Catalyst Bancorp Posts Q2 Profit Drop

Key Points

• - Net income fell 11% to $521,000 in Q2 2025 compared to the previous quarter, and earnings per share reached $0.14 in Q2 2025, up from $0.13 a year earlier.

• - Loan portfolio diversification accelerated between March 31 and June 30, 2025, with commercial real estate and multi-family residential lending rising sharply.

• - Efficiency ratio worsened to 77.46% in Q2 2025, while deposits and capital levels remained robust.

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Catalyst Bancorp (NASDAQ:CLST), a community bank focused on markets in Louisiana's Acadiana region, issued its second quarter fiscal 2025 results on July 24, 2025. The main news from the release was softer profitability, as net income fell to $521,000 -- an 11.1% drop from the previous quarter -- while the bank continued to grow both loans and deposits at a modest pace. The quarter's results signal stability in asset quality and core banking activity, though challenges remain in efficiency and cost control. Overall, it was a period marked by solid balance sheet health, ongoing market expansion, and a shifting business mix, even as top-line growth and profits plateaued relative to prior quarters.

Business Overview and Recent Strategic Focus

Catalyst Bancorp operates as a community-oriented bank, serving individuals, families, and small businesses in the Acadiana region of Louisiana. It manages six branches with a growing presence in Lafayette Parish, an economically expanding area. Its core business is generating interest income from loans and investment securities while funding growth through customer deposits.

Management has prioritized diversifying beyond traditional one- to four-family residential mortgages by increasing lending to commercial real estate, multi-family housing, and small business borrowers. Success in these areas hinges on expanding the deposit base, prudently growing lending activities, managing costs, and maintaining high capital and asset quality standards.

Quarterly Highlights: Growth, Diversification, and Balance Sheet Strength

During Q2 2025, Catalyst Bancorp reported net income (GAAP) of $521,000 -- down from $586,000 in the previous quarter, but roughly flat compared to $527,000 a year earlier. Earnings per share increased to $0.14, reflecting a 7.7% rise from a year earlier. Non-interest income declined after the company recorded one-time insurance proceeds in the previous quarter, affecting total profitability this period.

Net interest income (GAAP) climbed 4% over the previous quarter. This was supported by higher income on loans as loan balances increased. Net interest margin, a key profitability metric tracking net interest income as a percent of earning assets, improved to 3.98% -- up from 3.89% a quarter earlier and 3.72% a year earlier. That margin expansion stemmed from not just increased yields but also reduced funding costs on interest-bearing deposits, supported by growth in non-interest-bearing and low-cost savings accounts.

The company strengthened its deposit base, growing total deposits by 1% sequentially to $182.2 million. Within deposit categories, non-interest-bearing demand balances surged 19% and savings accounts jumped 20% compared to the previous quarter. Certificates of deposit and interest-bearing checking accounts declined.

Loan portfolio diversification gained significant momentum this quarter. Commercial real estate loans surged 54% to $34.0 million, mainly due to completed construction projects converting to amortizing real estate loans. Multi-family residential loans more than doubled to $5.4 million as of June 30, 2025. In contrast, construction and land loans shrank by 36% during the quarter, and single-family residential mortgages declined 2% from the previous quarter as management continues to reduce exposure in these areas.

Despite these shifts, overall loan growth remained modest at 1% sequentially, and most growth came from re-categorizing existing construction loans. Organic growth outside these changes was limited. Commercial and industrial lending, tied to business borrowers, was essentially flat. Total assets essentially held steady at $273.8 million as of June 30, 2025, while shareholders’ equity remained strong at $80.8 million, representing 29.5% of assets as of June 30, 2025. The company repurchased 62,385 shares at $11.91 per share during the quarter, continuing a capital return program that has retired approximately 22% of initial shares since January 2023 through June 30, 2025.

The period also saw continued strength in regulatory capital metrics, with common equity Tier 1 capital at 43.7% as of quarter-end, well above required levels. Non-performing assets -- mostly tied to residential loans -- came in at $1.75 million, just 0.64% of assets as of quarter-end. The company reported no provision for new credit losses during the quarter. Net loan charge-offs totaled $42,000, mainly from residential mortgages and deposit overdrafts. Cash and cash equivalents, however, declined to $40.1 million as of June 30, 2025 from $75.5 million a year earlier, as funds were used for loan and investment activity.

Efficiency remains a challenge. The efficiency ratio, which measures non-interest expense as a share of revenue, climbed to 77.46% in Q2 2025 from 75.31% in the previous quarter and 73.47% a year earlier, affected by modest top-line growth during the period. No dividend was declared or changed; Catalyst Bancorp does not currently pay a dividend.

Looking Ahead: Guidance and Key Factors for Investors

Catalyst Bancorp’s management did not provide explicit numeric guidance for upcoming quarters or the full year, instead highlighting ongoing efforts to grow loans and deposits while managing risks associated with greater commercial lending exposure. There were no announced changes to capital or shareholder return policy, other than the continuation of its share buyback program.

In the months ahead, areas for close monitoring include loan growth, deposit inflows, efficiency ratio trends, and asset quality as the commercial loan book increases. Without forward guidance, investors should watch for further progress on profit margins, deposit mix improvements, regulatory capital stances, and ongoing capital management developments. Catalyst Bancorp does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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