Catalyst Bancorp (CLST) 10-Q 2024 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2024
☐	TRANSITION REPORT UNDER 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 of organization)	(I.R.S. Employer Identification No.)

235 N. Court Street, Opelousas, Louisiana 70570

(Address of principal executive offices; Zip Code) 

(337) 948-3033

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

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	CLST	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Exchange Act 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, 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.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

There were 4,342,427 shares of Registrant’s common stock, par value of $0.01 per share, issued and outstanding as of November 8, 2024.

CATALYST BANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition	2
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Changes in Shareholders' Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4.	Controls and Procedures	45
PART II	OTHER INFORMATION	46
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5	Other Information	46
Item 6.	Exhibits	47
SIGNATURES		48

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PART I. FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

CATALYST BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	(Unaudited)
	September 30,		December 31,
(Dollars in thousands)	2024		2023
ASSETS
Non-interest-bearing cash	$	3,625	$	3,654
Interest-bearing cash and due from banks		42,128		15,357
Total cash and cash equivalents		45,753		19,011
Investment securities:
Securities available-for-sale, at fair value (amortized cost of $35,589 and $79,701, respectively)		32,196		70,540
Securities held-to-maturity (fair values of $11,699 and $11,227, respectively)		13,450		13,461
Loans receivable, net of unearned income		165,882		144,920
Allowance for loan losses		(2,414)		(2,124)
Loans receivable, net		163,468		142,796
Accrued interest receivable		815		906
Foreclosed assets		173		60
Premises and equipment, net		6,135		6,072
Stock in correspondent banks, at cost		1,939		1,878
Bank-owned life insurance		14,370		14,026
Other assets		2,318		2,182
TOTAL ASSETS	$	280,617	$	270,932
LIABILITIES
Deposits
Non-interest-bearing	$	27,904	$	28,183
Interest-bearing		139,532		137,439
Total deposits		167,436		165,622
Borrowings		29,513		19,378
Other liabilities		2,001		1,373
TOTAL LIABILITIES		198,950		186,373
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value - 5,000,000 shares authorized; none issued		-		-
Common stock, $0.01 par value; 30,000,000 shares authorized; 4,399,127 and 4,761,326 issued and outstanding at September 30, 2024 and December 31, 2023, respectively		44		48
Additional paid-in capital		40,847		45,020
Unallocated common stock held by benefit plans		(5,777)		(6,221)
Retained earnings		49,234		52,949
Accumulated other comprehensive income (loss)		(2,681)		(7,237)
TOTAL SHAREHOLDERS' EQUITY		81,667		84,559
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	280,617	$	270,932

The accompanying Notes are an integral part of these financial statements.

2

CATALYST BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2024		2023		2024		2023
INTEREST INCOME
Loans receivable, including fees	$	2,717	$	1,852	$	7,314	$	5,172
Investment securities		255		403		790		1,243
Other earning assets		699		214		2,247		643
Total interest income		3,671		2,469		10,351		7,058
INTEREST EXPENSE
Deposits		830		452		2,370		1,092
Borrowings		309		69		908		205
Total interest expense		1,139		521		3,278		1,297
Net interest income		2,532		1,948		7,073		5,761
Provision for credit losses		337		-		531		-
Net interest income after provision for credit losses		2,195		1,948		6,542		5,761
NON-INTEREST INCOME
Service charges on deposit accounts		200		190		597		573
Bank-owned life insurance		118		104		344		300
Gain (loss) on sales of investment securities		-		-		(5,507)		-
Gain (loss) on disposals and sales of fixed assets		-		-		6		-
Federal community development grant		280		-		280		-
Other		22		12		103		44
Total non-interest income (loss)		620		306		(4,177)		917
NON-INTEREST EXPENSE
Salaries and employee benefits		1,200		1,141		3,603		3,522
Occupancy and equipment		193		198		572		609
Data processing and communication		238		228		1,170		675
Professional fees		151		100		375		346
Directors’ fees		116		116		345		345
ATM and debit card		24		68		124		187
Foreclosed assets, net		33		2		67		67
Advertising and marketing		31		25		112		77
Franchise and shares tax		15		19		46		71
Regulatory fees and assessments		42		33		111		99
Insurance		26		26		77		80
Printing, supplies and postage		7		28		70		102
Other		184		97		447		277
Total non-interest expense		2,260		2,081		7,119		6,457
Income (loss) before income tax expense (benefit)		555		173		(4,754)		221
Income tax expense (benefit)		108		22		(1,039)		2
NET INCOME (LOSS)	$	447	$	151	$	(3,715)	$	219
Earnings (loss) per share - basic	$	0.11	$	0.03	$	(0.93)	$	0.05
Earnings (loss) per share - diluted		0.11		0.03		(0.93)		0.05

The accompanying Notes are an integral part of these financial statements.

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CATALYST BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2024		2023		2024		2023
Net income (loss)	$	447	$	151	$	(3,715)	$	219
Net change in unrealized gains (losses) on available-for-sale securities		1,185		(1,852)		261		(1,309)
Reclassification adjustment for losses included in net income		-		-		5,507		-
Income tax effect		(249)		389		(1,212)		275
Total other comprehensive income (loss)		936		(1,463)		4,556		(1,034)
Total comprehensive income (loss)	$	1,383	$	(1,312)	$	841	$	(815)

The accompanying Notes are an integral part of these financial statements.

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CATALYST BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(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, JUNE 30, 2023	$	49	$	47,032	$	(6,616)	$	52,491	$	(8,645)	$	84,311
Net income		-		-		-		151		-		151
Other comprehensive income (loss)		-		-		-		-		(1,463)		(1,463)
ESOP shares released for allocation		-		10		53		-		-		63
2022 Recognition and Retention Plan shares released for allocation		-		(289)		289		-		-		-
Stock compensation expense		-		102		-		-		-		102
Repurchase of common stock		(1)		(1,000)		-		-		-		(1,001)
BALANCE, SEPTEMBER 30, 2023	$	48	$	45,855	$	(6,274)	$	52,642	$	(10,108)	$	82,163
BALANCE, JUNE 30, 2024	$	45	$	41,914	$	(6,116)	$	48,787	$	(3,617)	$	81,013
Net income		-		-		-		447		-		447
Other comprehensive income (loss)		-		-		-		-		936		936
ESOP shares released for allocation		-		8		53		-		-		61
2022 Recognition and Retention Plan shares released for allocation		-		(286)		286		-		-		-
Stock compensation expense		-		143		-		-		-		143
Repurchase of common stock		(1)		(932)		-		-		-		(933)
BALANCE, SEPTEMBER 30, 2024	$	44	$	40,847	$	(5,777)	$	49,234	$	(2,681)	$	81,667
BALANCE, DECEMBER 31, 2022	$	53	$	51,062	$	(6,307)	$	52,758	$	(9,074)	$	88,492
Impact of adoption of ASC 326		-		-		-		(335)		-		(335)
Net income		-		-		-		219		-		219
Other comprehensive income		-		-		-		-		(1,034)		(1,034)
Stock purchased to fund the 2022 Recognition and Retention Plan		-		-		(415)		-		-		(415)
ESOP shares released for allocation		-		27		159		-		-		186
2022 Recognition and Retention Plan shares released for allocation		-		(289)		289		-		-		-
Stock compensation expense		-		386		-		-		-		386
Repurchase of common stock		(5)		(5,331)		-		-		-		(5,336)
BALANCE, SEPTEMBER 30, 2023	$	48	$	45,855	$	(6,274)	$	52,642	$	(10,108)	$	82,163
BALANCE, DECEMBER 31, 2023	$	48	$	45,020	$	(6,221)	$	52,949	$	(7,237)	$	84,559
Net income (loss)		-		-		-		(3,715)		-		(3,715)
Other comprehensive income		-		-		-		-		4,556		4,556
ESOP shares released for allocation		-		27		158		-		-		185
2022 Recognition and Retention Plan shares released for allocation		-		(286)		286		-		-		-
Stock compensation expense		-		423		-		-		-		423
Repurchase of common stock		(4)		(4,337)		-		-		-		(4,341)
BALANCE, SEPTEMBER 30, 2024	$	44	$	40,847	$	(5,777)	$	49,234	$	(2,681)	$	81,667

The accompanying Notes are an integral part of these financial statements.

5

CATALYST BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
(Dollars in thousands)	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(3,715)	$	219
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Investment securities amortization, net		119		236
Federal Home Loan Bank stock dividends		(62)		(49)
Amortization of prepayment penalties on debt restructuring		135		135
Provision for credit losses		531		-
Increase in cash surrender value of bank-owned life insurance		(344)		(300)
Loss on sales of investment securities		5,507		-
Gain on disposals and sales of premises and equipment		(6)		-
Stock-based compensation		608		572
Depreciation of premises and equipment		306		301
Net write-downs and losses on the sale of foreclosed assets		57		62
Deferred income tax expense (benefit)		(1,039)		(74)
(Increase) decrease in other assets		(215)		(395)
Increase (decrease) in other liabilities		654		371
Net cash provided by operating activities		2,536		1,078
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in available-for-sale securities:
Proceeds from maturities, calls, and paydowns		3,845		6,259
Proceeds from sales		42,525		-
Purchases		(7,873)		-
Net (increase) decrease in loans		(21,515)		(2,019)
Proceeds from sale of foreclosed assets		114		259
Purchases of premises and equipment		(375)		(158)
Proceeds from sale of premises and equipment		12		-
Net cash provided by investing activities		16,733		4,341
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		1,814		126
Net advances from the Federal Reserve Bank of Atlanta		10,000		-
Purchase of stock to fund the 2022 Recognition and Retention Plan		-		(415)
Repurchase of common stock		(4,341)		(5,336)
Net cash provided by (used in) financing activities		7,473		(5,625)
NET CHANGE IN CASH AND CASH EQUIVALENTS		26,742		(206)
CASH AND CASH EQUIVALENTS, beginning of period		19,011		13,472
CASH AND CASH EQUIVALENTS, end of period	$	45,753	$	13,266
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Acquisition of real estate in settlement of loans	$	284	$	37
SUPPLEMENTAL SCHEDULE OF INTEREST AND TAXES PAID
Cash paid for interest	$	2,547	$	916
Cash paid for income taxes		200		-

The accompanying Notes are an integral part of these financial statements.

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CATALYST BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION

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 Bank has been in operation in the Acadiana region of south-central Louisiana since 1922 and offers commercial and retail banking products through six full-service locations.

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 and became the holding company for the Bank. Shares of the Company’s common stock were issued and sold in an offering to certain depositors of the Bank and others. The Company was not engaged in operations and had not issued any shares of stock prior to the completion of the Conversion.

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, 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.

The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three and nine months ended September 30, 2024 and 2023 are not necessarily indicative of the results which may be expected for the entire fiscal year. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2023.

Certain amounts reported in prior periods may have been reclassified to conform to the current period presentation. Such reclassifications had no effect on previously reported equity or net income.

Revision of Prior Period Financial Statements

During the three months ended June 30, 2024, it was discovered that the rate of interest paid on one interest-bearing checking account did not reconcile with the contract with the customer. The checking account is a public fund deposit with a negotiated arrangement managed by a lead financial institution that billed the Bank periodically for interest then owed to the municipality. The Bank is a party to the agreement with the municipality but participated in only a portion of the total funds deposited by the municipality and did not deal directly with the municipality with respect to the funds deposited or the interest paid. These responsibilities are handled indirectly through the lead institution. During June of 2024, the Bank became aware of the additional interest owed by it pursuant to the agreement. As a result of the error, $137,000 of total interest expense was not properly accrued or paid by the Bank during the period beginning August 1, 2022 and ending March 31, 2024. In accordance with the guidance set forth in SEC Staff Bulletin 99, Materiality, and SEC Staff Accounting Bulletin 108, Considering Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financials, the Bank concluded that the error was not material to any prior periods, the current period or the trend in earnings from a  quantitative and qualitative perspective. However, correcting the cumulative effect of the error in the current period would have resulted in a material misstatement in the current period. Accordingly, management revised the prior period financial statements, related disclosures, and supplemental information presented in this filing to correct the misstatement. We will also revise previously reported financial information for these immaterial errors in our future filings, as applicable. The Company’s previously issued financial statements and related disclosures were not amended and can still be relied upon.

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The following highlights the primary changes to prior period financial statements presented in this Form 10-Q caused by the correction of the misstated interest expense:

(Dollars in thousands)	As Reported		Adjustment		As Revised
Revised Consolidated Statements of Condition as of December 31, 2023
Other liabilities	$	1,277	$	96	$	1,373
Retained earnings		53,045		(96)		52,949
Total shareholders' equity		84,655		(96)		84,559
Revised Consolidated Statements of Income for the Three Months Ended September 30, 2023
Interest expense - Deposits	$	428	$	24	$	452
Total interest expense		497		24		521
Net interest income		1,972		(24)		1,948
Income tax expense (benefit)		27		(5)		22
Net income (loss)		170		(19)		151
Revised Consolidated Statements of Income for the Nine Months Ended September 30, 2023
Interest expense - Deposits	$	1,012	$	80	$	1,092
Total interest expense		1,217		80		1,297
Net interest income		5,841		(80)		5,761
Income tax expense (benefit)		19		(17)		2
Net income (loss)		282		(63)		219
Revised Consolidated Statements of Changes in Shareholders' Equity
Retained earnings, as of December 31, 2022	$	52,778	$	(20)	$	52,758
Retained earnings, as of June 30, 2023		52,517		(26)		52,491
Retained earnings, as of September 30, 2023		52,687		(45)		52,642
Revised Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023
Increase (decrease) in other liabilities	$	308	$	63	$	371

Management performed a review of all similar contracts with deposit customers and verified that the error was isolated to this unique deposit account. Management and the Audit Committee also assessed the error’s impact on internal controls over financial reporting and did not identify any material weaknesses. For further information on Management’s evaluation of the Company’s internal controls, see Item 4 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could reflect materially different results under different assumptions and conditions. Methodologies the Company uses when applying critical accounting policies and developing critical estimates are included in its Annual Report on Form 10-K for the year ended December 31, 2023. Our accounting policies for allowance for credit losses, investment securities, and income taxes comprise those that management believes involve the most critical estimates and aid in fully understanding and evaluating our reported financial results.

During the three months ended March 31, 2024, the measurement of the Company’s deferred income tax assets and liabilities was identified as a critical accounting estimate. Deferred income tax assets and liabilities are 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. At September 30, 2024, the Company’s net deferred tax asset totaled $1.4 million and is included in other assets on the statement of financial condition. According to Subtopic 740-10 of the Accounting Standards Codification (“ASC 740-10”), the measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not

8

expected to be realized. At September 30, 2024, the Company has not recorded a valuation allowance for its deferred tax assets. 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, which may impact total income tax expense in future periods.

There were no other material changes from the significant accounting policies or critical accounting estimates previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

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 amendments in this ASU add specific requirements for income tax disclosures to improve transparency and decision usefulness. The guidance in ASU 2023-09 requires that public business entities disclose specific categories in the income tax rate reconciliation and provide additional qualitative information for reconciling items that meet a quantitative threshold. In addition, the amendments in ASU 2023-09 require that all entities disclose the amount of income taxes paid disaggregated by federal, state, and foreign taxes and disaggregated by individual jurisdictions. The ASU also includes other disclosure amendments related to the disaggregation of income tax expense between federal, state and foreign taxes. The Company expects to adopt the amendments in ASU 2023-09 for periods beginning after December 31, 2024.

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NOTE 3. EARNINGS (LOSS) PER SHARE

Earnings (loss) per common share was computed based on the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2024		2023		2024		2023
Numerator
Net income (loss) available to common shareholders	$	447	$	151	$	(3,715)	$	219
Denominator
Weighted average common shares outstanding		4,439		4,901		4,537		5,033
Weighted average unallocated common stock held by benefit plans		(546)		(588)		(555)		(597)
Weighted average shares - basic		3,893		4,313		3,982		4,436
Effect of dilutive stock-based awards(1):
Stock options		-		-		-		-
Restricted stock		12		11		-		6
Weighted average shares - assuming dilution		3,905		4,324		3,982		4,442
Basic earnings (loss) per common share	$	0.11	$	0.03	$	(0.93)	$	0.05
Diluted earnings (loss) per common share		0.11		0.03		(0.93)		0.05

(1) The computation of diluted earnings (loss) per common share for the nine months ended September 30, 2024 does not include the impact of dilutive stock-based awards because to do so would be antidilutive for a period with a net loss.

The weighted average of potentially dilutive common shares attributable to outstanding stock options that were anti-dilutive totaled 294,573 and 280,620 for the three months ended September 30, 2024 and 2023, 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 326 for the three months ended September 30, 2024. There were no potentially dilutive common shares attributable to restricted stock that were anti-dilutive for the three months ended September 30, 2023.

The weighted average of potentially dilutive common shares attributable to outstanding stock options that were anti-dilutive totaled 294,647 and 290,379 for the nine months ended September 30, 2024 and 2023, 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 537 and 39,779 for the nine months ended September 30, 2024 and 2023, respectively, and were excluded from the calculation of diluted earnings per share.

10

NOTE 4. 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:

	September 30, 2024
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities available-for-sale
Mortgage-backed securities	$	32,182	$	136	$	(3,402)	$	28,916
U.S. Government and agency obligations		1,000		-		(5)		995
Municipal obligations		2,407		26		(148)		2,285
Total available-for-sale	$	35,589	$	162	$	(3,555)	$	32,196
Securities held-to-maturity
U.S. Government and agency obligations	$	13,000	$	-	$	(1,733)	$	11,267
Municipal obligations		450		-		(18)		432
Total held-to-maturity	$	13,450	$	-	$	(1,751)	$	11,699

	December 31, 2023
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities available-for-sale
Mortgage-backed securities	$	65,704	$	14	$	(8,206)	$	57,512
U.S. Government and agency obligations		7,999		-		(611)		7,388
Municipal obligations		5,998		7		(365)		5,640
Total available-for-sale	$	79,701	$	21	$	(9,182)	$	70,540
Securities held-to-maturity
U.S. Government and agency obligations	$	13,003	$	-	$	(2,210)	$	10,793
Municipal obligations		458		-		(24)		434
Total held-to-maturity	$	13,461	$	-	$	(2,234)	$	11,227

There were no securities transferred between classifications during the nine months ended September 30, 2024 or 2023. During the nine months ended September 30, 2024, the Company sold 50 available-for-sale investment securities for a total loss of $5.5 million. Proceeds from the sales totaled $42.6 million, inclusive of accrued interest.

Accrued interest receivable on the Company’s investment securities totaled $153,000 and $241,000 at September 30, 2024 and December 31, 2023, respectively.

At September 30, 2024 and December 31, 2023, investment securities totaling $14.4 million and $44.6 million, respectively, were pledged to secure public deposits as required or permitted by law. During the nine months ended September 30, 2024, the Company used a custodial letter of credit granted by the Federal Home Loan Bank of Dallas to collateralize public fund deposits as we executed the investment securities sales. At September 30, 2024, $19.0 million of the custodial letter of credit was pledged as collateral for pubic deposits.

Investment securities totaling $18.9 million and $11.1 million were pledged to the Federal Reserve Bank as collateral for borrowings at September 30, 2024 and December 31, 2023, respectively.  

11

The following is a summary of maturities of securities available-for-sale and held-to-maturity at September 30, 2024 and December 31, 2023:

	September 30, 2024
	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	$	1,693	$	-	$	-
After one through five years		3,870		3,965		2,450		2,277
After five through ten years		2,583		2,606		7,000		6,051
After ten years		27,436		23,932		4,000		3,371
Total	$	35,589	$	32,196	$	13,450	$	11,699

	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

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.

12

Information pertaining to securities with gross unrealized losses at September 30, 2024 and December 31, 2023 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	September 30, 2024
	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	$	2,973	$	(13)	$	19,523	$	(3,389)	$	22,496	$	(3,402)
U.S. Government and agency obligations		-		-		995		(5)		995		(5)
Municipal obligations		-		-		1,282		(148)		1,282		(148)
Total available-for-sale	$	2,973	$	(13)	$	21,800	$	(3,542)	$	24,773	$	(3,555)
Securities held-to-maturity
U.S. Government and agency obligations	$	-	$	-	$	11,267	$	(1,733)	$	11,267	$	(1,733)
Municipal obligations		-		-		432		(18)		432		(18)
Total held-to-maturity	$	-	$	-	$	11,699	$	(1,751)	$	11,699	$	(1,751)
Total	$	2,973	$	(13)	$	33,499	$	(5,293)	$	36,472	$	(5,306)

	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)

At September 30, 2024 and December 31, 2023, the Company held 42 and 92 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 did not establish an allowance for credit losses for its available-for-sale or held-to-maturity securities at September 30, 2024 or December 31, 2023.  

13

NOTE 5.  LOANS RECEIVABLE

Loans receivable at September 30, 2024 and December 31, 2023 are summarized as follows:

	September 30,		December 31,
(Dollars in thousands)	2024		2023
Real estate loans
One- to four-family residential	$	81,433	$	83,623
Commercial real estate		22,704		21,478
Construction and land		30,310		13,857
Multi-family residential		2,622		3,373
Total real estate loans		137,069		122,331
Other loans
Commercial and industrial		26,507		19,984
Consumer		2,306		2,605
Total other loans		28,813		22,589
Total loans		165,882		144,920
Less: Allowance for loan losses		(2,414)		(2,124)
Net loans	$	163,468	$	142,796

At September 30, 2024 and December 31, 2023, real estate loans totaling $81.3 million and $81.2 million, respectively, were pledged as collateral to the Federal Home Loan Bank of Dallas for borrowings under a blanket lien agreement. Refer to Note 7 for more information on borrowed funds.

Accrued interest receivable on the Company’s loans totaled $656,000 and $659,000 at September 30, 2024 and December 31, 2023, respectively. Accrued interest receivable is excluded from the Company’s estimate of the allowance for credit losses.

The following tables outline the changes in the allowance for credit losses for the nine months ended September 30, 2024 and 2023.

	For the Nine Months Ended September 30, 2024
(Dollars in thousands)	Beginning Balance		Provision (Reversal)		Charge-offs		Recoveries		Ending Balance
Allowance for credit losses
One- to four-family residential	$	1,240	$	62	$	(160)	$	68	$	1,210
Commercial real estate		213		17		(28)		14		216
Construction and land		283		258		-		-		541
Multi-family residential		50		(13)		-		-		37
Commercial and industrial		302		206		(133)		4		379
Consumer		36		27		(43)		11		31
Total for loans	$	2,124	$	557	$	(364)	$	97	$	2,414
Unfunded lending commitments(1)		257		(26)		-		-		231
Total	$	2,381	$	531	$	(364)	$	97	$	2,645

(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.

14

	For the Nine Months Ended September 30, 2023
(Dollars in thousands)	Beginning Balance			ASC 326 Adoption Impact	Provision (Reversal)		Charge-offs		Recoveries		Ending Balance
Allowance for credit losses
One- to four-family residential	$	1,224	$	158	$	(299)	$	-	$	98	$	1,181
Commercial real estate		248		(53)		(5)		-		-		190
Construction and land		74		40		48		-		-		162
Multi-family residential		40		5		(2)		-		-		43
Commercial and industrial		175		51		73		-		1		300
Consumer		46		8		2		(26)		11		41
Unallocated		-		-		119		-		-		119
Total for loans	$	1,807	$	209	$	(64)	$	(26)	$	110	$	2,036
Unfunded lending commitments		-		216		64		-		-		280
Total	$	1,807	$	425	$	-	$	(26)	$	110	$	2,316

The following tables outline the allowance for loan losses and the balance of loans by method of loss evaluation at September 30, 2024 and December 31, 2023.

	September 30, 2024						December 31, 2023
(Dollars in thousands)	Individually Evaluated		Collectively Evaluated		Total		Individually Evaluated		Collectively Evaluated		Total
Allowance for loan losses
One- to four-family residential	$	124	$	1,086	$	1,210	$	127	$	1,113	$	1,240
Commercial real estate		-		216		216		-		213		213
Construction and land		38		503		541		46		237		283
Multi-family residential		-		37		37		-		50		50
Commercial and industrial		-		379		379		-		302		302
Consumer		-		31		31		-		36		36
Total	$	162	$	2,252	$	2,414	$	173	$	1,951	$	2,124
Loans
One- to four-family residential	$	633	$	80,800	$	81,433	$	989	$	82,634	$	83,623
Commercial real estate		-		22,704		22,704		50		21,428		21,478
Construction and land		124		30,186		30,310		132		13,725		13,857
Multi-family residential		-		2,622		2,622		-		3,373		3,373
Commercial and industrial		-		26,507		26,507		-		19,984		19,984
Consumer		-		2,306		2,306		-		2,605		2,605
Total	$	757	$	165,125	$	165,882	$	1,171	$	143,749	$	144,920

At September 30, 2024 and December 31, 2023, all one- to four family residential and construction and land loans individually evaluated for credit losses 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 loans secured by one- to four-family residential properties and land located in our market.

15

A summary of current, past due and non-accrual loans as of September 30, 2024 and December 31, 2023 follows:

	As of September 30, 2024
(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	$	2,409	$	15	$	724	$	3,148	$	77,611	$	674	$	81,433
Commercial real estate		267		-		-		267		22,437		-		22,704
Construction and land		14		-		-		14		30,271		25		30,310
Multi-family residential		-		-		-		-		2,622		-		2,622
Commercial and industrial		3		-		-		3		26,504		-		26,507
Consumer		14		-		-		14		2,292		-		2,306
Total	$	2,707	$	15	$	724	$	3,446	$	161,737	$	699	$	165,882

	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

A summary of total non-accrual loans as of September 30, 2024 and December 31, 2023 follows:

	September 30, 2024						December 31, 2023
(Dollars in thousands)	With Allowance for Credit Loss		Without Allowance for Credit Loss		Total		With Allowance for Credit Loss		Without Allowance for Credit Loss		Total
Non-accrual loans
One- to four-family residential	$	1,381	$	17	$	1,398	$	1,564	$	311	$	1,875
Commercial real estate		-		-		-		-		50		50
Construction and land		25		-		25		42		-		42
Multi-family residential		-		-		-		-		-		-
Commercial and industrial		-		-		-		-		-		-
Consumer		-		-		-		-		-		-
Total	$	1,406	$	17	$	1,423	$	1,606	$	361	$	1,967

The Company was not committed to lend any additional funds on non-accrual loans at September 30, 2024 or December 31, 2023. The Company does not recognize interest income while loans are on non-accrual status. All payments received while on non-accrual status are applied against the principal balance of non-accrual loans.

At September 30, 2024, loans secured by residential real estate for which formal foreclosure proceedings were in process totaled $80,000. 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.

16

Occasionally 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 September 30, 2024 and December 31, 2023, loans with modifications for borrowers experiencing financial difficulty totaled $615,000 and $683,000, respectively.

During the nine months ended September 30, 2024, the Company granted one loan modification to a borrower experiencing financial difficulty that resulted in a more than minor change in the timing or amount of contractual cash flows. The maturity date was extended by three years for a residential mortgage loan with a balance of $20,000. During the nine months ended September 30, 2023, 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 September 30, 2024 or December 31, 2023.

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. 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 at least quarterly in conjunction with the determination of the adequacy of the allowance for credit losses.

17

The following table presents the Company’s loan portfolio by credit quality classification and origination year as of September 30, 2024. 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)	2024		2023		2022		2021		2020		Prior		Arrangements		Term Loans		Total
One- to four-family residential
Pass	$	2,143	$	2,723	$	12,318	$	3,099	$	2,721	$	51,691	$	2,400	$	1,774	$	78,869
Special Mention		-		-		-		57		59		132		-		-		248
Substandard		-		25		-		-		26		2,265		-		-		2,316
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	2,143	$	2,748	$	12,318	$	3,156	$	2,806	$	54,088	$	2,400	$	1,774	$	81,433
Commercial real estate
Pass	$	2,852	$	4,730	$	1,799	$	1,104	$	3,314	$	6,035	$	-	$	1,399	$	21,233
Special Mention		-		-		371		871		-		-		-		-		1,242
Substandard		229		-		-		-		-		-		-		-		229
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	3,081	$	4,730	$	2,170	$	1,975	$	3,314	$	6,035	$	-	$	1,399	$	22,704
Construction and land
Pass	$	1,886	$	50	$	103	$	53	$	71	$	344	$	27,654	$	-	$	30,161
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		124		-		25		-		-		149
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	1,886	$	50	$	103	$	177	$	71	$	369	$	27,654	$	-	$	30,310
Multi-family residential
Pass	$	-	$	-	$	-	$	470	$	-	$	2,152	$	-	$	-	$	2,622
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	470	$	-	$	2,152	$	-	$	-	$	2,622
Commercial and industrial
Pass	$	11,452	$	4,072	$	1,430	$	515	$	247	$	292	$	8,499	$	-	$	26,507
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	11,452	$	4,072	$	1,430	$	515	$	247	$	292	$	8,499	$	-	$	26,507
Consumer
Pass	$	699	$	605	$	264	$	377	$	87	$	274	$	-	$	-	$	2,306
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	699	$	605	$	264	$	377	$	87	$	274	$	-	$	-	$	2,306
Total
Pass	$	19,032	$	12,180	$	15,914	$	5,618	$	6,440	$	60,788	$	38,553	$	3,173	$	161,698
Special Mention		-		-		371		928		59		132		-		-		1,490
Substandard		229		25		-		124		26		2,290		-		-		2,694
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	19,261	$	12,205	$	16,285	$	6,670	$	6,525	$	63,210	$	38,553	$	3,173	$	165,882

18

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

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The following table presents gross charge-offs and recoveries for the nine months ended September 30, 2024 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)	2024		2023		2022		2021		2020		Prior		Total
Charge-offs
One- to four-family residential	$	-	$	-	$	-	$	-	$	-	$	160	$	160
Commercial real estate		-		-		-		-		-		28		28
Commercial and industrial		43		45		45		-		-		-		133
Consumer		37		2		1		1		-		2		43
Total	$	80	$	47	$	46	$	1	$	-	$	190	$	364
Recoveries
One- to four-family residential	$	-	$	-	$	-	$	-	$	1	$	67	$	68
Commercial real estate		-		-		-		-		-		14		14
Commercial and industrial		-		4		-		-		-		-		4
Consumer		2		-		-		1		-		8		11
Total	$	2	$	4	$	-	$	1	$	1	$	89	$	97

The following table presents gross charge-offs and recoveries for the nine months ended September 30, 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
Consumer		4		5		9		1		2		5		26
Total	$	4	$	5	$	9	$	1	$	2	$	5	$	26
Recoveries
One- to four-family residential	$	-	$	-	$	-	$	-	$	-	$	98	$	98
Commercial and industrial		-		-		-		-		-		1		1
Consumer		-		-		2		1		-		8		11
Total	$	-	$	-	$	2	$	1	$	-	$	107	$	110

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NOTE 6. DEPOSITS

Deposits at September 30, 2024 and December 31, 2023 are summarized as follows:

	September 30, 2024				December 31, 2023
(Dollars in thousands)	Amount		Percent		Amount		Percent
Non-interest-bearing demand deposits	$	27,904	16.7	%	$	28,183	17.0	%
Interest-bearing demand deposits		33,751	20.2			36,867	22.3
Money market		13,372	8.0			15,126	9.1
Savings		36,798	22.0			31,518	19.0
Certificates of deposit		55,611	33.1			53,928	32.6
Total deposits	$	167,436	100.0	%	$	165,622	100.0	%

The estimated amount of our total uninsured deposits (that is, deposits in excess of the FDIC’s insurance limit) was $40.2 million and $44.6 million, respectively, at September 30, 2024 and December 31, 2023.

At September 30, 2024 scheduled maturities of certificates of deposits were as follows:

(Dollars in thousands)	Amount
2024	$	15,720
2025		36,691
2026		2,203
2027		466
2028		494
2029		37
Total	$	55,611

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NOTE 7. BORROWED FUNDS

Borrowed funds and the weighted-average contractual interest rate on borrowings at September 30, 2024 and December 31, 2023 are summarized as follows:

	September 30, 2024				December 31, 2023
(Dollars in thousands)	Rate		Amount		Rate		Amount
Advance from Federal Reserve Bank of Atlanta	4.76	%	$	20,000	4.83	%	$	10,000
Advances from Federal Home Loan Bank of Dallas	0.93	%	$	10,000	0.93	%	$	10,000
Debt modification discount on FHLB Advances				(487)				(622)
				9,513				9,378
Total borrowings			$	29,513			$	19,378

During the fourth quarter of 2023, the Bank began borrowing from the Federal Reserve Bank of Atlanta through its Bank Term Funding Program (“BTFP”). In December of 2020, the Bank restructured $10.0 million of its long-term borrowings from the FHLB. The debt was restructured to longer maturities at current interest rates. A 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 for FHLB advances. A schedule of maturities for borrowings outstanding at September 30, 2024 are as follows:

(Dollars in thousands)	Amount
Amounts maturing in:
2024	$	-
2025		23,000
2026		-
2027		3,000
2028		4,000
Total	$	30,000

At September 30, 2024 and December 31, 2023, the Company had $43.2 million and $48.5 million, respectively, in available borrowing capacity with the Federal Home Loan Bank (“FHLB”). Borrowings from the FHLB are secured though a blanket floating lien on real estate loans. Refer to Note 5 for more detail on loans pledged to the FHLB. The Company has a $25.0 million custodial letter of credit outstanding from the FHLB as of September 30, 2024, 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. At September 30, 2024, the Company used $19.0 million of the FHLB custodial letter of credit to collateralize public fund deposits.

At September 30, 2024, the Company had no available borrowing capacity with the Federal Reserve Bank of Atlanta. At December 31, 2023, the Company’s available borrowing capacity with the Federal Reserve Bank of Atlanta was $2.2 million. Borrowings from the Federal Reserve are secured by pledging investment securities. Refer to Note 4 for more detail on pledged investment securities.

Other available funding includes an Unsecured Federal Funds Master Purchase Agreement with First National Bankers Bank for $17.8 million. At September 30, 2024 and December 31, 2023, this credit facility was unused.

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NOTE 8. CAPITAL AND 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 financial 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 judgments 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 total risk-based capital, Tier 1 Capital to risk-weighted assets, and Tier 1 Capital to adjusted total assets. As of September 30, 2024 and December 31, 2023, the Bank met all of the capital adequacy requirements to which it is subject.

At September 30, 2024 and December 31, 2023, 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
(Dollars in thousands)	Amount		Ratio		Amount		Ratio
As of September 30, 2024
Common Equity Tier 1 Capital	$	76,435	45.71	%	$	10,868	>6.5	%
Tier 1 Risk-Based Capital		76,435	45.71			13,376	>8.0
Total Risk-Based Capital		78,531	46.97			16,720	>10.0
Tier 1 Leverage Capital		76,435	27.43			13,933	>5.0
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

Share Repurchase Plans

The Company repurchased 362,199 shares of its common stock at an average cost per share of $11.98 during the nine months ended September 30, 2024. Of those shares, 228,326 were repurchased under the Company’s third repurchase plan announced in November 2023 (“November 2023 Repurchase Plan”), and the remainder were repurchased under the Company’s fourth share repurchase plan announced in May 2024 (“May 2024 Repurchase Plan”). Under the May 2024 Repurchase Plan, 93,127 shares of the Company’s common stock were available for repurchase at September 30, 2024.

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NOTE 9. 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.

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Fair values of assets and liabilities measured on a recurring basis at September 30, 2024 and December 31, 2023 follows:

	Fair Value Measurements at Reporting Date Using
(Dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
September 30, 2024
Available-for-sale securities	$	32,196	$	-	$	32,196	$	-
December 31, 2023
Available-for-sale securities	$	70,540	$	-	$	70,540	$	-

Fair values of assets and liabilities measured on a nonrecurring basis at September 30, 2024 and December 31, 2023 follows:

	Fair Value Measurements at Reporting Date Using
(Dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
September 30, 2024
Loans individually evaluated for credit losses	$	317	$	-	$	-	$	317
Foreclosed assets		173		-		-		173
Total	$	490	$	-	$	-	$	490
December 31, 2023
Loans individually evaluated for credit losses	$	374	$	-	$	-	$	374
Foreclosed assets		60		-		-		60
Total	$	434	$	-	$	-	$	434

At September 30, 2024 and December 31, 2023, individually evaluated loans with a recorded investment of $479,000 and $547,000, respectively, have been written down to their fair value by a charge to the allowance for loan losses. Foreclosed assets are adjusted to fair value by recording a related gain or loss through foreclosed asset expense. Foreclosed asset expense for the three and nine months ended September 30, 2024 included net losses of $39,000 and $37,000, respectively, to adjust foreclosed assets to fair value. For the three and nine months ended September 30, 2023, the Company recorded a loss of $62,000 to adjust foreclosed assets to fair value.

The fair value of foreclosed assets is estimated using third-party appraisals of the asset held less estimated costs to sell and discounts to reflect current conditions. The fair value of collateral-dependent loans individually evaluated for credit losses is estimated using third-party appraisals of the collateral less estimated costs to sell and discounts to reflect current conditions. The fair value of other loans individually evaluated for credit losses is estimated by discounting expected cash flows using discount rates determined with reference to current market rates at which similar loans would be made.

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NOTE 10. FAIR VALUE 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.

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 investments 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.

Loans receivable, net – The fair value of loans are generally determined by discounting scheduled cash flows using discount rates determined with reference to current market rates at which similar loans would be made. Loans receivable are classified within Level 3 of the fair value hierarchy.

Loans individually evaluated for credit losses - The fair value of 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. Loans 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 demand deposits, savings, NOW, money market and checking 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 – Fair values are estimated by discounting scheduled cash flows using the rates currently offered for deposits of similar remaining maturities. Certificates of deposit are classified within Level 2 of the fair value hierarchy.

Borrowings – The fair value is estimated by discounting the future contractual cash flows using current market rates at which debt with similar terms could be obtained. Borrowings are classified within Level 2 of the fair value hierarchy.

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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.

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business or the value of assets and liabilities that are not considered financial instruments.

The estimated fair values of the Company’s financial instruments as of September 30, 2024 and December 31, 2023 are as follows:

	September 30, 2024
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	45,753	$	45,753	$	45,753	$	-	$	-
Investment securities:
Available-for-sale		32,196		32,196		-		32,196		-
Held-to-maturity		13,450		11,699		-		11,699		-
Loans receivable, net		163,468		162,500		-		-		162,500
Bank-owned life insurance		14,370		14,370		-		14,370		-
Financial Liabilities:
Deposits		167,436		166,979		-		166,979		-
Borrowed funds		29,513		29,209		-		29,209		-

	December 31, 2023
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	19,011	$	19,011	$	19,011	$	-	$	-
Investment securities:
Available-for-sale		70,540		70,540		-		70,540		-
Held-to-maturity		13,461		11,227		-		11,227		-
Loans receivable, net		142,796		132,742		-		-		132,742
Bank-owned life insurance		14,026		14,026		-		14,026		-
Financial Liabilities:
Deposits		165,622		164,710		-		164,710		-
Borrowed funds		19,378		18,807		-		18,807		-

The carrying amounts in the preceding table are included in the statement of financial condition under the applicable captions. It is not practical to estimate the fair value of stock in correspondent banks because the equity securities are not marketable. The carrying amount of investments without readily determinable fair value are reported in the statements of financial condition at historical cost.

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NOTE 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 our financial statements.

The Company is not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at September 30, 2024, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of 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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Management’s Discussion and Analysis of Financial Condition and Results of Operations at September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 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, 2023.

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.

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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 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 credit 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, Federal Reserve Bank of Atlanta, and other sources to originate loans to our customers and invest in securities.

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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 three and nine months ended September 30, 2024:

● Total assets of $280.6 million at September 30, 2024, up $9.7 million, or 3.6%, from December 31, 2023

● Loans of $165.9 million at September 30, 2024, up $21.0 million, or 14.5%, from December 31, 2023

● Non-performing assets of $1.6 million at September 30, 2024, down $440,000, or 21.5%, from December 31, 2023

● Investment securities of $45.6 million at September 30, 2024, down $38.4 million, or 45.7%, from December 31, 2023

● Deposits of $167.4 million at September 30, 2024, up $1.8 million, or 1.1%, from December 31, 2023

● Borrowings of $29.5 million at September 30, 2024, up $10.1 million, or 52.3%, from December 31, 2023

● Total shareholders’ equity of $81.7 million at September 30, 2024, down $2.9 million, or 3.4%, from December 31, 2023

● Net interest income of $2.5 million and net interest margin of 3.86% for the three months ended September 30, 2024, up $584,000, or 30.0%, and up 77 basis points (“bps”), respectively, compared to the same period in 2023

● Net interest income of $7.1 million and net interest margin of 3.56% for the nine months ended September 30, 2024, up $1.3 million, or 22.8%, and up 52 bps, respectively, compared to the same period in 2023

● Loss on the sales of investment securities of $5.5 million for the nine months ended September 30, 2024

● Non-interest expense of $2.3 million for the three months ended September 30, 2024, up $179,000, or 8.6%, compared to the same period in 2023

● Non-interest expense of $7.1 million for the nine months ended September 30, 2024, up $662,000, or 10.3%, compared to the same period in 2023, primarily due to expenses related to the Company’s upgrade to a new core processing system

● Net income of $447,000 for the three months ended September 30, 2024, up $296,000, or 196.0%, compared to the same period in 2023

● A net loss of $3.7 million for the nine months ended September 30, 2024, compared to net income of $219,000 for the same period in 2023

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.

31

Critical Accounting Policies and Estimates

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could reflect materially different results under different assumptions and conditions. Methodologies the Company uses when applying critical accounting policies and developing critical estimates are included in its Annual Report on Form 10-K for the year ended December 31, 2023. Our accounting policies for allowance for credit losses, investment securities, and income taxes comprise those that management believes involve the most critical estimates and aid in fully understanding and evaluating our reported financial results.

During the three months ended March 31, 2024, the measurement of the Company’s deferred income tax assets and liabilities was identified as a critical accounting estimate. Deferred income tax assets and liabilities are 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. At September 30, 2024, the Company’s net deferred tax asset totaled $1.4 million and is included in other assets on the statement of financial condition. According to Subtopic 740-10 of the Accounting Standards Codification (“ASC 740-10”), the measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. At September 30, 2024, the Company has not recorded a valuation allowance for its deferred tax assets. 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, which may impact total income tax expense in future periods.

Additionally, as discussed in detail in Note 1 to the Company’s financial statements reported in this Quarterly Report on Form 10-Q, during June of 2024, the Bank became aware of interest owed by it to a deposit customer that was not properly accrued or paid by the Bank during the period beginning August 1, 2022 and ending March 31, 2024. Accordingly, management revised the prior period financial statements, related disclosures and supplemental information presented in this filing to correct the misstatement. The Company will also revise previously reported financial information for these immaterial errors in its future filings, as applicable. The information in this Item 2 and throughout this Quarterly Report on Form 10-Q has been adjusted to reflect these revisions as described in Note 1 to the Company’s financial statements of this Quarterly Report on Form 10-Q.

There were no other material changes from the significant accounting policies or critical accounting estimates previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

32

Comparison of Financial Condition at September 30, 2024 and December 31, 2023

Total Assets.  Total assets increased $9.7 million, or 3.6%, to $280.6 million at September 30, 2024 from $270.9 million at December 31, 2023. The increase was primarily due to an increase in cash as a result of additional borrowings under the Bank Term Funding Program (“BTFP”).

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

	September 30, 2024				December 31, 2023
(Dollars in thousands)	Amount		%		Amount		%		Change
Real estate loans
One- to four-family residential	$	81,433	49.1	%	$	83,623	57.7	%	$	(2,190)	(2.6)	%
Commercial real estate		22,704	13.7			21,478	14.8			1,226	5.7
Construction and land		30,310	18.3			13,857	9.6			16,453	118.7
Multi-family residential		2,622	1.6			3,373	2.3			(751)	(22.3)
Total real estate loans		137,069	82.7			122,331	84.4			14,738	12.0
Other loans
Commercial and industrial		26,507	16.0			19,984	13.8			6,523	32.6
Consumer		2,306	1.3			2,605	1.8			(299)	(11.5)
Total other loans		28,813	17.3			22,589	15.6			6,224	27.6
Total loans	$	165,882	100.0	%	$	144,920	100.0	%	$	20,962	14.5

Our loan growth has largely been the result of our re-focused business strategy. Since 2021, we have been targeting small- to mid-sized businesses and business professionals in our market areas while continuing to serve our traditional customer base. The following table presents certain major segments of our commercial real estate, construction and land, and commercial and industrial loan balances as of the dates indicated.

(Dollars in thousands)	September 30, 2024		December 31, 2023		Change
Commercial real estate
Retail	$	4,154	$	4,825	$	(671)	(13.9)	%
Hospitality		3,594		4,003		(409)	(10.2)
Restaurants		1,112		1,037		75	7.2
Oilfield services		411		437		(26)	(5.9)
Other non-owner occupied		2,780		2,908		(128)	(4.4)
Other owner occupied		10,653		8,268		2,385	28.8
Total commercial real estate	$	22,704	$	21,478	$	1,226	5.7
Construction and land
Multi-family residential	$	8,353	$	1,406	$	6,947	494.1	%
Health service facilities		7,073		2,469		4,604	186.5
Hospitality		2,716		2,716		-	-
Retail		3,339		-		3,339	-
Other commercial construction and land		4,846		4,312		534	12.4
Consumer residential construction and land		3,983		2,954		1,029	34.8
Total construction and land	$	30,310	$	13,857	$	16,453	118.7
Commercial and industrial
Oilfield services	$	14,010	$	6,254	$	7,756	124.0	%
Industrial equipment		3,882		3,453		429	12.4
Professional services		2,910		2,792		118	4.2
Communications		-		2,823		(2,823)	(100.0)
Other commercial and industrial		5,705		4,662		1,043	22.4
Total commercial and industrial loans	$	26,507	$	19,984	$	6,523	32.6

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Allowance for Credit Losses. At September 30, 2024, the allowance for loan losses totaled $2.4 million, or 1.46% of total loans, compared to 1.47% of total loans at December 31, 2023. The allowance for credit losses on unfunded commitments totaled $231,000, down $26,000 from December 31, 2023. The provision for credit losses, inclusive of the provision for unfunded commitments, for the nine months ended September 30, 2024 totaled $531,000 and was largely attributable to commercial loan growth.

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

	Nine Months Ended September 30,							Year Ended December 31,
(Dollars in thousands)	2024			2023			2023
Allowance for loan losses:
Balance, beginning of period	$	2,124		$	1,807		$	1,807
Impact of adoption of ASC 326		-			209			209
Provision for (reversal of) loan losses		557			(64)			87
Net loan (charge-offs) recoveries:
One- to four-family residential		(92)			98			42
Commercial real estate		(14)			-			-
Construction and land		-			-			-
Multi-family residential		-			-			-
Commercial and industrial		(129)			1			1
Consumer		(32)			(15)			(22)
Total net (charge-offs) recoveries		(267)			84			21
Balance, end of period	$	2,414		$	2,036		$	2,124
Allowance for credit losses on unfunded lending commitments:
Balance, beginning of period	$	257		$	-		$	-
Impact of adoption of ASC 326		-			216			216
Provision for (reversal of) credit losses on unfunded lending commitments		(26)			64			41
Balance, end of period	$	231		$	280		$	257
Total allowance for credit losses, end of period	$	2,645		$	2,316		$	2,381
Total provision for (reversal of) credit losses		531			-			128
Total loans at end of period	$	165,882		$	135,672		$	144,920
Total non-accrual loans at end of period		1,423			1,961			1,967
Total non-performing loans at end of period		1,438			2,088			1,991
Total average loans		152,066			134,013			135,713
Allowance for loan losses as a percent of:
Total loans		1.46	%		1.50	%		1.47	%
Non-accrual loans		169.64			103.82			107.98
Non-performing loans		167.87			97.51			106.68
Net annualized (charge-offs) recoveries as a percent of average loans by portfolio:
One- to four-family residential		(0.15)	%		0.15	%		0.05	%
Commercial real estate		(0.08)			-			-
Construction and land		-			-			-
Multi-family residential		-			-			-
Commercial and industrial		(0.80)			0.01			0.01
Consumer		(1.77)			(0.63)			(0.71)
Total loans		(0.23)			0.08			0.02

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.

	September 30,			December 31,
(Dollars in thousands)	2024			2023
Non-accruing loans
One- to four-family residential	$	1,398		$	1,875
Commercial real estate		-			50
Construction and land		25			42
Multi-family residential		-			-
Commercial and industrial		-			-
Consumer		-			-
Total non-accruing loans		1,423			1,967
Accruing loans 90 days or more past due
One- to four-family residential		15			24
Commercial real estate		-			-
Construction and land		-			-
Multi-family residential		-			-
Commercial and industrial		-			-
Consumer		-			-
Total accruing loans 90 days or more past due		15			24
Total non-performing loans		1,438			1,991
Foreclosed assets		173			60
Total non-performing assets	$	1,611		$	2,051
Total loans	$	165,882		$	144,920
Total assets		280,617			270,932
Total non-accruing loans as a percentage of total loans		0.86	%		1.36	%
Total non-performing loans as a percentage of total loans		0.87			1.37
Total non-performing loans as a percentage of total assets		0.51			0.73
Total non-performing assets as a percentage of total assets		0.57			0.76

35

Investment Securities.  Total investment securities were $45.6 million at September 30, 2024, down $38.4 million, or 45.7%, compared to $84.0 million at December 31, 2023. Net unrealized losses on securities available-for-sale totaled $3.4 million at September 30, 2024, compared to $9.2 million at December 31, 2023. Unrealized losses on available-for-sale securities relate principally to increases in market interest rates for similar securities. 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 three months ended March 31, 2024, the Company sold 50 available-for-sale investment securities for a total pre-tax loss of $5.5 million. Proceeds from the sales totaled $42.6 million, inclusive of accrued interest. During the six-month period ending September 30, 2024, the Company re-deployed a portion of the sales proceeds by purchasing $7.9 million of fixed-rate government-sponsored mortgage-backed securities.

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, 2024.

	Contractual Maturity as of September 30, 2024
(Dollars in thousands)	One Year or Less			After One Through Five Years			After Five Through Ten Years			Over Ten Years			Total
Total investment securities
Mortgage-backed securities	$	-		$	3,870		$	1,956		$	26,356		$	32,182
U.S. Government and agency obligations		1,000			2,000			7,000			4,000			14,000
Municipal obligations		700			450			627			1,080			2,857
Total	$	1,700		$	6,320		$	9,583		$	31,436		$	49,039
Weighted average yield
Mortgage-backed securities		-	%		4.68	%		4.39	%		2.15	%		2.59	%
U.S. Government and agency obligations		0.92			1.00			1.31			2.37			1.54
Municipal obligations		0.80			1.12			4.90			1.41			1.98
Total weighted average yield		0.87			3.26			2.17			2.15			2.26

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.

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Deposits. The following table presents total deposits by account type for the dates indicated.

	September 30, 2024				December 31, 2023
(Dollars in thousands)	Amount		%		Amount		%		Change
Non-interest-bearing demand deposits	$	27,904	16.7	%	$	28,183	17.0	%	$	(279)	(1.0)	%
Interest-bearing demand deposits		33,751	20.2			36,867	22.3			(3,116)	(8.5)
Money market		13,372	8.0			15,126	9.1			(1,754)	(11.6)
Savings		36,798	22.0			31,518	19.0			5,280	16.8
Certificates of deposit		55,611	33.1			53,928	32.6			1,683	3.1
Total deposits	$	167,436	100.0	%	$	165,622	100.0	%	$	1,814	1.1

The ratio of the Company’s total loans to total deposits was 99.1% and 87.5% as of September 30, 2024 and December 31, 2023, respectively.

Total public fund deposits amounted to $21.0 million, or 13% of total deposits, at September 30, 2024, compared to $23.3 million, or 14% of total deposits, at December 31, 2023. At September 30, 2024, approximately 74% of our total public fund deposits consisted of non-interest-bearing and interest-bearing demand deposits from municipalities within our market.

Our total uninsured deposits (that is deposits in excess of the FDIC’s insurance limit), inclusive of public funds, were approximately $40.2 million at September 30, 2024 and $44.6 million at December 31, 2023. Total uninsured non-public fund deposits were approximately $23.6 million and $26.3 million at September 30, 2024 and December 31, 2023, respectively. At September 30, 2024, the full amount of our public fund deposits in excess of the FDIC’s insurance limit were secured by either pledged investment securities of $14.4 million or $19.0 million of a custodial letter of credit granted by the Federal Home Loan Bank of Dallas.

Borrowings. Total borrowings at September 30, 2024 were $29.5 million, up $10.1 million from December 31, 2023. During the first three months of 2024, the Bank increased its borrowings from the Federal Reserve Bank of Atlanta through the BTFP. At September 30, 2024, the Bank had one $20.0 million BTFP advance outstanding with a contractual interest rate of 4.76% and a maturity date of January 15, 2025.

Other borrowings outstanding consisted of FHLB advances totaling $9.5 million at September 30, 2024 and $9.4 million at December 31, 2023. Deferred prepayment penalties on our FHLB advances totaled $487,000 and $622,000 at September 30, 2024 and December 31, 2023, respectively.

Shareholders’ Equity.  Shareholders’ equity totaled $81.7 million, or 29.1% of total assets, at September 30, 2024, down $2.9 million, or 3.4%, from $84.6 million, or 31.2% of total assets, at December 31, 2023. During the nine months ended September 30, 2024, shareholders’ equity decreased by $4.3 million due to the Company’s repurchases of its common stock. The Company’s net loss of $3.7 million for the nine months ended September 30, 2024 was offset by other comprehensive income of $4.6 million, which was the result of the change in unrealized losses on available-for-sale investment securities during the first nine months of 2024.

The Company repurchased 362,199 shares of its common stock at an average cost per share of $11.98 during the nine months ended September 30, 2024. Under the May 2024 Repurchase Plan, 93,127 shares of the Company’s common stock were available for repurchase at September 30, 2024. Since the announcement of our first share repurchase plan on January 26, 2023 and through September 30, 2024, the Company has repurchased a total of 890,873 shares of its common stock, or approximately 17% of the common shares originally issued, at an average cost per share of $11.96.

37

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.

	Three Months Ended September 30,
	2024						2023
(Dollars in thousands)	Average Balance		Interest		Average Yield/Rate(TE)		Average Balance		Interest		Average Yield/Rate(TE)
Interest-earning assets:
Loans receivable(1)	$	161,410	$	2,717	6.70	%	$	134,851	$	1,852	5.45	%
Investment securities(2)		48,517		255	2.11			99,373		403	1.64
Other interest-earning assets		51,142		699	5.45			16,915		214	5.02
Total interest-earning assets		261,069		3,671	5.60			251,139		2,469	3.91
Non-interest-earning assets		21,371						13,956
Total assets	$	282,440					$	265,095
Interest-bearing liabilities:
Demand deposits, money market and savings accounts		85,164		382	1.78			83,051		178	0.85
Certificates of deposit		55,910		448	3.19			50,526		274	2.15
Total interest-bearing deposits		141,074		830	2.34			133,577		452	1.34
Borrowings		29,502		309	4.17			9,306		69	2.93
Total interest-bearing liabilities		170,576		1,139	2.66			142,883		521	1.45
Non-interest-bearing liabilities		30,557						38,153
Total liabilities		201,133						181,036
Shareholders' equity		81,307						84,059
Total liabilities and shareholders' equity	$	282,440					$	265,095
Net interest-earning assets	$	90,493					$	108,256
Net interest income; average interest rate spread			$	2,532	2.94	%			$	1,948	2.46	%
Net interest margin(3)					3.86						3.09
Average interest-earning assets to average interest-bearing liabilities					153.05						175.77

(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%.

38

	Nine Months Ended September 30,
	2024						2023
(Dollars in thousands)	Average Balance		Interest		Average Yield/Rate(TE)		Average Balance		Interest		Average Yield/Rate(TE)
Interest-earning assets:
Loans receivable(1)	$	152,066	$	7,314	6.42	%	$	134,013	$	5,172	5.16	%
Investment securities(2)		56,408		790	1.88			101,564		1,243	1.65
Other interest-earning assets		56,738		2,247	5.29			18,369		643	4.68
Total interest-earning assets		265,212		10,351	5.22			253,946		7,058	3.72
Non-interest-earning assets		19,752						14,431
Total assets	$	284,964					$	268,377
Interest-bearing liabilities:
Demand deposits, money market and savings accounts		87,300		1,040	1.59	%		85,966		456	0.71	%
Certificates of deposit		56,319		1,330	3.15			51,076		636	1.66
Total interest-bearing deposits		143,619		2,370	2.20			137,042		1,092	1.06
Borrowings		28,989		908	4.18			9,262		205	2.95
Total interest-bearing liabilities		172,608		3,278	2.54			146,304		1,297	1.18
Non-interest-bearing liabilities		30,711						36,450
Total liabilities		203,319						182,754
Shareholders' equity		81,645						85,623
Total liabilities and shareholders' equity	$	284,964					$	268,377
Net interest-earning assets	$	92,604					$	107,642
Net interest income; average interest rate spread			$	7,073	2.68	%			$	5,761	2.54	%
Net interest margin(3)					3.56						3.04
Average interest-earning assets to average interest-bearing liabilities					153.65						173.57

(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%.

39

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.

	Three Months Ended						Nine Months Ended
	September 30, 2024 vs 2023						September 30, 2024 vs 2023
	Increase (Decrease) Due to				Total		Increase (Decrease) Due to				Total
(Dollars in thousands)	Rate		Volume		Increase (Decrease)		Rate		Volume		Increase (Decrease)
Interest income:
Loans receivable	$	462	$	403	$	865	$	1,385	$	757	$	2,142
Investment securities		95		(243)		(148)		158		(611)		(453)
Other interest-earning assets		15		470		485		85		1,519		1,604
Total interest income		572		630		1,202		1,628		1,665		3,293
Interest expense:
Demand deposits, money market and savings accounts		199		5		204		577		7		584
Certificates of deposit		143		31		174		623		71		694
Total deposits		342		36		378		1,200		78		1,278
Borrowings		-		240		240		(3)		706		703
Total interest expense		342		276		618		1,197		784		1,981
Increase (decrease) in net interest income	$	230	$	354	$	584	$	431	$	881	$	1,312

Comparison of Results of Operations for the Three Months Ended September 30, 2024 and 2023.

General. For the three months ended September 30, 2024, the Company reported net income of $447,000, compared to net income of $151,000 for the three months ended September 30, 2023. Net interest income was up $584,000, or 30.0%, for the three months ended September 30, 2024, compared to the same period in 2023. The provision for credit losses totaled $337,000 for the three months ended September 30, 2024, compared to zero provision for the same period in 2023. Non-interest income was up $314,000, or 102.6%, for the three months ended September 30, 2024, compared to the same period in 2023.  Non-interest income for the 2024 period included grant income of $280,000 due to a Bank Enterprise Award (“BEA”) Program grant from the Community Development Financial Institution (“CDFI”) Fund. Non-interest expense for the three months ended September 30, 2024 was up $179,000, or 8.6%, compared to the same period in 2023.

Interest Income. Total interest income increased $1.2 million, or 48.7%, to $3.7 million for the three months ended September 30, 2024, compared to the same period in 2023. Interest income on loans and other interest-earning assets were up $865,000 and $485,000, respectively, for the three months ended September 30, 2024, compared to the same period in 2023. These increases were partially offset by a decrease in interest income on investment securities of $148,000 for the three months ended September 30, 2024, compared to the same period in 2023.

The average loan yield was 6.70% for the three months ended September 30, 2024, up from 5.45% for the same period in 2023. Average loans were $161.4 million for the three months ended September 30, 2024, up $26.6 million, or 19.7%, compared to the same period in 2023. At September 30, 2024, approximately 50% of our total loans have adjustable rates and approximately 51% of total loans are scheduled to re-price or mature during the next 12 months.

The decrease in interest income on investment securities was primarily due to the decrease in the average balance of total investment securities due to the sales executed during the three months ended March 31, 2024. The average rate earned on our investment securities portfolio was 2.11% for the three months ended September 30, 2024, up 47 basis points compared to the same period 2023 primarily due to investment securities purchased during 2024.

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Interest income on other interest-earning assets, consisting primarily of interest-earning cash and deposits at other financial institutions, increased mainly due to the re-investment of proceeds from investment securities sales executed during the first three months of 2024.

Interest Expense. Total interest expense increased $618,000, or 118.6%, to $1.1 million for the three months ended September 30, 2024, compared to $521,000 for the same period in 2023. Interest expense on deposits was $830,000 during the three months ended September 30, 2024, up $378,000, or 83.6%, compared to the same period in 2023. The average rate paid on interest-bearing deposits was 2.34% during the three months ended September 30, 2024, up 100 basis points compared to the same period in 2023. Interest expense on borrowings increased by $240,000 during the three months ended September 30, 2024 compared to the same period in 2023 mainly due to interest expense on BTFP advances.

Net Interest Income. Net interest income was $2.5 million for the three months ended September 30, 2024, up $584,000, or 30.0%, compared to 2023. Our interest rate spread was 2.94% and 2.46% for the three months ended September 30, 2024 and 2023, respectively. Our net interest margin was 3.86% and 3.09% for the three months ended September 30, 2024 and 2023, 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, partially offset by the rising cost of interest-bearing liabilities.

Provision for Credit Losses.  The total provision for credit losses on loans and unfunded commitments was $337,000 for the three months ended September 30, 2024, compared to zero provision for the same period in 2023. In 2024, the provision for credit losses was largely attributable to commercial loan growth.

Non-interest Income. Non-interest income for the three months ended September 30, 2024 totaled $620,000, up $314,000, or 102.6%, compared to the same period in 2023. The Company recognized as income a $280,000 Bank Enterprise Award (“BEA”) Program grant from the CDFI Fund during the three months ended September 30, 2024.

Non-interest Expense.  Non-interest expense totaled $2.3 million for the three months ended September 30, 2024, up $179,000, or 8.6%, compared to the three months ended September 30, 2023.

Salaries and employee benefits expense totaled $1.2 million for the three months ended September 30, 2024, up $59,000, or 5.2%, compared to the same period in 2023 primarily due to raises that became effective at the start of the 2024 period.

Professional fees totaled $151,000 for the three months ended September 30, 2024, up $51,000, or 51.0%, compared to the same period in 2023. Professional fees associated with obtaining the BEA Program grant totaled $42,000 and were expensed during the three months ended September 30, 2024.

ATM and debit card expense totaled $24,000 for the three months ended September 30, 2024, down $44,000, or 64.7%, compared to the same period in 2023. During the first three months of 2024, the Company upgraded to a new core processing system which largely contributed to reductions in debit card processing costs during the three months ended September 30, 2024.

Foreclosed assets expense totaled $33,000 for the three months ended September 30, 2024, up $31,000 compared to the same period in 2023. During the three months ended September 30, 2024, the Company recorded net write-downs on foreclosed assets of $39,000.

Other non-interest expense totaled $184,000 for the three months ended September 30, 2024, up $87,000, or 89.7%, compared to the same period in 2023 primarily due to increased loan collection expenses and fraud losses during the 2024 period.

Income Tax Expense.  The Company reported income tax expense of $108,000 for the three months ended September 30, 2024 compared to $22,000 for the three months ended September 30, 2023. The change in income taxes over the comparable prior period was largely due to the change in taxable earnings over the comparable periods.

Comparison of Results of Operations for the Nine Months Ended September 30, 2024 and 2023.

General. For the nine months ended September 30, 2024, the Company reported a net loss of $3.7 million, compared to net income of $219,000 for the nine months ended September 30, 2023. Net interest income was up $1.3 million, or 22.8%, for the nine months ended September 30, 2024, compared to the same period in 2023. The provision for credit losses totaled $531,000 for the nine months ended September 30, 2024, compared to zero provision for the same period in 2023. Non-interest income was down $5.1 million for the nine

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months ended September 30, 2024, compared to the same period in 2023, primarily due to losses on the sales of investment securities. Non-interest expense for the nine months ended September 30, 2024 was up $662,000, or 10.3%, compared to the same period in 2023, primarily due to expenses associated with the Company’s upgrade to a new core processing system.

Interest Income. Total interest income increased $3.3 million, or 46.7%, to $10.4 million for the nine months ended September 30, 2024, compared to the same period in 2023. Interest income on loans and other interest-earning assets were up $2.1 million and $1.6 million, respectively. These increases were partially offset by a $453,000 decrease in interest income on investment securities.

The average loan yield was 6.42% for the nine months ended September 30, 2024, up from 5.16% for the same period in 2023. Average loans were $152.1 million for the nine months ended September 30, 2024, up $18.1 million, or 13.5%, compared to the same period in 2023.

The decrease in interest income on investment securities was primarily due to the decrease in the average balance of total investment securities due to the sales executed during the three months ended March 31, 2024. The average rate earned on our investment securities portfolio was 1.88% for the nine months ended September 30, 2024, up 23 basis points compared to the same period in 2023 primarily due to investment securities purchased during 2024.

Interest income on other interest-earning assets, consisting primarily of interest-earning cash and deposits at other financial institutions, increased mainly due to the re-investment of proceeds from investment securities sales executed during the first three months of 2024.

Interest Expense. Total interest expense increased $2.0 million, or 152.7%, to $3.3 million for the nine months ended September 30, 2024, compared to $1.3 million for the same period in 2023. Interest expense on deposits was $2.4 million during the nine months ended September 30, 2024, up $1.3 million, or 117.0%, compared to the same period in 2023. The average rate paid on interest-bearing deposits was 2.20% during the nine months ended September 30, 2024, up 114 basis points compared to the same period in 2023. Interest expense on borrowings increased by $703,000 during the nine months ended September 30, 2024 compared to the same period in 2023 mainly due to interest expense on BTFP advances.  

Net Interest Income. Net interest income was $7.1 million for the nine months ended September 30, 2024, up $1.3 million, or 22.8%, compared to 2023. Our interest rate spread was 2.68% and 2.54% for the nine months ended September 30, 2024 and 2023, respectively. Our net interest margin was 3.56% and 3.04% for the nine months ended September 30, 2024 and 2023, 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, partially offset by the rising cost of interest-bearing liabilities.

Provision for Credit Losses.  The total provision for credit losses on loans and unfunded commitments was $531,000 for the nine months ended September 30, 2024, compared to no provision for the same period in 2023. In 2024, the provision for credit losses was largely attributable to commercial loan growth and an increase in the allowance for credit losses on individually evaluated loans.

Non-interest Income. Non-interest income for the nine months ended September 30, 2024 was down $5.1 million compared to $917,000 for the same period in 2023. Non-interest income for 2024 includes the $5.5 million loss on the sales of investment securities discussed previously.

Non-interest Expense.  Non-interest expense totaled $7.1 million for the nine months ended September 30, 2024, up $662,000, or 10.3%, compared to the same period in 2023. Non-interest expense for the nine months ended September 30, 2024 includes $531,000 of data conversion and other associated expenses related to the Company’s upgrade to a new core processing system, which occurred during the first three months of 2024. Most of these costs are included in data processing and communication expense. Data processing and communication expense was up $495,000, or 73.3%, for the nine months ended September 30, 2024 compared to the same period in 2023.

Income Tax Expense.  The Company reported an income tax benefit of $1.0 million for the nine months ended September 30, 2024, compared to income tax expense of $2,000 for the nine months ended September 30, 2023. The change in income taxes over the comparable prior period was largely due to the loss on sales of investment securities in 2024.

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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 or sales of securities. We also have the ability to borrow from the FHLB, Federal Reserve Bank of Atlanta, and our primary correspondent bank.

At September 30, 2024, our borrowed funds consisted of a $20 million BTFP advance and FHLB advances with a total net carrying value of $9.5 million. The table below summarizes our unused and available liquidity sources as of September 30, 2024.

(Dollars in thousands)	September 30, 2024
Advances from the Federal Home Loan Bank of Dallas	$	43,237
Line of credit with primary correspondent bank		17,800
Unpledged available-for-sale investment securities, at fair value		10,634
Total unused and available liquidity	$	71,671

The Company also has a $25.0 million custodial letter of credit outstanding from the FHLB as of September 30, 2024, which is included in the calculation of our available capacity with the FHLB indicated above. 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. At September 30, 2024, the Company used $19.0 million of the FHLB custodial letter of credit to collateralize public fund deposits.

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. The most significant uses and sources of cash flows during the nine months ended September 30, 2024 included:

● $46.4 million in proceeds from maturities, paydowns, and sales of investment securities,

● $21.5 million net outflow due to an increase in total loans,

● $10.0 million in proceeds from BTFP advances, and

● $7.9 million net outflow due to purchases of investment securities.

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.

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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, 2024.

			Amount of Commitment Expiration — Per Period
(Dollars in thousands)	Total Amounts Committed at September 30, 2024		To 1 Year		1 - 3 Years		3 - 5 Years		After 5 Years
Commitments to originate loans	$	525	$	525	$	-	$	-	$	-
Undisbursed portion of construction loans in process		12,992		8,602		4,390		-		-
Unused lines of credit		17,715		14,116		2,324		-		1,275
Unused overdraft privilege amounts		1,153		-		-		-		1,153
Letters of credit		19		19		-		-		-
Total commitments	$	32,404	$	23,262	$	6,714	$	-	$	2,428

The following table summarizes our contractual cash obligations at September 30, 2024.

			Payments Due By Period
(Dollars in thousands)	Total at September 30, 2024		To 1 Year		1 - 3 Years		3 - 5 Years		After 5 Years
Certificates of deposit	$	55,611	$	50,430	$	4,533	$	648	$	-
Borrowings		30,000		20,000		3,000		7,000		-
Total term debt	$	85,611	$	70,430	$	7,533	$	7,648	$	-

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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4. CONTROLS AND PROCEDURES

During the three months ended June 30, 2024, management identified a deficiency in the Company’s system of internal controls which led to the misstatement described in Note 1 of the consolidated financial statements. After implementing a process to resolve the deficiency and assess its cause and resulting impact on our disclosure controls and procedures, Management and the Audit Committee concluded that the deficiency did not represent a material weakness in the Company’s internal controls over financial reporting since the deficiency was isolated to a unique deposit account that required certain controls that were not required for oversight of any other of the Bank’s deposit accounts at June 30, 2024. Therefore, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures in effect as of the date of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2024, other than the identified deficiency, were effective as of that date. The control deficiency was remediated in July 2024.

An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Act”)) as of September 30, 2024, 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. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms. Except for the previously identified deficiency that was remediated in July 2024, there have been no other changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the three months ended September 30, 2024, 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.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at September 30, 2024, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company’s purchases of its common stock made during the three months ended September 30, 2024 consisted of share repurchases under the Company’s approved plans and are set forth in the following table.

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
July 31, 2024		33,611	$	11.73		33,611		138,916
August 31, 2024		16,626		11.78		16,626		122,290
September 30, 2024		29,163		11.29		29,163		93,127
Total		79,400	$	11.58		79,400

On May 2, 2024, The Company announced that its Board of Directors approved the Company’s fourth share repurchase plan (the “May 2024 Repurchase Plan”). Under the May 2024 Repurchase Plan, the Company may purchase up to 227,000 shares, or approximately 5%, of the Company’s outstanding shares of common stock. At June 30, 2024, 172,527 shares were available for repurchase under the May 2024 Repurchase Plan. Following the repurchases of common stock made during the three months ended September 30, 2024, 93,127 shares were still available on September 30, 2024, for repurchase under the May 2024 Repurchase Plan.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Nothing to report.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Nothing to report.

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ITEM 6. EXHIBITS

31.1	Rule 13a-14(a) Certifications (Chief Executive Officer)
31.2	Rule 13a-14(a) Certifications (Chief Financial Officer)
32.0	Section 1350 Certifications
101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document
104	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CATALYST BANCORP, INC.
Date: November 13, 2024	By:	/s/ Joseph B. Zanco
		Joseph B. Zanco
		President and Chief Executive Officer
		(Duly Authorized Officer)
Date: November 13, 2024	By:	/s/ Jacques L. J. Bourque
		Jacques L. J. Bourque
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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