Catalyst Bancorp, Inc.

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Catalyst Bancorp, Inc. (“Catalyst Bancorp” or the “Company”) is the holding company for Catalyst Bank (the “Bank”). The Bank has been in operation in the Acadiana region of south-central Louisiana since 1922 and offers commercial and retail banking products throughsix full-service locations. The Company was incorporated by the Bank in February 2021 as part of the conversion of the Bank from the mutual to the stock form of organization (the “Conversion”). The Conversion was completed on October 12, 2021. The Company was not engaged in operations and had not issued any shares of stock prior to the completion of the Conversion.

As used in this report, unless the context otherwise requires, the terms “we,” “our,” “us,” or the “Company” refer to Catalyst Bancorp, and the term the “Bank” refers to Catalyst Bank, the wholly owned subsidiary of the Company. In addition, unless the context otherwise requires, references to the operations of the Company include the operations of the Bank.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company 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 (“GAAP”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the results for the interim periods presented have been included. The results of operations for the interim periods presented 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 consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K.

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.

Segment Reporting

The Company determined that all of its banking operations serve a similar customer base, offer similar products and services, and are managed through similar processes. Therefore, the Company’s banking operations are aggregated intoone reportable segment, which generates income principally from interest on loans and investment securities, as well as from fees charged in connection with various loan and deposit services. The chief operating decision maker (“CODM”) is the Chief Executive Officer, who for the purposes of assessing performance, making operating decisions, and allocating Company resources, regularly reviews net income as reported in the accompanying consolidated statements of income. The level of disaggregation and amounts of significant segment income and expenses, such as interest income, interest expense, provision for credit losses, salaries and employee benefits expense and other items, that are regularly provided to the CODM are the same as those presented in the accompanying consolidated statements of income. Likewise, the measure of segment assets is reported on the accompanying consolidated statements of financial condition as total assets.

Use of Estimates

Certain estimates involve significant judgments and uncertainties and could reflect materially different results under different assumptions and conditions. Methodologies the Company uses when developing 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 significant estimate to aid in fully understanding and evaluating our reported financial results.

There were no material changes from the significant accounting policies or estimates 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.

Recently Adopted Accounting Standards

ASU No. 2025-08**.**In November 2025, the FASB issued ASU 2025-08, Financial Instruments – Credit Losses (Topic 326): Purchased Loans. This ASU expands the population of acquired financial assets subject to the gross-up approach in Topic 326. Under the guidance in this ASU, loans acquired without credit deterioration (“non-PCD loans”) and deemed “seasoned” are referred to as “purchased seasoned loans” and accounted for using the gross-up approach at acquisition. All non-PCD loans that are acquired in a business combination are deemed seasoned under the ASU. The gross-up approach results in recognizing loans at their purchase price plus an allowance for credit losses. Under previous guidance, the allowance for credit losses on non-PCD loans was recognized with a corresponding charge to earnings through the provision for credit losses at the acquisition date. ASU 2025-08 is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years, with early adoption permitted. The guidance is required to be applied prospectively to loans that are acquired on or after the initial application date. The Company early adopted ASU 2025-08 beginning January 1, 2026. Since ASU 2025-08 only affects prospective loan acquisitions and the Company has not purchased loans, there was no effect of adoption on the Company’s consolidated financial statements.

Accounting Standards Updates Issued, but Not Adopted

ASU No. 2024-03.** **In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in this ASU require disclosure, in the notes to the financial statements, of specified qualitative and quantitative information about certain costs and expenses, such as employee compensation, depreciation, and intangible asset amortization. Disclosure requirements also include a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, among other items. The Company expects to adopt the amendments in ASU 2024-03 for periods beginning after December 31, 2026. As the update contains only amendments to disclosure requirements, adoption will have no impact on the Company’s consolidated financial condition or results of operations.

NOTE 2. EARNINGS PER SHARE

Earnings per common share was computed based on the following:

Diluted earnings per share was computed using the treasury stock method. The following table presents the weighted average of potentially dilutive common shares attributable to outstanding stock options and restricted stock that were anti-dilutive and excluded from the calculation of diluted earnings per share.

NOTE 3. 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:

There wereno securities transferred between classifications during the three months ended March 31, 2026 or 2025. There wereno sales of investment securities during the three months ended March 31, 2026 or 2025.

Accrued interest receivable on the Company’s investment securities totaled $202,000 and $183,000 at March 31, 2026 and December 31, 2025, respectively.

Investment securities with a carrying amount of $48.8 million and $25.3 million were pledged to secure public deposits as required or permitted by law at March 31, 2026 and December 31, 2025, respectively. The Company also uses a custodial letter of credit granted by the Federal Home Loan Bank of Dallas to collateralize public fund deposits. At March 31, 2026 and December 31, 2025, $5.0 million and $20.0 million, respectively, of the custodial letter of credit was pledged as collateral for public deposits.

At March 31, 2026 and December 31, 2025, other than securities issued by U.S. Government agencies or government-sponsored enterprises, we hadno investments in a single issuer which had an aggregate book value in excess of 10% of the Company’s shareholders’ equity.

The following is a summary of maturities of securities available-for-sale and held-to-maturity at March 31, 2026:

Securities, other than mortgage-backed 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.

Information pertaining to securities with gross unrealized losses at March 31, 2026 and December 31, 2025 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

At March 31, 2026 and December 31, 2025, the Company held 49 and 47 securities, respectively, with an unrealized loss. The securities with unrealized losses consisted of mortgage-backed securities guaranteed by the government-sponsored enterprises that have a credit rating consistent with the U.S. Government, and debt obligations guaranteed by federal, state and local government entities and are generally considered to be risk-free. These unrealized losses relate principally to noncredit related factors, including changes in current interest rates for similar types of securities. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost basis. Based on management’s evaluation of the securities portfolio, the Company did not establish an allowance for credit losses for its available-for-sale or held-to-maturity securities at March 31, 2026 or December 31, 2025.

NOTE 4. LOANS RECEIVABLE

Loans receivable at March 31, 2026 and December 31, 2025 are summarized as follows:

At March 31, 2026 and December 31, 2025, real estate loans totaling $84.4 million and $87.5 million, respectively, were pledged as collateral to the Federal Home Loan Bank of Dallas for borrowings under a blanket lien agreement.

Accrued interest receivable on the Company’s loans totaled $626,000 and $715,000 at March 31, 2026 and December 31, 2025, respectively. Accrued interest receivable is excluded from the Company’s estimate of the allowance for credit losses.

The following describes the general risk characteristics of each segment of the loan portfolio disclosed in this note:

One- to four-family residential – This category primarily consists of loans secured by residential real estate located in our market. The performance of these loans may be adversely affected by, among other factors, unemployment rates, local residential real estate market conditions and the interest rate environment. Generally, these loans are for longer terms than commercial and construction loans.

Commercial real estate – This category generally consists of loans secured by retail and industrial use buildings, hotels, strip shopping centers and other properties used for commercial purposes. The performance of these loans may be adversely affected by, among other factors, conditions specific to the relevant industry, the real estate market for the property type and geographic region where the property or borrower is located.

Construction and land – This category consists of loans to finance the ground-up construction and/or improvement of residential and commercial properties and loans secured by land. The performance of these loans is generally dependent upon the successful completion of improvements and/or land development for the end user, the sale of the property to a third party, or a secondary source of cash flow from the owners. The successful completion of planned improvements and development may be adversely affected by changes in the estimated property value upon completion of construction, projected costs and other conditions leading to project delays.

Multi-family residential – This category consists of loans secured by apartment or residential buildings with five or more units used to accommodate households on a temporary or permanent basis. The performance of multi-family loans is generally dependent on the receipt of rental income from the tenants who occupy the subject property. The occupancy rate of the subject property and the ability of the tenants to pay rent may be adversely affected by the location of the subject property and local economic conditions.

Commercial and industrial – This category primarily consists of secured and unsecured loans to small and mid-sized businesses to fund operations or purchase non-real estate assets. Secured loans are primarily secured by accounts receivable, inventory, equipment and certain other business assets. The performance of these loans may be adversely affected by, among other factors, conditions specific to the relevant industry, fluctuations in the value of the collateral and individual performance factors related to the borrower.

Consumer – This category consists of loans to individuals for household, family and other personal use. The performance of these loans may be adversely affected by national and local economic conditions, unemployment rates and other factors affecting the borrower’s income available to service the debt.

The following tables outline the changes in the allowance for credit losses for the three months ended March 31, 2026 and 2025.

During the three months ended March 31, 2026, the primary drivers of the change in the allowance for credit losses were declines in outstanding loan balances and loan commitments. During the three months ended March 31, 2025, the changes in the allowance for credit losses were also largely driven by changes in loan balances and commitments.

The allowance for credit losses is established through a provision for credit losses charged to earnings. Loans, or portions of loans, are charged off against the allowance in the period that such loans, or portions thereof, are deemed uncollectible. Subsequent recoveries, if any, are credited to the allowance. The Company groups loans and unfunded lending commitments with similar risk characteristics into pools or segments and collectively evaluates each pool to estimate the allowance for credit losses. For each loan pool, the Company uses the remaining life method to calculate its credit loss estimate. Loans are individually evaluated for credit losses when they do not share similar risk characteristics with our identified loan pools. The allowance for credit losses reflects the Company’s estimate of current expected credit losses (“CECL”) over the full life of the financial assets.

Loans are individually evaluated for credit losses when they do not share similar risk characteristics with our identified loan pools. Generally, management considers loans rated as substandard for individual analysis or when we have identified certain unique characteristics that impact the risk of credit loss. These characteristics include, but are not limited to, the creditworthiness of the borrower, the reliability of the primary source of repayment, the quality of the collateral, the size of the loan or relationship, and the industry of the borrower. The allowance for credit losses on individually evaluated, collateral-dependent loans is based on a comparison of the recorded investment in the loan with the fair value of the underlying collateral. Alternatively, we estimate credit losses on individual loans by comparing the loan’s recorded investment to the loan’s estimated fair value based on discounted cash flows or an observable market price.

The following tables outline the allowance for credit losses and the balance of loans by method of loss evaluation at March 31, 2026 and December 31, 2025.

At March 31, 2026 and December 31, 2025, all loans individually evaluated for credit losses, except for a construction and land loan, were considered collateral-dependent financial assets. Loans are considered collateral-dependent and individually evaluated when, based on management’s assessment as of the reporting date, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following describes the types of collateral that secure collateral dependent loans:

The construction and land loan balance reported as individually evaluated for credit losses in the tables above represents amounts that will be re-paid by grant proceeds from the Federal Home Loan Bank of Dallas.

A summary of current and past due loans as of March 31, 2026 and December 31, 2025 follows:

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due based on contractual terms of the loan.

A summary of total non-accrual loans and accruing loans 90 days or more past due as of March 31, 2026 and December 31, 2025 follows:

The Company was not committed to lend any additional funds on non-accrual loans at March 31, 2026 or December 31, 2025. The Company does not recognize interest income while loans are on non-accrual status. All payments received while on non-accrual status are applied against the principal balance of non-accrual loans.

At March 31, 2026, loans secured by residential real estate for which formal foreclosure proceedings were in process totaled $529,000. At December 31, 2025, the Company hadno outstanding loans for which formal foreclosure proceedings were in process.

Occasionally loans are modified to assist borrowers experiencing financial difficulty. We consider modifications such as term extensions, principal forgiveness, payment delays or alternate payment schedules, and alternate interest rate terms. At March 31, 2026 and December 31, 2025, loans with modifications for borrowers experiencing financial difficulty totaled $690,000 and $719,000, respectively. At March 31, 2026 and December 31, 2025, all loans with modifications for borrowers experiencing financial difficulty were one- to four-family residential loans and totaled less than 1.0% of total one- to four-family residential loans at such dates.

During the three months ended March 31, 2026, the Company didnot grant any loan modifications to borrowers experiencing financial difficulty that resulted in a more than minor change in the timing or amount of contractual cash flows. During the year ended December 31, 2025, the Company grantedtwo loan modifications to borrowers experiencing financial difficulty that resulted in a more than minor change in the timing or amount of contractual cash flows. The Company consolidated the debt oftwo related borrowers into a new residential mortgage loan totaling $131,000 to extend the maturity date and lower the monthly payment. The second modification in 2025 involved altering the payment schedule for a $101,000 residential mortgage loan to comply with the borrower’s bankruptcy plan. The loan modified because of bankruptcy was 41 days past due with a balance of $94,000 as of March 31, 2026. The other loan modified in 2025 for borrowers experiencing financial difficulty has performed in accordance with the terms after modification. The Company wasnot committed to lend any additional funds to borrowers with modified terms and experiencing financial difficulty at March 31, 2026 or December 31, 2025.

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. Credit quality classifications follow regulatory guidelines and can generally be described as follows:

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.

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 at least quarterly in conjunction with the determination of the adequacy of the allowance for credit losses.

The following tables present the Company’s loan portfolio by credit quality classification and origination year as of March 31, 2026 and December 31, 2025. The Company uses the latter of origination or renewal date to classify term loans into vintages. The gross charge-offs presented in the tables that follow are for the three months ended March 31, 2026 and year ended December 31, 2025.

NOTE 5. BORROWINGS

Borrowings and the weighted-average contractual interest rate at March 31, 2026 and December 31, 2025 are summarized as follows:

In December of 2020, the Bank restructured $10.0 million of its long-term borrowings from the Federal Home Loan Bank (“FHLB”) of Dallas. The debt was restructured to longer maturities at current interest rates and accounted for as modification or exchange of debt. A fee for the restructuring of $1.2 million was deferred and amortized as an adjustment to interest expense using the interest method over the life of the restructured borrowings.

Interest payments are due monthly for FHLB advances. A schedule of maturities for borrowings outstanding at March 31, 2026 are as follows:

At March 31, 2026 and December 31, 2025, the Company had $57.4 million and $49.7 million, respectively, in available borrowing capacity with the FHLB. Borrowings from the FHLB are secured though a blanket floating lien on real estate loans. Refer to Note 4 for more detail on loans pledged to the FHLB. The Company 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. 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.

Other available funding includes an Unsecured Federal Funds Master Purchase Agreement with First National Bankers Bank for $17.8 million. At March 31, 2026 and December 31, 2025, this credit facility was unused.

NOTE 6. FAIR VALUE MEASUREMENTS

In accordance with fair value guidance, the Company 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 Company 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 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. Fair value measurements are not adjusted for transaction costs. A fair value hierarchy is used 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).

Fair values of assets and liabilities measured on a recurring basis at March 31, 2026 and December 31, 2025 follows:

Fair values of assets and liabilities measured on a nonrecurring basis at March 31, 2026 and December 31, 2025 follows:

At March 31, 2026 and December 31, 2025, individually evaluated loans with a recorded investment of $445,000 and $147,000, respectively, have been written down to their fair value by a charge to the allowance for credit losses. Foreclosed assets are adjusted to fair value by recording a related gain or loss through foreclosed asset expense. During the three months ended March 31, 2026, no impairment losses on foreclosed assets were recognized. Foreclosed asset expense for the three months ended March 31, 2025 included net losses of $88,000 on the sales of foreclosed assets. The net losses during the three months ended March 31, 2025 were offset by insurance proceeds of $216,000 for fire and flood damages related to foreclosed properties.

The fair value of foreclosed assets is estimated using third-party appraisals of the asset held less estimated costs to sell and discounts to reflect current conditions. The fair value of collateral-dependent loans individually evaluated for credit losses is estimated using third-party appraisals of the collateral less estimated costs to sell and discounts to reflect current conditions. The fair value of loans individually evaluated for credit losses that are not collateral-dependent is estimated by discounting expected cash flows using discount rates determined with reference to current market rates at which similar loans would be made.

The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets. The weighted average presented in the following table was weighted based on the undiscounted result of the valuation technique.

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. 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 Company.

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.

Investment securities - The fair market values of investments securities are based on a combination of observed market prices for identical or similar instruments and various matrix pricing programs. The fair market values of investment securities are classified within Level 2 of the fair value hierarchy.

Loans receivable, net – The fair value of loans are generally determined by discounting scheduled cash flows using discount rates determined with reference to current market rates at which similar loans would be made. Loans receivable are classified within Level 3 of the fair value hierarchy.

Loans individually evaluated for credit losses - The fair value of loans individually evaluated for credit losses is measured by the fair value of the collateral if the loan is collateral dependent. Fair value of the collateral is determined by appraisals or by independent valuation. Loans individually evaluated for credit losses are classified within Level 3 of the fair value hierarchy.

Bank-owned life insurance - The cash surrender value of bank-owned life insurance approximates its fair value and is classified within Level 2 of the fair value hierarchy.

Non-maturity deposit liabilities - The fair value of deposits with no stated maturity, such as non-interest-bearing and interest-bearing demand deposits, NOW, money market, and savings accounts, is equal to the amount payable on demand at the reporting date. These non-maturity deposit liabilities are classified within Level 1 of the fair value hierarchy.

Certificates of deposit – Fair values are estimated by discounting scheduled cash flows using the rates currently offered for deposits of similar remaining maturities. Certificates of deposit are classified within Level 2 of the fair value hierarchy.

Borrowings – The fair value is estimated by discounting the future contractual cash flows using current market rates at which debt with similar terms could be obtained. Borrowings are classified within Level 2 of the fair value hierarchy.

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

The estimated fair values of the Company’s financial instruments as of March 31, 2026 and December 31, 2025 are as follows:

The carrying amounts in the preceding tables are included in the statement of financial condition under the applicable captions. It is not practical to estimate the fair value of stock in correspondent banks because the equity securities are not marketable. The carrying amount of investments without readily determinable fair value are reported in the statements of financial condition at historical cost.

NOTE 7. COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company 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 our financial statements.

The Company is 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 March 31, 2026, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

The Company 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 unfunded 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 Company’s involvement in particular classes of instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

The following table summarizes the Company’s financial instruments with off-balance-sheet risk as of the dates indicated.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since some of the commitments may possibly expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral usually consists of a first mortgage on the underlying properties.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements and are secured by passbook accounts or certificates of deposit. All letters of credit are required to be renewed annually, if applicable. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

The allowance for credit losses on unfunded lending commitments is recorded within “other liabilities” on the statement of financial condition. The related provision for credit losses for unfunded lending commitments is recorded with the provision for credit losses on the income statement. At March 31, 2026, the allowance for credit losses for unfunded lending commitments totaled $176,000. Refer to Note 4 for more information on changes to the allowance for credit losses for unfunded lending commitments.

NOTE 8. SUBSEQUENT EVENT

As reported on Form 8-K filed on April 8, 2026, Catalyst Bancorp, Inc. (“Catalyst”) and Catalyst Bank entered into an Agreement and Plan of Share Exchange and Merger (the “Merger Agreement”) on April 7, 2026 with Lakeside Bancshares, Inc. ("Lakeside"), a Louisiana corporation, and Lakeside Bank, a Louisiana banking corporation and the wholly-owned subsidiary of Lakeside Bancshares. The Merger Agreement provides that Lakeside will be merged with and into Catalyst, with Catalyst surviving, and that Lakeside Bank will be merged with and into Catalyst Bank, with Catalyst Bank surviving. Once the transaction closes, Catalyst will acquire 100% of the outstanding shares of Lakeside and Lakeside’s shareholders (other than dissenting shares) will receive $19.58 per share in cash, or $41.1 million in aggregate, subject to adjustment under certain circumstances. The Merger Agreement was unanimously approved by the boards of directors of both companies. The transaction is expected to close in the third quarter of 2026, subject to customary closing conditions, including regulatory approvals and Lakeside shareholder approval.

The Company expects to account for the transaction in accordance with ASC Topic 805,*Business Combinations,*which generally requires assets and liabilities acquired in business combinations to be recorded at fair value. Our valuations and purchase accounting estimates remain preliminary and will be finalized after the transaction closes. As of December 31, 2025, Lakeside had total assets of $385.7 million and total liabilities of $289.7 million.