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, 2021
☐	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 5,290,000 shares of Registrant’s common stock, par value of $0.01 per share, issued and outstanding as of November 9, 2021.

CATALYST BANCORP, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page Number
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Statements of Financial Condition at September 30, 2021 and December 31, 2020	1
	Statements of Income for the Three and Nine Months Ended September 30, 2021 and 2020	2
	Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020	3
	Statements of Changes in Equity for the Nine months Ended September 30, 2021 and 2020	4
	Statements of Cash Flows for the Nine months Ended September 30, 2021 and 2020	5
	Notes to Unaudited Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	35
PART II	OTHER INFORMATION	36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5	Other Information	37
Item 6.	Exhibits	38
SIGNATURES		39

i

PART I. FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK

STATEMENTS OF FINANCIAL CONDITION

	(Unaudited)
	September 30,		December 31,
(Dollars in thousands)	2021		2020
ASSETS
Non-interest-bearing cash	$	5,117	$	5,507
Interest-bearing cash and due from banks		95,287		19,738
Total cash and cash equivalents		100,404		25,245
Investment securities -
Securities available-for-sale, at fair value		49,682		20,730
Securities held-to-maturity (fair values of $13,286 and $17,505, respectively)		13,504		17,523
Loans receivable, net of unearned income		136,720		151,800
Allowance for loan losses		(2,646)		(3,022)
Loans receivable, net		134,074		148,778
Accrued interest receivable		511		564
Foreclosed real estate		399		415
Premises and equipment, net		6,658		5,489
Stock in Federal Home Loan Bank, at cost		1,398		1,394
Bank-owned life insurance		3,280		3,213
Other assets		1,653		1,337
TOTAL ASSETS	$	311,563	$	224,688
LIABILITIES
Deposits
Non-interest-bearing	$	102,091	$	26,169
Interest-bearing		147,369		138,429
Total deposits		249,460		164,598
Advances from Federal Home Loan Bank		8,973		8,838
Other liabilities		1,130		719
TOTAL LIABILITIES		259,563		174,155
Commitments and Contingencies (Note 7)
EQUITY
Retained earnings		52,270		50,426
Accumulated other comprehensive income (loss)		(270)		107
TOTAL EQUITY		52,000		50,533
TOTAL LIABILITIES AND EQUITY	$	311,563	$	224,688

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

1

ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK

STATEMENTS OF INCOME (Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2021		2020		2021		2020
INTEREST INCOME
Loans receivable, including fees	$	1,671	$	1,971	$	5,344	$	5,938
Investment securities		172		182		434		475
Other		13		16		37		85
Total interest income		1,856		2,169		5,815		6,498
INTEREST EXPENSE
Deposits		124		231		414		738
Advances from Federal Home Loan Bank		68		199		204		596
Total interest expense		192		430		618		1,334
Net interest income		1,664		1,739		5,197		5,164
Provision for (reversal of) loan losses		—		600		(286)		665
Net interest income after provision for (reversal of) loan losses		1,664		1,139		5,483		4,499
NON-INTEREST INCOME
Service charges on deposit accounts		165		147		448		428
Gain on sale of fixed assets		—		—		24		16
Bank-owned life insurance		23		17		67		50
Federal community development grant		1,826		—		1,826		—
Other		11		24		37		51
Total non-interest income		2,025		188		2,402		545
NON-INTEREST EXPENSE
Salaries and employee benefits		1,084		945		3,331		2,832
Occupancy and equipment		215		178		598		490
Computer services		171		135		479		392
Legal, accounting and consulting		88		64		255		165
Foreclosed assets, net		39		220		74		271
ATM and debit card		48		38		137		111
Advertising and marketing		14		19		35		75
Directors’ fees		70		80		211		240
Other		154		158		456		424
Total non-interest expense		1,883		1,837		5,576		5,000
Income (loss) before income tax expense		1,806		(510)		2,309		44
Income tax expense (benefit)		373		(106)		465		33
NET INCOME (LOSS)	$	1,433	$	(404)	$	1,844	$	11

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

2

ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK

STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2021		2020		2021		2020
Net income (Loss)	$	1,433	$	(404)	$	1,844	$	11
OTHER COMPREHENSIVE (LOSS) INCOME
Change in unrealized (loss) gain on marketable securities		(209)		(81)		(477)		205
Less: deferred income tax effect		44		17		100		(43)
Total other comprehensive (loss) income		(165)		(64)		(377)		162
Total comprehensive income (loss)	$	1,268	$	(468)	$	1,467	$	173

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

3

ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK

STATEMENTS OF CHANGES IN EQUITY (Unaudited)

	Retained		Accumulated Other		Total
(Dollars in thousands)	Earnings		Comprehensive Income (Loss)		Equity
BALANCE, DECEMBER 31, 2019	$	51,129	$	(12)	$	51,117
Net income		11		—		11
Other comprehensive income		—		162		162
BALANCE, SEPTEMBER 30, 2020	$	51,140	$	150	$	51,290
BALANCE, DECEMBER 31, 2020	$	50,426	$	107	$	50,533
Net income		1,844		—		1,844
Other comprehensive income (loss)		—		(377)		(377)
BALANCE, SEPTEMBER 30, 2021	$	52,270	$	(270)	$	52,000

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

4

ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK

STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended
	September 30,
(Dollars in thousands)	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,844	$	11
Adjustments to reconcile net income to net cash provided by operating activities:
Investment securities amortization net		295		141
Dividends on Federal Home Loan Bank stock		(4)		(19)
(Reversal of) provision for loan losses		(286)		665
Writedowns and losses on sales of foreclosed real estate		75		259
Net gain on sale of premises and equipment		(24)		(16)
Depreciation of premises and equipment		314		254
Increase in other assets and liabilities, net		294		801
Net cash provided by operating activities		2,508		2,096
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in loans		14,791		3,969
Activity in held-to-maturity securities:
Proceeds from maturities and calls		4,000		15,000
Purchases		—		(26,195)
Activity in available-for-sale securities:
Proceeds from maturities, calls, and paydowns		5,967		10,102
Purchases		(35,672)		(12,424)
Proceeds from sale of foreclosed real estate		156		492
Purchases of premises and equipment		(1,477)		(441)
Proceeds from sale of premises and equipment		24		16
Net cash used in investing activities		(12,211)		(9,481)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		84,862		22,826
Net cash provided by financing activities		84,862		22,826
NET INCREASE IN CASH AND CASH EQUIVALENTS		75,159		15,441
CASH AND CASH EQUIVALENTS, beginning of period		25,245		17,909
CASH AND CASH EQUIVALENTS, end of period	$	100,404	$	33,350
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Loans originated to facilitate the sale of real estate owned	$	—	$	—
Loan principal reductions resulting from foreclosures on real estate	$	215	$	194
SUPPLEMENTAL SCHEDULE OF INTEREST AND TAXES PAID
Cash paid for interest	$	637	$	1,326
Cash paid for income taxes	$	82	$	75

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

5

ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Unaudited)

NOTE 1BASIS OF PRESENTATION

Catalyst Bancorp, Inc., a Louisiana Corporation (the “Company”), was organized by St Landry Homestead Federal Savings Bank (the “Bank”) in February 2021 to facilitate the conversion of the Bank from the mutual to the stock form (the “Conversion”) of ownership. The Conversion was completed on October 12, 2021, at which time the Company became the holding company for the Bank, with the Company owning all of the issued and outstanding shares of the Bank’s common stock.  Shares of the Company’s common stock were issued and sold in an offering to certain depositors of the Bank and others. The Company filed a registration statement on Form S-1 with the Securities and Exchange Commission (the “SEC”) on March 12, 2021 (File No. 333-254200), which was declared effective by the SEC on August 6, 2021. The registrant was not engaged in operations and had not issued any shares of stock as of September 30, 2021. Accordingly, no financial statements of the Company have been included herein.

The accompanying unaudited financial statements of the Bank 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. 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-month and nine-month periods ended September 30, 2021 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 financial statements and notes thereto for the year ended December 31, 2020, contained in the Company’s definitive prospectus, dated August 6, 2021 (the “Prospectus”), as filed with the SEC pursuant to Securities Act Rule 424(b)(3) on August 16, 2021 (File No. 333-25420). Reference is made to the accounting policies of the Bank described in the Notes to the Financial Statements contained in the Prospectus.

In preparing the financial statements, the Bank 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 financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Bank’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.

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.

NOTE 2 COMPLETION OF STOCK OFFERING

The Company completed its initial public stock offering in connection with the Bank’s conversion from the mutual to the stock form of organization on October 12, 2021. The Company issued a total of 5,290,000 shares of its common stock, par value $0.01 per share (the “Common Stock”) for an aggregate of $52,900,000 in total offering proceeds, including shares issued to the Company’s employee stock ownership plan. Trading in the Common Stock commenced on the Nasdaq Capital Market on October 13, 2021 under the symbol “CLST”.

During August and September 2021, the Company began receiving cash for subscriptions to purchase shares of the Company’s common stock, which amounts were deposited into the Company’s account at the Bank. At September 30, 2021, $72.9 million in subscriptions to purchase shares of the Company’s Common Stock was included in deposits on the Bank’s Statement of Financial Condition. The net proceeds of the initial public offering of $50.9 million will be reflected in the Company’s shareholder’s equity at December 31, 2021.

The costs of issuing the common stock was deferred and will be deducted from the sales proceeds of the offering. Deferred conversion costs totaled approximately $21,000 at December 31, 2020 and $692,000 at September 30, 2021, respectively.

6

NOTE 3   RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments introduce 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, including loans, held-to-maturity securities and certain off-balance sheet financial instruments. The CECL should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. Financial instruments with similar risk characteristics may be grouped together when estimating the CECL. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial estimate of expected credit loss would be recognized through an allowance for credit losses with an offset to the purchase price at acquisition. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. The ASU also amends the current available for sale security impairment model for debt securities whereby credit losses related to available for sale debt securities should be recorded through an allowance for credit losses. The amendments will be applied through a modified retrospective approach, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. On October 18, 2019, FASB approved an effective date delay applicable to smaller reporting companies and non-public business entities until January 2023. The Bank has elected to delay implementation of the standard until January 2023. The future adoption of this ASU may have a material effect on the Bank’s financial statements.

7

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, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Securities Held-to-Maturity
U.S. Government and agency obligations	$	13,023	$	52	$	(275)	$	12,800
Municipal obligations		481		5		—		486
	$	13,504	$	57	$	(275)	$	13,286
Securities Available-for-Sale
Mortgage-backed securities	$	45,425	$	144	$	(365)	$	45,204
U.S. Government and agency obligations		2,000		—		(71)		1,929
Municipal obligations		2,599		—		(50)		2,549
	$	50,024	$	144	$	(486)	$	49,682

	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Securities Held-to-Maturity
U.S. Government and agency obligations	$	17,034	$	93	$	(121)	$	17,006
Municipal obligations		489		10		—		499
	$	17,523	$	103	$	(121)	$	17,505
Securities Available-for-Sale
Mortgage-backed securities	$	15,968	$	179	$	(7)	$	16,140
U.S. Government and agency obligations		2,000		—		(39)		1,961
Municipal obligations		2,628		12		(11)		2,629
	$	20,596	$	191	$	(57)	$	20,730

Investment securities with a carrying amount of approximately $10.3 million and $6.9 million, respectively, were pledged to secure deposits as required or permitted by law at September 30, 2021 and December 31, 2020.

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.

8

NOTE 4   INVESTMENT SECURITIES (Continued)

The following is a summary of maturities of securities held-to-maturity and available-for-sale at September 30, 2021 and December 31, 2020:

	September 30, 2021
	Held-to-Maturity				Available-for-Sale
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
Amounts maturing in:
One year or less	$	—	$	—	$	—	$	—
After one through five years		—		—		—		—
After five through ten years		9,481		9,246		3,298		3,270
After ten years		4,023		4,040		46,726		46,412
	$	13,504	$	13,286	$	50,024	$	49,682

	December 31, 2020
	Held-to-Maturity				Available-for-Sale
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
Amounts maturing in:
One year or less	$	—	$	—	$	—	$	—
After one through five years		—		—		1		1
After five through ten years		11,490		11,452		3,361		3,355
After ten years		6,033		6,053		17,234		17,374
	$	17,523	$	17,505	$	20,596	$	20,730

There were no securities transferred between classifications during the first nine months of 2021 or in 2020.

9

NOTE 4   INVESTMENT SECURITIES (Continued)

Information pertaining to securities with gross unrealized losses at September 30, 2021 and December 31, 2020 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	September 30, 2021
	Less than 12 Months				12 Months or Greater				Total
	Fair		Gross Unrealized		Fair		Gross Unrealized		Fair		Gross Unrealized
(Dollars in thousands)	Value		Losses		Value		Losses		Value		Losses
Securities Held-to-Maturity
U.S. Government and agency obligations	$	9,724	$	(275)	$	—	$	—	$	9,724	$	(275)
Municipal obligations		—		—		—		—		—		—
	$	9,724	$	(275)	$	—	$	—	$	9,724	$	(275)
Securities Available-for-Sale
Mortgage-backed securities	$	36,617	$	(365)	$	—	$	—	$	36,617	$	(365)
U.S. Government and agency obligations		1,929		(71)		—		—		1,929		(71)
Municipal obligations		2,549		(50)		—		—		2,549		(50)
	$	41,095	$	(486)	$	—	$	—	$	41,095	$	(486)
Total	$	50,819	$	(761)	$	—	$	—	$	50,819	$	(761)

	December 31, 2020
	Less than 12 Months				12 Months or Greater				Total
	Fair		Gross Unrealized		Fair		Gross Unrealized		Fair		Gross Unrealized
(Dollars in thousands)	Value		Losses		Value		Losses		Value		Losses
Securities Held-to-Maturity
U.S. Government and agency obligations	$	7,879	$	(121)	$	—	$	—	$	7,879	$	(121)
	$	7,879	$	(121)	$	—	$	—	$	7,879	$	(121)
Securities Available-for-Sale
Mortgage-backed securities	$	4,010	$	(7)	$	—	$	—	$	4,010	$	(7)
U.S. Government and agency obligations		1,961		(39)		—		—		1,961		(39)
Municipal obligations		1,751		(11)		—		—		1,751		(11)
	$	7,722	$	(57)	$	—	$	—	$	7,722	$	(57)
Total	$	15,601	$	(178)	$	—	$	—	$	15,601	$	(178)

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which that fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

At September 30, 2021, there were 32 securities with an unrealized loss, compared to 8 securities with an unrealized loss at December 31, 2020. All of those securities are either guaranteed by federal, state and local governments or secured by mortgage loans. These unrealized losses relate principally to current interest rates for similar types of securities. In analyzing an issuer's financial condition, management considers whether the securities are issued by the federal government, its agencies, or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer's financial condition. As management has the intent and ability to hold securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other-than-temporary.

10

NOTE 5   LOANS RECEIVABLE

Loans receivable at September 30, 2021 and December 31, 2020 are summarized as follows:

	(unaudited)
	September 30,		December 31,
(Dollars in thousands)	2021		2020
Real Estate
One- to four-family residential	$	88,595	$	99,869
Commercial real estate		28,135		30,304
Construction & land		4,417		5,538
Multi-family residential		4,648		4,801
Farmland		26		53
Total Real Estate		125,821		140,565
Consumer		4,912		4,499
Commercial and industrial		5,987		6,736
		136,720		151,800
Less allowance for loan losses		(2,646)		(3,022)
	$	134,074	$	148,778

The following tables outline the changes in the allowance for loan losses by collateral type for the nine months ended September 30, 2021 and September 30, 2020.

	For the Nine Months Ended September 30, 2021
			(Reversal of)
	Beginning		provision for loan						Ending
(Dollars in thousands)	Balance		losses		Charge-offs		Recoveries		Balance
Allowance for Loan Losses
One- to four-family residential	$	1,910	$	(220)	$	(123)	$	51	$	1,618
Commercial real estate		744		(32)		—		—		712
Construction & land		81		(31)		—		—		50
Multi-family residential		68		—		—		—		68
Farmland		1		(1)		—		—		—
Consumer		78		2		(27)		9		62
Commercial and industrial		101		(8)		—		—		93
Unallocated		39		4		—		—		43
Total	$	3,022	$	(286)	$	(150)	$	60	$	2,646

	For the Nine Months Ended September 30, 2020
	Beginning		Provision for loan						Ending
(Dollars in thousands)	Balance		losses		Charge-offs		Recoveries		Balance
Allowance for Loan Losses
One- to four-family residential	$	1,162	$	488	$	(39)	$	61	$	1,672
Commercial real estate		637		99		—		—		736
Construction & land		56		14		—		—		70
Multi-family residential		76		(17)		—		1		60
Farmland		1		—		—		—		1
Consumer		80		4		(28)		11		67
Commercial and industrial		12		90		(15)		15		102
Unallocated		47		(13)		—		—		34
Total	$	2,071	$	665	$	(82)	$	88	$	2,742

11

NOTE 5   LOANS RECEIVABLE (Continued)

The following tables outline the changes in the allowance for loan losses individually and collectively evaluated for impairment, and the amount of loans individually and collectively evaluated for impairment at September 30, 2021 and December 31, 2020.

	As of September 30, 2021						As of December 31, 2020
	Individually		Collectively				Individually		Collectively
	Evaluated for		Evaluated for				Evaluated for		Evaluated for
(Dollars in thousands)	Impairment		Impairment		Total		Impairment		Impairment		Total
Allowance for Loan Losses Ending Balance
One- to four-family residential	$	561	$	1,057	$	1,618	$	599	$	1,311	$	1,910
Commercial real estate		—		712		712		—		744		744
Construction & land		—		50		50		—		81		81
Multi-family residential		—		68		68		—		68		68
Farmland		—		—		—		—		1		1
Consumer		—		62		62		—		78		78
Commercial and industrial		—		93		93		—		101		101
Unallocated		—		43		43		—		39		39
Total	$	561	$	2,085	$	2,646	$	599	$	2,423	$	3,022
Loans Receivable Ending Balance
One- to four-family residential	$	2,938	$	85,657	$	88,595	$	3,209	$	96,660	$	99,869
Commercial real estate		—		28,135		28,135		—		30,304		30,304
Construction & land		46		4,371		4,417		46		5,492		5,538
Multi-family residential		1,178		3,470		4,648		1,205		3,596		4,801
Farmland		—		26		26		—		53		53
Consumer		—		4,912		4,912		—		4,499		4,499
Commercial and industrial		19		5,968		5,987		4		6,732		6,736
Total	$	4,181	$	132,539	$	136,720	$	4,464	$	147,336	$	151,800

A summary of current, past due and nonaccrual loans as of September 30, 2021 and December 31, 2020 follows:

	As of September 30, 2021
	Past Due		Past Due		Past Due
	30-89 Days		Over 90 Days		Over 30 Days		Total Past		Current and		Current and Non-
(Dollars in thousands)	Accruing		and Accruing		Non-Accruing		Due		Accruing		Accruing		Total Loans
One- to four-family residential	$	2,378	$	129	$	276	$	2,783	$	84,889	$	923	$	88,595
Commercial real estate		53		—		—		53		28,082		—		28,135
Construction and land		16		36		46		98		4,319		—		4,417
Multi-family residential		—		—		—		—		4,648		—		4,648
Farmland		—		—		—		—		26		—		26
Consumer		43		—		—		43		4,869		—		4,912
Commercial & industrial		276		—		17		293		5,692		2		5,987
Total	$	2,766	$	165	$	339	$	3,270	$	132,525	$	925	$	136,720

12

NOTE 5   LOANS RECEIVABLE (Continued)

	As of December 31, 2020
	Past Due		Past Due		Past Due
	30-89 Days		Over 90 Days		Over 30 Days		Total Past		Current and		Current and Non-
(Dollars in thousands)	Accruing		and Accruing		Non-Accruing		Due		Accruing		Accruing		Total Loans
One- to four-family residential	$	1,842	$	367	$	235	$	2,444	$	96,419	$	1,006	$	99,869
Commercial real estate		192		—		—		192		30,112		—		30,304
Construction and land		154		—		47		201		5,337		—		5,538
Multi-family residential		—		—		—		—		4,801		—		4,801
Farmland		—		—		—		—		53		—		53
Consumer		38		13		—		51		4,448		—		4,499
Commercial & industrial		94		—		—		94		6,638		4		6,736
Total	$	2,320	$	380	$	282	$	2,982	$	147,808	$	1,010	$	151,800

The Bank was not committed to lend any additional funds on nonaccrual loans at September 30, 2021 or December 31, 2020.

A Troubled Debt Restructuring (“TDR”) is considered such if the lender, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. Information pertaining to loans modified during the nine months ended September 30, 2021 and the year ended December 31, 2020:

		Pre-modification		Post-modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
September 30, 2021
One- to four-family residential	3	$	186	$	189
Total	3	$	186	$	189

		Pre-modification		Post-modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
December 31, 2020
One- to four-family residential	18	$	2,643	$	2,703
Total	18	$	2,643	$	2,703

13

NOTE 5   LOANS RECEIVABLE (Continued)

Troubled debt restructured loans were modified to defer principal and extend maturity on average for 3 months. There were two payment defaults as of September 30, 2021 and no payment defaults in 2020 for prior year modified loans. The Bank has no commitments to loan additional funds to the borrowers whose loans have been modified.

Information on impaired loans as of September 30, 2021 and December 31, 2020 follows:

	As of and for the Nine Months Ended September 30, 2021
			Unpaid				Average		Interest		Interest
	Recorded		Principal		Related		Recorded		Income		Income
(Dollars in thousands)	Investment		Balance		Allowance		Investment		Recognized		Collected
Real Estate
One- to four-family residential	$	2,938	$	3,275	$	561	$	2,875	$	60	$	59
Commercial real estate		—		—		—		—		—		—
Construction & land		46		46		—		46		—		—
Multi-family residential		1,178		1,178		—		1,182		42		43
Farmland		—		—		—		—		—		—
Total real estate loans		4,162		4,499		561		4,103		102		102
Consumer		—		—		—		—		—		—
Commercial & industrial		19		23		—		3		—		—
	$	4,181	$	4,522	$	561	$	4,106	$	102	$	102

	As of and for the Year Ended December 31, 2020
			Unpaid				Average		Interest		Interest
	Recorded		Principal		Related		Recorded		Income		Income
(Dollars in thousands)	Investment		Balance		Allowance		Investment		Recognized		Collected
Real Estate
One- to four-family residential	$	3,209	$	3,586	$	599	$	3,266	$	86	$	78
Commercial real estate		—		—		—		—		—		—
Construction & land		46		46		—		48		—		—
Multi-family residential		1,205		1,205		—		1,210		47		43
Farmland		—		—		—		—		—		—
Total real estate loans		4,460		4,837		599		4,524		133		121
Consumer		—		—		—		—		—		—
Commercial & industrial		4		7		—		5		—		—
	$	4,464	$	4,844	$	599	$	4,529	$	133	$	121

Principal balances of loans receivable included approximately $98.9 million and $109.6 million of adjustable-rate loans and $37.8 million and $42.2 million of fixed-rate loans at September 30, 2021 and December 31, 2020, respectively. Interest only loans amounted to approximately $1.5 million and $2.0 million at September 30, 2021 and December 31, 2020, respectively.

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. Internally assigned grade:

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.

14

NOTE 5   LOANS RECEIVABLE (Continued)

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 on a quarterly basis in conjunction with the determination of the adequacy of the allowance for loan losses.

	As of and for the Nine Months ended September 30, 2021
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
One- to four-family residential	$	84,260	$	402	$	3,933	$	—	$	88,595
Commercial real estate		27,099		975		61		—		28,135
Construction & land		4,323		—		94		—		4,417
Multi-family residential		3,470		—		1,178		—		4,648
Farmland		26		—		—		—		26
Consumer		4,903		—		9		—		4,912
Commercial & industrial		5,968		—		19		—		5,987
Total	$	130,049	$	1,377	$	5,294	$	—	$	136,720

	As of and for the Year ended December 31, 2020
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
One- to four-family residential	$	93,008	$	1,915	$	4,946	$	—	$	99,869
Commercial real estate		28,217		2,022		65		—		30,304
Construction & land		5,310		133		95		—		5,538
Multi-family residential		3,457		—		1,344		—		4,801
Farmland		53		—		—		—		53
Consumer		4,434		33		32		—		4,499
Commercial & industrial		6,542		171		23		—		6,736
Total	$	141,021	$	4,274	$	6,505	$	—	$	151,800

15

NOTE 6   CAPITAL REQUIREMENTS AND OTHER 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 Bank’s financial statements. 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 judgements 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, 2021 and December 31, 2020, the Bank met all of the capital adequacy requirements to which it is subject.

At September 30, 2021 and December 31, 2020, 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.

					To be Well Capitalized under the
	Actual				Prompt Corrective Action Provision
(Dollars in thousands)	Amount		Ratio		Amount		Ratio
As of September 30, 2021
Common Equity Tier 1 Capital	$	52,270	38.94	%	$	8,724	>6.5	%
Tier 1 Risk-Based Capital		52,270	38.94	%		10,737	>8.0	%
Total Risk-Based Capital		53,960	40.20	%		13,422	>10.0	%
Tier 1 Leverage Capital		52,270	20.65	%		12,657	>5.0	%
As of December 31, 2020
Common Equity Tier 1 Capital	$	50,426	40.92	%	$	8,010	>6.5	%
Tier 1 Risk-Based Capital		50,426	40.92	%		9,858	>8.0	%
Total Risk-Based Capital		52,118	42.29	%		12,323	>10.0	%
Tier 1 Leverage Capital		50,426	21.06	%		11,970	>5.0	%

16

NOTE 7   COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Bank 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 the financial statements.

In addition, the Bank is a defendant in various legal proceedings arising in connection with its business. It is the best judgment of management that neither the financial position nor results of operations of the Bank will be materially affected by the final outcome of these legal proceedings.

The Bank 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 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 Bank’s involvement in particular classes of instruments.

NOTE 8   FAIR VALUE MEASUREMENTS

In accordance with fair value guidance, the Bank 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 Bank 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.

Fair values of assets and liabilities measured on a recurring basis at September 30, 2021 and December 31, 2020 follows:

	Fair Value Measurements at Reporting Date Using
(Dollars in thousands)	Fair Value		Level 1		Level 2		(Level 3
September 30, 2021
Available-for-sale securities	$	49,682	$	—	$	49,682	$	—
December 31, 2020
Available-for-sale securities	$	20,730	$	—	$	20,730	$	—

17

NOTE 8   FAIR VALUE MEASUREMENTS (Continued)

Fair values of assets and liabilities measured on a nonrecurring basis at September 30, 2021 and December 31, 2020 follows:

	Fair Value Measurements at Reporting Date Using
(Dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
September 30, 2021
Impaired loans	$	1,270	$	—	$	—	$	1,270
Foreclosed real estate		399		—		—		399
December 31, 2020
Impaired loans	$	1,365	$	—	$	—	$	1,365
Foreclosed real estate		415		—		—		415

The carrying amount of impaired loans totaled $1.8 million and $2.0 million at September 30, 2021 and December 31, 2020, respectively. Impaired loans are written down to their fair value by a charge to the allowance for loan losses.

The fair value of impaired loans and real estate owned is estimated using current appraised values less costs to sell.

NOTE 9   FAIR VALUE OF FINANCIAL INSTRUMENTS

The Bank follows the guidance of FASB ASC 825, Financial Instruments, and FASB ASC 820, Fair Value Measurement. 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 Bank 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).

18

NOTE 9   FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Accounting Standards Codification 825-10, Recognition and Measurement of Financial Assets and Financial Liabilities requires that the Bank 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 Bank.

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.

Investments and Mortgage-Backed Securities - The fair market values of investments and mortgage-backed securities presented have been taken from the Bank’s Securities Portfolio Summary, whose prices are based on a combination of observed market prices for identical or similar instruments and various matrix pricing programs. Investments and mortgage-backed securities are classified within Level 2 of the fair value hierarchy.

Loans Receivable, net - Loans are valued using the methodology developed for Economic Value of Equity pricing, with a build-up for loans based on the U.S. Treasury yield curve, a credit risk spread and an overhead coverage rate. Loans receivable are classified within Level 3 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 - All certificates are assumed to remain on the Bank’s books until maturity without any change in coupon.  Fair value was estimated using market pricing data for new CDs of similar structure and remaining maturity. Certificates of deposit are classified within Level 2 of the fair value hierarchy.

Federal Home Loan Bank Borrowings - Data is taken from the Bank’s FHLB Customer Profile report.  All borrowings were priced using current advance pricing data from the FHLB’s website for new borrowings of similar structure and remaining maturity. FHLB borrowings are classified within Level 2 of the fair value hierarchy.

Other Assets and Liabilities - All other assets and liabilities are reported at current book value unless noted otherwise.

19

NOTE 9   FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Limitations - 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 Bank’s entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Bank’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 and the value of assets and liabilities that are not considered financial instruments.

The estimated fair values of the Bank’s financial instruments as of September 30, 2021 and December 31, 2020 are as follows:

	September 30, 2021
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	100,404	$	100,404	$	100,404	$		$
Investment securities
Held-to-maturity		13,504		13,286				13,286
Available-for-sale		49,682		49,682				49,682
Loans receivable, net		134,074		133,454						133,454
Financial Liabilities:
Deposits		249,460		249,612				249,612
Borrowed funds		8,973		8,699				8,699

	December 31, 2020
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	25,245	$	25,245	$	25,245	$		$
Investment securities
Held-to-maturity		17,523		17,505				17,505
Available-for-sale		20,730		20,730				20,730
Loans receivable, net		148,778		148,674						148,674
Financial Liabilities:
Deposits		164,598		164,951				164,951
Borrowed funds		8,838		9,052				9,052

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 Federal Home Loan Bank (“FHLB”) and First National Bankers Bank stock because they are not marketable. The carrying amount of investments are reported in the statements of financial condition at historical cost.

20

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, 2021 and for the three and nine months ended September 30, 2021 and 2020 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 financial statements of the Bank 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 regarding the Bank included in the Company’s Prospectus, dated August 6, 2021, as filed with the Securities and Exchange Commission on August 16, 2021 (File No. 333-254200).

Cautionary Note Regarding Forward-Looking Statements

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

● statements of our goals, intentions and expectations;

● statements regarding our business plans, prospects, growth and operating strategies;

● statements regarding the quality of our loan and investment portfolios; and

● estimates of our risks and future costs and benefits.

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

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

● general economic conditions, either nationally or in our market areas, that are different than expected;

● conditions relating to the Covid-19 pandemic, or other infectious disease outbreaks, including the severity and duration of the associated economic slowdown, either nationally or in our market areas, that are worse than expected;

● changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;

● our ability to access cost-effective funding;

● major catastrophes such as hurricanes, floods or other natural disasters, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies;

21

● 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.

Additional factors that may affect our results are discussed in the Prospectus under the heading “Risk Factors.”

22

Overview

The Company was incorporated in February 2021 by the Bank in connection with the Bank’s mutual-to-stock conversion (the “Conversion”).  The Company completed its initial public stock offering on October 12, 2021, at which time it became the holding company for the Bank. The Company issued 5,290,000 shares of its common stock for an aggregate of $52,900,000 in total offering proceeds (including shares issued to our ESOP). The net proceeds of $50.9 million will be reflected in the Company’s shareholders’ equity at December 31, 2021.

The Bank is a community-oriented savings bank headquartered in Opelousas, Louisiana. We currently operate four full-service banking offices in St. Landry Parish, Louisiana and two full-service banking offices in Lafayette Parish, Louisiana, including our newest location opened in November 2021. Our primary business consists of attracting deposits from the general public and using those funds together with funds we borrow from the Federal Home Loan Bank (“FHLB”) of Dallas and other sources to originate loans to our customers and invest in securities. At September 30, 2021, we had total assets of $311.6 million, including $134.1 million in net loans and $63.2 million of investment securities, total deposits of $249.5 million and total equity of $52.0 million. We had net income of $1.4 million for the three months ended September 30, 2021, up $1.8 million from a net loss of $404,000 for the three months ended September 30, 2020. For the nine months ended September 30, 2021, our net income was up $1.8 million from $11,000 for the nine months ended September 30, 2020. The increases in net income over the comparable three and nine month periods were primarily due to a Community Development Financial Institution (“CDFI”) Rapid Response Program grant recognized in non-interest income during the three months ended September 30, 2021.

Historically, we operated as a traditional thrift relying on long-term, single-family residential mortgage loans secured by properties located primarily in St. Landry Parish and adjoining areas to generate interest income. We are re-focusing our business strategy to a relationship-based community bank model.

Our results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on our loan and investment portfolios and interest expense on deposits and borrowings. Our net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. Results of operations are also affected by our provisions for loan losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation, office occupancy and equipment expense, data processing, advertising and business promotion and other expense. We expect that our non-interest expenses will increase as we grow and expand our operations. In addition, our compensation expense will increase due to expense associated with our employee stock ownership plan (“ESOP”) established as part of the Bank’s mutual-to-stock conversion as well as a stock option plan and a recognition and retention plan that we expect to implement in 2022. Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, the impact of the COVID-19 pandemic and the economic challenges, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact our financial condition and results of operations.

Critical Accounting Policies

In reviewing and understanding financial information for St. Landry Homestead, 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 financial statements included in the Company’s Prospectus. Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period.

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Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

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

Allowance for Loan Losses.  We have identified the evaluation of the allowance for loan losses as a critical accounting policy where amounts are sensitive to material variation. The allowance for loan losses represents management’s estimate for probable losses that are inherent in our loan portfolio but which have not yet been realized as of the date of our balance sheet. It is established through a provision for loan losses charged to earnings. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. Subsequent recoveries are added to the allowance. The allowance is an amount that management believes will cover known and inherent losses in the loan portfolio based on evaluations of the collectibility of loans. The evaluations take into consideration such factors 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, and current economic conditions. This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impacted loans, value of collateral, estimated losses on our commercial and residential loan portfolios, and general amounts for historical loss experience. 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. Historically, our estimates of the allowance for loan loss have not required significant adjustments from management’s initial estimates. In addition, the Office of the Comptroller of the Currency as an integral part of its examination processes periodically reviews our allowance for loan losses. While management is responsible for the establishment of the allowance for loan losses and for adjusting such allowance through provisions for loan losses, management may determine, as a result of such regulatory reviews, that an increase or decrease in the allowance or provision for loan 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 loan losses may be required that would adversely impact earnings in future periods.

COVID-19

In light of the recent events surrounding the COVID-19 epidemic, St. Landry Homestead is continually assessing the effects of the pandemic on its employees, customers and communities. In March 2020, the 2020 Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted. The CARES Act contains many provisions related to banking, lending, mortgage forbearance and taxation. The Bank has been working diligently to help support its customers through the Paycheck Protection Program (“PPP”), loan modifications and loan deferrals. St. Landry Homestead funded 240 SBA PPP loans totaling approximately $8.5 million with an average loan balance of $36,000 to existing customers and key prospects located primarily in our markets in south central Louisiana. In addition, we have granted loan modifications under the CARES Act generally in the form of three-month deferrals of principal payments and a three-month extension of the maturity date. The Bank handles loan modification requests on a case-by-case basis considering the effects of the COVID-19 pandemic, the related economic slowdown and stay-at-home orders on our customers and their current and projected cash flows through the terms of their respective loans. We believe the customer interaction during this time provides us with an opportunity to broaden and deepen our customer relationships while benefiting the local communities we serve. Through September 30, 2021, we granted COVID-19 related payment relief to 201 loans with principal balances totaling $28.0 million. As of September 30, 2021, we had no loans under payment deferral agreements due to COVID-19.

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The Bank is working with customers affected by COVID-19 through modifications of their loans. In accordance with guidance from the federal banking agencies, borrowers who were current prior to becoming affected by COVID-19, that received loan modifications as a result of the pandemic, generally are not reported as past due or as troubled debt restructurings. Effects of COVID-19 may negatively impact management assumptions and estimates, such as the allowance for loan losses. The Bank is evaluating all loan modifications to customers to identify and quantify any impact they may have on the Bank. However, it is difficult to assess or predict how and to what extent COVID-19 will affect St. Landry Homestead in the future.

Comparison of Financial Condition at September 30, 2021 and December 31, 2020

Total Assets.  Total assets increased $86.9 million, or 38.7%, to $311.6 million at September 30, 2021 from $224.7 million at December 31, 2020. The increase resulted primarily from a $75.2 million increase in cash and cash equivalents and a $29.0 million increase in available-for-sale investment securities, partially offset by a decrease of $14.7 million in net loans receivable.

Cash and Cash Equivalents. Cash and cash equivalents increased by $75.2 million, or 297.7%, to $100.4 million at September 30, 2021 compared to $25.2 million at December 31, 2020. This increase resulted primarily from $72.9 million in cash received for subscriptions to purchase shares of the Company’s common stock in its initial public offering. The net proceeds of the initial public offering will be reflected in the Company’s shareholder’s equity at December 31, 2021.

Net loans.  Our loans receivable, net, decreased by $14.7 million, or 9.9%, to $134.1 million at September 30, 2021 compared to $148.8 million at December 31, 2020. During the first nine months of 2021, our total real estate loan portfolio decreased by $14.7 million, due primarily to an $11.3 million decrease in one- to four-family residential mortgage loans, a $2.2 million decrease in commercial real estate loans and a $1.1 million decrease in construction and land loans. Our total commercial and industrial loans decreased by $749,000 to $6.0 million at September 30, 2021 compared to $6.7 million at December 31, 2020. SBA PPP loans, included in commercial and industrial loans, amounted to $3.4 million at September 30, 2021 and $3.5 million at December 31, 2020.

Investment Securities.  Our total investment securities, available-for-sale and held-to-maturity, amounted to $63.2 million at September 30, 2021, an increase of $24.9 million, or 65.2%, compared to $38.3 million in investment securities at December 31, 2020. At September 30, 2021, $49.7 million, or 78.6%, of our total investment securities were classified as available-for-sale. Our investment securities portfolio at such date consisted primarily of debt obligations issued by the U.S. government and government agencies and government sponsored mortgage-backed securities. During the nine months ended September 30, 2021, purchases of $35.7 million of investment securities exceeded $10.0 million of maturities, calls and principal repayments.

Deposits.  Our total deposits amounted to $249.5 million at September 30, 2021, an increase of $84.9 million, or 51.6%, compared to December 31, 2020. This increase resulted primarily from $72.9 million in cash received for subscriptions to purchase shares of the Company’s common stock in its initial public offering. The net proceeds of the initial public offering will be reflected in the Company’s shareholder’s equity at December 31, 2021.

Borrowings.  Our borrowings, which consist of FHLB advances, amounted to $9.0 million at September 30, 2021 compared to $8.8 million at December 31, 2020. The $135,000 increase in the carrying value of our FHLB advances reflects the amortization of prepayment penalties on $10.0 million in advances modified during the quarter ended December 31, 2020.

Total Equity.  Total equity increased $1.5 million to $52.0 million at September 30, 2021 compared to $50.5 million at December 31, 2020. The primary reason for the increase in total equity was net income of $1.8 million during the nine months ended September 30, 2021, partially offset by a $377,000 decrease in accumulated unrealized gains/losses on available for sale securities. At September 30, 2021, our ratio of total equity to total assets was 16.7%.

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Non-performing Assets. The following table shows the amounts of our non-performing assets, which include non-accruing loans, accruing loans 90 days or more past due and real estate owned at the dates indicated, and our performing TDRs.

	At September 30,			At December 31,
(Dollars in thousands)	2021			2020
Non-accruing loans:
One- to four-family residential	$	1,199		$	1,241
Commercial real estate		—			—
Construction and land		46			47
Multi-family residential		—			—
Farmland		—			—
Consumer		—			—
Commercial and industrial		19			4
Total non-accruing loans		1,264			1,292
Accruing loans 90 days or more past due:
One- to four-family residential		129			367
Commercial real estate		—			—
Construction and land		36			—
Multi-family residential		—			—
Farmland		—			—
Consumer		—			13
Commercial and industrial		—			—
Total accruing loans 90 days or more past due		165			380
Total non-performing loans		1,429			1,672
Real estate owned		399			415
Total non-performing assets		1,828			2,087
Performing troubled debt restructurings		3,142			3,625
Total non-performing assets and performing TDRs	$	4,970		$	5,712
Total loans outstanding	$	136,720		$	151,800
Total assets outstanding	$	311,563		$	224,688
Total non-accruing loans as a percentage of total loans outstanding		0.92	%		0.85	%
Total non-performing loans as a percentage of total loans outstanding		1.05	%		1.10	%
Total non-performing loans as a percentage of total assets		0.46	%		0.74	%
Total non-performing assets as a percentage of total assets		0.59	%		0.93	%

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Comparison of Results of Operations for the Three Months Ended September 30, 2021 and 2020.

General. Net income totaled $1.4 million for the three months ended September 30, 2021, up $1.8 million from a net loss of $404,000 for the three months ended September 30, 2020. During the three months ended September 30, 2021, we received and recognized into income $1.8 million in noninterest income related to a Community Development Financial Institution (“CDFI”) Rapid Response Program grant.

Interest Income. Total interest income decreased $313,000, or 14.4%, to $1.9 million for the three months ended September 30, 2021 from $2.2 million for the three months ended September 30, 2020. This decrease was primarily attributable to a $300,000 decrease in interest income on loans receivable. The decrease in interest income on loans was due to a reduction in the average balance of our loans of $25.2 million, or 15.8%, to $134.4 million for the three months ended September 30, 2021 from $159.5 million for the three months ended September 30, 2020.

Interest Expense. Total interest expense decreased $238,000, or 55.3%, to $192,000 for the three months ended September 30, 2021 from $430,000 for the three months ended September 30, 2020. Interest expense on FHLB advances decreased $131,000, or 65.8%, to $68,000 for the three months ended September 30, 2021 compared to $199,000 for the three months ended September 30, 2020.  As a result of the prepayment of FHLB advances in the fourth quarter of 2020, the average balance of our FHLB advances was $9.0 million during the three months ended September 30, 2021 compared to $25.0 million during the three months ended September 30, 2020. Interest expense on deposits was $124,000 during the three months ended September 30, 2021, down $107,000, or 46.3%, from $231,000 for the three months ended September 30, 2020.  While the average balance of our total interest-bearing deposits increased by $15.4 million, or 11.4%, to $150.7 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, the average rate paid on interest-bearing deposits decreased by 35 basis points to 0.33% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Net Interest Income. Net interest income was $1.7 million for the three months ended September 30, 2021, a decrease of $75,000, or 4.3%, compared to the three months ended September 30, 2020. Our interest rate spread decreased to 2.69% for the three months ended September 30, 2021 from 2.78% for the three months ended September 30, 2020, and our net interest margin decreased to 2.84% for the three months ended September 30, 2021 from 3.08% for the three months ended September 30, 2020. The decreases in interest rate spread and net interest margin primarily reflect the effects of the continuing low interest rate environment.

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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 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. All average balances are based on daily balances.

	Three Months Ended September 30,
	2021						2020
					Average						Average
	Average				Yield/		Average				Yield/
(Dollars in thousands)	Balance		Interest		Rate		Balance		Interest		Rate
Interest-earning assets:
Loans receivable(1)	$	134,370	$	1,671	4.93	%	$	159,542	$	1,971	4.92	%
Investment securities		61,910		172	1.10			40,814		182	1.77
Other interest-earning assets		36,505		13	0.14			23,947		16	0.25
Total interest-earning assets		232,785		1,856	3.17			224,303		2,169	3.85
Non-interest-earning assets		20,361						15,142
Total assets	$	253,146					$	239,445
Interest-bearing liabilities:
Savings, NOW and money market accounts		81,650		26	0.12			66,978		45	0.27
Certificates of deposit		69,076		98	0.56			68,306		186	1.08
Total deposits		150,726		124	0.33			135,284		231	0.68
FHLB advances		8,966		68	3.04			25,000		199	3.18
Total interest-bearing liabilities		159,692		192	0.48			160,284		430	1.07
Non-interest-bearing liabilities		42,534						27,207
Total liabilities		202,226						187,491
Retained earnings		50,920						51,954
Total liabilities and retained earnings	$	253,146					$	239,445
Net interest-earning assets	$	73,093					$	64,019
Net interest income; average interest rate spread			$	1,664	2.69	%			$	1,739	2.78	%
Net interest margin(2)					2.84	%					3.08	%
Average interest-earning assets to average interest-bearing liabilities					145.77	%					139.94	%

(1) Includes non-accrual loans during the respective periods. Calculated net of deferred fees and discounts, loans in process and allowance for loan losses.

(2) Equals net interest income divided by average interest-earning assets.

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	Nine Months Ended September 30,
	2021						2020
					Average						Average
	Average				Yield/		Average				Yield/
(Dollars in thousands)	Balance		Interest		Rate		Balance		Interest		Rate
Interest-earning assets:
Loans receivable(1)	$	140,215	$	5,344	5.10	%	$	160,465	$	5,938	4.94	%
Investment securities		50,875		434	1.14			33,481		475	1.90
Other interest-earning assets		30,905		37	0.16			21,438		85	0.53
Total interest-earning assets		221,995		5,815	3.50			215,384		6,498	4.03
Non-interest-earning assets		18,340						15,083
Total assets	$	240,335					$	230,467
Interest-bearing liabilities:
Savings, NOW and money market accounts		77,928		84	0.14			64,969		156	0.32
Certificates of deposit		69,157		330	0.64			65,676		582	1.18
Total deposits		147,085		414	0.38			130,645		738	0.75
FHLB advances		8,907		204	3.06			25,002		596	3.18
Total interest-bearing liabilities		155,992		618	0.53			155,647		1,334	1.15
Non-interest-bearing liabilities		33,675						23,098
Total liabilities		189,667						178,745
Retained earnings		50,668						51,722
Total liabilities and retained earnings	$	240,335					$	230,467
Net interest-earning assets	$	66,003					$	59,737
Net interest income; average interest rate spread			$	5,197	2.97	%			$	5,164	2.88	%
Net interest margin(2)					3.13	%					3.20	%
Average interest-earning assets to average interest-bearing liabilities					142.31	%					138.38	%

(1) Includes non-accrual loans during the respective periods. Calculated net of deferred fees and discounts, loans in process and allowance for loan losses.

(2) Equals net interest income divided by average interest-earning assets.

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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 September 30, 2021
	compared to Three Months Ended
	September 30, 2020
	Increase (Decrease) Due to
					Total Increase
(Dollars in thousands)	Rate		Volume		(Decrease)
Interest income:
Loans receivable	$	12	$	(312)	$	(300)
Investment securities		(83)		73		(10)
Other interest-earning assets		(8)		5		(3)
Total interest income		(79)		(234)		(313)
Interest expense:
Savings, NOW and money market accounts		(27)		8		(19)
Certificates of deposit		(90)		2		(88)
Total interest-bearing deposits		(117)		10		(107)
FHLB advances and other borrowings		(7)		(124)		(131)
Total interest expense		(124)		(114)		(238)
Increase (decrease) in net interest income	$	45	$	(120)	$	(75)

	Nine Months Ended September 30, 2021
	compared to Nine Months Ended
	September 30, 2020
	Increase (Decrease) Due to
					Total Increase
(Dollars in thousands)	Rate		Volume		(Decrease)
Interest income:
Loans receivable	$	173	$	(767)	$	(594)
Investment securities		(232)		191		(41)
Other interest-earning assets		(75)		27		(48)
Total interest income		(134)		(549)		(683)
Interest expense:
Savings, NOW and money market accounts		(99)		27		(72)
Certificates of deposit		(281)		29		(252)
Total interest-bearing deposits		(380)		56		(324)
FHLB advances and other borrowings		(23)		(369)		(392)
Total interest expense		(403)		(313)		(716)
Increase (decrease) in net interest income	$	269	$	(236)	$	33

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Provision for Loan Losses.  We recorded no provision to the allowance for loan losses for the three months ended September 30, 2021, compared to a provision of $600,000 for the three months ended September 30, 2020. The provision for the three months ended September 30, 2020 was primarily due to the expected economic impact of the COVID-19 pandemic. The ratio of the allowance for loan losses to total loans was 1.94% at September 30, 2021.

Non-interest Income.  Non-interest income increased $1.8 million, or 977.1%, to $2.0 million for the three months ended September 30, 2021 from $188,000 for the three months ended September 30, 2020.

In August 2021, the Bank was awarded a $1.8 million grant from the U.S. Treasury Department’s Community Development Financial Institution (“CDFI”) Rapid Response Program. The CDFI Rapid Response Program is designed to quickly deploy capital to community development financial institutions, such as the Bank, in order to provide them with resources to help counter the economic impact created by the COVID-19 pandemic in distressed and underserved communities. The grant was subject to certain performance goals and measures set forth in the program. The Bank satisfied the Rapid Response Program performance goals and measures and recorded all of the grant amount as non-interest income in September 2021.

Non-interest Expense.  Non-interest expense increased $46,000, or 2.5%, to $1.9 million for the three months ended September 30, 2021 from $1.8 million for the three months ended September 30, 2020. On October 12, 2021, the Company announced that it had completed its initial public offering and the mutual-to-stock conversion of the Bank. We expect non-interest expense to increase because of costs associated with operating as a public company, including the expected hiring of additional personnel, and the increased compensation expenses associated with the purchase of shares of common stock by our ESOP and the anticipated implementation of stock-based benefit plans in 2022, if approved by our shareholders.  

Salaries and employee benefits expense increased by $139,000, or 14.7%, during the quarter ended September 30, 2021 from the comparable period in 2020, primarily due to additional personnel. Occupancy and equipment expense increased by $37,000, or 20.8%, primarily reflecting expense related to an additional branch location opened in October 2020. Computer services expense increased $36,000, or 26.7%, and legal, accounting and consulting expenses increased by $24,000, or 37.5%, primarily due to the cost of software and professional services associated with operating as a public company. These increases were partially offset by a $181,000, or 82.3%, decrease in foreclosed asset expense. During the three months ended September 30, 2020, the company recorded several write-downs on certain foreclosed properties.

Income Tax Expense.  Income tax expense totaled $373,000 for the three months ended September 30, 2021. For the three months ended September 30, 2020, the Company reported an income tax benefit of $106,000. The change in income tax expense over the comparable three-month periods was primarily due to the change in taxable earnings.

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Comparison of Results of Operations for the Nine months Ended September 30, 2021 and 2020.

General.  We had net income of $1.8 million for the nine months ended September 30, 2021 compared to $11,000 for the nine months ended September 30, 2020. During the three months ended September 30, 2021, we recognized $1.8 million in noninterest income related to a CDFI Rapid Response Program grant.

Interest Income.  Total interest income decreased $683,000, or 10.5%, to $5.8 million for the nine months ended September 30, 2021 from $6.5 million for the nine months ended September 30, 2020. This decrease was primarily attributable to a $594,000 decrease in interest income on loans receivable. The decrease in interest income on loans was primarily due to a reduction in the average balance of our loans of $20.3 million, or 12.6%, to $140.2 million for the nine months ended September 30, 2021 from $160.5 million for the nine months ended September 30, 2020.

Interest Expense.  Total interest expense decreased $716,000, or 53.7%, to $618,000 for the nine months ended September 30, 2021 from $1.3 million for the nine months ended September 30, 2020. Interest expense on FHLB advances decreased $392,000, or 65.8%, to $204,000 for the nine months ended September 30, 2021 compared to $596,000 for the nine months ended September 30, 2020.  As a result of the prepayment of FHLB advances in the fourth quarter of 2020, the average balance of our FHLB advances was $8.9 million during the nine months ended September 30, 2021 compared to $25.0 million during the nine months ended September 30, 2020. Interest expense on deposits was $414,000 during the nine months ended September 30, 2021, a decrease of $324,000, or 43.9%, compared to $738,000 for the nine months ended September 30, 2020.  While the average balance of our total interest-bearing deposits increased by $16.4 million, or 12.6%, to $147.1 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, the average rate paid on deposits decreased by 37 basis points to 0.38% for the first nine months of 2021 compared to the first nine months of 2020.

Net Interest Income.  Net interest income totaled $5.2 million for the nine months ended September 30, 2021, an increase of $33,000, or 0.6%, compared to the nine months ended September 30, 2020. Our interest rate spread increased to 2.97% for the nine months ended September 30, 2021 from 2.88% for the nine months ended September 30, 2020, while our net interest margin decreased to 3.13 % for the nine months ended September 30, 2021 from 3.20% for the nine months ended September 30, 2020.

Provision for Loan Losses.  We recorded a $286,000 reversal to the allowance for loan losses for the nine months ended September 30, 2021, compared to a $665,000 provision to the allowance for the nine months ended September 30, 2020. The reversal during the nine months ended September 30, 2021 resulted from our analysis of the factors described in “– Critical Accounting Policies – Allowance for Loan Losses” and the decrease in loans outstanding. The provision for the nine months ended September 30, 2020 was primarily due to the expected economic impact of the COVID-19 pandemic. The ratio of the allowance for loan losses to total loans was 1.94% at September 30, 2021.

Non-interest Income.  Non-interest income increased $1.9 million, or 340.7%, to $2.4 million for the nine months ended September 30, 2021 from $545,000 for the nine months ended September 30, 2020. The increase in non-interest income in the 2021 period was due primarily to the recognition into income of the $1.8 million CDFI grant.

Non-interest Expense.  Non-interest expense increased $576,000, or 11.5%, to $5.6 million for the nine months ended September 30, 2021 from $5.0 million for the nine months ended September 30, 2020.

The Company completed its initial public offering and the mutual-to-stock conversion of the Bank on October 12, 2021. As a result, non-interest expense is expected to increase because of costs associated with operating as a public company, including increased salaries and benefits expense due to additional personnel and stock related compensation.

Salaries and employee benefits expense increased by $499,000, or 17.6%, primarily due to additional personnel employed during the nine months ended September 30, 2021 compared to the same period in 2020. Occupancy and equipment increased by $108,000, or 22.0%, primarily reflecting expense related to an additional branch location opened in 2020. Computer services expense increased $87,000, or 22.2%, and legal, accounting and consulting expenses increased by $90,000, or 54.5%, primarily due to the cost of software and professional services associated with operating as a public

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company. These increases were partially offset by a $197,000, or 72.7%, decrease in foreclosed asset expense. During the three months ended September 30, 2020, the Company recorded several write-downs on certain foreclosed properties.

Income Tax Expense.  Income tax expense increased $432,000 to $465,000 for the nine months ended September 30, 2021 compared to $33,000 for the nine months ended September 30, 2020. The increase primarily resulted from the increase in taxable earnings.

Liquidity and Capital Resources

St. Landry Homestead maintains levels of liquid assets deemed adequate by management. We adjust our liquidity levels to fund deposit outflows, repay our borrowings, and to fund loan commitments. We also adjust liquidity, as appropriate, to meet asset and liability management objectives.

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We also have the ability to borrow from the FHLB. At September 30, 2021, we had outstanding advances from the FHLB with a carrying value of $9.0 million, and had the capacity to borrow approximately an additional $52.6 million from the FHLB and an additional $17.8 million on a line of credit with First National Bankers Bank at such date.

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

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $2.5 million for the nine months ended September 30, 2021. Net cash used in investing activities, which consists primarily of net change in loans receivable and net change in investment securities, was $12.2 million for the nine months ended September 30, 2021. Net cash provided by financing activities, consisting primarily of the activity in deposit accounts and FHLB advances, was $84.9 million for the nine months ended September 30, 2021, primarily due to $72.9 million in cash received for subscriptions to purchase shares of the Company’s common stock in its initial public offering. The net proceeds of the initial public offering will be reflected in the Company’s shareholder’s equity at December 31, 2021.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We 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 a significant portion of maturing time deposits will be retained. We also anticipate continued use of FHLB advances.

At September 30, 2021, we exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of $52.3 million, or 20.7% of adjusted total assets, which was above the well-capitalized required level of $12.7 million, or 5.0%, and total risk-based capital of $54.0 million, or 40.2% of risk-weighted assets, which was above the well-capitalized required level of $13.4 million, or 10.0%. Accordingly, St. Landry Homestead was categorized as well-capitalized at September 30, 2021. Management is not aware of any conditions or events since the most recent notification that would change our category.

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Off-Balance Sheet Arrangements.  At September 30, 2021, we had $914,000 of remaining funds to be disbursed on construction loans in process and $3.9 million of outstanding commitments to originate loans. Our total letters and lines of credit, unused overdraft privilege amounts and unused lines of credit totaled $6.1 million at September 30, 2021. Certificates of deposit that are scheduled to mature in less than one year from September 30, 2021, totaled $57.9 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Commitments.  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, 2021.

			Amount of Commitment Expiration — Per Period
	Total Amounts Committed		To		1 – 3		4 – 5		After 5
(Dollars in thousands)	at September 30, 2021		1 Year		Years		Years		Years
Letters of credit	$	502	$	502	$	—	$	—	$	—
Unused overdraft privilege amounts		945		945		—		—		—
Lines of credit		1,409		100		5		—		1,304
Unused lines of credit		3,251		251		3,000		—		—
Undisbursed portion of loans in process		914		914		—		—		—
Commitments to originate loans		3,875		3,875		—		—		—
Total commitments	$	10,896	$	6,587	$	3,005	$	—	$	1,304

Contractual Cash Obligations.  The following table summarizes our contractual cash obligations at September 30, 2021.

			Payments Due By Period
	Total at		To		1 – 3		4 – 5		After 5
(Dollars in thousands)	September 30, 2021		1 Year		Years		Years		Years
Certificates of deposit	$	68,848	$	57,903	$	9,436	$	1,509	$	—
FHLB advances		10,000		—		—		3,000		7,000
Total long-term debt		78,848		57,903		9,436		4,509		7,000
Operating lease obligations		—		—		—		—		—
Total contractual obligations	$	78,848	$	57,903	$	9,436	$	4,509	$	7,000

Impact of Inflation

The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the economic value of total assets, it believes that it is difficult to assess the overall impact. Management believes this to be the case due to the fact that generally neither the timing nor the magnitude of inflationary changes in the economy coincides with changes in interest rates.  Since virtually all of our assets and liabilities are monetary in nature, interest rates generally have a more significant impact on our performance than does inflation.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has not been any material change in the market risk disclosures contained in our Prospectus.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Act”)) as of September 30, 2021, was carried out under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and several other members of our senior management.  Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures in effect as of September 30, 2021, were effective.  In addition, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended September 30, 2021, 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, 2021, 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

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed under the heading “Risk Factors” contained in the Prospectus. Our evaluation of the risk factors applicable to us has not changed materially from those disclosed in the Prospectus.

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

(a)Not applicable.

(b) The Company’s initial public offering of securities, which was registered on a Form S-1 (which was effective on August 6, 2021) filed under the Securities Act of 1933, as amended (SEC File No. 333-254200), was consummated on October 12, 2021, concurrent with the Bank’s reorganization from a federally-chartered mutual savings bank to a federally-chartered stock savings bank. Upon completion of the Conversion and the offering, all of the Bank’s stock is owned by the Company, and all of the Company’s stock is, in turn, owned by the public. In connection with the Conversion and offering, the Company sold 5,290,000 shares of its common stock at a price of $10.00 per share, raising $52,900,000 of gross proceeds.

Piper Sandler & Co. (“ Piper Sandler ”) was engaged to assist in the marketing of the common stock. For their services, in addition to a records management fee, Piper Sandler received a fee equal to 0.9% of the dollar amount of the shares of Common Stock sold in the subscription offering and shares sold to residents of the State of Louisiana in the community offering, other than, in each case, shares purchased by the officers, directors, or employees (or members of their immediate family) of the Bank or the Company or qualified and non-qualified employee benefit plans of the Bank or Company, for which no fee was paid.  Piper Sandler received  a fee of 3.0% of the aggregate purchase price of all shares sold in the community offering outside of the State of Louisiana.

Expenses related to the offering were approximately $2.0 million, including the fees and expenses paid to Piper Sandler described above, none of which were paid to officers or directors of Company, the Bank or associates of such persons. No underwriting discounts, commissions or finders fees were paid in connection with the offering. Net proceeds of the offering were $50.9 million. As a result of completion of the offering, 5,290,000 shares of the Company’s Common Stock are outstanding as of November 9, 2021.

Approximately fifty percent of the net proceeds of the offering, or $25.4 million, were contributed by the Company to the Bank in return for 100% of the issued and outstanding shares of common stock of the Bank. In addition, the Company made a loan to the ESOP in the amount of $4.2 million, which the ESOP used to purchase 423,200 shares of the Company’s Common Stock.

Initially, both the Company and the Bank invested the net proceeds from the stock offering in cash and short-term investments.

The Company’s common stock is quoted on the Nasdaq Capital Market under the trading symbol “CLST”.

(c)Not applicable.

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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

3.1	Articles of Incorporation of Catalyst Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1 (Commission File No. 333-254200))
3.2	Bylaws of Catalyst Bancorp, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1 (Commission File No. 333-254200))
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 10, 2021	By:	/s/ Joseph B. Zanco
		Joseph B. Zanco
		President and Chief Executive Officer
		(Duly Authorized Officer)
Date: November 10, 2021	By:	/s/ Jutta A. Codori
		Jutta A. Codori
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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