# Catalyst Bancorp, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Catalyst Bancorp, Inc.](/companies/clst.md) (CIK 1849867)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 12:01 ET
- Period: 2023-09-30
- Accession: 0001558370-23-018479
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1849867/000155837023018479/clst-20230930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1849867/000155837023018479/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $497.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $1.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $27.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $19.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $170.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $282.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.03 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.06 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.03 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.06 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 4,324,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 4,442,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $1.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $158.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $5.3m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $13.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-09-30 | $257.9m | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $175.7m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $9.3m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-09-30 | $82.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 66,120 characters.

### General

Management’s Discussion and Analysis of Financial Condition and Results of Operations at September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 is intended to assist in understanding our financial condition and results of operations. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements of the Company and the notes thereto appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q as well as the business and financial information included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2022.

### Cautionary Note Regarding Forward-Looking Statements

Certain matters in this Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of words such as “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could.” These forward-looking statements include, but are not limited to:

- statements of our goals, intentions and expectations;
- statements regarding our business plans, prospects, growth and operating strategies;
- statements regarding the quality of our loan and investment portfolios; and
- estimates of our risks and future costs and benefits.

You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These forward-looking statements are based on our current beliefs and expectations and, by their nature, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

Important factors that could cause our actual results to differ materially from the results anticipated or projected, include, but are not limited to, the following:

- general economic conditions, either nationally or in our market areas, that are different than expected;
- conditions relating to COVID-19, or other infectious disease outbreaks, including the severity and duration of the associated economic slowdown, either nationally or in our market areas, that are worse than expected;
- changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;
- our ability to access cost-effective funding;
- major catastrophes such as hurricanes, floods or other natural disasters, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies;
- technological changes that may be more difficult or expensive than expected;
- success or consummation of new business initiatives may be more difficult or expensive than expected;
- the inability of third-party service providers to perform;
- fluctuations in real estate values and both residential and commercial real estate market conditions;
- demand for loans and deposits in our market area;
- our ability to continue to implement our business strategies;
- competition among depository and other financial institutions;
- inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans;
- adverse changes in the securities markets;
- changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
- our ability to manage market risk, credit risk and operational risk in the current economic conditions;
- our ability to enter new markets successfully and capitalize on growth opportunities;
- our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;
- changes in consumer spending, borrowing and savings habits;
- changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the U. S. Securities and Exchange Commission or the Public Company Accounting Oversight Board;
- our ability to retain key employees; and our compensation expense associated with equity allocated or awarded to our employees.

We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.

### Overview

Catalyst Bancorp, Inc. (“Catalyst Bancorp” or the “Company”) is the holding company for Catalyst Bank (the “Bank”), formerly known as St. Landry Homestead Federal Savings Bank. The Company was incorporated by the Bank in February 2021 as part of the conversion of the Bank from the mutual to the stock form of organization (the “Conversion”). The Conversion was completed on October 12, 2021, at which time the Company acquired all of the issued and outstanding shares of common stock of the Bank, which became the wholly-owned subsidiary of Catalyst Bancorp. The Bank officially changed its name to Catalyst Bank in June 2022.

Founded in 1922, the Bank is a community-oriented savings bank serving the banking needs of customers in the Acadiana region of south-central Louisiana. We are headquartered in Opelousas, Louisiana and serve our customers through six full-service branches located in Carencro, Eunice, Lafayette, Opelousas, and Port Barre. Our primary business consists of attracting deposits from the general public and using those funds together with funds we borrow from the Federal Home Loan Bank (“FHLB”) of Dallas and other sources to originate loans to our customers and invest in securities.

Historically, we operated as a traditional thrift relying on long-term, single-family residential mortgage loans secured by properties located primarily in St. Landry Parish and adjoining areas to generate interest income. We have re-focused our business strategy to a relationship-based community bank model targeting small- to mid-sized businesses and business professionals in our market areas while continuing to serve our traditional customer base. The Conversion and offering were important factors in our efforts to become a more dynamic, profitable and growing institution.

At September 30, 2023, total assets were $257.9 million, including total loans of $135.7 million and total investment securities of $85.3 million, total deposits were $165.2 million and total shareholders’ equity was $82.2 million. The Company reported net income of $170,000 for the three months ended September 30, 2023, and $282,000 for the nine months ended September 30, 2023. For the same three and nine-month periods in 2022, the Company reported net income of $135,000 and $9,000, respectively. On June 23, 2022, the Bank rebranded and officially changed its name to Catalyst Bank. Pre-tax costs associated with the rebranding of the Bank totaled $28,000 and $270,000 for the three and nine months ended September 30, 2022, respectively. The Company also received and recognized into income a $171,000 Bank Enterprise Award (“BEA”) Program grant from the Community Development Financial Institution (“CDFI”) Fund during the three months ended June 30, 2022. The Company will receive and recognize as income a $437,000 BEA Program grant during the fourth quarter of 2023. Consulting fees associated with obtaining the grant total $66,000 and will be expensed in the same period.

Our results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on our loan and investment portfolios and interest expense on deposits and borrowings. Our net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. Results of operations are also affected by our provisions for loan losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation, office occupancy and equipment expense, data processing, advertising and business promotion and other expense. 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.

### Critical Accounting Estimates

In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2022. Any changes to our significant accounting policies are described in Note 1 to the unaudited, consolidated financial statements included in Item 1 of this Form 10-Q. Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an emerging growth company, we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We are taking advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

**Allowance for 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 (“CECL”), 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 2 of the unaudited, consolidated financial statements included in Item 1 of this Form 10-Q 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 $2.0 million, or 1.50% of total loans, at September 30, 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.

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 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 September 30, 2023 and December 31, 2022, net unrealized losses on available-for-sale securities totaled $12.8 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 September 30, 2023 or December 31, 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.

### Comparison of Financial Condition at September 30, 2023 and December 31, 2022

***Total Assets.*** Total assets decreased $5.4 million, or 2.1%, to $257.9 million at September 30, 2023 from $263.3 million at December 31, 2022. The decrease was primarily due to the amortization of our investment securities portfolio. The Company has not purchased investment securities since the fourth quarter of 2022.

***Loans.*** Total loans increased by $2.1 million, or 1.5%, to $135.7 million at September 30, 2023, compared to $133.6 million at December 31, 2022. During the nine months ended September 30, 2023, loan growth was largely driven by commercial and industrial loans, partially offset by net pay-downs in one- to four-family residential real estate loans.

The majority of the Company’s loan portfolio consists of real estate loans secured by properties in our local market area, the Acadiana region of south Louisiana. Approximately 64% of our real estate loans have adjustable rates and, of our total real estate loans, approximately $54.7 million, or 48%, are scheduled to re-price or mature during the next 12 months.

Our non-real estate loans primarily consist of commercial and industrial loans. This segment of the portfolio largely consists of loans to local businesses involved in industrial manufacturing and equipment, communications, and professional services. Approximately 34% of our commercial and industrial loans have adjustable rates and, of total commercial and industrial loans, approximately $9.1 million, or 47%, are scheduled to re-price or mature during the next 12 months.

The following table summarizes the changes in the composition of our loan portfolio by type of loan as of the dates indicated.

*(Dollars in thousands)*

| ​ ​ ​ Real estate loans | ​ ​ ​ ​ | ​ ​ ​ ​ September 30, 2023 Amount% ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ December 31, 2022 Amount% ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Change ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | ---: | --- | ---: | ---: | --- | ---: | --- | ---: |
| One- to four-family residential | ​ | $83,973 | 61.9% | ​ | $87,508 | 65.5% | ​ | $(3,535) | ​ | (4.0)% |
| Commercial real estate | ​ | 19,113 | 14.1 ​ | ​ | 19,437 | 14.5 ​ | ​ | (324) | ​ | (1.7) ​ |
| Construction and land | ​ | 6,622 | 4.9 ​ | ​ | 6,172 | 4.6 ​ | ​ | 450 | ​ | 7.3 ​ |
| Multi-family residential | ​ | 3,424 | 2.5 ​ | ​ | 3,200 | 2.4 ​ | ​ | 224 | ​ | 7.0 ​ |
| Total real estate loans | ​ | ​ 113,132 | 83.4 ​ | ​ | ​ 116,317 | 87.0 ​ | ​ | ​ (3,185) | ​ | (2.7) ​ |
| **Other loans** | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Commercial and industrial | ​ | ​ 19,634 | 14.5 ​ | ​ | ​ 13,843 | 10.4 ​ | ​ | ​ 5,791 | ​ | 41.8 ​ |
| Consumer | ​ | ​ 2,906 | 2.1 ​ | ​ | ​ 3,447 | 2.6 ​ | ​ | ​ (541) | ​ | (15.7) ​ |
| Total other loans | ​ | ​ 22,540 | 16.6 ​ | ​ | ​ 17,290 | 13.0 ​ | ​ | ​ 5,250 | ​ | 30.4 ​ |
| Total loans | ​ | $135,672 | 100.0% | ​ | $133,607 | 100.0% | ​ | $2,065 | ​ | 1.5 ​ |

***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 2 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 September 30, 2023, the allowance for loan losses totaled $2.0 million, or 1.50% of total loans, and the allowance for credit losses on unfunded commitments totaled $280,000, up $64,000 from the date of adoption of ASC 326. The total provision for credit losses on loans and unfunded commitments was zero for the first nine months of 2023.

The following table presents the changes in the allowance for loan losses and other related data for the periods indicated.

*(Dollars in thousands)*

| ​ ​ Allowance for loan losses: | ​ ​ ​ | ​ ​ ​ Nine Months Ended September 30, 2023 ​ ​ ​ | ​ ​ ​ | ​ ​ ​ 2022 ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Year Ended December 31, ​ 2022 ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- |
| Balance, beginning of period | ​ | $1,807 | ​ | $2,276 ​ | ​ | $2,276 ​ |
| Impact of adoption of ASC 326 | ​ | ​ 209 ​ | ​ | ​ - ​ | ​ | ​ - ​ |
| Provision for (reversal of) loan losses | ​ | (64) | ​ | ​ (375) ​ | ​ | ​ (375) ​ |
| Net loan recoveries (charge-offs): | ​ | ​ | ​ | ​ ​ | ​ | ​ ​ |
| One- to four-family residential | ​ | 98 | ​ | ​ (84) ​ | ​ | ​ (69) ​ |
| Commercial real estate | ​ | - | ​ | ​ - ​ | ​ | ​ - ​ |
| Construction and land | ​ | - | ​ | ​ - ​ | ​ | ​ - ​ |
| Multi-family residential | ​ | - | ​ | ​ - ​ | ​ | ​ - ​ |
| Commercial and industrial | ​ | 1 | ​ | ​ (2) ​ | ​ | ​ 1 ​ |
| Consumer | ​ | (15) | ​ | ​ (11) ​ | ​ | ​ (26) ​ |
| Total net recoveries (charge-offs) | ​ | 84 | ​ | ​ (97) ​ | ​ | ​ (94) ​ |
| Balance, end of period | ​ | $2,036 | ​ | $1,804 ​ | ​ | $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 | ​ | ​ 64 | ​ | ​ - ​ | ​ | ​ - ​ |
| Balance, end of period | ​ | $280 ​ | ​ | $- ​ | ​ | $- ​ |
| ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ |
| Total allowance for credit losses, end of period | ​ | $2,316 ​ | ​ | $1,804 ​ | ​ | $1,807 ​ |
| Total provision for (reversal of) credit losses | ​ | ​ - ​ | ​ | ​ (375) ​ | ​ | ​ (375) ​ |
| ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ |
| Total loans at end of period | ​ | $135,672 | ​ | $131,942 ​ | ​ | $133,607 ​ |
| Total non-accrual loans at end of period | ​ | 1,961 | ​ | ​ 1,221 ​ | ​ | ​ 1,494 ​ |
| Total non-performing loans at end of period | ​ | 2,088 | ​ | ​ 1,600 ​ | ​ | ​ 1,685 ​ |
| Total average loans | ​ | ​ 134,013 ​ | ​ | ​ 132,301 ​ | ​ | ​ 132,503 ​ |
| ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ |
| **Allowance for loan losses as a percent of:** | ​ | ​ ​ ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ |
| Total loans | ​ | 1.50% | ​ | ​ 1.37% | ​ | ​ 1.35% |
| Non-accrual loans | ​ | 103.82 ​ | ​ | ​ 147.75 ​ | ​ | ​ 120.95 ​ |
| Non-performing loans | ​ | 97.51 ​ | ​ | ​ 112.75 ​ | ​ | ​ 107.24 ​ |
| ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ |
| **Net annualized recoveries (charge-offs) as a percent of average loans by portfolio:** | ​ | ​ ​ ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ |
| One- to four-family residential | ​ | ​ 0.15% | ​ | ​ (0.13)% | ​ | ​ (0.08)% |
| Commercial real estate | ​ | ​ - ​ | ​ | ​ - ​ | ​ | ​ - ​ |
| Construction and land | ​ | ​ - ​ | ​ | ​ - ​ | ​ | ​ - ​ |
| Multi-family residential | ​ | ​ - ​ | ​ | ​ - ​ | ​ | ​ - ​ |
| Commercial and industrial | ​ | ​ 0.01 ​ | ​ | ​ (0.03) ​ | ​ | ​ 0.01 ​ |
| Consumer | ​ | ​ (0.63) ​ | ​ | ​ (0.36) ​ | ​ | ​ (0.66) ​ |
| Total loans | ​ | ​ 0.08 ​ | ​ | ​ (0.10) ​ | ​ | ​ (0.07) ​ |

**Non-performing Assets.** The following table shows the amounts of our non-performing assets, which include non-accruing loans, accruing loans 90 days or more past due and real estate owned at the dates indicated. The increase in non-performing loans over the periods presented below was largely attributable to an increase in past due one- to four-family residential mortgage loans.

*(Dollars in thousands)*

| ​ ​ Non-accruing loans | ​ ​ | ​ ​ ​ September 30, 2023 ​ | ​ ​ ​ ​ | ​ ​ ​ December 31, 2022 ​ ​ |
| --- | --- | ---: | --- | ---: |
| One- to four-family residential | ​ | $1,868 ​ | ​ | $1,392 ​ |
| Commercial real estate | ​ | 50 ​ | ​ | 51 ​ |
| Construction and land | ​ | 43 ​ | ​ | 51 ​ |
| Multi-family residential | ​ | - ​ | ​ | - ​ |
| Commercial and industrial | ​ | - ​ | ​ | - ​ |
| Consumer | ​ | - ​ | ​ | - ​ |
| Total non-accruing loans | ​ | 1,961 ​ | ​ | ​ 1,494 ​ |
| **Accruing loans 90 days or more past due** | ​ | ​ | ​ | ​ |
| One- to four-family residential | ​ | 127 ​ | ​ | 191 ​ |
| Commercial real estate | ​ | - ​ | ​ | - ​ |
| Construction and land | ​ | - ​ | ​ | - ​ |
| Multi-family residential | ​ | - ​ | ​ | - ​ |
| Commercial and industrial | ​ | - ​ | ​ | - ​ |
| Consumer | ​ | - ​ | ​ | - ​ |
| Total accruing loans 90 days or more past due | ​ | ​ 127 | ​ | ​ 191 ​ |
| Total non-performing loans | ​ | ​ 2,088 ​ | ​ | ​ 1,685 ​ |
| Foreclosed assets | ​ | ​ 37 ​ | ​ | ​ 320 ​ |
| Total non-performing assets | ​ | $2,125 ​ | ​ | $2,005 ​ |
| ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ |
| Total loans | ​ | $135,672 ​ | ​ | $133,607 ​ |
| Total assets | ​ | ​ 257,908 ​ | ​ | ​ 263,324 ​ |
| ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ |
| Total non-accruing loans as a percentage of total loans | ​ | ​ 1.45% | ​ | 1.12% |
| Total non-performing loans as a percentage of total loans | ​ | ​ 1.54 ​ | ​ | 1.26 ​ |
| Total non-performing loans as a percentage of total assets | ​ | ​ 0.81 ​ | ​ | 0.64 ​ |
| Total non-performing assets as a percentage of total assets | ​ | ​ 0.82 ​ | ​ | 0.76 ​ |

***Investment Securities.*** Total investment securities, available-for-sale and held-to-maturity, amounted to $85.3 million at September 30, 2023, down $7.8 million, or 8.4%, compared to $93.1 million in investment securities at December 31, 2022. Net unrealized losses on securities available-for-sale totaled $12.8 million at September 30, 2023, compared to $11.5 million at December 31, 2022. Unrealized losses on available-for-sale securities relate principally to increases in market interest rates for similar securities. At September 30, 2023, 86.3% of total investment securities, based on amortized cost, or $84.6 million, were classified as available-for-sale. Our investment securities portfolio consists primarily of debt obligations issued by the U.S. government and government agencies and government-sponsored mortgage-backed securities. During the nine months ended September 30, 2023, investment security maturities, calls and principal repayments totaled $6.3 million. The Company has not purchased investment securities since the fourth quarter of 2022. We have also not sold or reclassified securities since the Federal Reserve Board began raising interest rates in March 2022.

The following table presents the amortized cost of our total investment securities portfolio that mature during each of the periods indicated and the weighted average yields for each range of maturities at September 30, 2023.

*(Dollars in thousands)*

| ​ ​ Total investment securities | ​ ​ ​ ​ | ​ ​ ​ Contractual Maturity as of September 30, 2023 One Year or Less ​ ​ ​ | ​ ​ ​ | ​ ​ ​ After One Through Five Years ​ ​ ​ | ​ ​ ​ | ​ ​ ​ After Five Through Ten Years ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Over Ten Years ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Total ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Mortgage-backed securities | ​ | $- ​ | ​ | $3,513 ​ | ​ | $12,005 ​ | ​ | $52,086 ​ | ​ | $67,604 ​ |
| U.S. Government and agency obligations | ​ | 1,000 ​ | ​ | 9,985 ​ | ​ | 9,000 ​ | ​ | 4,004 ​ | ​ | 23,989 ​ |
| Municipal obligations | ​ | ​ - ​ | ​ | ​ 1,822 ​ | ​ | ​ 3,002 ​ | ​ | ​ 1,650 ​ | ​ | ​ 6,474 ​ |
| Total | ​ | $1,000 ​ | ​ | $15,320 ​ | ​ | $24,007 ​ | ​ | $57,740 ​ | ​ | $98,067 ​ |
| ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ | ​ | ​ ​ ​ |
| **Weighted average yield** | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
| Mortgage-backed securities | ​ | -% | ​ | 2.92% | ​ | 1.85% | ​ | 1.62% | ​ | 1.73% |
| U.S. Government and agency obligations | ​ | 0.50 ​ | ​ | 1.08 ​ | ​ | 1.26 ​ | ​ | 2.37 ​ | ​ | 1.34 ​ |
| Municipal obligations | ​ | - ​ | ​ | 1.11 ​ | ​ | 2.56 ​ | ​ | 1.41 ​ | ​ | 1.86 ​ |
| Total weighted average yield | ​ | 0.50 ​ | ​ | 1.50 ​ | ​ | 1.72 ​ | ​ | 1.67 ​ | ​ | 1.64 ​ |

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.

Investment securities with a fair value of approximately $41.7 million and $18.7 million, respectively, were pledged to secure public fund deposits in excess of the FDIC’s insurance limit at September 30, 2023 and December 31, 2022.

***Deposits.*** Total deposits were $165.2 million at September 30, 2023, up $126,000, or 0.1%, compared to December 31, 2022. The following table presents total deposits by account type for the dates indicated.

*(Dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ September 30, 2023 Amount% | ​ ​ ​ | ​ ​ | ​ ​ December 31, 2022 Amount% | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Change | ​ ​ | ​ ​ ​ ​ |
| --- | --- | ---: | ---: | --- | ---: | ---: | --- | ---: | --- | ---: |
| Non-interest-bearing demand deposits | ​ | $33,222 | 20.1% | ​ | $33,657 | 20.4% | ​ | $(435) | ​ | (1.3)% |
| Interest-bearing demand deposits | ​ | 38,881 | 23.5 ​ | ​ | 36,991 | 22.4 ​ | ​ | 1,890 | ​ | 5.1 ​ |
| Money market | ​ | 15,473 | 9.4 ​ | ​ | 15,734 | 9.5 ​ | ​ | (261) | ​ | (1.7) ​ |
| Savings | ​ | 27,237 | 16.5 ​ | ​ | 26,209 | 15.9 ​ | ​ | 1,028 | ​ | 3.9 ​ |
| Certificates of deposit | ​ | ​ 50,407 | 30.5 ​ | ​ | ​ 52,503 | 31.8 ​ | ​ | ​ (2,096) | ​ | (4.0) ​ |
| Total deposits | ​ | $165,220 | 100.0% | ​ | $165,094 | 100.0% | ​ | $126 | ​ | 0.1 ​ |

The increase in interest-bearing demand deposits and decline in certificates of deposit were mainly due to changes in the balance of our public fund deposits. Overall, our public fund deposits consist primarily of non-interest bearing and interest-bearing demand deposits from municipalities within our market. Our public fund deposits totaled $26.4 million, or 16.0% of total deposits, at September 30, 2023, compared to $21.0 million, or 12.7% of total deposits, at December 31, 2022. The increase in savings deposits was primarily driven by commercial deposits.

Our total uninsured deposits (that is deposits in excess of the FDIC’s insurance limit), inclusive of public funds, were approximately $45.2 million at September 30, 2023 and $43.4 million at December 31, 2022. Total uninsured non-public fund deposits were approximately $23.9 million and $26.9 million at September 30, 2023 and December 31, 2022, respectively. The full amount of our public fund deposits in excess of the FDIC’s insurance limit are secured by pledging investment securities.

***Borrowings.*** Our borrowings, which consist of FHLB advances, amounted to $9.3 million and $9.2 million at September 30, 2023 and December 31, 2022, respectively. The change in the carrying value of our FHLB advances reflects the amortization of deferred prepayment penalties on $10.0 million in advances restructured in December of 2020. Deferred prepayment penalties on our FHLB advances totaled $667,000 and $802,000 at September 30, 2023 and December 31, 2022, respectively.

***Shareholders’ Equity.*** Shareholders’ equity totaled $82.2 million, or 31.9% of total assets, at September 30, 2023, down $6.3 million, or 7.1%, from $88.5 million, or 33.6% of total assets, at December 31, 2022. During the first nine months of 2023, shareholders’ equity decreased by $5.3 million due to the Company’s repurchases of its common stock.

In January 2023, the Company’s Board of Directors approved the Company’s first share repurchase plan (the “January 2023 Repurchase Plan”), which allowed the Company to purchase 265,000 shares, or approximately 5% of the Company’s outstanding common stock. The January 2023 Repurchase Plan was completed in April 2023. In April 2023, the Company announced its second share repurchase plan (the “April 2023 Repurchase Plan”). Under the April 2023 Repurchase Plan, the Company may purchase up to 252,000 shares, or approximately 5% of the Company’s outstanding shares of common stock. During the nine months ended September 30, 2023, the Company repurchased 441,710 shares of its common stock at an average cost per share of $12.08. At September 30, 2023, 75,290 shares were available for repurchase under the April 2023 Repurchase Plan.

**Average Balances, Net Interest Income, and Yields Earned and Rates Paid.** The following tables show for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Taxable equivalent (“TE”) yields have been calculated using a marginal tax rate of 21%. All average balances are based on daily balances.

*(Dollars in thousands)*

| ​ ​ ​ Interest-earning assets: | ​ ​ ​ | ​ ​ Three Months Ended September 30, 2023 Average Balance ​ ​ | ​ ​ | ​ ​ Interest ​ ​ | ​ ​ | ​ ​ Average Yield/Rate ​ ​ | ​ ​ ​ ​ | ​ ​ 2022 Average Balance ​ ​ | ​ ​ | ​ ​ Interest ​ ​ | ​ ​ | ​ ​ Average Yield/Rate ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Loans receivable(1) |  | $134,851 | ​ | $1,852 |  | 5.45% | ​ | $131,827 | ​ | $1,466 |  | 4.41% |
| Investment securities(TE)(2) |  | 99,373 | ​ | 403 |  | 1.64 ​ | ​ | 104,403 | ​ | 381 |  | 1.48 ​ |
| Other interest-earning assets |  | 16,915 | ​ | 214 |  | 5.02 ​ | ​ | 34,547 | ​ | 185 |  | 2.12 ​ |
| Total interest-earning assets(TE) | ​ | 251,139 | ​ | 2,469 |  | 3.91 ​ | ​ | 270,777 | ​ | 2,032 |  | 2.99 ​ |
| Non-interest-earning assets | ​ | 13,918 | ​ | ​ ​ | ​ | ​ ​ | ​ | 17,467 | ​ | ​ ​ | ​ | ​ ​ |
| Total assets | ​ | $265,057 | ​ | ​ ​ | ​ | ​ ​ | ​ | $288,244 | ​ | ​ ​ | ​ | ​ ​ |
| **Interest-bearing liabilities:** |  | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| NOW, money market and savings accounts |  | 83,051 | ​ | 154 |  | 0.73 ​ | ​ | 91,738 | ​ | 29 |  | 0.13 ​ |
| Certificates of deposit |  | 50,526 | ​ | 274 |  | 2.15 ​ | ​ | 59,833 | ​ | 64 |  | 0.43 ​ |
| Total interest-bearing deposits |  | 133,577 | ​ | 428 |  | 1.27 ​ | ​ | 151,571 | ​ | 93 |  | 0.24 ​ |
| FHLB advances |  | 9,306 | ​ | 69 |  | 2.93 ​ | ​ | 9,126 | ​ | 69 |  | 2.99 ​ |
| Total interest-bearing liabilities | ​ | 142,883 | ​ | 497 |  | 1.38 ​ | ​ | 160,697 | ​ | 162 |  | 0.40 ​ |
| Non-interest-bearing liabilities | ​ | 38,153 | ​ | ​ ​ | ​ | ​ ​ | ​ | 34,591 | ​ | ​ ​ | ​ | ​ ​ |
| Total liabilities | ​ | 181,036 | ​ | ​ ​ | ​ | ​ ​ | ​ | 195,288 | ​ | ​ ​ | ​ | ​ ​ |
| **Shareholders' equity** | ​ | 84,021 | ​ | ​ ​ | ​ | ​ ​ | ​ | 92,956 | ​ | ​ ​ | ​ | ​ ​ |
| Total liabilities and shareholders' equity | ​ | $265,057 | ​ | ​ ​ | ​ | ​ ​ | ​ | $288,244 | ​ | ​ ​ | ​ | ​ ​ |
| Net interest-earning assets | ​ | $108,256 | ​ | ​ ​ | ​ | ​ ​ | ​ | $110,080 | ​ | ​ ​ | ​ | ​ ​ |
| Net interest income; average interest rate spread(TE) | ​ | ​ ​ | ​ | $1,972 |  | 2.53% | ​ | ​ ​ | ​ | $1,870 |  | 2.59% |
| Net interest margin(TE)(3) | ​ | ​ ​ | ​ | ​ ​ |  | 3.13 ​ | ​ | ​ ​ | ​ | ​ ​ |  | 2.75 ​ |
| Average interest-earning assets to average interest-bearing liabilities | ​ | ​ ​ | ​ | ​ ​ |  | 175.77 ​ | ​ | ​ ​ | ​ | ​ ​ |  | 168.50 ​ |

(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%.

*(Dollars in thousands)*

| ​ ​ ​ Interest-earning assets: | ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2023 Average Balance ​ ​ | ​ ​ ​ | ​ ​ Interest ​ ​ | ​ ​ ​ | ​ ​ Average Yield/Rate ​ ​ | ​ ​ ​ ​ | ​ ​ 2022 Average Balance ​ ​ | ​ ​ ​ | ​ ​ Interest ​ ​ | ​ ​ ​ | ​ ​ Average Yield/Rate ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Loans receivable(1) | ​ | $134,013 | ​ | $5,172 |  | 5.16% | ​ | $132,301 | ​ | $4,584 |  | 4.63% |
| Investment securities(TE)(2) | ​ | 101,564 | ​ | 1,243 |  | 1.65 ​ | ​ | 104,061 | ​ | 1,062 |  | 1.37 ​ |
| Other interest-earning assets | ​ | 18,369 | ​ | 643 |  | 4.68 ​ | ​ | 34,735 | ​ | 262 |  | 1.01 ​ |
| Total interest-earning assets(TE) | ​ | 253,946 | ​ | 7,058 |  | 3.72 ​ | ​ | 271,097 | ​ | 5,908 |  | 2.92 ​ |
| Non-interest-earning assets | ​ | 14,393 | ​ | ​ ​ | ​ | ​ ​ | ​ | 16,150 | ​ | ​ ​ | ​ | ​ ​ |
| Total assets | ​ | $268,339 | ​ | ​ ​ | ​ | ​ ​ | ​ | $287,247 | ​ | ​ ​ | ​ | ​ ​ |
| **Interest-bearing liabilities:** | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| NOW, money market and savings accounts | ​ | 85,966 | ​ | 376 |  | 0.59% | ​ | 86,459 | ​ | 77 |  | 0.12% |
| Certificates of deposit | ​ | 51,076 | ​ | 636 |  | 1.66 ​ | ​ | 63,547 | ​ | 195 |  | 0.41 ​ |
| Total interest-bearing deposits | ​ | 137,042 | ​ | 1,012 |  | 0.99 ​ | ​ | 150,006 | ​ | 272 |  | 0.24 ​ |
| FHLB advances | ​ | 9,262 | ​ | 205 |  | 2.95 ​ | ​ | 9,080 | ​ | 205 |  | 3.00 ​ |
| Total interest-bearing liabilities | ​ | 146,304 | ​ | 1,217 |  | 1.11 ​ | ​ | 159,086 | ​ | 477 |  | 0.40 ​ |
| Non-interest-bearing liabilities | ​ | 36,450 | ​ | ​ ​ | ​ | ​ ​ | ​ | 33,565 | ​ | ​ ​ | ​ | ​ ​ |
| Total liabilities | ​ | 182,754 | ​ | ​ ​ | ​ | ​ ​ | ​ | 192,651 | ​ | ​ ​ | ​ | ​ ​ |
| **Shareholders' equity** | ​ | 85,585 | ​ | ​ ​ | ​ | ​ ​ | ​ | 94,596 | ​ | ​ ​ | ​ | ​ ​ |
| Total liabilities and shareholders' equity | ​ | $268,339 | ​ | ​ ​ | ​ | ​ ​ | ​ | $287,247 | ​ | ​ ​ | ​ | ​ ​ |
| Net interest-earning assets | ​ | $107,642 | ​ | ​ ​ | ​ | ​ ​ | ​ | $112,011 | ​ | ​ ​ | ​ | ​ ​ |
| Net interest income; average interest rate spread(TE) | ​ | ​ ​ | ​ | $5,841 |  | 2.61% | ​ | ​ ​ | ​ | $5,431 |  | 2.52% |
| Net interest margin(TE)(3) | ​ | ​ ​ | ​ | ​ ​ |  | 3.08 ​ | ​ | ​ ​ | ​ | ​ ​ |  | 2.68 ​ |
| Average interest-earning assets to average interest-bearing liabilities | ​ | ​ ​ | ​ | ​ ​ |  | 173.57 ​ | ​ | ​ ​ | ​ | ​ ​ |  | 170.41 ​ |

(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%.

**Rate/Volume Analysis.** The following tables show the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in volume, which is the change in volume multiplied by prior year rate. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.

*(Dollars in thousands)*

| ​ ​ ​ ​ Interest income: | ​ ​ ​ ​ | ​ ​ Three Months Ended September 30, 2023 vs 2022 Increase (Decrease) Due to Rate ​ | ​ ​ | ​ ​ Volume ​ | ​ ​ ​ | ​ ​ Total Increase (Decrease) ​ | ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2023 vs 2022 Increase (Decrease) Due to Rate ​ | ​ ​ | ​ ​ Volume ​ | ​ ​ ​ | ​ ​ Total Increase (Decrease) ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Loans receivable | ​ | $351 | ​ | $35 | ​ | $386 | ​ | $528 | ​ | $60 | ​ | $588 |
| Investment securities | ​ | 41 | ​ | (19) | ​ | 22 | ​ | 207 | ​ | (26) | ​ | 181 |
| Other interest-earning assets | ​ | ​ 161 | ​ | (132) | ​ | 29 | ​ | 557 | ​ | (176) | ​ | 381 |
| Total interest income | ​ | 553 | ​ | (116) | ​ | 437 | ​ | 1,292 | ​ | (142) | ​ | 1,150 |
| **Interest expense:** | ​ | ​ | ​ |  | ​ |  | ​ |  | ​ |  | ​ |  |
| NOW, money market and savings accounts | ​ | 128 | ​ | (3) | ​ | 125 | ​ | 299 | ​ | - | ​ | 299 |
| Certificates of deposit | ​ | 221 | ​ | (11) | ​ | 210 | ​ | 486 | ​ | (45) | ​ | 441 |
| Total deposits | ​ | 349 | ​ | (14) | ​ | 335 | ​ | 785 | ​ | (45) | ​ | 740 |
| FHLB advances and other borrowings | ​ | (1) | ​ | 1 | ​ | - | ​ | (4) | ​ | 4 | ​ | - |
| Total interest expense | ​ | 348 | ​ | (13) | ​ | 335 | ​ | 781 | ​ | (41) | ​ | 740 |
| Increase (decrease) in net interest income | ​ | $205 | ​ | $(103) | ​ | $102 | ​ | $511 | ​ | $(101) | ​ | $410 |

**Comparison of Results of Operations for the Three Months Ended September 30, 2023 and 2022.**

***General.*** For the three months ended September 30, 2023 and 2022, the Company reported net income of $170,000 and $135,000, respectively. Net interest income was up $102,000, or 5.5%, for the three months ended September 30, 2023, compared to the same period in 2022. The provision for credit losses totaled zero for the three months ended September 30, 2023, compared to a reversal of loan losses of $115,000 for the same period in 2022. Total non-interest expense for the three months ended September 30, 2023 was down $52,000, or 2.4%, from the same period in 2022.

***Interest Income.*** Total interest income increased $437,000, or 21.5%, to $2.5 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. Interest income on loans, investment securities, and other interest-earning assets were up by $386,000, $22,000, and $29,000, respectively.

The average loan yield was 5.45% for the three months ended September 30, 2023, up from 4.41% for the three months ended September 30, 2022. Average loans were $134.9 million for the three months ended September 30, 2023, up $3.0 million, or 2.3%, compared to the same period in 2022. At September 30, 2023, approximately 59% of our total loans have adjustable rates and approximately 48% of total loans are scheduled to re-price or mature during the next 12 months.

The increase in interest income on investment securities was due to an increase in the average rate earned on our securities portfolio. The average rate earned on our investment securities portfolio was 1.64% for the three months ended September 30, 2023, up 16 basis points compared to 1.48% for the same period in 2022.

Interest income on other interest-earning assets, consisting primarily of interest-earning cash and deposits at other financial institutions, increased due to the impact of higher average short-term interest rates during the 2023 period compared to 2022.

***Interest Expense.*** Total interest expense increased $335,000, or 206.8%, to $497,000 for the three months ended September 30, 2023, compared to $162,000 for the three months ended September 30, 2022. Interest expense on deposits was $428,000 during the three months ended September 30, 2023, up $335,000, or 360.2%, from $93,000 for the three months ended September 30, 2022. The average rate paid on interest-bearing deposits was 1.27% for the three months ended September 30, 2023, up 103 basis points from 0.24% for the three months September 30, 2022.

***Net Interest Income.*** Net interest income was $2.0 million for the three months ended September 30, 2023, up $102,000, or 5.5%, from the three months ended September 30, 2022. Our interest rate spread was 2.53% and 2.59% for the three months ended September 30, 2023 and 2022, respectively. Our net interest margin was 3.13% and 2.75% for the three months ended September 30, 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, though the increase in the average rate paid on our deposit accounts did not completely offset the increase in income on interest-earning assets over the comparable three-month periods.

***Provision for Credit Losses.*** The total provision for credit losses on loans and unfunded commitments was zero for the three months ended September 30, 2023, compared to a reversal of $115,000 for the same period in 2022. 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. While our initial assessment of the impact of the COVID-19 improved during 2022, uncertainty remains due to risks related to declining government stimulus availability, rising market interest rates, property insurance costs in Louisiana, and inflation.

***Non-interest Income.*** Non-interest income totaled $306,000 for the three months ended September 30, 2023, up $10,000, or 3.4%, compared to $296,000 for the three months ended September 30, 2022, primarily due an increase in income on bank-owned life insurance and other non-interest income.

***Non-interest Expense.*** Non-interest expense totaled $2.1 million for the three months ended September 30, 2023, down $52,000, or 2.4%, compared to the three months ended September 30, 2022.

Salaries and employee benefits expense totaled $1.1 million for the three months ended September 30, 2023, down $27,000, or 2.3%, compared to the same period in 2022 primarily due to a lower employee count in the 2023 period.

Data processing and communication expense totaled $228,000 for the three months ended September 30, 2023, up $12,000, or 5.6%, compared to the same period in 2022 primarily due to an increase in the cost of lending software as a result of increased loan volume in 2023.

Professional fees totaled $100,000 for the three months ended September 30, 2023, down $57,000, or 36.3%, from the same period in 2022 primarily due to a decrease in legal and consulting expense. During the three months ended September 30, 2022, the Company incurred additional professional fees for assistance with the initial grants under our 2022 Stock Option Plan and 2022 Recognition and Retention Plan.

Directors’ fees totaled $116,000 for the three months ended September 30, 2023, up $41,000 from the same period in 2022 due to stock compensation expense related to awards granted in September 2022 under the 2022 Stock Option Plan and 2022 Recognition and Retention Plan.

***Income Tax Expense.*** The Company reported an income tax expense of $27,000 and $13,000 for the three months ended September 30, 2023 and 2022, respectively. The increase in income tax expense over the comparable prior period was largely due to an increase in taxable income in 2023.

**Comparison of Results of Operations for the Nine Months Ended September 30, 2023 and 2022.**

***General.*** For the nine months ended September 30, 2023, the Company reported net income of $282,000, compared to $9,000 for the nine months ended September 30, 2022. Net interest income was up $410,000, or 7.5%, for the nine months ended September 30, 2023, compared to the same period in 2022. The provision for credit losses totaled zero for the nine months ended September 30, 2023, compared to a reversal of loan losses of $375,000 for the nine months ended September 30, 2022. During the nine months ended September 30, 2022, the Company recognized a $171,000 BEA Program grant as non-interest income and officially changed the name of the Bank to Catalyst Bank. Pre-tax costs associated with the rebranding of the Bank totaled $270,000 for the nine months ended September 30, 2022. Total non-interest expense for the nine months ended September 30, 2023 was down $261,000, or 3.9%, compared to the same period in 2022.

***Interest Income.*** Total interest income increased $1.1 million, or 19.5%, to $7.1 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. Interest income on loans, investment securities, and other interest-earning assets were up by $588,000, $181,000, and $381,000, respectively.

The average loan yield was 5.16% for the nine months ended September 30, 2023, up from 4.63% for the nine months ended September 30, 2022. Average loans were $134.0 million for the nine months ended September 30, 2023, up $1.7 million, or 1.3%, compared to the same period in 2022. Interest income on loans for the nine months ended September 30, 2022 included $186,000 of recognized deferred PPP loan fees.

The increase in interest income on investment securities was due to an increase in the average rate earned on our securities portfolio. The average rate earned on our investment securities portfolio was 1.65% for the nine months ended September 30, 2023, up 28 basis points compared to 1.37% for the same period in 2022.

Interest income on other interest-earning assets, consisting primarily of interest-earning cash and deposits at other financial institutions, increased due to the impact of higher average short-term interest rates during the 2023 period compared to 2022.

***Interest Expense.*** Total interest expense increased $740,000, or 155.1%, to $1.2 million for the nine months ended September 30, 2023, compared to $477,000 for the nine months ended September 30, 2022. Interest expense on deposits was $1.0 million during the nine months ended September 30, 2023, up $740,000, or 272.1%, from $272,000 for the nine months ended September 30, 2022. The average rate paid on interest-bearing deposits was 0.99% for the nine months ended September 30, 2023, up 75 basis points from 0.24% for the nine months September 30, 2022.

***Net Interest Income.*** Net interest income was $5.8 million for the nine months ended September 30, 2023, up $410,000, or 7.5%, from the nine months ended September 30, 2022. Our interest rate spread was 2.61% and 2.52% for the nine months ended September 30, 2023 and 2022, respectively. Our net interest margin was 3.08% and 2.68% for the nine months ended September 30, 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, though the increase in the average rate paid on our deposit accounts did not completely offset the increase in interest income over the comparable periods.

***Provision for Credit Losses.*** The total provision for credit losses on loans and unfunded commitments was zero for the nine months ended September 30, 2023, compared to a reversal of $375,000 for the same period in 2022. 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 $917,000 for the nine months ended September 30, 2023, up $45,000, or 5.2%, compared to $872,000 for the nine months ended September 30, 2022. Income from bank-owned life insurance (“BOLI”) increased by $84,000, or 38.9%, to $300,000 for the nine months ended September 30, 2023, compared to the same period in 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 nine months ended September 30, 2022 included income of $171,000 from a BEA Program grant and losses on the disposal of fixed assets of $77,000. Of the losses on disposed assets, $55,000 was attributable to branch signage that was replaced due to our rebranding.

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. The Company will receive and recognize as income a $437,000 BEA Program grant during the fourth quarter of 2023.

***Non-interest Expense.*** Non-interest expense totaled $6.5 million for the nine months ended September 30, 2023, down $261,000, or 3.9%, compared to the nine months ended September 30, 2022. Total non-interest expense for the nine months ended September 30, 2022 included $215,000 of rebranding-related expenses.

Salaries and employee benefits expense totaled $3.5 million for the nine months ended September 30, 2023, down $125,000, or 3.4%, compared to the same period in 2022 primarily due to a lower employee count, a decline in ESOP expense and a reduction in bonus expense in the 2023 period. These cost savings were partially offset by stock compensation expense in 2023. Stock compensation expense related to awards granted in September 2022 and included in salaries and employee benefits expense totaled $202,000 for the nine months ended September 30, 2023, compared to $27,000 for the nine months ended September 30, 2022.

Directors’ fees for the nine months ended September 30, 2023 included $184,000 of stock compensation expense, compared to $20,000 for the nine months ended September 30, 2022. Total directors’ fees were $345,000 for the nine months ended September 30, 2023, up $160,000 compared to the same period in 2022.

Professional fees totaled $346,000 for the nine months ended September 30, 2023, down $126,000, or 26.7%, from the same period in 2022 primarily due to a decrease in consulting and legal expenses. The Company incurred professional fees in 2022 for assistance with the initial grants under our 2022 Stock Option Plan and 2022 Recognition and Retention Plan. Also, professional fees of $26,000 were incurred for assistance with the BEA Program grant application during the 2022 period. Professional fees associated with obtaining our 2023 BEA grant total $66,000 and will be expensed in the fourth quarter of 2023.

Foreclosed assets expense totaled $67,000 for the nine months ended September 30, 2023, compared to zero for the same period in 2022. The Company realized a loss of $62,000 on the sale of real estate held as foreclosed assets during the nine months ended September 30, 2023. The real estate had a carrying value of $320,000 at December 31, 2022.

Advertising and marketing expense totaled $77,000 for the nine months ended September 30, 2023, down $110,000 from the comparable period in 2022. Advertising and marketing expense for the nine months ended September 30, 2022 included rebranding-related expenses of $124,000.

Franchise and shares tax expense totaled $71,000 for the nine months ended September 30, 2023, a decrease of $60,000, or 45.8%, compared to the same period in 2022. Management’s estimate of Louisiana shares tax due for 2023 is based on the actual shares tax paid for 2022. Shares tax due for 2022 was received during the fourth quarter of 2022 and the amount was less than our initial estimate recorded in the first three quarters of 2022.

***Income Tax Expense.*** The Company reported income tax expense of $19,000 for the nine months ended September 30, 2023 and an income tax benefit of $49,000 for the nine months ended September 30, 2022. The change in income taxes over the comparable nine-month periods was primarily due to the increase in taxable earnings during 2023.

### 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, Federal Reserve, and our primary correspondent bank.

At September 30, 2023, our borrowed funds consisted of outstanding advances from the FHLB with a carrying value of $9.3 million. We had available capacity to borrow $48.0 million from the FHLB and $17.8 million from our primary correspondent bank at such date. In addition, securities held by the Bank with a total par value of $35.7 million and fair value of $30.2 million were available to pledge as collateral for borrowings from the Federal Reserve at September 30, 2023.

The Company also has a $20.0 million custodial letter of credit outstanding from the FHLB as of September 30, 2023, which is included in the calculation of our available capacity with the FHLB. The Company can allocate portions of this letter of credit to collateralize certain deposit balances in excess of the FDIC’s insurance limit as an alternative to pledging investment securities for the same purpose.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $1.1 million for the nine months ended September 30, 2023. Net cash provided by investing activities, which consists primarily of net changes in loans receivable, investment securities and other assets was $4.3 million for the nine months ended September 30, 2023. Net cash used in financing activities, consisting of the net change in deposits and purchases of common stock, was $5.6 million for the nine months ended September 30, 2023.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily and anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that the majority of maturing time deposits will be retained. We also anticipate continued use of our secondary funding sources.

The Bank exceeded all regulatory capital requirements and was categorized as well-capitalized at September 30, 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.

*(Dollars in thousands)*

| ​ ​ As of September 30, 2023 | ​ ​ ​ | ​ ​ Actual Amount ​ ​ | ​ ​ | ​ ​ Ratio ​ ​ | ​ ​ ​ ​ | ​ ​ To be Well Capitalized under the Prompt Corrective Action Provision Amount ​ ​ | ​ ​ | ​ ​ Ratio ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | --- |
| Common Equity Tier 1 Capital | ​ | $78,925 | ​ | 54.97% | ​ | $9,332 | ​ | \>6.5% |
| Tier 1 Risk-Based Capital | ​ | 78,925 | ​ | 54.97 ​ | ​ | 11,486 | ​ | \>8.0 ​ |
| Total Risk-Based Capital | ​ | 80,726 | ​ | 56.23 ​ | ​ | 14,357 | ​ | \>10.0 ​ |
| Tier 1 Leverage Capital | ​ | 78,925 | ​ | 31.08 ​ | ​ | 12,697 | ​ | \>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 ​ |

48

The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans at September 30, 2023.

*(Dollars in thousands)*

| ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Total Amounts Committed at September 30, 2023 | ​ ​ ​ | ​ ​ Amount of Commitment Expiration — Per Period To 1 Year | ​ ​ | ​ ​ 1 - 3 Years | ​ ​ | ​ ​ 3 - 5 Years | ​ ​ | ​ ​ After 5 Years |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Commitments to originate loans | ​ | $11,421 | ​ | $11,421 | ​ | $- | ​ | $- | ​ | $- |
| Undisbursed portion of construction loans in process | ​ | 6,227 | ​ | 1,978 | ​ | 4,249 | ​ | - | ​ | - |
| Unused lines of credit | ​ | 14,705 | ​ | 12,397 | ​ | 1,733 | ​ | - | ​ | 575 |
| Unused overdraft privilege amounts | ​ | 1,132 | ​ | - | ​ | - | ​ | - | ​ | 1,132 |
| Letters of credit | ​ | ​ 2 | ​ | ​ 2 | ​ | ​ - | ​ | ​ - | ​ | ​ - |
| Total commitments | ​ | $33,487 | ​ | $25,798 | ​ | $5,982 | ​ | $- | ​ | $1,707 |

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 2 for more information on the adoption of ASC 326. At September 30, 2023, the allowance for credit losses on unfunded commitments totaled $280,000.

The following table summarizes our contractual cash obligations at September 30, 2023.

*(Dollars in thousands)*

| ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Total at September 30, 2023 | ​ ​ ​ | ​ ​ Payments Due By Period To 1 Year | ​ ​ | ​ ​ 1 - 3 Years | ​ ​ | ​ ​ 3 - 5 Years | ​ ​ | ​ ​ After 5 Years |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Certificates of deposit | ​ | $50,407 | ​ | $42,152 | ​ | $7,328 | ​ | $927 | ​ | $- |
| FHLB advances | ​ | 10,000 | ​ | - | ​ | 3,000 | ​ | 3,000 | ​ | 4,000 |
| Total term debt | ​ | $60,407 | ​ | $42,152 | ​ | $10,328 | ​ | $3,927 | ​ | $4,000 |

Management expects that a majority of the maturing certificates of deposit will be retained. However, if a substantial portion of these deposits is not retained, we may utilize borrowings from our secondary funding sources or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

### Recent Accounting Pronouncements

For a discussion of the impact of recent accounting pronouncements, see Note 2 of the notes to our financial statements.

## Controls and procedures

As filed, 2,186 characters.

An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Act”)) as of September 30, 2023, was carried out under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and several other members of our senior management. Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures in effect as of September 30, 2023, were effective. In addition, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We do not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all errors and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-018479. Last ingested by Listed: Nov 6, 2026, 13:14 ET. No prices; not investment advice.