Catalyst Bancorp reported higher third-quarter earnings following its July acquisition of Lakeside Bancshares, while integration costs continued to weigh on reported results. The Louisiana-based bank said most of the expected savings from the deal are still ahead, with a systems conversion planned for November.
The acquisition also significantly expanded Catalyst’s loan portfolio and added operations in Acadiana and Southwest Louisiana.
Key details
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Quarterly earnings rose: Catalyst earned $978,000, or 27 cents a diluted share, in the three months ended Sept. 30. That was up from $524,000, or 14 cents a share, in the second quarter.
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Merger expenses reduced reported profit: Third-quarter results included $883,000 in after-tax costs related to the Lakeside merger, compared with $101,000 in the prior quarter. Excluding those costs, Catalyst reported non-GAAP net income of $1.9 million, or 51 cents a diluted share. The company also reported adjusted returns of 1.24% on average assets and 11.05% on average tangible common equity.
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Lakeside added substantial scale: Catalyst completed the acquisition on July 14. At the time, Lakeside had $379.5 million in assets, including $226.8 million in loans and $284.2 million in deposits. Lakeside shareholders received $19.58 per share in cash, or $41.1 million in total.
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Loans increased sharply after the deal: Loans totaled $383.5 million at Sept. 30, up $220.7 million, or 136%, from June 30. Catalyst said acquired loan balances have since declined from their level at closing, mainly because of repayments on commercial real estate and residential loans.
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Credit-loss provision was reversed: Catalyst recorded a $261,000 reversal of its provision for credit losses in the third quarter, compared with a $104,000 reversal in the second quarter. The company attributed the reversals primarily to lower construction and land loans in both periods, along with improvement in originated classified commercial real estate loans during the second quarter.
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More integration savings are expected after a November systems conversion: Catalyst said it had captured some anticipated cost savings at closing, but expects most to come after the conversion and consolidation of back-office operations. The CEO said integration progress has been better than expected so far.
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Management described the acquisition as a deliberate use of capital: Catalyst said it evaluated buying Lakeside against repurchasing its own shares and concluded the acquisition offered a compelling case for long-term shareholder value. It also characterized its approach to future deals as cautious and disciplined.
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The company linked its expanded footprint to regional economic development: CEO Joe Zanco pointed to SpaceX’s announced plan to invest $100 billion in a launch facility in Vermilion Parish and said Catalyst’s expanded presence positions it to serve businesses in south central and southwest Louisiana.
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Catalyst plans more shareholder outreach: The company said it intends to create opportunities for dialogue with shareholders throughout the year, beyond the annual meeting and proxy season.
What changes for investors
The acquisition has already increased Catalyst’s balance-sheet scale, particularly its loans and deposits, while merger expenses are temporarily reducing reported earnings. The company’s adjusted third-quarter figures exclude those costs; most expected integration savings, management says, depend on completing the planned November systems conversion.