UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20212023
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _________________.
Commission File Number 001-40893
CATALYST BANCORP, INC.
(Exact name of registrant as specified in its charter)
Louisiana |
| 86-2411762 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
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235 N. Court Street, Opelousas, Louisiana |
| 70570 |
(Address of Principal Executive Offices) | | (Zip Code) |
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Registrant’s telephone number, including area code: (337) 948-3033 |
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock (par value $.01 per share) | | CLST | | Nasdaq Capital Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ◻ No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ◻ No ⌧
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 5(d) of the Securities and Exchange Act of 1934 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. Yes ⌧ No ◻
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). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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.
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Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ◻☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
There was 0 outstanding voting or non-voting common equity of the Registrant as of June 30, 2021. The aggregate market value of the voting common equity held by non-affiliates of the Registrant, computed by reference tobased upon the last saleclosing price on October 13, 2021 ($13.89), the first date of trading in$11.03 for the common stock on June 30, 2023, as reported by the Nasdaq Stock Market, was approximately $65.0$47.4 million.
Number of shares of Common Stock outstanding as of March 21, 2022: 5,290,000.22, 2024: 4,560,287.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the 20222024 Annual Meeting of Shareholders are incorporated into Part III, Items 10 through 14.
CATALYST BANCORP, INC.
Form 10-K
For the Year Ended December 31, 20212023
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
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Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Certain Relationships and Related Transactions, and Director Independence |
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PART I
Forward-Looking Statements
This Annual Report on Form 10-K contains certain forward-looking statements (as defined in the Securities Exchange Act of 1934 and the regulations thereunder). Forward-looking statements are not historical facts but instead represent only the beliefs, expectations or opinions of Catalyst Bancorp and its management regarding future events, many of which, by their nature, are inherently uncertain. Forward-looking statements may be identified by the use of such words as: “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, or words of similar meaning, or future or conditional terms such as “will”, “would”, “should”, “could”, “may”, “likely”, “probably”, or “possibly.” Forward-looking statements include, but are not limited to, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks, uncertainties and assumption, many of which are difficult to predict and generally are beyond the control of Catalyst Bancorp and its management, that could cause actual results to differ materially from those expressed in, or implied or projected by, forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) general economic and competitive conditions, either nationally or in our market area, which if worse than expected could negatively affect aspects of the business Catalyst Bancorp including but not limited to the volume of loan originations, deposit flows, asset quality and real estate values; (2) the levels of non-interest income and expense and the amount of loan losses; (3) competitive pressure among depository institutions increasing significantly; (4) changes in inflation and in the interest rate environment causing reduced interest margins;margins or lower fair values of financial instruments; (5) general economic conditions, either nationally or in the markets in which Catalyst Bancorp is or will be doing business, being less favorable than expectedreliance on third party vendors for key services (6) political and social unrest including acts of war or terrorism; (7) the impact of the current outbreak of the novel coronavirus (COVID-19)cyber threats, attacks or events (8) legislation or changes in regulatory requirements or accounting policies and practices adversely affecting the business in which Catalyst Bancorp will be engaged.engaged; and (9) other liquidity, interest rate, and operational risks associated with our business. Catalyst Bancorp undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.
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Item 1. Business
BUSINESS OF CATALYST BANCORP, INC.
Catalyst Bancorp, , Inc. (“Catalyst Bancorp” or the “Company”) was incorporated by St. Landry Homestead Federal Savings Bank (“St. Landry Homestead” or the “Bank”) in February 2021 as part of the conversion of St. Landry Homestead from the mutual to the stock form of organization. In June 2022, St. Landry Homestead changed its name to Catalyst Bank (the “Bank”).
The conversion of the Bank from the mutual to the stock form of organization (the “Conversion). The Conversion“Conversion”) was completed on October 12, 2021, at which time the Company acquired all of the issued and outstanding shares of common stock of the Bank and became the holding company for the Bank. As a result of the Conversion, the Bank is a wholly owned subsidiary of Catalyst Bancorp. Concurrently with consummation of the Conversion, the Company completed its initial public offering and issued 5,290,000 shares of its common stock for an aggregate of $52.9 million. Total net proceeds from the offering were $50.8 million (including shares issued to the Company’s employee stock ownership plan (“ESOP”)). The Company contributed 50% of the net proceeds from the stock offering to the Bank. The Company retained the remainder of the net proceeds from the stock offering and used $4.2 million to make a loan to the ESOP.stock.
Catalyst Bancorp is a registered bank holding company and is authorized to pursue business activities permitted by applicable laws and regulations, which may include the acquisition of banking and financial services companies. See “Supervision and Regulation – Holding Company Regulation” for a discussion of the activities that are permitted for bank holding companies. We currently have no understandings or agreements to acquire any other financial institution, although we may determine to do so in the future.
Catalyst Bancorp’s cash flow depends on earnings from the investment of the net proceeds from the offering that it retains and any dividends it receives from the Bank. St. Landry HomesteadThe Bank is subject to regulatory limitations on the amount of dividends that it may pay. See “Supervision and Regulation – Federal Banking Regulation – Capital Distributions.” The Company neither owns nor leases any property, but instead utilizes the premises, equipment and furniture of the Bank. At the present time, the Company employs only persons who are officers of the Bank to serve as officers of the Company. The Company does, however, use the support staff of the Bank from time to time. Catalyst Bancorp may hire additional employees, as appropriate, to the extent we expand our business in the future.
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Our headquarters is located at 235 N. Court Street, Opelousas, Louisiana, and our telephone number is (337) 948-3033. We maintain a website at www.stlandryhomestead.comwww.catalystbank.com, and we provide our customers with on-line banking services. This Annual Report on Form 10-K, as well as all other filings we make with the U.S. Securities and Exchange Commission, isare available on our website under the “Investor Relations” tab. Information on our website should not be considered a part of this Annual Report on Form 10-K.
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 (formerly St. Landry Homestead,Homestead), 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.
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BUSINESS OF ST. LANDRY HOMESTEAD FEDERAL SAVINGSCATALYST BANK
General. St. Landry Homestead Federal SavingsCatalyst Bank is a federally charteredfederally-chartered community-oriented savings bank which was originally organized in 1922 under the name St. Landry Homestead Federal Savings Bank and is headquartered in Opelousas, Louisiana. St. Landry Homestead Federal Savings Bank changed its name to Catalyst Bank in June 2022. The Bank currently conducts its business from its main office as well as five additional full-service branch offices. Our branch offices are located in Eunice, Port Barre and Opelousas, in St. Landry Parish, and Lafayette and Carencro, in Lafayette Parish. Our branch offices in Opelousas and Carencro were opened in July 2019 and October 2020, respectively. Our newest branch office, located in Lafayette, Louisiana, opened for business in November 2021. St. Landry and Lafayette Parishes are in the Acadiana region of south central Louisiana. Our newest branch offices, located in Carencro and Lafayette, Louisiana, opened for business in October 2020 and November 2021, respectively.
We are primarily engaged in attracting deposits from the general public and using those funds to invest in loans and securities. Our principal sources of funds are customer deposits, repayments of loans, maturities of investments and funds borrowed from outside sources such as the Federal Home Loan Bank (“FHLB”) of Dallas.Dallas or the Federal Reserve Bank of Atlanta. These funds are primarily used for the origination of loans, including single-family residential first mortgage loans, commercial real estate mortgage loans, multi-family residential mortgage loans, commercial and industrial loans, construction and land loans and other loans. The Bank derives its income principally from interest earned on loans and investment securities and, to a lesser extent, from fees received in connection with the origination of loans, service charges on deposit accounts and for other services. The Bank’s primary expenses are compensation and benefits, interest expense on deposits and borrowings and other general operating expenses.
We are an active originator of residential home mortgage loans in our market area. Historically, St. Landry Homesteadthe Bank was a traditional thrift institution with an emphasis on long-term single-family residential first mortgage loans secured by residences located in our traditional market area centered in Opelousas, Louisiana. At December 31, 2021, $87.32023, $83.6 million, or 66.2%57.7% of our total loan portfolio, was comprised of single-family residential mortgage loans. Our business strategy is to enhance our products and services and embrace a full-service community bank model by re-focusing our efforts in order to attract a greater number of small-to mid-sized businesses and business professionals in our market area and to increase our holdings of commercial and multi-family residential real estate loans and commercial and industrial loans. Commercial real estate loans and commercial and industrial loans are deemed attractive due to their generally higher yields and shorter anticipated lives compared to single-family residential mortgage loans.
Market Area and Competition
Historically, our business focus has centered on areas within a short drive from our banking offices in St. Landry Parish and adjoining areas. We expanded our branch office network into neighboring Lafayette Parish by opening our Carencro office in October 2020 and our Lafayette office in November 2021. In recent years, St. LandyLandry Parish has seen littlelimited growth or expansion.expansion, while Lafayette, onhas been the other hand, has experienced morehub of economic growth and expansion. Inin the future, weAcadiana region of south-central Louisiana. We expect to focus on increasingcontinue to increase our penetration in theboth St. Landry and Lafayette area. We hope to increase our market share of banking relationshipsParishes with a focus on serving small- to mid-sized businesses and professionals.
EconomicThe oil and gas industry has had sizable influence on the economic activity in the Acadiana region of south-central Louisiana is influenced byover the oillast several decades. In recent years, Acadiana has diversified and gas industry, in addition to business services suchother sectors have emerged as drivers of the local economy, including alternative energy support services, healthcare, technology, manufacturing, finance, tourism and other service-related industries. The education/healthcare/education, healthcare and social service sectorsectors represents the largest employment sectorsectors in St. Landry
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Parish and Lafayette Parish. In 2021, Amazon began operations of a one million square foot fulfillment center in Carencro, Louisiana, which is expected to create 500 new full-time jobs.
We face significant competition in originating loans and attracting deposits. This competition stems primarily from commercial banks, other savings banks and savings associations, credit unions and mortgage-banking companies. Many of the financial service providers operating in our market area are significantly larger, and have greater financial resources, than us. We face additional competition for deposits from short-term money market funds, and other corporate and government securities funds, mutual funds, and from other non-depository financial institutions such as brokerage firms and insurance companies.
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Lending Activities
General. At December 31, 2021,2023, our loan portfolio totaled $131.8$144.9 million, or 46%53.5% of total assets. Historically, our principal lending activity has been the origination of loans collateralized by one- to four-family, also known as “single-family,” residential real estate loans located in our market area. We also originateare currently focused on increasing our commercial loan portfolio by originating commercial real estate and multi-family residential mortgage loans, commercial and industrial loans, and construction and land loans,loans. In addition, we originate consumer loans, consisting primarily of loans secured by deposits at the Bank, automobile, recreational vehicle and boat loans, and other loans.
Loan Portfolio Composition. The following table shows the composition of our loan portfolio by type of loan at the dates indicated.
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| | At December 31, | ||||||||||
| | 2021 | | 2020 | ||||||||
(Dollars in thousands) |
| Amount |
| % |
| Amount |
| % | ||||
Real estate loans | | | | | | | | | | | | |
One- to four-family residential | | $ | 87,303 |
| 66.2 | % | | $ | 99,869 |
| 65.8 | % |
Commercial real estate | |
| 23,112 |
| 17.5 | | |
| 30,304 |
| 20.0 | |
Construction and land | |
| 4,079 |
| 3.1 | | |
| 5,591 |
| 3.7 | |
Multi-family residential | |
| 4,589 |
| 3.5 | | |
| 4,801 |
| 3.2 | |
Total real estate loans | | | 119,083 |
| 90.3 | | | | 140,565 |
| 92.7 | |
Other loans | | | |
| | | | | |
| | |
Commercial and industrial | | | 8,374 |
| 6.4 | | | | 6,736 |
| 4.4 | |
Consumer | | | 4,385 |
| 3.3 | | | | 4,499 |
| 2.9 | |
Total other loans | | | 12,759 |
| 9.7 | | | | 11,235 |
| 7.3 | |
Total loans | | | 131,842 |
| 100.0 | % | | | 151,800 |
| 100.0 | % |
Less: Allowance for loan losses | | | (2,276) |
| | | | | (3,022) |
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Net loans | | $ | 129,566 |
| | | | $ | 148,778 |
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Contractual Terms to Final Maturities. The following table shows the scheduled contractual maturities of our loans as of December 31, 2021, before giving effect to the allowance for loan losses. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. The amounts shown below do not take into account loan prepayments.
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(Dollars in thousands) | | One- to four- | | Commercial | | Construction and land | | Multi- | | Commercial | | Consumer | | Total | |||||||
Amounts due after December 31, 2021 in: | |
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One year or less |
| $ | 1,338 |
| $ | 2,228 |
| $ | 2,179 |
| $ | 13 |
| $ | 289 |
| $ | 193 |
| $ | 6,240 |
After one year through two years | |
| 701 | |
| 1,865 | |
| 107 | |
| - | |
| 2,666 | |
| 411 | |
| 5,750 |
After two years through three years | |
| 540 | |
| 1,602 | |
| 69 | |
| 372 | |
| 272 | |
| 560 | |
| 3,415 |
After three years through five years | |
| 2,326 | |
| 2,338 | |
| 507 | |
| 486 | |
| 4,495 | |
| 1,345 | |
| 11,497 |
After five years through ten years | |
| 13,137 | |
| 4,620 | |
| 610 | |
| 59 | |
| 368 | |
| 1,093 | |
| 19,887 |
After ten years through 15 years | |
| 21,398 | |
| 4,775 | |
| 410 | |
| 2,362 | |
| 35 | |
| 590 | |
| 29,570 |
After 15 years | | | 47,863 | | | 5,684 | | | 197 | | | 1,297 | | | 249 | | | 193 | | | 55,483 |
Total |
| $ | 87,303 |
| $ | 23,112 |
| $ | 4,079 |
| $ | 4,589 |
| $ | 8,374 |
| $ | 4,385 |
| $ | 131,842 |
The following table shows the dollar amount of our loans at December 31, 2021, due after December 31, 2022, as shown in the preceding table, which have fixed interest rates or which have floating or adjustable interest rates.
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(Dollars in thousands) | | Fixed-Rate | | Floating or Adjustable-Rate | | Total | |||
Amounts due after December 31, 2022 | | | | | | | | | |
One- to four-family residential |
| $ | 20,114 | | $ | 65,851 | | $ | 85,965 |
Commercial real estate | |
| 5,902 | |
| 14,982 | |
| 20,884 |
Construction and land | |
| 1,056 | |
| 844 | |
| 1,900 |
Multi-family residential | |
| 360 | |
| 4,216 | |
| 4,576 |
Commercial and industrial | |
| 4,844 | |
| 3,241 | |
| 8,085 |
Consumer | |
| 1,649 | |
| 2,543 | |
| 4,192 |
Total |
| $ | 33,925 | | $ | 91,677 | | $ | 125,602 |
Loan Originations. Our lending activities are subject to underwriting standards and loan origination procedures established by our Board of Directors and management. Loan originations are obtained through a variety of sources, primarilyincluding existing customers as well as new customers obtained from referrals and local advertising and promotional efforts. Single-family residential mortgage loan applications and consumer loan applications are taken at any of the Bank’s branch offices. Applications for other loans typically are taken personally by one of our commercial loan officers.bankers. All loan applications are processed and underwritten by our credit department personnel under the supervision of our Chief CreditRisk Officer.
Our underwriting standards do not require that new single-family residential mortgage loans conform to secondary market standards and a significant portion of our single-family residential mortgage loans are considered “non-conforming” due to factors such as the borrower’s job status or income, the condition or age of the residence or other factors. For loans which are secured by real estate, property valuations are undertaken by an independent third-party appraiserappraisers approved by our Board of Directors.
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In addition to originating loans, we occasionally purchase participation interests in larger balance loans, typically commercial real estate mortgage loans or construction and land development loans, from other financial institutions in our market area or other markets in Louisiana. At December 31, 2021,2023, we had purchased participation interests in fourfive loans with an aggregate outstanding balance of $2.3$6.2 million. SuchFull underwriting and credit analysis procedures are performed by our credit department before such participations are reviewed forpurchased to verify compliance with our underwriting criteria before they are purchased.loan policy. Generally, we have purchased such loans without any recourse to the seller. However, we actively monitor the performance of such loans through the receipt of regular reports from the lead lender regarding the loan’s performance, physically inspecting the loan security property on a periodic basis, discussing the loan with the lead lender on a regular basis and receiving copies of the borrower’s updated financial statements from the borrower. One of our purchased participation interests, with an outstanding balance of $967,000 at December 31, 2021, was a 12.8% participation interest in a $7.8 million commercial real estate loan secured by a hotel property located in Lake Charles, Louisiana. Such hotel was damaged by two hurricanes in 2020, but the loan was performing in accordance with its terms at December 31, 2021.statements.
In addition, the Bank also occasionally sells participation interests in loans it originates. While, weWe had no sold loan participation interests at December 31, 2021, at2023 or December 31, 2020, sold loan participation interests totaled $4.0 million and consisted of a 48.2% participation interest sold in one loan.2022. We generally have sold participation interests in loans when a loan would exceed our loans-to-one borrower limits. Our legal loans-to-one borrower limit, with certain exceptions, generally is 15% of the Bank’s unimpaired capital and surplus, or $11.9$12.2 million at December 31, 2021.2023. At December 31, 2021, our2023, the five largest loansaggregate amounts outstanding to onea single borrower and related entities amounted to $3.9$3.5 million, $2.5$2.8 million, $2.3$2.8 million, $2.3$2.7 million and $1.8$2.6 million, respectively, and all of such loans were performing in accordance with their terms.
Loan Originations. The following table shows our total loans originated, purchased, sold and repaid during the periods indicated.
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| | Year Ended December 31, | ||||
(Dollars in thousands) |
| 2021 | | 2020 | ||
Loan originations: | | | | | | |
One- to four-family residential |
| $ | 4,662 | | $ | 3,793 |
Commercial real estate | | | 2,623 | |
| 1,322 |
Construction and land | | | 1,472 | |
| 2,349 |
Multi-family residential | | | 486 | |
| - |
Commercial and industrial | | | 6,874 | |
| 7,331 |
Consumer | | | 1,862 | | | 2,302 |
Total loan originations | | | 17,979 | | | 17,097 |
Loans purchased | | | - | | | 1,250 |
Loans sold | | | - | | | - |
Loan principal repayments | | | (37,524) | | | (33,166) |
Total loans sold and principal repayments | | | (37,524) | | | (33,166) |
Increase (decrease) due to other items, net(1) | | | (413) | | | 2,966 |
Net increase (decrease) in total loans |
| $ | (19,958) | | $ | (11,853) |
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One- to Four-Family Residential Mortgage Lending. Historically, our primary lending focus was the origination of loans secured by first mortgages on one- to four-family residences in our market area. At December 31, 2021, $87.32023, $83.6 million, or 66.2%57.7% of our total loan portfolio, consisted of single-family residential mortgage loans. As of December 31, 2021, theloans with an average outstanding balance of our one- to four-family residential mortgage loans was $61,000.$68,000 per loan.
Applications for one-to four-family residential mortgage loans are accepted at any of our banking offices and are then referred to our credit department for processing, which consists primarily ofprocessing. This involves obtaining all documents required to complete the underwriting which includes making a determinationand determining whether the loan meets our underwritingpolicy standards. Our underwriting standards do not require that new single-family residential mortgage loans conform to secondary market standards. We underwrite one- to four-family residential mortgage loans with loan-to-value ratios which generally do not exceed 80%. Loan-to-value ratios are based upon an appraisal of the collateral performed by a licensed and Company-approved appraiser. If appropriate, we also require that title insurance, hazard insurance and flood insurance be maintained on all properties securing real estate loans.
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We currently originate fixed-rate, fully amortizing mortgage loans with maturities up to 30 years. We also offer adjustable rate mortgage (“ARM”) loans where the interest rate is generally fixed for the initial three orto five years and then adjusts
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every three orto five years thereafter. At December 31, 2021,2023, approximately 76.6%64.4% of our single-family residential mortgage loans maturing after December 31, 2022 were ARM loans. Our ARM loans have a cap on any increase or decrease in the interest rate of up to 2.5% at any adjustment date and a 6% cap above or below the initial interest rate over the life of the loan. On and prior to December 31, 2021, the interest rate on our ARM loans was based on the Semi-Annual Weighted Average Cost of Funds Index of the FHLB for the 11th District. The 11th District Cost of Funds Index (“COFI”) was discontinued after the publication of the index for the period ended December 2021. As a result, we have replaced the 11th District Cost of Funds Index with the Enterprise 11th District COFI Replacement Index, which is administered and published by the Federal Home Loan Mortgage Corporation.
Although adjustable-rate one- to four-family residential real estate loans may reduce our vulnerability to changes in market interest rates because they periodically reprice, as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower. At the same time, the ability of the borrower to repay the loan and the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by the maximum periodic and lifetime rate adjustments permitted by our loan documents. As a result, the effectiveness of adjustable-rate one- to four-family residential real estate loans in compensating for changes in market interest rates may be limited during periods of rapidly rising interest rates.
We underwrite one- to four-family residential mortgage loans with loan-to-value ratios which generally do not exceed 80%. If appropriate, we also require that title insurance, hazard insurance and flood insurance be maintained on all properties securing real estate loans. We require that a licensed appraiser from our list of approved appraisers perform and submit to us an appraisal on properties securing one- to four-family first mortgage loans. Our mortgage loans generally include due-on-sale clauses which provide us with the contractual right to deem the loan immediately due and payable in the event the borrower transfers ownership of the property. Due-on-sale clauses are an important means of adjusting the yields of fixed-rate mortgage loans in portfolio and we generally exercise our rights under these clauses.
Commercial Real Estate Loans and Multi-Family Residential Loans. At December 31, 2021,2023, our commercial real estate and multi-family residential loans amounted to an aggregate of $27.7$24.9 million, or 21.0%17.1% of our total loan portfolio at such date. We plan to increasehave increased our emphasis on commercial real estate loans and multi-family residential real estate loans as they generally have shorter terms to maturity, improving the Bank’s interest rate risk profile, and provide higher yields than single-family residential mortgage loans.
Our commercial real estate loan portfolio amounted to $23.1$21.5 million, or 17.5%14.8% of the total loan portfolio, at December 31, 2021. Our commercial real estate loans consist2023 and consists primarily of loans secured by retail and office space, industrial use buildings, hotels, restaurants, strip shopping centersmedical and health services properties, and other propertiesreal estate used for commercial purposes located in our market area. At December 31, 2021, ourThe five largest commercial real estate loan portfolio included seven loans outstanding at December 31, 2023 were $2.6 million, $1.7 million, $1.3 million, $879,000 and $777,000, and all of such loans were performing in accordance with an aggregate outstanding balance of $6.2 million, secured by hotel properties.their terms. At such date, the average commercial real estate loan size was $212,000. The five largest commercial real estate loans outstanding at December 31, 2021 were $3.1 million, $1.4 million, $1.1 million, $994,000 and $967,000, and all of such loans were performing in accordance with all their terms.$217,000.
At December 31, 2021,2023, the Bank’s multi-family residential mortgage loans amounted to $4.6$3.4 million, or 3.5%2.3% of the total loan portfolio. The Bank’s multi-family residential mortgage loans, which are underwritten and approved in a manner consistent with the Bank’s commercial real estate loans, are secured by residential properties with more than four units located in the Bank’s market area. At December 31, 2021,2023, the Bank’s largest multi-family residential mortgage loan was a $2.1$1.8 million loan secured by an 86 unit apartment complex located in Opelousas, Louisiana, which is performing in accordance with its terms. At December 31, 2021,2023, we had a total of teneight multi-family residential mortgage loans and thewith an average sizeoutstanding balance of the Bank’s multi-family residential mortgage loans was $459,000.$422,000 per loan.
Although terms for commercial real estate and multi-family residential loans vary, our underwriting standards generally allow for terms not exceeding 20 years and loan-to-value ratios of not more than 80%. Interest rates are typically adjustable, based upon designated market indices such as The Wall Street Journal prime rate, or fixed-rate, and fees are charged to the borrower at the origination of the loan. The actual lives of such loans generally are less than their contractual terms to maturity due to prepayments and re-financings. Generally, we obtain personal guarantees of the principals as additional collateral for commercial real estate and multi-family residential and land loans.
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Commercial real estate and multi-family residential lending involve a greater degree of risk than single-family residential lending. These risks include larger loans to individual borrowers and loan payments that are dependent upon the successful operation of the project or the borrower’s business. These risks can be affected by supply and demand conditions of rental housing units, office and retail space and other commercial space in the project’s market area. We attempt to minimize these risks for loans we originate by soliciting loans from businesses with existing operating performance. We also use conservative debt coverage ratios in our underwriting, and periodically monitor the operation of the business or project and the physical condition of the property. At December 31, 2021, less than 1% of our commercial real estate and multi-family residential loans were delinquent for more than 30 days, or were on non-accrual status. We had an aggregate of $1,000 in charge-offs of commercial real estate and multi-family residential loans during the years ended December 31, 2021 and 2020.
Various aspects of commercial real estate and multi-family residential transactions are evaluated in an effort to mitigate the additional risk in these types of loans. In our underwriting procedures, consideration is given to the stability of the property’s cash flow
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history, future operating projections, current and projected occupancy levels, location and physical condition. We also evaluate the credit and financial condition of the borrower, and if applicable, the guarantor. Generally, we impose a debt service ratio (the ratio of net cash flows from operations before the payment of debt service to debt service) of not less than 125% in the case of commercial real estate and multi-family residential loans. We also evaluate the credit and financial condition of the borrower, and if applicable, the guarantor. Appraisal reports prepared by independent appraisers are obtained on each loan to substantiate the property’s market value, and are reviewed by us prior to the closing of the loan.
At December 31, 2023, less than 1% of our commercial real estate and multi-family residential loans were delinquent for more than 30 days, or were on non-accrual status. In aggregate, the Company recorded no charge-offs of commercial real estate and multi-family residential loans during the years ended December 31, 2023 and 2022.
Construction and Land Loans. The Bank also makesAt December 31, 2023, construction and land loans. At December 31, 2021, such loans amounted to $4.1$13.9 million, or 3.1%9.6% of our total loans outstanding. The largest componentoutstanding balance of our construction and land loans atthis portfolio has more than doubled since December 31, 2021, was2022 and, as of December 31, 2023, largely consists of loans for commercial construction projects. This portfolio also includes residential construction loans and loans secured by raw land (unimproved and unplatted) and lot loanslots (land which has been subdivided and platted), which had an aggregate.
The outstanding balance of $2.1 million at such date. We had 75 of such land and lotour non-residential commercial construction loans at December 31, 2021,2023 totaled $10.2 million. Of this amount, $5.1 million was attributable to three separate purchased participation interests, which are supporting the construction of a retail health care center, an apartment complex, and a commercial subdivision development. The participation interest supporting the health care center construction was purchased during 2023 and the other participation interests were purchased during 2022. The remaining balance of our non-residential commercial construction loans at December 31, 2023 was primarily related to the purchase and renovation of a hotel and an industrial warehouse. All non-residential commercial construction loans were performing in accordance with their terms as of December 31, 2023.
As of December 31, 2023, the outstanding balance of our land loans totaled $1.4 million with an average outstanding balance per loan of approximately $28,000.$38,000. Such loans are generally secured by properties in our market area and have maximumoriginal terms to maturity ofranging from eight to ten years in the case of raw land or eight years in the case of lot loans.years. Our policy generally is that such loans have maximum loan-to-value ratios not to exceed 70% in the case of personal land loans or 65% in the case of rawcommercial land or 70% in the case of lotloans.
Single-family residential construction loans with certain limited exceptions.
Our construction and land loanstotaled $2.4 million at December 31, 2021, included a $367,000, 36.4% participation interest in a $2.6 million acquisition, development and construction loan secured by property in a 143 acre mixed-use, master-planned development located in Scott, Louisiana, a suburb of Lafayette. Such loan has a remaining term to maturity of less than one year and has performed in accordance with its terms.
Our construction and land loans also included eight2023. Generally, the Bank’s single-family residential construction loans with an aggregate outstanding balance of $1.4 million at December 31, 2021. Of our eight single-family residential construction loans at December 31, 2021, five, with an outstanding loan balance of $1.2 million at such date, consisted of construction loans to individualsare for the construction and permanent financing (“construction/permanent loans”) of their homes.the related property. The Bank’s construction/permanent loans are structured to provide one closing for both the construction loan and the permanent financing. During the construction phase,Generally, employees of the Bank make periodic inspections of the construction site during the construction phase and loan proceeds are disbursed directly to the contractors as construction progresses. Typically, disbursements are made in five draws during the construction period. Construction/permanent loans require payment of interest only during the construction phase and are structured to be converted to fixed- or adjustable-rate permanent loans at the end of the construction phase. Prior to making a commitment to fund a construction loan, the Bank requires an appraisal. Our construction/permanent loans have a maximum loan-to-value ratio of 80% during the construction phase. The Bank’s staff also reviews and inspects each project prior to every disbursement of funds during the term of the construction loan. Loan proceeds are disbursed based on a percentage of completion. All of such loans had terms to maturity of 12 or 13less than 24 months and all were performing in accordance with their terms.at December 31, 2023.
Construction financing is generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction compared to the estimated cost, including interest, of construction and other assumptions. Additionally, if the estimate of value proves to be inaccurate, the Bank may be confronted with a project, when completed, having a value less than the loan amount. The Bank has attempted to minimize
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these risks by generally concentrating on residential construction and development loans in its market area to contractors with whom it haswho have established relationships.a quality reputation.
Commercial and Industrial Loans. Our commercial and industrial loans amounted to $8.4$20.0 million or 6.4%13.8% of the total loan portfolio, at December 31, 2021.2023. Our commercial and industrial loans are typically are to small to mid-sized businesses in our market area and may be for working capital, equipment financing, inventory financing or accounts receivable financing. Commercial and industrialThese loans may have adjustable or fixed rates of interest and generally have terms of five years or less but may go up to seven years.
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less. Our commercial and industrial loans include unsecured loans and loans secured by equipment, machinery or other corporate, non-real estate assets. Our maximum loan to value ratio for commercial and industrial loans is generally is 80% and we typically require a minimum debt service coverage ratio of 125% on such loans. In addition, we generally obtain personal guarantees from the principals of the borrower with respect to all commercial and industrial loans.
Total commercial and industrial loans at December 31, 2023 largely consisted of loans to local businesses involved in industrial manufacturing and equipment, communications, professional services, and oil and gas support services. The five largest relationships included in our commercial and industrial loans at December 31, 2023 had total outstanding loan balances of $3.5 million, $2.8 million, $2.6 million, $1.6 million and $1.4 million, and all of which were performing in accordance with their terms. At such date, the average amount outstanding per borrower within our commercial and industrial loan portfolio was $238,000. At December 31, 2021,2023, approximately $3.7$1.4 million of our commercial and industrial loans were unsecured. This amount included 58 Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) loans with an aggregate outstanding balance of $2.8 million at such date.
We are seeking to increase our commercial loan portfolio. In particular, we are targeting loans from small to mid-sized businesses and business professionals located in our markets. Commercial and industrial loans generally are deemed to involve a greater degree of risk than single-family residential mortgage loans. Repayment of our commercial and industrial loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value. Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any exists. As a result, in the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The collateral securing other loans, such as inventory or equipment, may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.
Consumer Lending Activities. In our efforts to provide a full range of financial services to our customers, we offer various types of consumer loans. Our consumer loans amounted to $4.4$2.6 million, or 3.3%1.8% of our total loan portfolio at December 31, 2021.2023. Our consumer loans are largely comprised primarily of loans secured by deposits at the Bank, which amounted to $2.6$1.5 million at December 31, 2021.2023. In addition, our consumer loans include automobile loans, boat loans, recreational vehicle loans and unsecured personal loans.
Consumer loans generally have higher interest rates and shorter terms than residential loans. However, consumer loans have additional credit risk due to the type of collateral securing the loan or in some cases the absence of collateral. In the years ended December 31, 20212023 and 2020, we charged off $27,000 and $40,000, respectively,2022, net charge-offs of consumer loans.loans totaled $22,000 and $26,000, respectively.
Loan Approval Procedures and Authority. Our Board of Directors establishes the Bank’s lending policies. Our loan policy is reviewed at least annually by our management team in order to propose modifications as a result of market conditions, regulatory changes and other factors. All modifications must be approved by our Board of Directors.
Various officers or combinations of officers of the Bank have the authority within specifically identified limits to approve new loans. The maximum loan amount that may be approved by an individual officer is $300,000. Loans up to $400,000 may be approved by the President and an additional designated officer. Our Board-level Loan Committee has authority to approve loans up to $500,000. All other loans must be approved by our Board-level Loan Committee or the full Board of Directors.
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Asset Quality
General. One of our key objectives has been, and continues to be, maintaining a high level of asset quality. In addition to maintaining credit standards for new originations which we believe are sound, we are proactive in our loan monitoring, collection and workout processes in dealing with delinquent or problem loans.
When a borrower fails to make a scheduled payment, we attempt to cure the deficiency by making personal contact with the borrower. Initial contacts are generally made within 30 days after the date the payment is due. In most cases, deficiencies are promptly resolved. If the delinquency continues, late charges are assessed and additional efforts are made to collect the deficiency. Loans whichDelinquent loans are designated as "special mention," classified or which are delinquent 90 days or more are reported toreviewed and monitored by management and the Board of Directors.Directors on a regular basis.
We stop accruing interest on loans (“non-accrual” loans) when the loan is determined by management to be uncollectable due to the borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial condition, or the depreciation of underlying collateral. Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt.
Property acquired by the Bank through foreclosure is initially recorded at the lower of cost, which is the carrying value of the loan, or fair value at the date of acquisition, which is fair value of the related assets at the date of foreclosure, less estimated costs to sell. Thereafter, if there is a further deterioration in value, we charge earnings for the diminutiondecrease in value. The Bank’s policy is to obtainWhen appropriate, the Bank obtains an appraisal on real estate subject to foreclosure proceedings prior to the time of foreclosure. WePeriodically, we obtain re-appraisals on a periodic basis, generally on at least an annual basis, on foreclosed properties. We alsoand conduct inspections on our foreclosed properties.
We account for our impaired loans in accordance with generally accepted accounting principles. An impaired loan generally is one for which it is probable, based on available information, that the lender will not collect all the amounts due under the contractual terms of the loan. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment. Loans collectively evaluated for impairment include smaller balance commercial real estate loans, residential real estate loans and consumer loans. These loans are evaluated as a group because they have similar characteristics and performance experience. Larger commercial real estate, construction and land development and commercial business loans are individually evaluated for impairment at least quarterly by management. At December 31, 2021 and 2020, loans identified as impaired and individually evaluated for estimated losses amounted to $2.3 million and $4.0 million, respectively.
Federal regulations and our policies require that we utilize an internal asset classification system as a means of reporting problem and potential problem assets. We have incorporated an internal asset classification system, consistent with Federal banking regulations, as a part of our credit monitoring system. We currently classify problem and potential problem assets as “special mention,” “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated “special mention.”
When an insured institution classifies one or more assets, or portions thereof, as “substandard” or “doubtful,” it is required that a general valuation allowance for loan losses be established for loan losses in accordance with established methodology. General valuation allowances represent loss allowances which have been established to recognize the inherent losses associated with lending activities, but which, unlike specific allocations, have not been allocated to particular problem assets. When an insured institution classifies one or more assets, or portions thereof, as “loss,” it is required to charge off such amount.
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Our allowance for loan losses includes a portion which is allocated by type of loan, based primarily upon our periodic reviews of the risk elements within the various categories of loans. The specific components relate to certain impaired loans. The general components cover non-impaired loans and are based on historical loss experience adjusted for qualitative factors in response to changes in risk and market conditions. Our management believes that, based on information currently available, the allowance for loan losses is maintained at a level which covers all known and inherent losses that are both probable and reasonably estimable at each reporting date. However, actual losses are dependent upon future events and, as such, further additions to the level of the allowance for loan losses may become necessary.
We review and classify loans at least quarterly and the Board of Directors is provided with reports on our classified and criticized assets. We classify assets in accordance with the management guidelines described above. At December 31, 20212023 and 2020, we had no2022, loans classified as “substandard” totaled $3.3 million. Loans classified as “special mention totaled $212,000 and $462,000 at December 31, 2023 and 2022, respectively. Generally, loans classified as “doubtful” or “loss” and $3.6 million and $6.1 million, respectively, ofare charged-off. As such, total loans at December 31, 2023 or 2022 did not include any balances attributable to loans classified as “substandard.” In addition, there were $3.7 million,“doubtful” or “loss”.
For all loans, the Company estimates and $4.2 millionrecords an allowance for losses in accordance with an accepted methodology. Refer to Note 1 of Item 8 – Financial Statements and Supplementary Data for more detail on the Company’s policies related to its estimate of an allowance for losses on loans and other financial assets. The allowance for loan losses represents the Company’s best estimate of losses expected over the life of the loan portfolio as of the relevant reporting date. The allowance is established through a provision charged to earnings. Loans, or portions of loans, designatedare charged off against the allowance in the period that such loans, or portions thereof, are deemed uncollectible. The sum of the allowance for losses on loans, other financial assets held at amortized cost, and unfunded lending commitments is referred to as “special mention” asthe allowance for credit losses.
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A bank or savings institution’s determination as to the classification of its assets and the amount of its valuation allowancesallowance for credit losses is subject to review by Federal bank regulators. While management is responsible for the establishment of the allowance for loancredit losses and for adjusting such allowance through provisions for loancredit losses, management may determine, as a result of such regulatory reviews, that an increase or decrease in the allowance or provision for loancredit losses may be necessary or that loan charge-offs are needed. The Federal banking agencies have adopted an interagency policy statement on the allowance for loan and leasecredit losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. ManagementOur management believes that, based on information currently available, the allowance for credit losses represents our best estimate of losses expected over the life of the loan losses is maintained at a level which covers all known and inherent losses that are both probable and reasonably estimableportfolio at each relevant reporting date. However, actual losses are dependent upon future events and, as such, further additions to the level of allowancesthe allowance for loan losses may become necessary.
Troubled Debt RestructuringsLoan Modifications. We occasionally modify loans to extend the term or make other concessions to help a borrower who is experiencing financial difficulty stay current on his or her loan and to avoid foreclosure. We consider modifications only after analyzing the borrower’s current repayment capacity, evaluating the strength of any guarantors based on documented current financial information, and assessing the current value of any collateral pledged. We generally do not forgive principal or interest on loans, but may do so if it is in our best interest and increases the likelihood that we can collect the remaining principal balance. We may modify the terms of loans to lower interest rates (which may be at below market rates), to provide for fixed interest rates on loans where fixed rates are otherwise not available, to provide for longer amortization schedules, or to provide for interest-only terms. These modifications are made only when a workout plan has been agreed to by the borrower that we believe is reasonable and attainable and in our best interests. At December 31, 20212023 and 2022, loans with modifications for borrowers experiencing financial difficulty totaled $683,000 and $1.0 million, respectively. During the years ended December 31, 2023 and 2022, the Company did not grant any loan modifications to borrowers experiencing financial difficulty that resulted in a more than minor change in the timing or amount of contractual cash flows.
Allowance for Credit Losses. On January 1, 2023, the Company adopted the guidance in Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The new guidance changed the impairment model for loans and other financial assets from an incurred loss model to a model that estimates expected credit losses over the full life of the financial asset. Under the amendments in ASU No. 2016-13, the Company groups loans with similar risk characteristics into pools or segments and collectively evaluates each pool to estimate the allowance for credit losses. Loans are individually evaluated for credit losses when they do not share similar risk characteristics with our identified loan pools or segments. Refer to Note 1 of Item 8 – Financial Statements and Supplementary Data for more detail on the Company’s policies related to its estimate of the allowance for credit losses on loans and other financial assets. During the year ended December 31, 2023, the provision for credit losses totaled $128,000, and during the year ended December 31, 2022, we recorded a reversal to the allowance of $375,000. The reversal during 2022 primarily reflects the reversal of provisions made for estimated loan losses during 2020 associated with our initial assessment of COVID-19’s impact on credit risk. The ratio of our allowance for loan losses as a percentage of total loans was 1.47% at December 31, 2023, compared to 1.35% at December 31, 2022. The increase in the ratio was largely due to the adoption of the amendments in ASU No. 2016-13.
Management reassesses the allowance for credit losses at least quarterly. Our evaluation process includes, among other things, an analysis of delinquency trends, non-performing loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of our loans, the value of collateral securing the loan, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, current and future economic conditions and industry experience. The establishment of the allowance for credit losses is significantly affected by management judgment and uncertainties and there is a likelihood that different amounts would be reported under different conditions or assumptions. Various regulatory agencies, as an integral part of their examination process, periodically review our allowance for credit losses. While management is responsible for the establishment of the allowance for credit losses and for adjusting such allowance
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through provisions for credit losses, management may determine, as a result of such regulatory reviews, that an increase or decrease in the allowance or provision for credit losses may be necessary or that loan charge-offs are needed.
Investment Securities
We have authority to invest in various types of securities, including mortgage-backed securities, U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, certificates of deposit at federally insured banks and savings institutions, and federal funds. Our investment policy is approved by the Board of Directors.
The investment policy is designed primarily to manage the interest rate sensitivity of our assets and liabilities, to generate a favorable return without incurring undue interest rate and credit risk, to complement our lending activities and to provide and maintain liquidity. The current investment policy generally permits investments in debt securities issued by the U.S. government and U.S. agencies, municipal bonds, and corporate debt obligations, as well as investments in preferred and common stock of government agencies and government sponsored enterprises such as Fannie Mae, Freddie Mac and the FHLB of Dallas (federal agency securities). The policy also permits investments in mortgage-backed securities, including pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.
At December 31, 2023, our investment securities portfolio totaled $84.0 million, or 31.0% of total assets at such date. The largest component of our investment securities portfolio at December 31, 2023 was pass-through mortgage-backed securities issued by Fannie Mae, Ginnie Mae and Freddie Mac, which wereamounted to $57.5 million, followed by our investment in U.S. government and federal agency obligations, which amounted to $20.4 million at such date.
Ginnie Mae securities are backed by loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. The timely payment of principal and interest on Ginnie Mae securities is guaranteed by Ginnie Mae and backed by the full faith and credit of the U.S. Government. Freddie Mac is a private corporation chartered by the U.S. Government. Freddie Mac guarantees the timely payment of interest and the ultimate return of principal on participation certificates. Fannie Mae is a private corporation chartered by the U.S. Congress with a mandate to establish a secondary market for mortgage loans. Fannie Mae guarantees the timely payment of principal and interest on Fannie Mae securities. Freddie Mac and Fannie Mae securities are not backed by the full faith and credit of the U.S. Government.
Investments in mortgage-backed securities involve the risk that actual prepayments will be greater than estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments thereby changing the net yield on such securities. There is also reinvestment risk associated with the cash flows from such securities or in the event such securities are redeemed by the issuer. In addition, the market value of such securities may be adversely affected by changes in interest rates.
Investment securities are classified at the time of acquisition as available for sale, held to maturity or trading. Securities classified as troubled debt restructurings (“TDRs”)held to maturity must be purchased with the intent and were on accrual statusability to hold that security until its final maturity, and not more than 90 days past due (“performing TDRs”) amountedcan be sold prior to $1.9 million and $3.3 million, respectively. Certain COVID-19 related loans which have been modifiedmaturity only under rare circumstances. Held-to-maturity securities are not deemed to be TDRs pursuant to provisionsaccounted for based upon the amortized cost of the CARES Act. See “CARES Act” below.security. Available-for-sale securities can be sold at any time based upon needs or market conditions. Available-for-sale securities are accounted for at fair value, with unrealized gains and losses on these securities, net of income tax provisions, reflected as accumulated other comprehensive income. At December 31, 2023, we had $70.5 million of investment securities classified as available-for-sale, $13.5 million of investment securities classified as held-to-maturity and no securities classified as trading securities.
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Delinquent Loans.Sources of Funds
General. Deposits, loan repayments and prepayments, proceeds from investment sales, calls, maturities and pay-downs, cash flows generated from operations and borrowings from the FHLB or Federal Reserve Bank of Atlanta are the primary sources of our funds for use in lending, investing and for other general purposes.
Deposits. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposits consist of checking, both interest-bearing and non-interest-bearing, money market, savings and certificate of deposit accounts. The following table showsflow of deposits is influenced significantly by general economic conditions, changes in money market rates, prevailing interest rates and competition. Our deposits are obtained predominantly from the delinquenciesareas where our branch offices are located. We have historically relied primarily on customer service and long-standing relationships with customers to attract and retain these deposits; however, market interest rates and rates offered by competing financial institutions significantly affect our ability to attract and retain deposits.
The Bank uses traditional means of attracting and retaining deposits, including in-person business development and targeted advertising in our loan portfoliomarket area. We generally do not solicit deposits from outside our market area. In addition, we solicit deposits from local government municipalities. At December 31, 2023 and 2022, our municipal deposits totaled $23.3 million and $21.0 million, respectively.
Borrowings. We utilize advances from the FHLB and the Federal Reserve Bank of Atlanta as an alternative to retail deposits to fund operations as part of our operating strategy. Advances from the FHLB are collateralized primarily by certain of our mortgage loans and secondarily by our investment in capital stock of the dates indicated.
FHLB. FHLB advances are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. The maximum amount that the FHLB will advance to member institutions, including the Bank, fluctuates from time to time in accordance with the policies of the FHLB. At December 31, 2023 and 2022 our outstanding advances from the FHLB totaled $9.4 million and $9.2 million, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 | ||||||||||||||||||||
| | 30-89 Days Past Due | | 90 or More Days Past Due | | 30-89 Days Past Due | | 90 or More Days Past Due | ||||||||||||||||
(Dollars in thousands) | | Number of Loans | | Balance | | Number of Loans | | Balance | | Number of Loans | | Balance | | Number of Loans | | Balance | ||||||||
One- to four-family residential |
| 46 |
| $ | 2,247 | | | 10 |
| $ | 280 | | | 39 | | $ | 1,883 | | | 9 | | $ | 489 | |
Commercial real estate |
| 2 | |
| 133 | | | - | |
| - | | | 3 | |
| 192 | | | - | |
| - | |
Construction and land |
| 4 | |
| 62 | | | 2 | |
| 31 | | | 4 | |
| 196 | | | - | |
| - | |
Multi-family residential |
| - | |
| - | | | - | |
| - | | | - | |
| - | | | - | |
| - | |
Commercial and industrial |
| - | |
| - | | | 1 | |
| 17 | | | 1 | |
| 95 | | | - | |
| - | |
Consumer |
| 12 | |
| 32 | | | 7 | |
| 14 | | | 8 | |
| 38 | | | 2 | |
| 13 | |
Total delinquent loans |
| 64 | | $ | 2,474 | | | 20 | | $ | 342 | | | 55 | | $ | 2,404 | | | 11 | | $ | 502 | |
Delinquent loans to total loans | | | |
| 1.88 | % | | | |
| 0.26 | % | | | |
| 1.58 | % | | | |
| 0.33 | % |
In December of 2020, $10.0 million of long-term FHLB debt was restructured to longer maturities at then lower interest rates. A prepayment penalty for the restructuring of $1.2 million was treated as a discount on the debt and is being amortized as interest expense over the term of the borrowings.
The following table sets forthAdvances from the amountsFederal Reserve Bank of Atlanta are collateralized by certain of our classifiedinvestment securities and the maximum amount available to the Bank is dependent upon the valuation of the relevant investment securities. On March 12, 2023, the Federal Reserve Board developed the Bank Term Funding Program (“BTFP”), which offered loans to banks with a term of up to one year. The loans are secured by pledging the banks’ U.S. treasuries, agency securities, agency mortgage-backed securities, and any other qualifying assets. These pledged securities were valued at par for collateral purposes. The Bank participated in the dates indicated.
| | | | | | |
| | At December 31, | ||||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Substandard loans |
| $ | 3,573 | | $ | 6,115 |
Doubtful loans | | | - | |
| - |
Loss loans | | | - | |
| - |
Total classified loans |
| $ | 3,573 | | $ | 6,115 |
In addition to classified loans, our foreclosed assets, which amounted to $340,000BTFP and $415,000, respectively,had outstanding debt of $10.0 million at December 31, 20212023.
Subsidiaries
Catalyst Bank, formerly St. Landry Homestead Federal Savings Bank, is a wholly owned subsidiary of Catalyst Bancorp. The Company has no other subsidiaries and the Bank has no subsidiaries.
Employees and Human Capital Resources
At December 31, 2023, we had 48 full-time equivalent employees. None of our employees are represented by a collective bargaining group, and we believe that our relationship with our employees is excellent.
We believe that our ability to attract and retain top quality employees will be key to the Company’s future success. During the year ended December 31, 2020, were classified substandard at such dates.we hired a new President and Chief Executive Officer. Since then, we have made several additional new hires, including but not limited to: a Director of Operations, an Acadiana Market President, a Chief Financial Officer, a Chief Risk Officer, and several bankers. We expect to continue to assess our management and staffing needs and are likely to add personnel in the future in order to fully implement our business strategy.
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SUPERVISION AND REGULATION
General
As a federal savings association, Catalyst Bank is subject to examination and regulation by the Office of the Comptroller of the Currency (the “OCC”), and is also subject to examination by the Federal Deposit Insurance Corporation (the “FDIC”) as deposit insurer. The federal system of regulation and supervision establishes a comprehensive framework of activities in which Catalyst Bank may engage and is intended primarily for the protection of depositors and the FDIC’s Deposit Insurance Fund, and not for the protection of shareholders. Catalyst Bank also is a member of and owns stock in the Federal Home Loan Bank of Dallas, which is one of the 11 regional banks in the Federal Home Loan Bank System.
Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; provide oversight for the adequacy of loan loss reserves for regulatory purposes; and establish the timing and amounts of assessments and fees. Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors. These ratings are inherently subjective and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as Catalyst Bank or its holding company, Catalyst Bancorp, from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches.
In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations. Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network.
As a bank holding company, Catalyst Bancorp is required to comply with the rules and regulations of the Federal Reserve Board (the “FRB”). It is required to file certain reports with the FRB and is subject to examination by and the enforcement authority of the FRB. Catalyst Bancorp also is subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.
Any change in applicable laws or regulations, whether by the OCC, the FDIC, the FRB, the Securities and Exchange Commission or Congress, could have a material adverse impact on the operations and financial performance of Catalyst Bancorp and Catalyst Bank.
Set forth below is a brief description of material regulatory requirements that are applicable to Catalyst Bank and Catalyst Bancorp. The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on Catalyst Bank and Catalyst Bancorp.
Federal Banking Regulation
Business Activities. A federal savings association derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and applicable federal regulations. Under these laws and regulations, a federal savings association may generally invest in mortgage loans secured by residential real estate without an aggregate limit, and commercial business, commercial real estate and consumer loans, certain types of debt securities and certain other assets, subject to overall percentage of assets or capital limits. Federal savings associations are also subject to a “Qualified Thrift Lender Test,” or “QTL Test,” which generally requires that a specified percentage of overall assets be residential mortgages and related investments. However, these limitations do not apply to Catalyst Bank, as described below.
Effective July 1, 2019, the OCC issued a final rule, pursuant to a provision of the Economic Growth Regulatory Relief and Consumer Protection Act (“EGRRCPA”), that permits a federal savings association to elect to exercise national bank powers without converting to a national bank charter. The election is available to federal savings associations that had total
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consolidated assets of $20 billion or less as of December 31, 2017. Catalyst Bank exercised the covered savings association election effective October 16, 2019.
A federal savings association that has exercised the “covered savings association” election generally has the same rights and privileges as a national bank that has its main office in the same location as the home office of the covered savings association. The covered savings association is also subject to the same duties, restrictions, liabilities and limitations applicable to a national bank. A covered savings association retains its federal savings association charter and continues to be subject to the corporate governance laws and regulations applicable to such associations, including as to its bylaws, board of directors and shareholders, capital distributions and mergers.
A covered savings association may make loans to its customers without regard to the lending restrictions applicable to federal savings associations, such as the percentage of capital or assets limits on various types of loans and the QTL Test. However, federal savings associations that have made such an election are subject to the narrower authority of national banks in certain areas such as branching and subsidiary activities in certain respects. A covered savings association may generally not retain any assets, subsidiaries or activities not permitted for national banks.
Applicable regulations authorize a federal association that has exercised the covered savings association election to terminate the election and thereby again operate as a federal savings association that has not made a covered savings association election. Catalyst Bank has no current plans to terminate its election.
Capital Requirements. Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. At December 31, 2023, Catalyst Bank’s capital exceeded all applicable requirements.
In determining the amount of risk-weighted assets for calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk-weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common shareholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain non-cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the OCC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
EGRRCPA required the federal banking agencies, including the OCC, to establish a “community bank leverage ratio” of between 8% and 10% for institutions with assets of less than $10 billion. Institutions with capital complying with the ratio and otherwise meeting the specified requirements and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. Catalyst Bank has not elected to utilize the community bank leverage ratio.
Loans-to-One Borrower.Generally, a federal savings association, including a covered savings association, may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An
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additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the excess is secured by readily marketable collateral, which generally does not include real estate. At December 31, 2023, Catalyst Bank was in compliance with the loans-to-one borrower limitations.
Capital Distributions.Federal regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the savings association’s capital account. A federal savings association must file an application with the OCC for approval of a capital distribution if:
● | the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus the savings association’s retained net income for the preceding two years; |
● | the savings association would not be at least adequately capitalized following the distribution; |
● | the distribution would violate any applicable statute, regulation, agreement or regulatory condition; or |
● | the savings association is not eligible for expedited treatment of its filings, generally due to an unsatisfactory CAMELS rating or being subject to a cease and desist order or formal written agreement that requires action to improve the institution’s financial condition. |
An application related to a capital distribution may be disapproved if:
● | the federal savings association would be undercapitalized following the distribution; |
● | the proposed capital distribution raises safety and soundness concerns; or |
● | the capital distribution would violate a prohibition contained in any statute, regulation or agreement. |
In addition, the Federal Deposit Insurance Act generally provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. A federal savings association also may not make a capital distribution that would reduce its regulatory capital below the amount required for the liquidation account established in connection with its conversion to stock form.
Community Reinvestment Act and Fair Lending Laws. All insured depository institutions have a responsibility under the Community Reinvestment Act (“CRA”) and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. The OCC is required to assess the federal savings association’s record of compliance with the Community Reinvestment Act. A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice.
The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating. Catalyst Bank received an “outstanding” Community Reinvestment Act rating in its most recent federal examination. On October 24, 2023, the Office of the Comptroller of the Currency (“OCC”), Federal Reserve, and FDIC issued a final rule to modernize their respective CRA regulations. The revised rules substantially alter the methodology for assessing compliance with the CRA, with material aspects taking effect January 1, 2026, and revised data reporting requirements taking effect January 1, 2027. Among other things, the revised rules evaluate lending outside traditional assessment areas generated by the growth of non-branch delivery systems, such as online and mobile banking, apply a metrics-based benchmarking approach to assessment, and clarify eligible CRA activities. Those regulations are not currently effective, and management has not determined the impact of the new regulations on the Bank.
Transactions with Related Parties. An insured depository institution’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under common control with, an insured depository institution such as Catalyst Bank. Catalyst Bancorp is an affiliate of Catalyst Bank because of its control of Catalyst Bank. In general, transactions between an insured
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depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates.
Catalyst Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the FRB. Among other things, these provisions generally require that extensions of credit to insiders:
● | be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and |
● | not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Catalyst Bank’s capital. |
In addition, extensions of credit in excess of certain limits must be approved by Catalyst Bank’s Board of Directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.
Enforcement. The OCC has primary enforcement responsibility over federal savings associations and has authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, shareholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association. Formal enforcement action by the OCC may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions. The FDIC also has the authority to terminate deposit insurance or recommend to the OCC that enforcement action be taken with respect to a particular federal savings association. If such action is not taken, the FDIC has authority to take the action under specified circumstances.
Standards for Safety and Soundness.Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.
Branching.A federal savings association that has elected covered savings association status is subject to the laws and regulations governing the establishment of branches by national banks. Generally, intrastate and interstate branching is authorized to the extent that the law of the state involved authorizes branching for banks that it charters. Such authority is subject to OCC approval for new branches.
Prompt Corrective Action.Federal law requires, among other things, that federal bank regulators take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For this purpose, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under applicable regulations, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common
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equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.
At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on the payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including a regulatory order to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, ceasing receipt of deposits from correspondent banks, dismissal of directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.
The previously referenced final rule establishing an elective “community bank leverage ratio” regulatory capital framework provides that a qualifying institution whose capital exceeds the community bank leverage ratio and opts to use that framework will be considered “well-capitalized” for purposes of prompt corrective action.
At December 31, 2023, Catalyst Bank met the criteria for being considered “well capitalized.”
Insurance of Deposit Accounts. The Deposit Insurance Fund (the “DIF”) of the FDIC insures deposits at FDIC-insured financial institutions such as Catalyst Bank, generally up to a maximum of $250,000 per separately insured depositor. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund.
Under the FDIC’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments. Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years.
The FDIC has authority to increase insurance assessments. Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the DIF reserve ratio to decline below the statutory minimum of 1.35 percent as of June 30, 2020. As a result, the FDIC proposed an increase in initial base deposit insurance assessment rate schedules uniformly by 2 basis points, applicable to all insured depository institutions. In October 2022, the FDIC Board finalized the increase with an effective date of January 1, 2023, applicable to the first quarterly assessment period of 2023. The revised assessment rate schedules are intended to increase the likelihood that the reserve ratio of the DIF reaches the statutory minimum level of 1.35 percent by September 30, 2028. Any significant increases would have an adverse effect on the operating expenses and results of operations of Catalyst Bank. We cannot predict what assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not know of any practice, condition or violation that may lead to termination of our deposit insurance.
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Privacy Regulations. Federal regulations generally require that Catalyst Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, Catalyst Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. Catalyst Bank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations.
USA PATRIOT Act. Catalyst Bank is subject to the USA PATRIOT Act, which gives federal agencies additional powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. The USA PATRIOT Act contains provisions intended to encourage information sharing among bank regulatory agencies and law enforcement bodies and imposes affirmative obligations on financial institutions, such as enhanced recordkeeping and customer identification requirements.
Cybersecurity. The federal bank regulatory agencies have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of a banking organization’s board of directors. This guidance, along with related regulatory materials, increasingly focuses on risk management, processes related to information technology and the use of third parties in the provision of financial products and services. The federal bank regulatory agencies expect financial institutions to establish appropriate security controls and to ensure that their risk management processes address the risk posed by compromised customer credentials. They also expect financial institutions to maintain sufficient business continuity planning processes to ensure rapid recovery, resumption, and maintenance of the institution’s operations after a cyberattack. If we fail to meet the expectations set forth in such regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.
In November 2021, the federal bank regulatory agencies issued a final rule to improve the sharing of information about cyber incidents that may affect the U.S. banking system. The rule, which became effective on May 1, 2022, requires a banking organization to notify its primary federal regulator within 36 hours of determining that a “computer-security incident” has materially affected, or is reasonably likely to materially affect, the viability of the banking organization’s operations, its ability to deliver banking products and services, or the stability of the financial sector. In addition, the rule requires a bank service provider to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer security incident that has materially affected, or is reasonably likely to materially affect, banking organization customers for four or more hours.
Prohibitions Against Tying Arrangements. Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.
Other Regulations
Interest and other charges collected or contracted for by Catalyst Bank are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to state and federal laws applicable to credit transactions, such as the:
● | Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; |
● | Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; |
● | Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; and |
● | Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. |
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The deposit operations of Catalyst Bank also are subject to, among others, the:
● | Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; |
● | Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and |
● | Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. |
Federal Home Loan Bank System
Catalyst Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions, and such member institutions are required to acquire and hold shares of capital stock in the Federal Home Loan Bank. Catalyst Bank is required to own stock in the Federal Home Loan Bank of Dallas in specified amounts and was in compliance with this requirement at December 31, 2023 based on its ownership of $1.5 million in capital stock of the Federal Home Loan Bank of Dallas. Since the stock has no quoted market value, it is carried at cost and assessed for impairment. At December 31, 2023, no impairment on our stock in the Federal Home Loan Bank of Dallas had been recognized.
Holding Company Regulation
Catalyst Bancorp is a bank holding company subject to regulation and supervision by the FRB under the Bank Holding Company Act of 1956, as amended. The FRB has enforcement authority over Catalyst Bancorp and its non-savings institution subsidiaries. Among other things, this authority permits the FRB to restrict or prohibit activities that are determined to be a risk to Catalyst Bank.
The FRB has promulgated regulations implementing the “source of strength” doctrine that require bank holding companies to act as a source of financial and managerial strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.
Catalyst Bancorp is required to obtain the prior approval of the FRB to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior FRB approval is required for Catalyst Bancorp to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of the bank or bank holding company. The FRB has adopted a final rule, effective September 30, 2020, that revises its framework for determining whether a company, under the Bank Holding Company Act, has a “controlling influence” over a bank or bank holding company. In addition to the approval of the FRB, prior approval may also be necessary from other agencies having supervisory jurisdiction over the bank to be acquired before any bank acquisition can be completed.
A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the FRB has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings and loan association whose direct and indirect activities are limited to those permitted for bank holding companies.
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The Gramm-Leach-Bliley Act of 1999 authorized a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking.
Catalyst Bancorp is subject to the FRB’s capital adequacy guidelines for bank holding companies (on a consolidated basis) which have historically been similar to, though less stringent than, those required of banks and savings associations. The Dodd-Frank Act, however, required the FRB to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. Consolidated regulatory capital requirements identical to those applicable to the subsidiary banks apply to bank holding companies; as is the case with institutions themselves, the capital conservation buffer was phased in between 2016 and 2019. However, the FRB has provided a “small bank holding company” exception to its consolidated capital requirements, and legislation and the related issuance of regulations by the FRB has increased the threshold for the exception to $3.0 billion. As a result, Catalyst Bancorp is not subject to the capital requirement until such time as its consolidated assets exceed $3.0 billion.
A bank holding company is generally required to give the FRB prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, FRB order or directive, or any condition imposed by, or written agreement with, the FRB. There is an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.
The FRB has issued supervisory policies regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of capital distributions previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also states that a holding company should inform the FRB supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability of Catalyst Bancorp to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.
Change in Control Regulations
Under the Change in Bank Control Act, no person may acquire “control” of a bank holding company, such as Catalyst Bancorp, unless the FRB has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. There is a presumption of control upon the acquisition of 10% or more of a class of voting stock if the holding company involved has its shares registered under the Securities Exchange Act of 1934, or, if the holding company involved does not have its shares registered under the Securities Exchange Act of 1934, if no other persons will own, control or hold the power to vote a greater percentage of that class of voting security after the acquisition.
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Federal Securities Laws
Catalyst Bancorp common stock is registered with the Securities and Exchange Commission. Catalyst Bancorp is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.
Emerging Growth Company Status
Catalyst Bancorp is an emerging growth company. For as long as Catalyst Bancorp continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, Catalyst Bancorp also is not subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting. We have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Such an election is irrevocable during the period a company is an emerging growth company. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
Catalyst Bancorp will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the completion of the Conversion and offering; (ii) the first fiscal year after our annual gross revenues are $1.07 billion (adjusted for inflation) or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million at the end of the second quarter of that fiscal year. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
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TAXATION
Federal Taxation
General. Catalyst Bancorp and Catalyst Bank are subject to federal income taxation in the same general manner as other corporations with some exceptions listed below. The following discussion of federal and state income taxation is only intended to summarize certain pertinent income tax matters and is not a comprehensive description of the applicable tax rules. Our tax returns have not been audited during the past five years.
Method of Accounting. For federal income tax purposes, Catalyst Bancorp reports income and expenses on the accrual method of accounting.
Bad Debt Reserves. The Small Business Job Protection Act of 1996 eliminated the use of the reserve method of accounting for bad debt reserves by savings associations, effective for taxable years beginning after 1995. Prior to that time, Catalyst Bank was permitted to establish a reserve for bad debts and to make additions to the reserve. These additions could, within specified formula limits, be deducted in arriving at taxable income. As a result of the Small Business Job Protection Act of 1996, savings associations must use the experience method in computing their bad debt deduction beginning with their 1996 federal tax return. In addition, federal legislation required the recapture over a six year period of the excess of tax bad debt reserves at December 31, 1995 over those established as of December 31, 1987.
Taxable Distributions and Recapture. Prior to the Small Business Job Protection Act of 1996, bad debt reserves created prior to January 1, 1988 were subject to recapture into taxable income if the Bank failed to meet certain thrift asset and definitional tests. New federal legislation eliminated these savings association related recapture rules. However, under current law, pre-1988 reserves remain subject to recapture should the Bank make certain non-dividend distributions or cease to maintain a bank charter.
At December 31, 2023, the total federal pre-1988 reserve was approximately $1.9 million. The reserve reflects the cumulative effects of federal tax deductions by the Bank for which no federal income tax provisions have been made.
State and Local Taxation
Catalyst Bancorp is subject to the Louisiana Corporation Income Tax based on our Louisiana taxable income and Louisiana Corporation Franchise Tax based on the Company’s capital not attributable to the Bank. The Corporation Income Tax applies at graduated rates from 3.5% upon the first $50,000 of Louisiana taxable income to 7.5% on all Louisiana taxable income in excess of $150,000. For these purposes, “Louisiana taxable income” means net income which is earned by us within or derived from sources within the State of Louisiana, after adjustments permitted under Louisiana law, including a federal income tax deduction. In 2022, the Corporation Franchise Tax rate was equivalent to $1.50 for each $1,000 up to $300,000 of capital employed in Louisiana, and $3 for each $1,000 in excess of $300,000 of capital employed in Louisiana. For years beginning on or after January 1, 2023, there is no franchise tax for up to $300,000 of capital employed in Louisiana, and the rate is $2.75 for each $1,000 in excess of $300,000 of capital employed in Louisiana. In addition, the Bank is subject to the Louisiana Shares Tax which is imposed on the assessed value of a company’s stock. The formula for deriving the assessed value is to calculate 15% of the sum of:
(a) | 20% of our capitalized earnings, plus |
(b) | 80% of our taxable shareholders’ equity, minus |
(c) | 50% of our real and personal property assessment. |
There are certain limitations in place that reduce to the amount of our shareholders’ equity subject to Louisiana Shares Tax and various items may also be subtracted in calculating a company’s capitalized earnings.
22
Item 1A. Risk Factors
Not applicable.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
The Bank, as part of its risk management process, has implemented an information security program that encompasses the Bank’s cybersecurity efforts. The Bank’s goals of confidentiality, availability and integrity of its information are key to this process and program. The Bank’s goals of protecting confidential information and safeguarding our digital assets are foundational objectives of the program.
The Boards of Directors of the Company and Bank and the Audit Committee of the Company are responsible for ultimate oversight of cybersecurity risks managed daily by management pursuant to the Bank’s information security program. The Boards of Directors annually approve this information security program and regularly receive a report from the Bank’s Information Security Officer that outlines the steps undertaken to protect the information and data assets of the Bank and Company. Additionally, the Information Security Officer updates the Boards of Directors through supplementary reports on issues related to Cybersecurity readiness.
The Bank’s information security program is developed and implemented by the Bank’s Information Security Officer. Together with the Bank’s Information Technology Committee, comprised of relevant information technology and business unit stakeholders within Bank management, the Information Security Officer of the Bank works to manage, control and mitigate cybersecurity risks. The Bank’s employees are regularly trained on cybersecurity awareness, and testing is performed to monitor the success of the training. The Board of Directors receives training annually.
The Bank engages trusted third parties to audit and examine its processes, review the security of its network infrastructure, and assist the Bank in designing and implementing robust cybersecurity systems. These trusted third parties help the Bank improve and test its cybersecurity readiness. The Bank engages third party vendors to monitor and test its network infrastructure. These third-party vendors take an active role in ensuring that the Bank’s systems are protected by testing, reviewing and advising the Bank to strengthen cybersecurity controls when necessary.
The Bank has a vendor oversight risk management process that helps to validate the security and integrity of information collected and maintained by third party vendors that the Bank uses to provide banking services. A key goal of the Bank’s vendor management program includes assessing risks, which include but are not limited to operational, strategic, reputational, cyber, and credit risks. These processes are supported by specialized vendors that assist the Bank’s management and Board of Directors with properly assessing these risks. Finally, the Bank also has an incident response and business continuity program that is intended to address operational concerns, including cybersecurity risks, during contingency scenarios that may create unknown circumstances. This program is tested annually.
Although the Company and Bank have not, as of the date of this Annual Report on Form 10-K, experienced a cybersecurity threat or incident that materially affected their business strategy, results of operations or financial condition, there can be no guarantee that the Company or Bank will not experience such an incident in the future.
As regulated financial institutions, the Company and Bank are also subject to financial privacy laws and their cybersecurity practices are subject to oversight by the federal banking agencies. For additional information, see “Supervision and Regulation –Cybersecurity” included in Part I. Item 1 – Business of this report.
23
Item 2. Properties
We currently conduct business from our main office and five full-service banking offices. The aggregate net book value of the land, building and leasehold improvements with respect to our offices at December 31, 2023 was $5.5 million. We owned all of such offices at December 31, 2023; none were leased. We believe that our current facilities are adequate to meet our present and foreseeable needs, other than routine and customary repair and maintenance needs.
Item 3. Legal Proceedings
Catalyst Bancorp and Catalyst Bank, formerly St. Landry Homestead, are not involved in any pending legal proceedings other than nonmaterial legal proceedings occurring in the ordinary course of business.
Item 4. Mine Safety Disclosures
Not applicable.
24
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The following table sets forth the high and low prices of the Company’s common stock as reported by the Nasdaq Capital Market. To date, no dividends have been declared by the Company on its common stock.
| | | | | | | | | |
For the Quarter Ended | | High | | Low | | Cash Dividends Declared | |||
December 31, 2021 | | $ | 14.09 | | $ | 13.31 | | $ | - |
March 31, 2022 | | | 14.00 | | | 13.46 | | | - |
June 30, 2022 | | | 13.88 | | | 12.03 | | | - |
September 30, 2022 | | | 13.60 | | | 12.20 | | | - |
December 31, 2022 | | | 13.40 | | | 12.35 | | | - |
March 31, 2023 | | | 13.10 | | | 11.50 | | | - |
June 30, 2023 | | | 11.74 | | | 9.26 | | | - |
September 30, 2023 | | | 12.71 | | | 11.06 | | | - |
December 31, 2023 | | | 11.85 | | | 10.60 | | | - |
(b) | Not applicable. |
| | | | | | | | | | | | |
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 | ||||
October 31, 2023 | | | 12,010 | | $ | 11.43 | | | 12,010 | | | 63,280 |
November 30, 2023 | | | 63,280 | | | 11.01 | | | 63,280 | | | 240,000 |
December 31, 2023 | | | 11,674 | | | 11.12 | | | 11,674 | | | 228,326 |
Total | | | 86,964 | | $ | 11.08 | | | 86,964 | | | |
At December 31, 2023, the Company had common shares outstanding of 4,761,326 and 228,326 of those shares were available for repurchase under the November 2023 Repurchase Plan. Since January 1, 2024 through March 22, 2024, the Company repurchased 201,039 shares of its common stock at an average cost per share of $12.12 under the November 2023 Repurchase Plan.
Item 6. [Reserved.]
25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to enhance your understanding of the financial condition and results of operations of Catalyst Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, Catalyst Bank (the “Bank”), formerly known as St. Landry Homestead Federal Savings Bank (“St. Landry Homestead”). The information in this section has been derived from the audited financial statements, which appear in Item 8 of this Annual Report on Form 10-K. The information in this section should be read in conjunction with the Consolidated Financial Statements and related notes included herein in “Item 8. Financial Statements and Supplementary Data” and the description of our business included herein in “Item 1. Business”.
Overview
Catalyst Bancorp, Inc. (“Catalyst Bancorp” or the “Company”) is the holding company for Catalyst Bank (the “Bank”), formerly known as St. Landry Homestead Federal Savings Bank. The Company was incorporated by the Bank in February 2021 as part of the conversion of the Bank from the mutual to the stock form of organization (the “Conversion”). The Conversion was completed on October 12, 2021, at which time the Company acquired all of the issued and outstanding shares of common stock of the Bank, which became the wholly-owned subsidiary of Catalyst Bancorp. The Bank officially changed its name to Catalyst Bank in June 2022.
Founded in 1922, the Bank is a community-oriented savings bank serving the banking needs of customers in the Acadiana region of south-central Louisiana. We are headquartered in Opelousas, Louisiana and serve our customers through six full-service branches located in Carencro, Eunice, Lafayette, Opelousas, and Port Barre. Our primary business consists of attracting deposits from the general public and using those funds together with funds we borrow from the Federal Home Loan Bank (“FHLB”) of Dallas, Federal Reserve Bank of Atlanta, and other sources to originate loans to our customers and invest in securities.
Historically, we operated as a traditional thrift relying on long-term, single-family residential mortgage loans secured by properties located primarily in St. Landry Parish and adjoining areas to generate interest income. In 2021, we re-focused our business strategy to a relationship-based community bank model targeting small- to mid-sized businesses and business professionals in our market areas while continuing to serve our traditional customer base. The Conversion and offering were important factors in our efforts to become a more dynamic, profitable and growing institution.
The following is an overview of financial results for the year ended December 31, 2023, compared to December 31, 2022:
● | Total assets of $270.9 million at December 31, 2023, up $7.6 million or 2.9% |
● | Loans of $144.9 million, or 53.5% of total assets, at December 31, 2023, up $11.3 million or 8.5% |
● | Non-performing assets of $2.1 million at December 31, 2023, up $46,000 or 2.3% |
● | Investment securities of $84.0 million, or 31.0% of total assets, at December 31, 2023, down $9.1 million or 9.8% |
● | Deposits of $165.6 million at December 31, 2023, up $528,000 or less than 1.0% |
● | Borrowings of $19.4 million at December 31, 2023, up $10.2 million or 110.7% |
● | Total shareholders’ equity of $84.7 million, or 31.2% of total assets, at December 31, 2023, down $3.9 million or 4.4% |
● | Net interest income increased $470,000, or 6.4%, to $7.8 million and net interest margin increased 35 basis points (“bps”) to 3.10% |
● | Non-interest expense decreased $141,000, or 1.6%, to $8.6 million. |
● | Net income increased $422,000 to $602,000 |
26
Our results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on our loan and investment portfolios and interest expense on deposits and borrowings. Our net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. Results of operations are also affected by our provisions for credit losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation, office occupancy and equipment expense, data processing, and other expense. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact our financial condition and results of operations.
Business Strategy
Our business strategy is focused on embracing a relationship-oriented community bank model targeting small- to mid-sized businesses and business professionals in our market areas while continuing to serve our traditional customer base. Highlights of our business strategy, which is designed to facilitate our ability to operate and grow as a profitable community-based banking institution, include the following:
● | Growing the loan portfolio with greater diversification. Historically, our primary lending focus was the origination of one- to four-family residential mortgage loans. We have increased our commercial lending activities and, we are focused on building full-service banking relationships with small- to mid-sized businesses and business professionals in our market area. We believe that increased commercial lending offers an opportunity to enhance our profitability and our growth prospects. |
● | Grow our franchise organically through enhanced banking products and services. We have implemented a strategy of prudent growth. We believe we have an opportunity to grow organically by focusing on building relationships with small- to mid-sized businesses and business professionals in our market area and by enhancing the products and services we offer. During the first quarter of 2024, the Company is converting to a new core processing system, which will significantly improve our customer-facing and internal banking technology. The core system conversion will bring new and enhanced technology tools and on-line services preferred by many of our existing and prospective customers. In addition, we will continue to enhance our staff capacity through training and hiring of new employees as needed to facilitate our growth. |
● | Recruiting and retaining top talent and personnel. Since August 2020, the Company has made several personnel changes and additional new hires, including but not limited to: a new President and CEO, Director of Operations, Acadiana Market President, Chief Financial Officer, Chief Risk Officer and several commercial bankers. Recruiting and retaining talented individuals to guide us through the implementation of our business strategy is critical to our success. Our mutual-to-stock Conversion was a key contributor to our ability to attract and retain talent. In September 2022, the Company issued its initial grants under the Company’s 2022 Stock Option Plan and 2022 Recognition and Retention Plan and Trust Agreement. |
● | Expand our franchise through possible acquisition of other financial institutions. We believe there will be opportunities to utilize our strong capital position for expansion through acquisitions of other financial institutions in our current market area and adjoining markets in south Louisiana. |
● | Rebranded franchise. St. Landry Homestead Federal Savings Bank completed its re-branding and changed its name to Catalyst Bank in June 2022. In addition to a new name, our re-branding efforts included new marketing campaigns, updated on-line and website materials and new signage and logos to capture and reflect the mission of the bank. |
● | Manage credit risk to limit non-performing assets. We believe that strong asset quality is a key to long-term financial success. Our strategy for credit risk management focuses on an experienced team of credit professionals, well-defined credit policies and procedures, appropriate loan underwriting criteria and active credit monitoring. |
27
Critical Accounting Estimates
In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our consolidated financial statements included in Item 8 of this Form 10-K. Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The JOBS Act of 2012 contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an emerging growth company, we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We are taking advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.
The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.
Allowance for Credit Losses. We have identified the evaluation of the allowance for credit losses as a critical accounting policy where amounts are sensitive to material variation. On January 1, 2023, the Company adopted the guidance under ASU No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The main provisions of the ASU have been codified by the FASB under ASC 326. The amendments introduced an impairment model that is based on current expected credit losses, rather than incurred losses, to estimate credit losses on loans. For reporting periods beginning on or after January 1, 2023, the allowance for credit losses reflects management’s current estimate of expected credit losses over the remaining life of its loans as of the end of the reporting period. For reporting periods prior to January 1, 2023, the allowance for credit losses represented management’s estimate for probable and reasonably estimable loan losses, but which had not yet been realized as of the end of the reporting period. Refer to Note 1 of the consolidated financial statements included in Item 8 of this Form 10-K for more information on the adoption of ASC 326.
The allowance for credit losses includes the allowance for loan losses and the allowance for credit losses on unfunded lending commitments, which is recorded in other liabilities on the statement of financial condition. The allowance for credit losses is established through a provision for credit losses charged to earnings. Loans, or portions of loans, are charged off against the allowance in the period that such loans, or portions thereof, are deemed uncollectible. Subsequent recoveries are added to the allowance. The allowance for loan losses totaled $2.1 million, or 1.47% of total loans, at December 31, 2023 and $1.8 million, or 1.35% of total loans, at December 31, 2022. The increase in the allowance for loan losses from December 31, 2022 largely reflects the addition of forecasted credit losses due to the adoption ASC 326 and the impact of loan growth in 2023.
Management’s estimate of the allowance for credit losses considers factors such as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, current and future economic conditions, and forecasted information. This evaluation is inherently subjective as it requires material estimates including, among others, average historical loss experience, expected future loss rates, the amount and timing of expected future pay-downs on existing loans and fundings on unfunded commitments, and the value of underlying collateral. All of these estimates may be susceptible to significant changes as more information becomes available.
While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. In addition, the Office of the Comptroller of the Currency as an integral part of their examination processes periodically reviews our allowance for credit losses. While management is responsible for the establishment of the allowance for credit losses and for adjusting such allowance through provisions for credit losses, management may determine, as a result of
28
such regulatory reviews, that an increase or decrease in the allowance or provision for credit losses may be necessary or that loan charge-offs are needed. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for credit losses may be required that would adversely impact earnings in future periods.
Investment Securities. Available-for-sale securities consist of investment securities not classified as trading securities or held-to-maturity securities. Available-for-sale securities are reported at fair value and unrealized holding gains and losses, net of tax, on available-for-sale securities are included in other comprehensive income. The fair market values of investment securities are obtained from a third party service provider, whose prices are based on a combination of observed market prices for identical or similar instruments and various matrix pricing programs. The fair market values of investment securities are classified within Level 2 of the fair value hierarchy. At December 31, 2023 and 2022, net unrealized losses on available-for-sale securities totaled $9.2 million and $11.5 million, respectively. Unrealized losses on our available-for-sale securities relate principally to the increases in market rates of similar types of securities. The Company has not realized or recognized any losses in the statement of income for any investment securities held at December 31, 2023 or 2022.
The adoption of ASC 326 amended the guidance applicable to measuring and recognizing losses on available-for-sale securities. Under ASC 326, expected credit related losses for available-for-sale debt securities are recorded through an allowance for credit losses, while non-credit related losses will continue to be recognized through other comprehensive income as unrealized holding gains and losses, net of tax. Under former GAAP, we assessed our investment securities for other-than-temporary impairment and any declines in fair value that were deemed other-than-temporary resulted in a direct write-down to the amortized cost basis of the related security. The allowance approach allows estimated expected credit losses to be adjusted from period-to-period, as opposed to a permanent write-down.
For reporting periods on or after January 1, 2023 and the adoption of ASC 326, management evaluates available-for-sale securities in unrealized loss positions to determine if the decline in the fair value of each security below its amortized cost basis is due to credit-related factors or noncredit-related factors. Consideration is given to the extent to which that fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period sufficient to allow for any anticipated recovery in fair value.
For reporting periods prior to January 1, 2023, management evaluated securities for other-than-temporary impairment. If declines in the estimated fair value of individual investment securities below their cost were considered other-than-temporary, impairment losses were recognized in the statement of income with an offset to the carrying value of the investment security. Factors affecting the determination of whether an other-than-temporary impairment had occurred include, among other things, the length of time and the extent to which the fair value has been less than cost, the financial condition and near term prospects of the issuer, that the Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell before a period of time sufficient to allow for any anticipated recovery in fair value.
29
Selected Financial and Other Data
Set forth below is selected financial and other data of the Company at and for the dates indicated. The following is only a summary and should be read in conjunction with the business and financial information regarding the Company included elsewhere herein, including the financial statements included in Item 8 of this Annual Report on Form 10-K. The information at and for the years ended December 31, 2023 and 2022 is derived from the audited financial statements that appear elsewhere in this Annual Report on Form 10-K.
| | | | | | |
| | At December 31, | ||||
(Dollars in thousands) | | 2023 | | 2022 | ||
Selected Financial Condition Data: |
|
|
|
| |
|
Total assets | | $ | 270,932 | | $ | 263,362 |
Cash and cash equivalents | |
| 19,011 | |
| 13,472 |
Investment securities: | |
|
| |
|
|
Available for sale | |
| 70,540 | |
| 79,602 |
Held to maturity | |
| 13,461 | |
| 13,475 |
Loans receivable, net of unearned income | |
| 144,920 | |
| 133,607 |
Allowance for loan losses | | | 2,124 | | | 1,807 |
Total deposits | |
| 165,622 | |
| 165,094 |
Borrowings | |
| 19,378 | |
| 9,198 |
Shareholders’ equity | |
| 84,655 | |
| 88,512 |
| | | | | | | |
| | Year Ended December 31, | |||||
(Dollars in thousands) | | 2023 | | 2022 | |||
Selected Operating Data: |
| |
| | |
| |
Total interest income | | $ | 9,661 | | $ | 8,014 | |
Total interest expense | |
| 1,860 | |
| 683 | |
Net interest income | |
| 7,801 | |
| 7,331 | |
Provision for (reversal of) credit losses | |
| 128 | |
| (375) | |
Net interest income after provision for (reversal of) credit losses | |
| 7,673 | |
| 7,706 | |
Total non-interest income | |
| 1,589 | |
| 1,173 | |
Total non-interest expense | |
| 8,579 | |
| 8,720 | |
Income (loss) before income taxes | |
| 683 | |
| 159 | |
Income tax expense (benefit) | |
| 81 | |
| (21) | |
Net income | | $ | 602 | | $ | 180 | |
| | | | | | | |
Selected Performance Ratios:(1) | |
|
| |
|
| |
Average yield on interest-earning assets | |
| 3.83 | % |
| 3.00 | % |
Average rate on interest-bearing liabilities | |
| 1.27 | |
| 0.44 | |
Average interest rate spread(2) | |
| 2.56 | |
| 2.56 | |
Net interest margin(2) | |
| 3.10 | |
| 2.75 | |
Average interest-earning assets to average interest-bearing liabilities | |
| 172.40 | |
| 170.73 | |
Net interest income after provision for loan losses to non-interest expense | |
| 89.44 | |
| 88.37 | |
Total non-interest expense to average assets | |
| 3.22 | |
| 3.08 | |
Efficiency ratio(3) | |
| 91.36 | |
| 102.55 | |
Return on average assets (ratio of net income to average total assets) | |
| 0.23 | |
| 0.06 | |
Return on average equity (ratio of net income to average total equity) | |
| 0.71 | |
| 0.19 | |
30
| | | | | | |
| | At or For the | ||||
| | Year Ended December 31, | ||||
| | 2023 | | 2022 | ||
Asset Quality Ratios:(4) |
|
| | |
| |
Non-accrual loans as a percent of total loans outstanding | | 1.36 | % | | 1.12 | % |
Non-performing assets as a percent of total assets(5) | | 0.76 | | | 0.76 | |
Allowance for loan losses as a percent of total loans outstanding | | 1.47 | | | 1.35 | |
Allowance for loan losses as a percent of non-performing loans | | 106.68 | | | 107.24 | |
Net (charge-offs) recoveries to average loans receivable | | 0.02 | | | (0.07) | |
| | | | | | |
Capital Ratios:(6) | |
|
| |
| |
Common equity Tier 1 capital | | 52.34 | % | | 56.17 | % |
Tier 1 leverage capital | | 31.67 | | | 30.37 | |
Tier 1 risk-based capital | | 52.34 | | | 56.17 | |
Total risk-based capital | | 53.59 | | | 57.42 | |
Average equity to average assets | | 31.79 | | | 32.91 | |
| | | | | | |
Other Data: | |
|
| |
| |
Banking offices | | 6 |
| | 6 | |
Full-time equivalent employees | | 48 |
| | 50 | |
(1) | With the exception of end of period ratios, all ratios are based on average daily balances during the indicated periods. |
(2) | Average interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities, and net interest margin represents net interest income as a percentage of average interest-earning assets. |
(3) | The efficiency ratio represents the ratio of non-interest expense divided by the sum of net interest income and non-interest income. |
(4) | Asset quality ratios are end of period ratios, except for net (charge-offs) recoveries to average loans receivable. |
(5) | Non-performing assets consist of non-performing loans and foreclosed assets. Non-performing loans consist of all non-accruing loans and loans 90 days or more past due. Foreclosed assets consist of real estate acquired through foreclosure or real estate acquired by acceptance of a deed-in-lieu of foreclosure. |
(6) | Capital ratios are end of period ratios for the Bank only. |
31
Comparison of Financial Condition at December 31, 2023 and December 31, 2022
Total Assets. Total assets increased $7.6 million, or 2.9%, to $270.9 million at December 31, 2023 from $263.4 million at December 31, 2022. The increase was primarily due to additional borrowings in 2023 which were used to fund loan growth and invested in interest-bearing cash.
Loans. Total loans increased by $11.3 million, or 8.5%, to $144.9 million at December 31, 2023, compared to $133.6 million at December 31, 2022. During 2023, loan growth was primarily driven by commercial business. Construction loan growth was largely driven by three separate projects involving the purchase and renovation of a hotel, the construction of a retail health care center, and the purchase and renovation of an industrial warehouse. Commercial and industrial loan growth was mainly driven by loans secured by industrial equipment and accounts receivable. A significant driver of commercial real estate loan growth was a loan to finance the purchase of a multi-tenant office building in Lafayette, Louisiana.
The following table shows the composition of our loan portfolio by type of loan at the dates indicated.
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | December 31, 2023 | | December 31, 2022 | | | | | | | ||||||||
(Dollars in thousands) |
| Amount |
| % |
| Amount |
| % | | Change | ||||||||
Real estate loans | | | | | | | | | | | | | | | | | | |
One- to four-family residential | | $ | 83,623 |
| 57.7 | % | | $ | 87,508 |
| 65.5 | % | | $ | (3,885) | | (4.4) | % |
Commercial real estate | |
| 21,478 |
| 14.8 | | |
| 19,437 |
| 14.5 | | |
| 2,041 | | 10.5 | |
Construction and land | |
| 13,857 |
| 9.6 | | |
| 6,172 |
| 4.6 | | |
| 7,685 | | 124.5 | |
Multi-family residential | |
| 3,373 |
| 2.3 | | |
| 3,200 |
| 2.4 | | |
| 173 | | 5.4 | |
Total real estate loans | | | 122,331 |
| 84.4 | | | | 116,317 |
| 87.0 | | | | 6,014 | | 5.2 | |
Other loans | | | |
| | | | | |
| | | | | | | | |
Commercial and industrial | | | 19,984 |
| 13.8 | | | | 13,843 |
| 10.4 | | | | 6,141 | | 44.4 | |
Consumer | | | 2,605 |
| 1.8 | | | | 3,447 |
| 2.6 | | | | (842) | | (24.4) | |
Total other loans | | | 22,589 |
| 15.6 | | | | 17,290 |
| 13.0 | | | | 5,299 | | 30.6 | |
Total loans | | $ | 144,920 |
| 100.0 | % | | $ | 133,607 |
| 100.0 | % | | $ | 11,313 | | 8.5 | |
Approximately 60% of our real estate loans have adjustable rates and, of our total real estate loans, approximately $60.7 million, or 50%, are scheduled to re-price or mature during the next 12 months. The largest segment of our total loan portfolio consists of one- to four-family residential real estate loans, and approximately 74% of these loans were originated prior to 2021.
Our commercial and industrial loans largely consist of loans to local businesses involved in industrial manufacturing and equipment, communications, professional services, and oil and gas support services. Approximately 39% of our commercial and industrial loans have adjustable rates and, of total commercial and industrial loans, approximately $10.2 million, or 51%, are scheduled to re-price or mature during the next 12 months.
32
The following table shows the scheduled contractual maturities of our loans as of December 31, 2023. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. The amounts shown below do not take into account loan prepayments.
| | | | | | | | | | | | | | | |
| | Amounts due after December 31, 2023 in | |||||||||||||
(Dollars in thousands) | | One year or less | | After one year through five years | | After five years through 15 years | | After 15 years | | Total | |||||
One- to four-family residential |
| $ | 316 |
| $ | 5,415 |
| $ | 31,716 |
| $ | 46,176 |
| $ | 83,623 |
Commercial real estate | |
| 1,283 | |
| 8,858 | |
| 7,074 | |
| 4,263 | |
| 21,478 |
Construction and land | |
| 11,469 | |
| 1,847 | |
| 470 | |
| 71 | |
| 13,857 |
Multi-family residential | |
| 271 | |
| 850 | |
| 2,252 | |
| - | |
| 3,373 |
Commercial and industrial | |
| 9,702 | |
| 8,612 | |
| 1,454 | |
| 216 | |
| 19,984 |
Consumer | |
| 389 | |
| 1,661 | |
| 555 | |
| - | |
| 2,605 |
Total |
| $ | 23,430 |
| $ | 27,243 |
| $ | 43,521 |
| $ | 50,726 |
| $ | 144,920 |
The following table shows the dollar amount of our loans at December 31, 2023, due after December 31, 2024, as shown in the preceding table, which have fixed interest rates or which have floating or adjustable interest rates.
| | | | | | | | | |
(Dollars in thousands) | | Fixed-Rate | | Floating or Adjustable-Rate | | Total | |||
Amounts due after December 31, 2024 | | | | | | | | | |
One- to four-family residential |
| $ | 29,572 | | $ | 53,735 | | $ | 83,307 |
Commercial real estate | |
| 9,854 | |
| 10,341 | |
| 20,195 |
Construction and land | |
| 590 | |
| 1,798 | |
| 2,388 |
Multi-family residential | |
| 380 | |
| 2,722 | |
| 3,102 |
Commercial and industrial | |
| 9,624 | |
| 658 | |
| 10,282 |
Consumer | |
| 1,591 | |
| 625 | |
| 2,216 |
Total |
| $ | 51,611 | | $ | 69,879 | | $ | 121,490 |
Allowance for Credit Losses. As of January 1, 2023, the Company adopted the guidance under ASC 326. The adoption of ASC 326 resulted in a $209,000, or 12%, increase in the allowance for loan losses, and a $216,000 increase in other liabilities due to the allowance for credit losses on unfunded commitments. At adoption, we also recorded a corresponding $335,000 after-tax decrease in retained earnings. The increase in the total allowance for credit losses, which is inclusive of the reserve for unfunded commitments, was primarily due to the addition of forecasted credit losses. Refer to Note 1 of the financial statements for more information on the adoption of ASC 326.
At January 1, 2023, the allowance for loan losses totaled $2.0 million, or 1.51% of total loans, compared to $1.8 million, or 1.35% of total loans, at December 31, 2022. At December 31, 2023, the allowance for loan losses totaled $2.1 million, or 1.47% of total loans, and the allowance for credit losses on unfunded commitments totaled $257,000, up $41,000 from the date of adoption of ASC 326. The total provision for credit losses on loans and unfunded commitments was $128,000 for 2023, which was largely attributable to loan growth that necessitated additional loan provisions according to the Bank’s current expected credit losses model.
33
The following table shows changes in our allowance for loan losses and other related data for the periods indicated.
| | | | | | | | |
| | Year Ended December 31, | ||||||
(Dollars in thousands) |
| 2023 | | 2022 | ||||
Allowance for loan losses: | | | | | | | | |
Balance, beginning of period | | $ | 1,807 |
| | $ | 2,276 | |
Impact of adoption of ASC 326 | | | 209 | | | | - | |
Provision for (reversal of) loan losses | |
| 87 |
| | | (375) | |
Net loan recoveries (charge-offs): | |
| |
| | |
| |
One- to four-family residential | |
| 42 |
| | | (69) | |
Commercial real estate | |
| - |
| | | - | |
Construction and land | |
| - |
| | | - | |
Multi-family residential | |
| - |
| | | - | |
Commercial and industrial | |
| 1 |
| | | 1 | |
Consumer | |
| (22) |
| | | (26) | |
Total net recoveries (charge-offs) | |
| 21 |
| | | (94) | |
Balance, end of period | | $ | 2,124 |
| | $ | 1,807 | |
| | | | | | | | |
Allowance for credit losses on unfunded lending commitments: | | | | | | | | |
Balance, beginning of period | | $ | - |
| | $ | - | |
Impact of adoption of ASC 326 | | | 216 | | | | - | |
Provision for (reversal of) credit losses on unfunded lending commitments | | | 41 |
| | | - | |
Balance, end of period | | $ | 257 | | | $ | - | |
| | | | | | | | |
Total allowance for credit losses, end of period | | $ | 2,381 | | | $ | 1,807 | |
Total provision for (reversal of) credit losses | | | 128 | | | | (375) | |
| | | | | | | | |
Total loans at end of period | | $ | 144,920 |
| | $ | 133,607 | |
Total non-accrual loans at end of period | |
| 1,967 |
| | | 1,494 | |
Total non-performing loans at end of period | |
| 1,991 |
| | | 1,685 | |
Total average loans | | | 135,713 | | | | 132,503 | |
| | | | | | | | |
Allowance for loan losses as a percent of: | | | | | | | | |
Total loans | |
| 1.47 | % | | | 1.35 | % |
Non-accrual loans | |
| 107.98 | | | | 120.95 | |
Non-performing loans | |
| 106.68 | | | | 107.24 | |
| | | | | | | | |
Net annualized recoveries (charge-offs) as a percent of average loans by portfolio: | | | | | | | | |
One- to four-family residential | | | 0.05 | % | | | (0.08) | % |
Commercial real estate | | | - | | | | - | |
Construction and land | | | - | | | | - | |
Multi-family residential | | | - | | | | - | |
Commercial and industrial | | | 0.01 | | | | 0.01 | |
Consumer | | | (0.71) | | | | (0.66) | |
Total loans | | | 0.02 | | | | (0.07) | |
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,indicated. The increase in non-performing loans from December 31, 2022 to December 31, 2023, was primarily driven by an increase in our non-accruing one- to four-family residential loans. Persistent inflation and a decline in state government assistance impacted our performing TDRs.residential borrowers in both 2022 and 2023.
| | | | | | | | |
| | At December 31, | ||||||
(Dollars in thousands) | | 2021 | | 2020 | ||||
Non-accruing loans | | |
|
| | |
| |
One- to four-family residential | | $ | 791 |
| | $ | 786 | |
Commercial real estate | |
| - |
| | | - | |
Construction and land | |
| 68 |
| | | 41 | |
Multi-family residential | |
| - |
| | | - | |
Commercial and industrial | | | 18 |
| | | 3 | |
Consumer | |
| 13 |
| | | - | |
Total non-accruing loans | | | 890 |
| | | 830 | |
Accruing loans 90 days or more past due | |
|
|
| | |
| |
One- to four-family residential | |
| - |
| | | 367 | |
Commercial real estate | |
| - |
| | | - | |
Construction and land | |
| - |
| | | - | |
Multi-family residential | |
| - |
| | | - | |
Commercial and industrial | | | - |
| | | - | |
Consumer | |
| 1 |
| | | 13 | |
Total accruing loans 90 days or more past due | | �� | 1 |
| | | 380 | |
Total non-performing loans | | | 891 |
| | | 1,210 | |
Foreclosed assets | | | 340 |
| | | 415 | |
Total non-performing assets | | | 1,231 |
| | | 1,625 | |
Performing troubled debt restructurings | | | 1,873 |
| | | 3,264 | |
Total non-performing assets and performing TDRs | | $ | 3,104 |
| | $ | 4,889 | |
Total loans | | $ | 131,842 |
| | $ | 151,800 | |
Total assets | | $ | 285,349 |
| | $ | 224,688 | |
Total non-accruing loans as a percentage of total loans | | | 0.68 | % | | | 0.55 | % |
Total non-performing loans as a percentage of total loans | | | 0.68 | % | | | 0.80 | % |
Total non-performing loans as a percentage of total assets | | | 0.31 | % | | | 0.54 | % |
Total non-performing assets as a percentage of total assets | | | 0.43 | % | | | 0.72 | % |
13
Allowance for Loan Losses. The following table shows changes in our allowance for loan losses during the periods presented.
| | | | | | | | |||||||||
|
| At or for the Year |
| | | | | | | | ||||||
| | Ended December 31, | | At December 31, | ||||||||||||
(Dollars in thousands) |
| 2021 | | 2020 | | 2023 | | 2022 | ||||||||
Total loans at end of period | | $ | 131,842 |
| | $ | 151,800 | | ||||||||
Total non-accrual loans at end of period | |
| 890 |
| | 830 | | |||||||||
Total non-performing loans at end of period | |
| 891 |
| | 1,210 | | |||||||||
| | | | | | | | |||||||||
Average loans | |
|
|
| |
| | |||||||||
Non-accruing loans | |
|
| | |
| | |||||||||
One- to four-family residential | |
| 92,098 |
| | 107,295 | | | $ | 1,875 |
| | $ | 1,392 | | |
Commercial real estate | |
| 28,635 |
| | 30,012 | | |
| 50 |
| | | 51 | | |
Construction and land | |
| 4,580 |
| | 7,881 | | |
| 42 |
| | | 51 | | |
Multi-family residential | |
| 4,602 |
| | 5,235 | | |
| - |
| | | - | | |
Commercial and industrial | |
| 7,135 |
| | 5,784 | | | | - |
| | | - | | |
Consumer | |
| 4,542 |
| | | 5,001 | | |
| - |
| | | - | |
Total average loans | | $ | 141,592 |
| | $ | 161,208 | | ||||||||
| | | | | | | | |||||||||
Allowance for loan losses, beginning of period | | $ | 3,022 |
| | $ | 2,071 | | ||||||||
Provision for (reversal of) loan losses | |
| (660) |
| | 985 | | |||||||||
Net loan charge-offs: | |
| |
| |
| | |||||||||
Total non-accruing loans | | | 1,967 |
| | | 1,494 | | ||||||||
Accruing loans 90 days or more past due | |
|
|
| | |
| | ||||||||
One- to four-family residential | |
| (69) |
| | (17) | | |
| 24 |
| | | 191 | | |
Commercial real estate | |
| - |
| | - | | |
| - |
| | | - | | |
Construction and land | |
| - |
| | - | | |
| - |
| | | - | | |
Multi-family residential | |
| - |
| | - | | |
| - |
| | | - | | |
Commercial and industrial | |
| - |
| | - | | | - |
| | | - | | ||
Consumer | |
| (17) |
| | | (17) | | |
| - |
| | | - | |
Total net charge-offs | |
| (86) |
| | | (34) | | ||||||||
Allowance for loan losses, end of period | | $ | 2,276 |
| | $ | 3,022 | | ||||||||
Total accruing loans 90 days or more past due | | | 24 |
| | | 191 | | ||||||||
Total non-performing loans | | | 1,991 |
| | | 1,685 | | ||||||||
Foreclosed assets | | | 60 |
| | | 320 | | ||||||||
Total non-performing assets | | | 2,051 |
| | | 2,005 | | ||||||||
| | | | | | | | | | | | | | | | |
Allowance for loan losses as a percent of non-performing loans | |
| 255.44 | % | | | 249.75 | % | ||||||||
Allowance for loan losses as a percent of total loans | |
| 1.73 | % | | | 1.99 | % | ||||||||
Allowance for loan losses as a percent of total non-accrual loans | |
| 255.73 | % | | | 364.10 | % | ||||||||
Total loans | | $ | 144,920 |
| | $ | 133,607 | | ||||||||
Total assets | | 270,932 |
| | 263,362 | | ||||||||||
| | | | | | | | | | | | | | |||
Ratio of net charge-offs to average loans during the period | | | | | | | | |||||||||
One- to four-family residential | | | (0.07) | % | | (0.02) | % | |||||||||
Commercial real estate | | | - | | | - | | |||||||||
Construction and land | | | - | | | - | | |||||||||
Multi-family residential | | | - | | | - | | |||||||||
Commercial and industrial | | | - | | | - | | |||||||||
Consumer | | | (0.37) | | | (0.34) | | |||||||||
Total average loans | |
| (0.06) | % | | (0.02) | % | |||||||||
Total non-accruing loans as a percentage of total loans | | | 1.36 | % | | | 1.12 | % | ||||||||
Total non-performing loans as a percentage of total loans | | | 1.37 | | | | 1.26 | | ||||||||
Total non-performing loans as a percentage of total assets | | | 0.73 | | | | 0.64 | | ||||||||
Total non-performing assets as a percentage of total assets | | | 0.76 | | | | 0.76 | |
14
CARES Act. Under the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief will not be considered troubled debt restructurings.
The Bank administers loan payment modification requests on a case-by-case basis. Through December 31, 2021, we granted COVID-19 related modifications to 204 loans with principal balances totaling $28.2 million. A majority of deferrals were three-month deferrals of principal payments and a three-month extension of the maturity date. At December 31, 2021, we had no loans under payment deferral arrangements due to COVID-19.
Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses. We maintain the allowance at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. Management reviews the allowance for loan losses at least quarterly to identify those inherent losses and to assess the overall collection probability for the loan portfolio. Our evaluation process includes, among other things, an analysis of delinquency trends, non-performing loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of our loans, the value of collateral securing the loan, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, national and local economic conditions and industry experience. Such risk ratings are periodically reviewed by management and revised as deemed appropriate. During the year ended December 31, 2021, we recorded a reversal to the allowance for loan losses of $660,000. Our total non-performing loans decreased by $319,000 from December 31, 2020 to December 31, 2021. The ratio of our allowance for loan losses as a percentage of total loans was 1.73% at December 31, 2021, compared to 1.99% at December 31, 2020. During 2020, our provision for loan losses amounted to $985,000. In our evaluation of the allowance for loan losses in 2020, particular consideration was given to the continuing economic impact of the COVID-19 pandemic, as well as the increases of $872,000 and $529,000, respectively, in the amounts of our impaired loans and substandard loans at December 31, 2020 compared to December 31, 2019. The establishment of the allowance for loan losses is significantly affected by management judgment and uncertainties and there is a likelihood that different amounts would be reported under different conditions or assumptions. Various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. While management is responsible for the establishment of the allowance for loan losses and for adjusting such allowance through provisions for loan losses, management may determine, as a result of such regulatory reviews, that an increase or decrease in the allowance or provision for loan losses may be necessary or that loan charge-offs are needed.
The following table shows how our allowance for loan losses is allocated by type of loan at each of the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| December 31, |
| December 31, | ||||||||||||||||||||||||||||||||
| | 2021 | | 2020 | | 2023 | | 2022 | ||||||||||||||||||||||||||||
(Dollars in thousands) |
| Amount of Allowance |
| Percent of Allowance to Total Allowance | | Percent of Loans in Category to Total Loans | | Amount of Allowance |
| Percent of Allowance to Total Allowance | | Percent of Loans in Category to Total Loans |
| Amount of Allowance |
| Percent of Allowance to Total Allowance | | Percent of Loans in Category to Total Loans | | Amount of Allowance |
| Percent of Allowance to Total Allowance | | Percent of Loans in Category to Total Loans | ||||||||||||
One-to four-family residential | | $ | 1,573 | | 69.1 | % | | 66.2 | % | | $ | 1,910 | | 63.2 | % | | 65.8 | % | | $ | 1,240 | | 58.4 | % | | 57.7 | % | | $ | 1,224 | | 67.7 | % | | 65.5 | % |
Commercial real estate | |
| 370 |
| 16.3 | | | 17.5 |
| | | 744 |
| 24.6 |
| | 20.0 | | |
| 213 |
| 10.0 | | | 14.8 |
| | | 248 |
| 13.7 |
| | 14.5 | |
Construction and land | |
| 55 |
| 2.4 | | | 3.1 |
| | | 82 |
| 2.7 |
| | 3.7 | | |
| 283 |
| 13.3 | | | 9.6 |
| | | 74 |
| 4.1 |
| | 4.6 | |
Multi-family residential | |
| 73 |
| 3.2 | | | 3.5 |
| | | 68 |
| 2.3 |
| | 3.2 | | |
| 50 |
| 2.4 | | | 2.3 |
| | | 40 |
| 2.2 |
| | 2.4 | |
Commercial and industrial | |
| 137 |
| 6.0 | | | 6.4 |
| | | 101 |
| 3.3 |
| | 4.4 | | |
| 302 |
| 14.2 | | | 13.8 |
| | | 175 |
| 9.7 |
| | 10.4 | |
Consumer | |
| 68 |
| 3.0 | | | 3.3 |
| | | 78 |
| 2.6 |
| | 2.9 | | |
| 36 |
| 1.7 | | | 1.8 |
| | | 46 |
| 2.6 |
| | 2.6 | |
Unallocated | |
| - |
| - | | | N/A |
| | | 39 |
| 1.3 |
| | N/A | | ||||||||||||||||||
Total | | $ | 2,276 | | 100.0 | % | | 100.0 | % | | $ | 3,022 | | 100 | % | | 100.0 | % | | $ | 2,124 | | 100.0 | % | | 100.0 | % | | $ | 1,807 | | 100.0 | % | | 100.0 | % |
1535
Investment Securities
We have authority. Total investment securities, available-for-sale and held-to-maturity, amounted to invest$84.0 million at December 31, 2023, down $9.1 million, or 9.8%, compared to $93.1 million in various types ofinvestment securities including mortgage-backedat December 31, 2022. Net unrealized losses on securities U.S. Treasury obligations,available-for-sale totaled $9.2 million at December 31, 2023, compared to $11.5 million at December 31, 2022. Unrealized losses on available-for-sale securities of various federal agencies and of state and municipal governments, certificates of deposit at federally insured banks and savings institutions, and federal funds.relate principally to increases in market interest rates for similar securities. Our investment strategy is established by the Boardsecurities portfolio consists primarily of Directors.
| | | | | | | | | | | | |
|
| December 31, | ||||||||||
| | 2021 | | 2020 | ||||||||
(Dollars in thousands) |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Securities available-for-sale |
| |
|
| |
|
| |
|
| |
|
Mortgage-backed securities | | $ | 75,374 | | $ | 74,663 | | $ | 15,968 | | $ | 16,140 |
U.S. Government and agency obligations | | | 9,347 | | | 9,237 | |
| 2,000 |
| | 1,961 |
Municipal obligations | | | 4,482 | |
| 4,439 | |
| 2,628 | | | 2,629 |
Total securities available-for-sale | | | 89,203 | |
| 88,339 | |
| 20,596 | | | 20,730 |
| | | | | | | | | | | | |
Securities held-to-maturity |
| |
| |
|
| |
|
|
| |
|
U.S. Government and agency obligations | | | 13,019 | |
| 12,667 | |
| 17,034 |
| | 17,006 |
Municipal obligations |
| | 479 | |
| 485 | |
| 489 |
| | 499 |
Total securities held to maturity | | | 13,498 | |
| 13,152 | |
| 17,523 | | | 17,505 |
Total investment securities | | $ | 102,701 | | $ | 101,491 | | $ | 38,119 |
| $ | 38,235 |
The investment policy is designed primarily to manage the interest rate sensitivity of the assets and liabilities, to generate a favorable return without incurring undue interest rate and credit risk, to complement the lending activities and to provide and maintain liquidity. The current investment policy generally permits investments in debt securitiesobligations issued by the U.S. government and U.S. agencies, municipal bonds, and corporate debt obligations, as well as investments in preferred and common stock of government agencies and government sponsored enterprises such as Fannie Mae, Freddie Macgovernment-sponsored mortgage-backed securities. During 2023, investment security maturities, calls and the FHLB of Dallas (federal agency securities).principal repayments totaled $9.1 million. The policy also permits investments in mortgage-backed securities, including pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.
At December 31, 2021, ourCompany has not purchased investment securities portfolio totaled $101.8 million, or 35.7%since the fourth quarter of total assets at such date. The largest component2022. During the fourth quarter of our2023, the Company sold two available-for-sale investment securities portfolio at December 31, 2021, was pass-through mortgage-backed securities issued by Fannie Mae, Ginnie Mae and Freddie Mac, which amounted to $74.7 million, followed by our investment in U.S. government and federal agency obligations, which amounted to $22.3 million at such date. Our investment in tax-exempt municipal obligations at December 31, 2021, was $3.4for a pre-tax loss of $92,000. Cash proceeds from the sales totaled $1.9 million.
Ginnie Mae is a government agency within the Department of Housing and Urban Development which is intended to help finance government-assisted housing programs. Ginnie Mae securities are backed by loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. The timely payment of principal and interest on Ginnie Mae securities is guaranteed by Ginnie Mae and backed by the full faith and credit of the U.S. Government. Freddie Mac is a private corporation chartered by the U.S. Government. Freddie Mac issues participation certificates backed principally by conventional mortgage loans. Freddie Mac guarantees the timely payment of interest and the ultimate return of principal on participation certificates. Fannie Mae is a private corporation chartered by the U.S. Congress with a mandate to establish a secondary market for mortgage loans. Fannie Mae guarantees the timely payment of principal and interest on Fannie Mae securities. Freddie Mac and Fannie Mae securities are not backed by the full faith and credit of the U.S. Government.
Investments in mortgage-backed securities involve the risk that actual prepayments will be greater than estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments thereby changing the net yield on such securities. There is also reinvestment risk associated with the cash flows from such securities or in the event such securities are redeemed by the issuer. In addition, the market value of such securities may be adversely affected by changes in interest rates.
16
Investment securities are classified at the time of acquisition as available for sale, held to maturity or trading. Securities classified as held to maturity must be purchased with the intent and ability to hold that security until its final maturity, and can be sold prior to maturity only under rare circumstances. Held-to-maturity securities are accounted for based upon the amortized cost of the security. Available-for-sale securities can be sold at any time based upon needs or market conditions. Available-for-sale securities are accounted for at fair value, with unrealized gains and losses on these securities, net of income tax provisions, reflected as accumulated other comprehensive income. At December 31, 2021, we had $88.3 million of investment securities classified as available for sale, $13.5 million of investment securities classified as held to maturity and no securities classified as trading securities. At December 31, 2021, we had no investments in a single issuer other than securities issued by U.S. Government agencies or U.S. Government sponsored enterprises, which had an aggregate book value in excess of 10% of the Company’s shareholders’ equity.
The following table sets forth the amountcomposition of our securities portfolio as of the dates indicated.
| | | | | | | | | | | | | | | | | | |
|
| December 31, | ||||||||||||||||
| | 2023 | | 2022 | ||||||||||||||
(Dollars in thousands) |
| Amortized Cost |
| % of Total | | Fair Value |
| Amortized Cost | | % of Total |
| Fair Value | ||||||
Securities available-for-sale |
| |
|
| | | | |
|
| |
| | | |
| |
|
Mortgage-backed securities | | $ | 65,704 | | 70.5 | % | | $ | 57,512 | | $ | 74,044 | | 70.8 | % | | $ | 64,167 |
U.S. Government and agency obligations | | | 7,999 | | 8.6 | | | | 7,388 | |
| 10,979 | | 10.5 | |
| | 9,917 |
Municipal obligations | | | 5,998 | | 6.4 | | |
| 5,640 | |
| 6,065 | | 5.8 | | | | 5,518 |
Total securities available-for-sale | | | 79,701 | | 85.5 | | |
| 70,540 | |
| 91,088 | | 87.1 | | | | 79,602 |
| | | | | | | | | | | | | | | | | | |
Securities held-to-maturity |
| |
| | | | |
|
| |
|
| | | |
| |
|
U.S. Government and agency obligations | | | 13,003 | | 14.0 | | |
| 10,793 | |
| 13,006 | | 12.4 | |
| | 10,288 |
Municipal obligations |
| | 458 | | 0.5 | | |
| 434 | |
| 469 | | 0.5 | |
| | 436 |
Total securities held to maturity | | | 13,461 | | 14.5 | | |
| 11,227 | |
| 13,475 | | 12.9 | | | | 10,724 |
Total investment securities | | $ | 93,162 | | 100.0 | % | | $ | 81,767 | | $ | 104,563 | | 100.0 | % |
| $ | 90,326 |
The following table presents the amortized cost of our total investment securities which matureportfolio that matures during each of the periods indicated and the weighted average yields for each range of maturities at December 31, 2021.2023.
| | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
| | Amounts at December 31, 2021, Which Mature In | ||||||||||||||||||||||||||||||||||||||
| | | | | | After One | | After Five | | | | | | | |
| | | | | | | | | | | | | | | | |||||||||
| | One Year | | through | | through 10 | | Over 10 | | | |
| | Contractual Maturity as of December 31, 2023 | ||||||||||||||||||||||||||
(Dollars in thousands) | | or Less | | Five Years | | Years | | Years | | Total | | One Year or Less | | After One Through Five Years | | After Five Through Ten Years | | Over Ten Years | | Total | ||||||||||||||||||||
Total investment securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||
Mortgage-backed securities | | $ | - | | | $ | - | | | $ | 9,887 | | | $ | 64,776 | | | $ | 74,663 | | | $ | - | | | $ | 4,528 | | | $ | 10,405 | | | $ | 50,771 | | | $ | 65,704 | |
U.S. Government and agency obligations | |
| - | | |
| 7,324 | | |
| 10,913 | | |
| 4,019 | | |
| 22,256 | | |
| 1,000 | | |
| 7,000 | | |
| 9,000 | | |
| 4,002 | | |
| 21,002 | |
Municipal obligations | | | - | | | | 1,072 | | | | 1,283 | | | | 2,563 | | | | 4,918 | | | | 700 | | | | 1,482 | | | | 2,628 | | | | 1,646 | | | | 6,456 | |
Total | | $ | - | | | $ | 8,396 | | | $ | 22,083 | | | $ | 71,358 | | | $ | 101,837 | | | $ | 1,700 | | | $ | 13,010 | | | $ | 22,033 | | | $ | 56,419 | | | $ | 93,162 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||
Weighted average yield | |
|
| | |
|
| | |
|
| | |
|
| | |
|
| | |
|
| | |
|
| | |
|
| | |
|
| | |
|
| |
Mortgage-backed securities | |
| - | % | |
| - | % | |
| 1.33 | % | |
| 1.34 | % | |
| 1.34 | % | |
| - | % | |
| 3.12 | % | |
| 1.67 | % | |
| 1.66 | % | |
| 1.76 | % |
U.S. Government and agency obligations | |
| - | | |
| 1.04 | | |
| 1.21 | | |
| 2.03 | | |
| 1.30 | | |
| 0.92 | | |
| 1.13 | | |
| 1.26 | | |
| 2.37 | | |
| 1.41 | |
Municipal obligations | |
| - | | |
| 0.83 | | |
| 1.22 | | |
| 1.35 | | |
| 1.21 | | |
| 0.80 | | |
| 1.10 | | |
| 2.86 | | |
| 1.41 | | |
| 1.86 | |
Total weighted average yield | |
| - | % | |
| 1.01 | % | |
| 1.27 | % | |
| 1.38 | % | |
| 1.33 | % | |
| 0.87 | | |
| 1.82 | | |
| 1.64 | | |
| 1.70 | | |
| 1.69 | |
The following table sets forth the amount of investment securities which mature during each of the periods indicated and the weighted average yields for each range of maturities at December 31, 2020.
| | | | | | | | | | | | | | | | | | | | |
| | Amounts at December 31, 2020, Which Mature In | ||||||||||||||||||
| | | | | | After One | | After Five | | | | | | | |
| ||||
| | One Year | | through | | through 10 | | Over 10 | | | |
| ||||||||
(Dollars in thousands) | | or Less | | Five Years | | Years | | Years | | Total | ||||||||||
Total investment securities |
| |
| | | |
| | | |
|
| | |
| | | |
| |
Mortgage-backed securities | | $ | - | | | $ | 1 | | | $ | 1,394 | | | $ | 14,745 | | | $ | 16,140 | |
U.S. Government and agency obligations | |
| - | | |
| - | | |
| 12,962 | | |
| 6,033 | | |
| 18,995 | |
Municipal obligations | | | - | | | | - | | | | 489 | | | | 2,629 | | | | 3,118 | |
Total | | $ | - | | | $ | 1 | | | $ | 14,845 | | | $ | 23,407 | | | $ | 38,253 | |
| | | | | | | | | | | | | | | | | | | | |
Weighted average yield | |
|
| | |
|
| | |
|
| | |
|
| | |
|
| |
Mortgage-backed securities | |
| - | % | |
| 2.85 | % | |
| 2.45 | % | |
| 2.81 | % | |
| 2.78 | % |
U.S. Government and agency obligations | |
| - | | |
| - | | |
| 1.33 | | |
| 2.23 | | |
| 1.62 | |
Municipal obligations | |
| - | | |
| - | | |
| 3.18 | | |
| 2.83 | | |
| 2.89 | |
Total weighted average yield | | | - | % | | | 2.85 | % | | | 1.49 | % | | | 2.66 | % | | | 2.19 | % |
1736
Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments, or call options. The expected maturities may differ from contractual maturities because of the exercise of call options and potential paydowns. Accordingly, actual maturities may differ from contractual maturities. Weighted average yields are calculated by dividing the estimated annual income divided by the average amortized cost of the applicable securities.
The following table sets forth the compositiondollar value of our investment securities portfoliowhich have fixed interest rates or which have floating or adjustable interest rates at each of the dates indicated.
| | | | | | | | | | | | |
| | December 31, | | December 31, | ||||||||
(Dollars in thousands) | | | 2021 | | | 2020 | | | 2023 | | | 2022 |
Fixed-rate | ||||||||||||
Fixed-rate | ||||||||||||
Fixed-rate | ||||||||||||
Fixed-rate | ||||||||||||
Fixed-rate | ||||||||||||
Fixed-rate | ||||||||||||
Fixed-rate | | | | | ||||||||
Available-for-sale |
| $ | 88,281 |
| $ | 20,649 |
| $ | 70,498 |
| $ | 79,552 |
Held-to-maturity | | | 13,498 | | | 17,523 | | | 13,461 | | | 13,475 |
Total fixed-rate | | | 101,779 | | | 38,172 | | | 83,959 | | | 93,027 |
| | | | | | | | | | | | |
Adjustable-rate | |
| | | | | |
| | | | |
Available-for-sale | |
| 58 | |
| 81 | |
| 42 | |
| 50 |
Held-to-maturity | | | - | | | - | | | - | | | - |
Total adjustable-rate | | | 58 | | | 81 | | | 42 | | | 50 |
Total investment securities | | $ | 101,837 | | $ | 38,253 | | $ | 84,001 | | $ | 93,077 |
SourcesDeposits. Total deposits were $165.6 million at December 31, 2023, up $528,000, or less than 1%, compared to December 31, 2022. The following table presents total deposits by account type as of Fundsthe dates indicated.
| | | | | | | | | | | | | | | | | | |
| | December 31, | | | | | | | ||||||||||
| | 2023 | | 2022 | | | | | | | ||||||||
(Dollars in thousands) |
| Amount |
| % |
| Amount |
| % | | Change | ||||||||
Non-interest-bearing demand deposits | | $ | 28,183 |
| 17.0 | % | | $ | 33,657 |
| 20.4 | % | | $ | (5,474) | | (16.3) | % |
Interest-bearing demand deposits | |
| 36,867 |
| 22.3 | | |
| 36,991 |
| 22.4 | | |
| (124) | | (0.3) | |
Money market | |
| 15,126 |
| 9.1 | | |
| 15,734 |
| 9.5 | | |
| (608) | | (3.9) | |
Savings | |
| 31,518 |
| 19.0 | | |
| 26,209 |
| 15.9 | | |
| 5,309 | | 20.3 | |
Certificates of deposit | | | 53,928 |
| 32.6 | | | | 52,503 |
| 31.8 | | | | 1,425 | | 2.7 | |
Total deposits | | $ | 165,622 |
| 100.0 | % | | $ | 165,094 |
| 100.0 | % | | $ | 528 | | 0.3 | |
General. Deposits, loan repayments and prepayments, proceeds from investment sales, calls, maturities and pay-downs, cash flows generated from operations and FHLB advances are the primary sources of our funds for useThe increases in lending, investing and for other general purposes.
Deposits. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposits consist of checking, both interest-bearing and non-interest-bearing, money market, savings and certificate of deposit accounts. The flowcertificates of deposits is influenced significantlywere largely driven by general economic conditions, changesrate specials offered to depositors during 2023. Of the $5.5 million decline in money market rates, prevailing interest rates and competition. Our deposits are obtained predominantly from the areas where our branch offices are located. We have historically relied primarily on customer service and long-standing relationships with customers to attract and retain these deposits; however, market interest rates and rates offered by competing financial institutions significantly affect our ability to attract and retain deposits.
The Bank uses traditional means of advertising its deposit products, including broadcast and print media and we generally do not solicitnon-interest-bearing demand deposits from outside our market area. In addition, we solicitDecember 31, 2022 to December 31, 2023, approximately $3.5 million was attributable to two commercial deposit account closures.
Our public fund deposits from local government municipalities.totaled $23.3 million, or 14.1% of total deposits, at December 31, 2023, compared to $21.0 million, or 12.7% of total deposits, at December 31, 2022. At December 31, 2021,2023, approximately 78% of our municipaltotal public funds consisted of non-interest-bearing and interest-bearing demand deposits totaled $20.9 million.
The following table shows the average balance of each type of interest-bearing deposit and the average rate paid on each type of deposit for the periods indicated.from municipalities within our market.
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | ||||||||||||||||
| | 2021 | | 2020 | ||||||||||||||
(Dollars in thousands) |
| Average Balance |
| Interest Expense |
| Average Rate Paid | | Average Balance |
| Interest Expense |
| Average Rate Paid | ||||||
Interest-bearing checking | | $ | 35,998 | | $ | 44 |
| 0.12 | % | | $ | 30,527 | | $ | 78 |
| 0.25 | % |
Money market | |
| 17,860 | |
| 36 |
| 0.20 | | |
| 14,739 | |
| 54 |
| 0.36 | |
Savings accounts | | | 24,295 | | | 28 | | 0.12 | | | | 20,545 | | | 59 | | 0.29 | |
Certificates of deposit | |
| 68,815 | |
| 415 |
| 0.60 | | |
| 66,525 | |
| 729 |
| 1.10 | |
Total interest-bearing deposits | | $ | 146,968 | | $ | 523 |
| 0.36 | | | $ | 132,336 | | $ | 920 |
| 0.70 | |
Our total uninsured deposits (that is deposits in excess of the FDIC’s insurance limit), inclusive of public funds, were approximately $44.6 million at December 31, 2023 and $43.4 million at December 31, 2022. Total uninsured non-public funds deposits were approximately $26.3 million and $26.9 million at December 31, 2023 and 2022, respectively. The full amount of our public fund deposits in excess of the FDIC’s insurance limit are secured by pledging investment securities.
1837
The following table shows the distributionaverage balance of and certain other information relating to, our deposits byeach type of deposit asand the average rate paid on each type of interest-bearing deposit for the datesperiods indicated.
| | | | | | | | | | | | |
| | December 31, | ||||||||||
| | 2021 | | 2020 | ||||||||
(Dollars in thousands) | | Amount | | % | | Amount | | % | ||||
Certificate accounts |
| |
|
|
| |
| |
|
|
| |
0.00% - 0.99% |
| $ | 60,583 |
| 34.3 | % |
| $ | 46,672 |
| 28.3 | % |
1.00% - 1.99% |
|
| 5,980 |
| 3.4 | | |
| 21,502 |
| 13.1 | |
2.00% - 2.99% |
|
| - |
| - | | |
| 1,167 |
| 0.7 | |
3.00% or more | | | - |
| - | | | | - |
| - | |
Total certificate accounts | | | 66,563 |
| 37.7 | | | | 69,341 |
| 42.1 | |
| | | | | | | | | | | | |
Transaction accounts | |
|
|
|
| | |
|
|
|
| |
Checking: | |
| | | | | |
|
|
| | |
Interest-bearing | |
| 34,357 |
| 19.4 | | |
| 30,890 |
| 18.8 | |
Non-interest-bearing | |
| 30,299 |
| 17.1 | | |
| 26,169 |
| 15.9 | |
Money market | | | 18,878 |
| 10.7 | | | | 15,989 |
| 9.7 | |
Savings | |
| 26,698 |
| 15.1 | |
|
| 22,209 |
| 13.5 | |
Total transaction accounts | | | 110,232 |
| 62.3 | | | | 95,257 |
| 57.9 | |
Total deposits | | $ | 176,795 |
| 100.0 | % |
| $ | 164,598 |
| 100.0 | % |
The following table presents, by various interest rate categories and maturities, the amount of certificates of deposit at December 31, 2021.
| | | | | | | | | | | | | | | |
| | Balance at December 31, 2021 | |||||||||||||
| | Maturing in the 12 Months Ending December 31, | |||||||||||||
(Dollars in thousands) |
| 2022 |
| 2023 |
| 2024 |
| Thereafter |
| Total | |||||
Certificates of Deposit | | | | | | | | | | | | | | | |
0.00% - 0.99% | | $ | 46,936 | | $ | 12,101 | | $ | 469 | | $ | 1,077 | | $ | 60,583 |
1.00% - 1.99% |
|
| 3,115 | |
| 875 | |
| 1,990 | |
| - | |
| 5,980 |
2.00% - 2.99% |
|
| - | |
| - | |
| - | |
| - | |
| - |
3.00% or more | |
| - | |
| - | |
| - | |
| - | |
| - |
Total certificate accounts | | $ | 50,051 | | $ | 12,976 | | $ | 2,459 | | $ | 1,077 | | $ | 66,563 |
The following table presents, by various interest rate categories and maturities, the amount of certificates of deposit at December 31, 2020.
| | | | | | | | | | | | | | | |
| | Balance at December 31, 2020 | |||||||||||||
| | Maturing in the 12 Months Ending December 31, | |||||||||||||
(Dollars in thousands) |
| 2021 |
| 2022 |
| 2023 |
| Thereafter |
| Total | |||||
Certificates of Deposit | | | | | | |
| | | | | | | | |
0.00% - 0.99% | | $ | 37,722 | | $ | 8,443 | | $ | 309 | | $ | 198 | | $ | 46,672 |
1.00% - 1.99% | |
| 15,348 | |
| 3,196 | |
| 901 | |
| 2,057 | |
| 21,502 |
2.00% - 2.99% | |
| 162 | |
| 1,005 | |
| - | |
| - | |
| 1,167 |
3.00% or more | |
| - | |
| - | |
| - | |
| - | |
| - |
Total certificate accounts | | $ | 53,232 | | $ | 12,644 | | $ | 1,210 | | $ | 2,255 | | $ | 69,341 |
19
The following table shows the maturities of our certificates of deposit with balances of $100,000 or more at December 31, 2021 by time remaining to maturity.
| | | | | | |
(Dollars in thousands) | | Amount | | Weighted | ||
Maturing during the quarter ending: | | | | | |
|
March 31, 2022 | | $ | 9,878 |
| 0.46 | % |
June 30, 2022 | |
| 10,117 |
| 0.33 | |
September 30, 2022 | |
| 8,309 |
| 0.42 | |
December 31, 2022 | |
| 5,415 |
| 0.44 | |
After December 31, 2022 | |
| 10,613 |
| 0.53 | |
Total certificates of deposit with balances of $100,000 or more | | $ | 44,332 |
| 0.44 | % |
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | ||||||||||||||||
| | 2023 | | 2022 | ||||||||||||||
(Dollars in thousands) |
| Average Balance |
| Interest Expense |
| Average Rate Paid | | Average Balance |
| Interest Expense |
| Average Rate Paid | ||||||
Interest-bearing demand deposits | | $ | 40,474 | | $ | 144 |
| 0.36 | % | | $ | 40,231 | | $ | 46 |
| 0.11 | % |
Money market | |
| 16,616 | |
| 196 |
| 1.18 | | |
| 18,588 | |
| 32 |
| 0.17 | |
Savings accounts | | | 27,996 | | | 222 | | 0.79 | | | | 27,060 | | | 36 | | 0.13 | |
Certificates of deposit | |
| 51,235 | |
| 979 |
| 1.91 | | |
| 61,387 | |
| 288 |
| 0.47 | |
Total interest-bearing deposits | | $ | 136,321 | | $ | 1,541 |
| 1.13 | | | $ | 147,266 | | $ | 402 |
| 0.27 | |
Non-interest-bearing demand deposits | | | 34,356 | | | - | | | | | | 32,560 | | | - | | | |
Total deposits | | $ | 170,677 | | $ | 1,541 |
| | | | $ | 179,826 | | $ | 402 |
| | |
The following table shows the maturities and weighted average contractual interest rates of our total certificates of deposit at December 31, 2023 by time remaining to maturity.
| | | | | | |
(Dollars in thousands) | | Amount | | Weighted | ||
Balance at December 31, 2023 maturing in: | | | | | |
|
Three months or less | | $ | 13,949 |
| 2.59 | % |
Over three months through six months | |
| 16,372 |
| 3.22 | |
Over six through 12 months | |
| 15,146 |
| 3.14 | |
Over 12 months | |
| 8,461 |
| 1.86 | |
Total certificates of deposit | | $ | 53,928 |
| 2.82 | |
The following table shows the maturities and weighted average contractual interest rates of our certificates of deposit in excess of the FDIC insurance limit (generally, $250,000) at December 31, 20212023 by time remaining to maturity.
| | | | | | |
(Dollars in thousands) |
| Amount | | Weighted | ||
Maturing during the quarter ending: | | | | | |
|
March 31, 2022 | | $ | 2,104 |
| 0.48 | % |
June 30, 2022 | |
| 4,804 |
| 0.34 | |
September 30, 2022 | |
| 4,384 |
| 0.41 | |
December 31, 2022 | |
| 802 |
| 0.38 | |
After December 31, 2022 | |
| 2,376 |
| 0.73 | |
Total certificates of deposit with balances in excess of $250,000 | | $ | 14,470 |
| 0.45 | % |
| | | | | | |
(Dollars in thousands) |
| Amount | | Weighted | ||
Balance at December 31, 2023 maturing in: | | | | | |
|
Three months or less | | $ | 1,654 |
| 3.12 | % |
Over three months through six months | |
| 5,258 |
| 4.07 | |
Over six through 12 months | |
| 2,707 |
| 3.50 | |
Over 12 months | |
| 1,616 |
| 2.76 | |
Total certificates of deposit with balances in excess of $250,000 | | $ | 11,235 |
| 3.61 | |
The amount of our total uninsured deposits (that is deposits in excess of the FDIC’s insurance limit) was $48.9 million and $29.6 million, respectively,Borrowings.Total borrowings at December 31, 2021 and 2020.
Borrowings. We utilize advances2023 were $19.4 million, up $10.2 million from December 31, 2022. During the fourth quarter of 2023, the Bank began borrowing from the Federal Reserve Bank of Atlanta through its Bank Term Funding Program (“BTFP”). At December 31, 2023, the Bank had one $10.0 million BTFP loan outstanding with a contractual interest rate of 4.83% and a maturity date of December 27, 2024.
Other borrowings outstanding at December 31, 2023 consisted of FHLB as an alternative to retail deposits to fund operations as partadvances totaling $9.4 million and $9.2 million at December 31, 2023 and 2022, respectively. The change in the carrying value of our operating strategy. These FHLB advances are collateralized primarily by certainreflects the amortization of our mortgage loans and mortgage-backed securities and secondarily by our investmentdeferred prepayment penalties on $10.0 million in capital stockadvances restructured in December of the FHLB.2020. Deferred prepayment penalties on our FHLB advances are made pursuant to several different credit programs, eachtotaled $622,000 and $802,000 at December 31, 2023 and 2022, respectively.
38
The following table shows certain information regarding our borrowings at or for the dates indicated:
| | | | | | | | | | | | | | |||
|
| At or For the Year Ended |
|
| At or For the Year Ended |
| ||||||||||
| | December 31, | | December 31, | ||||||||||||
(Dollars in thousands) | | 2021 | | 2020 | | 2023 | | 2022 | ||||||||
FHLB advances and other borrowings |
| |
|
| |
| | |||||||||
Average balance outstanding | | $ | 8,927 | | $ | 24,382 | | |||||||||
Maximum amount outstanding at any month-end during the period | |
| 9,018 | | 25,000 | | ||||||||||
Balance outstanding at end of period | |
| 9,018 | |
| 8,838 | | |||||||||
Advance from Federal Reserve Bank of Atlanta |
| |
|
| | |
| | ||||||||
Average balance | | $ | 923 | | $ | - | | |||||||||
Maximum balance at any month-end during the period | |
| 10,000 | | | - | | |||||||||
Balance at end of period | |
| 10,000 | |
| - | | |||||||||
| | | | | | | | |||||||||
Average interest rate during the period | |
| 3.05 | % | |
| 3.22 | % | |
| 4.95 | % | |
| - | % |
Weighted average interest rate at end of period(1) | |
| 0.93 | % | |
| 0.93 | % | |
| 4.83 | |
| - | | |
| | | | | | | | |||||||||
Advances from FHLB |
| |
|
| | |
| | ||||||||
Average balance | | $ | 9,285 | | $ | 9,294 | | |||||||||
Maximum balance at any month-end during the period | |
| 9,378 | | | 9,198 | | |||||||||
Balance at end of period | |
| 9,378 | |
| 9,198 | | |||||||||
| | | | | | | | |||||||||
Average interest rate during the period | |
| 2.94 | % | |
| 3.02 | % | ||||||||
Weighted average interest rate at end of period(1) | |
| 0.93 | |
| 0.93 | |
(1) | Reflects the weighted average contractual rate of |
At December 31, 2021, none
Shareholders’ Equity. Shareholders’ equity totaled $84.7 million, or 31.2% of our borrowings were short-term (maturities of one year or less).
20
During the fourth quarter of 2020, we repaid $25.0 million of outstanding FHLB advances ($10.0 million of which was treated as a debt modification under GAAP), which had a weighted average cost of 3.18% and remaining terms to maturity of three to five years. We obtained $10.0 million (contractual amount) in new advances from the FHLB with a weighted average contractual rate of 0.93%, an estimated weighted average effective rate of 2.73% for the year ending December 31, 2021 and maturities ranging from five to eight years. We recognized $1.5 million in FHLB prepayment penalties as non-interest expense in the year ended December 31, 2020. The new advances are accounted for as a debt modification and had a carrying value of $8.8 milliontotal assets, at December 31, 2020, with $1.22023, down $3.9 million, to be recognized as an adjustment to interest expense over the remaining termsor 4.4%, from $88.5 million, or 33.6% of the advances. At December 31, 2021, the carrying value of our FHLB advances was $9.0 million.The $180,000 increase in the carrying value of FHLB advancestotal assets, at December 31, 2021 compared to December 31, 2020 reflects the amortization of prepayment penalties during the year.
Subsidiaries
St. Landry Homestead Federal Savings Bank is a wholly owned subsidiary of Catalyst Bancorp. The Company has no other subsidiaries and the Bank has no subsidiaries.
Employees and Human Capital Resources
At December 31, 2021, we had 56 full-time equivalent employees. None of such employees are represented2022. During 2023, shareholders’ equity decreased by a collective bargaining group, and we believe that our relationship with our employees is excellent.
We believe that our ability to attract and retain top quality employees will be a key$6.3 million due to the Company’s future success. repurchases of its common stock. This was partially offset by a $1.8 million decrease in accumulated other comprehensive loss due to the change in unrealized losses on available-for-sale investment securities.
During the year ended December 31, 2020, we hired a new President and Chief Executive Officer. Since then, we have made several additional new hires, including but not limited to: a Chief Credit Officer, a Director2023, the Company repurchased 528,674 shares of Operations,its common stock at an Acadiana Market President, a Chief Financial Officer and three commercial bankers. We expect to continue to assess our management and staffing needs and are likely to add personnel in the future in order to fully implement our business strategy.
SUPERVISION AND REGULATION
General
As a federal savings association, St. Landry Homestead is subject to examination and regulation by the Officeaverage cost per share of the Comptroller of the Currency (the “OCC”), and is also subject to examination by the FDIC as deposit insurer. The federal system of regulation and supervision establishes a comprehensive framework of activities in which St. Landry Homestead may engage and is intended primarily for the protection of depositors and the FDIC’s Deposit Insurance Fund, and not for the protection of shareholders. St. Landry Homestead also is a member of and owns stock in the Federal Home Loan Bank of Dallas, which is one of the 11 regional banks in the Federal Home Loan Bank System.
Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; provide oversight for the adequacy of loan loss reserves for regulatory purposes; and establish the timing and amounts of assessments and fees. Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors. These ratings are inherently subjective and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as St. Landry Homestead or its holding company, Catalyst Bancorp, from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches.
In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations. Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which
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could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network.
As a bank holding company, Catalyst Bancorp is required to comply with the rules and regulations of the Federal Reserve Board (the “FRB”). It is required to file certain reports with the FRB and is subject to examination by and the enforcement authority of the FRB. Catalyst Bancorp also is subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.
Any change in applicable laws or regulations, whether by the OCC, the FDIC, the FRB, the Securities and Exchange Commission or Congress, could have a material adverse impact on the operations and financial performance of Catalyst Bancorp and St. Landry Homestead.
Set forth below is a brief description of material regulatory requirements that are applicable to St. Landry Homestead and Catalyst Bancorp. The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on St. Landry Homestead and Catalyst Bancorp.
Federal Banking Regulation
Business Activities. A federal savings association derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and applicable federal regulations. Under these laws and regulations, a federal savings association may generally invest in mortgage loans secured by residential real estate without an aggregate limit, and commercial business, commercial real estate and consumer loans, certain types of debt securities and certain other assets, subject to overall percentage of assets or capital limits. Federal savings associations are also subject to a “Qualified Thrift Lender Test,” or “QTL Test,” which generally requires that a specified percentage of overall assets be residential mortgages and related investments. However, these limitations do not apply to St. Landry Homestead, as described below.
Effective July 1, 2019, the OCC issued a final rule, pursuant to a provision of the Economic Growth Regulatory Relief and Consumer Protection Act (“EGRRCPA”), that permits a federal savings association to elect to exercise national bank powers without converting to a national bank charter. The election is available to federal savings associations that had total consolidated assets of $20 billion or less as of December 31, 2017. St. Landry Homestead exercised the covered savings association election effective October 16, 2019.
A federal savings association that has exercised the “covered savings association” election generally has the same rights and privileges as a national bank that has its main office in the same location as the home office of the covered savings association. The covered savings association is also subject to the same duties, restrictions, liabilities and limitations applicable to a national bank. A covered savings association retains its federal savings association charter and continues to be subject to the corporate governance laws and regulations applicable to such associations, including as to its bylaws, board of directors and shareholders, capital distributions and mergers.
A covered savings association may make loans to its customers without regard to the lending restrictions applicable to federal savings associations, such as the percentage of capital or assets limits on various types of loans and the QTL Test. However, federal savings associations that have made such an election are subject to the narrower authority of national banks in certain areas such as branching and subsidiary activities in certain respects. A covered savings association may generally not retain any assets, subsidiaries or activities not permitted for national banks.
Applicable regulations authorize a federal association that has exercised the covered savings association election to terminate the election and thereby again operate as a federal savings association that has not made a covered savings association election. St. Landry Homestead has no current plans to terminate its election.
Capital Requirements. Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.
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At December 31, 2021, St. Landry Homestead’s capital exceeded all applicable requirements.
In determining the amount of risk-weighted assets for calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk-weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common shareholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain non-cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the OCC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
EGRRCPA required the federal banking agencies, including the OCC, to establish a “community bank leverage ratio” of between 8% and 10% for institutions with assets of less than $10 billion. Institutions with capital complying with the ratio and otherwise meeting the specified requirements and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. St. Landry Homestead has not elected to utilize the community bank leverage ratio.
CARES Act and CAA, 2021. In response to the COVID-19 pandemic, Congress,$11.94 through the enactmentcompletion of the CARES Act,repurchases of 265,000 shares under its January 2023 Repurchase Plan and the federal banking agencies, though rulemaking, interpretive guidance and modifications to agency policies and procedures, have taken a series of actions to provide national emergency economic relief measures including, among others, the following:
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As the on-going COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact supplementary COVID-19 response legislation. We continue to assess the impact of the CARES Act and other statutes, regulations and supervisory guidance related to the COVID-19 pandemic. For additional information regarding actions taken by regulatory agencies to provide relief to consumers who have been adversely impacted by the COVID-19 pandemic, see the discussion below252,000 under “Risk Factors—Risks Related to our Business-Risks Related to the COVID-19 Pandemic and the Associated Economic Slowdown.”
Loans-to-One Borrower.Generally, a federal savings association, including a covered savings association, may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the excess is secured by readily marketable collateral, which generally does not include real estate. At December 31, 2021, St. Landry Homestead was in compliance with the loans-to-one borrower limitations.
Capital Distributions.Federal regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the savings association’s capital account. A federal savings association must file an application with the OCC for approval of a capital distribution if:
An application related to a capital distribution may be disapproved if:
In addition, the Federal Deposit Insurance Act generally provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. A federal savings association also may not make a capital distribution that would reduce its regulatory capital below the amount required for the liquidation account established in connection with its conversion to stock form.
Community Reinvestment Act and Fair Lending Laws. All insured depository institutions have a responsibility under the Community Reinvestment Act (“CRA”) and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. The OCC is required to assess the federal savings association’s record of compliance with the Community Reinvestment Act. A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice.
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On December 14, 2021, the OCC issued a final rule to rescind its June 2020 CRA rule and replace it with a rule based on the rules adopted jointly by the federal banking agencies in 1995, as amended. The final rule aligns the OCC’s CRA rule with the rules of the Federal Reserve and FDIC and thereby, according to the OCC, facilitates the ongoing interagency work to modernize the CRA framework and create consistency for all insured depository institutions. The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating. St. Landry Homestead received an “outstanding” Community Reinvestment Act rating in its most recent federal examination.
Transactions with Related Parties. An insured depository institution’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under common control with, an insured depository institution such as St. Landry Homestead. Catalyst Bancorp is an affiliate of St. Landry Homestead because of its control of St. Landry Homestead. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates.
St. Landry Homestead’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the FRB. Among other things, these provisions generally require that extensions of credit to insiders:
In addition, extensions of credit in excess of certain limits must be approved by St. Landry Homestead Federal Savings Bank’s Board of Directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.
Enforcement. The OCC has primary enforcement responsibility over federal savings associations and has authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, shareholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association. Formal enforcement action by the OCC may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The FDIC also has the authority to terminate deposit insurance or recommend to the OCC that enforcement action be taken with respect to a particular federal savings association. If such action is not taken, the FDIC has authority to take the action under specified circumstances.
Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.
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Branching. A federal savings association that has elected covered savings association status is subject to the laws and regulations governing the establishment of branches by national banks. Generally, intrastate and interstate branching is authorized to the extent that the law of the state involved authorizes branching for banks that it charters. Such authority is subject to OCC approval for new branches.
Prompt Corrective Action. Federal law requires, among other things, that federal bank regulators take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For this purpose, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under applicable regulations, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.
At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on the payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including a regulatory order to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, ceasing receipt of deposits from correspondent banks, dismissal of directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.
The previously referenced final rule establishing an elective “community bank leverage ratio” regulatory capital framework provides that a qualifying institution whose capital exceeds the community bank leverage ratio and opts to use that framework will be considered “well-capitalized” for purposes of prompt corrective action.
At December 31, 2021, St. Landry Homestead met the criteria for being considered “well capitalized.”
Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured financial institutions such as St. Landry Homestead, generally up to a maximum of $250,000 per separately insured depositor. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund.
Under the FDIC’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments. Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years.
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The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of St. Landry Homestead. We cannot predict what assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not know of any practice, condition or violation that may lead to termination of our deposit insurance.
Privacy Regulations. Federal regulations generally require that St. Landry Homestead disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, St. Landry Homestead is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. St. Landry Homestead currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations.
USA PATRIOT Act. St. Landry Homestead is subject to the USA PATRIOT Act, which gives federal agencies additional powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. The USA PATRIOT Act contains provisions intended to encourage information sharing among bank regulatory agencies and law enforcement bodies and imposes affirmative obligations on financial institutions, such as enhanced recordkeeping and customer identification requirements.
Prohibitions Against Tying Arrangements. Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.
Other Regulations
Interest and other charges collected or contracted for by St. Landry Homestead are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to state and federal laws applicable to credit transactions, such as the:
The deposit operations of St. Landry Homestead also are subject to, among others, the:
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Federal Home Loan Bank System
St. Landry Homestead is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions, and such member institutions are required to acquire and hold shares of capital stock in the Federal Home Loan Bank. St. Landry Homestead is required to own stock in the Federal Home Loan Bank of Dallas in specified amounts. St. Landry Homestead was in compliance with this requirement at December 31, 2021 based on its ownership of $1.4 million in capital stock of the Federal Home Loan Bank of Dallas. The stock has no quoted market value and is carried at cost. St. Landry Homestead reviews for impairment, based on the ultimate recoverability, the cost basis of the Federal Home Loan Bank of Dallas stock. At December 31, 2021, no impairment had been recognized.
Holding Company Regulation
Catalyst Bancorp is a bank holding company subject to regulation and supervision by the FRB under the Bank Holding Company Act of 1956, as amended. The FRB has enforcement authority over Catalyst Bancorp and its non-savings institution subsidiaries. Among other things, this authority permits the FRB to restrict or prohibit activities that are determined to be a risk to St. Landry Homestead.
The FRB has promulgated regulations implementing the “source of strength” doctrine that require bank holding companies to act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.
Catalyst Bancorp is required to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior Federal Reserve Board approval is required for Catalyst Bancorp to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of the bank or bank holding company. The FRB has adopted a final rule, effective September 30, 2020, that revises its framework for determining whether a company, under the Bank Holding Company Act, has a “controlling influence” over a bank or bank holding company. In addition to the approval of the Federal Reserve Board, prior approval may also be necessary from other agencies having supervisory jurisdiction over the bank to be acquired before any bank acquisition can be completed.
A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings and loan association whose direct and indirect activities are limited to those permitted for bank holding companies.
The Gramm-Leach-Bliley Act of 1999 authorized a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking.
Catalyst Bancorp is subject to the Federal Reserve Board’s capital adequacy guidelines for bank holding companies (on a consolidated basis) which have historically been similar to, though less stringent than, those required of banks and savings associations. The Dodd-Frank Act, however, required the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. Consolidated regulatory capital requirements identical to those applicable to the subsidiary banks apply to bank holding companies; as is the case with institutions themselves, the capital conservation buffer was phased in between 2016 and 2019. However, the Federal Reserve Board has provided a “small bank holding company” exception to its consolidated capital requirements, and legislation and the
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related issuance of regulations by the Federal Reserve Board has increased the threshold for the exception to $3.0 billion. As a result, Catalyst Bancorp is not be subject to the capital requirement until such time as its consolidated assets exceed $3.0 billion.
A bank holding company is generally required to give the Federal Reserve Board prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. There is an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.
The FRB has issued supervisory policies regarding the payment of dividendsApril 2023 Repurchase Plan, and the repurchase of another 11,674 shares of common stock by bank holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of capital distributions previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also states that a holding company should inform the FRB supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability of Catalyst Bancorp to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.
Change in Control Regulations
Under the Change in Bank Control Act, no person may acquire “control” of a bank holding company, such as Catalyst Bancorp, unless the FRB has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. There is a presumption of control upon the acquisition of 10% or more of a class of voting stock if the holding company involved has its shares registered under the Securities Exchange Act of 1934, or, if the holding company involved does not have its shares registered under the Securities Exchange Act of 1934, if no other persons will own, control or hold the power to vote a greater percentage of that class of voting security after the acquisition.
Federal Securities Laws
Catalyst Bancorp common stock is registered with the Securities and Exchange. Catalyst Bancorp is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.
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Emerging Growth Company Status
Catalyst Bancorp is an emerging growth company. For as long as Catalyst Bancorp continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including, but not limited to, reduced disclosure obligations regarding executive compensationa third repurchase plan announced in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, Catalyst Bancorp also is not subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting. We have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Such an election is irrevocable during the period a company is an emerging growth company. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
Catalyst Bancorp will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the completion of the Conversion and offering; (ii) the first fiscal year after our annual gross revenues are $1.07 billion (adjusted for inflation) or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million at the end of the second quarter of that fiscal year. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
TAXATION
Federal Taxation
General. Catalyst Bancorp and St. Landry Homestead are subject to federal income taxation in the same general manner as other corporations with some exceptions listed below. The following discussion of federal and state income taxation is only intended to summarize certain pertinent income tax matters and is not a comprehensive description of the applicable tax rules. Our tax returns have not been audited during the past five years.
Method of Accounting. For federal income tax purposes, Catalyst Bancorp reports income and expenses on the accrual method of accounting.
Bad Debt Reserves. The Small Business Job Protection Act of 1996 eliminated the use of the reserve method of accounting for bad debt reserves by savings associations, effective for taxable years beginning after 1995. Prior to that time, St. Landry Homestead was permitted to establish a reserve for bad debts and to make additions to the reserve. These additions could, within specified formula limits, be deducted in arriving at taxable income. As a result of the Small Business Job Protection Act of 1996, savings associations must use the experience method in computing their bad debt deduction beginning with their 1996 federal tax return. In addition, federal legislation required the recapture over a six year period of the excess of tax bad debt reserves at December 31, 1995 over those established as of December 31, 1987.
Taxable Distributions and Recapture. Prior to the Small Business Job Protection Act of 1996, bad debt reserves created prior to January 1, 1988 were subject to recapture into taxable income if the Bank failed to meet certain thrift asset and definitional tests. New federal legislation eliminated these savings association related recapture rules. However, under current law, pre-1988 reserves remain subject to recapture should the Bank make certain non-dividend distributions or cease to maintain a bank charter.
November (the “November 2023 Repurchase Plan”). At December 31, 2021,2023, the total federal pre-1988 reserve was approximately $1.9 million. The reserve reflects the cumulative effectsCompany had common shares outstanding of federal tax deductions by the Bank4,761,326 and 228,326 of those shares were available for which no federal income tax provisions have been made.
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State and Local Taxation
Catalyst Bancorp is subject to the Louisiana Corporation Income Tax based on our Louisiana taxable income and Louisiana Corporation Franchise Tax based on the Company’s capital not attributable to the Bank. The Corporation Income Tax applies at graduated rates from 4% upon the first $25,000 of Louisiana taxable income to 8% on all Louisiana taxable income in excess of $200,000. For these purposes, “Louisiana taxable income” means net income which is earned by us within or derived from sources within the State of Louisiana, after adjustments permitted under Louisiana law, including a federal income tax deduction. The Corporation Franchise Tax rate is equivalent to $1.50 for each $1,000 up to $300,000 of capital employed in Louisiana, and $3 for each $1,000 in excess of $300,000 of capital employed in Louisiana. In addition, the Bank is subject to the Louisiana Shares Tax which is imposed on the assessed value of a company’s stock. The formula for deriving the assessed value is to calculate 15% of the sum of:
Various items may also be subtracted in calculating a company’s capitalized earnings.
Item 1A. Risk Factors
Not applicable.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
We currently conduct business from our main office and five full-service banking offices. The aggregate net book value of the land, building and leasehold improvements with respect to our offices at December 31, 2021 was $5.8 million. We owned all of such offices at December 31, 2021; none were leased. We believe that our current facilities are adequate to meet our present and foreseeable needs, other than routine and customary repair and maintenance needs.
Item 3. Legal Proceedings
Catalyst Bancorp and St. Landry Homestead are not involved in any pending legal proceedings other than nonmaterial legal proceedings occurring in the ordinary course of business.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The following table sets forth the high and low prices of the Company’s common stock as reported by the Nasdaq Capital Market. To date, no dividends have been declared by the Company on its common stock.
| | | | | | | | | |
|
| | |
| | |
| | |
For The Quarter Ended | | High | | Low | | Cash Dividends Declared | |||
December 31, 2021 | | $ | 14.09 | | $ | 13.31 | | $ | - |
Item 6. [Reserved.]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to enhance your understanding of the financial condition and results of operations of Catalyst Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, St. Landry Homestead Federal Savings Bank (the “Bank”). The information in this section has been derived from the audited financial statements, which appear in Item 8 of this Annual Report on Form 10-K. The information in this section should be read in conjunction with the Consolidated Financial Statements and related notes included herein in “Item 8. Financial Statements and Supplementary Data” and the description of our business included herein in “Item 1. Business”.
Overview
Catalyst Bancorp , Inc. was incorporated by St. Landry Homestead Federal Savings Bank in February 2021 as part of the conversion of St. Landry Homestead from the mutual to the stock form of organization (the “Conversion). The Conversion was completed on October 12, 2021, at which time the Company acquired all of the issued and outstanding shares of common stock of the Bank and became the holding company for the Bank. As a result of the Conversion, the Bank is a wholly owned subsidiary of Catalyst Bancorp Inc.
Founded in 1922, the Bank is a community-oriented savings bank serving the banking needs of customers in the Acadiana region of south-central Louisiana. We are headquartered in Opelousas, Louisiana and serve our customers through six full-service branches located in Carencro, Eunice, Lafayette, Opelousas, and Port Barre. Our primary business consists of attracting deposits from the general public and using those funds together with funds we borrow from the Federal Home Loan Bank (“FHLB”) of Dallas and other sources to originate loans to our customers and invest in securities. At December 31, 2021, we had total assets of $285.3 million, including total loans of $131.8 million and total investment securities of $101.8 million, total deposits of $176.8 million and total shareholders’ equity of $98.3 million. We had net income of $1.9 million for the year ended December 31, 2021, compared to a net loss of $703,000 for the year ended December 31, 2020. The primary reasons for the improvement in our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, were a $1.7 million increase in non-interest income in 2021, due primarily to the recognition into income of a $1.8 million grant from the Community Development Financial Institution (“CDFI”) Rapid Response Program, and a $660,000reversal to the allowance for loan losses in 2021 compared to a $985,000 provision to the allowance for loan losses in 2020.
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. As discussed below, we are re-focusing our business strategy to a relationship-based community bank model. The Conversion and offering were important factors in our efforts to become a more dynamic, profitable and growing institution.
Our results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on our loan and investment portfolios and interest expense on deposits and borrowings. Our net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. Results of operations are also affected by our provisions for loan losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation, office occupancy and equipment expense, data processing, advertising and business promotion and other expense. We expect that our non-interest expenses will increase as we grow and expand our operations. In addition, our compensation expense will increase due to the new stock benefit plans we intend to implement. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, the impact of the COVID-19 pandemic and the on-going economic slowdown, 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.
33
Business Strategy
Our business strategy is focused on transforming St. Landry Homestead into a more dynamic institution by embracing a relationship-oriented community bank model targeting small- to mid-sized businesses and business professionals in our market areas while continuing to serve our traditional customer base. Highlights of our business strategy, which is designed to facilitate our ability to operate and grow as a profitable community-based banking institution, include the following:
34
Critical Accounting Estimates
In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our financial statements. Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an emerging growth company we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.
The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.
Allowance for Loan Losses. We have identified the evaluation of the allowance for loan losses as a critical accounting policy where amounts are sensitive to material variation. The allowance for loan losses represents management’s estimate for probable losses that are inherent in our loan portfolio but which have not yet been realized as of the date of our balance sheet. It is established through a provision for loan losses charged to earnings. Loans, or portions of loans, are charged off against the allowance in the period that such loans, or portions thereof, are deemed uncollectible. Subsequent recoveries are added to the allowance. The allowance is an amount that management believes will cover probable and reasonably estimable losses in the loan portfolio based on evaluations of the collectability of loans. The evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, and current economic conditions. This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impacted loans, value of collateral, estimated losses on our commercial and residential loan portfolios and general amounts for historical loss experience. All of these estimates may be susceptible to significant changes as more information becomes available. The allowance for loans losses totaled $2.3 million, or 1.73% of total loans, at December 31, 2021 and $3.0 million, or 1.99% of total loans, at December 31, 2020. The decrease in the allowance for loan losses primarily related to improvements in our assessment of the impact of the COVID-19 pandemic on our borrowers.
While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. Historically, our estimates of the allowance for loan loss have not required significant adjustments from management’s initial estimates. In addition, the Office of the Comptroller of the Currency as an integral part of their examination processes periodically reviews our allowance for loan losses. While management is responsible for the establishment of the allowance for loan losses and for adjusting such allowance through provisions for loan losses, management may determine, as a result of such regulatory reviews, that an increase or decrease in the allowance or provision for loan losses may be necessary or that loan charge-offs are needed. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods.
Investment Securities. Available-for-sale securities consist of investment securities not classified as trading securities or held-to-maturity securities. Available-for-sale securities are reported at fair value and unrealized holding gains and losses, net of tax, on available-for-sale securities are included in other comprehensive income. The fair market values of investment securities are obtained from a third party service provider, whose prices are 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.
35
Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. The term “other-than-temporary” is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the investment. Declines in the estimated fair value of individual investment securities below their cost that are considered other-than-temporary are recognized as realized losses in the statement of income. Factors affecting the determination of whether an other-than-temporary impairment has occurred include, among other things, (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) that the Company does not intend to sell these securities, and (4) it is more likely than not that the Company will not be required to sell before a period of time sufficient to allow for any anticipated recovery in fair value. Unrealized holding gains and losses, net of tax, on available-for-sale securities are included in other comprehensive income. At December 31, 2021, net unrealized losses on available-for-sale securities totaled $864,000, compared to net unrealized gains on available-for-sale securities of $134,000 at December 31, 2020. The increase in unrealized losses on available-for-sale securities relate principally to the change in interest rates for similar types of securities. No declines in fair value of available-for-sale securities during the years ended December 31, 2021 and 2020 were deemed to be other-than-temporary.
Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws. Realizing our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances if our judgments change.
COVID-19
In light of the recent events surrounding the COVID-19 epidemic, the Company is continually assessing the effects of the pandemic on its employees, customers and communities. The CARES Act, enacted in March of 2020, contains many provisions related to banking, lending, mortgage forbearance and taxation. We have supported our customers through the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), loan modifications and loan deferrals. We have funded 240 SBA PPP loans totaling approximately $8.5 million with an average loan balance of $36,000 to existing customers and key prospects located primarily in our markets in south central Louisiana. In addition, we have granted loan modifications under the CARES Act, generally in the form of three-month deferrals of principal payments and a three-month extension of the maturity date. The Company handles loan modification requests on a case-by-case basis considering the effects of the COVID-19 pandemic, the related economic slowdown and stay-at-home orders on our customers and their current and projected cash flows through the terms of their respective loans. We believe the customer interaction during this time provides us with an opportunity to broaden and deepen our customer relationships while benefiting the local communities we serve. Through December 31, 2021, we granted COVID-19 related payment relief to 204 loans with principal balances totaling $28.2 million. As of December 31, 2021, we had no loans under deferral or extension agreements due to COVID-19.
The Company is working with customers affected by COVID-19 through modifications of their loans. In accordance with guidance from the Federal Deposit Insurance Corporation (the “FDIC”), borrowers who were current prior to becoming affected by COVID-19, that received loan modifications as a result of the pandemic, generally are not reported as past due. Effects of COVID-19 may negatively impact management assumptions and estimates, such as the allowance for loan losses. The Company is evaluating all loan modifications to customers to identify and quantify any impact they may have on the Company. However, it is difficult to assess or predict how and to what extent COVID-19 will affect the Company in the future.
36
Selected Financial and Other Data
Set forth below is selected financial and other data of the Company at and for the dates indicated. The following is only a summary and should be read in conjunction with the business and financial information regarding the Company included elsewhere herein, including the financial statements included in Item 8 of this Annual Report on Form 10-K. The information at and for the years ended December 31, 2021 and 2020 is derived from the audited financial statements that appear elsewhere in this Annual Report on Form 10-K.
| | | | | | |
| | At December 31, | ||||
(Dollars in thousands) | | 2021 | | 2020 | ||
Selected Financial Condition Data: |
|
|
|
| |
|
Total assets | | $ | 285,349 | | $ | 224,688 |
Cash and cash equivalents | |
| 40,884 | |
| 25,245 |
Investment securities: | |
|
| |
|
|
Available for sale | |
| 88,339 | |
| 20,730 |
Held to maturity | |
| 13,498 | |
| 17,523 |
Loans receivable, net of unearned income | |
| 131,842 | |
| 151,800 |
Allowance for loan losses | | | 2,276 | | | 3,022 |
Total deposits | |
| 176,795 | |
| 164,598 |
FHLB advances | |
| 9,018 | |
| 8,838 |
Shareholders’ equity | |
| 98,346 | |
| 50,533 |
| | | | | | | |
| | Year Ended December 31, | |||||
(Dollars in thousands) | | 2021 | | 2020 | |||
Selected Operating Data: |
| |
| | |
| |
Total interest income | | $ | 7,699 | | $ | 8,490 | |
Total interest expense | |
| 795 | |
| 1,705 | |
Net interest income | |
| 6,904 | |
| 6,785 | |
Provision for (reversal of) loan losses | |
| (660) | |
| 985 | |
Net interest income after provision for (reversal of) loan losses | |
| 7,564 | |
| 5,800 | |
Total non-interest income | |
| 2,626 | |
| 966 | |
Total non-interest expense | |
| 7,776 | |
| 7,943 | |
Income (loss) before income taxes | |
| 2,414 | |
| (1,177) | |
Income tax expense (benefit) | |
| 487 | |
| (474) | |
Net income (loss) | | $ | 1,927 | | $ | (703) | |
| | | | | | | |
Selected Performance Ratios:(1) | |
|
| |
|
| |
Average yield on interest-earning assets | |
| 3.24 | % |
| 3.86 | % |
Average rate on interest-bearing liabilities | |
| 0.51 | |
| 1.09 | |
Average interest rate spread(2) | |
| 2.73 | |
| 2.77 | |
Net interest margin(2) | |
| 2.91 | |
| 3.09 | |
Average interest-earning assets to average interest-bearing liabilities | |
| 152.24 | |
| 140.32 | |
Net interest income after provision for loan losses to non-interest expense | |
| 97.27 | |
| 73.02 | |
Total non-interest expense to average assets | |
| 3.08 | |
| 3.41 | |
Efficiency ratio(3) | |
| 81.59 | |
| 102.48 | |
Return on average assets (ratio of net income to average total assets) | |
| 0.76 | |
| (0.30) | |
Return on average equity (ratio of net income to average total equity) | |
| 3.14 | |
| (1.36) | |
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| | | | | | |
| | At or For the | ||||
| | Year Ended December 31, | ||||
| | 2021 | | 2020 | ||
Asset Quality Ratios:(4) |
|
| | |
| |
Non-accrual loans as a percent of total loans outstanding | | 0.68 | % | | 0.55 | % |
Non-performing assets as a percent of total assets(5) | | 0.43 | | | 0.72 | |
Non-performing assets and troubled debt restructurings as a percent of total assets(5) | | 1.09 | | | 2.34 | |
Allowance for loan losses as a percent of total loans outstanding | | 1.73 | | | 1.99 | |
Allowance for loan losses as a percent of non-performing loans | | 255.44 | | | 249.75 | |
Net charge-offs to average loans receivable | | 0.06 | | | 0.02 | |
| | | | | | |
Capital Ratios:(6) | |
|
| |
| |
Common equity Tier 1 capital | | 63.51 | % | | 40.92 | % |
Tier 1 leverage capital | | 27.38 | | | 21.06 | |
Tier 1 risk-based capital | | 63.51 | | | 40.92 | |
Total risk-based capital | | 64.77 | | | 42.29 | |
Average equity to average assets | | 24.28 | | | 22.18 | |
| | | | | | |
Other Data: | |
|
| |
| |
Banking offices | | 6 |
| | 5 | |
Full-time equivalent employees | | 56 |
| | 52 | |
38
Comparison of Financial Condition at December 31, 2021 and December 31, 2020
Total Assets. Total assets increased $60.7 million, or 27.0%, to $285.3 million at December 31, 2021 from $224.7 million at December 31, 2020. The increase resulted primarily from a $63.6 million increase in investment securities and a $15.6 million increase in cash and cash equivalents, offset in part by a decrease of $20.0 million in loans receivable.
Cash and Cash Equivalents. Cash and cash equivalents increased by $15.6 million, or 61.9%, to $40.9 million at December 31, 2021 compared to $25.2 million at December 31, 2020. The increase in cash and cash equivalents reflects a portion of the cash subscriptions received in our initial public offering which had not been invested at December 31, 2021, cash inflows of $19.7 million primarily due to the net decrease in loans in the year ended December 31, 2021, as well as deposit inflows associated with government stimulus payments received by our customers and SBA PPP loans originated during the year. The level of loan principal repayments during the year ended December 31, 2021, reflects in part the continuing effect of the historically low market rates of interest on residential mortgage loans and increased repayments by our mortgage loan customers who have re-financed their loans with other institutions.
Loans. Total loans receivable decreased by $20.0 million, or 13.1%, to $131.8 million at December 31, 2021 compared to $151.8 million at December 31, 2020. During the year ended December 31, 2021, our total real estate loan portfolio decreased by $21.5 million, due primarily to a $12.6 million decrease in one- to four-family residential mortgage loans, a $7.2 million decrease in commercial real estate loans and a $1.5 million decrease in construction and land loans. Our total commercial and industrial loans increased by $1.6 million to $8.4 million at December 31, 2021 compared to $6.7 million at December 31, 2020. The increase in commercial and industrial loans during the year ended December 31, 2021 primarily reflects organic growth unrelated to SBA PPP loans. SBA PPP loans amounted to $2.6 million at December 31, 2021 compared to $3.5 million at December 31, 2020.
Allowance for Loan Losses. The allowance for loans losses totaled $2.3 million, or 1.73% of total loans, at December 31, 2021 and $3.0 million, or 1.99% of total loans, at December 31, 2020. The Company recorded a reversal to the allowance for loan losses of $660,000 through earnings during the year ended December 31, 2021 primarily due to improvements in our assessment of the impact of the COVID-19 pandemic on our borrowers.
Investment Securities. Our total investment securities, available-for-sale and held-to-maturity, amounted to $101.8 million at December 31, 2021, an increase of $63.6 million, or 166.2%, compared to $38.3 million in investment securities at December 31, 2020. At December 31, 2021, $88.3 million, or 86.7%, of our total investment securities were classified as available-for-sale. Our investment securities portfolio at such date consisted primarily of debt obligations issued by the U.S. government and government agencies and government sponsored mortgage-backed securities. During the year ended December 31, 2021, purchases of $77.5 million of investment securities exceeded $8.6 million of maturities, calls and principal repayments.
Deposits. Our total deposits amounted to $176.8 million at December 31, 2021, an increase of $12.2 million, or 7.4%, compared to December 31, 2020. The increase in total deposits at December 31, 2021 compared to December 31, 2020 reflects in part government stimulus payments received by our banking customers as well as depository inflows related to SBA PPP loan proceeds.
Borrowings. Our borrowings, which consist of FHLB advances, amounted to $9.0 million at December 31, 2021 compared to $8.8 million at December 31, 2020. The $180,000 increase in the carrying value of our FHLB advances primarily reflects the amortization of deferred prepayment penalties on $10.0 million in advances restructured in December of 2020. In December of 2020, a total of $15.0 million of long-term FHLB advances were paid off, with resulting prepayment penalties of $1.5 million being charged to earnings. The remaining $10.0 million of long-term debt was restructured to longer maturities at then current interest rates. An additional prepayment penalty for the restructuring of $1.2 million was treated as a discount on the debt.
Shareholders’ Equity. Shareholders’ equity increased $47.8 million to $98.3 million at December 31, 2021 compared to $50.5 million at December 31, 2020. The primary reason for the increase in total shareholders’ equity was the $50.8 million in net proceeds received from our Conversion and initial public offering of our Common Stock, which was completed in October 2021, and net income of $1.9 million for the year, which was partially offset by an increase in unallocated commonNovember 2023 Repurchase Plan.
39
stock of $4.2 million due to the purchase of stock by the ESOP and a $790,000 decrease in accumulated unrealized gains/losses on available for sale securities. At December 31, 2021, our ratio of total shareholders’ equity to total assets was 34.5% compared to 22.5% at December 31, 2020.
Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Taxable equivalent (“TE”) yields have been calculated using a marginal tax rate of 21%. All average balances are based on daily balances.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
| | Year Ended December 31, | | Year Ended December 31, | ||||||||||||||||||||||||||||||||
|
| 2021 | | 2020 |
| 2023 | | 2022 | ||||||||||||||||||||||||||||
(Dollars in thousands) | | Average Balance | | Interest | | Average Yield/Rate | | Average Balance | | Interest | | Average Yield/Rate | | Average Balance | | Interest | | Average Yield/Rate | | Average Balance | | Interest | | Average Yield/Rate | ||||||||||||
Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
Loans receivable(1) | | $ | 141,592 | | $ | 6,965 |
| 4.92 | % | | $ | 161,208 | | $ | 7,827 |
| 4.86 | % | | $ | 135,713 | | $ | 7,238 |
| 5.33 | % | | $ | 132,503 | | $ | 6,127 |
| 4.62 | % |
Investment securities | |
| 57,827 | |
| 674 |
| 1.17 | | |
| 34,664 | |
| 568 |
| 1.64 | | ||||||||||||||||||
Investment securities(TE)(2) | |
| 100,323 | |
| 1,643 |
| 1.66 | | |
| 104,421 | |
| 1,480 |
| 1.43 | | ||||||||||||||||||
Other interest-earning assets | |
| 37,912 | |
| 60 |
| 0.16 | | |
| 24,038 | |
| 95 |
| 0.39 | | |
| 16,580 | |
| 780 |
| 4.70 | | |
| 30,376 | |
| 407 |
| 1.34 | |
Total interest-earning assets | |
| 237,331 | |
| 7,699 |
| 3.24 | | |
| 219,910 | |
| 8,490 |
| 3.86 | | ||||||||||||||||||
Total interest-earning assets(TE) | |
| 252,616 | |
| 9,661 |
| 3.83 | | |
| 267,300 | |
| 8,014 |
| 3.00 | | ||||||||||||||||||
Non-interest-earning assets | |
| 15,240 | | | | | | |
| 12,784 | | | | | | |
| 14,077 | | | | | | |
| 15,631 | | | | | | ||||
Total assets | | $ | 252,571 | | | | | | | $ | 232,694 | | | | | | | $ | 266,693 | | | | | | | $ | 282,931 | | | | | | ||||
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||
Savings, NOW and money market accounts | |
| 78,153 | |
| 108 |
| 0.14 | | |
| 65,811 | |
| 191 |
| 0.29 | | ||||||||||||||||||
Demand deposits, money market and savings accounts | |
| 85,086 | |
| 562 |
| 0.66 | % | |
| 85,879 | |
| 114 |
| 0.13 | % | ||||||||||||||||||
Certificates of deposit | |
| 68,815 | |
| 415 |
| 0.60 | | |
| 66,525 | |
| 729 |
| 1.10 | | |
| 51,235 | |
| 979 |
| 1.91 | | |
| 61,387 | |
| 288 |
| 0.47 | |
Total deposits | |
| 146,968 | |
| 523 |
| 0.36 | | |
| 132,336 | |
| 920 |
| 0.70 | | ||||||||||||||||||
FHLB advances | |
| 8,927 | |
| 272 |
| 3.05 | | |
| 24,382 | |
| 785 |
| 3.22 | | ||||||||||||||||||
Total interest-bearing deposits | |
| 136,321 | |
| 1,541 |
| 1.13 | | |
| 147,266 | |
| 402 |
| 0.27 | | ||||||||||||||||||
Borrowings | |
| 10,208 | |
| 319 |
| 3.12 | | |
| 9,294 | |
| 281 |
| 3.02 | | ||||||||||||||||||
Total interest-bearing liabilities | |
| 155,895 | |
| 795 |
| 0.51 | | |
| 156,718 | |
| 1,705 |
| 1.09 | | |
| 146,529 | |
| 1,860 |
| 1.27 | | |
| 156,560 | |
| 683 |
| 0.44 | |
Non-interest-bearing liabilities | |
| 35,353 | | | | | | |
| 24,376 | | | | | | |
| 35,387 | | | | | | |
| 33,260 | | | | | | ||||
Total liabilities | |
| 191,248 | | | | | | |
| 181,094 | | | | | | |
| 181,916 | | | | | | |
| 189,820 | | | | | | ||||
Shareholders' equity | |
| 61,323 | | | | | | |
| 51,600 | | | | | | |
| 84,777 | | | | | | |
| 93,111 | | | | | | ||||
Total liabilities and shareholders' equity | | $ | 252,571 | | | | | | | $ | 232,694 | | | | | | | $ | 266,693 | | | | | | | $ | 282,931 | | | | | | ||||
Net interest-earning assets | | $ | 81,436 | | | | | | | $ | 63,192 | | | | | | | $ | 106,087 | | | | | | | $ | 110,740 | | | | | | ||||
Net interest income; average interest rate spread | | | | | $ | 6,904 |
| 2.73 | % | | | | $ | 6,785 |
| 2.77 | % | |||||||||||||||||||
Net interest margin(2) | | | | | |
| 2.91 | % | | | | |
| 3.09 | % | |||||||||||||||||||||
Net interest income; average interest rate spread(TE) | | | | | $ | 7,801 |
| 2.56 | % | | | | $ | 7,331 |
| 2.56 | % | |||||||||||||||||||
Net interest margin(TE)(3) | | | | | |
| 3.10 | | | | | |
| 2.75 | | |||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | | | | | |
| 152.24 | % | | | | |
| 140.32 | % | | | | | |
| 172.40 | | | | | |
| 170.73 | |
(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%. |
40
Rate/Volume Analysis. The following table shows the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in volume, which is the change in volume multiplied by prior year rate. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.
| | | | | | | | | | | | | | | ||||
|
| |
| Year Ended | ||||||||||||||
| | Year Ended December 31, 2021 compared to 2020 | | December 31, 2023 vs 2022 | ||||||||||||||
| | Increase (Decrease) Due to | | Increase (Decrease) Due to | | Total | ||||||||||||
(Dollars in thousands) | | Rate | | Volume | | Total Increase (Decrease) | | Rate | | Volume | | Increase (Decrease) | ||||||
Interest income: | | | | | | | |
| |
|
| |
|
| |
| ||
Loans receivable | | $ | 102 | | $ | (964) | | $ | (862) | | $ | 959 | | $ | 152 | | $ | 1,111 |
Investment securities | |
| (197) | |
| 303 | |
| 106 | |
| 222 | |
| (59) | |
| 163 |
Other interest-earning assets | |
| (74) | |
| 39 | |
| (35) | |
| 630 | |
| (257) | |
| 373 |
Total interest income | |
| (169) | |
| (622) | |
| (791) | |
| 1,811 | |
| (164) | |
| 1,647 |
Interest expense: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Savings, NOW and money market accounts | |
| (114) | |
| 31 | |
| (83) | |||||||||
Demand deposits, money market and savings accounts | |
| 449 | |
| (1) | |
| 448 | |||||||||
Certificates of deposit | |
| (338) | |
| 24 | |
| (314) | |
| 746 | |
| (55) | |
| 691 |
Total deposits | |
| (452) | |
| 55 | |
| (397) | |
| 1,195 | |
| (56) | |
| 1,139 |
FHLB advances and other borrowings | |
| (39) | |
| (474) | |
| (513) | |||||||||
Borrowings | |
| 10 | |
| 28 | |
| 38 | |||||||||
Total interest expense | |
| (491) | |
| (419) | |
| (910) | |
| 1,205 | |
| (28) | |
| 1,177 |
Increase (decrease) in net interest income | | $ | 322 | | $ | (203) | | $ | 119 | | $ | 606 | | $ | (136) | | $ | 470 |
Comparison of Operating Results of Operation for the Years Ended December 31, 20212023 and 20202022
General.General. For the year ended December 31, 2021,2023, the Company reported net income totaled $1.9 million, an increase of $2.6 million$602,000, compared to a net loss of $703,000$180,000 for the year ended December 31, 2020. During 2021, net2022. Net interest income included the recognition of $1.8 millionwas up $470,000, or 6.4%, in non-interest income related2023 compared to a CDFI Rapid Response Program grant received2022. The provision for credit losses totaled $128,000 in 2021 and2023, compared to a reversal of the allowance for loan losses of $660,000.$375,000 for 2022. During 2020, net2023 and 2022, the Company recognized income included $1.5 million in penalties as non-interest expense uponof $437,000 and $171,000, respectively, due to Bank Enterprise Award (“BEA”) Program grants received from the prepaymentCommunity Financial Institution (“CDFI”) Fund. During 2022, the Company officially changed the name of $15.0 millionthe Bank to Catalyst Bank and incurred pre-tax costs of FHLB advances and a $985,000 provision for loan losses.$269,000.
Interest Income. Total interest income decreased $791,000,increased $1.6 million, or 9.3%20.6%, to $7.7$9.7 million for the year ended December 31, 20212023, compared to $8.52022. Interest income on loans, investment securities, and other interest-earning assets were up by $1.1 million, $163,000, and $373,000, respectively.
The average loan yield was 5.33% for the year ended December 31, 2023, up from 4.62% for the year ended December 31, 2022. Average loans were $135.7 million for the year ended December 31, 2020. Interest2023, up $3.2 million, or 2.4%, compared to 2022. At December 31, 2023, approximately 56% of our total loans have adjustable rates and approximately 49% of total loans are scheduled to re-price or mature during the next 12 months.
The increase in interest income on loans decreased by $862,000, or 11.0%, in 2021. The average balance of our loan portfolio decreased by $19.6 million, or 12.2%, whichinvestment securities was partially offset bydue to an increase of six basis points (100 basis points being equal to 1.0%) in the average yield earned on loans in the year ended December 31, 2021 compared to the year ended December 31, 2020. Interest incomerate earned on our investment securities portfolio increased by $106,000, or 18.7%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase in 2021 was due primarily to a $23.2 million, or 66.8%, increase in the average balance during the year, which was partially offset by a 47 basis point reduction in the average yield earned on our investment securities.portfolio. The average yieldrate earned on our investment securities portfolio was 1.17%1.66% for the year ended December 31, 20212023, up 23 basis points compared to 1.64%1.43% for the year ended December 31, 2020, primarily reflecting the continuing historically low market rates of interest during the period. 2022.
Interest income on other interest-earning assets, consisting primarily of interest-earning cash and cash equivalent deposits at other financial institutions, and other equity investments, decreasedby $35,000, or 36.8%, inincreased due to the year ended December 31, 2021impact of higher average short-term interest rates during 2023 compared to the year ended December 31, 2020. The average yield earned on our other interest-earning assets decreased by 23 basis points to 0.16% for the year ended December 31, 2021 compared to 0.39% for the year ended December 31, 2020, which more than offsetthe effects of an $13.9 million increase in the average balance of other interest-earning assets.2022.
Interest Expense. Total interest expense decreased $910,000, or 53.4%, to $795,000 for the year ended December 31, 2021 compared to $1.7 million for the year ended December 31, 2020. Interest expense on FHLB advances decreased $513,000, or 65.4%, to $272,000 for 2021 compared to 2020 primarily due to a $15.5 million decrease in the average
41
balance of FHLB advances during the year. In December of 2020, a total of $15.0 million of long-term FHLB advances were paid off, with resulting prepayment penalties of $1.5 million being charged to non-interest expense. The remaining $10.0 million of long-term FHLB advances were restructured to longer maturities at then currentInterest Expense. Total interest rates. An additional prepayment penalty for the restructuring ofexpense increased $1.2 million, was treated as a discount on the borrowings and is being amortized into interest expense over the life of the restructured borrowings. Interest expense on total deposits decreased $397,000, or 43.2%172.3%, to $523,000 for 2021 compared to 2020 due primarily to a decrease of 34 basis points in the average rate paid on total deposits in the year ended December 31, 2021 compared to the year ended December 31, 2020, which more than offset the effects of a $14.6 million increase in the average balance of total deposits during the period.
Net Interest Income. Net interest income totaled $6.9$1.9 million for the year ended December 31, 2021, an increase of $119,000, or 1.8%,2023, compared to $6.8$683,000 for 2022. Interest expense on deposits was $1.5 million during 2023, up $1.1 million, or 283.3%, from $402,000 for the year ended December 31, 2020. Our2022. The average rate paid on interest-bearing deposits was 1.13% during 2023, up 86 basis points from 0.27% during 2022.
Net Interest Income. Net interest rate spread decreased to 2.73% for the year ended December 31, 2021 from 2.77% for the year ended December 31, 2020, and our net interest margin decreased to 2.91% for the year ended December 31, 2021 from 3.09% for the year ended December 31, 2020. The decreases in interest rate spread and net interest margin were primarily the result of the continuing low interest rate environment and a shift in the mix of our interest-earning assets as we grew our investment securities portfolio and experienced a decline in total loans during 2021. These factors reduced average yield earned on total interest-earning assets in an amount which more than offset the reduction in the average cost of our interest-bearing liabilities.
Provision for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to earnings as losses related to our loan portfolio are determined to be probable and can be reasonably estimated. Loans, or portions of loans, are charged off against the allowance in the period that such loans, or portions thereof, are deemed uncollectible. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, and prevailing economic conditions. The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
We recorded a reversal for loan losses of $660,000 for the year ended December 31, 2021, compared to a $985,000 provision for the year ended December 31, 2020. During 2020, our evaluation of the allowance for loan lossesincome was significantly influenced by the uncertainty and economic disruption brought on by the COVID-19 pandemic as well as the increases of $872,000 and $529,000, respectively, on the amounts of our impaired loans and substandard loans at December 31, 2020 compared to December 31, 2019. During 2021, our analysis reflected improvements in our assessment of the impact of the COVID-19 pandemic on our borrowers, improvements in the level of impaired and substandard loans and a decline in the size of our loan portfolio.
The establishment of the allowance for loan losses is significantly affected by management judgment and uncertainties and there is a likelihood that different amounts would be reported under different conditions or assumptions. Various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. While management is responsible for the establishment of the allowance for loan losses and for adjusting such allowance through provisions for loan losses, management may determine, as a result of such regulatory reviews, that an increase or decrease in the allowance or provision for loan losses may be necessary or that loan charge-offs are needed.
Non-interest Income. Non-interest income increased $1.7 million to $2.6 million for the year ended December 31, 2021 from $966,000 for the year ended December 31, 2020. The increase in non-interest income in 2021 was due primarily to the recognition into income of the $1.8 million CDFI grant.
Non-interest Expense. Non-interest expense decreased $167,000, or 2.1%, to $7.8 million for the year ended December 31, 2021 from $7.92023, up $470,000, or 6.4%, compared to 2022. Our interest rate spread was 2.56% for the years ended December 31, 2023 and 2022, respectively. Our net interest margin was 3.10% and 2.75% for the years ended December 31, 2023 and 2022, 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 due to significant increases in market interest rates during 2022 and 2023. Rising market rates have also led to an increase in the average cost of our deposits.
Provision for Credit Losses. The total provision for credit losses on loans and unfunded commitments was $128,000 for the year ended December 31, 2023, compared to a reversal of $375,000 in 2022. In 2023, the provision for credit losses was largely attributable to loan growth that necessitated additional loan provisions according to the Bank’s current expected credit losses model. The reversal during the 2022 period primarily reflected the release of reserve builds recorded during 2020 for the estimated effects of the COVID-19 pandemic on credit quality.
Non-interest Income. Non-interest income totaled $1.6 million for the year ended December 31, 2020. 2023, up $416,000, or 35.5%, compared to $1.2 million for 2022. In December2023, income from the CDFI Fund’s BEA Program grant totaled $437,000, up $266,000 from the amount received and recognized in 2022. The BEA Program grants awards to depository institutions that have successfully increased their investments in economically distressed communities through certain qualified activities, including investments in CDFIs and providing loans, investments and financial services to businesses and residents located in distressed communities.
Non-interest income for 2023 also included the $92,000 loss on the sale of 2020,investment securities discussed previously. The securities were sold for a total of $15.0 million of long-term FHLB advances were paid off, with resulting prepayment penalties of $1.5 million being charged$1.9 million.
Income from bank-owned life insurance (“BOLI”) increased by $95,000, or 30.3%, to non-interest expense in 2020. The decrease in non-interest expense$409,000 for the year ended December 31, 2023, compared to 2022, largely due to an aggregate of $10.0 million in additional BOLI policies purchased in March and April of 2022.
Non-interest income for the absenceyear ended December 31, 2022 included losses on the disposal of prepayment penalties in 2021fixed assets of $77,000. Of the losses on disposed assets, $55,000 was partially offset by increases in compensation and benefits, occupancy and equipment, data processing andattributable to branch signage that was replaced due to our rebranding.
42
Non-interest Expensecommunication and professional services expenses. .Salaries and employee benefits Non-interest expense increased by $987,000, or 27.1%, to $4.6totaled $8.6 million for the year ended December 31, 20212023, down $141,000, or 1.6%, compared to $3.62022. Total non-interest expense for year ended December 31, 2022 included $214,000 of rebranding-related expenses.
Salaries and employee benefits expense totaled $4.7 million for the year ended December 31, 20202023, down $151,000, or 3.1%, compared to 2022 primarily due to additional personnel employeda lower employee count in 2023. These cost savings were partially offset by higher stock compensation expense in 2023. Stock compensation expense related to awards granted in September 2022 and the commencement of the ESOP during 2021. Occupancyincluded in salaries and equipmentemployee benefits expense increased by $140,000, or 20.6%, to $818,000totaled $277,000 for the year ended December 31, 20212023, compared to $678,000$110,000 in 2022.
Directors’ fees for the year ended December 31, 2020 primarily due2023 included $245,000 of stock compensation expense, compared to expenses related$82,000 in 2022. Total directors’ fees were $463,000 in 2023, up $161,000 compared to new branch locations opened in October 2020 and November 2021. 2022.
Data processing and communication expense increased by $178,000, or 29.1%, to $790,000totaled $911,000 for the year ended December 31, 20212023, up $70,000, or 8.3%, compared to $612,0002022 primarily due to annual rate increases by our core system provider and growth in the volume of accounts. For the year ended December 31, 2022, data processing and communication expense included $30,000 of re-branding related expenses.
Professional fees totaled $486,000 for the year ended December 31, 2020 primarily due to2023, down $52,000, or 9.7%, from 2022. The Company incurred professional fees in 2022 for assistance with the cost of technology resources for new branch locations, additional personnelinitial grants under our 2022 Stock Option Plan and improvements in software applications for financial reporting.
We expect non-interest expense to increase into 2022 because of certain costsRecognition and Retention Plan. Professional fees associated with operating as a public company, including the Louisiana shares tax, the full-year impact of ESOP compensation expenseobtaining our 2023 and the possible implementation of stock-based benefit plans, if approved by our shareholders. We also expect to incur increased non-interest expense due to the planned re-branding of St. Landry Homestead. Such re-branding efforts may include a new name, a new marketing campaign, updated on-line2022 BEA grants totaled $66,000 and website materials and new signage and logos to capture and reflect the new focus of the Company.$26,000, respectively.
Income Tax Expense. Income taxForeclosed assets expense totaled $487,000$72,000 for the year ended December 31, 2021,2023, compared to $5,000 for 2022. The Company realized losses of $66,000 on the sale of real estate held as foreclosed assets during 2023. Prior to the losses recorded in 2023, the real estate properties had a total carrying value of $381,000, of which $320,000 was held at December 31, 2022. The remaining properties were acquired and sold in 2023.
Advertising and marketing expense totaled $100,000 for the year ended December 31, 2023, down $140,000 from 2022. Advertising and marketing expense for the year ended December 31, 2022 included rebranding-related expenses of $124,000.
Income Tax Expense. The Company reported income tax expense of $81,000 for the year ended December 31, 2023 and an income tax benefit of $474,000 in$21,000 for the prior year.year ended December 31, 2022. The change in income tax expensetaxes over the comparable periods was primarily due to the increase in taxable earnings in 2021 compared to 2020 and the absenceduring 2023.
43
Exposure to Changes in Interest Rates
Our ability to maintain net interest income depends upon our ability to earn a higher yield on interest-earning assets than the rates we pay on deposits and borrowings. OurThe majority of our interest-earning assets largely consist primarily of fixed-rate investment securities and adjustable rate residential and commercial mortgage loans. Consequently, our ability to maintain a positive spread between the interest earned on assets and the interest paid on deposits and borrowings can be adversely affected when market rates of interest change.
Economic Value of Equity. Interest rate sensitivity is monitored by management through the use of models which generate estimates of the changechanges in ournet interest income and the economic value of equityour assets and liabilities over a range of interest rate scenarios.
Net Interest Income Analysis. We model and analyze potential changes to net interest income over a twelve-month period under rising and falling interest rate scenarios. Our primary model used to analyze the impact of changes in interest rates on net interest income assumes a static balance sheet, applies immediate and sustained rate shocks and assumes no management intervention over the forecast period. The following table summarizes the results of our net interest income model as of December 31, 2023, which estimates the impact of immediate and sustained changes in interest rates on net interest income over the following twelve months.
| | | | | | | | | |
(Dollars in thousands) |
| Net Interest Income |
| $ Change |
| % Change | |||
Change in Interest Rates in Basis Points (Rate Shock): | | | | | | | | |
|
200 | | $ | 7,758 | | $ | (714) |
| (8.4) | % |
100 | |
| 7,704 | |
| (768) |
| (9.1) | |
Static | |
| 7,705 | |
| (767) |
| (9.1) | |
(100) | |
| 8,314 | |
| (158) |
| (1.9) | |
(200) | |
| 7,974 | |
| (498) |
| (5.9) | |
The above table indicates that as of December 31, 2023, in the event of an immediate and sustained 100 basis point decrease in interest rates, our net interest income for the 12 months ending December 31, 2024 would be expected to decrease by $158,000 or 1.9%. In January 2024, the Company initiated a strategy involving the sale of a substantial portion of its available-for-sale investment securities. The Company expects to deploy the net sales proceeds into a mix of cash and higher-yielding earning assets to improve net interest income and our exposure to interest rate risk. Refer to Note 17 of the financial statements included in Item 8 of this Form 10-K for more information.
Economic Value of Equity. Economic value of equity (“EVE”) represents the market value of portfolio equity, which is different from book value, and is equal to the market value of assets minus the market value of liabilities (that is, the difference between incoming and outgoing discounted cash flows of assets and liabilities) with adjustments made for off-balance sheet items. The EVE ratio, under any interest rate scenario, is defined as the EVE in that scenario divided by the market value of assets in the same scenario. The following table sets forth our EVE as of December 31, 20212023 and reflects the changes to EVE as a result of immediate and sustained changes in interest rates as indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Economic Value of Equity | | EVE as % of Far Value of Assets | | Economic Value of Equity | | EVE as % of Fair Value of Assets | ||||||||||||||||||||
(Dollars in thousands) |
| Amount |
| $ Change |
| % Change | | EVE Ratio |
| Change |
| Amount |
| $ Change |
| % Change | | EVE Ratio |
| Change | ||||||||
Change in Interest Rates In Basis Points (Rate Shock): | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
300 | | $ | 93,757 |
| $ | (6,892) |
| (6.8) | % | | 35.7 | % | 0.2 | % | ||||||||||||||
200 | |
| 94,992 | |
| (5,657) |
| (5.6) |
| | 35.1 |
| (0.4) | | | $ | 85,544 | | $ | (3,604) |
| (4.0) | % | | 34.9 |
| 0.1 | % |
100 | |
| 99,310 | |
| (1,339) |
| (1.3) |
| | 35.9 |
| 0.4 | | |
| 86,902 | |
| (2,246) |
| (2.5) |
| | 34.6 |
| (0.2) | |
Static | |
| 100,649 | |
| - |
| - |
| | 35.5 |
| - | | |
| 89,148 | |
| - |
| - |
| | 34.8 |
| - | |
(100) | |
| 99,930 | |
| (719) |
| (0.7) |
| | 34.7 |
| (0.8) | | |
| 94,139 | |
| 4,991 |
| 5.6 |
| | 36.1 |
| 1.3 | |
(200) | |
| 98,301 | |
| (2,348) |
| (2.3) |
| | 33.8 |
| (1.7) | | |
| 97,006 | |
| 7,858 |
| 8.8 |
| | 36.4 |
| 1.6 | |
4344
Net Interest Income Analysis. In addition to modeling changes in the economic value of equity, we also analyze potential changes to net interest income for a twelve-month period under rising and falling interest rate scenarios. The following table shows our net interest income model as of December 31, 2021.
| | | | | | | | | |
(Dollars in thousands) |
| Net Interest Income |
| $ Change |
| % Change | |||
Change in Interest Rates in Basis Points (Rate Shock): | | | | | | | | |
|
300 | | $ | 7,076 |
| $ | 329 | | 4.9 | % |
200 | |
| 7,090 | |
| 343 |
| 5.1 | |
100 | |
| 6,920 | |
| 173 |
| 2.6 | |
Static | |
| 6,644 | |
| (103) |
| (1.5) | |
(100) | |
| 6,217 | |
| (530) |
| (7.9) | |
(200) | |
| 6,049 | |
| (698) |
| (10.3) | |
The above table indicates that as of December 31, 2021, in the event of an immediate and sustained 300 basis point increase in interest rates, our net interest income for the 12 months ending December 31, 2022 would be expected to increase by $329,000 or 4.9%.
Liquidity and Capital Resources
The Company maintains levels of liquid assets deemed adequate by management. We adjust our liquidity levels to fund deposit outflows, repay our borrowings, and to fund loan commitments. We also adjust liquidity, as appropriate, to meet asset and liability management objectives.
Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We also have the ability to borrow from the FHLB. FHLB, Federal Reserve Bank of Atlanta, and our primary correspondent bank.
At December 31, 2021, we had outstanding2023, our borrowed funds consisted of a $10 million BTFP advance and FHLB advances from the FHLB with a carrying value of $9.0$9.4 million. The table below summarizes our unused and available liquidity sources as of December 31, 2023.
| | | |
(Dollars in thousands) | | 12/31/2023 | |
Advances from the Federal Home Loan Bank of Dallas | | $ | 48,467 |
Line of credit with primary correspondent bank | | | 17,800 |
Federal Reserve's Bank Term Funding Program | | | 1,434 |
Federal Reserve Discount Window | | | 718 |
Unpledged available-for-sale investment securities, at fair value | | | 25,385 |
Total unused and available liquidity | | $ | 93,804 |
Pledged securities under the BTFP are valued at par when determining borrowing capacity. The total par value of unpledged investment securities eligible as collateral for advances under the BTFP was $16.5 million at December 31, 2023. The Bank refinanced and acquired additional BTFP advances during January 2024. At March 22, 2024, the Bank had the capacity to borrow approximately an additional $50.5one $20.0 million BTFP advance with a rate of 4.76% and a maturity date of January 15, 2025.
The Company also had a $20.0 million custodial letter of credit outstanding from the FHLB and an additional $17.8 million on a lineas of December 31, 2023, which is included in the calculation of our available capacity with the FHLB. The Company can allocate portions of this letter of credit with First National Bankers Bank at such date.to collateralize certain deposit balances in excess of the FDIC’s insurance limit as an alternative to pledging investment securities for the same purpose. During the first quarter of 2024, the Company increased this letter of credit to $40.0 million to collateralize public fund deposits as we pursue the investment securities strategy discussed in Note 17 of the financial statements included in Item 8 of this Form 10-K.
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. NetThe details of these cash provided by operating activities was $3.4 millionflow classifications are presented on the statement of cash flows included in Item 8 of this Form 10-K. The most significant uses and $857,000 forsources of cash flows during the yearsyear ended December 31, 2021 and 2020, respectively. Net cash used2023 included: $11.4 million in investing activities, which consists primarily ofoutflows due to the net changeincrease in loans, receivable$11.0 million in proceeds from maturities, paydowns, and net change insales of investment securities, was $46.6$10.0 million in proceeds from BTFP advances, and $313,000$6.3 million in outflows for the years ended December 31, 2021 and 2020, respectively. Net cash provided by financing activities, consisting primarilyrepurchase of proceeds from the issuance of stock, the activity in deposit accounts and FHLB advances, was $58.8 million and $6.8 million for the years ended December 31, 2021 and 2020, respectively.Company’s common stock.
We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. Weand anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portionthe majority of maturing time deposits will be retained. We also anticipate continued use of FHLB advances.our secondary funding sources.
The Bank exceeded all regulatory capital requirements and was categorized as well-capitalized at December 31, 2021 and December 31, 2020. Management is not aware of any conditions or events since the most recent notification that would change our category. The following table presents actual and required capital ratios for the Bank.
4445
| | | | | | | | | | | | |
| | Actual | | To be Well Capitalized under the Prompt Corrective Action Provision | ||||||||
(Dollars in thousands) |
| Amount |
| Ratio | | Amount |
| Ratio | ||||
As of December 31, 2021 | | | | | | | | | | | | |
Common Equity Tier 1 Capital | | $ | 77,819 | | 63.51 | % | | $ | 7,965 | | >6.5 | % |
Tier 1 Risk-Based Capital | |
| 77,819 | | 63.51 | | |
| 9,803 | | >8.0 | |
Total Risk-Based Capital | |
| 79,360 | | 64.77 | | |
| 12,253 | | >10.0 | |
Tier 1 Leverage Capital | |
| 77,819 | | 27.38 | | |
| 14,210 | | >5.0 | |
| | | | | | | | | | | | |
As of December 31, 2020 | |
|
| |
| | |
|
| |
| |
Common Equity Tier 1 Capital | | $ | 50,426 | | 40.92 | % | | $ | 8,010 | | >6.5 | % |
Tier 1 Risk-Based Capital | |
| 50,426 | | 40.92 | | |
| 9,858 | | >8.0 | |
Total Risk-Based Capital | |
| 52,118 | | 42.29 | | |
| 12,323 | | >10.0 | |
Tier 1 Leverage Capital | |
| 50,426 | | 21.06 | | |
| 11,970 | | >5.0 | |
Off-Balance Sheet Arrangements. At December 31, 2021, we had $1.1 million of remaining funds to be disbursed on construction loans in process and $4.9 million of outstanding commitments to originate loans. Our total letters and lines of credit, unused overdraft privilege amounts and unused lines of credit totaled $3.8 million at December 31, 2021. Certificates of deposit that are scheduled to mature in less than one year from December 31, 2021, totaled $50.0 million at December 31, 2021. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.
Commitments. The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans at December 31, 2021.2023.
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||
| | | | | Amount of Commitment Expiration — Per Period | | | | | Amount of Commitment Expiration — Per Period | ||||||||||||||||||||
(Dollars in thousands) | | Total Amounts Committed at December 31, 2021 | | To 1 Year | | 1 - 3 Years | | 4 - 5 Years | | After 5 Years | | Total Amounts Committed at December 31, 2023 | | To 1 Year | | 1 - 3 Years | | 3 - 5 Years | | After 5 Years | ||||||||||
Commitments to originate loans | | $ | 4,865 | | $ | 4,865 | | $ | - | | $ | - | | $ | - | | $ | 141 | | $ | 141 | | $ | - | | $ | - | | $ | - |
Undisbursed portion of construction loans in process | |
| 12,914 | |
| 9,320 | |
| 3,594 | |
| - | |
| - | |||||||||||||||
Unused lines of credit | |
| 2,740 | |
| 767 | |
| 701 | |
| - | |
| 1,272 | |
| 18,093 | |
| 15,608 | |
| 1,636 | |
| - | |
| 849 |
Undisbursed portion of construction loans in process | |
| 1,122 | |
| 1,103 | |
| - | |
| 19 | |
| - | |||||||||||||||
Unused overdraft privilege amounts | |
| 1,075 | |
| - | |
| - | |
| - | |
| 1,075 | |
| 1,142 | |
| - | |
| - | |
| - | |
| 1,142 |
Letters of credit | | | 2 | | | 2 | | | - | | | - | | | - | | | 2 | | | 2 | | | - | | | - | | | - |
Total commitments | | $ | 9,804 | | $ | 6,737 | | $ | 701 | | $ | 19 | | $ | 2,347 | | $ | 32,292 | | $ | 25,071 | | $ | 5,230 | | $ | - | | $ | 1,991 |
The following table summarizes our contractual cash obligations at December 31, 2023.
| | | | | | | | | | | | | | | |
| | | | | Payments Due By Period | ||||||||||
(Dollars in thousands) | | Total at December 31, 2023 | | To 1 Year | | 1 - 3 Years | | 3 - 5 Years | | After 5 Years | |||||
Certificates of deposit | | $ | 53,928 | | $ | 45,467 | | $ | 7,842 | | $ | 619 | | $ | - |
Borrowings | |
| 20,000 | |
| 10,000 | |
| 3,000 | |
| 7,000 | |
| - |
Total term debt | | $ | 73,928 | | $ | 55,467 | | $ | 10,842 | | $ | 7,619 | | $ | - |
The Bank exceeded all regulatory capital requirements and was categorized as well-capitalized at December 31, 2023 and December 31, 2022. Management is not aware of any conditions or events since the most recent notification that would change our category. The following table presents actual and required capital.
| | | | | | | | | | | | |
| | Actual | | To be Well Capitalized under the Prompt Corrective Action Provision | ||||||||
(Dollars in thousands) |
| Amount |
| Ratio | | Amount |
| Ratio | ||||
As of December 31, 2023 | | | | | | | | | | | | |
Common Equity Tier 1 Capital | | $ | 79,468 | | 52.34 | % | | $ | 9,870 | | >6.5 | % |
Tier 1 Risk-Based Capital | |
| 79,468 | | 52.34 | | |
| 12,147 | | >8.0 | |
Total Risk-Based Capital | |
| 81,371 | | 53.59 | | |
| 15,184 | | >10.0 | |
Tier 1 Leverage Capital | |
| 79,468 | | 31.67 | | |
| 12,546 | | >5.0 | |
| | | | | | | | | | | | |
As of December 31, 2022 | |
|
| |
| | |
|
| |
| |
Common Equity Tier 1 Capital | | $ | 78,527 | | 56.17 | % | | $ | 9,087 | | >6.5 | % |
Tier 1 Risk-Based Capital | |
| 78,527 | | 56.17 | | |
| 11,184 | | >8.0 | |
Total Risk-Based Capital | |
| 80,275 | | 57.42 | | |
| 13,980 | | >10.0 | |
Tier 1 Leverage Capital | |
| 78,527 | | 30.37 | | |
| 12,929 | | >5.0 | |
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see Note 1 of the notes to our financial statements.statements included in Item 8 of this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
Not applicable
4546
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Catalyst Bancorp, Inc.
Opelousas, LA
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Catalyst Bancorp, Inc. and Subsidiary (the Company) as of December 31, 20212023 and 2020,2022, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021,2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20212023 and 2020,2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021,2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Castaing, Hussey & Lolan, LLC
We have served as the Company’s auditor since 2020.
New Iberia, LA
March 29, 202228, 2024
4647
CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
| | | | | | | | | ||||
| | December 31, | | December 31, | ||||||||
(Dollars in thousands) | | 2021 | | 2020 | | 2023 | | 2022 | ||||
ASSETS |
| |
|
| |
|
| |
|
| |
|
Non-interest-bearing cash | | $ | 4,933 | | $ | 5,507 | | $ | 3,654 | | $ | 5,092 |
Interest-bearing cash and due from banks | |
| 35,951 | |
| 19,738 | |
| 15,357 | |
| 8,380 |
Total cash and cash equivalents | |
| 40,884 | |
| 25,245 | |
| 19,011 | |
| 13,472 |
Investment securities: | |
|
| |
|
| |
|
| |
|
|
Securities available-for-sale, at fair value | |
| 88,339 | |
| 20,730 | |
| 70,540 | |
| 79,602 |
Securities held-to-maturity (fair values of $13,152 and $17,505, respectively) | |
| 13,498 | |
| 17,523 | ||||||
Securities held-to-maturity (fair values of $11,227 and $10,724, respectively) | |
| 13,461 | |
| 13,475 | ||||||
Loans receivable, net of unearned income | |
| 131,842 | |
| 151,800 | |
| 144,920 | |
| 133,607 |
Allowance for loan losses | |
| (2,276) | |
| (3,022) | |
| (2,124) | |
| (1,807) |
Loans receivable, net | |
| 129,566 | |
| 148,778 | |
| 142,796 | |
| 131,800 |
Accrued interest receivable | |
| 579 | |
| 564 | |
| 906 | |
| 673 |
Foreclosed assets | |
| 340 | |
| 415 | |
| 60 | |
| 320 |
Premises and equipment, net | |
| 6,577 | |
| 5,489 | |
| 6,072 | |
| 6,303 |
Stock in Federal Home Loan Bank, at cost | |
| 1,399 | |
| 1,394 | ||||||
Stock in correspondent banks, at cost | |
| 1,878 | |
| 1,808 | ||||||
Bank-owned life insurance | |
| 3,303 | |
| 3,213 | |
| 14,026 | |
| 13,617 |
Other assets | |
| 864 | |
| 1,337 | |
| 2,182 | |
| 2,292 |
TOTAL ASSETS | | $ | 285,349 | | $ | 224,688 | | $ | 270,932 | | $ | 263,362 |
| |
|
| |
|
| |
|
| |
|
|
LIABILITIES | |
|
| |
|
| |
|
| |
|
|
Deposits | |
|
| |
|
| |
|
| |
|
|
Non-interest-bearing | | $ | 30,299 | | $ | 26,169 | | $ | 28,183 | | $ | 33,657 |
Interest-bearing | |
| 146,496 | |
| 138,429 | |
| 137,439 | |
| 131,437 |
Total deposits | |
| 176,795 | |
| 164,598 | |
| 165,622 | |
| 165,094 |
Advances from Federal Home Loan Bank | |
| 9,018 | |
| 8,838 | ||||||
Borrowings | |
| 19,378 | |
| 9,198 | ||||||
Other liabilities | |
| 1,190 | |
| 719 | |
| 1,277 | |
| 558 |
TOTAL LIABILITIES | |
| 187,003 | |
| 174,155 | |
| 186,277 | |
| 174,850 |
| |
|
| |
|
| |
|
| |
|
|
SHAREHOLDERS' EQUITY | |
|
| |
|
| |
|
| |
|
|
Preferred stock, $0.01 par value - 5,000,000 shares authorized; NaN issued | | - | | - | ||||||||
Common stock, $0.01 par value - 30,000,000 shares authorized; 5,290,000 issued and outstanding at December 31, 2021 | | 53 | | - | ||||||||
Preferred stock, $0.01 par value - 5,000,000 shares authorized; none issued | | - | | - | ||||||||
Common stock, $0.01 par value; 30,000,000 shares authorized; 4,761,326 and 5,290,000 issued and outstanding at December 31, 2023 and 2022, respectively | | 48 | | 53 | ||||||||
Additional paid-in capital | | 50,802 | | - | | 45,020 | | 51,062 | ||||
Unallocated common stock held by Employee Stock Ownership Plan ("ESOP") | | (4,179) | | - | ||||||||
Unallocated common stock held by benefit plans | | (6,221) | | (6,307) | ||||||||
Retained earnings | |
| 52,353 | |
| 50,426 | |
| 53,045 | |
| 52,778 |
Accumulated other comprehensive income (loss) | |
| (683) | |
| 107 | |
| (7,237) | |
| (9,074) |
TOTAL SHAREHOLDERS' EQUITY | |
| 98,346 | |
| 50,533 | |
| 84,655 | |
| 88,512 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 285,349 | | $ | 224,688 | | $ | 270,932 | | $ | 263,362 |
The accompanying Notes are an integral part of these financial statements.
4748
CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
| | | | | | |
| | Year Ended December 31, | ||||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
INTEREST INCOME |
| |
|
| |
|
Loans receivable, including fees | | $ | 6,965 | | $ | 7,827 |
Investment securities | |
| 674 | |
| 568 |
Other | |
| 60 | |
| 95 |
Total interest income | |
| 7,699 | |
| 8,490 |
INTEREST EXPENSE | |
|
| |
|
|
Deposits | |
| 523 | |
| 920 |
Advances from Federal Home Loan Bank | |
| 272 | |
| 785 |
Total interest expense | |
| 795 | |
| 1,705 |
Net interest income | |
| 6,904 | |
| 6,785 |
Provision for (reversal of) loan losses | |
| (660) | |
| 985 |
Net interest income after provision for (reversal of) loan losses | |
| 7,564 | |
| 5,800 |
NON-INTEREST INCOME | |
|
| |
|
|
Service charges on deposit accounts | |
| 641 | |
| 575 |
Gain on sale of fixed assets | |
| 24 | |
| 16 |
Bank-owned life insurance | |
| 90 | |
| 70 |
Federal community development grant | |
| 1,826 | |
| 203 |
Other | |
| 45 | |
| 102 |
Total non-interest income | |
| 2,626 | |
| 966 |
NON-INTEREST EXPENSE | |
|
| |
|
|
Salaries and employee benefits | |
| 4,631 | |
| 3,644 |
Occupancy and equipment | |
| 818 | |
| 678 |
Data processing and communication | |
| 790 | |
| 612 |
Professional fees | |
| 388 | |
| 273 |
Directors’ fees | |
| 279 | |
| 219 |
ATM and debit card | |
| 201 | |
| 151 |
Foreclosed assets, net | |
| 75 | |
| 287 |
Advertising and marketing | |
| 43 | |
| 86 |
Prepayment penalties on FHLB advances | |
| - | |
| 1,510 |
Other | |
| 551 | |
| 483 |
Total non-interest expense | |
| 7,776 | |
| 7,943 |
Income (loss) before income tax expense (benefit) | |
| 2,414 | |
| (1,177) |
Income tax expense (benefit) | |
| 487 | |
| (474) |
NET INCOME (LOSS) | | $ | 1,927 | | $ | (703) |
| | | | | | |
Earnings per share - basic | | $ | 0.40 | | $ | N/A |
| | | | | | |
| | Year Ended December 31, | ||||
(Dollars in thousands) |
| 2023 |
| 2022 | ||
INTEREST INCOME |
| |
|
| |
|
Loans receivable, including fees | | $ | 7,238 | | $ | 6,127 |
Investment securities | |
| 1,643 | |
| 1,480 |
Other | |
| 780 | |
| 407 |
Total interest income | |
| 9,661 | |
| 8,014 |
INTEREST EXPENSE | |
|
| |
|
|
Deposits | |
| 1,541 | |
| 402 |
Borrowings | |
| 319 | |
| 281 |
Total interest expense | |
| 1,860 | |
| 683 |
Net interest income | |
| 7,801 | |
| 7,331 |
Provision for (reversal of) credit losses | |
| 128 | |
| (375) |
Net interest income after provision for (reversal of) credit losses | |
| 7,673 | |
| 7,706 |
NON-INTEREST INCOME | |
|
| |
|
|
Service charges on deposit accounts | |
| 774 | |
| 731 |
Bank-owned life insurance | |
| 409 | |
| 314 |
Gain (loss) on sales of investment securities | |
| (92) | |
| - |
Gain (loss) on disposals and sales of fixed assets | |
| - | |
| (77) |
Federal community development grant | |
| 437 | |
| 171 |
Other | |
| 61 | |
| 34 |
Total non-interest income | |
| 1,589 | |
| 1,173 |
NON-INTEREST EXPENSE | |
|
| |
|
|
Salaries and employee benefits | |
| 4,671 | |
| 4,822 |
Occupancy and equipment | |
| 802 | |
| 833 |
Data processing and communication | |
| 911 | |
| 841 |
Professional fees | |
| 486 | |
| 538 |
Directors’ fees | |
| 463 | |
| 302 |
ATM and debit card | |
| 250 | |
| 245 |
Foreclosed assets, net | |
| 72 | |
| 5 |
Advertising and marketing | |
| 100 | |
| 240 |
Franchise and shares tax | | | 81 | |
| 115 |
Regulatory fees and assessments | | | 131 | | | 134 |
Insurance | | | 106 | | | 135 |
Printing, supplies and postage | | | 145 | | | 143 |
Other | |
| 361 | |
| 367 |
Total non-interest expense | |
| 8,579 | |
| 8,720 |
Income before income tax expense (benefit) | |
| 683 | |
| 159 |
Income tax expense (benefit) | |
| 81 | |
| (21) |
NET INCOME | | $ | 602 | | $ | 180 |
| | | | | | |
Earnings per share - basic | | $ | 0.14 | | $ | 0.04 |
Earnings per share - diluted | | $ | 0.14 | | $ | 0.04 |
The accompanying Notes are an integral part of these financial statements.
4849
CATALYST BANCORP, INC. AND SUBSIDARYSUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | |
| | | ||||
| | Year Ended December 31, | ||||
(Dollars in thousands) | | 2021 |
| 2020 | ||
Net income (loss) | | $ | 1,927 | | $ | (703) |
Net unrealized gains (losses) on available-for-sale securities | |
| (998) | |
| 150 |
Income tax effect | |
| 208 | |
| (31) |
Total other comprehensive income (loss) | |
| (790) | |
| 119 |
Total comprehensive income (loss) | | $ | 1,137 | | $ | (584) |
| | | | | | |
| | Year Ended December 31, | ||||
(Dollars in thousands) | | 2023 |
| 2022 | ||
Net income | | $ | 602 | | $ | 180 |
Net change in unrealized gains (losses) on available-for-sale securities | |
| 2,233 | |
| (10,622) |
Reclassification adjustment for (gains) losses included in net income | | | 92 | |
| - |
Income tax effect | |
| (488) | |
| 2,231 |
Total other comprehensive income (loss) | |
| 1,837 | |
| (8,391) |
Total comprehensive income (loss) | | $ | 2,439 | | $ | (8,211) |
The accompanying Notes are an integral part of these financial statements.
4950
CATALYST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Common Stock | | Additional Paid-in Capital | | Unallocated Common Stock Held by ESOP | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total | ||||||
BALANCE, DECEMBER 31, 2019 | | $ | - | | $ | - | | $ | - | | $ | 51,129 | | $ | (12) | | $ | 51,117 |
Net income (loss) | |
| - | |
| - | |
| - | |
| (703) | |
| - | |
| (703) |
Other comprehensive income (loss) | |
| - | |
| - | |
| - | |
| - | | | 119 | |
| 119 |
BALANCE, DECEMBER 31, 2020 | | $ | - | | $ | - | | $ | - | | $ | 50,426 | | $ | 107 | | $ | 50,533 |
Net income | |
| - | |
| - | |
| - | |
| 1,927 | |
| - | |
| 1,927 |
Other comprehensive income (loss) | |
| - | |
| - | |
| - | |
| - | | | (790) | |
| (790) |
Issuance of common stock | |
| 53 | |
| 50,782 | |
| - | |
| - | | | - | |
| 50,835 |
Stock purchased by the ESOP | |
| - | |
| - | |
| (4,232) | |
| - | | | - | |
| (4,232) |
ESOP shares released for allocation | |
| - | |
| 20 | |
| 53 | |
| - | | | - | |
| 73 |
BALANCE, DECEMBER 31, 2021 | | $ | 53 | | $ | 50,802 | | $ | (4,179) | | $ | 52,353 | | $ | (683) | | $ | 98,346 |
| | | | | | | | | | | | | | | | | | |
(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, DECEMBER 31, 2021 | | $ | 53 | | $ | 50,802 | | $ | (4,179) | | $ | 52,598 | | $ | (683) | | $ | 98,591 |
Net income | |
| - | |
| - | |
| - | |
| 180 | |
| - | |
| 180 |
Other comprehensive income (loss) | |
| - | |
| - | |
| - | |
| - | | | (8,391) | |
| (8,391) |
Stock purchased to fund the 2022 Recognition and Retention Plan | | | - | | | - | | | (2,340) | | | - | | | - | | | (2,340) |
ESOP shares released for allocation | |
| - | |
| 69 | |
| 212 | |
| - | | | - | |
| 281 |
Stock compensation expense | |
| - | |
| 191 | |
| - | |
| - | | | - | |
| 191 |
BALANCE, DECEMBER 31, 2022 | | $ | 53 | | $ | 51,062 | | $ | (6,307) | | $ | 52,778 | | $ | (9,074) | | $ | 88,512 |
| | | | | | | | | | | | | | | | | | |
BALANCE, DECEMBER 31, 2022 | | $ | 53 | | $ | 51,062 | | $ | (6,307) | | $ | 52,778 | | $ | (9,074) | | $ | 88,512 |
Impact of adoption of ASC 326 | |
| - | | | - | | | - | | | (335) | | | - | |
| (335) |
Net income | |
| - | |
| - | |
| - | |
| 602 | |
| - | |
| 602 |
Other comprehensive income (loss) | |
| - | |
| - | |
| - | |
| - | | | 1,837 | |
| 1,837 |
Stock purchased to fund the 2022 Recognition and Retention Plan | | | - | | | - | | | (415) | | | - | | | - | | | (415) |
ESOP shares released for allocation | |
| - | |
| 34 | |
| 212 | |
| - | | | - | |
| 246 |
2022 Recognition and Retention Plan shares released for allocation | |
| - | |
| (289) | |
| 289 | |
| - | | | - | |
| - |
Stock compensation expense | |
| - | |
| 523 | |
| - | |
| - | | | - | |
| 523 |
Repurchase of common stock | |
| (5) | | | (6,310) | | | - | | | - | | | - | | | (6,315) |
BALANCE, DECEMBER 31, 2023 | | $ | 48 | | $ | 45,020 | | $ | (6,221) | | $ | 53,045 | | $ | (7,237) | | $ | 84,655 |
The accompanying Notes are an integral part of these financial statements.
5051
CATALSYT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | ||||||
|
|
| |
|
| | | | | | | |
| | Year Ended December 31, | | Year Ended December 31, | ||||||||
(Dollars in thousands) | | 2021 |
| 2020 | | 2023 |
| 2022 | ||||
CASH FLOWS FROM OPERATING ACTIVITIES |
| |
|
| |
|
| |
|
| |
|
Net income (loss) | | $ | 1,927 | | $ | (703) | ||||||
Net income | | $ | 602 | | $ | 180 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
| |
|
| |
|
| |
|
|
Investment securities amortization, net | |
| 409 | |
| 208 | |
| 308 | |
| 461 |
Dividends on Federal Home Loan Bank stock | |
| (5) | |
| (22) | ||||||
Federal Home Loan Bank stock dividends | |
| (69) | |
| (15) | ||||||
Amortization of prepayment penalties on debt restructuring | | | 180 | | | 15 | | | 180 | | | 180 |
Provision for (reversal of) loan losses | |
| (660) | |
| 985 | ||||||
Net gain on sale of premises and equipment | |
| (24) | |
| (16) | ||||||
Provision for (reversal of) credit losses | |
| 128 | |
| (375) | ||||||
Increase in cash surrender value of bank-owned life insurance | | | (90) | | | (70) | | | (409) | | | (314) |
Loss on sales of investment securities | |
| 92 | |
| - | ||||||
Loss on disposals and sales of premises and equipment | |
| - | |
| 77 | ||||||
Stock-based compensation | | | 73 | | | - | | | 769 | | | 472 |
Depreciation of premises and equipment | |
| 424 | |
| 347 | |
| 403 | |
| 448 |
Net losses on foreclosed assets | |
| 58 | |
| 264 | ||||||
Net write-downs and losses (gains) on the sale of foreclosed assets | |
| 66 | |
| (8) | ||||||
Deferred income tax expense (benefit) | |
| (12) | |
| (9) | ||||||
(Increase) decrease in other assets | |
| 456 | |
| (86) | |
| (510) | |
| (23) |
Increase (decrease) in other liabilities | |
| 680 | |
| (65) | |
| 460 | |
| (302) |
Net cash provided by operating activities | |
| 3,428 | |
| 857 | |
| 2,008 | |
| 772 |
CASH FLOWS FROM INVESTING ACTIVITIES | |
|
| |
|
| |
|
| |
|
|
Activity in available-for-sale securities: | |
|
| |
|
| |
|
| |
|
|
Proceeds from maturities, calls, and paydowns | |
| 8,554 | |
| 10,177 | |
| 9,105 | |
| 10,884 |
Proceeds from sales | | | 1,896 | | | - | ||||||
Purchases | |
| (77,545) | |
| (16,719) | |
| - | |
| (13,207) |
Activity in held-to-maturity securities: | |
|
| |
|
| ||||||
Proceeds from maturities and calls | |
| 4,000 | |
| 13,000 | ||||||
Purchases | |
| - | |
| (17,420) | ||||||
Net decrease in loans | |
| 19,674 | |
| 11,597 | ||||||
Net increase in loans | |
| (11,416) | |
| (1,607) | ||||||
Proceeds from sale of foreclosed assets | |
| 216 | |
| 583 | |
| 320 | |
| 39 |
Purchases of premises and equipment | |
| (1,512) | |
| (547) | |
| (172) | |
| (252) |
Proceeds from sale of premises and equipment | |
| 24 | |
| 16 | ||||||
Purchase of bank owned life insurance | |
| - | |
| (1,000) | ||||||
Net cash used in investing activities | |
| (46,589) | |
| (313) | ||||||
Purchase of bank-owned life insurance | |
| - | |
| (10,000) | ||||||
Net cash provided by (used in) investing activities | |
| (267) | |
| (14,143) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | |
|
| |
|
| |
|
| |
|
|
Net increase in deposits | |
| 12,197 | |
| 22,969 | ||||||
Repayments of Federal Home Loan Bank advances | |
| - | |
| (15,000) | ||||||
Prepayment penalties on debt restructuring | |
| - | |
| (1,177) | ||||||
Proceeds from the issuance of common stock, net of costs | | | 50,835 | | | - | ||||||
Purchase of stock for ESOP | | | (4,232) | | | - | ||||||
Net cash provided by financing activities | |
| 58,800 | |
| 6,792 | ||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | |
| 15,639 | |
| 7,336 | ||||||
Net increase (decrease) in deposits | |
| 528 | |
| (11,701) | ||||||
Net advances from the Federal Reserve Bank of Atlanta | | | 10,000 | | | - | ||||||
Purchase of stock to fund the 2022 Recognition and Retention Plan | | | (415) | | | (2,340) | ||||||
Repurchase of common stock | | | (6,315) | | | - | ||||||
Net cash provided by (used in) financing activities | |
| 3,798 | |
| (14,041) | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | |
| 5,539 | |
| (27,412) | ||||||
CASH AND CASH EQUIVALENTS, beginning of period | |
| 25,245 | |
| 17,909 | |
| 13,472 | |
| 40,884 |
CASH AND CASH EQUIVALENTS, end of period | | $ | 40,884 | | $ | 25,245 | | $ | 19,011 | | $ | 13,472 |
| | | | | | | | | | | | |
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES | |
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| |
|
| |
|
| |
|
|
Loans originated to facilitate the sale of real estate owned | | $ | 82 | | $ | 48 | ||||||
Acquisition of real estate in settlement of loans | | $ | 215 | | $ | 228 | | | 125 | | | 10 |
| | | | | | | | | | | | |
SUPPLEMENTAL SCHEDULE OF INTEREST AND TAXES PAID | |
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| |
|
| |
|
| |
|
|
Cash paid for interest | | $ | 634 | | $ | 1,768 | | $ | 1,402 | | $ | 496 |
Cash paid for income taxes | | $ | 82 | | $ | 75 | | | - | | | 243 |
The accompanying Notes are an integral part of these financial statements.
5152
CATALYST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Catalyst Bancorp, Inc. (“Catalyst Bancorp” or the “Company”) was incorporated by St. Landry Homestead Federal Savings Bank (“St. Landry Homestead” or the “Bank”) in February 2021 as part of the conversion of St. Landry Homestead 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. StIn June 2022, St. Landry Homestead Federal Savingschanged its name to Catalyst Bank (the “Bank”).
Catalyst Bank, which is the sole subsidiary of the Company, provides a variety of banking services to individuals and corporate customersbusinesses within its principal market area consisting of St. Landry Parish, Evangeline Parish, Acadia Parish and Lafayette Parish, Louisiana, and is subject to competition from other financial institutions. The Bank is a federal savings association subject to examination and regulation by the Office of the Comptroller of the Currency (OCC), and is also subject to examination by the FDIC as deposit insurer. Effective October 16, 2019, the Bank elected to be a “covered association” pursuant to a provision of the Economic Growth Regulatory Relief and Consumer Protection Act (EGRRCPA), that permits a federal savings association to elect to exercise national bank powers without converting to a national bank charter. The Bank’s primary deposit products are savings accounts, demand and NOW accounts, money market accounts, savings accounts and certificates of deposit. Its primary lending products are single family residential loans, commercial loans, and consumer loans. The Bank is also subject to the regulations of certain federal agencies and undergoes periodic examinations by those agencies.
Summary of Significant Accounting Policies
The accounting and reporting policies of the Company conform to generally accepted accounting principles and to predominant accounting practices within the banking industry. The more significant accounting and reporting policies are as follows:
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and the Bank. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the fair value of available-for-sale securities, the determination of the allowance for credit losses on loansfinancial assets held at amortized cost and the valuation for foreclosed assets. In connection with the determination of the estimated losses on loans While management uses its best judgment and foreclosed assets, management obtains independent appraisals for significant properties.reviews estimates and related assumptions periodically, actual results could differ from those estimates.
A substantial portionlarge majority of the Company’s investment securities are classified as available-for-sale and reported at fair value with changes in unrealized gains and losses, net of tax, included in other comprehensive income. The fair value of investment securities are highly sensitive to changes in market interest rates and the current and projected financial condition of the related issuer. Declines in fair value of available-for-sale securities may result in a charge to earnings through the provision for credit losses if management believes the Company will not be able to recover the full cost of the securities.
53
A majority of the Company’s loans and foreclosed assets are secured by real estate in local markets which are largely rural and rely heavily upon agriculture and the oil and gas industry.rural. Accordingly, the ultimate collectability of a substantial portion of the Company’s loan portfolio and the recovery of the carrying amount of foreclosed assets are susceptible to changes in local market conditions.
While management uses available information to recognize losses on loans and foreclosed assets, further reductions in the carrying amount of loans and foreclosed assets may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the
52
Company’s estimated losses on loans and foreclosed assets. While management is responsible for the establishment of the allowance for loancredit losses on loans and for adjusting such allowance through provisions for loancredit losses, as a result of such regulatory reviews management may determine that an increase or decrease in the allowance or provision for loancredit losses may be necessary. Because of these factors, it is reasonably possible that the estimated losses on loans and foreclosed assets may change materially in the near-term. However, the amount of the change that is reasonably possible cannot be estimated.
Adjustment of Prior Period Financial Statements
Management corrected an error related to the measurement of the Company’s net deferred income tax asset and accrued income taxes receivable, which are included in other assets on the statement of financial condition. There was no impact to net income for the years ended December 31, 2023 and 2022. The adjustments resulted in a $38,000 increase to retained earnings at December 31 2022, and 2021 and a corresponding $38,000 increase in other assets at December 31, 2022.
Reclassifications
Certain amounts reported in prior periods, other than those related to the restatement mentioned in the previous paragraph, may have been reclassified to conform to the current period presentation. Such reclassifications had no effect on previously reported equity or net income.
Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents include cash, interest-bearing deposits in other institutions, certificates of deposit purchased with original maturities of three months or less and highly liquid debt instruments with original maturities when purchased for three months or less.
Investment Securities
Investment securities that are acquired with the intention of being resold in the near term are classified as trading securities and are carried at fair value, with unrealized holding gains and losses recognized in current earnings. The Company did not hold any securities for trading purposes at or during the years ended December 31, 20212023 or 2020.2022.
Government, federal agency and corporate debt securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and are reported at cost, adjusted for amortization of premiums and accretion of discounts that are recognized in interest income using methods approximating the interest method over the period to maturity. Available-for-sale securities consist of investment securities not classified as trading securities or held-to-maturity securities. Unrealized holding gains and losses, net of tax, on available-for-sale securities are included in other comprehensive income.
Premiums and discounts are amortized using the interest method or the straight-line method when appropriate. The use of the straight-line method approximates the interest method and does not result in a material difference. Interest income is recognized when earned.
54
Realized gains and losses on sales of securities are included in earnings and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income. Gains and losses on the sale of securities are determined using the specific-identification method. The amortization of premiums and the accretion of discounts are recognized in interest income using methods approximating the interest method over the period of maturity.
DeclinesOn January 1, 2023, the Company adopted the guidance under Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The main provisions of the ASU have been codified by the Financial Accounting Standards Board (“FASB”) under Topic 326 of the Accounting Standards Codification (“ASC 326”). ASC 326 requires expected credit related losses for available-for-sale debt securities to be recorded through an allowance for credit losses, while non-credit related losses are recognized through other comprehensive income. Similarly, ASC 326 requires held-to-maturity debt securities to be presented at an amount net of a current estimate of expected credit losses, though the held-to-maturity debt securities are still reported at amortized cost under the new guidance. Under ASC 326, consideration is given to the extent to which that fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the estimatedissuer for a period sufficient to allow for any anticipated recovery in fair value when estimating credit losses. See the “Recent Accounting Pronouncements” section of individualthis note for more information on the adoption of ASC 326.
Under former GAAP, we assessed our investment securities below theirfor other-than-temporary impairment and any declines in fair value that were deemed other-than-temporary resulted in a direct write-down to the amortized cost that are other-than-temporary are reflected as realized losses inbasis of the statement of income.related security. Factors affecting the determination of whether an other-than-temporary impairment has occurred include,included, among other things, (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) that the Company does not intend to sell these securities, and (4) it is more likely than not that the Company will not be required to sell before a period of time sufficient to allow for any anticipated recovery in fair value.
Loans Receivable
Loans receivable are carried at the amount of unpaid principal balances, net of deferred loan-origination fees and discounts and the allowance for loan losses. Interest income on loans receivable is accrued at the applicable interest rate based on the unpaid principal balance. Loan origination fees and direct costs are deferred and amortized as an adjustment to loan yield (interest income) over the term of the related loans. Unamortized net fees or costs are recognized in interest income upon early repayment of the loans.
53
The accrual of interest is discontinued (“nonaccrual status”) when management determines doubt exists as to the collectability of the asset due to the borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial condition, or the depreciation of underlying collateral. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is charged against interest income on loans. Interest payments received on nonaccrual loans are applied to reduce the principal balance.
The allowance for the loan losses is established as losses are estimated to have occurred through a provision for loancredit losses charged to earnings. Loans, or portions of loans, are charged off against the allowance in the period that such loans, or portions thereof, are deemed uncollectible. Subsequent recoveries, if any, are credited to the allowance.
55
Allowance for Credit Losses
On January 1, 2023, the Company adopted the guidance in ASU No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The main provisions of the ASU have been codified by the FASB in ASC 326. The new standard changed the impairment model for most financial assets that are measured at amortized cost, including off-balance sheet credit exposures, from an incurred loss model to a model that estimates current expected credit losses (“CECL”) over the full life of the financial asset. Determining the appropriateness of the allowance requires judgment by management about the effect of matters that are inherently uncertain. Changes in factors and forecasts used in evaluating the overall loan portfolio may result in significant changes in the allowance for credit losses and related provision expense in future periods. The allowance level is influenced by loan volumes, loan asset quality ratings, delinquency status, historical credit loss experience, loan performance characteristics, forecasted information and other conditions influencing loss expectations. Changes to the assumptions in the model in future periods could have a material impact on the Company’s consolidated financial statements.
Under ASC 326, the Company groups loans and unfunded lending commitments with similar risk characteristics into pools or segments and collectively evaluates each pool to estimate the allowance for credit losses. For each loan pool, the Company uses the remaining life method to calculate its credit loss estimate under CECL. The remaining life method applies an estimated average loss rate to the expected future outstanding balances of the relevant pool of loans. The estimated average loss rate is based on historical charge-off rates and the future balances or the remaining life of each pool is based on recent trends in the rate at which existing loans have paid-off or paid-down. We attempt to forecast the average loss rate for each pool over the first two years of the estimated remaining life, then revert to the long-term average after the forecast period. For each pool of loans, management also evaluates and applies qualitative adjustments to the calculated allowance for credit losses based on several factors, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and loan concentrations, changes in credit quality, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry.
The ultimate loss rates computed for each loan pool (a product of our quantitative calculation and qualitative adjustments) are used to estimate the allowance for credit losses on unfunded lending commitments. The pooled loan loss rates are applied to the portion of the unfunded lending commitments that management expects to fund in the future. These unfunded commitments are segmented into pools consistent with our grouping of outstanding loans and include available portions of lines of credit, undisbursed portions of construction loans and commitments to originate new loans.
The Company has identified the following portfolio segments based on the risk characteristics described below.
One- to four-family residential – This category primarily consists of loans secured by residential real estate located in our market. The performance of these loans may be adversely affected by, among other factors, unemployment rates, local residential real estate market conditions and the interest rate environment. Generally, these loans are for longer terms than commercial and construction loans.
Commercial real estate – This category generally consists of loans secured by retail and industrial use buildings, hotels, strip shopping centers and other properties used for commercial purposes. The performance of these loans may be adversely affected by, among other factors, conditions specific to the relevant industry, the real estate market for the property type and geographic region where the property or borrower is located.
Construction and land – This category consists of loans to finance the ground-up construction and/or improvement of residential and commercial properties and loans secured by land. The performance of these loans is generally dependent upon the successful completion of improvements and/or land development for the end user, the sale of the property to a third party, or a secondary source of cash flow from the owners. The successful completion of planned improvements and development may be adversely affected by changes in the estimated property value upon completion of construction, projected costs and other conditions leading to project delays.
56
Multi-family residential – This category consists of loans secured by apartment or residential buildings with five or more units used to accommodate households on a temporary or permanent basis. The performance of multi-family loans is generally dependent on the receipt of rental income from the tenants who occupy the subject property. The occupancy rate of the subject property and the ability of the tenants to pay rent may be adversely affected by the location of the subject property and local economic conditions.
Commercial and industrial – This category primarily consists of secured and unsecured loans to small and mid-sized businesses to fund operations or purchase non-real estate assets. Secured loans are primarily secured by accounts receivable, inventory, equipment and certain other business assets. The performance of these loans may be adversely affected by, among other factors, conditions specific to the relevant industry, fluctuations in the value of the collateral and individual performance factors related to the borrower.
Consumer – This category consists of loans to individuals for household, family and other personal use. The performance of these loans may be adversely affected by national and local economic conditions, unemployment rates and other factors affecting the borrower’s income available to service the debt.
Loans are individually evaluated for credit losses when they do not share similar risk characteristics with our identified loan pools under ASC 326. Generally, management considers loans rated as substandard for individual analysis or when we have identified certain unique characteristics that impact the risk of credit loss. These characteristics include, but are not limited to, the creditworthiness of the borrower, the reliability of the primary source of repayment, the quality of the collateral, the size of the loan or relationship, and the industry of the borrower. The allowance for credit losses on individually evaluated, collateral-dependent loans is based on a comparison of the recorded investment in the loan with the fair value of the underlying collateral. Alternatively, we estimate credit losses on individual loans by comparing the loan’s recorded investment to the loan’s estimated fair value based on discounted cash flows or an observable market price.
The sum of the allowance for losses on loans, other financial assets held at amortized cost, and unfunded lending commitments is referred to as the allowance for credit losses. See the “Recent Accounting Pronouncements” section of this note for more detailed information on the adoption of ASC 326 and its impact on the financial statements.
Prior to the adoption of guidance under ASC 326, an allowance for loan losses was established through a provision for loan losses charged to earnings in the period in which management determined loan losses were probable and reasonably estimable. The allowance consisted of specific and general components. The specific component related to loans that were individually evaluated and considered impaired. For such loans that were classified as impaired, an allowance was established when the discounted cash flows, collateral value or observable market price of the impaired loan was lower than the carrying value of that loan. The general component covered loans collectively evaluated for impairment. Loans collectively evaluated for impairment were segregated into large groups of homogenous loans to determine the allowance for loan losses for each group, which was based on historical loss experience adjusted for qualitative factors.
A loan iswas considered impaired when, based on current information and events, it iswas probable that the Company willwould be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Management measuresmeasured impairment on a loan-by-loan basis for loans specifically identified for individual evaluation. Factors considered by management in identifyingwhen loans were identified for evaluation includeincluded payment status, collateral value, and the probability of collecting scheduled principal payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not individually evaluated for impairment. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment on loans that arewere individually considered impaired iswas measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Allowance for Loan Losses
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
An allowance for loan losses is established through a provision for loan losses charged to earnings in the period in which management determines loan losses are probable and reasonably estimable. The allowance consists
57
Foreclosed AssetsCash and Cash Equivalents
Foreclosed assets includes real propertyFor the purpose of reporting cash flows, cash and cash equivalents include cash, interest-bearing deposits in other assetsinstitutions, certificates of deposit purchased with original maturities of three months or less and highly liquid debt instruments with original maturities when purchased for three months or less.
Investment Securities
Investment securities that have beenare acquired with the intention of being resold in the near term are classified as a result of foreclosure. At the time of foreclosure, foreclosed assetstrading securities and are recordedcarried at fair value, lesswith unrealized holding gains and losses recognized in current earnings. The Company did not hold any securities for trading purposes at or during the years ended December 31, 2023 or 2022.
Government, federal agency and corporate debt securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and are reported at cost, adjusted for amortization of premiums and accretion of discounts that are recognized in interest income using methods approximating the interest method over the period to sell, which becomesmaturity. Available-for-sale securities consist of investment securities not classified as trading securities or held-to-maturity securities. Unrealized holding gains and losses, net of tax, on available-for-sale securities are included in other comprehensive income.
Premiums and discounts are amortized using the property’s new basis. Any write-downs based oninterest method or the assets fair value at date of acquisition are charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management and property held for sale is carried at the lowerstraight-line method when appropriate. The use of the new cost basis or fair value less cost to sell. Impairment losses on property to be heldstraight-line method approximates the interest method and used are measured as the amount by which the carrying amount ofdoes not result in a property exceeds fair value. Costs incurred inmaterial difference. Interest income is recognized when earned.
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maintaining foreclosed assetsRealized gains and subsequent adjustments to the carrying amountlosses on sales of the assetssecurities are included in foreclosed assets expense. At December 31, 2021, loans securedearnings and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income. Gains and losses on the sale of securities are determined using the specific-identification method. The amortization of premiums and the accretion of discounts are recognized in interest income using methods approximating the interest method over the period of maturity.
On January 1, 2023, the Company adopted the guidance under Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The main provisions of the ASU have been codified by residential real estatethe Financial Accounting Standards Board (“FASB”) under Topic 326 of the Accounting Standards Codification (“ASC 326”). ASC 326 requires expected credit related losses for available-for-sale debt securities to be recorded through an allowance for credit losses, while non-credit related losses are recognized through other comprehensive income. Similarly, ASC 326 requires held-to-maturity debt securities to be presented at an amount net of a current estimate of expected credit losses, though the held-to-maturity debt securities are still reported at amortized cost under the new guidance. Under ASC 326, consideration is given to the extent to which formal foreclosure proceedingsthat fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period sufficient to allow for any anticipated recovery in fair value when estimating credit losses. See the “Recent Accounting Pronouncements” section of this note for more information on the adoption of ASC 326.
Under former GAAP, we assessed our investment securities for other-than-temporary impairment and any declines in fair value that were deemed other-than-temporary resulted in process totaled $47,000.a direct write-down to the amortized cost basis of the related security. Factors affecting the determination of whether an other-than-temporary impairment occurred included, among other things, (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) that the Company does not intend to sell these securities, and (4) it is more likely than not that the Company will not be required to sell before a period of time sufficient to allow for any anticipated recovery in fair value.
Premises and EquipmentLoans Receivable
Land is carried at cost. Buildings, furniture, fixtures and equipmentLoans receivable are carried at cost, less accumulated depreciation. Buildings, furniture, fixturesthe amount of unpaid principal balances, net of deferred loan-origination fees and equipmentdiscounts and the allowance for loan losses. Interest income on loans receivable is accrued at the applicable interest rate based on the unpaid principal balance. Loan origination fees and direct costs are depreciated using the declining balancedeferred and straight-line methodsamortized as an adjustment to loan yield (interest income) over the estimated useful livesterm of the assets, which range from 3 to 39 years for buildings and improvements and 3 to 10 years for equipment, fixtures and automobiles.
Federal Home Loan Bank Stock
As a memberrelated loans. Unamortized net fees or costs are recognized in interest income upon early repayment of the Federal Home Loan Bank (“FHLB”), the Bank is required to purchase and hold shares of capital stock in the FHLB. loans.The stock does not have a readily determinable fair value and is carried at cost, which approximates fair value. The Company’s investments in equity securities without readily determinable fair value are assessed for impairment and any impairment losses are included in net income. For the years ended December 31, 2021 and 2020, 0 impairment had been recognized.
Bank-owned Life Insurance
The Bank purchased single-premium life insurance on certain employeesaccrual of interest is discontinued (“nonaccrual status”) when management determines doubt exists as to the collectability of the Bank. The investments in bank-owned life insuranceasset due to the borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial condition, or the depreciation of underlying collateral. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is charged against interest income on loans. Interest payments received on nonaccrual loans are reported at their cash surrender and changes inapplied to reduce the cash surrender value are classified as non-interest income. The insurance policies can be surrendered without penalties or charges imposed by the insurance carriers. Upon any surrender, a gain would be recognized as ordinary income.principal balance.
Government Assistance
The Bank appliesallowance for and receives grant proceeds fromloan losses is established through a provision for credit losses charged to earnings. Loans, or portions of loans, are charged off against the U.S. Department ofallowance in the Treasury’s Community Development Financial Institutions (“CDFI”) Fund. The CDFI Fund helps promote accessperiod that such loans, or portions thereof, are deemed uncollectible. Subsequent recoveries, if any, are credited to capital and local economic growth in urban and rural low-income communities across the nation through monetary awards and the allocation of tax credits. Current GAAP has no specific authoritative guidance on the accounting for government assistance received by business entities. However, Accounting Standard Codification (“ASC”) 105 describes the decision-making framework for determining the guidance to apply when guidance is not specified by GAAP. ASC 105 points to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, and ASC 958-605, Not-for-Profit Entities – Revenue Recognition, that require conditions of the grant to be met in order to recognize the income.allowance.
During the year ended December 31, 2021, the Bank received and recognized into income a $1.8 million grant from the CDFI Rapid Response Program. The Bank met the conditions of the grant by deploying the proceeds to capital through income recognition and by originating the required amount of qualifying loans in its target markets. During the year ended December 31, 2020, the Bank received and recognized into income a $203,000 grant from the CDFI Bank Enterprise Award Program. The Bank met the conditions of the grant by providing loans and financial services directly to residents and businesses located in distressed communities. Income from the federal community development grants are reported in non-interest income on the Consolidated Statements of Income.
Income Taxes
Deferred taxes are provided for accumulated temporary differences due to basis differences for assets and liabilities for financial reporting and income tax purposes. The Company’s temporary differences relate primarily to differences between the basis of FHLB stock, available-for-sale securities, depreciation, allowance for loan losses, unearned
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Allowance for Credit Losses
profit
On January 1, 2023, the Company adopted the guidance in ASU No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on foreclosedFinancial Instruments. The main provisions of the ASU have been codified by the FASB in ASC 326. The new standard changed the impairment model for most financial assets that are measured at amortized cost, including off-balance sheet credit exposures, from an incurred loss model to a model that estimates current expected credit losses (“CECL”) over the full life of the financial asset. Determining the appropriateness of the allowance requires judgment by management about the effect of matters that are inherently uncertain. Changes in factors and forecasts used in evaluating the overall loan portfolio may result in significant changes in the allowance for credit losses and related provision expense in future periods. The allowance level is influenced by loan volumes, loan asset quality ratings, delinquency status, historical credit loss experience, loan performance characteristics, forecasted information and other conditions influencing loss expectations. Changes to the assumptions in the model in future periods could have a material impact on the Company’s consolidated financial and income tax reporting, deferred fees and discount on restructuring of FHLB borrowings.statements.
Under ASC 740 requires that a tax position be recognized326, the Company groups loans and unfunded lending commitments with similar risk characteristics into pools or derecognizedsegments and collectively evaluates each pool to estimate the allowance for credit losses. For each loan pool, the Company uses the remaining life method to calculate its credit loss estimate under CECL. The remaining life method applies an estimated average loss rate to the expected future outstanding balances of the relevant pool of loans. The estimated average loss rate is based on a “more likely than not” threshold. Thishistorical charge-off rates and the future balances or the remaining life of each pool is based on recent trends in the rate at which existing loans have paid-off or paid-down. We attempt to forecast the average loss rate for each pool over the first two years of the estimated remaining life, then revert to the long-term average after the forecast period. For each pool of loans, management also evaluates and applies qualitative adjustments to positions taken orthe calculated allowance for credit losses based on several factors, including, but not limited to, changes in current and expected to be takenfuture economic conditions, changes in a tax return where there is uncertainty about whether a tax position will ultimately be sustained upon examination. The Company has evaluated its tax positionindustry experience and determined that it does not have any uncertain tax positions that meet criteria under ASC 740. The Company’s management believes it is no longer subject to income tax examinations for fiscal years prior to December 31, 2018.loan concentrations, changes in credit quality, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry.
Off-balance Sheet Financial Instruments
InThe ultimate loss rates computed for each loan pool (a product of our quantitative calculation and qualitative adjustments) are used to estimate the ordinary courseallowance for credit losses on unfunded lending commitments. The pooled loan loss rates are applied to the portion of business, the Company has enteredunfunded lending commitments that management expects to fund in off-balance-sheet financial instruments consistingthe future. These unfunded commitments are segmented into pools consistent with our grouping of outstanding loans and include available portions of lines of credit, undisbursed portions of construction loans and commitments to extend credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded.originate new loans.
Fair Values of Financial Instruments
The Company followshas identified the guidance of FASB ASC 825, Financial Instruments, and FASB ASC 820, Fair Value Measurement. This guidance permits entities to measure many financial instruments and certain other items at fair value. No assets have been elected to be reported at fair value. The objective is to improve financial reporting by providingfollowing portfolio segments based on 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).risk characteristics described below.
Accounting Standards Codification 825-10, RecognitionOne- to four-family residential – This category primarily consists of loans secured by residential real estate located in our market. The performance of these loans may be adversely affected by, among other factors, unemployment rates, local residential real estate market conditions and Measurementthe interest rate environment. Generally, these loans are for longer terms than commercial and construction loans.
Commercial real estate – This category generally consists of Financial Assetsloans secured by retail and Financial Liabilities requires thatindustrial use buildings, hotels, strip shopping centers and other properties used for commercial purposes. The performance of these loans may be adversely affected by, among other factors, conditions specific to the Company disclose estimated fair valuesrelevant industry, the real estate market for its financial instruments, whetherthe property type and geographic region where the property or not recognizedborrower is located.
Construction and land – This category consists of loans to finance the ground-up construction and/or improvement of residential and commercial properties and loans secured by land. The performance of these loans is generally dependent upon the successful completion of improvements and/or land development for the end user, the sale of the property to a third party, or a secondary source of cash flow from the owners. The successful completion of planned improvements and development may be adversely affected by changes in the statementestimated property value upon completion of financial condition. In cases where quoted market prices are not available, fair values are basedconstruction, projected costs and other conditions leading to project delays.
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Multi-family residential – This category consists of loans secured by apartment or residential buildings with five or more units used to accommodate households on estimates using present valuea temporary or other valuation techniques. Those techniques are significantlypermanent basis. The performance of multi-family loans is generally dependent on the receipt of rental income from the tenants who occupy the subject property. The occupancy rate of the subject property and the ability of the tenants to pay rent may be adversely 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 settlementlocation of the instruments. Certain financial instrumentssubject property and all nonfinancial instrumentslocal economic conditions.
Commercial and industrial – This category primarily consists of secured and unsecured loans to small and mid-sized businesses to fund operations or purchase non-real estate assets. Secured loans are excluded fromprimarily secured by accounts receivable, inventory, equipment and certain other business assets. The performance of these loans may be adversely affected by, among other factors, conditions specific to the disclosure requirements. Accordingly,relevant industry, fluctuations in the aggregate fair value amounts presented do not represent the underlying value of the Company.collateral and individual performance factors related to the borrower.
Consumer – This category consists of loans to individuals for household, family and other personal use. The performance of these loans may be adversely affected by national and local economic conditions, unemployment rates and other factors affecting the borrower’s income available to service the debt.
Loans are individually evaluated for credit losses when they do not share similar risk characteristics with our identified loan pools under ASC 326. Generally, management considers loans rated as substandard for individual analysis or when we have identified certain unique characteristics that impact the risk of credit loss. These characteristics include, but are not limited to, the creditworthiness of the borrower, the reliability of the primary source of repayment, the quality of the collateral, the size of the loan or relationship, and the industry of the borrower. The allowance for credit losses on individually evaluated, collateral-dependent loans is based on a comparison of the recorded investment in the loan with the fair value of the underlying collateral. Alternatively, we estimate credit losses on individual loans by comparing the loan’s recorded investment to the loan’s estimated fair value based on discounted cash flows or an observable market price.
The following methodssum of the allowance for losses on loans, other financial assets held at amortized cost, and assumptionsunfunded lending commitments is referred to as the allowance for credit losses. See the “Recent Accounting Pronouncements” section of this note for more detailed information on the adoption of ASC 326 and its impact on the financial statements.
Prior to the adoption of guidance under ASC 326, an allowance for loan losses was established through a provision for loan losses charged to earnings in the period in which management determined loan losses were usedprobable and reasonably estimable. The allowance consisted of specific and general components. The specific component related to estimateloans that were individually evaluated and considered impaired. For such loans that were classified as impaired, an allowance was established when the discounted cash flows, collateral value or observable market price of the impaired loan was lower than the carrying value of that loan. The general component covered loans collectively evaluated for impairment. Loans collectively evaluated for impairment were segregated into large groups of homogenous loans to determine the allowance for loan losses for each group, which was based on historical loss experience adjusted for qualitative factors.
A loan was considered impaired when, based on current information and events, it was probable that the Company would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Management measured impairment on a loan-by-loan basis for loans specifically identified for individual evaluation. Factors considered by management when loans were identified for evaluation included payment status, collateral value, and the probability of collecting scheduled principal payments when due. Impairment on loans that were individually considered impaired was measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of each class of financial instruments of which itthe collateral if the loan is practicable to estimate that value:collateral dependent.
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Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents include cash, interest-bearing deposits in other institutions, certificates of deposit purchased with original maturities of three months or less and highly liquid debt instruments with original maturities when purchased for three months or less.
Investment Securities
Investment securities that are acquired with the intention of being resold in the near term are classified as trading securities and are carried at fair value, with unrealized holding gains and losses recognized in current earnings. The Company did not hold any securities for trading purposes at or during the years ended December 31, 2023 or 2022.
Government, federal agency and corporate debt securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and are reported at cost, adjusted for amortization of premiums and accretion of discounts that are recognized in interest income using methods approximating the interest method over the period to maturity. Available-for-sale securities consist of investment securities not classified as trading securities or held-to-maturity securities. Unrealized holding gains and losses, net of tax, on available-for-sale securities are included in other comprehensive income.
Premiums and discounts are amortized using the interest method or the straight-line method when appropriate. The use of the straight-line method approximates the interest method and does not result in a material difference. Interest income is recognized when earned.
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Realized gains and losses on sales of securities are included in earnings and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income. Gains and losses on the sale of securities are determined using the specific-identification method. The amortization of premiums and the accretion of discounts are recognized in interest income using methods approximating the interest method over the period of maturity.
On January 1, 2023, the Company adopted the guidance under Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The main provisions of the ASU have been codified by the Financial Accounting Standards Board (“FASB”) under Topic 326 of the Accounting Standards Codification (“ASC 326”). ASC 326 requires expected credit related losses for available-for-sale debt securities to be recorded through an allowance for credit losses, while non-credit related losses are recognized through other comprehensive income. Similarly, ASC 326 requires held-to-maturity debt securities to be presented at an amount net of a current estimate of expected credit losses, though the held-to-maturity debt securities are still reported at amortized cost under the new guidance. Under ASC 326, consideration is given to the extent to which that fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period sufficient to allow for any anticipated recovery in fair value when estimating credit losses. See the “Recent Accounting Pronouncements” section of this note for more information on the adoption of ASC 326.
Under former GAAP, we assessed our investment securities for other-than-temporary impairment and any declines in fair value that were deemed other-than-temporary resulted in a direct write-down to the amortized cost basis of the related security. Factors affecting the determination of whether an other-than-temporary impairment occurred included, among other things, (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) that the Company does not intend to sell these securities, and (4) it is more likely than not that the Company will not be required to sell before a period of time sufficient to allow for any anticipated recovery in fair value.
Loans Receivable
Loans receivable are carried at the amount of unpaid principal balances, net of deferred loan-origination fees and discounts and the allowance for loan losses. Interest income on loans receivable is accrued at the applicable interest rate based on the unpaid principal balance. Loan origination fees and direct costs are deferred and amortized as an adjustment to loan yield (interest income) over the term of the related loans. Unamortized net fees or costs are recognized in interest income upon early repayment of the loans.
The accrual of interest is discontinued (“nonaccrual status”) when management determines doubt exists as to the collectability of the asset due to the borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial condition, or the depreciation of underlying collateral. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is charged against interest income on loans. Interest payments received on nonaccrual loans are applied to reduce the principal balance.
The allowance for loan losses is established through a provision for credit losses charged to earnings. Loans, or portions of loans, are charged off against the allowance in the period that such loans, or portions thereof, are deemed uncollectible. Subsequent recoveries, if any, are credited to the allowance.
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Allowance for Credit Losses
On January 1, 2023, the Company adopted the guidance in ASU No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The main provisions of the ASU have been codified by the FASB in ASC 326. The new standard changed the impairment model for most financial assets that are measured at amortized cost, including off-balance sheet credit exposures, from an incurred loss model to a model that estimates current expected credit losses (“CECL”) over the full life of the financial asset. Determining the appropriateness of the allowance requires judgment by management about the effect of matters that are inherently uncertain. Changes in factors and forecasts used in evaluating the overall loan portfolio may result in significant changes in the allowance for credit losses and related provision expense in future periods. The allowance level is influenced by loan volumes, loan asset quality ratings, delinquency status, historical credit loss experience, loan performance characteristics, forecasted information and other conditions influencing loss expectations. Changes to the assumptions in the model in future periods could have a material impact on the Company’s consolidated financial statements.
Under ASC 326, the Company groups loans and unfunded lending commitments with similar risk characteristics into pools or segments and collectively evaluates each pool to estimate the allowance for credit losses. For each loan pool, the Company uses the remaining life method to calculate its credit loss estimate under CECL. The remaining life method applies an estimated average loss rate to the expected future outstanding balances of the relevant pool of loans. The estimated average loss rate is based on historical charge-off rates and the future balances or the remaining life of each pool is based on recent trends in the rate at which existing loans have paid-off or paid-down. We attempt to forecast the average loss rate for each pool over the first two years of the estimated remaining life, then revert to the long-term average after the forecast period. For each pool of loans, management also evaluates and applies qualitative adjustments to the calculated allowance for credit losses based on several factors, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and loan concentrations, changes in credit quality, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry.
The ultimate loss rates computed for each loan pool (a product of our quantitative calculation and qualitative adjustments) are used to estimate the allowance for credit losses on unfunded lending commitments. The pooled loan loss rates are applied to the portion of the unfunded lending commitments that management expects to fund in the future. These unfunded commitments are segmented into pools consistent with our grouping of outstanding loans and include available portions of lines of credit, undisbursed portions of construction loans and commitments to originate new loans.
The Company has identified the following portfolio segments based on the risk characteristics described below.
One- to four-family residential – This category primarily consists of loans secured by residential real estate located in our market. The performance of these loans may be adversely affected by, among other factors, unemployment rates, local residential real estate market conditions and the interest rate environment. Generally, these loans are for longer terms than commercial and construction loans.
Commercial real estate – This category generally consists of loans secured by retail and industrial use buildings, hotels, strip shopping centers and other properties used for commercial purposes. The performance of these loans may be adversely affected by, among other factors, conditions specific to the relevant industry, the real estate market for the property type and geographic region where the property or borrower is located.
Construction and land – This category consists of loans to finance the ground-up construction and/or improvement of residential and commercial properties and loans secured by land. The performance of these loans is generally dependent upon the successful completion of improvements and/or land development for the end user, the sale of the property to a third party, or a secondary source of cash flow from the owners. The successful completion of planned improvements and development may be adversely affected by changes in the estimated property value upon completion of construction, projected costs and other conditions leading to project delays.
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Multi-family residential – This category consists of loans secured by apartment or residential buildings with five or more units used to accommodate households on a temporary or permanent basis. The performance of multi-family loans is generally dependent on the receipt of rental income from the tenants who occupy the subject property. The occupancy rate of the subject property and the ability of the tenants to pay rent may be adversely affected by the location of the subject property and local economic conditions.
Commercial and industrial – This category primarily consists of secured and unsecured loans to small and mid-sized businesses to fund operations or purchase non-real estate assets. Secured loans are primarily secured by accounts receivable, inventory, equipment and certain other business assets. The performance of these loans may be adversely affected by, among other factors, conditions specific to the relevant industry, fluctuations in the value of the collateral and individual performance factors related to the borrower.
Consumer – This category consists of loans to individuals for household, family and other personal use. The performance of these loans may be adversely affected by national and local economic conditions, unemployment rates and other factors affecting the borrower’s income available to service the debt.
Loans are individually evaluated for credit losses when they do not share similar risk characteristics with our identified loan pools under ASC 326. Generally, management considers loans rated as substandard for individual analysis or when we have identified certain unique characteristics that impact the risk of credit loss. These characteristics include, but are not limited to, the creditworthiness of the borrower, the reliability of the primary source of repayment, the quality of the collateral, the size of the loan or relationship, and the industry of the borrower. The allowance for credit losses on individually evaluated, collateral-dependent loans is based on a comparison of the recorded investment in the loan with the fair value of the underlying collateral. Alternatively, we estimate credit losses on individual loans by comparing the loan’s recorded investment to the loan’s estimated fair value based on discounted cash flows or an observable market price.
The sum of the allowance for losses on loans, other financial assets held at amortized cost, and unfunded lending commitments is referred to as the allowance for credit losses. See the “Recent Accounting Pronouncements” section of this note for more detailed information on the adoption of ASC 326 and its impact on the financial statements.
Prior to the adoption of guidance under ASC 326, an allowance for loan losses was established through a provision for loan losses charged to earnings in the period in which management determined loan losses were probable and reasonably estimable. The allowance consisted of specific and general components. The specific component related to loans that were individually evaluated and considered impaired. For such loans that were classified as impaired, an allowance was established when the discounted cash flows, collateral value or observable market price of the impaired loan was lower than the carrying value of that loan. The general component covered loans collectively evaluated for impairment. Loans collectively evaluated for impairment were segregated into large groups of homogenous loans to determine the allowance for loan losses for each group, which was based on historical loss experience adjusted for qualitative factors.
A loan was considered impaired when, based on current information and events, it was probable that the Company would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Management measured impairment on a loan-by-loan basis for loans specifically identified for individual evaluation. Factors considered by management when loans were identified for evaluation included payment status, collateral value, and the probability of collecting scheduled principal payments when due. Impairment on loans that were individually considered impaired was measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.
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Foreclosed Assets
Foreclosed assets include real property and other assets that have been acquired as a result of foreclosure. At the time of foreclosure, foreclosed assets are recorded at fair value, less cost to sell, which becomes the property’s new basis. Any write-downs based on the asset’s fair value at date of acquisition are charged to the allowance for credit losses on loans. After foreclosure, valuations are periodically performed and losses are recognized through a charge to earnings when the carrying amount of the foreclosed asset exceeds the estimate of its fair value, less costs to sell. Costs incurred in maintaining foreclosed assets and subsequent adjustments to the carrying amount of the assets are included in foreclosed assets expense. At December 31, 2023, loans secured by residential and commercial real estate for which formal foreclosure proceedings were in process totaled $345,000 and $50,000, respectively.
Premises and Equipment
Land is carried at cost. Buildings, furniture, fixtures and equipment are carried at cost, less accumulated depreciation. Buildings, furniture, fixtures and equipment are depreciated using the declining balance and straight-line methods over the estimated useful lives of the assets, which range from 3 to 39 years for buildings and improvements and 3 to 10 years for equipment, fixtures and automobiles.
Stock in Correspondent Banks
As a member of the Federal Home Loan Bank (“FHLB”) and as client of First National Bankers Bank (“FNBB”), the Bank purchased and holds shares of capital stock in the FHLB and FNBB. The stock does not have a readily determinable fair value and is carried at cost, which approximates fair value. The Company’s investments in equity securities without readily determinable fair value are assessed for impairment and any impairment losses are included in net income. For the years ended December 31, 2023 and 2022, no impairment had been recognized.
Bank-owned Life Insurance
The Company purchased single-premium life insurance on certain employees of the Bank. The investments in bank-owned life insurance are reported at their cash surrender and changes in the cash surrender value are classified as non-interest income. The insurance policies can be surrendered without penalties or charges imposed by the insurance carriers. Upon any surrender, a gain would be recognized as ordinary income.
Government Grants
The Bank applies for and receives grant proceeds from the U.S. Department of the Treasury’s Community Development Financial Institutions (“CDFI”) Fund. The CDFI Fund helps promote access to capital and local economic growth in urban and rural low-income communities across the nation through monetary awards and the allocation of tax credits. Current GAAP has no specific authoritative guidance on the accounting for government assistance received by business entities. However, ASC 105 describes the decision-making framework for determining the guidance to apply when guidance is not specified by GAAP. ASC 105 points to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, and ASC 958-605, Not-for-Profit Entities – Revenue Recognition, that require conditions of the grant to be met in order to recognize the income.
During the years ended December 31, 2023 and 2022, the Bank received and recognized $437,000 and $171,000, respectively, of income due to grants from the CDFI Bank Enterprise Award Program. The Bank met the conditions of the grant by providing loans and financial services directly to residents and businesses located in distressed communities. Income from the federal community development grants are reported in non-interest income.
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Income Taxes
Deferred taxes are provided for accumulated temporary differences due to basis differences for assets and liabilities for financial reporting and income tax purposes. The Company’s temporary differences relate primarily to differences between the GAAP and tax basis of available-for-sale securities, fixed assets and other real estate owned.
ASC 740 requires that a tax position be recognized or derecognized based on a “more likely than not” threshold. This applies to positions taken or expected to be taken in a tax return where there is uncertainty about whether a tax position will ultimately be sustained upon examination. The Company has evaluated its tax position and determined that it does not have any uncertain tax positions that meet criteria under ASC 740. The Company’s management believes it is no longer subject to income tax examinations for fiscal years prior to December 31, 2020.
Off-balance Sheet Financial Instruments
In the ordinary course of business, the Company has entered in off-balance-sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded in the financial statements when they are funded.
Fair Values 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.
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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 investment securities are obtained from a third party service provider, whose prices are based on a combination of observed market prices for identical or similar instruments and various matrix pricing programs. The fair market values of investment securities are classified within Level 2 of the fair value hierarchy.
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Loans Receivable, net
Loans are valued using the methodology developed for Economic Value of Equity pricing, with a build-up for loans based on the U.S. Treasury yield curve, a credit risk spread and an overhead coverage rate. Loans receivable are classified within Level 3 of the fair value hierarchy.
Impaired Loans Individually Evaluated for Credit Losses
The fair value of impaired 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. Impaired loans are classified within Level 3 of the fair value hierarchy.
Foreclosed Assets
Fair values of foreclosed real estate and other assets are determined by sales agreement or appraisal and costs to sell are based on estimation per the terms and conditions of the sales agreement or amounts commonly used in real estate transactions. Updated appraisals are obtained on at least an annual basis. Foreclosed assetsLoans 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 and interest-bearing demand deposits, savings, NOW, money market, and checkingsavings accounts, is equal to the amount payable on demand at the reporting date. These non-maturity deposit liabilities are classified within Level 2 of the fair value hierarchy.
Certificates of Deposit
All certificates are assumed to remain on the Company’s books until maturity without any change in coupon. Fair values are estimated using market pricing data for new CDs of similar structure and remaining maturity. Certificates of deposit are classified within Level 2 of the fair value hierarchy.
Federal Home Loan Bank Borrowings
Data is taken from the Company’s FHLB Customer Profile report.report and advance statement from the Federal Reserve Bank of Atlanta. All borrowings are priced using current advance pricing data from the FHLB’s and Federal Reserve’s Discount Window website for new borrowings of similar structure and remaining maturity. FHLB borrowingsBorrowings are classified within Level 2 of the fair value hierarchy.
Other Assets and Liabilities
All other assets and liabilities are reported at current book value unless noted otherwise.
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.
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Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
Stock-Based Compensation
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TableIn March 2022, the Board of ContentsDirectors adopted the 2022 Stock Option Plan and the 2022 Recognition and Retention Plan and Trust Agreement, which were approved by shareholders at our annual meeting on May 17, 2022. Under the terms of both plans, officers, employees and directors selected by the Compensation Committee of the Board of Directors are eligible to receive benefits. In accordance with ASC 718, Compensation – Stock Compensation, the Company measures stock compensation expense based on the fair market value of the instrument as of the grant date and is recognized over the service period, which is usually the vesting period. The Company has elected to account for forfeitures of stock awards as they occur and reverses compensation expense previously recognized in the period the award is forfeited.
Advertising Costs
The Company expenses all advertising costs as incurred. There were 0no direct response advertising costs capitalized as of December 31, 2021 and December 31, 2020.2023 or 2022.
Comprehensive Income
Accounting principles generally require that recognized revenue, expense, gains, and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the statement of financial condition. Such items, along with net income, are components of comprehensive income.
Earnings Per Share
Basic earnings (loss) per share (“EPS”) represents income available or loss attributable to common shareholders divided by the weighted average number of common shares outstanding.outstanding during the period. No dilution for any potentially convertible shares is included in the calculation of basic EPS. Diluted EPS reflects additional common shares that would have been outstanding if dilutive potential common shares, in the form of stock options or restricted stock shares, had been issued, as well as any adjustment to income that would result from the assumed issuance. Potentially dilutive common shares are excluded from the computation of diluted EPS in periods in which the effect would be anti-dilutive. Unallocated common shares held by the ESOP are not included in the weighted average number of common shares outstanding for purposes of calculating earnings per sharesEPS until they are committed to be released. Unallocated restricted shares are not included in the weighted average number of common shares outstanding for purposes of calculating basic EPS until the awards vest, however these shares are included in the computation of the denominator of diluted EPS using the treasury stock method, if dilutive.
61
Recent Accounting Pronouncements
Accounting Standards Adopted in 2023
In June 2016,ASU No. 2016-13.On January 1, 2023, the FASB issuedCompany adopted the guidance under ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326),Losses: Measurement of Credit Losses on Financial Instruments. The amendments introduceintroduced an impairment model that is based on current expected credit losses (“CECL”), rather than incurred losses, to estimate credit losses on certain types of financial instruments, including loans, held-to-maturity securities and certain off-balance sheet financial instruments. The CECL should consider historical information, current information, and reasonable and supportable forecasts, including estimatesmain provisions of prepayments, over the contractual term. An entity must use judgment in determiningASU have been codified by the relevant information and estimation methods that are appropriate in its circumstances. Financial instruments with similar risk characteristics may be grouped together when estimating the CECL. The allowance for credit losses for purchasedFASB under ASC 326. ASC 326 requires financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured aton an amortized cost basis, is determined in a similar mannerincluding loans and held-to-maturity debt securities, to other financial assets measuredbe presented at amortized cost basis; however, the initial estimatean amount net of expected credit loss would be recognized through an allowance for credit losses, with an offset towhich reflects expected losses for the purchase price at acquisition. Only subsequent changes infull life of the financial asset. Unfunded lending commitments are also within the scope of ASC 326. Under former GAAP, credit losses were not recognized until the occurrence of the loss was probable and, as a result, the allowance for credit losses are recorded as a credit loss expense for these assets. The ASU also amends the current available-for-sale security impairment model for debt securities wherebydid not reflect an estimate of credit losses for the full life of financial assets.
In addition, ASC 326 requires expected credit related tolosses for available-for-sale debt securities shouldto be recorded through an allowance for credit losses.losses, while non-credit related losses will continue to be recognized through other comprehensive income. Under former GAAP, we assessed our investment securities for other-than-temporary impairment and any declines in fair value that were deemed other-than-temporary resulted in a direct write-down to the amortized cost basis of the related security. The amendments willallowance approach allows estimated expected credit losses to be adjusted from period-to-period, as opposed to a permanent write-down.
The Company applied through athe guidance under ASC 326 using the modified retrospective approach resultingwhich resulted in a cumulative-effectan adjustment to beginning retained earnings as of the beginning of the first reporting period in which the guidance is effective. On October 18, 2019, FASB approved an effective date delay applicable to smaller reporting companies and non-public business entities until Januaryfor 2023. The Company has electedinformation for reporting periods beginning on and after January 1, 2023 are presented under ASC 326, while prior periods continue to delay implementationbe reported in accordance with previously applicable GAAP. The following table illustrates the impact of the standard until January 2023. Currently, the Company has implemented a software application to assist in determining our allowance for loan losses under the CECL model and is in the process of evaluating certain methodologies. The impact upon adoption of this ASU is not known and may have a material effect on the Company’s Consolidated Financial Statements.ASC Topic 326.
| | | | | | | | | |
| | December 31, | | ASC 326 Adoption | | January 1, | |||
(Dollars in thousands) | | 2022 | | Impact | | 2023 | |||
Allowance for credit losses | | | | | | | | | |
One- to four-family residential | | $ | 1,224 | | $ | 158 | | $ | 1,382 |
Commercial real estate | | | 248 | | | (53) | | | 195 |
Construction and land | | | 74 | | | 40 | | | 114 |
Multi-family residential | | | 40 | | | 5 | | | 45 |
Commercial and industrial | | | 175 | | | 51 | | | 226 |
Consumer | | | 46 | | | 8 | | | 54 |
Total allowance for loan losses | | $ | 1,807 | | $ | 209 | | $ | 2,016 |
Unfunded lending commitments(1) | | | - | | | 216 | | | 216 |
Total allowance for credit losses | | $ | 1,807 | | $ | 425 | | $ | 2,232 |
| | | | | | | | | |
Retained Earnings | | | | | | | | | |
Total increase in the allowance for credit losses | | | | | $ | 425 | | | |
Tax effect | | | | | | (90) | | | |
Decrease to retained earnings, net of tax effect | | | | | $ | 335 | | | |
(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. |
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The amendments in this update require annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The disclosure requirements include (1) information about the nature of the transactions and the related accounting policy, (2) the line items on the financials statements that are impacted, and the amounts applicable to each line item and (3) significant terms and conditions of the transactions. The FASB is issued this update to increase the transparency of government assistance since diversity currently exists in the recognition, measurement, presentation and disclosure of government assistance received by business entities because of the lack of specific authoritative guidance in GAAP. The amendments in this update are effective for all entities within their scope for financial statements issued for annual periods beginning after
5862
December 15, 2021, howeverAt adoption of ASC 326, management also evaluated its securities portfolio for credit losses. The types of securities in the Company has elected early applicationCompany’s portfolio have a long history of minimal credit risk and management did not expect or estimate any credit losses to occur over the life of these assets.
For more detailed information on the Company’s accounting policies under ASC 326 and the calculation of the amendments. The applicable disclosures are presented inallowance for credit losses, see the “Investment Securities” and “Allowance for Credit Losses” subsections of this note under the subsection titled “Government Assistance”.note.
ASU No. 2022-02.
NOTE 2. COMPLETION OF STOCK OFFERING
On January 27, 2021,In March 2022, the Board of DirectorsFASB issued ASU 2022-02, Financial Instruments – Credit Losses (ASC 326): Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures. The amendments in this ASU respond to feedback received by the FASB during the post-implementation review of the Bank adoptedamendments included in ASU 2016-13. The amendments in ASU 2022-02 eliminate the accounting guidance for TDRs by creditors in ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors and enhance disclosure requirements for certain loan refinancings and restructurings by creditors when a planborrower is experiencing financial difficulty. Under the amendments in ASU 2022-02, an entity must apply the guidance under ASC 310-20 to determine whether a modification results in a new loan or a continuation of conversion (“Plan of Conversion”).an existing loan rather than applying the guidance for TDRs. The Plan of Conversion was approved by the Officeamendments in ASU 2022-02 were effective at adoption of the Comptrolleramendments in ASU 2016-13. The implementation of ASU 2022-02 did not materially impact the Currency and the Board of Governors of the Federal Reserve System and by a majority of the eligible voting members of the Bank at a special meeting. The Plan of Conversion provided that the Bank convert from the mutual to the stock-form of ownership (the “Conversion”) and establish a holding company, Catalyst Bancorp, as parent of the Bank. Pursuant to the Plan of Conversion, the Bank converted to the stock form of ownership, followed by the issuance of all of the Bank’s outstanding stock to the Company. The Company has been organized as a corporation under the laws of the State of Louisiana and owns all outstanding common stock of the Bank.Company’s financial statements or disclosures.
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 Conversion was accountedamendments in this ASU add specific requirements for as a changeincome tax disclosures to improve transparency and decision usefulness. The guidance in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result. In accordance with OCC regulations, at the time of the Conversion, the Bank established a liquidation account. The liquidation account must be maintained for the benefit of eligible account holders and supplemental eligible account holders who continue to maintain their accounts at the Bank after the Conversion. The liquidation account will be reduced annually to the extentASU 2023-09 requires that eligible holders and supplemental eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s or supplemental eligible account holder’s interestpublic business entities disclose specific categories in the liquidation account.income tax rate reconciliation and provide additional qualitative information for reconciling items that meet a quantitative threshold. In addition, the event of a complete liquidation by the Bank, and onlyamendments in such event, each eligible account holder and supplemental eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.
The Company is an emerging growth company, and, for as long as it continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies. The Company intends to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, its financial statements may not be comparable to the financial statements of public companiesASU 2023-09 require that comply with such new or revised accounting standards.
The Company completed its initial public offering (“IPO”) of stock in connection with the Bank’s conversion from the mutual to the stock form of organization on October 12, 2021. Information for periods prior to the completion of the Conversion are for the Bank only.
The Company issued a total of 5,290,000 shares of its common stock, par value $0.01 per share, for an aggregate of $52.9 million in total offering proceeds, including shares issued to the Company’s employee stock ownership plan (“ESOP”). The Company made a loan to the ESOP inall entities disclose the amount of $4.2 million, whichincome taxes paid disaggregated by federal, state, and foreign taxes and disaggregated by individual jurisdictions. The ASU also includes other disclosure amendments related to the ESOP useddisaggregation of income tax expense between federal, state and foreign taxes. The Company expects to purchase 423,200 shares. The Company’s common stock trades onadopt the Nasdaq Capital Market under the symbol “CLST”.
The costs of issuing the common stock were deferred and deducted from the sales proceeds of the IPO atamendments in ASU 2023-09 for periods beginning after December 31, 2021. Conversion costs totaled $2.1 million and $21,000 at December 31, 2021 and 2020, respectively. The net proceeds of the IPO of $50.8 million are reflected in the Company’s shareholders’ equity at December 31, 2021.
2024.
5963
NOTE 3.2. EARNINGS PER SHARE
Earnings per common share was computed based on the following:
| | | | | | | | ||
| | Year Ended December 31, | | Year Ended December 31, | |||||
(In thousands, except per share data) | | 2021 | | 2023 |
| 2022 | |||
Numerator |
| |
|
| |
|
| |
|
Net income available to common shareholders | | $ | 1,927 | | $ | 602 | | $ | 180 |
| | | | | | ||||
Denominator | |
|
| |
|
| |
|
|
Weighted average common shares outstanding | |
| 5,290 | |
| 4,972 | |
| 5,290 |
Weighted average unallocated ESOP shares | | | (421) | ||||||
Weighted average shares | | | 4,869 | ||||||
Weighted average unallocated common stock held by benefit plans | | | (589) | | | (433) | |||
Weighted average shares - basic | | | 4,383 | | 4,857 | ||||
Effect of dilutive stock-based awards: | | | | | | ||||
Stock options | | | - | | | - | |||
Restricted stock | | | 4 | | | - | |||
Weighted average shares - assuming dilution | | | 4,387 | | | 4,857 | |||
| | | | | | ||||
Basic earnings per common share | | $ | 0.40 | | $ | 0.14 | | $ | 0.04 |
Diluted earnings per common share | | | 0.14 | | 0.04 |
DuringDiluted earnings per share was computed using the treasury stock method. The weighted average of potentially dilutive common shares attributable to outstanding stock options that were anti-dilutive totaled 288,093 and 99,000 for the years ended December 31, 2023 and 2022, respectively, and were excluded from the calculation of diluted earnings per share. The weighted average of potentially dilutive common shares attributable to restricted stock that were anti-dilutive totaled 52,829 for the year ended December 31, 2021, there2023 and were 0 convertible securities or other contracts to issue common stock outstanding that if converted or exercised would result in potential dilutionexcluded from the calculation of diluted earnings per share. At andThere were no potentially dilutive common shares related to restricted stock awards that were anti-dilutive during the year ended December 31, 2020, the Company did not have any common shares outstanding. The Company completed its initial public offering (“IPO”) of stock in connection with the Bank’s conversion from the mutual to the stock form of organization on October 12, 2021.2022.
NOTE 4.3. 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:
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| December 31, 2021 |
| December 31, 2023 | ||||||||||||||||||||
(Dollars in thousands) | | Amortized Cost |
| Gross Unrealized Gains |
| Gross Unrealized Losses |
| Fair Value | | Amortized Cost |
| Gross Unrealized Gains |
| Gross Unrealized Losses |
| Fair Value | ||||||||
Securities available-for-sale | |
|
| |
|
| |
|
| |
| | |
|
| |
|
| |
|
| |
| |
Mortgage-backed securities | | $ | 75,374 | | $ | 87 | | $ | (798) | | $ | 74,663 | | $ | 65,704 | | $ | 14 | | $ | (8,206) | | $ | 57,512 |
U.S. Government and agency obligations | |
| 9,347 | |
| 1 | |
| (111) | |
| 9,237 | |
| 7,999 | |
| - | |
| (611) | |
| 7,388 |
Municipal obligations | |
| 4,482 | |
| - | |
| (43) | |
| 4,439 | |
| 5,998 | |
| 7 | |
| (365) | |
| 5,640 |
Total available-for-sale | | $ | 89,203 | | $ | 88 | | $ | (952) | | $ | 88,339 | | $ | 79,701 | | $ | 21 | | $ | (9,182) | | $ | 70,540 |
Securities held-to-maturity |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
U.S. Government and agency obligations | | $ | 13,019 | | $ | 23 | | $ | (375) | | $ | 12,667 | | $ | 13,003 | | $ | - | | $ | (2,210) | | $ | 10,793 |
Municipal obligations | |
| 479 | |
| 6 | |
| - | |
| 485 | |
| 458 | |
| - | |
| (24) | |
| 434 |
Total held-to-maturity | | $ | 13,498 | | $ | 29 | | $ | (375) | | $ | 13,152 | | $ | 13,461 | | $ | - | | $ | (2,234) | | $ | 11,227 |
6064
| | | | | | | | | | | | |
|
| December 31, 2022 | ||||||||||
(Dollars in thousands) | | Amortized Cost |
| Gross Unrealized Gains |
| Gross Unrealized Losses |
| Fair Value | ||||
Securities available-for-sale | |
|
| |
|
| |
|
| |
| |
Mortgage-backed securities | | $ | 74,044 | | $ | 15 | | $ | (9,892) | | $ | 64,167 |
U.S. Government and agency obligations | |
| 10,979 | |
| - | |
| (1,062) | |
| 9,917 |
Municipal obligations | |
| 6,065 | |
| 4 | |
| (551) | |
| 5,518 |
Total available-for-sale | | $ | 91,088 | | $ | 19 | | $ | (11,505) | | $ | 79,602 |
Securities held-to-maturity |
| |
|
| |
|
| |
|
| |
|
U.S. Government and agency obligations | | $ | 13,006 | | $ | - | | $ | (2,718) | | $ | 10,288 |
Municipal obligations | |
| 469 | |
| - | |
| (33) | |
| 436 |
Total held-to-maturity | | $ | 13,475 | | $ | - | | $ | (2,751) | | $ | 10,724 |
There were no securities transferred between classifications during the years ended December 31, 2023 and 2022. During the year ended December 31, 2023, the Company sold two available-for-sale investment securities for a total loss of $92,000. Proceeds from the sales totaled $1.9 million.
Accrued interest receivable on the Company’s investment securities totaled $241,000 and $257,000 at December 31, 2023 and 2022, respectively.
Investment securities with a carrying amount of $44.6 million and $20.4 million were pledged to secure public deposits as required or permitted by law at December 31, 2023 and 2022, respectively. At December 31, 2023, investment securities with a carrying value of $11.1 million were pledged to the Federal Reserve Bank of Atlanta as collateral for borrowings.
At December 31, 2023 and 2022, other than securities issued by U.S. Government agencies or U.S. Government sponsored enterprises, we had no investments in a single issuer which had an aggregate book value in excess of 10% of the Company’s shareholders’ equity.
The following is a summary of maturities of securities available-for-sale and held-to-maturity at December 31, 2023 and December 31, 2022:
| | | | | | | | | | | | |
| | 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 | | $ | 1,700 | | $ | 1,643 | | $ | - | | $ | - |
After one through five years | |
| 10,676 | |
| 10,226 | |
| 2,334 | |
| 2,095 |
After five through ten years | |
| 14,909 | |
| 13,673 | |
| 7,124 | |
| 5,899 |
After ten years | |
| 52,416 | |
| 44,998 | |
| 4,003 | |
| 3,233 |
Total | | $ | 79,701 | | $ | 70,540 | | $ | 13,461 | | $ | 11,227 |
| | | | | | | | | | | | |
| | December 31, 2022 | ||||||||||
| | Available-for-Sale | | Held-to-Maturity | ||||||||
(Dollars in thousands) |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
Amounts maturing in: |
| |
|
| |
|
| |
|
| |
|
One year or less | | $ | 1,000 | | $ | 962 | | $ | - | | $ | - |
After one through five years | |
| 11,496 | |
| 10,634 | |
| 2,343 | |
| 2,031 |
After five through ten years | |
| 17,139 | |
| 15,699 | |
| 7,125 | |
| 5,611 |
After ten years | |
| 61,453 | |
| 52,307 | |
| 4,007 | |
| 3,082 |
Total | | $ | 91,088 | | $ | 79,602 | | $ | 13,475 | | $ | 10,724 |
65
| | | | | | | | | | | | |
|
| December 31, 2020 | ||||||||||
(Dollars in thousands) | | Amortized Cost |
| Gross Unrealized Gains |
| Gross Unrealized Losses |
| Fair Value | ||||
Securities available-for-sale | |
|
| |
|
| |
|
| |
| |
Mortgage-backed securities | | $ | 15,968 | | $ | 179 | | $ | (7) | | $ | 16,140 |
U.S. Government and agency obligations | |
| 2,000 | |
| - | |
| (39) | |
| 1,961 |
Municipal obligations | |
| 2,628 | |
| 12 | |
| (11) | |
| 2,629 |
Total available-for-sale | | $ | 20,596 | | $ | 191 | | $ | (57) | | $ | 20,730 |
Securities held-to-maturity |
| |
|
| |
|
| |
|
| |
|
U.S. Government and agency obligations | | $ | 17,034 | | $ | 93 | | $ | (121) | | $ | 17,006 |
Municipal obligations | |
| 489 | |
| 10 | |
| - | |
| 499 |
Total held-to-maturity | | $ | 17,523 | | $ | 103 | | $ | (121) | | $ | 17,505 |
There were 0 securities transferred between classifications during the years ended December 31, 2021 and 2020.
Investment securities with a carrying amount of approximately $10.2 million and $6.9 million, respectively, were pledged to secure deposits as required or permitted by law at December 31, 2021 and December 31, 2020.
The following is a summary of maturities of securities available-for-sale and held-to-maturity and at December 31, 2021 and December 31, 2020:
| | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||
| | 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 | |
| 8,431 | |
| 8,396 | |
| - | |
| - |
After five through ten years | |
| 12,695 | |
| 12,604 | |
| 9,479 | |
| 9,157 |
After ten years | |
| 68,077 | |
| 67,339 | |
| 4,019 | |
| 3,995 |
Total | | $ | 89,203 | | $ | 88,339 | | $ | 13,498 | | $ | 13,152 |
| | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||
| | 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 | |
| 1 | |
| 1 | |
| - | |
| - |
After five through ten years | |
| 3,361 | |
| 3,355 | |
| 11,490 | |
| 11,452 |
After ten years | |
| 17,234 | |
| 17,374 | |
| 6,033 | |
| 6,053 |
Total | | $ | 20,596 | | $ | 20,730 | | $ | 17,523 | | $ | 17,505 |
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.
Information pertaining to securities with gross unrealized losses at December 31, 20212023 and December 31, 20202022 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:
| | | | | | | | | | | | | | | | | | |
| | 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 | | $ | 554 | | $ | (1) | | $ | 55,959 | | $ | (8,205) | | $ | 56,513 | | $ | (8,206) |
U.S. Government and agency obligations | |
| - | |
| - | |
| 7,388 | |
| (611) | |
| 7,388 | |
| (611) |
Municipal obligations | |
| - | |
| - | |
| 3,992 | |
| (365) | |
| 3,992 | |
| (365) |
Total available-for-sale | | $ | 554 | | $ | (1) | | $ | 67,339 | | $ | (9,181) | | $ | 67,893 | | $ | (9,182) |
Securities held-to-maturity |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
U.S. Government and agency obligations | | $ | - | | $ | - | | $ | 10,793 | | $ | (2,210) | | $ | 10,793 | | $ | (2,210) |
Municipal obligations | |
| - | |
| - | |
| 434 | |
| (24) | |
| 434 | |
| (24) |
Total held-to-maturity | | $ | - | | $ | - | | $ | 11,227 | | $ | (2,234) | | $ | 11,227 | | $ | (2,234) |
Total | | $ | 554 | | $ | (1) | | $ | 78,566 | | $ | (11,415) | | $ | 79,120 | | $ | (11,416) |
| | | | | | | | | | | | | | | | | | |
|
| December 31, 2022 | ||||||||||||||||
| | Less than 12 Months | | 12 Months or Greater | | Total | ||||||||||||
(Dollars in thousands) |
| Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | ||||||
Securities available-for-sale | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Mortgage-backed securities | | $ | 9,759 | | $ | (546) | | $ | 53,402 | | $ | (9,346) | | $ | 63,161 | | $ | (9,892) |
U.S. Government and agency obligations | |
| - | |
| - | |
| 9,917 | |
| (1,062) | |
| 9,917 | |
| (1,062) |
Municipal obligations | |
| 602 | |
| (16) | |
| 3,885 | |
| (535) | |
| 4,487 | |
| (551) |
Total available-for-sale | | $ | 10,361 | | $ | (562) | | $ | 67,204 | | $ | (10,943) | | $ | 77,565 | | $ | (11,505) |
Securities held-to-maturity |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
U.S. Government and agency obligations | | $ | - | | $ | - | | $ | 10,288 | | $ | (2,718) | | $ | 10,288 | | $ | (2,718) |
Municipal obligations | |
| 120 | |
| (6) | |
| 316 | |
| (27) | |
| 436 | |
| (33) |
Total held-to-maturity | | $ | 120 | | $ | (6) | | $ | 10,604 | | $ | (2,745) | | $ | 10,724 | | $ | (2,751) |
Total | | $ | 10,481 | | $ | (568) | | $ | 77,808 | | $ | (13,688) | | $ | 88,289 | | $ | (14,256) |
At December 31, 2023 and 2022, the Company held 92 and 96 securities, respectively, with an unrealized loss. The securities with unrealized losses consisted of government-sponsored mortgage-backed securities and debt obligations guaranteed by federal, state and local government entities. These unrealized losses relate principally to noncredit related factors, including changes in current interest rates for similar types of securities. Based on management’s evaluation of the securities portfolio, the Company has not established an allowance for credit losses for its available-for-sale or held-to-maturity securities at December 31, 2023.
6166
Under ASC 326, management evaluates available-for-sale securities in unrealized loss positions to determine if the decline in the fair value of each security below its amortized cost basis is due to credit-related factors or noncredit-related factors. See Note 1 for more information on the adoption of ASC 326.
Prior to the adoption of ASC 326, management evaluated securities for other-than-temporary impairment and, as of December 31, 2022, no declines in fair value were deemed to be other-than-temporary.
NOTE 4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable at December 31, 2023 and 2022 are summarized as follows:
| | | | | | |
| | December 31, | ||||
(Dollars in thousands) | | 2023 | | 2022 | ||
Real estate loans |
| |
|
| |
|
One- to four-family residential | | $ | 83,623 | | $ | 87,508 |
Commercial real estate | |
| 21,478 | |
| 19,437 |
Construction and land | |
| 13,857 | |
| 6,172 |
Multi-family residential | |
| 3,373 | |
| 3,200 |
Total real estate loans | | | 122,331 | | | 116,317 |
Other loans | | | | | | |
Commercial and industrial | | | 19,984 | | | 13,843 |
Consumer | |
| 2,605 | |
| 3,447 |
Total other loans | | | 22,589 | | | 17,290 |
Total loans | | | 144,920 | | | 133,607 |
Less: Allowance for loan losses | | | (2,124) | | | (1,807) |
Net loans | | $ | 142,796 | | $ | 131,800 |
At December 31, 2023 and 2022, real estate loans totaling $81.2 million and $64.1 million, respectively, were pledged as collateral to the FHLB of Dallas for borrowings under a blanket lien agreement.
Accrued interest receivable on the Company’s loans totaled $659,000 and $411,000 at December 31, 2023 and 2022, respectively. Accrued interest receivable is excluded from the Company’s estimate of the allowance for credit losses.
67
The following tables outline the changes in the allowance for credit losses by collateral type for the years ended December 31, 2023 and 2022.
| | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2023 | ||||||||||||||||
(Dollars in thousands) |
| Beginning Balance |
| | ASC 326 Adoption Impact(1) | | Provision (Reversal) |
| Charge-offs |
| Recoveries |
| Ending Balance | |||||
Allowance for credit losses |
| |
|
| | | | |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 1,224 | | $ | 158 | | $ | (184) | | $ | (67) | | $ | 109 | | $ | 1,240 |
Commercial real estate | |
| 248 | |
| (53) | |
| 18 | |
| - | |
| - | |
| 213 |
Construction and land | |
| 74 | |
| 40 | |
| 169 | |
| - | |
| - | |
| 283 |
Multi-family residential | |
| 40 | |
| 5 | |
| 5 | |
| - | |
| - | |
| 50 |
Commercial and industrial | |
| 175 | |
| 51 | |
| 75 | |
| - | |
| 1 | |
| 302 |
Consumer | |
| 46 | |
| 8 | |
| 4 | |
| (35) | |
| 13 | |
| 36 |
Total for loans | | $ | 1,807 | | $ | 209 | | $ | 87 | | $ | (102) | | $ | 123 | | $ | 2,124 |
Unfunded lending commitments(2) | | | - | | | 216 | | | 41 | | | - | | | - | | | 257 |
Total | | $ | 1,807 | | $ | 425 | | $ | 128 | | $ | (102) | | $ | 123 | | $ | 2,381 |
(1) | Refer to Note 1 for more information on the adoption of ASC 326. |
(2) | 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. |
| | | | | | | | | | | | | | | | | | |
|
| | | | For the Year Ended December 31, 2022 | |||||||||||||
(Dollars in thousands) |
| | | | Beginning Balance |
| Provision (Reversal) | | Charge-offs |
| Recoveries |
| Ending Balance | |||||
Allowance for loan losses |
| | | | |
|
| |
| | |
|
| |
|
| |
|
One- to four-family residential | | $ | 1,573 | | $ | (280) | | $ | (154) | | $ | 85 | | $ | 1,224 | |||
Commercial real estate | |
| 370 | |
| (122) | |
| - | |
| - | |
| 248 | |||
Construction and land | |
| 55 | |
| 19 | |
| - | |
| - | |
| 74 | |||
Multi-family residential | |
| 73 | |
| (33) | |
| - | |
| - | |
| 40 | |||
Commercial and industrial | |
| 137 | |
| 37 | |
| (21) | |
| 22 | |
| 175 | |||
Consumer | |
| 68 | |
| 4 | |
| (35) | |
| 9 | |
| 46 | |||
Total | | $ | 2,276 | | $ | (375) | | $ | (210) | | $ | 116 | | $ | 1,807 |
68
The following tables outline the allowance for loan losses and the balance of loans by method of loss evaluation at December 31, 2023 and 2022.
| | | | | | | | | | | | | | | | | | |
|
| December 31, 2023 |
| December 31, 2022 | ||||||||||||||
(Dollars in thousands) | | Individually Evaluated | | Collectively Evaluated | | Total | | Individually Evaluated | | Collectively Evaluated | | Total | ||||||
Allowance for loan losses |
| |
|
| | |
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 127 | | $ | 1,113 | | $ | 1,240 | | $ | 216 | | $ | 1,008 | | $ | 1,224 |
Commercial real estate | | | - | |
| 213 | |
| 213 | |
| - | |
| 248 | |
| 248 |
Construction and land | | | 46 | |
| 237 | |
| 283 | |
| - | |
| 74 | |
| 74 |
Multi-family residential | | | - | |
| 50 | |
| 50 | |
| - | |
| 40 | |
| 40 |
Commercial and industrial | | | - | |
| 302 | |
| 302 | |
| - | |
| 175 | |
| 175 |
Consumer | | | - | |
| 36 | |
| 36 | |
| - | |
| 46 | |
| 46 |
Total | | $ | 173 | | $ | 1,951 | | $ | 2,124 | | $ | 216 | | $ | 1,591 | | $ | 1,807 |
Loans | |
|
| |
|
| |
| | |
|
| |
|
| |
| |
One- to four-family residential | | $ | 989 | | $ | 82,634 | | $ | 83,623 | | $ | 2,712 | | $ | 84,796 | | $ | 87,508 |
Commercial real estate | |
| 50 | |
| 21,428 | |
| 21,478 | |
| 51 | | | 19,386 | |
| 19,437 |
Construction and land | |
| 132 | |
| 13,725 | |
| 13,857 | |
| 33 | |
| 6,139 | |
| 6,172 |
Multi-family residential | |
| - | |
| 3,373 | |
| 3,373 | |
| - | |
| 3,200 | |
| 3,200 |
Commercial and industrial | |
| - | |
| 19,984 | |
| 19,984 | |
| - | |
| 13,843 | |
| 13,843 |
Consumer | |
| - | | | 2,605 | |
| 2,605 | |
| - | |
| 3,447 | |
| 3,447 |
Total | | $ | 1,171 | | $ | 143,749 | | $ | 144,920 | | $ | 2,796 | | $ | 130,811 | | $ | 133,607 |
At December 31, 2023 all loans individually evaluated for credit losses, totaling $1.2 million, 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 residential real estate loans secured by one- to four-family residential properties located in our market.
69
| | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||||||||
| | Less than 12 Months | | 12 Months or Greater | | Total | ||||||||||||
(Dollars in thousands) |
| Fair Value |
| Gross Unrealized Losses |
| Fair Value |
| Gross Unrealized Losses |
| Fair Value |
| Gross Unrealized Losses | ||||||
Securities available-for-sale | |
|
| |
|
| |
|
| |
|
| |
| | |
| |
Mortgage-backed securities | | $ | 68,412 | | $ | (746) | | $ | 1,889 | | $ | (52) | | $ | 70,301 | | $ | (798) |
U.S. Government and agency obligations | |
| 5,697 | |
| (24) | |
| 1,913 | |
| (87) | |
| 7,610 | |
| (111) |
Municipal obligations | |
| 3,283 | |
| (24) | |
| 1,156 | |
| (19) | |
| 4,439 | |
| (43) |
Total available-for-sale | | $ | 77,392 | | $ | (794) | | $ | 4,958 | | $ | (158) | | $ | 82,350 | | $ | (952) |
Securities held-to-maturity |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
U.S. Government and agency obligations | | $ | 1,940 | | $ | (61) | | $ | 7,685 | | $ | (314) | | $ | 9,625 | | $ | (375) |
Municipal obligations | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - |
Total held-to-maturity | | $ | 1,940 | | $ | (61) | | $ | 7,685 | | $ | (314) | | $ | 9,625 | | $ | (375) |
Total | | $ | 79,332 | | $ | (855) | | $ | 12,643 | | $ | (472) | | $ | 91,975 | | $ | (1,327) |
A summary of current, past due and nonaccrual loans as of December 31, 2023 and 2022 follows:
| | | | | | | | | | | | | | | | | | |
|
| December 31, 2020 | ||||||||||||||||
| | 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 | | $ | 4,010 | | $ | (7) | | $ | - | | $ | - | | $ | 4,010 | | $ | (7) |
U.S. Government and agency obligations | |
| 1,961 | |
| (39) | |
| - | |
| - | |
| 1,961 | |
| (39) |
Municipal obligations | |
| 1,751 | |
| (11) | |
| - | |
| - | |
| 1,751 | |
| (11) |
Total available-for-sale | | $ | 7,722 | | $ | (57) | | $ | - | | $ | - | | $ | 7,722 | | $ | (57) |
Securities held-to-maturity |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
U.S. Government and agency obligations | | $ | 7,879 | | $ | (121) | | $ | - | | $ | - | | $ | 7,879 | | $ | (121) |
Total held-to-maturity | | $ | 7,879 | | $ | (121) | | $ | - | | $ | - | | $ | 7,879 | | $ | (121) |
Total | | $ | 15,601 | | $ | (178) | | $ | - | | $ | - | | $ | 15,601 | | $ | (178) |
| | | | | | | | | | | | | | | | | | | | | |
|
| 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 | | $ | 2,391 | | $ | 24 | | $ | 1,103 | | $ | 3,518 | | $ | 79,333 | | $ | 772 | | $ | 83,623 |
Commercial real estate | |
| 126 | |
| - | |
| 50 | |
| 176 | |
| 21,302 | |
| - | |
| 21,478 |
Construction and land | |
| - | |
| - | |
| - | |
| - | |
| 13,815 | |
| 42 | |
| 13,857 |
Multi-family residential | |
| - | |
| - | |
| - | |
| - | |
| 3,373 | |
| - | |
| 3,373 |
Commercial and industrial | |
| 46 | |
| - | |
| - | |
| 46 | |
| 19,938 | |
| - | |
| 19,984 |
Consumer | |
| 12 | |
| - | |
| - | |
| 12 | |
| 2,593 | |
| - | |
| 2,605 |
Total | | $ | 2,575 | | $ | 24 | | $ | 1,153 | | $ | 3,752 | | $ | 140,354 | | $ | 814 | | $ | 144,920 |
| | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2022 | |||||||||||||||||||
(Dollars in thousands) |
| Past Due 30-89 Days and Accruing |
| Past Due Over 90 Days and Accruing |
| Past Due Over 30 Days and Non-accruing |
| Total Past Due |
| Current and Accruing |
| Current and Non-accruing |
| Total Loans | |||||||
One- to four-family residential | | $ | 2,077 | | $ | 191 | | $ | 716 | | $ | 2,984 | | $ | 83,848 | | $ | 676 | | $ | 87,508 |
Commercial real estate | |
| 166 | |
| - | |
| 51 | |
| 217 | |
| 19,220 | |
| - | |
| 19,437 |
Construction and land | |
| 156 | |
| - | |
| 18 | |
| 174 | |
| 5,965 | |
| 33 | |
| 6,172 |
Multi-family residential | |
| - | |
| - | |
| - | |
| - | |
| 3,200 | |
| - | |
| 3,200 |
Commercial and industrial | |
| - | |
| - | |
| - | |
| - | |
| 13,843 | |
| - | |
| 13,843 |
Consumer | |
| 6 | |
| - | |
| - | |
| 6 | |
| 3,441 | |
| - | |
| 3,447 |
Total | | $ | 2,405 | | $ | 191 | | $ | 785 | | $ | 3,381 | | $ | 129,517 | | $ | 709 | | $ | 133,607 |
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the lengthA summary of time and the extent to which that fair value has been less than cost, the financial condition and near-term prospectstotal nonaccrual loans as of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
At December 31, 2021, there were 67 securities with an unrealized loss, compared2023 and 2022 follows:
| | | | | | | | | | | | |
| | | | | | | | | | | December 31, | |
| | December 31, 2023 | | 2022 | ||||||||
(Dollars in thousands) | | With Allowance for Credit Loss | | Without Allowance for Credit Loss | | Total | | Total | ||||
Nonaccrual loans | | | | | | | | | | | | |
One- to four-family residential | | $ | 1,564 | | $ | 311 | | $ | 1,875 | | $ | 1,392 |
Commercial real estate | | | - | | | 50 | | | 50 | | | 51 |
Construction and land | | | 42 | | | - | | | 42 | | | 51 |
Multi-family residential | | | - | | | - | | | - | | | - |
Commercial and industrial | | | - | | | - | | | - | | | - |
Consumer | | | - | | | - | | | - | | | - |
Total | | $ | 1,606 | | $ | 361 | | $ | 1,967 | | $ | 1,494 |
The Company was not committed to 8 securities with an unrealized losslend any additional funds on nonaccrual loans at December 31, 2020.2023 or 2022. The Company does not recognize interest income while loans are on nonaccrual status. All payments received while on nonaccrual status are applied against the principal balance of those securities were either guaranteed by federal, state and local governments or secured by mortgagenonaccrual loans. These unrealized losses relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies, or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the intent and ability to hold securities until maturity, or for the foreseeable future if classified as available-for-sale, 0 declines were deemed to be other-than-temporary.
6270
NOTE 5. LOANS RECEIVABLEAt December 31, 2023, loans secured by residential and commercial real estate for which formal foreclosure proceedings were in process totaled $345,000 and $50,000, respectively. At December 31, 2022, loans secured by residential and commercial real estate for which formal foreclosure proceedings were in process totaled $331,000 and $50,000, respectively.
Loans receivableOccasionally 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 December 31, 2023 and 2022, loans with modifications for borrowers experiencing financial difficulty totaled $683,000 and $1.0 million, respectively. During the years ended December 31, 2023 and 2022, the Company did not grant any loan modifications to borrowers experiencing financial difficulty that resulted in a more than minor change in the timing or amount of contractual cash flows. The Company was not committed to lend any additional funds to borrowers with modified terms and experiencing financial difficulty at December 31, 2021 and2023 or 2022.
Information on impaired loans as of December 31, 2020 are summarized as2022 follows:
| | | | | | | | | | | | | | |||||
| | December 31, |
| December 31, 2022 | ||||||||||||||
(Dollars in thousands) | | 2021 | | 2020 | | Recorded Investment Without an Allowance | | Recorded Investment With an Allowance | | Unpaid Principal | | Related Allowance | ||||||
Real estate loans |
| |
|
| |
| ||||||||||||
One- to four-family residential | | $ | 87,303 | | $ | 99,869 | | $ | 1,843 | | $ | 869 | | $ | 3,149 | | $ | 216 |
Commercial real estate | |
| 23,112 | |
| 30,304 | |
| 51 | |
| - | |
| 52 | |
| - |
Construction and land | |
| 4,079 | |
| 5,591 | |
| 33 | |
| - | |
| 42 | |
| - |
Multi-family residential | |
| 4,589 | |
| 4,801 | |
| - | |
| - | |
| - | |
| - |
Total real estate loans | | | 119,083 | | | 140,565 | ||||||||||||
Other loans | | | | | | | ||||||||||||
Commercial and industrial | | | 8,374 | | | 6,736 | |
| - | |
| - | |
| - | |
| - |
Consumer | |
| 4,385 | |
| 4,499 | |
| - | |
| - | |
| - | |
| - |
Total other loans | | | 12,759 | | | 11,235 | ||||||||||||
Total loans | | | 131,842 | | | 151,800 | ||||||||||||
Less: Allowance for loan losses | | | (2,276) | | | (3,022) | ||||||||||||
Net loans | | $ | 129,566 | | $ | 148,778 | ||||||||||||
Total | | $ | 1,927 | | $ | 869 | | $ | 3,243 | | $ | 216 |
The following tables outlinetable below presents the changes in the allowanceaverage balances and interest income for loan losses by collateral typeimpaired loans for the yearsyear ended December 31, 2021 and 2020.2022.
| | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2021 | |||||||||||||
(Dollars in thousands) |
| Beginning Balance |
| Provision (Reversal) |
| Charge-offs |
| Recoveries |
| Ending Balance | |||||
Allowance for loan losses |
| |
|
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 1,910 | | $ | (268) | | $ | (123) | | $ | 54 | | $ | 1,573 |
Commercial real estate | |
| 744 | |
| (374) | |
| - | |
| - | |
| 370 |
Construction & land | |
| 82 | |
| (27) | |
| - | |
| - | |
| 55 |
Multi-family residential | |
| 68 | |
| 5 | |
| - | |
| - | |
| 73 |
Commercial and industrial | |
| 101 | |
| 36 | |
| - | |
| - | |
| 137 |
Consumer | |
| 78 | |
| 7 | |
| (27) | |
| 10 | |
| 68 |
Unallocated | |
| 39 | |
| (39) | |
| - | |
| - | |
| - |
Total | | $ | 3,022 | | $ | (660) | | $ | (150) | | $ | 64 | | $ | 2,276 |
| | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | |
| | | | | | Year Ended | |||||
|
| For the Year Ended December 31, 2020 | | | | | | | December 31, 2022 | ||||||||||||||||||
(Dollars in thousands) |
| Beginning Balance |
| Provision (Reversal) |
| Charge-offs |
| Recoveries |
| Ending Balance | | | | | | | | Average Recorded Investment | | Interest Income Recognized | |||||||
Allowance for loan losses |
| |
|
| |
|
| |
|
| |
|
| |
| ||||||||||||
One- to four-family residential | | $ | 1,162 | | $ | 765 | | $ | (84) | | $ | 67 | | $ | 1,910 | | | | | | | $ | 2,824 | | $ | 58 | |
Commercial real estate | |
| 637 | |
| 107 | |
| - | |
| - | |
| 744 | | | | | | | 51 | | - | |||
Construction & land | |
| 57 | |
| 25 | |
| - | |
| - | |
| 82 | ||||||||||||
Construction and land | | | | | | | 35 | | - | ||||||||||||||||||
Multi-family residential | |
| 76 | |
| (8) | |
| (1) | |
| 1 | |
| 68 | | | | | | | - | | - | |||
Commercial and industrial | |
| 12 | |
| 89 | |
| (15) | |
| 15 | |
| 101 | | | | | | | - | | - | |||
Consumer | |
| 80 | |
| 15 | |
| (40) | |
| 23 | |
| 78 | | | | | | | | - | | | - | |
Unallocated | |
| 47 | |
| (8) | |
| - | |
| - | |
| 39 | ||||||||||||
Total | | $ | 2,071 | | $ | 985 | | $ | (140) | | $ | 106 | | $ | 3,022 | | | | | | | $ | 2,910 | | $ | 58 |
6371
The following tables outline the allowance for loan losses for loans individually and collectively evaluated for impairment, and the carrying amount loans individually and collectively evaluated for impairment at December 31, 2021 and December 31, 2020.
| | | | | | | | | | | | | | | | | | |
|
| December 31, 2021 |
| December 31, 2020 | ||||||||||||||
(Dollars in thousands) | | Individually Evaluated | | Collectively Evaluated | | Total | | Individually Evaluated | | Collectively Evaluated | | Total | ||||||
Allowance for loan losses |
| |
|
| | |
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 319 | | $ | 1,254 | | $ | 1,573 | | $ | 599 | | $ | 1,311 | | $ | 1,910 |
Commercial real estate | | | - | |
| 370 | |
| 370 | |
| - | |
| 744 | |
| 744 |
Construction & land | | | - | |
| 55 | |
| 55 | |
| - | |
| 82 | |
| 82 |
Multi-family residential | | | - | |
| 73 | |
| 73 | |
| - | |
| 68 | |
| 68 |
Commercial and industrial | | | 17 | |
| 120 | |
| 137 | |
| - | |
| 101 | |
| 101 |
Consumer | | | - | |
| 68 | |
| 68 | |
| - | |
| 78 | |
| 78 |
Unallocated | | | - | |
| - | |
| - | |
| - | |
| 39 | |
| 39 |
Total | | $ | 336 | | $ | 1,940 | | $ | 2,276 | | $ | 599 | | $ | 2,423 | | $ | 3,022 |
Loans | |
|
| |
|
| |
| | |
|
| |
|
| |
| |
One- to four-family residential | | $ | 2,266 | | $ | 85,037 | | $ | 87,303 | | $ | 2,754 | | $ | 97,115 | | $ | 99,869 |
Commercial real estate | |
| - | |
| 23,112 | |
| 23,112 | |
| - | | | 30,304 | |
| 30,304 |
Construction & land | |
| 37 | |
| 4,042 | |
| 4,079 | |
| 41 | |
| 5,550 | |
| 5,591 |
Multi-family residential | |
| - | |
| 4,589 | |
| 4,589 | |
| 1,205 | |
| 3,596 | |
| 4,801 |
Commercial and industrial | |
| 18 | |
| 8,356 | |
| 8,374 | |
| 3 | |
| 6,733 | |
| 6,736 |
Consumer | |
| - | | | 4,385 | |
| 4,385 | |
| - | |
| 4,499 | |
| 4,499 |
Total | | $ | 2,321 | | $ | 129,521 | | $ | 131,842 | | $ | 4,003 | | $ | 147,797 | | $ | 151,800 |
A summary of current, past due and nonaccrual loans as of December 31, 2021 and December 31, 2020 follows:
| | | | | | | | | | | | | | | | | | | | | |
|
| As of December 31, 2021 | |||||||||||||||||||
(Dollars in thousands) | | Past Due 30-89 Days and Accruing |
| Past Due Over 90 Days and Accruing |
| Past Due Over 30 Days and Non-accruing |
| Total Past Due |
| Current and Accruing |
| Current and Non-accruing |
| Total Loans | |||||||
One- to four-family residential | | $ | 2,116 | | $ | - | | $ | 411 | | $ | 2,527 | | $ | 84,396 | | $ | 380 | | $ | 87,303 |
Commercial real estate | |
| 133 | |
| - | |
| - | |
| 133 | |
| 22,979 | |
| - | |
| 23,112 |
Construction and land | |
| 62 | |
| - | |
| 31 | |
| 93 | |
| 3,949 | |
| 37 | |
| 4,079 |
Multi-family residential | |
| - | |
| - | |
| - | |
| - | |
| 4,589 | |
| - | |
| 4,589 |
Commercial & industrial | |
| - | |
| - | |
| 17 | |
| 17 | |
| 8,356 | |
| 1 | |
| 8,374 |
Consumer | |
| 32 | |
| 1 | |
| 13 | |
| 46 | |
| 4,339 | |
| - | |
| 4,385 |
Total | | $ | 2,343 | | $ | 1 | | $ | 472 | | $ | 2,816 | | $ | 128,608 | | $ | 418 | | $ | 131,842 |
64
| | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2020 | |||||||||||||||||||
(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 | | $ | 1,842 | | $ | 367 | | $ | 164 | | $ | 2,373 | | $ | 96,874 | | $ | 622 | | $ | 99,869 |
Commercial real estate | |
| 192 | |
| - | |
| - | |
| 192 | |
| 30,112 | |
| - | |
| 30,304 |
Construction and land | |
| 154 | |
| - | |
| 41 | |
| 195 | |
| 5,396 | |
| - | |
| 5,591 |
Multi-family residential | |
| - | |
| - | |
| - | |
| - | |
| 4,801 | |
| - | |
| 4,801 |
Commercial & industrial | |
| 94 | |
| - | |
| - | |
| 94 | |
| 6,639 | |
| 3 | |
| 6,736 |
Consumer | |
| 38 | |
| 13 | |
| - | |
| 51 | |
| 4,448 | |
| - | |
| 4,499 |
Total | | $ | 2,320 | | $ | 380 | | $ | 205 | | $ | 2,905 | | $ | 148,270 | | $ | 625 | | $ | 151,800 |
The Company was not committed to lend any additional funds on nonaccrual loans at December 31, 2021 or December 31, 2020.
A troubled debt restructuring (“TDR”) is considered such if the lender, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. Information pertaining to loans modified and treated as TDRs during the years ended December 31, 2021 and 2020 follows:
| | | | | | | | |
| | | | Recorded Investment | ||||
(Dollars in thousands) | | Number of Contracts | | Pre-modification | | Post-modification | ||
December 31, 2021 |
|
|
| |
|
| |
|
One- to four-family residential |
| 3 | | $ | 186 | | $ | 189 |
Total |
| 3 | | $ | 186 | | $ | 189 |
| | | | | | | | |
| | | | Recorded Investment | ||||
(Dollars in thousands) | | Number of Contracts | | Pre-modification | | Post-modification | ||
December 31, 2020 |
|
|
| |
|
| |
|
One- to four-family residential |
| 17 | | $ | 1,458 | | $ | 1,487 |
Multi-family residential |
| 1 | | | 1,185 | | | 1,216 |
Total |
| 18 | | $ | 2,643 | | $ | 2,703 |
Troubled debt restructured loans were modified to defer principal and interest or extend maturity on average for three months. All 3 loans modified during the year ended December 31, 2021 defaulted after modification. During 2020, 14 one- to four-family residential loans totaling $1.0 million defaulted within twelve months of modification. The modifications and defaults did not have a significant impact on the determination of the allowance for loan losses. The Company has 0 commitments to loan additional funds to the borrowers whose loans have been modified.
65
Information on impaired loans as of December 31, 2021 and December 31, 2020 follows:
| | | | | | | | | | | | | | | | | | |
|
| As of and for the Year Ended December 31, 2021 | ||||||||||||||||
(Dollars in thousands) | | Recorded Investment Without an Allowance | | Recorded Investment With an Allowance | | Unpaid Principal | | Related Allowance | | Average Recorded Investment | | Interest Income Recognized | ||||||
One- to four-family residential | | $ | 1,153 | | $ | 1,113 | | $ | 3,128 | | $ | 319 | | $ | 2,365 | | $ | 67 |
Commercial real estate | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - |
Construction & land | |
| 37 | |
| - | |
| 44 | |
| - | |
| 39 | |
| - |
Multi-family residential | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - |
Commercial & industrial | |
| 1 | |
| 17 | |
| 21 | |
| 17 | |
| 20 | |
| 2 |
Consumer | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - |
Total | | $ | 1,191 | | $ | 1,130 | | $ | 3,193 | | $ | 336 | | $ | 2,424 | | $ | 69 |
| | | | | | | | | | | | | | | | | | |
|
| As of and for the Year Ended December 31, 2020 | ||||||||||||||||
(Dollars in thousands) | | Recorded Investment Without an Allowance | | Recorded Investment With an Allowance | | Unpaid Principal | | Related Allowance | | Average Recorded Investment | | Interest Income Recognized | ||||||
One- to four-family residential | | $ | 1,640 | | $ | 1,114 | | $ | 3,586 | | $ | 599 | | $ | 2,824 | | $ | 88 |
Commercial real estate | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - |
Construction & land | |
| 41 | |
| - | |
| 46 | |
| - | |
| 43 | |
| - |
Multi-family residential | |
| 1,205 | |
| - | |
| 1,205 | |
| - | |
| 1,205 | |
| 57 |
Commercial & industrial | |
| 3 | |
| - | |
| 7 | |
| - | |
| 4 | |
| - |
Consumer | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - |
Total | | $ | 2,889 | | $ | 1,114 | | $ | 4,844 | | $ | 599 | | $ | 4,076 | | $ | 145 |
66
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. Internally assigned grade: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 on aat least quarterly basis in conjunction with the determination of the adequacy of the allowance for loancredit losses.
| | | | | | | | | | | | | | | |
| | December 31, 2021 | |||||||||||||
(Dollars in thousands) |
| Pass |
| Special Mention |
| Substandard |
| Doubtful |
| Total | |||||
One- to four-family residential | | $ | 83,405 | | $ | 504 | | $ | 3,394 | | $ | - | | $ | 87,303 |
Commercial real estate | |
| 20,995 | |
| 2,058 | |
| 59 | |
| - | |
| 23,112 |
Construction & land | |
| 3,990 | |
| - | |
| 89 | |
| - | |
| 4,079 |
Multi-family residential | |
| 3,419 | |
| 1,170 | |
| - | |
| - | |
| 4,589 |
Commercial & industrial | |
| 8,356 | |
| - | |
| 18 | |
| - | |
| 8,374 |
Consumer | |
| 4,372 | |
| - | |
| 13 | |
| - | |
| 4,385 |
Total | | $ | 124,537 | | $ | 3,732 | | $ | 3,573 | | $ | - | | $ | 131,842 |
| | | | | | | | | | | | | | | |
| | December 31, 2020 | |||||||||||||
(Dollars in thousands) |
| Pass |
| Special Mention |
| Substandard |
| Doubtful |
| Total | |||||
One- to four-family residential | | $ | 93,464 | | $ | 1,843 | | $ | 4,562 | | $ | - | | $ | 99,869 |
Commercial real estate | |
| 28,217 | |
| 2,022 | |
| 65 | |
| - | |
| 30,304 |
Construction & land | |
| 5,368 | |
| 133 | |
| 90 | |
| - | |
| 5,591 |
Multi-family residential | |
| 3,457 | |
| - | |
| 1,344 | |
| - | |
| 4,801 |
Commercial & industrial | |
| 6,543 | |
| 171 | |
| 22 | |
| - | |
| 6,736 |
Consumer | |
| 4,434 | |
| 33 | |
| 32 | |
| - | |
| 4,499 |
Total | | $ | 141,483 | | $ | 4,202 | | $ | 6,115 | | $ | - | | $ | 151,800 |
6772
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 | | $ | 2,733 | | $ | 10,979 | | $ | 3,271 | | $ | 2,949 | | $ | 3,048 | | $ | 53,462 | | $ | 1,449 | | $ | 2,904 | | $ | 80,795 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | 24 | | | - | | | 11 | | | 122 | | | 131 | | | 2,540 | | | - | | | - | | | 2,828 |
Doubtful | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Total | | $ | 2,757 | | $ | 10,979 | | $ | 3,282 | | $ | 3,071 | | $ | 3,179 | | $ | 56,002 | | $ | 1,449 | | $ | 2,904 | | $ | 83,623 |
Commercial real estate | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 4,476 | | $ | 1,974 | | $ | 2,008 | | $ | 4,308 | | $ | 3,423 | | $ | 4,168 | | $ | 90 | | $ | 527 | | $ | 20,974 |
Special Mention | | | - | | | 108 | | | 104 | | | - | | | - | | | - | | | - | | | - | | | 212 |
Substandard | | | 242 | | | - | | | - | | | - | | | - | | | 50 | | | - | | | - | | | 292 |
Doubtful | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Total | | $ | 4,718 | | $ | 2,082 | | $ | 2,112 | | $ | 4,308 | | $ | 3,423 | | $ | 4,218 | | $ | 90 | | $ | 527 | | $ | 21,478 |
Construction and land | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 56 | | $ | 182 | | $ | 56 | | $ | 67 | | $ | 24 | | $ | 426 | | $ | 12,872 | | $ | - | | $ | 13,683 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | 132 | | | - | | | 13 | | | - | | | 29 | | | - | | | - | | | 174 |
Doubtful | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Total | | $ | 56 | | $ | 314 | | $ | 56 | | $ | 80 | | $ | 24 | | $ | 455 | | $ | 12,872 | | $ | - | | $ | 13,857 |
Multi-family residential | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 380 | | $ | - | | $ | 470 | | $ | - | | $ | 271 | | $ | 2,252 | | $ | - | | $ | - | | $ | 3,373 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Doubtful | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Total | | $ | 380 | | $ | - | | $ | 470 | | $ | - | | $ | 271 | | $ | 2,252 | | $ | - | | $ | - | | $ | 3,373 |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 5,717 | | $ | 2,097 | | $ | 767 | | $ | 300 | | $ | 292 | | $ | 50 | | $ | 10,761 | | $ | - | | $ | 19,984 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Doubtful | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Total | | $ | 5,717 | | $ | 2,097 | | $ | 767 | | $ | 300 | | $ | 292 | | $ | 50 | | $ | 10,761 | | $ | - | | $ | 19,984 |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 1,004 | | $ | 451 | | $ | 527 | | $ | 270 | | $ | 171 | | $ | 182 | | $ | - | | $ | - | | $ | 2,605 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Doubtful | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Total | | $ | 1,004 | | $ | 451 | | $ | 527 | | $ | 270 | | $ | 171 | | $ | 182 | | $ | - | | $ | - | | $ | 2,605 |
Total | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 14,366 | | $ | 15,683 | | $ | 7,099 | | $ | 7,894 | | $ | 7,229 | | $ | 60,540 | | $ | 25,172 | | $ | 3,431 | | $ | 141,414 |
Special Mention | | | - | | | 108 | | | 104 | | | - | | | - | | | - | | | - | | | - | | | 212 |
Substandard | | | 266 | | | 132 | | | 11 | | | 135 | | | 131 | | | 2,619 | | | - | | | - | | | 3,294 |
Doubtful | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Total | | $ | 14,632 | | $ | 15,923 | | $ | 7,214 | | $ | 8,029 | | $ | 7,360 | | $ | 63,159 | | $ | 25,172 | | $ | 3,431 | | $ | 144,920 |
73
The following table presents gross charge-offs and recoveries for the year ended December 31, 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 | | | | | | | | | | | | | | | | | | | | | |
One- to four-family residential | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 67 | | $ | 67 |
Consumer | | | 6 | | | 7 | | | 13 | | | 1 | | | 2 | | | 6 | | | 35 |
Total | | $ | 6 | | $ | 7 | | $ | 13 | | $ | 1 | | $ | 2 | | $ | 73 | | $ | 102 |
Recoveries | | | | | | | | | | | | | | | | | | | | | |
One- to four-family residential | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 109 | | $ | 109 |
Commercial and industrial | | | - | | | - | | | - | | | - | | | - | | | 1 | | | 1 |
Consumer | | | - | | | 1 | | | 2 | | | 1 | | | - | | | 9 | | | 13 |
Total | | $ | - | | $ | 1 | | $ | 2 | | $ | 1 | | $ | - | | $ | 119 | | $ | 123 |
The following table presents the Company’s loan portfolio by credit quality classification as of December 31, 2022.
| | | | | | | | | | | | | | | |
| | December 31, 2022 | |||||||||||||
(Dollars in thousands) |
| Pass |
| Special Mention |
| Substandard |
| Doubtful |
| Total | |||||
One- to four-family residential | | $ | 84,219 | | $ | 171 | | $ | 3,118 | | $ | - | | $ | 87,508 |
Commercial real estate | |
| 19,334 | |
| - | |
| 103 | |
| - | |
| 19,437 |
Construction and land | |
| 5,822 | |
| 291 | |
| 59 | |
| - | |
| 6,172 |
Multi-family residential | |
| 3,200 | |
| - | |
| - | |
| - | |
| 3,200 |
Commercial and industrial | |
| 13,843 | |
| - | |
| - | |
| - | |
| 13,843 |
Consumer | |
| 3,447 | |
| - | |
| - | |
| - | |
| 3,447 |
Total | | $ | 129,865 | | $ | 462 | | $ | 3,280 | | $ | - | | $ | 133,607 |
NOTE 6.5. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 20212023 and December 31, 20202022 are summarized as follows:
| | | | | | | | | ||||
| | December 31, | | December 31, | ||||||||
(Dollars in thousands) | | 2021 | | 2020 | | 2023 | | 2022 | ||||
Land | | $ | 1,732 | | $ | 1,443 | | $ | 1,767 | | $ | 1,767 |
Buildings and improvements | |
| 6,013 | |
| 5,058 | |
| 6,150 | |
| 6,116 |
Furniture, fixtures and equipment | |
| 1,763 | |
| 1,514 | |
| 1,881 | |
| 1,743 |
Automobiles | |
| 92 | |
| 122 | |
| 92 | |
| 92 |
Renovation in process | |
| 13 | |
| 5 | ||||||
Total premises and equipment | |
| 9,613 | |
| 8,142 | |
| 9,890 | |
| 9,718 |
Accumulated depreciation | |
| (3,036) | |
| (2,653) | |
| (3,818) | |
| (3,415) |
Total premises and equipment, net | | $ | 6,577 | | $ | 5,489 | | $ | 6,072 | | $ | 6,303 |
Depreciation expense totaled $424,000$403,000 and $347,000$448,000 for the years ended December 31, 20212023 and 2020.2022, respectively.
74
NOTE 7.6. DEPOSITS
Deposits at December 31, 20212023 and 20202022 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | ||
| | December 31, 2021 | | December 31, 2020 | | December 31, 2023 | | December 31, 2022 | ||||||||||||||||
(Dollars in thousands) | | Amount |
| Percent | | Amount |
| Percent | | Amount |
| Percent | | Amount |
| Percent | ||||||||
Non-interest-bearing deposits | | $ | 30,299 |
| 17.1 | % | | $ | 26,169 |
| 15.9 | % | ||||||||||||
Negotiable order of withdrawal (“NOW”) | |
| 34,357 |
| 19.4 | | |
| 30,890 |
| 18.8 | | ||||||||||||
Non-interest-bearing demand deposits | | $ | 28,183 |
| 17.0 | % | | $ | 33,657 |
| 20.4 | % | ||||||||||||
Interest-bearing demand deposits | |
| 36,867 |
| 22.3 | | |
| 36,991 |
| 22.4 | | ||||||||||||
Money market | |
| 18,878 |
| 10.7 | | |
| 15,989 |
| 9.7 | | |
| 15,126 |
| 9.1 | | |
| 15,734 |
| 9.5 | |
Savings | |
| 26,698 |
| 15.1 | | |
| 22,209 |
| 13.5 | | |
| 31,518 |
| 19.0 | | |
| 26,209 |
| 15.9 | |
Certificates of deposit | |
| 66,563 |
| 37.7 | | |
| 69,341 |
| 42.1 | | |
| 53,928 |
| 32.6 | | |
| 52,503 |
| 31.8 | |
Total deposits | | $ | 176,795 |
| 100.0 | % | | $ | 164,598 |
| 100.0 | % | | $ | 165,622 |
| 100.0 | % | | $ | 165,094 |
| 100.0 | % |
The estimated amount of our total uninsured deposits (that is, deposits in excess of the FDIC’s insurance limit) was $44.6 million and $43.4 million at December 31, 2023 and 2022, respectively.
Certificates of deposit and other time deposits issued in denominations that exceed FDIC insurance limit of $250,000 or more totaled $14.5$11.2 million and $14.4$8.9 million at December 31, 20212023 and 2020,2022, respectively, and are included in interest-bearing deposits in the statements of financial condition.
At December 31, 20212023 scheduled maturities of certificates of deposits were as follows:
| | | |
(Dollars in thousands) | | Amount | |
2022 | | $ | 50,051 |
2023 | |
| 12,976 |
2024 | |
| 2,459 |
2025 | |
| 1,077 |
2026 | |
| - |
Total | | $ | 66,563 |
| | | |
(Dollars in thousands) | | Amount | |
2024 | | $ | 45,467 |
2025 | |
| 6,774 |
2026 | |
| 1,068 |
2027 | |
| 459 |
2028 | |
| 160 |
Total | | $ | 53,928 |
6875
NOTE 8.7. BORROWED FUNDS
Borrowed funds at December 31, 20212023 and December 31, 20202022 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | ||||
| | December 31, | | December 31, | ||||||||||||||||||||
| | 2021 | | 2020 | | 2023 | | 2022 | ||||||||||||||||
(Dollars in thousands) |
| Rate | | Amount |
| Rate | | Amount |
| Rate | | Amount |
| Rate | | Amount | ||||||||
Advances from Federal Home Loan Bank |
| 0.65 | % | | $ | 3,000 |
| 0.65 | % | | $ | 3,000 | ||||||||||||
Advance from Federal Reserve Bank of Atlanta |
| 4.83 | % | | $ | 10,000 |
| - | % | | $ | - | ||||||||||||
| | | | | | | | | | | ||||||||||||||
Advances from Federal Home Loan Bank of Dallas |
| 0.65 | % | | $ | 3,000 |
| 0.65 | % | | $ | 3,000 | ||||||||||||
|
| 0.96 | % | |
| 3,000 |
| 0.96 | % | |
| 3,000 |
| 0.96 | | |
| 3,000 |
| 0.96 | | |
| 3,000 |
|
| 1.12 | % | |
| 4,000 |
| 1.12 | % | |
| 4,000 |
| 1.12 | | |
| 4,000 |
| 1.12 | | |
| 4,000 |
|
| | | |
| 10,000 | | | | |
| 10,000 |
| | | |
| 10,000 | | | | |
| 10,000 |
Debt modification discount |
| | | |
| (982) |
| | | |
| (1,162) | ||||||||||||
Debt modification discount on FHLB Advances |
| | | |
| (622) |
| | | |
| (802) | ||||||||||||
| | | | | $ | 9,018 | | | | | $ | 8,838 | | | | | | 9,378 | | | | | | 9,198 |
| | | | | | | | | | | | | ||||||||||||
Total borrowings | | | | | $ | 19,378 | | | | | $ | 9,198 |
During the fourth quarter of 2023, the Bank began borrowing from the Federal Reserve Bank of Atlanta through its Bank Term Funding Program (“BTFP”). At December 31, 2023, the Bank had one $10.0 million BTFP loan outstanding with a maturity date of December 27, 2024.
In December of 2020, the Bank undertook a restructuring of its FHLB long-term borrowings. A total of $15.0 million was paid off, with resulting prepayment penalties of $1.5 million being charged to earnings. The remainingrestructured $10.0 million of its long-term borrowings from the FHLB. The debt was restructured to longer maturities at current interest rates. An additionalA prepayment penalty for the restructuring of $1.2 million was treated as a discount on the debt. The deferred prepayment penalty is amortized into interest expense using the interest method over the life of the restructured borrowings.
Interest payments are due at maturity for the advance from the Federal Reserve Bank of Atlanta and are due monthly andfor FHLB advances. A schedule of maturities for borrowings outstanding at December 31, 2023 are as follows:
| | | | |||
| | | | | | |
(Dollars in thousands) |
| Amount |
| Amount | ||
Amounts maturing in: | | | | | | |
2022 | | $ | — | |||
2023 | | | — | |||
2024 | | | — | | $ | 10,000 |
2025 | |
| 3,000 | | | 3,000 |
2026 | |
| — | | | - |
Thereafter | |
| 7,000 | |||
2027 | |
| 3,000 | |||
2028 | |
| 4,000 | |||
Total | | $ | 10,000 | | $ | 20,000 |
At December 31, 20212023 and December 31, 2020,2022, the Company had the ability to borrow advances up to $50.5$48.5 million and $54.7$34.2 million, respectively, in available borrowing capacity with Federal Home Loan Bank. Federal Home Loan Bank advances at December 31, 2021 and December 31, 2020 werethe FHLB. Borrowings from the FHLB are secured by loans totaling $76.8 million and $78.7 million, respectively, throughthough a blanket floating lien on real estate loans. Refer to Note 4 for more detail on loans pledged to the FHLB.
At December 31, 2023 the Company had $2.2 million in available borrowing capacity with the Federal Home Loan Bank.Reserve Bank of Atlanta. Borrowings from the Federal Reserve are secured by pledging investment securities. Refer to Note 3 for more detail on pledged investment securities.
The Company hasOther available funding includes an Unsecured Federal Funds Master Purchase Agreement with First National Bankers BankFNBB for $17.8 million. At December 31, 20212023 and December 31, 2020, this2022, these credit facility wasfacilities were unused.
6976
NOTE 9.8. INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 20212023 and 20202022 are summarized as follows:
| | | | | | | | | | | | |
| | December 31, | | Year Ended December 31, | ||||||||
(Dollars in thousands) |
| 2021 |
| 2020 |
| 2023 |
| 2022 | ||||
Federal: |
| |
|
| |
|
| |
|
| |
|
Current | | $ | 332 | | $ | (587) | | $ | 93 | | $ | - |
Deferred | |
| 155 | |
| 113 | |
| (12) | |
| (21) |
Total income tax expense (benefit) | | $ | 487 | | $ | (474) | | $ | 81 | | $ | (21) |
Total income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 21 percent in 20212023 and 20202022 to income before income taxes as a result of the following:
| | | | | | | | | | | | |
| | December 31, | | Year Ended December 31, | ||||||||
(Dollars in thousands) |
| 2021 |
| 2020 |
| 2023 |
| 2022 | ||||
Expected income tax expense (benefit) at federal tax rate | | $ | 507 | | $ | (247) | ||||||
Expected income tax expense at federal tax rate | | $ | 143 | | $ | 33 | ||||||
Bank-owned life insurance income | |
| (19) | |
| (15) | |
| (86) | |
| (66) |
Tax free investment securities income | |
| (8) | |
| (10) | |
| (15) | |
| (13) |
Benefit from NOL carryback | |
| - | |
| (196) | ||||||
Nondeductible stock-based compensation expense | | | 4 | | | - | | | 36 | | | 24 |
Other | |
| 3 | |
| (6) | |
| 3 | |
| 1 |
Total income tax expense (benefit) | | $ | 487 | | $ | (474) | | $ | 81 | | $ | (21) |
Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities. The net deferred tax assets and liabilities in the accompanying statements of financial condition include the following components:
| | | | | | | | | | | | |
| | December 31, | | December 31, | ||||||||
(Dollars in thousands) |
| 2021 |
| 2020 |
| 2023 |
| 2022 | ||||
Deferred tax assets: |
| |
|
| |
|
| |
|
| |
|
Allowance for loan losses | | $ | 77 | | $ | 235 | | $ | 97 | | $ | - |
Net unrealized losses on available-for-sale securities | |
| 181 | |
| — | |
| 1,924 | |
| 2,412 |
Foreclosed assets | |
| 44 | |
| 33 | |
| - | |
| 102 |
Stock-based compensation | | | 56 | | | 31 | ||||||
Other | |
| 95 | |
| 58 | |
| 54 | |
| 45 |
Deferred tax assets | |
| 397 | |
| 326 | |
| 2,131 | |
| 2,590 |
Deferred tax liabilities: | |
|
| |
|
| |
|
| |
|
|
Net unrealized gains on available-for-sale securities | |
| — | |
| (29) | ||||||
Allowance for loan losses | | | - | | | (24) | ||||||
FHLB stock | |
| (119) | |
| (118) | |
| (136) | |
| (122) |
FHLB debt modification discount | |
| (206) | |
| (244) | |
| (131) | |
| (168) |
Premises and equipment, net | |
| (401) | |
| (357) | |
| (328) | |
| (353) |
Deferred tax liabilities: | |
| (726) | |
| (748) | ||||||
Deferred tax liabilities | |
| (595) | |
| (667) | ||||||
Net deferred tax asset (liability) | | $ | (329) | | $ | (422) | | $ | 1,536 | | $ | 1,923 |
Retained earnings at December 31, 20212023 and 20202022 include approximately $1.9 million accumulated prior to January 1, 1987, for which 0no deferred federal income tax liability has been recognized. This amount represents an allocation of income to bad-debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad-debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then-current corporate income tax rate.
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NOTE 10.9. CAPITAL REQUIREMENTS AND OTHER REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by its primary federal regulator, the Office of the Comptroller of the Currency (“OCC”). Failure to meet minimum regulatory capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements.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 judgementsjudgments 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:of total risk-based capital, Tier 1 Capital to risk-weighted assets, and Tier 1 Capital to adjusted total assets. As of December 31, 20212023 and 2020,2022, the Bank met all of the capital adequacy requirements to which it is subject.
At December 31, 20212023 and 2020,2022, 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 | | Actual | | To be Well Capitalized under the Prompt Corrective Action Provision | ||||||||||||||||
(Dollars in thousands) |
| Amount |
| Ratio | | Amount |
| Ratio |
| Amount |
| Ratio | | Amount |
| Ratio | ||||||||
As of December 31, 2021 | | | | | | | | | | | | |||||||||||||
As of December 31, 2023 | | | | | | | | | | | | |||||||||||||
Common Equity Tier 1 Capital | | $ | 77,819 | | 63.51 | % | | $ | 7,965 | | >6.5 | % | | $ | 79,468 | | 52.34 | % | | $ | 9,870 | | >6.5 | % |
Tier 1 Risk-Based Capital | |
| 77,819 | | 63.51 | | |
| 9,803 | | >8.0 | | |
| 79,468 | | 52.34 | | |
| 12,147 | | >8.0 | |
Total Risk-Based Capital | |
| 79,360 | | 64.77 | | |
| 12,253 | | >10.0 | | |
| 81,371 | | 53.59 | | |
| 15,184 | | >10.0 | |
Tier 1 Leverage Capital | |
| 77,819 | | 27.38 | | |
| 14,210 | | >5.0 | | |
| 79,468 | | 31.67 | | |
| 12,546 | | >5.0 | |
| | | | | | | | | | | | | | | | | | | | | | | ||
As of December 31, 2020 | |
|
| |
| | |
|
| |
| | ||||||||||||
As of December 31, 2022 | |
|
| |
| | |
|
| |
| | ||||||||||||
Common Equity Tier 1 Capital | | $ | 50,426 | | 40.92 | % | | $ | 8,010 | | >6.5 | % | | $ | 78,527 | | 56.17 | % | | $ | 9,087 | | >6.5 | % |
Tier 1 Risk-Based Capital | |
| 50,426 | | 40.92 | | |
| 9,858 | | >8.0 | | |
| 78,527 | | 56.17 | | |
| 11,184 | | >8.0 | |
Total Risk-Based Capital | |
| 52,118 | | 42.29 | | |
| 12,323 | | >10.0 | | |
| 80,275 | | 57.42 | | |
| 13,980 | | >10.0 | |
Tier 1 Leverage Capital | |
| 50,426 | | 21.06 | | |
| 11,970 | | >5.0 | | |
| 78,527 | | 30.37 | | |
| 12,929 | | >5.0 | |
Share Repurchase Plans
During the year ended December 31, 2023, the Company repurchased 528,674 shares of its common stock at an average cost per share of $11.94 through the completion of repurchases of 265,000 shares under its January 2023 Repurchase Plan and 252,000 under its April 2023 Repurchase Plan, and the repurchase of another 11,674 shares pursuant to a third repurchase plan announced in November (the “November 2023 Repurchase Plan”). At December 31, 2023, the Company had common shares outstanding of 4,761,326 and 228,326 of those shares were available for repurchase under the November 2023 Repurchase Plan.
The Company’s Board of Directors approved the November 2023 Repurchase Plan on November 21, 2023. Under the November 2023 Repurchase Plan, the Company may purchase up to 240,000 shares, or approximately 5%, of the Company’s outstanding common stock.
78
NOTE 11.10. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has and expects to continue to have transactions, including borrowings, with its officers and directors. In the opinion of management, such transactions were on substantially the same terms, including collateral, as those prevailing at the time of comparable transactions with other persons and did not involve more than normal risk of collectability or present any other unfavorable features to the Company. Loans to such borrowers at December 31, 20212023 and 20202022 are summarized as follows:
| | | | | | | | | | | | |
| | December 31, | | December 31, | ||||||||
(Dollars in thousands) |
| 2021 |
| 2020 |
| 2023 |
| 2022 | ||||
Balance at beginning of year | | $ | 1,846 | | $ | 1,967 | | $ | 2,731 | | $ | 2,529 |
Changes in related party status | | | (80) | | | (279) | | | (503) | | | 252 |
Originations | |
| 954 | |
| 300 | |
| 73 | |
| 307 |
Repayments | |
| (191) | |
| (142) | |
| (288) | |
| (357) |
Balance at end of year | | $ | 2,529 | | $ | 1,846 | | $ | 2,013 | | $ | 2,731 |
Deposits from directors and officers totaled $2.3$4.4 million and $2.1$6.1 million at December 31, 20212023 and 2020,2022, respectively.
71
NOTE 12.11. 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 theour financial statements.
In addition, theThe Company is a defendantnot involved in variousany pending legal proceedings arisingas a plaintiff or defendant other than routine legal proceedings occurring in connection with its business. It is the best judgmentordinary course of management that neitherbusiness, and at December 31, 2023, we were not involved in any legal proceedings, the outcome of which would be material to our financial position norcondition or results of operations of the Company will be materially affected by the final outcome of these legal proceedings.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.
79
NOTE 13.12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
| | | | | | |
| | Contract or Notional Amount at | ||||
| | December 31, | ||||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Financial instruments with off-balance-sheet risk: | |
| | |
| |
Commitments to originate loans | | $ | 4,865 | | $ | 82 |
Unused lines of credit | | | 2,740 | | | 1,971 |
Undisbursed portion of construction loans in process | | | 1,122 | | | 1,007 |
Unused overdraft privilege amounts | | | 1,075 | | | 1,004 |
Letters of credit | | | 2 | | | 500 |
Total | | $ | 9,804 | | $ | 4,564 |
| | | | | | |
| | Contract or Notional Amount at | ||||
| | December 31, | ||||
(Dollars in thousands) |
| 2023 |
| 2022 | ||
Financial instruments with off-balance-sheet risk: | |
| | |
| |
Commitments to originate loans | | $ | 141 | | $ | 1,960 |
Undisbursed portion of construction loans in process | | | 12,914 | | | 7,212 |
Unused lines of credit | | | 18,093 | | | 12,453 |
Unused overdraft privilege amounts | | | 1,142 | | | 1,132 |
Letters of credit | | | 2 | | | 4 |
Total | | $ | 32,292 | | $ | 22,761 |
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since some of the commitments may possibly expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral usually consists of a first mortgage on the underlying properties.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements and are secured by passbook accounts or certificates of deposit. All letters of credit are required to be renewed annually, if applicable. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
On January 1, 2023 and at adoption of ASC 326, the Company recorded an allowance for credit losses on unfunded lending commitments of $216,000. Refer to Note 1 for more information on the adoption of ASC 326. 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. At December 31, 2023, the allowance for credit losses for unfunded lending commitments totaled $257,000. Refer to Note 4 for more information on changes to the allowance for credit losses for unfunded lending commitments during the year ended December 31, 2023.
7280
NOTE 14.13. BENEFIT PLANS
401(k) Plan
The Company’s 401(k) defined contribution plan allows active participants to elect to contribute, inon a tax deferred basis, a portion of their compensation not to exceed the dollar limit set by law. During the year ended December 31, 2020, all full-time employees over the age of 21 who worked more than 1,000 hours in a year and were employed for one year were eligible to participate in the plan. During the year ended December 31, 2021, theThe plan was amended to allowallows employees to become eligible participants after completing one month of service and enter the 401(k) plan on a monthly basis.monthly. For the years ended December 31, 20212023 and 2020,2022, participants were permitted to make salary deferral contributions in any amountpercentage up to 100% of theirthe participant’s plan salary upsalary. Total contributions by each participant during each year were limited to the maximum percentage of compensationamount allowed by law and the Company made matching contributions in amount equal to 50% of the participant’s elective deferral.law. The Company made matching percentage contributions up to 4% of $148,000the participant’s plan salary during 2023 and $112,000 for2022.
The Company incurred expense of $107,000 and $128,000 due to matching contributions during the years ended December 31, 20212023 and 2020,2022, respectively, in connection with the plan, which are included in salaries and employee benefits expense in the Consolidated Statementsstatements of Income.income.
Employee Stock Ownership Plan
In October 2021, the Company established an employee stock ownership plan (“ESOP”) for the benefit of all employees of the Company. Employees of the Company who have worked at least 500 hours in the first six months of employment and who have attained the age of 18 are eligible to participate in the ESOP. The Company made a loan to the ESOP in the amount of $4.2 million, which the ESOP used to purchase 423,200 shares. It is anticipated that contributions will be made to the ESOP in amounts necessary to amortize the debt to the Company over a period of 20 years.
The leveraged ESOP is accounted for in accordance with the guidance under ASC 718, Compensation – Stock Compensation.Compensation. Under ASC 718, unearned or unallocated ESOP shares are not considered outstanding for financial reporting purposes and are shown as a reduction of shareholders’ equity as unearned compensation. unallocated shares held by benefit plans. At December 31, 2023 and 2022, unallocated ESOP shares had a carrying value of $3.8 million and $4.0 million, respectively.
The Company recognizes compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, the differential is credited to shareholders’ equity. The Company receives a tax deduction equal to the cost of the shares released. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a Company liability. During 2021,For each of the years ended December 31, 2023 and 2022, the ESOP allocated 5,290 shares and compensation21,160 shares. Compensation expense related to the ESOP totaled $73,000.$245,000 and $281,000 for the years ended December 31, 2023 and 2022, respectively. At December 31, 2021,2023 and 2022, there were 375,590 and 396,750 unallocated ESOP shares, totaled 417,910 and hadrespectively, with fair valuevalues of approximately $5.7$4.1 million and $5.0 million, respectively, based on closing quoted market price per share as of year-end.such dates.
Stock-based Compensation Plans
In March 2022, the Board of Directors adopted the 2022 Stock Option Plan and the 2022 Recognition and Retention Plan and Trust Agreement (“2022 Recognition and Retention Plan”), which were approved by shareholders at our annual meeting on May 17, 2022. Under the terms of both plans, officers, employees and directors selected by the Compensation Committee of the Board of Directors are eligible to receive benefits. The Company granted the initial awards under the 2022 Stock Option Plan and 2022 Recognition and Retention Plan on September 1, 2022.
81
Stock Options
A total of 529,000 shares of common stock, or 10% of the shares sold in the conversion offering, have been reserved for the future issuance pursuant to the 2022 Stock Option Plan. Options to acquire shares of common stock will be awarded with an exercise price no less than the fair market value of the common stock on the grant date. All stock options granted have been issued with a five-year vesting period.
The Company estimates the fair value of each option granted using the Black-Scholes option pricing model. The following key management assumptions were used to value the options granted during the years ended December 31:
| | | | | |
(Dollars in thousands) | | 2023 | | 2022 | |
Expected life (in years) | | 6.50 | | | 6.50 |
Expected volatility | | 33.73% | | | 32.55% |
Expected dividend yield | | 1.50% | | | 1.50% |
Risk free rate | | 4.27% | | | 3.26% |
The following table summarizes stock option activity for the periods indicated.
| | | | | | | | | | | |
Stock options | | Number of Options | | Weighted Average Exercise Price | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Term (Years) | |||
Outstanding, December 31, 2021 | | - | | $ | - | | $ | - | | | |
Granted | | 295,340 | | | 13.30 | | | 4.36 | | | |
Forfeited | | - | | | - | | | - | | | |
Exercised | | - | | | - | | | - | | | |
Outstanding, December 31, 2022 | | 295,340 | | | 13.30 | | | 4.36 | | | 9.67 |
Granted | | 21,160 | | | 11.30 | | | 4.04 | | | |
Forfeited | | (21,160) | | | 13.30 | | | 4.36 | | | |
Exercised | | - | | | - | | | - | | | |
Outstanding, December 31, 2023 | | 295,340 | | $ | 13.16 | | $ | 4.34 | | | 8.76 |
| | | | | | | | | | | |
Exercisable at December 31, 2023 | | 54,836 | | $ | 13.30 | | $ | 4.36 | | | 8.67 |
Total stock option expense, allocated between salaries and employee benefits expense and directors’ fees, was $234,000 and $86,000 for the years ended December 31, 2023 and 2022, respectively. At December 31, 2023, there was $960,000 of unrecognized compensation cost related to stock options which is expected to be recognized over a period of 3.8 years.
82
Restricted Stock
Under the terms of the 2022 Recognition and Retention Plan, the Company contributed sufficient funds to the Recognition and Retention Plan Trust for the purchase of 211,600 shares of common stock, or 4.0% of the shares sold in the conversion offering. At December 31, 2023, 189,432 shares of unallocated restricted stock were held by the 2022 Recognition and Retention Plan Trust with a carrying value of $2.5 million. At December 31, 2022, 179,808 shares of unallocated restricted stock were held by the 2022 Recognition and Retention Plan Trust with a carrying value of $2.3 million. Unallocated shares of restricted stock awards are not considered outstanding for financial reporting purposes and are shown as a reduction of shareholders’ equity as unallocated shares held by benefit plans. All restricted stock awards granted have been issued with a five-year vesting period.
The following table summarizes restricted stock award activity for the periods indicated.
| | | | | |
Restricted Stock | | Number of Shares | | Weighted Average Grant Date Fair Value | |
Unvested awards, December 31, 2021 | | - | | $ | - |
Granted | | 119,336 | | | 13.30 |
Forfeited | | - | | | - |
Vested | | - | | | - |
Unvested awards, December 31, 2022 | | 119,336 | | | 13.30 |
Granted | | 8,464 | | | 11.30 |
Forfeited | | (8,464) | | | 13.30 |
Vested | | (22,168) | | | 13.30 |
Unvested awards, December 31, 2023 | | 97,168 | | $ | 13.13 |
Total restricted stock expense, allocated between salaries and employee benefits expense and directors’ fees, was $289,000 and $105,000 for the years ended December 31, 2023 and 2022, respectively. At December 31, 2023, there was $1.2 million of unrecognized compensation cost related to restricted stock awards which is expected to be recognized over a period of 3.8 years.
NOTE 15.14. CONCENTRATION OF CREDIT
The largest segment of the Company’s lending activity is concentrated primarily in St. Landry Parish, Evangeline Parish, Acadia Parish, and Lafayette Parish, Louisiana,total loan portfolio consists of one- to four-family residential real estate loans, the majority of which are largelysecured by residential properties located in rural areas that rely heavily oncommunities of the agricultural and oil and gas industries. The Company’s major emphasis in lending has beenAcadiana region. Accordingly, the originationultimate collectability of permanent single- family dwelling loans, and such loans comprise the majoritya substantial portion of the Company’s loan portfolio.portfolio and the recovery of the carrying amount of foreclosed assets are dependent upon local economic conditions.
The Company maintains deposit accounts at other financial institutions which periodically exceed the federally insured limits. Management believes that the risk is limited because of the nature and financial strength of the institutions involved.
7383
NOTE 16.15. 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.
Fair value measurements of assets and liabilities measured on a recurring basis at December 31, 20212023 and 20202022 follow:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at Reporting Date Using | | Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||
(Dollars in thousands) |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||
December 31, 2021 | |
| | |
| | |
| | |
| | ||||||||||||
December 31, 2023 | |
| | |
| | |
| | |
| | ||||||||||||
Available-for-sale securities | | $ | 88,339 | | $ | - | | $ | 88,339 | | $ | - | | $ | 70,540 | | $ | - | | $ | 70,540 | | $ | - |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2020 | |
| | |
| | |
| | |
| | ||||||||||||
December 31, 2022 | |
| | |
| | |
| | |
| | ||||||||||||
Available-for-sale securities | | $ | 20,730 | | $ | - | | $ | 20,730 | | $ | - | | $ | 79,602 | | $ | - | | $ | 79,602 | | $ | - |
Fair value measurements of assets and liabilities measured on a nonrecurring basis at December 31, 20212023 and 20202022 follow:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at Reporting Date Using | | Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||
(Dollars in thousands) |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||
December 31, 2021 | |
| | |
| | |
| | |
| | ||||||||||||
Impaired loans | | $ | 1,020 | | $ | - | | $ | - | | $ | 1,020 | ||||||||||||
December 31, 2023 | |
| | |
| | |
| | |
| | ||||||||||||
Loans individually evaluated for credit losses | | $ | 374 | | $ | - | | $ | - | | $ | 374 | ||||||||||||
Foreclosed assets | | | 340 | |
| - | |
| - | |
| 340 | | | 60 | |
| - | |
| - | |
| 60 |
Total | | $ | 1,360 | | $ | - | | $ | - | | $ | 1,360 | | $ | 434 | | $ | - | | $ | - | | $ | 434 |
December 31, 2020 | |
| | | | | | | | | | | ||||||||||||
Impaired loans | | $ | 953 | | $ | - | | $ | - | | $ | 953 | ||||||||||||
December 31, 2022 | |
| | | | | | | | | | | ||||||||||||
Loans individually evaluated for credit losses | | $ | 898 | | $ | - | | $ | - | | $ | 898 | ||||||||||||
Foreclosed assets | | | 415 | | | - | | | - | | | 415 | | | 320 | | | - | | | - | | | 320 |
Total | | $ | 1,368 | | $ | - | | $ | - | | $ | 1,368 | | $ | 1,218 | | $ | - | | $ | - | | $ | 1,218 |
At December 31, 20212023 and 2020, impaired2022, individually evaluated loans with a recorded investment of $1.4 million$547,000 and $1.6$1.1 million, respectively, have been written down to their fair value by a charge to the allowance for loan losses. Foreclosed assets are written down to fair value by a charge to earnings through foreclosed asset expense. During the yearsyear ended December 31, 2021 and 2020,2023, the Company incurred total losses on the sale of foreclosed assets of $66,000. During the year ended December 31, 2022, no impairment losses on foreclosed assets totaled $75,000 and $166,000, respectively.were recognized.
The fair value of impaired loans individually evaluated and foreclosed assets areis estimated using current appraised valuesthird-party appraisals of the collateral or asset held less estimated costs to sell and discounts to reflect current market conditions.
7484
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. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments
The methods and assumptions used to estimate the fair value of each class of financial instruments of which it is practicable to estimate that value are described in Note 1 – Summary of Significant Accounting Policies.
The estimated fair values of the Company’s financial instruments as of December 31, 20212023 and December 31, 20202022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2023 | ||||||||||||||||||||||||||
(Dollars in thousands) |
| Carrying Amount |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Carrying Amount |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||||
Financial Assets: | |
| | |
| | |
| | | |
| | |
| |
| | |
| | |
| | | |
| | |
|
Cash and cash equivalents | | $ | 40,884 | | $ | 40,884 | | $ | 40,884 |
| $ | - |
| $ | - | | $ | 19,011 | | $ | 19,011 | | $ | 19,011 |
| $ | - |
| $ | - |
Investment securities: | |
|
| |
|
| |
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
Available-for-sale | |
| 88,339 | |
| 88,339 | |
| - |
|
| 88,339 |
|
| - | |
| 70,540 | |
| 70,540 | |
| - |
|
| 70,540 |
|
| - |
Held-to-maturity | |
| 13,498 | |
| 13,152 | |
| - |
|
| 13,152 |
|
| - | |
| 13,461 | |
| 11,227 | |
| - |
|
| 11,227 |
|
| - |
Loans receivable, net | |
| 129,566 | |
| 128,591 | |
| - |
|
| - |
|
| 128,591 | |
| 142,796 | |
| 132,742 | |
| - |
|
| - |
|
| 132,742 |
Bank-owned life insurance | | | 3,303 | | | 3,303 | | | - | | | 3,303 | | | - | | | 14,026 | | | 14,026 | | | - | | | 14,026 | | | - |
Financial Liabilities: | |
|
| |
|
| |
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
Deposits | |
| 176,795 | |
| 176,869 | |
| - |
|
| 176,869 |
|
| - | |
| 165,622 | |
| 164,710 | |
| - |
|
| 164,710 |
|
| - |
Borrowed funds | |
| 9,018 | |
| 8,720 | |
| - |
|
| 8,720 |
|
| - | |
| 19,378 | |
| 18,807 | |
| - |
|
| 18,807 |
|
| - |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2022 | ||||||||||||||||||||||||||
(Dollars in thousands) |
| Carrying Amount |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Carrying Amount |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||||
Financial Assets: |
| |
|
| |
|
| |
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
Cash and cash equivalents | | $ | 25,245 | | $ | 25,245 | | $ | 25,245 |
| $ | - |
| $ | - | | $ | 13,472 | | $ | 13,472 | | $ | 13,472 |
| $ | - |
| $ | - |
Investment securities: | |
|
| |
|
| |
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
Available-for-sale | |
| 20,730 | |
| 20,730 | |
| - |
|
| 20,730 |
|
| - | |
| 79,602 | |
| 79,602 | |
| - |
|
| 79,602 |
|
| - |
Held-to-maturity | |
| 17,523 | |
| 17,505 | |
| - |
|
| 17,505 |
|
| - | |
| 13,475 | |
| 10,724 | |
| - |
|
| 10,724 |
|
| - |
Loans receivable, net | |
| 148,778 | |
| 148,674 | |
| - |
|
| - |
|
| 148,674 | |
| 131,800 | |
| 121,208 | |
| - |
|
| - |
|
| 121,208 |
Bank-owned life insurance | | | 3,213 | | | 3,213 | | | - | | | 3,213 | | | - | | | 13,617 | | | 13,617 | | | - | | | 13,617 | | | - |
Financial Liabilities: | |
|
| |
|
| |
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
Deposits | |
| 164,598 | |
| 164,951 | |
| - |
|
| 164,951 |
|
| - | |
| 165,094 | |
| 163,797 | |
| - |
|
| 163,797 |
|
| - |
Borrowed funds | |
| 8,838 | |
| 9,052 | |
| - |
|
| 9,052 |
|
| - | |
| 9,198 | |
| 8,484 | |
| - |
|
| 8,484 |
|
| - |
The carrying amounts in the preceding tablestable are included in the statement of financial condition under the applicable captions. It is not practical to estimate the fair value of Federal Home Loan Bank (“FHLB”) and First National Bankers Bank stock in correspondent banks because theythe equity securities are not marketable. The carrying amount of investments without readily determinable fair value isare reported in the statements of financial condition at historical cost.
7585
NOTE 17.16. CONDENSED PARENT COMPANY ONLY FINANCIAL INFORMATION
Condensed financial statements of Catalyst Bancorp, Inc. (parent company only) are shown below.
| | | | | | | | ||
CONDENSED STATEMENT OF FINANCIAL CONDITION | |||||||||
CONDENSED STATEMENTS OF FINANCIAL CONDITION | CONDENSED STATEMENTS OF FINANCIAL CONDITION | ||||||||
| | | | | |||||
| | December 31, | |||||||
(Dollars in thousands) | | December 31, 2021 | | 2023 | | 2022 | |||
ASSETS |
| |
|
| |
|
| |
|
Cash in bank subsidiary | | $ | 9,592 | ||||||
Cash and due from banks | | $ | 2,525 | | $ | 6,603 | |||
Investment in bank subsidiary | |
| 77,195 | |
| 72,999 | |
| 70,564 |
Investment securities available-for-sale, at fair value | |
| 11,518 | |
| 8,856 | |
| 10,969 |
Other assets | |
| 41 | |
| 354 | |
| 390 |
TOTAL ASSETS | | $ | 98,346 | | $ | 84,734 | | $ | 88,526 |
| |
|
| |
|
| |
|
|
LIABILITIES | |
|
| |
|
| |
|
|
Other liabilities | |
| - | |
| 79 | |
| 14 |
TOTAL LIABILITIES | |
| - | |
| 79 | |
| 14 |
| |
|
| |
|
| |
|
|
SHAREHOLDERS' EQUITY | |
|
| |
|
| |
|
|
Common stock | | | 53 | | 48 | | 53 | ||
Additional paid-in capital | | | 50,802 | | 45,020 | | 51,062 | ||
Unallocated common stock held by ESOP | | | (4,179) | ||||||
Unallocated common stock held by benefit plans | | (6,221) | | (6,307) | |||||
Retained earnings | |
| 52,353 | |
| 53,045 | |
| 52,778 |
Accumulated other comprehensive income (loss) | |
| (683) | |
| (7,237) | |
| (9,074) |
TOTAL SHAREHOLDERS' EQUITY | |
| 98,346 | |
| 84,655 | |
| 88,512 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 98,346 | | $ | 84,734 | | $ | 88,526 |
| | | | | | | | | |
CONDENSED STATEMENT OF INCOME | |||||||||
CONDENSED STATEMENTS OF INCOME | CONDENSED STATEMENTS OF INCOME | ||||||||
| | | | | | ||||
| | Year Ended | |||||||
| | Year Ended | | December 31, | |||||
(Dollars in thousands) |
| December 31, 2021 |
| 2023 |
| 2022 | |||
INTEREST INCOME |
| |
|
| |
|
| | |
Investment securities | | $ | 16 | | $ | 172 | | $ | 173 |
NON-INTEREST INCOME |
| |
|
| | | |||
Loss on sales of investment securities | | (92) | | | - | ||||
NON-INTEREST EXPENSE | |
|
| |
|
| |
|
|
Professional fees | |
| 22 | |
| 141 | |
| 168 |
Data processing and communication | | 35 | | | 31 | ||||
Franchise tax | | 48 | | | 63 | ||||
Other | |
| 22 | |
| 85 | |
| 86 |
Total non-interest expense | |
| 44 | |
| 309 | |
| 348 |
Income (loss) before income tax expense (benefit) | |
| (28) | |
| (229) | |
| (175) |
Income tax expense (benefit) | |
| (6) | |
| (48) | |
| (60) |
Income (loss) before equity in undistributed earnings of subsidiary | | | (22) | | (181) | | | (115) | |
Equity in undistributed earnings of subsidiary | | | 1,949 | | | 783 | | | 295 |
NET INCOME | | $ | 1,927 | | $ | 602 | | $ | 180 |
7686
| | | | | | |
CONDENSED STATEMENTS OF CASH FLOWS | ||||||
| | | | | | |
| | Year Ended | ||||
| | December 31, | ||||
(Dollars in thousands) | | 2023 |
| 2022 | ||
CASH FLOWS FROM OPERATING ACTIVITIES | | |
|
| |
|
Net income | | $ | 602 | | $ | 180 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
| |
|
|
Equity in undistributed earnings of subsidiary | |
| (783) | |
| (295) |
Investment securities amortization, net | |
| 19 | |
| 32 |
Loss on sales of investment securities | | | 92 | | | - |
(Increase) decrease in other assets | |
| 38 | |
| (349) |
Increase (decrease) in other liabilities | | | (23) | | | 291 |
Net cash used in operating activities | |
| (55) | |
| (141) |
CASH FLOWS FROM INVESTING ACTIVITIES | |
|
| |
|
|
Payments received on ESOP loan | | | 289 | | | 289 |
Activity in available-for-sale securities: | |
|
| |
|
|
Proceeds from maturities, calls, and paydowns | |
| 522 | |
| 828 |
Proceeds from sales | | | 1,896 | | | |
Purchases | |
| - | |
| (1,625) |
Net cash provided by (used in) investing activities | |
| 2,707 | |
| (508) |
CASH FLOWS FROM FINANCING ACTIVITIES | |
|
| |
|
|
Purchase of stock to fund the 2022 Recognition and Retention Plan | | | (415) | | | (2,340) |
Repurchase of common stock | | | (6,315) | | | - |
Net cash used in financing activities | |
| (6,730) | |
| (2,340) |
NET CHANGE IN CASH AND CASH EQUIVALENTS | |
| (4,078) | |
| (2,989) |
CASH AND CASH EQUIVALENTS, beginning of period | |
| 6,603 | |
| 9,592 |
CASH AND CASH EQUIVALENTS, end of period | | $ | 2,525 | | $ | 6,603 |
| | | |
CONDENSED STATEMENT OF CASH FLOWS | |||
| | Year Ended | |
(Dollars in thousands) | | December 31, 2021 | |
CASH FLOWS FROM OPERATING ACTIVITIES | | |
|
Net income | | $ | 1,927 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
|
Equity in undistributed earnings of subsidiary | |
| (1,949) |
Investment securities amortization, net | |
| 2 |
(Increase) decrease in other assets | |
| (26) |
Net cash used in operating activities | |
| (46) |
CASH FLOWS FROM INVESTING ACTIVITIES | |
|
|
Capital injection into subsidiary from stock offering | | | (25,442) |
Payments received on ESOP loan | | | 72 |
Activity in available-for-sale securities: | |
|
|
Proceeds from maturities, calls, and paydowns | |
| 37 |
Purchases | |
| (11,632) |
Net cash used in investing activities | |
| (36,965) |
CASH FLOWS FROM FINANCING ACTIVITIES | |
|
|
Proceeds from the issuance of common stock, net of costs | | | 50,835 |
Purchase of stock for ESOP | | | (4,232) |
Net cash provided by financing activities | |
| 46,603 |
NET INCREASE IN CASH AND CASH EQUIVALENTS | |
| 9,592 |
CASH AND CASH EQUIVALENTS, beginning of period | |
| - |
CASH AND CASH EQUIVALENTS, end of period | | $ | 9,592 |
NOTE 17. SUBSEQUENT EVENTS
In the first quarter of 2024, the Company decided to implement a strategy involving the sale of approximately 50% of its available-for-sale investment securities. Through March 22, 2024, the Company has sold $38.5 million of available-for-sale investment securities for a pre-tax loss of $4.8 million. The Company expects to deploy the net sales proceeds into a mix of cash and higher-yielding earning assets to improve net interest income and manage interest rate risk.
In addition, the Bank refinanced and acquired additional BTFP advances during January 2024. At March 22, 2024, the Bank had one $20.0 million BTFP advance with a rate of 4.76% and a maturity date of January 15, 2025.
7787
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a) | Our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner. |
(b) |
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2023.
(c) | No change in the Company’s internal control over financial reporting (as defined in rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. |
88
Item 9B. Other Information
Not applicable.In the first quarter of 2024, the Company decided to implement a strategy involving the sale of approximately 50% of its available-for-sale investment securities. Through March 22, 2024, the Company has sold $38.5 million of available-for-sale investment securities for a pre-tax loss of $4.8 million. The Company expects to deploy the net sales proceeds into a mix of cash and higher-yielding earning assets to improve net interest income and manage interest rate risk.
In addition, the Bank refinanced and acquired additional BTFP advances during January 2024. At March 22, 2024, the Bank had one $20.0 million BTFP advance with a rate of 4.76% and a maturity date of January 15, 2025.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
78
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
The information required herein is incorporated by reference from the sections captioned “Information with Respect to Nominees for Director, Continuing Directors, and Executive Officers” and “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management -Section 16(a) Beneficial Ownership Reporting Compliance” in the Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of December 31, 20212023 (“Proxy Statement”).
Code of Ethics. Catalyst Bancorp has adopted a Code of Ethics that applies to its principal executive officer and principal financial officer, as well as directors, other officers, and employees of Catalyst Bancorp and the Bank. The Code of Ethics is posted on our website, www.stlandryhomestead.comwww.catalystbank.com under the “Investor Relations - Governance” tab. A copy of the Code of Ethics also may be obtained without charge upon request made to Jutta Codori, Catalyst Bancorp, Inc., 235 N. Court Street, Opelousas, Louisiana 70570.
Item 11. Executive Compensation
The information required herein is incorporated by reference from the section captioned “Management Compensation” in the Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of December 31, 2021.2023.
89
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management. The information required herein is incorporated by reference from the section captioned “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management” in the Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of December 31, 2021.2023.
Equity Compensation Plan Information. Not applicable.The following table provides information as of December 31, 2023 with respect to shares of common stock that may be issued under our existing equity compensation plans, which consist of the 2022 Stock Option Plan and 2022 Recognition and Retention Plan and Trust, both of which were approved by our shareholders.
| | | | | | | |
Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |
Equity compensation plans approved by security holders | | 392,508 | | $ | 13.15 | | 325,924 |
Equity compensation plans not approved by security holders | | - | | | - | | - |
Total | | 392,508 | | $ | 13.15 | | 325,924 |
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required herein is incorporated by reference from the section captioned “Indebtedness of Management and Related Party Transactions” in the Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of December 31, 2021.2023.
Item 14. Principal Accountant Fees and Services
The information required herein is incorporated by reference from the section captioned “Ratification of Appointment of Independent Registered Public Accounting Firm — Audit Fees” in the Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of December 31, 2021.2023.
79
PART IV
Item 15. Exhibits and Financial Statement Schedules
|
Report of Independent Registered Public Accounting Firm (PCAOB ID 00447) |
Consolidated Statements of Financial Condition as of December 31, |
Consolidated Statements of Income for the Years Ended December 31, |
Consolidated Statements of Comprehensive Income for the Years Ended December 31, |
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, |
Consolidated Statements of Cash Flows for the Years Ended December 31, |
Notes to Consolidated Financial Statements |
|
90
The following exhibits are filed as part of the Form 10-K, and this list includes the Exhibit Index:
No. |
| Description |
| Location |
| Description |
| Location |
3.1 | | | (1) | | | (1) | ||
3.2 | | | (1) | | | (1) | ||
4.2 | | | Filed Herewith | | | (2) | ||
10.1 | | Employment Agreement by and between St. Landry Homestead Federal Savings Bank and Joseph Zanco* | | (1) | | Employment Agreement by and among Catalyst Bank and Joseph Zanco* | | (3) |
10.2 | | | (1) | | | (1) | ||
10.3 | | St. Landry Homestead Federal Savings Bank Supplemental Life Insurance Agreement* | | (1) | | St. Landry Homestead Federal Savings Bank Supplemental Life Insurance Agreement* | | (1) |
10.4 | | Employment Agreement by and among Catalyst Bank and Amanda B. Quebedeaux* | | (4) | ||||
10.5 | | Employment Agreement by and among Catalyst Bank and Jacques L. J. Bourque* | | (5) | ||||
10.6 | | | (6) | |||||
10.7 | | Catalyst Bancorp, Inc. 2022 Recognition and Retention Plan and Trust Agreement* | | (7) | ||||
23.0 | | | Filed Herewith | | | Filed Herewith | ||
31.1 | | Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer | | Filed Herewith | | Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer | | Filed Herewith |
31.2 | | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer | | Filed Herewith | | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer | | Filed Herewith |
32.0 | | | Filed Herewith | | | Filed Herewith | ||
97.0 | | | Filed Herewith | |||||
101 | | Consolidated Financial Statements for the Year Ended December 31, 2021 formatted in Inline XBRL | | Filed Herewith | | The following financial information from Catalyst Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language) includes: (i) the Cover Page (ii) the Consolidated Statements of Financial Condition, (iii) the Consolidated Statements of Income, (iv) the Consolidated Statements of Comprehensive Income, (v) the Consolidated Statements of Changes in Shareholders’ Equity, (vi) the Consolidated Statements of Cash Flows, and (vii) the Notes to Consolidated Financial Statements, tagged in summary and detail. | | Filed Herewith |
104 | | Cover Page Interactive Data File (formatted in Inline XBRL and included in Exhibit 101) | | Filed Herewith | | Cover Page Interactive Data File (formatted in Inline XBRL and included in Exhibit 101) | | Filed Herewith |
* | Denotes a management contract or compensatory plan or arrangement. |
(1) | Incorporated herein by reference from the |
(2) | Incorporated by reference from the like-numbered exhibit in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and filed March 29, 2022 (SEC File No. 001-40893). |
(3) | Incorporated by reference from Exhibit 10.1 included in the Company’s Current Report on Form 8-K, dated July 17, 2023 and filed July 21, 2023 (SEC File No. 001-40893). |
(4) | Incorporated by reference from Exhibit 10.1 included in the Company’s Current Report on Form 8-K, dated September 13, 2023 and filed September 15, 2023 (SEC File No. 001-40893). |
(5) | Incorporated by reference from Exhibit 10.2 included in the Company’s Current Report on Form 8-K, dated September 13, 2023 and filed September 15, 2023 (SEC File No. 001-40893). |
(6) | Incorporated by reference from Appendix A to the Company’s definitive proxy statement for the Company’s annual meeting of shareholders held on May 17, 2022 filed with the Commission on April 12, 2022 (File No. 001-40893). |
(7) | Incorporated by reference from Appendix B to the Company’s definitive proxy statement for the Company’s annual meeting of shareholders held on May 17, 2022 filed with the Commission on April 12, 2022 (File No. 001-40893). |
Item 16. Form 10-K Summary
None.
8091
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ||
| CATALYST BANCORP, INC. | |
Date: March | By: | /s/ Joseph B. Zanco |
| | Joseph B. Zanco |
| | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name |
| Title |
| Date |
| | | | |
/s/ Joseph B. Zanco | | | | |
Joseph B. Zanco | | President and Chief Executive Officer (Principal Executive Officer) | | March |
/s/ Jacques L. J. Bourque | | | | |
Jacques L. J. Bourque | | Chief Financial Officer (Principal Financial and Accounting Officer) | | March |
/s/ Todd A. Kidder | | | | |
Todd A. Kidder | | Director, Chairman of the Board | | March |
/s/ Ted D. Bellard | | | | |
Ted D. Bellard | | Director | | March |
/s/ Kirk E. Kleiser | | | | |
Kirk E. Kleiser | | Director | | March |
/s/ Frederick L. Lafleur | | | | |
Frederick L. LaFleur | | Director | | March |
/s/ Craig C. Lebouef | | | | |
Craig C. LeBouef | | Director | | March |
/s/ Matthew | | | | |
Matthew | | Director | | March |
| | | | |
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