Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to enhance your understanding of the financial condition and results of operations of Catalyst Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, Catalyst Bank (the “Bank”). The information in this section has been derived from the audited financial statements, which appear in Item 8 of this Annual Report on Form 10-K. The information in this section should be read in conjunction with the Consolidated Financial Statements and related notes included herein in “ Item 8. Financial Statements and Supplementary Data ” and the description of our business included herein in “ Item 1. Business ”.
Overview
Catalyst Bancorp, Inc. (“Catalyst Bancorp” or the “Company”) is the holding company for Catalyst Bank (the “Bank”), formerly known as St. Landry Homestead Federal Savings Bank. The Company was incorporated by the Bank in February 2021 as part of the conversion of the Bank from the mutual to the stock form of organization (the “Conversion”). The Conversion was completed on October 12, 2021, at which time the Company acquired all of the issued and outstanding shares of common stock of the Bank, which became the wholly-owned subsidiary of Catalyst Bancorp. The Bank officially changed its name to Catalyst Bank in June 2022.
Founded in 1922, the Bank is a community-oriented savings bank serving the banking needs of customers in the Acadiana region of south-central Louisiana. We are headquartered in Opelousas, Louisiana and serve our customers through six full-service branches located in Carencro, Eunice, Lafayette, Opelousas, and Port Barre. Our primary business consists of attracting deposits from the general public and using those funds together with funds we borrow from the Federal Home Loan Bank (“FHLB”) of Dallas, Federal Reserve Bank of Atlanta, and other sources to originate loans to our customers and invest in securities.
Historically, we operated as a traditional thrift relying on long-term, single-family residential mortgage loans secured by properties located primarily in St. Landry Parish and adjoining areas to generate interest income. In 2021, we re-focused our business strategy to a relationship-based community bank model targeting small- to mid-sized businesses and business professionals in our market areas while continuing to serve our traditional customer base. The Conversion and offering were important factors in our efforts to become a more dynamic, profitable and growing institution.
The following is an overview of financial results for the year ended December 31, 2025, compared to December 31, 2024:
Total assets of $282.9 million at December 31, 2025, up $6.2 million or 2.3%
Loans of $170.2 million, or 60.2% of total assets, at December 31, 2025, up $3.1 million or 1.9%
Non-performing assets of $2.7 million at December 31, 2025, up $852,000 or 46.7%
Investment securities of $65.4 million, or 23.1% of total assets, at December 31, 2025, up $23.2 million or 55.1%
Deposits of $185.3 million at December 31, 2025, down $400,000 or 0.2%
Average deposits of $179.5 million for 2025, up $7.4 million or 4.3% over 2024
Borrowings of $14.7 million at December 31, 2025, up $5.2 million or 54.1%
Total shareholders’ equity of $81.7 million, or 28.9% of total assets, at December 31, 2025, up $1.5 million or 1.9%
Net interest income increased $245,000, or 2.6%, to $9.8 million and net interest margin increased 27 basis points (“bps”) to 3.92%
Provision for credit losses of $60,000 for 2025, compared to $531,000 for 2024
No losses on the sales of investment securities for 2025, compared to total losses on investment securities sales of $5.5 million for 2024
Non-interest expense of $8.6 million for the year ended December 31, 2025, down $573,000, or 6.3%, compared to 2024, primarily due to expenses related to the Company’s upgrade to a new core processing system in 2024
Net income of $2.1 million, or $0.56 per diluted common share (“diluted EPS”), for 2025, compared to a net loss of $3.1 million for 2024
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Our results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on our loan and investment portfolios and interest expense on deposits and borrowings. Our net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. Results of operations are also affected by our provisions for credit losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation, office occupancy and equipment expense, data processing, and other expense. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact our financial condition and results of operations.
Business Strategy
Our business strategy is focused on embracing a relationship-oriented community bank model targeting small- to mid-sized businesses and business professionals in our market areas while continuing to serve our traditional customer base. Highlights of our business strategy, which is designed to facilitate our ability to operate and grow as a profitable community-based banking institution, include the following:
Growing the loan portfolio with greater diversification . Historically, our primary lending focus was the origination of one- to four-family residential mortgage loans. We have increased our commercial lending activities and, we are focused on building full-service banking relationships with small- to mid-sized businesses and business professionals in our market area. We believe that increased commercial lending offers an opportunity to enhance our profitability and our growth prospects.
Grow our franchise organically through enhanced banking products and services . We have implemented a strategy of prudent growth. We believe we have an opportunity to grow organically by focusing on building relationships with small- to mid-sized businesses and business professionals in our market area and by enhancing the products and services we offer. During the first quarter of 2024, the Company converted to a new core processing system. The core system conversion brings new and enhanced technology tools and online services preferred by many of our existing and prospective customers. In addition, we will continue to enhance our staff capacity through training and hiring of new employees as needed to facilitate our growth.
Recruiting and retaining top talent and personnel . Since August 2020, the Company has made several personnel changes and additional hires, including but not limited to: a new President and CEO, Chief Operations Officer, Acadiana Market President, Chief Financial Officer, Chief Risk Officer and several commercial bankers. Recruiting and retaining talented individuals to guide us through the implementation of our business strategy is critical to our success. Our mutual-to-stock Conversion was a key contributor to our ability to attract and retain talent. In September 2022, the Company issued its initial grants under the Company’s 2022 Stock Option Plan and 2022 Recognition and Retention Plan and Trust Agreement.
Expand our franchise through possible acquisition of other financial institutions. We intend to take advantage of opportunities to utilize our strong capital position for expansion through acquisitions of other financial institutions in our current market area and adjoining markets in south Louisiana.
Rebranded franchise. We completed our re-branding and changed the Bank’s name to Catalyst Bank in June 2022. In addition to a new name, our re-branding efforts included new marketing campaigns, updated online and website materials and new signage and logos to capture and reflect the mission of the Bank.
Manage credit risk to limit non-performing assets. We believe that strong asset quality is a key to long-term financial success. Our strategy for credit risk management focuses on an experienced team of credit professionals, well-defined credit policies and procedures, appropriate loan underwriting criteria and active credit monitoring.
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Critical Accounting Estimates
In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our consolidated financial statements included in Item 8 of this Form 10-K. Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The JOBS Act of 2012 contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an emerging growth company, we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We are taking advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.
SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. Not all significant accounting policies require management to make difficult, subjective or complex judgments. However, management believes the policy noted below meet the SEC’s definition of critical accounting policies. This policy requires numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.
Allowance for Credit Losses. We have identified the evaluation of the allowance for credit losses as a critical accounting policy where amounts are sensitive to material variation. The Company’s allowance for credit losses reflects management’s current estimate of expected credit losses over the remaining life of its loans as of the end of the reporting period.
The allowance for credit losses includes the allowance for credit losses on loans and the allowance for credit losses on unfunded lending commitments, which is recorded in other liabilities on the statement of financial condition. The allowance for credit losses is established through a provision for credit losses charged to earnings. Loans, or portions of loans, are charged off against the allowance in the period that such loans, or portions thereof, are deemed uncollectible. Subsequent recoveries are added to the allowance. The allowance for credit losses on loans totaled $2.4 million, or 1.39% of total loans, at December 31, 2025 and $2.5 million, or 1.51% of total loans, at December 31, 2024. The decline in the allowance for credit losses on loans from December 31, 2024 largely reflects the impact of net charge-offs and a decline in the estimated allowance for credit on individually evaluated loans.
Management’s estimate of the allowance for credit losses considers factors such as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, current and future economic conditions, and forecasted information. This evaluation is inherently subjective as it requires material estimates including, among others, average historical loss experience, expected future loss rates, the amount and timing of expected future pay-downs on existing loans and fundings on unfunded commitments, and the value of underlying collateral. All of these estimates may be susceptible to significant changes as more information becomes available.
While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. In addition, the Office of the Comptroller of the Currency as an integral part of their examination processes periodically reviews our allowance for credit losses. While management is responsible for the establishment of the allowance for credit losses and for adjusting such allowance through provisions for credit losses, management may determine, as a result of such regulatory reviews, that an increase or decrease in the allowance or provision for credit losses may be necessary or that loan charge-offs are needed. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for credit losses may be required that would adversely impact earnings in future periods.
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Selected Financial and Other Data
Set forth below is selected financial and other data of the Company at and for the dates indicated. The following is only a summary and should be read in conjunction with the business and financial information regarding the Company included elsewhere herein, including the financial statements included in Item 8 of this Annual Report on Form 10-K. The information at and for the years ended December 31, 2025 and 2024 is derived from the audited financial statements that appear elsewhere in this Annual Report on Form 10-K.
At December 31,
(Dollars in thousands)
Selected Financial Condition Data:
Total assets
Cash and cash equivalents
Investment securities:
Available for sale, at fair value
Held to maturity
Loans receivable, net of unearned income
Allowance for credit losses
Total deposits
Borrowings
Shareholders’ equity
Year Ended December 31,
(Dollars in thousands)
Selected Operating Data:
Total interest income
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Total non-interest income (loss)
Total non-interest expense
Income (loss) before income tax expense (benefit)
Income tax expense (benefit)
Net income (loss)
Selected Performance Ratios: (1)
Average yield on interest-earning assets
Average rate on interest-bearing liabilities
Average interest rate spread (2)
Net interest margin (2)
Average interest-earning assets to average interest-bearing liabilities
Net interest income after provision for credit losses to non-interest expense
Total non-interest expense to average assets
Efficiency ratio (3)
Return on average assets (ratio of net income (loss) to average total assets)
Return on average equity (ratio of net income (loss) to average total equity)
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At or For the
Year Ended December 31,
Asset Quality Ratios: (4)
Non-accrual loans as a percent of total loans outstanding
Non-performing assets as a percent of total assets (5)
Allowance for credit losses on loans as a percent of total loans outstanding
Allowance for credit losses on loans as a percent of non-performing loans
Net charge-offs to average loans receivable
Capital Ratios: (6)
Common equity Tier 1 capital
Tier 1 leverage capital
Tier 1 risk-based capital
Total risk-based capital
Average equity to average assets
Other Data:
Banking offices
Full-time equivalent employees
With the exception of end of period ratios, all ratios are based on average daily balances during the indicated periods.
Average interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities, and net interest margin represents net interest income as a percentage of average interest-earning assets.
The efficiency ratio (a non-GAAP measure) represents the ratio of non-interest expense divided by the sum of net interest income and non-interest income.
Asset quality ratios are end of period ratios, except for net (charge-offs) recoveries to average loans receivable.
Non-performing assets consist of non-performing loans and foreclosed assets. Non-performing loans consist of all non-accruing loans and loans 90 days or more past due. Foreclosed assets consist of real estate acquired through foreclosure or real estate acquired by acceptance of a deed-in-lieu of foreclosure.
Capital ratios are end of period ratios for the Bank only.
Non-GAAP Measures. The efficiency ratio is a non-GAAP financial measure used by the Company that the Company believes is useful to investors in understanding the Company's performance and trends and facilitates comparison with the performance of its peers. The efficiency ratio represents non-interest expense as a percentage of total revenues. Total revenues is the sum of net interest income and non-interest income.
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Comparison of Financial Condition at December 31, 2025 and December 31, 2024
Total Assets . Total assets increased $6.2 million, or 2.3%, to $282.9 million at December 31, 2025 from $276.7 million at December 31, 2024. The increase was largely driven by an increase in borrowings, which were used to partially fund growth in investment securities and loans.
Loans . The following table summarizes the changes in the composition of our loan portfolio by type of loan as of the dates indicated.
December 31, 2025
December 31, 2024
(Dollars in thousands)
Amount
Amount
Change
Real estate loans
One- to four-family residential
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans
Commercial and industrial
Consumer
Total other loans
Total loans
During 2025, a multi-family construction loan with an outstanding balance of $4.4 million at December 31, 2024 paid-off and $16.5 million of outstanding construction loans at December 31, 2024 were converted to amortizing real estate loans following the completion of their respective construction projects. At December 31, 2025, the outstanding balance of the converted construction loans totaled $19.0 million. Of the $19.0 million, $4.4 million was classified as one- to four-family residential, $2.9 million was classified as multi-family, and the remaining balance was classified as commercial real estate as of December 31, 2025. The increase in commercial and industrial loans during 2025 was largely driven by growth within the industrial equipment and oilfield services segments of our loan portfolio.
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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.
December 31,
(Dollars in thousands)
Change
Commercial real estate
Retail
Hospitality
Health service facilities
Restaurants
Oilfield services
Other non-owner occupied
Other owner occupied
Total commercial real estate
Construction and land
Multi-family residential
Health service facilities
Hospitality
Retail
Other commercial construction and land
Consumer residential construction and land
Total construction and land
Commercial and industrial
Oilfield services
Industrial equipment
Professional services
Other commercial and industrial
Total commercial and industrial loans
The following table shows the scheduled contractual maturities of our loans as of December 31, 2025. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. The amounts shown below do not take into account loan prepayments.
Amounts due after December 31, 2025 in
(Dollars in thousands)
One year or less
After one year through five years
After five years through 15 years
After 15 years
Total
One- to four-family residential
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
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The following table shows the dollar amount of our loans at December 31, 2025, due after December 31, 2026, as shown in the preceding table, which have fixed interest rates or which have floating or adjustable interest rates.
(Dollars in thousands)
Fixed-Rate
Floating or Adjustable-Rate
Total
Amounts due after December 31, 2026
One- to four-family residential
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
Allowance for Credit Losses . At December 31, 2025, the allowance for credit losses on loans totaled $2.4 million, or 1.39% of total loans, compared to $2.5 million, or 1.51% of total loans, at December 31, 2024. The decline in the ratio of the allowance to total loans largely reflects the impact of net charge-offs and a decline in the estimated allowance for credit losses on individually evaluated loans during 2025. The allowance for credit losses on unfunded commitments totaled $211,000, up $90,000 from December 31, 2024. The total provision for credit losses on loans and unfunded commitments was $60,000 for 2025 and was largely attributable to increases in construction loan commitments and outstanding loan balances during 2025.
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The following table shows changes in our allowance for credit losses and other related data for the periods indicated.
Year Ended December 31,
(Dollars in thousands)
Allowance for credit losses:
Loans:
Balance, beginning of period
Provision for (reversal of) credit losses
Net loan (charge-offs) recoveries:
One- to four-family residential
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total net charge-offs
Balance, end of period
Unfunded lending commitments:
Balance, beginning of period
Provision for (reversal of) credit losses on unfunded lending commitments
Balance, end of period
Total provision for credit losses
Total loans at end of period
Total non-accrual loans at end of period
Total non-performing loans at end of period
Total average loans
Allowance for credit losses on loans as a percent of:
Total loans
Non-accrual loans
Non-performing loans
Net annualized (charge-offs) recoveries as a percent of average loans by portfolio:
One- to four-family residential
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total loans
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Substandard Loans and Non-performing Assets . The following table shows the amounts of our substandard loans and non-performing assets, which include non-accruing loans, accruing loans 90 days or more past due and foreclosed assets at the dates indicated. During 2025, the Company downgraded a $3.3 million non-real estate, commercial loan relationship to substandard due to declines in debt service coverage. All loans within the relationship have paid as agreed and, at December 31, 2025, were current and performing.
At December 31,
(Dollars in thousands)
Substandard loans
One- to four-family residential
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total substandard loans
Non-accruing loans
One- to four-family residential
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total non-accruing loans
Accruing loans 90 days or more past due
One- to four-family residential
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total accruing loans 90 days or more past due
Total non-performing loans
Foreclosed assets
Total non-performing assets
Total loans
Total assets
Total non-accruing loans as a percentage of total loans
Total non-performing loans as a percentage of total loans
Total non-performing loans as a percentage of total assets
Total non-performing assets as a percentage of total assets
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The following table shows how our allowance for credit losses is allocated by type of loan at each of the dates indicated.
December 31,
(Dollars in thousands)
Amount of Allowance
Percent of Allowance to Total Allowance
Percent of Loans in Category to Total Loans
Amount of Allowance
Percent of Allowance to Total Allowance
Percent of Loans in Category to Total Loans
One-to four-family residential
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Unallocated
Total
Investment Securities . Total investment securities, available-for-sale and held-to-maturity, amounted to $65.4 million at December 31, 2025, up $23.2 million, or 55.1%, compared to $42.2 million in investment securities at December 31, 2024. During 2025, the Company purchased $20.2 million of variable-rate and $6.3 million of fixed-rate securities. The weighted average yield of the securities purchased during 2025 was 4.72% at December 31, 2025.
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 nine-month period ending December 31, 2024, the Company re-deployed a portion of the sales proceeds by purchasing $7.9 million of fixed-rate government-sponsored mortgage-backed securities.
Net unrealized losses on securities available-for-sale totaled $3.1 million at December 31, 2025, compared to $4.5 million at December 31, 2024. Unrealized losses on available-for-sale securities relate principally to higher 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.
The following table sets forth the composition of our investment securities portfolio as of the dates indicated.
December 31,
(Dollars in thousands)
Amortized Cost
% of Total
Fair Value
Amortized Cost
% of Total
Fair Value
Securities available-for-sale
Mortgage-backed securities
U.S. Government and agency obligations
Municipal obligations
Total securities available-for-sale
Securities held-to-maturity
U.S. Government and agency obligations
Municipal obligations
Total securities held to maturity
Total investment securities
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The following table presents the amortized cost of our total investment securities portfolio that matures during each of the periods indicated and the weighted average yields for each range of maturities at December 31, 2025.
Contractual Maturity as of December 31, 2025
(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
U.S. Government and agency obligations
Municipal obligations
Total
Weighted average yield
Mortgage-backed securities
U.S. Government and agency obligations
Municipal obligations
Total weighted average yield
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 by the average amortized cost of the applicable securities.
The following table sets forth the dollar value of our investment securities which have fixed interest rates or which have floating or adjustable interest rates at each of the dates indicated .
December 31,
(Dollars in thousands)
Fixed-rate
Available-for-sale, at fair value
Held-to-maturity
Total fixed-rate
Adjustable-rate
Available-for-sale, at fair value
Held-to-maturity
Total adjustable-rate
Total investment securities
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Deposits . The following table presents total deposits by account type as of the dates indicated.
December 31, 2025
December 31, 2024
(Dollars in thousands)
Amount
Amount
Change
Non-interest-bearing demand deposits
Interest-bearing demand deposits
Money market
Savings
Certificates of deposit
Total deposits
The ratio of the Company’s total loans to deposits was 91.9% and 90.0% as of December 31, 2025 and 2024, respectively.
The decline in interest-bearing demand deposits was largely due to fluctuations in public fund balances. Total public fund deposits were $26.4 million, or 14.3% of total deposits, at December 31, 2025, compared to $35.6 million, or 19.2% of total deposits, at December 31, 2024. At December 31, 2025, approximately 59% of our total public fund deposits consisted of non-interest-bearing and interest-bearing demand deposits from municipalities within our market, compared to 83% at December 31, 2024. At December 31, 2025, a larger portion of public funds were held in savings accounts and certificates of deposit.
The increase in savings deposits was primarily attributable to our high-yield savings special. The competitive offering has been successful at attracting new deposits and deepening relationships with existing customers. Certificates of deposit declined primarily due to the scheduled maturity of $5.0 million of brokered deposits, which was partially offset by growth driven by in-market rate specials.
The estimated amount of our total uninsured deposits (that is deposits in excess of the FDIC’s insurance limit), inclusive of public funds, was approximately $50.1 million at December 31, 2025 and $53.7 million at December 31, 2024. Total uninsured non-public funds deposits were approximately $28.8 million and $22.5 million at December 31, 2025 and 2024, respectively. At December 31, 2025, the full amount of our public fund deposits in excess of the FDIC’s insurance limit were secured by either pledged investment securities of $25.3 million or $20.0 million of a custodial letter of credit granted by the Federal Home Loan Bank of Dallas.
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The following table shows the average balance of each type of deposit and the average rate paid on each type of interest-bearing deposit for the periods indicated.
Year Ended December 31,
(Dollars in thousands)
Average Balance
Interest Expense
Average Rate Paid
Average Balance
Interest Expense
Average Rate Paid
Interest-bearing demand deposits
Money market
Savings accounts
Certificates of deposit
Total interest-bearing deposits
Non-interest-bearing demand deposits
Total deposits
The following table shows the maturities and weighted average contractual interest rates of our total certificates of deposit at December 31, 2025 by time remaining to maturity.
(Dollars in thousands)
Amount
Weighted
Average Rate
Balance at December 31, 2025 maturing in:
Three months or less
Over three months through six months
Over six through 12 months
Over 12 months
Total certificates of deposit
The following table shows the maturities and weighted average contractual interest rates of our certificates of deposit in excess of the FDIC insurance limit (generally, $250,000) at December 31, 2025 by time remaining to maturity.
(Dollars in thousands)
Amount
Weighted
Average Rate
Balance at December 31, 2025 maturing in:
Three months or less
Over three months through six months
Over six through 12 months
Over 12 months
Total certificates of deposit with balances in excess of $250,000
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Borrowings . Total borrowings at December 31, 2025 were $14.7 million, up $5.2 million, or 54.1%, from December 31, 2024. The Company increased borrowings to partially fund the growth in investment securities during 2025.
Borrowings outstanding at December 31, 2025 consisted of FHLB advances. The carrying value of our FHLB advances reflects deferred prepayment penalties on advances restructured in December of 2020. Deferred prepayment penalties on our FHLB advances totaled $268,000 and $442,000 at December 31, 2025 and 2024, respectively.
The following table shows certain information regarding our borrowings at or for the dates indicated:
At or For the Year Ended
December 31,
(Dollars in thousands)
Advance from Federal Reserve Bank of Atlanta
Average balance
Maximum balance at any month-end during the period
Balance at end of period
Average interest rate during the period
Weighted average interest rate at end of period (1)
Advances from FHLB
Average balance
Maximum balance at any month-end during the period
Balance at end of period
Average interest rate during the period
Weighted average interest rate at end of period (1)
Reflects the weighted average contractual rate of advances.
Shareholders’ Equity . Shareholders’ equity totaled $81.7 million, or 28.9% of total assets, at December 31, 2025, up $1.5 million, or 1.9%, from $80.2 million, or 29.0% of total assets, at December 31, 2024. During 2025, the impacts of net income and the decline in unrealized losses on available-for-sale securities were partially offset by the Company’s repurchases of its common stock.
During the year ended December 31, 2025, the Company repurchased 203,239 shares of its common stock at an average cost of $12.72 per share. Of those shares, 187,150 shares were repurchased under the Company’s November 2024 Repurchase Plan and 16,089 shares were repurchased under the November 2025 Repurchase Plan. Under the November 2025 Repurchase Plan, 188,911 shares of the Company’s common stock were available for repurchase at December 31, 2025.
Since the announcement of our first share repurchase plan on January 26, 2023 and through December 31, 2025, the Company has repurchased a total of 1,215,089 shares of its common stock, or approximately 23% of the common shares originally issued, at an average cost per share of $12.06. At December 31, 2025, the Company had common shares outstanding of 4,074,911.
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Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest 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.
Year Ended December 31,
(Dollars in thousands)
Average Balance
Interest
Average Yield/Rate (TE)
Average Balance
Interest
Average Yield/Rate (TE)
Interest-earning assets:
Loans receivable (1)
Investment securities (2)
Other interest-earning assets
Total interest-earning assets
Non-interest-earning assets
Total assets
Interest-bearing liabilities:
Demand deposits, money market and savings accounts
Certificates of deposit
Total interest-bearing deposits
Borrowings
Total interest-bearing liabilities
Non-interest-bearing liabilities
Total liabilities
Shareholders' equity
Total liabilities and shareholders' equity
Net interest-earning assets
Net interest income; average interest rate spread
Net interest margin (3)
Average interest-earning assets to average interest-bearing liabilities
Includes non-accrual loans during the respective periods. Calculated net of deferred fees and discounts and loans in process.
Average investment securities does not include unrealized holding gains/losses on available-for-sale securities.
Equals net interest income divided by average interest-earning assets. Taxable equivalent yields are calculated using a marginal tax rate of 21%.
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Rate/Volume Analysis. The following table shows the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities affected our interest income and interest expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in volume, which is the change in volume multiplied by prior year rate. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.
Year Ended
December 31, 2025 vs 2024
Increase (Decrease) Due to
Total
(Dollars in thousands)
Rate
Volume
Increase (Decrease)
Interest income:
Loans receivable
Investment securities
Other interest-earning assets
Total interest income
Interest expense:
Demand deposits, money market and savings accounts
Certificates of deposit
Total deposits
Borrowings
Total interest expense
Increase (decrease) in net interest income
Comparison of Results of Operation for the Years Ended December 31, 2025 and 2024
General. For the year ended December 31, 2025, the Company reported net income of $2.1 million, or $0.56 diluted EPS, compared to a net loss of $3.1 million for the year ended December 31, 2024. The following table summarizes the changes in net income (loss) for the periods indicated.
Year Ended December 31,
(Dollars in thousands)
Change
Selected Operating Data
Total interest income
Total interest expense
Net interest income
Provision for credit losses
Total non-interest income (loss)
Total non-interest expense
Income tax expense (benefit)
Net income (loss)
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. Non-interest expense for 2025 was down compared to 2024 primarily due to expenses incurred during 2024 related to the Company’s upgrade to a new core processing system.
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Interest Income. The following table summarizes the changes in interest income for the periods indicated.
Year Ended December 31,
(Dollars in thousands)
Change
Interest Income
Loans receivable, including fees
Investment securities
Cash and due from banks
Other earning assets
Total interest income
The average yield on loans was 6.68% for 2025, up 18 basis points (“bps”) from 6.50% for 2024. Average loans were $167.0 million in 2025, up $11.2 million, or 7.2%, compared to 2024.
The increase in interest income on investment securities was primarily due to an increase in the average rate earned on our investment securities portfolio for 2025 compared to 2024. The average rate earned on our investment securities portfolio was 2.72% for 2025, up 75 bps compared to 2024, primarily due to the impact of higher-yielding investment securities purchased during 2024 and 2025.
Interest income on interest-earning cash and due from banks, included in other interest-earning assets in certain preceding tables, decreased mainly due to the decline in the average balance of interest-earning cash, as well as a decline in the average rate earned. The average rate earned on other interest-earning assets was 4.31% for 2025, down 87 bps compared to 2024.
Interest Expense. The following table summarizes the changes in interest expense for the periods indicated.
Year Ended December 31,
(Dollars in thousands)
Change
Interest Expense
Demand deposits, money market and savings accounts
Certificates of deposit
Borrowings
Total interest expense
The average rate paid on interest-bearing deposits was 2.52% during 2025, up 27 bps from 2.25% during 2024 largely driven by growth in high-yield savings account balances and an increase in the average rate paid on interest-bearing demand deposits. Interest expense on borrowings decreased in 2025 compared to 2024 mainly due to the payoff of a BTFP advance during the fourth quarter of 2024.
Net Interest Income. The increase in net interest margin and net interest income in 2025 compared to 2024, presented in the preceding tables, was primarily the result of loan growth during the last nine months of 2024 and the payoff of our BTFP advance.
Provision for Credit Losses. The total provision for credit losses on loans and unfunded commitments was $60,000 for 2025 and was largely attributable to increases in construction loan commitments and outstanding loan balances during 2025. In 2024, the provision for credit losses totaled $531,000 and was largely attributable to commercial loan growth and an increase in the allowance for credit losses on individually evaluated residential loans.
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Non-interest Income (Loss) . The following table summarizes the changes in non-interest income (loss) for the periods indicated.
Year Ended December 31,
(Dollars in thousands)
Change
Non-interest Income (Loss)
Service charges on deposit accounts
Bank-owned life insurance
Loss on sale of investment securities
Federal community development grant
Other
Total non-interest income (loss)
During 2024, the Company sold 50 available-for-sale investment securities for a total pre-tax loss of $5.5 million and recognized as income a $280,000 Bank Enterprise Award (“BEA”) Program grant from the Community Development Financial Institution (“CDFI”) Fund. The Company did not qualify for a similar award during 2025 and does not expect to qualify for future similar awards primarily due to the increase in our commercial lending activities.
Non-interest Expense . The following table summarizes the changes in non-interest expense for the periods indicated.
Year Ended December 31,
(Dollars in thousands)
Change
Non-interest Expense
Salaries and employee benefits
Occupancy and equipment
Data processing and communication
Professional fees
Directors’ fees
Foreclosed assets, net
Other
Total non-interest expense
Total non-interest expense for 2024 included $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 quarter of 2024.
Salaries and employee benefits expense increased in 2025 compared to 2024 primarily due to higher salaries and wages, increased bonus expense, and new grants of share-based compensation issued in June 2025.
Occupancy and equipment expense increased in 2025 compared to 2024 mainly due to new ATMs, computers, and other technology upgrades.
Data processing and communication expense for 2024 included $509,000 of data conversion and other associated expenses due to the Company’s upgrade to a new core processing system. In addition to the expense savings related to our new core processing system, data processing and communication expense in 2025 also benefited from our transition to a new internet provider and a new contract for our loan document management solution.
In 2024, professional fees associated with obtaining the BEA Program grant totaled $42,000 and were expensed during the three months ended September 30, 2024. Lower legal and audit expenses also contributed to lower professional fees during 2025 compared to 2024.
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Foreclosed assets expenses and losses for 2025 were offset by $216,000 of insurance proceeds received for fire and flood damages related to foreclosed properties.
Income Tax Expense (Benefit). The Company reported income tax expense of $452,000 for 2025, compared to an income tax benefit of $894,000 for 2024. The change in income taxes over the comparable periods was largely due to the loss on sales of investment securities in 2024.
Exposure to Changes in Interest Rates
Our ability to maintain net interest income depends upon our ability to earn a higher yield on interest-earning assets than the rates we pay on deposits and borrowings. Consequently, our ability to maintain a positive spread between the interest earned on assets and the interest paid on deposits and borrowings can be adversely affected when market rates of interest change. Interest rate sensitivity is monitored by management through the use of models which generate estimates of changes in net interest income and the economic value of our assets and liabilities over a range of interest rate scenarios.
Net Interest Income Analysis . We model and analyze potential changes to net interest income over a twelve-month period under rising and falling interest rate scenarios. Our primary model used to analyze the impact of changes in interest rates on net interest income assumes a static balance sheet, applies immediate and sustained rate shocks and assumes no management intervention over the forecast period. The following table summarizes the results of our net interest income model as of December 31, 2025, which estimates the impact of immediate and sustained changes in interest rates on net interest income over the following twelve months.
(Dollars in thousands)
Net Interest Income
$ Change
% Change
Change in Interest Rates in Basis Points (Rate Shock):
Static
The above table indicates that as of December 31, 2025, in the event of an immediate and sustained 100 basis point decrease in interest rates, our net interest income for the 12 months ending December 31, 2026 would be expected to decrease by $163,000 or 1.6%.
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Economic Value of Equity. Economic value of equity (“EVE”) represents the market value of portfolio equity, which is different from book value, and is equal to the market value of assets minus the market value of liabilities (that is, the difference between incoming and outgoing discounted cash flows of assets and liabilities) with adjustments made for off-balance sheet items. The EVE ratio, under any interest rate scenario, is defined as the EVE in that scenario divided by the market value of assets in the same scenario. The following table sets forth our EVE as of December 31, 2025 and reflects the changes to EVE as a result of immediate and sustained changes in interest rates as indicated.
Economic Value of Equity
EVE as % of Fair Value of Assets
(Dollars in thousands)
Amount
$ Change
% Change
EVE Ratio
Change
Change in Interest Rates In Basis Points (Rate Shock):
Static
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 December 31, 2025, our borrowed funds consisted of FHLB advances with a net carrying value of $14.7 million. The table below summarizes our unused and available liquidity sources as of December 31, 2025.
(Dollars in thousands)
December 31, 2025
Advances from the Federal Home Loan Bank of Dallas
Line of credit with primary correspondent bank
Unpledged available-for-sale investment securities, at fair value
Total unused and available liquidity
The Bank’s available borrowing capacity with the FHLB is secured through a blanket floating lien on real estate loans. The Company also has a $20.0 million custodial letter of credit outstanding from the FHLB as of December 31, 2025, 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 December 31, 2025, the Company used $20.0 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.
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Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. The details of these cash flow classifications are presented on the statement of cash flows included in Item 8 of this Form 10-K. The most significant uses and sources of cash flows during the year ended December 31, 2025 included:
$26.5 million in outflows due to purchases of investment securities
$5.0 million in net advances from the FHLB
$3.3 million in net cash provided by operations
$4.6 million in proceeds from maturities and paydowns of investment securities
$3.3 million in outflows due to a net increase in total loans
$2.6 million in outflows for the repurchase of the Company’s common stock
We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily and anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that the majority of maturing time deposits will be retained. We also anticipate continued use of our secondary funding sources.
The following table summarizes our outstanding off-balance sheet commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans at December 31, 2025.
Amount of Commitment Expiration — Per Period
(Dollars in thousands)
Total Amounts Committed at December 31, 2025
To 1 Year
1 - 3 Years
3 - 5 Years
After 5 Years
Commitments to originate loans
Undisbursed portion of construction loans in process
Unused lines of credit
Unused overdraft privilege amounts
Letters of credit
Total commitments
The following table summarizes our contractual cash obligations at December 31, 2025.
Payments Due By Period
(Dollars in thousands)
Total at December 31, 2025
To 1 Year
1 - 3 Years
3 - 5 Years
After 5 Years
Certificates of deposit
Borrowings
Total term debt
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.
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The Bank exceeded all regulatory capital requirements and was categorized as well-capitalized at December 31, 2025 and December 31, 2024. Management is not aware of any conditions or events since the most recent notification that would change our category. Refer to Note 9 of the financial statements included in Item 8 of this Form 10-K for more detail on the Bank’s capital.
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see Note 1 of the notes to our financial statements included in Item 8 of this Form 10-K.
