8-K: Catalyst Bancorp Reports Strong Loan Growth in Q4 2023, Net Income Rises

Catalyst Bancorp announced a net income of $320,000 for the fourth quarter of 2023, driven by significant loan growth and a Bank Enterprise Award grant.

Summary

• Catalyst Bancorp reported a net income of $320,000 for the fourth quarter of 2023, which includes a $371,000 pre-tax benefit from a Bank Enterprise Award (BEA) Program grant and a $92,000 loss on the sale of investment securities.
• For the year ended December 31, 2023, net income totaled $602,000, compared to $180,000 in 2022.
• The company experienced over $9 million in loan growth during the fourth quarter, the strongest quarter since becoming a public company.
• Total loans reached $144.9 million at the end of 2023, a 7% increase from the previous quarter.
• The increase in loans was primarily due to commercial construction and commercial real estate loans.
• Non-performing loans (NPLs) represented 1.37% of total loans at December 31, 2023, down from 1.54% at September 30, 2023.
• The allowance for loan losses totaled $2.1 million, or 1.47% of total loans, at the end of 2023.
• Total investment securities were $84.0 million, or 31% of total assets, at December 31, 2023.
• Total deposits were $165.6 million at the end of 2023, a slight increase from the previous quarter.
• Total borrowings were $19.4 million at the end of 2023, including a $10 million loan from the Federal Reserve Bank of Atlanta.
• The company repurchased 86,964 shares of its common stock during the fourth quarter of 2023 at an average cost of $11.24 per share.
• The net interest margin for the fourth quarter of 2023 was 3.14%, a slight increase from the previous quarter.
• Non-interest income for the fourth quarter of 2023 was $672,000, which includes the BEA grant and a loss on the sale of investment securities.
• Non-interest expense for the fourth quarter of 2023 totaled $2.1 million.
• The company expects to incur approximately $500,000 in costs related to a new core processing system in the first quarter of 2024, but anticipates annualized savings of over $200,000 after the conversion.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with strong loan growth and improved net income, but there are some concerns about unrealized losses on securities and upcoming expenses related to the core system conversion.

Positives

• The company experienced significant loan growth of over $9 million in the fourth quarter of 2023.
• Net income for the year ended December 31, 2023, increased to $602,000 from $180,000 in 2022.
• Non-performing loans decreased from 1.54% to 1.37% of total loans.
• The company received a $437,000 Bank Enterprise Award (BEA) Program grant.
• The net interest margin increased slightly to 3.14% for the fourth quarter of 2023.
• The company anticipates annualized savings of over $200,000 after completing the core system conversion.

Negatives

• The company incurred a $92,000 loss on the sale of investment securities.
• Net interest income decreased slightly by $12,000 compared to the previous quarter.
• Non-interest expense increased by $41,000 compared to the previous quarter.
• The company expects to incur approximately $500,000 in costs related to a new core processing system in the first quarter of 2024.
• Total public fund deposits decreased by $3.2 million over the fourth quarter.

Risks

• The company is exposed to interest rate risk, with a significant portion of loans and investment securities scheduled to re-price or mature in the next 12 months.
• The company's investment securities portfolio has unrealized losses of $9.2 million on available-for-sale securities.
• The company is subject to credit risk, with non-performing loans representing 1.37% of total loans.
• The company is exposed to operational risk, including the costs and potential disruptions associated with the core system conversion.
• The company's forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially.

Future Outlook

The company expects to incur approximately $500,000 in costs related to a new core processing system in the first quarter of 2024, but anticipates annualized savings of over $200,000 after the conversion. The company's forward-looking statements are subject to various risks and uncertainties.

Management Comments

• We produced over $9 million of loan growth during the fourth quarter our strongest quarter since becoming a public company, said Joe Zanco, President and Chief Executive Officer of the Company and the Bank.
• This growth was fueled by the high level of responsiveness our bankers provide to our customers.

Industry Context

The results reflect a trend of community banks focusing on loan growth and managing interest rate risk. The company's focus on commercial real estate and construction loans aligns with current market demand. The adoption of new technology, such as the core processing system, is a common strategy for banks to improve efficiency and customer service.

Comparison to Industry Standards

• The loan growth of 7% in a single quarter is strong compared to the average growth rate of many regional banks.
• The net interest margin of 3.14% is within the typical range for community banks, but the company will need to manage interest rate risk to maintain this level.
• The non-performing loan ratio of 1.37% is slightly higher than some industry benchmarks, but the company has taken steps to address this.
• The company's capital ratios are strong, with a total risk-based capital ratio of 53.60%, which is well above regulatory requirements.
• The company's efficiency ratio of 80.61% is higher than some of the more efficient banks, indicating room for improvement in operational costs.

Stakeholder Impact

• Shareholders will benefit from the increased net income and share repurchases.
• Customers will benefit from the improved banking technology and services.
• Employees may be impacted by the core system conversion and any associated changes in processes.
• The community will benefit from the company's focus on fueling business and improving lives throughout the region.

Next Steps

• The company will implement a new core processing system in the first quarter of 2024.
• The company will continue to manage its loan portfolio and interest rate risk.
• The company will continue to monitor its credit quality and allowance for loan losses.

Key Dates

Keywords

Catalyst Bancorp, loan growth, net income, Bank Enterprise Award, investment securities, non-performing loans, net interest margin, core processing system, share repurchases, deposits