutual to a stock form of organization, marking a significant milestone in its history. This transition allowed Catalyst Bancorp to raise capital and position itself for growth, as it re-focused its business strategy to target small- to mid-sized businesses and business professionals in its local market while continuing to serve its longstanding retail customer base.

The company's current leadership, led by President and CEO Joseph Zanco, has been instrumental in driving this transformation. Under their guidance, Catalyst Bancorp has expanded its branch network, enhanced its product offerings, and implemented strategic initiatives to become a more proficient and profitable institution.

Strategic Transformation

For decades, the bank operated as a traditional thrift, relying primarily on long-term, single-family residential mortgage loans to generate interest income. However, following the 2021 conversion, Catalyst Bank re-focused its business strategy to a relationship-based community bank model, targeting small- to mid-sized businesses and business professionals in its market areas while continuing to serve its traditional customer base. This shift represented a major strategic change for the organization, as it sought to diversify its loan portfolio and revenue streams.

Over the years, Catalyst has faced various challenges common to community banks, such as managing interest rate risk, maintaining strong asset quality, and controlling costs. For example, in 2020 the company reported a net loss of $703,000, due in part to $1.5 million in one-time special charges. However, the company was able to rebound the following year, reporting net income of $1.92 million in 2021 as it navigated the economic impacts of the COVID-19 pandemic.

Financial Performance

As of September 30, 2024, Catalyst Bancorp reported total assets of $280.62 million, up 9.70% from the $270.93 million reported at the end of 2023. This growth was primarily driven by a 14.50% increase in loans, which totaled $165.88 million as of the same date, compared to $144.92 million at the end of the previous year.

The company's loan portfolio has seen a shift in composition, with commercial real estate, construction and land, and commercial and industrial loans now making up a more significant portion of the total. These segments have grown by 5.70%, 118.70%, and 32.60%, respectively, between December 31, 2023, and September 30, 2024, reflecting the bank's strategic focus on serving the needs of small- to mid-sized businesses in its market area.

Catalyst Bancorp's net interest income for the nine months ended September 30, 2024, increased by 22.80% to $7.07 million, compared to $5.76 million in the same period of 2023. This improvement was driven by a 52 basis point expansion in the company's net interest margin, which reached 3.56% during the first nine months of 2024, up from 3.04% in the prior-year period. The increase in net interest income and margin was primarily the result of higher yields on the company's interest-earning assets, partially offset by the rising cost of interest-bearing liabilities.

However, the company's financial performance for the nine months ended September 30, 2024, was impacted by a $5.51 million loss on the sale of investment securities, which contributed to a net loss of $3.71 million for the period, compared to net income of $219,000 in the same period of 2023. The investment securities sale was part of the company's strategy to reposition its balance sheet and redeploy capital into higher-yielding loans and other interest-earning assets.

Catalyst Bancorp has also been proactive in managing its credit quality. At September 30, 2024, the company's non-performing assets, including non-accrual loans and foreclosed assets, totaled $1.61 million, down from $2.05 million at the end of 2023. The allowance for credit losses stood at $2.65 million, or 1.60% of total loans, at the end of the third quarter of 2024, reflecting the company's disciplined approach to risk management.

For the most recent fiscal year (2023), Catalyst Bancorp reported revenue of $9.14 million, net income of $602,000, operating cash flow of $2.01 million, and free cash flow of $1.84 million. In the most recent quarter (Q3 2024), the company's performance improved significantly, with revenue of $3.98 million, net income of $447,000, operating cash flow of $896,000, and free cash flow of $771,000. The increase in net income in Q3 2024 compared to the prior year quarter was primarily due to a $584,000 increase in net interest income, partially offset by a $337,000 provision for credit losses recorded in Q3 2024 compared to no provision in the prior year quarter.

Liquidity and Capital Management

In addition to its focus on loan growth and credit quality, Catalyst Bancorp has also been actively managing its capital position. As of September 30, 2024, the company's total shareholders' equity stood at $81.67 million, representing a tangible book value per share of $21.11. Catalyst Bancorp's capital ratios remained well above the regulatory requirements for a "well-capitalized" institution, with a Common Equity Tier 1 Capital Ratio of 45.71% and a Total Risk-Based Capital Ratio of 46.97%.

The company's strong capital position has enabled it to return capital to shareholders through share repurchases. During the nine months ended September 30, 2024, Catalyst Bancorp repurchased 362,200 shares of its common stock at an average cost of $11.98 per share. Since the announcement of its first share repurchase plan in January 2023, the company has repurchased a total of 890,870 shares, or approximately 17% of the common shares originally issued.

As of September 30, 2024, Catalyst Bancorp reported cash and cash equivalents of $45.75 million. The company has a $17.8 million unsecured federal funds line of credit with its primary correspondent bank, which was unused as of that date. Additionally, it had $43.24 million in available advances from the Federal Home Loan Bank of Dallas. This strong liquidity position provides the company with flexibility to pursue growth opportunities and manage potential economic challenges.

Future Outlook and Challenges

Looking ahead, Catalyst Bancorp remains focused on its transformation into a more dynamic, profitable, and growing community bank. The company's strategic initiatives, such as expanding its commercial banking capabilities, enhancing its technology infrastructure, and strengthening its brand presence, are expected to continue driving growth and improving its financial performance.

However, the company is not without its challenges. The current interest rate environment, with the Federal Reserve's ongoing monetary policy tightening, may put pressure on Catalyst Bancorp's net interest margin and profitability in the near term. Additionally, the company's reliance on commercial real estate and construction loans in its portfolio exposes it to potential risks associated with changes in the local real estate market.

Despite these headwinds, Catalyst Bancorp's management team remains committed to navigating these challenges and positioning the company for long-term success. The company's strong capital position, disciplined risk management, and strategic focus on serving the needs of its local community provide a solid foundation for continued growth and shareholder value creation.

Catalyst Bancorp operates primarily in the Acadiana region of south-central Louisiana, serving customers through its community-oriented banking model. The company's loan portfolio is diversified across various segments, with one- to four-family residential loans being the largest component at $81.43 million, followed by commercial and industrial loans at $26.51 million as of September 30, 2024.

The bank has been particularly focused on growing its commercial lending, targeting sectors such as retail, hospitality, oilfield services, and other commercial and industrial lending. This strategic focus has resulted in significant growth in commercial real estate loans, which increased by $1.23 million or 5.7% from the prior year-end, as well as construction and land loans, which grew by $16.45 million or 118.7%.

In addition to its loan portfolio, Catalyst Bancorp maintains an investment securities portfolio, which stood at $45.60 million as of September 30, 2024. This represents a decrease of $38.40 million or 45.7% from the prior year-end, primarily due to the strategic sale of $50 million of available-for-sale securities during the first quarter of 2024. The remaining investment securities portfolio consists mainly of mortgage-backed securities, U.S. government and agency obligations, and municipal obligations.

As Catalyst Bancorp continues its transformation journey, its ability to balance loan growth, manage its securities portfolio, and optimize its funding costs will be crucial to its ongoing financial performance and long-term success in serving the Acadiana region.