Business Overview and History
Catalyst Bancorp, Inc. (CLST) is a Louisiana-based bank holding company that has undergone a remarkable transformation in recent years, transitioning from a traditional thrift institution to a dynamic, relationship-focused community bank. With a renewed focus on serving the banking needs of small- to mid-sized businesses and business professionals in its Acadiana region market, Catalyst Bancorp has positioned itself as a catalyst for economic growth in its local communities.
Catalyst Bancorp was incorporated in February 2021 as part of the conversion of its wholly-owned subsidiary, Catalyst Bank (formerly known as St. Landry Homestead Federal Savings Bank), from a mutual to a stock form of organization. The Bank, founded in 1922, has a long and storied history of serving the banking needs of customers in the Acadiana region of south-central Louisiana.
For many decades, the Bank operated as a traditional thrift, relying primarily on long-term, single-family residential mortgage loans to generate interest income. In 2021, under new leadership, the Company underwent a significant transformation, converting from a mutual to a stock form of organization. This conversion process allowed Catalyst Bancorp to access the public markets and pursue a new strategic direction.
The conversion to a public company in 2021 brought its share of challenges. The company had to navigate the complex process of going public, which included securing regulatory approvals, conducting a stock offering, and establishing new governance structures. Additionally, the COVID-19 pandemic created economic headwinds that the bank had to manage during this transitional period.
Despite these obstacles, Catalyst Bancorp has made significant progress in executing its new strategic vision. The company has expanded its branch network, upgraded its core banking systems, and achieved strong loan growth in its commercial and industrial lending portfolios. These efforts have laid the foundation for the company's future growth and development as a more dynamic, profitable, and diversified community bank.
As part of this strategic shift, the bank rebranded to Catalyst Bank in June 2022 to reinforce its commitment to serving as a catalyst for economic growth in its local communities. The current leadership team, including President and CEO Joe Zanco, has been in place since the conversion in 2021.
Financial Performance and Ratios
For the year ended December 31, 2023, Catalyst Bancorp reported annual revenue of $9.14 million and net income of $602,000, with total assets of $270.93 million and total loans of $144.92 million. The Company's net interest margin for the year was 3.04%, and its efficiency ratio was 70.03%. Annual operating cash flow was $2.01 million, and annual free cash flow was $1.84 million.
As of September 30, 2024, the Company's total assets had grown to $280.62 million, with total loans of $165.88 million. The net interest margin for the nine months ended September 30, 2024 was 3.56%, and the efficiency ratio was 67.86%. The Company's return on average assets and return on average equity for the nine-month period were -1.21% and -4.12%, respectively.
For the most recent quarter (Q3 2024), Catalyst Bancorp reported revenue of $3.98 million and net income of $447,000, representing a significant year-over-year growth in quarterly revenue of 60.9% compared to Q3 2023. The increase in revenue was primarily driven by higher yields on the loan portfolio and growth in loan balances, partially offset by higher interest expense on deposits and borrowings.
Catalyst Bancorp's capital ratios remain strong, with a Common Equity Tier 1 ratio of 52.34% and a Total Risk-Based Capital ratio of 53.59% as of December 31, 2023. These ratios significantly exceed the regulatory requirements for a "well-capitalized" institution. The company's debt-to-equity ratio stands at 0.12.
Loan Portfolio and Growth
One of the key drivers of Catalyst Bancorp's transformation has been its focus on growing its commercial loan portfolio. As of September 30, 2024, commercial real estate loans accounted for 13.7% of the total loan portfolio, down slightly from 14.8% at the end of 2023. Construction and land loans grew significantly, from 9.6% of the portfolio at the end of 2023 to 18.3% as of September 30, 2024.
The Company's commercial and industrial loan portfolio increased from 13.8% of total loans at the end of 2023 to 16.0% as of September 30, 2024. Notable areas of growth included oilfield services, industrial equipment, and professional services.
Overall, Catalyst Bank's loan portfolio is primarily composed of real estate loans, which accounted for 82.7% of total loans as of September 30, 2024. This segment includes one- to four-family residential loans ($81.43 million), commercial real estate loans ($22.70 million), construction and land loans ($30.31 million), and multi-family residential loans ($2.62 million). The bank's commercial and industrial loan portfolio increased by 32.6% to $26.51 million compared to the prior year. Consumer loans make up a smaller portion of the bank's total loan portfolio at $2.31 million.
The bank's loan growth has been a key driver of its financial performance, with total loans increasing by 14.5% to $165.88 million as of September 30, 2024, compared to $144.92 million at the end of 2023. This growth rate outpaces the industry loan growth in the Acadiana region, which has seen moderate increases in recent years.
This strategic shift in the loan portfolio has been a key part of Catalyst Bancorp's efforts to position itself as a community bank that can serve as a catalyst for economic growth in its local markets. The Company's ability to successfully execute on this strategy will be a critical factor in its future performance.
Asset Quality
Catalyst Bank's asset quality metrics have improved year-over-year, with non-performing assets (including non-accruing loans and foreclosed assets) decreasing by 21.5% to $1.61 million as of September 30, 2024, compared to $2.05 million at the end of 2023. The allowance for loan losses increased to $2.41 million, or 1.46% of total loans, as of September 30, 2024, down slightly from 1.47% at the end of 2023. The bank's provision for credit losses was $531,000 for the nine months ended September 30, 2024, primarily due to commercial loan growth.
Funding and Liquidity
Catalyst Bancorp's primary funding sources are customer deposits and borrowings from the Federal Home Loan Bank of Dallas and the Federal Reserve Bank of Atlanta. As of September 30, 2024, the Company had $167.44 million in total deposits, up 1.1% from $165.62 million at the end of 2023.
The Company's loan-to-deposit ratio was 99.1% as of September 30, 2024, up from 87.5% at the end of 2023, reflecting the strong loan growth during the year. Catalyst Bancorp had $71.67 million in available liquidity from various sources, including the FHLB, a correspondent bank line of credit, and unpledged investment securities.
The bank's deposit mix includes non-interest-bearing demand deposits (16.7%), interest-bearing demand deposits (20.2%), money market accounts (8.0%), savings accounts (22.0%), and certificates of deposit (33.1%). The bank also utilizes borrowings, which increased by 52.3% to $29.51 million as of September 30, 2024, primarily due to advances from the Federal Reserve Bank of Atlanta through the Bank Term Funding Program.
Catalyst Bancorp maintains strong liquidity positions, with $45.75 million in cash and cash equivalents. The company has a $43.24 million line of credit with the Federal Home Loan Bank of Dallas, a $17.80 million line of credit with its primary correspondent bank, and $10.63 million in unpledged available-for-sale investment securities that can be used for liquidity.
The Company's strong capital position and liquidity provide it with the flexibility to continue funding its growth initiatives while maintaining a prudent risk profile.
Risks and Challenges
While Catalyst Bancorp has made significant strides in transforming its business model, the Company faces a number of risks and challenges that could impact its future performance. These include:
1. Concentration risk: A significant portion of the Company's loan portfolio is concentrated in commercial real estate, construction and land, and commercial and industrial loans. Any economic downturns or changes in market conditions in these sectors could adversely affect the Company's asset quality and earnings.
2. Interest rate risk: As a community bank, Catalyst Bancorp is susceptible to changes in interest rates, which can impact its net interest margin and profitability. The Company's ability to effectively manage its interest rate risk will be crucial.
3. Regulatory environment: As a financial institution, Catalyst Bancorp is subject to extensive regulatory oversight and requirements. Changes in the regulatory landscape could impact the Company's operations and compliance costs.
4. Competition: The banking industry in the Acadiana region is highly competitive, with Catalyst Bancorp facing competition from larger regional and national banks, as well as other community banks. The Company's ability to differentiate itself and attract and retain customers will be critical.
5. Economic conditions: As a community bank focused on the Acadiana region of south-central Louisiana, Catalyst Bancorp's performance is closely tied to the economic conditions of this specific market. Any downturn in the local economy could adversely affect the bank's loan portfolio and overall financial performance.
Outlook and Conclusion
Catalyst Bancorp's transformation from a traditional thrift to a relationship-focused community bank has been an impressive and deliberate undertaking. The Company's renewed focus on serving the banking needs of small- to mid-sized businesses and business professionals in its local market has positioned it well for future growth and profitability.
The Company's strong capital position, ample liquidity, and strategic shift in its loan portfolio provide a solid foundation for continued success. The significant year-over-year growth in quarterly revenue and net income in Q3 2024 demonstrates the potential of the bank's new strategic direction. However, Catalyst Bancorp must navigate the risks and challenges inherent in its evolving business model, including concentration risk, interest rate risk, and the competitive landscape.
The banking industry in the Acadiana region has seen moderate loan growth and increased competition for deposits in recent years. Catalyst Bancorp has been able to outpace industry loan growth, with its loan portfolio increasing 15% in 2024 compared to the prior year. This growth, combined with improvements in asset quality and the bank's strong capital ratios, suggests that the company is effectively executing its strategy.
As Catalyst Bancorp continues to execute on its strategic initiatives and demonstrate its ability to generate sustainable earnings and capital, the Company may emerge as a compelling investment opportunity for those seeking exposure to a well-positioned community bank serving the dynamic Acadiana region. The bank's exclusive focus on this specific market area allows it to leverage its local knowledge and relationships, potentially giving it a competitive advantage over larger, more geographically diverse institutions.
Looking ahead, Catalyst Bancorp's success will depend on its ability to maintain its loan growth momentum, manage interest rate risk effectively, and continue to improve its operational efficiency. The company's investments in upgrading its core processing system and its efforts to diversify its revenue streams should help support these goals. However, the bank will need to carefully manage its funding costs and operating expenses to ensure that its growth translates into improved profitability and shareholder returns.
In conclusion, while Catalyst Bancorp faces challenges common to many community banks, its strategic transformation, strong capital position, and focus on serving as a catalyst for local economic growth position it well for future success in the evolving banking landscape of the Acadiana region.