Catalyst Bancorp, Inc.

Previous wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations at September 30, 2025 and for the three and nine months ended September 30, 2025 and 2024 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 consolidated financial statements of the Company 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 included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2024.

Current wording

Management’s Discussion and Analysis of Financial Condition and Results of Operations at March 31, 2026 and for the three months ended March 31, 2026 and 2025 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 consolidated financial statements of the Company 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 included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2025.

Previous wording

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:

Current wording

Certain matters in this Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This act provides a safe harbor for such disclosure which protects the companies from unwarranted litigation if actual results are different from management expectations. 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:

Previous wording

The following is an overview of financial results for the three and nine months ended September 30, 2025:

Current wording

The following is an overview of financial results for the three months ended March 31, 2026:

Previous wording

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could reflect materially different results under different assumptions and conditions. Methodologies the Company uses when applying critical accounting policies and developing critical estimates are included in its Annual Report on Form 10-K for the year ended December 31, 2024. Our accounting policies for allowance for credit losses, investment securities, and income taxes comprise those that management believes involve the most critical estimates 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.

Current wording

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could reflect materially different results under different assumptions and conditions. Methodologies the Company uses when applying critical accounting policies and developing critical estimates are included in its Annual Report on Form 10-K for the year ended December 31, 2025. Our accounting policy for the allowance for credit losses is the policy that management believes involves the most critical estimate to aid in fully understanding and evaluating our reported financial results. This policy requires numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

Previous wording

There were no changes from the significant accounting policies or critical accounting estimates previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

Current wording

There were no changes from the significant accounting policies or the critical accounting estimate previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

Previous wording

Allowance for Credit Losses. At September 30, 2025, the allowance for credit losses on loans totaled $2.4 million, or 1.45% of total loans, compared to $2.5 million, or 1.51% of total loans at December 31, 2024. The allowance for credit losses on unfunded commitments totaled $127,000, up $6,000 from December 31, 2024. The Company recorded a reversal of provision for credit losses of $36,000 and net loan charge-offs were $83,000 for the nine months ended September 30, 2025. The reversal of provision for credit losses was largely due to a reduction in expected credit losses on individually evaluated loans and a decline in total loans. Net loan charge-offs were primarily related to residential mortgages and overdrawn deposit accounts.

Current wording

Allowance for Credit Losses. At March 31, 2026, the allowance for credit losses on loans totaled $2.3 million, or 1.40% of total loans, compared to $2.4 million, or 1.39% of total loans at December 31, 2025. The allowance for credit losses on unfunded commitments totaled $176,000, down $35,000 from December 31, 2025. The Company recorded a $70,000 reversal of provision for credit losses and net loan charge-offs were $37,000 for the three months ended March 31, 2026. The reversal of provision for credit losses was primarily driven by declines in commercial and industrial and residential loan balances and commitments. Net loan charge-offs in 2026 included a $28,000 charge-off of a commercial line of credit.

Previous wording

**Substandard Loans and Non-performing Assets.**The following table shows the amounts of our substandard loans and non-performing assets, which include non-accruing loans, accruing loans 90 days or more past due and foreclosed assets at the dates indicated. During the nine months ended September 30, 2025, the Company downgraded a $3.3 million non-real estate, commercial loan relationship to substandard due to declines in debt service coverage. At September 30, 2025, all loans within the downgraded relationship were current and performing.

Current wording

**Substandard Loans and Non-performing Assets.**The following table shows the amounts of our substandard loans and non-performing assets, which include non-accruing loans, accruing loans 90 days or more past due and foreclosed assets at the dates indicated. During the three months ended March 31, 2026, a $304,000 commercial real estate loan was placed on non-accrual status and classified as substandard.

Previous wording

Investment Securities*.* Total investment securities were $59.8 million at September 30, 2025, up $17.6 million, or 41.8%, compared to $42.2 million at December 31, 2024. During 2025, the Company purchased $15.1 million of variable-rate and $3.9 million of fixed-rate securities. The weighted average yield of the securities purchased during the nine months ended September 30, 2025 was 5.12% at September 30, 2025.

Current wording

Investment Securities*.* Total investment securities, available-for-sale and held-to-maturity, amounted to $63.1 million at March 31, 2026, down $2.3 million, or 3.4%, compared to $65.4 million at December 31, 2025. The Company did not purchase investment securities during the three months ended March 31, 2026. During 2025, the Company purchased $20.2 million of variable-rate and $6.3 million of fixed-rate securities. The weighted average yield of the securities purchased during 2025 was 4.45% at March 31, 2026.

Previous wording

Net unrealized losses on securities available-for-sale totaled $3.4 million at September 30, 2025, compared to $4.5 million at December 31, 2024. Unrealized losses on available-for-sale securities relate principally to increases in market interest rates for similar securities. Our investment securities portfolio consists primarily of debt obligations issued by the U.S. government and government agencies and government-sponsored mortgage-backed securities.

Current wording

Net unrealized losses on securities available-for-sale totaled $3.1 million at March 31, 2026 and December 31, 2025. Unrealized losses on available-for-sale securities relate principally to higher market interest rates for similar securities. Our investment securities portfolio consists primarily of debt obligations issued by the U.S. government and government agencies and government-sponsored mortgage-backed securities.

Previous wording

The following table presents the amortized cost of our total investment securities portfolio that mature during each of the periods indicated and the weighted average yields for each range of maturities at September 30, 2025.

Current wording

The following table presents the amortized cost of our total investment securities portfolio that matures during each of the periods indicated and the weighted average yields for each range of maturities at March 31, 2026.

Previous wording

Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments, or call options. The expected maturities may differ from contractual maturities because of the exercise of call options and potential paydowns. Accordingly, actual maturities may differ from contractual maturities. Weighted average yields are calculated by dividing the estimated annual income divided by the average amortized cost of the applicable securities.

Current wording

Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments, or call options. The expected maturities may differ from contractual maturities because of the exercise of call options and potential paydowns. Accordingly, actual maturities may differ from contractual maturities. Weighted average yields are calculated by dividing the estimated annual income by the average amortized cost of the applicable securities.

Previous wording

The ratio of the Company’s total loans to total deposits was 88.4% and 90.0% as of September 30, 2025 and December 31, 2024, respectively.

Current wording

Total deposits averaged $198.2 million during the three months ended March 31, 2026, $177.1 million during the three months ended March 31, 2025, and $179.5 million during the year ended December 31, 2025. The ratio of the Company’s total loans to total deposits was 83.8% and 91.9% at March 31, 2026 and December 31, 2025, respectively.

Previous wording

The decline in interest-bearing demand deposits was largely due to fluctuations in public fund balances. Total public fund deposits amounted to $30.5 million, or 16% of total deposits, at September 30, 2025, compared to $35.6 million, or 19% of total deposits, at December 31, 2024. At September 30, 2025, approximately 64% of our total public fund deposits consisted of non-interest-bearing and interest-bearing demand deposits, compared to 83% at December 31, 2024. At September 30, 2025, a larger portion of public funds were held in savings accounts and certificates of deposit.

Current wording

The increase in total deposits was driven by a mix of public and non-public deposits. Total public fund deposits were $29.8 million, or 15.3% of total deposits, at March 31, 2026, compared to $26.4 million, or 14.3% of total deposits, at December 31, 2025. Total public fund deposits averaged $35.6 million during the three months ended March 31, 2026, $30.7 million during the three months ended March 31, 2025, and $27.6 million during the year ended December 31, 2025. At March 31, 2026 and December 31, 2025, approximately 59% of our total public fund deposits consisted of non-interest-bearing and interest-bearing demand deposits.

Previous wording

The estimated amount of our total uninsured deposits (that is deposits in excess of the FDIC’s insurance limit), inclusive of public funds, was approximately $50.7 million at September 30, 2025 and $53.7 million at December 31, 2024. Total uninsured non-public fund deposits were approximately $25.2 million and $22.5 million at September 30, 2025 and December 31, 2024, respectively. At September 30, 2025, the full amount of our public fund deposits in excess of the FDIC’s insurance limit were secured by either pledged investment securities of $25.5 million or $20.0 million of a custodial letter of credit granted by the Federal Home Loan Bank of Dallas.

Current wording

The estimated amount of our total uninsured deposits (that is deposits in excess of the FDIC’s insurance limit), inclusive of public funds, was approximately $55.3 million at March 31, 2026 and $50.1 million at December 31, 2025. Total uninsured non-public fund deposits were approximately $30.8 million and $28.8 million at March 31, 2026 and December 31, 2025, respectively. At March 31, 2026, the full amount of our public fund deposits in excess of the FDIC’s insurance limit were secured by either pledged investment securities of $48.8 million or $5.0 million of a custodial letter of credit granted by the Federal Home Loan Bank of Dallas.

Previous wording

Shareholders’ Equity. Shareholders’ equity totaled $81.6 million, or 28.7% of total assets, at September 30, 2025, up $1.4 million, or 1.7%, from $80.2 million, or 29.0% of total assets, at December 31, 2024. During the nine months ended September 30, 2025, shareholders’ equity increased by the Company’s net income of $1.6 million and other comprehensive income of $909,000, which was the result of the change in unrealized losses on available-for-sale investment securities. These increases were partially offset by the Company’s repurchases of its common stock.

Current wording

Shareholders’ Equity. Shareholders’ equity totaled $82.2 million, or 28.5% of total assets, at March 31, 2026, up $484,000, or 0.6%, from $81.7 million, or 28.9% of total assets, at December 31, 2025. During the three months ended March 31, 2026, shareholders’ equity increased by the Company’s net income of $558,000, which was partially offset by the Company’s repurchases of its common stock.

Previous wording

The Company repurchased 148,546 shares of its common stock at an average cost per share of $11.98 during the nine months ended September 30, 2025. Under the November 2024 Repurchase Plan, 38,604 shares of the Company’s common stock were available for repurchase at September 30, 2025. Since the announcement of our first share repurchase plan on January 26, 2023 and through September 30, 2025, the Company has repurchased a total of 1,160,396 shares of its common stock, or approximately 22% of the common shares originally issued, at an average cost per share of $11.94.

Current wording

Since the announcement of our first share repurchase plan on January 26, 2023 and through May 12, 2026, the Company has repurchased a total of 1,238,104 shares of its common stock, or approximately 23% of the common shares originally issued, at an average cost per share of $12.13.

Previous wording

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 income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Taxable equivalent (“TE”) yields have been calculated using a marginal tax rate of 21%. All average balances are based on daily balances.

Current wording

Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. Taxable equivalent (“TE”) yields have been calculated using a marginal tax rate of 21%. All average balances are based on daily balances.

Previous wording

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.

Current wording

Rate/Volume Analysis. The following table shows the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities affected our interest income and interest expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in volume, which is the change in volume multiplied by prior year rate. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.

Previous wording

The average yield on loans was 6.68% for the nine months ended September 30, 2025, up from 6.42% for the same period in 2024. Average loans were $166.9 million for the nine months ended September 30, 2025, up $14.9 million, or 9.8%, compared to the same period in 2024.

Current wording

The average yield on loans was 6.61% for the three months ended March 31, 2026, down seven basis points (“bps”) from 6.68% for the same period in 2025. Average loans were $168.5 million for the three months ended March 31, 2026, up $2.4 million, or 1.4%, compared to the same period in 2025.

Previous wording

The increase in interest income on investment securities was primarily due to an increase in the average rate earned on our investment securities portfolio for the nine months ended September 30, 2025, compared to the same period in 2024. The average rate earned on our investment securities portfolio was 2.52% for the nine months ended September 30, 2025, up 64 bps compared to the same period in 2024 primarily due to higher-yielding investment securities purchased during 2024 and 2025.

Current wording

The increase in interest income on investment securities was due to increases in both the average balance and the average rate earned on our investment securities portfolio for the three months ended March 31, 2026 compared to the same period in 2025. The average balance of our investment securities portfolio, measured at amortized cost, was $67.5 million, up $20.6 million, or 43.8%, compared to the same period in 2025. The average rate earned on our investment securities portfolio also increased to 3.13% for the three months ended March 31, 2026, compared to 2.35% for the same period in 2025. These increases were primarily due to the impact of higher-yielding investment securities purchased during 2025.

Previous wording

Interest income on interest-earning cash and due from banks, included in other interest-earning assets in the preceding tables, decreased mainly due to the decline in the average balance of interest-earning cash, as well as a decline in the average rate earned. The average rate earned on other interest-earning assets was 4.41% for the nine months ended September 30, 2025, down 88 bps compared to the same period in 2024.

Current wording

Interest income on interest-earning cash and due from banks, included in other interest-earning assets in certain preceding tables, decreased mainly due to a decline in the average rate earned on interest-earning cash and other earning assets. The average rate earned on other interest-earning assets was 3.60% for the three months ended March 31, 2026, down 76 bps, compared to 4.36% for the same period in 2025.

Previous wording

Salaries and employee benefits expense totaled $1.3 million for the three months ended September 30, 2025, up $112,000, or 9.3%, compared to the same period in 2024 primarily due to raises issued during the third quarter of 2024, an increase in bonus expense, and new grants of share-based compensation issued in June 2025.

Current wording

Salaries and employee benefits expense increased primarily due to annual raises that were made effective during the fourth quarter of 2025, an increase in compensation expense related to the Employee Stock Ownership Plan due to a rise in the Company’s average stock price, and new grants of share-based compensation issued in June 2025.

Previous wording

At September 30, 2025, our borrowed funds consisted of FHLB advances with a total net carrying value of $14.7 million. The table below summarizes our unused and available liquidity sources as of September 30, 2025.

Current wording

At March 31, 2026, our borrowings consisted of FHLB advances with a total net carrying value of $9.8 million. The table below summarizes our unused and available liquidity sources as of March 31, 2026.

Previous wording

The Bank’s available borrowing capacity with the FHLB is secured through a blanket floating lien on real estate loans. The Company also has a $20.0 million custodial letter of credit outstanding from the FHLB as of September 30, 2025, which is included in the calculation of our available capacity with the FHLB indicated above. The Company can allocate portions of this letter of credit to collateralize certain deposit balances in excess of the FDIC’s insurance limit as an alternative to pledging investment securities for the same purpose. At September 30, 2025, the Company used $20.0 million of the FHLB custodial letter of credit to collateralize public fund deposits.

Current wording

The Bank’s available borrowing capacity with the FHLB is secured through a blanket floating lien on real estate loans. The Company also has a $20.0 million custodial letter of credit outstanding from the FHLB as of March 31, 2026, which is included in the calculation of our available capacity with the FHLB indicated above. The Company can allocate portions of this letter of credit to collateralize certain deposit balances in excess of the FDIC’s insurance limit as an alternative to pledging investment securities for the same purpose. At March 31, 2026, the Company used $5.0 million of the FHLB custodial letter of credit to collateralize public fund deposits.

Previous wording

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. The most significant uses and sources of cash flows during the nine months ended September 30, 2025 included:

Current wording

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. The details of these cash flow classifications are presented on the statement of cash flows included in Item 1 of this Form 10-Q. The most significant uses and sources of cash flows during the three months ended March 31, 2026 included:

Previous wording

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, 2025.

Current wording

The following table summarizes our outstanding off-balance sheet commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans at March 31, 2026.

Previous wording

Management expects that a majority of the maturing certificates of deposit will be retained. However, if a substantial portion of these deposits is not retained, we may utilize borrowings from our secondary funding sources or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Current wording

Management expects that a majority of the maturing certificates of deposit will be retained. However, if a substantial portion of these deposits are not retained, we may utilize borrowings from our secondary funding sources or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.