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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, 2023

​

​

☐

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

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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 4,769,155 shares of Registrant’s common stock, par value of $0.01 per share, issued and outstanding as of November 6, 2023.

​

​

​

​

CATALYST BANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS

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​

​

PART I

FINANCIAL INFORMATION

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​

​

​

​

​

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

​

31

​

​

​

​

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

​

50

​

​

​

​

Item 4.

Controls and Procedures

​

50

​

​

​

​

PART II

OTHER INFORMATION

​

51

​

​

​

​

Item 1.

Legal Proceedings

​

51

​

​

​

​

Item 1A.

Risk Factors

​

51

​

​

​

​

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

​

51

​

​

​

​

Item 3.

Defaults Upon Senior Securities

​

51

​

​

​

​

Item 4.

Mine Safety Disclosures

​

51

​

​

​

​

Item 5

Other Information

​

51

​

​

​

​

Item 6.

Exhibits

​

52

​

​

​

SIGNATURES

​

53

​

​

i

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)

​

2023

​

2022

ASSETS

 

​

  

 

​

  

Non-interest-bearing cash

​

$

3,497

​

$

5,092

Interest-bearing cash and due from banks

​

 

9,769

​

 

8,380

Total cash and cash equivalents

​

 

13,266

​

 

13,472

Investment securities:

​

 

  

​

 

  

Securities available-for-sale, at fair value

​

 

71,808

​

 

79,602

Securities held-to-maturity (fair values of $10,573 and $10,724, respectively)

​

 

13,464

​

 

13,475

Loans receivable, net of unearned income

​

 

135,672

​

 

133,607

Allowance for loan losses

​

 

(2,036)

​

 

(1,807)

Loans receivable, net

​

 

133,636

​

 

131,800

Accrued interest receivable

​

 

806

​

 

673

Foreclosed assets

​

 

37

​

 

320

Premises and equipment, net

​

 

6,160

​

 

6,303

Stock in correspondent banks, at cost

​

 

1,858

​

 

1,808

Bank-owned life insurance

​

 

13,917

​

 

13,617

Other assets

​

 

2,956

​

 

2,254

TOTAL ASSETS

​

$

257,908

​

$

263,324

​

​

 

  

​

 

  

LIABILITIES

​

 

  

​

 

  

Deposits

​

 

  

​

 

  

Non-interest-bearing

​

$

33,222

​

$

33,657

Interest-bearing

​

 

131,998

​

 

131,437

Total deposits

​

 

165,220

​

 

165,094

Advances from Federal Home Loan Bank

​

 

9,333

​

 

9,198

Other liabilities

​

 

1,147

​

 

558

TOTAL LIABILITIES

​

 

175,700

​

 

174,850

​

​

 

  

​

 

  

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; 4,848,290 and 5,290,000 issued and outstanding at September 30, 2023 and December 31, 2022, respectively

​

​

48

​

​

53

Additional paid-in capital

​

​

45,855

​

​

51,062

Unallocated common stock held by benefit plans

​

​

(6,274)

​

​

(6,307)

Retained earnings

​

 

52,687

​

 

52,740

Accumulated other comprehensive income (loss)

​

 

(10,108)

​

 

(9,074)

TOTAL SHAREHOLDERS' EQUITY

​

 

82,208

​

 

88,474

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

​

$

257,908

​

$

263,324

​

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)

​

2023

​

2022

​

2023

​

2022

INTEREST INCOME

​

​

  

​

​

  

​

​

  

​

​

  

Loans receivable, including fees

​

$

1,852

​

$

1,466

​

$

5,172

​

$

4,584

Investment securities

​

 

403

​

 

381

​

 

1,243

​

 

1,062

Other

​

 

214

​

 

185

​

 

643

​

 

262

Total interest income

​

 

2,469

​

 

2,032

​

 

7,058

​

 

5,908

INTEREST EXPENSE

​

 

  

​

 

  

​

 

  

​

 

  

Deposits

​

 

428

​

 

93

​

 

1,012

​

 

272

Advances from Federal Home Loan Bank

​

 

69

​

 

69

​

 

205

​

 

205

Total interest expense

​

 

497

​

 

162

​

 

1,217

​

 

477

Net interest income

​

 

1,972

​

 

1,870

​

 

5,841

​

 

5,431

Provision for (reversal of) credit losses

​

 

-

​

 

(115)

​

 

-

​

 

(375)

Net interest income after provision for (reversal of) credit losses

​

 

1,972

​

 

1,985

​

 

5,841

​

 

5,806

NON-INTEREST INCOME

​

 

  

​

 

  

​

 

  

​

 

  

Service charges on deposit accounts

​

 

190

​

 

192

​

 

573

​

 

542

Gain (loss) on disposals and sales of fixed assets

​

 

-

​

 

-

​

 

-

​

 

(77)

Bank-owned life insurance

​

 

104

​

 

97

​

 

300

​

 

216

Federal community development grant

​

 

-

​

 

-

​

 

-

​

 

171

Other

​

 

12

​

 

7

​

 

44

​

 

20

Total non-interest income

​

 

306

​

 

296

​

 

917

​

 

872

NON-INTEREST EXPENSE

​

 

  

​

 

  

​

 

  

​

 

  

Salaries and employee benefits

​

 

1,141

​

 

1,168

​

 

3,522

​

 

3,647

Occupancy and equipment

​

 

198

​

 

203

​

 

609

​

 

640

Data processing and communication

​

 

228

​

 

216

​

 

675

​

 

666

Professional fees

​

 

100

​

 

157

​

 

346

​

 

472

Directors’ fees

​

 

116

​

 

75

​

 

345

​

 

185

ATM and debit card

​

 

68

​

 

76

​

 

187

​

​

184

Foreclosed assets, net

​

 

2

​

 

3

​

 

67

​

 

-

Advertising and marketing

​

 

25

​

 

36

​

 

77

​

 

187

Franchise and shares tax

​

​

19

​

​

15

​

​

71

​

​

131

Regulatory fees and assessments

​

​

33

​

​

35

​

​

99

​

​

104

Insurance

​

​

26

​

​

34

​

​

80

​

​

100

Printing, supplies and postage

​

​

28

​

​

37

​

​

102

​

​

117

Other

​

 

97

​

 

78

​

 

277

​

 

285

Total non-interest expense

​

 

2,081

​

 

2,133

​

 

6,457

​

 

6,718

Income (loss) before income tax expense (benefit)

​

 

197

​

 

148

​

 

301

​

 

(40)

Income tax expense (benefit)

​

 

27

​

 

13

​

 

19

​

 

(49)

NET INCOME

​

$

170

​

$

135

​

$

282

​

$

9

​

​

​

​

​

​

​

​

​

​

​

​

​

Earnings per share - basic

​

$

0.03

​

$

0.03

​

$

0.06

​

$

0.01

Earnings per share - diluted

​

​

0.03

​

​

0.03

​

​

0.06

​

​

0.01

​

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

​

​

​

3

CATALYST BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Three Months Ended September 30, 

​

Nine Months Ended September 30, 

(Dollars in thousands)

​

2023

    

2022

​

2023

    

2022

Net income

​

$

170

​

$

135

​

$

282

​

$

9

Net change in unrealized gains (losses) on available-for-sale securities

​

 

(1,852)

​

 

(4,229)

​

 

(1,309)

​

 

(11,776)

Income tax effect

​

 

389

​

 

888

​

 

275

​

 

2,473

Total other comprehensive income (loss)

​

 

(1,463)

​

 

(3,341)

​

 

(1,034)

​

 

(9,303)

Total comprehensive income (loss)

​

$

(1,293)

​

$

(3,206)

​

$

(752)

​

$

(9,294)

​

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

​

4

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, 2022

​

$

53

​

$

50,838

​

$

(4,073)

​

$

52,434

​

$

(6,645)

​

$

92,607

Net income

​

 

-

​

 

-

​

 

-

​

 

135

​

 

-

​

 

135

Other comprehensive income (loss)

​

 

-

​

 

-

​

 

-

​

 

-

​

​

(3,341)

​

 

(3,341)

ESOP shares released for allocation

​

 

-

​

 

17

​

 

53

​

 

-

​

​

-

​

 

70

Stock compensation expense

​

 

-

​

 

47

​

 

-

​

 

-

​

​

-

​

 

47

BALANCE, SEPTEMBER 30, 2022

​

$

53

​

$

50,902

​

$

(4,020)

​

$

52,569

​

$

(9,986)

​

$

89,518

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

BALANCE, JUNE 30, 2023

​

$

49

​

$

47,032

​

$

(6,616)

​

$

52,517

​

$

(8,645)

​

$

84,337

Net income

​

 

-

​

 

-

​

 

-

​

 

170

​

 

-

​

 

170

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)

​

$

52,687

​

$

(10,108)

​

$

82,208

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

BALANCE, DECEMBER 31, 2021

​

$

53

​

$

50,802

​

$

(4,179)

​

$

52,560

​

$

(683)

​

$

98,553

Net income

​

 

-

​

 

-

​

 

-

​

 

9

​

 

-

​

 

9

Other comprehensive income (loss)

​

 

-

​

 

-

​

 

-

​

 

-

​

​

(9,303)

​

 

(9,303)

ESOP shares released for allocation

​

 

-

​

 

53

​

 

159

​

 

-

​

​

-

​

 

212

Stock compensation expense

​

 

-

​

 

47

​

 

-

​

 

-

​

​

-

​

 

47

BALANCE, SEPTEMBER 30, 2022

​

$

53

​

$

50,902

​

$

(4,020)

​

$

52,569

​

$

(9,986)

​

$

89,518

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

BALANCE, DECEMBER 31, 2022

​

$

53

​

$

51,062

​

$

(6,307)

​

$

52,740

​

$

(9,074)

​

$

88,474

Impact of adoption of ASC 326

​

 

-

​

​

-

​

​

-

​

​

(335)

​

​

-

​

 

(335)

Net income

​

 

-

​

 

-

​

 

-

​

 

282

​

 

-

​

 

282

Other comprehensive income (loss)

​

 

-

​

 

-

​

 

-

​

 

-

​

​

(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)

​

$

52,687

​

$

(10,108)

​

$

82,208

​

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)

​

2023

    

2022

CASH FLOWS FROM OPERATING ACTIVITIES

 

​

  

 

​

  

Net income

​

$

282

​

$

9

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

​

 

  

​

 

  

Investment securities amortization, net

​

 

236

​

 

370

Federal Home Loan Bank stock dividends

​

 

(49)

​

 

(6)

Amortization of prepayment penalties on debt restructuring

​

​

135

​

​

135

Provision for (reversal of) credit losses

​

 

-

​

 

(375)

Net loss (gain) on disposals and sales of premises and equipment

​

 

-

​

 

77

Increase in cash surrender value of bank-owned life insurance

​

​

(300)

​

​

(216)

Stock-based compensation

​

​

572

​

​

259

Depreciation of premises and equipment

​

 

301

​

 

343

Net write-downs and losses (gains) on the sale of foreclosed assets

​

 

62

​

 

(9)

Deferred income tax expense (benefit)

​

 

(74)

​

 

54

(Increase) decrease in other assets

​

 

(395)

​

 

(111)

Increase (decrease) in other liabilities

​

 

308

​

 

(154)

Net cash provided by (used in) operating activities

​

 

1,078

​

 

376

CASH FLOWS FROM INVESTING ACTIVITIES

​

 

  

​

 

  

Activity in available-for-sale securities:

​

 

  

​

 

  

Proceeds from maturities, calls, and paydowns

​

 

6,259

​

​

8,547

Purchases

​

 

-

​

​

(10,900)

Net decrease (increase) in loans

​

 

(2,019)

​

​

54

Proceeds from sale of foreclosed assets

​

 

259

​

​

39

Purchases of premises and equipment

​

 

(158)

​

​

(235)

Purchase of bank-owned life insurance

​

 

-

​

​

(10,000)

Net cash provided by (used in) investing activities

​

 

4,341

​

 

(12,495)

CASH FLOWS FROM FINANCING ACTIVITIES

​

 

​

​

 

  

Net increase (decrease) in deposits

​

 

126

​

 

7,432

Purchase of stock to fund the 2022 Recognition and Retention Plan

​

​

(415)

​

​

-

Repurchase of common stock

​

​

(5,336)

​

​

-

Net cash provided by (used in) financing activities

​

 

(5,625)

​

 

7,432

NET CHANGE IN CASH AND CASH EQUIVALENTS

​

 

(206)

​

 

(4,687)

CASH AND CASH EQUIVALENTS, beginning of period

​

 

13,472

​

 

40,884

CASH AND CASH EQUIVALENTS, end of period

​

$

13,266

​

$

36,197

​

​

​

​

​

​

​

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES

​

 

  

​

 

  

Acquisition of real estate in settlement of loans

​

$

37

​

$

10

​

​

​

​

​

​

​

SUPPLEMENTAL SCHEDULE OF INTEREST AND TAXES PAID

​

 

  

​

 

  

Cash paid for interest

​

$

916

​

$

345

Cash paid for income taxes

​

​

-

​

​

243

​

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

​

6

​

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, 2023 and 2022 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, 2022.

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.

​

7

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, 2022.

As of January 1, 2023, the Company adopted the guidance in Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The main provisions of the ASU have been codified by the Financial Accounting Standards Board (“FASB”) in Topic 326 of the Accounting Standards Codification (“ASC 326”). The new standard changed the impairment model for most financial assets that are measured at amortized cost, including off-balance sheet credit exposures, from an incurred loss model to an expected loss model. Determining the appropriateness of the allowance requires judgement by management about the effect of matters that are inherently uncertain. Changes in factors and forecasts used in evaluating the overall loan portfolio may result in significant changes in the allowance for credit losses and related provision expense in future periods. The allowance level is influenced by loan volumes, loan asset quality ratings, delinquency status, historical credit loss experience, loan performance characteristics, forecasted information and other conditions influencing loss expectations. Changes to the assumptions in the model in future periods could have a material impact on the Company’s Consolidated Financial Statements. See Note 2 for more detailed information on the Company’s estimate of expected credit losses and its impact on the financial statements.

There were no other material changes from the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. 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.

​

8

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted in 2023

ASU No. 2016-13. On January 1, 2023, the Company adopted the guidance under ASU No. 2016-13, Financial Instruments – Credit Losses, Measurement of Credit Losses on Financial Instruments. The amendments introduced an impairment model that is based on current expected credit losses (“CECL”), rather than incurred losses, to estimate credit losses on certain types of financial instruments. The main provisions of the ASU have been codified by the FASB under ASC 326. ASC 326 requires financial assets measured on an amortized cost basis, including loans and held-to-maturity debt securities, to be presented at an amount net of an allowance for credit losses, which reflects expected losses for the full life of the financial asset. Unfunded lending commitments are also within the scope of ASC 326. Under former GAAP, credit losses were not recognized until the occurrence of the loss was probable and, as a result, the allowance for credit losses did not reflect an estimate of credit losses for the full life of financial assets.

​

In addition, ASC 326 requires expected credit related losses for available-for-sale debt securities to be recorded through an allowance for credit losses, while non-credit related losses will continue to be recognized through other comprehensive income. Under former GAAP, we assessed our investment securities for other-than-temporary impairment and any declines in fair value that were deemed other-than-temporary resulted in a direct write-down to the amortized cost basis of the related security. The allowance approach allows estimated expected credit losses to be adjusted from period-to-period, as opposed to a permanent write-down.

​

The Company applied the guidance under ASC 326 using the modified retrospective approach which resulted in an adjustment to beginning retained earnings for 2023. The information for reporting periods beginning on and after January 1, 2023 are presented under ASC 326, while prior periods continue to be reported in accordance with previously applicable GAAP. The following table illustrates the impact of ASC Topic 326.

​

​

​

​

​

​

​

​

​

​

​

​

​

December 31,

​

ASC 326 Adoption

​

January 1,

(Dollars in thousands)

​

2022

​

Impact

​

2023

Allowance for credit losses

​

​

​

​

​

​

​

​

​

One- to four-family residential

​

$

1,224

​

$

158

​

$

1,382

Commercial real estate

​

​

248

​

​

(53)

​

​

195

Construction and land

​

​

74

​

​

40

​

​

114

Multi-family residential

​

​

40

​

​

5

​

​

45

Commercial and industrial

​

​

175

​

​

51

​

​

226

Consumer

​

​

46

​

​

8

​

​

54

Total allowance for loan losses

​

$

1,807

​

$

209

​

$

2,016

Unfunded lending commitments(1)

​

​

-

​

​

216

​

​

216

Total allowance for credit losses

​

$

1,807

​

$

425

​

$

2,232

​

​

​

​

​

​

​

​

​

​

Retained Earnings

​

​

​

​

​

​

​

​

​

Total increase in the allowance for credit losses

​

​

​

​

$

425

​

​

​

Tax effect

​

​

​

​

​

(90)

​

​

​

Decrease to retained earnings, net of tax effect

​

​

​

​

$

335

​

​

​

(1)The allowance for credit losses on unfunded lending commitments is recorded within “other liabilities” on the statement of financial condition. The related provision for credit losses for unfunded lending commitments is recorded with the provision for loan losses and reported in aggregate as the provision for credit losses on the income statement.

​

9

Under ASC 326, the Company groups loans and unfunded lending commitments with similar risk characteristics into pools or segments and collectively evaluates each pool to estimate the allowance for credit losses. For each loan pool, the Company uses the remaining life method to calculate its credit loss estimate under CECL. The remaining life method applies an estimated average loss rate to the expected future outstanding balances of the relevant pool of loans. The estimated average loss rate is based on historical charge-off rates and the future balances or the remaining life of each pool is based on recent trends in the rate at which existing loans have paid-off or paid-down. We attempt to forecast the average loss rate for each pool over the first two years of the estimated remaining life, then revert to the long-term average after the forecast period. For each pool of loans, management also evaluates and applies qualitative adjustments to the calculated allowance for credit losses based on several factors, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and loan concentrations, changes in credit quality, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry.  

The ultimate loss rates computed for each loan pool (a product of our quantitative calculation and qualitative adjustments) are used to estimate the allowance for credit losses on unfunded lending commitments. The pooled loan loss rates are applied to the portion of the unfunded lending commitments that management expects to fund in the future. These unfunded commitments are segmented into pools consistent with our grouping of outstanding loans and include available portions of lines of credit, undisbursed portions of construction loans and commitments to originate new loans.

The Company has identified the following portfolio segments based on the risk characteristics described below.

One- to four-family residential – This category primarily consists of loans  secured by residential real estate located in our market. The performance of these loans may be adversely affected by, among other factors, unemployment rates, local residential real estate market conditions and the interest rate environment. Generally, these loans are for longer terms than commercial and construction loans.

Commercial real estate – This category generally consists of loans secured by retail and industrial use buildings, hotels, strip shopping centers and other properties used for commercial purposes. The performance of these loans may be adversely affected by, among other factors, conditions specific to the relevant industry, the real estate market for the property type and geographic region where the property or borrower is located.

Construction and land – This category consists of loans to finance the ground-up construction and/or improvement of residential and commercial properties and loans secured by land. The performance of these loans is generally dependent upon the successful completion of improvements and/or land development for the end user, the sale of the property to a third party, or a secondary source of cash flow from the owners. The successful completion of planned improvements and development may be adversely affected by changes in the estimated property value upon completion of construction, projected costs and other conditions leading to project delays.

Multi-family residential – This category consists of loans secured by apartment or residential buildings with five or more units used to accommodate households on a temporary or permanent basis. The performance of multi-family loans is generally dependent on the receipt of rental income from the tenants who occupy the subject property. The occupancy rate of the subject property and the ability of the tenants to pay rent may be adversely affected by the location of the subject property and local economic conditions.

Commercial and industrial – This category primarily consists of secured and unsecured loans to small and mid-sized businesses to fund operations or purchase non-real estate assets. Secured loans are primarily secured by accounts receivable, inventory, equipment and certain other business assets. The performance of these loans may be adversely affected by, among other factors, conditions specific to the relevant industry, fluctuations in the value of the collateral and individual performance factors related to the borrower.

Consumer – This category consists of loans to individuals for household, family and other personal use. The performance of these loans may be adversely affected by national and local economic conditions, unemployment rates and other factors affecting the borrower’s income available to service the debt.

10

Loans are individually evaluated for credit losses when they do not share similar risk characteristics with our identified loan pools under ASC 326. Generally, management considers loans for individual analysis when the outstanding balance is greater than $50,000 and when we have identified certain unique characteristics that impact the risk of credit loss. These characteristics include, but are not limited to, the creditworthiness of the borrower, the reliability of the primary source of repayment, the quality of the collateral, the size of the loan or relationship, and the industry of the borrower. The allowance for credit losses on individually evaluated, collateral-dependent loans is based on a comparison of the recorded investment in the loan with the fair value of the underlying collateral. Alternatively, we estimate credit losses on individual loans by comparing the loan’s recorded investment to the loan’s estimated fair value based on discounted cash flows or an observable market price.

At adoption of ASC 326, management also evaluated its securities portfolio for credit losses. The types of securities in the Company’s portfolio have a long history of minimal credit risk and management does not expect or estimate any credit losses to occur over the life of these assts. In addition, management does not have the intent to sell any of the Company’s securities in an unrealized loss position and believes that it is more likely than not that the Company will not have to sell any such securities before recovery of cost. As a result, the Company has not recorded an allowance for credit losses for its held-to-maturity or available-for-sale securities.

ASU No. 2022-02. In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASC 326), Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures. The amendments in this ASU respond to feedback received by the FASB during the post-implementation review of the amendments included in ASU 2016-13. The amendments in ASU 2022-02 eliminate the accounting guidance for TDRs by creditors in ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors and enhance disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.  Under the amendments in ASU 2022-02, an entity must apply the guidance under ASC 310-20 to determine whether a modification results in a new loan or a continuation of an existing loan rather than applying the guidance for TDRs. The amendments in ASU 2022-02 were effective at adoption of the amendments in ASU 2016-13. The implementation of ASU 2022-02 did not materially impact the Company’s financial statements or disclosures.

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​

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11

​

NOTE 3. EARNINGS PER SHARE

Earnings 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)

​

2023

    

2022

​

2023

    

2022

Numerator

 

​

  

 

​

  

 

​

  

 

​

  

Net income available to common shareholders

​

$

170

​

$

135

​

$

282

​

$

9

​

​

​

​

​

​

​

​

​

​

​

​

​

Denominator

​

 

  

​

 

  

​

 

  

​

 

  

Weighted average common shares outstanding

​

 

4,901

​

 

5,290

​

 

5,033

​

 

5,290

Weighted average unallocated common stock held by benefit plans

​

​

(588)

​

​

(405)

​

​

(597)

​

​

(410)

Weighted average shares - basic

​

​

4,313

​

​

4,885

​

​

4,436

​

​

4,880

Effect of dilutive stock-based awards:

​

​

​

​

​

​

​

​

​

​

​

​

Stock options

​

​

-

​

​

-

​

​

-

​

​

-

Restricted stock

​

​

11

​

​

-

​

​

6

​

​

-

Weighted average shares - assuming dilution

​

​

4,324

​

​

4,885

​

​

4,442

​

​

4,880

​

​

​

​

​

​

​

​

​

​

​

​

​

Basic earnings per common share

​

$

0.03

​

$

0.03

​

$

0.06

​

$

0.01

Diluted earnings per common share

​

​

0.03

​

​

0.03

​

​

0.06

​

​

0.01

​

Diluted earnings per share was computed using the treasury stock method. The weighted average of potentially dilutive common shares attributable to outstanding stock options that were anti-dilutive totaled 280,620 and 290,379 for the three and nine months ended September 30, 2023, respectively, and were excluded from the calculation of diluted earnings per share. There were no potentially dilutive common shares attributable to restricted stock that were anti-dilutive for the three months ended September 30, 2023. For the nine months ended September 30, 2023, the weighted average of potentially dilutive common shares attributable to restricted stock that were anti-dilutive totaled 39,779 and were excluded from the calculation of diluted earnings per share.

During the three and nine months ended September 30, 2022, there were no convertible securities or other contracts to issue common stock outstanding that if converted or exercised would result in potential dilution of earnings per share.

​

​

12

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, 2023

(Dollars in thousands)

​

Amortized Cost

    

Gross Unrealized Gains

    

Gross Unrealized Losses

    

Fair Value

Securities available-for-sale

​

 

  

​

 

  

​

 

  

​

 

​

Mortgage-backed securities

​

$