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EX-99.7 - EXHIBIT 99.7 - Catalyst Bancorp, Inc.tm2114323d2_ex99-7.htm
EX-23.3 - EXHIBIT 23.3 - Catalyst Bancorp, Inc.tm2114322d2_ex23-3.htm
EX-8.2 - EXHIBIT 8.2 - Catalyst Bancorp, Inc.tm2114322d2_ex8-2.htm
EX-8.1 - EXHIBIT 8.1 - Catalyst Bancorp, Inc.tm2114322d2_ex8-1.htm
EX-2.1 - EXHIBIT 2.1 - Catalyst Bancorp, Inc.tm2114323d2_ex2-1.htm
As filed with the Securities and Exchange Commission on June 9, 2021
Registration No. 333-254200
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Pre-Effective Amendment No. 2 to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Catalyst Bancorp, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Louisiana
6035
86-2411762
(State or Other Jurisdiction of
Incorporation or Organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
235 N. Court Street
Opelousas, Louisiana 70570
(337) 948-3033
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Joseph B. Zanco
President and Chief Executive Officer
Catalyst Bancorp, Inc.
235 N. Court Street
Opelousas, Louisiana 70570
(337) 948-3033
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
Copies to:
Hugh T. Wilkinson, Esquire
Eric M. Marion, Esquire
Silver, Freedman, Taff & Tiernan LLP
3299 K Street, N.W., Suite 100
Washington, D.C. 20007
(202) 295-4500
Michael J. Brown, Esquire
Thomas P. Hutton, Esquire
Luse Gorman, PC
5335 Wisconsin Avenue, NW, Suite 780
Washington, DC 20015
202-274-2000
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ☒
If this Form is filed to register additional shares for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 7(a)(2)(B) of the Securities Act. ¨
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered
Amount
to be
registered(1)
Proposed
maximum
offering price
per share
Proposed
maximum
aggregate
offering price
Amount of
registration fee
Common Stock, $0.01 par value per share
5,290,000 shares
$ 10.00 $ 52,900,000 $ 5,771.39(2)
(1)
Estimated solely for the purpose of calculating the registration fee.
(2)
A filing fee of $5,554.97 was previously paid.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

PROSPECTUS
[MISSING IMAGE: lg_catalystbancorp-4c.jpg]
(Proposed Holding Company for St. Landry Homestead Federal Savings Bank)
Up to 4,600,000 Shares of Common Stock
(Subject to increase to up to 5,290,000 Shares)
We are offering shares of common stock for sale in connection with the conversion of St. Landry Homestead Federal Savings Bank from the mutual to stock form of organization. Currently, there is no established trading market for our common stock. Our common stock will be listed on the Nasdaq Capital Market under the symbol “CLST”. We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012.
The shares of common stock are first being offered in a subscription offering to eligible depositors of St. Landry Homestead Federal Savings Bank and to St. Landry Homestead Federal Savings Bank’s tax-qualified employee stock ownership plan. In the subscription offering, we are offering the shares of common stock in the following descending order of priority: (1) depositors with a balance of at least $50 at the close of business on December 31, 2019; (2) our employee stock ownership plan; (3) depositors with a balance of at least $50 at the close of business on            , 2021; and (4) depositors at the close of business on            , 2021, with no minimum balance requirement. Shares not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given to residents of communities served by St. Landry Homestead Federal Savings Bank. Any shares of common stock not purchased in the subscription or community offerings may be offered for sale to the public in a syndicated offering through a syndicate of broker-dealers. The syndicated offering may commence before the subscription and community offerings (including any extensions) have expired. No shares purchased in the subscription offering or the community offering will be issued until the completion of any syndicated offering. The subscription, community and syndicated offerings are collectively referred to as the “offerings.”
Our shares of common stock are being offered in a range from 3,400,000 shares to 4,600,000 shares. We may sell up to 5,290,000 shares of common stock as a result of demand for the shares of common stock or changes in market conditions, without resoliciting subscribers. We must sell a minimum of 3,400,000 shares in order to complete the offering.
The minimum order is 25 shares of common stock. Generally, no individual may purchase more than 15,000 shares of common stock, and no individual or other person, along with their associates and those with whom they are acting in concert, may purchase more than 25,000 shares of common stock. The subscription and community offerings are expected to expire at 4:00 p.m., Central Time, on            , 2021. We may extend this expiration time and date, without notice to you, until            , 2021. Once submitted, stock orders are irrevocable unless the subscription and community offerings are terminated or extended, with regulatory approval, beyond            , 2021, or the number of shares of common stock offered for sale is increased to more than 5,290,000 shares or decreased to less than 3,400,000 shares. If the subscription and community offerings are extended beyond            , 2021, we will notify all subscribers and give them an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest or cancel your deposit account withdrawal authorization. If the number of shares to be sold in the offering is increased to more than 5,290,000 shares or decreased to less than 3,400,000 shares, we will resolicit subscribers, and all funds delivered to us to purchase shares of common stock in the subscription and community offerings will be returned promptly with interest. Funds received in the subscription and the community offerings will be held in a segregated account at St. Landry Homestead Federal Savings Bank and will earn interest at 0.10% per annum until completion or termination of the offering.
We expect our directors and executive officers, together with their associates, to subscribe for an aggregate 152,500 shares of common stock. They will pay the same $10.00 per share offering price as paid by all other persons who purchase shares in the offering.
Piper Sandler & Co. is assisting us in selling the shares on a best efforts basis in the subscription and community offerings, and will serve as sole manager for any syndicated offering. Piper Sandler & Co. is not required to purchase any shares of common stock that are sold in the subscription offering, community offering or syndicated offering.
OFFERING SUMMARY
Price: $10.00 per Share
Minimum
Midpoint
Maximum
Adjusted Maximum
Number of shares
3,400,000 4,000,000 4,600,000 5,290,000
Gross offering proceeds
$ 34,000,000 $ 40,000,000 $ 46,000,000 $ 52,900,000
Estimated offering expenses, excluding selling agent fees
$ 1,170,000 $ 1,170,000 $ 1,170,000 $ 1,170,000
Selling agent fees(1)(2)
$ 267,795 $ 317,475 $ 367,155 $ 424,287
Estimated net proceeds
$ 32,562,205 $ 38,512,525 $ 44,462,845 $ 51,305,713
Estimated net proceeds per share
$ 9.58 $ 9.63 $ 9.67 $ 9.70
(1)
See Pro Forma Data” and The Conversion and Offering — Plan of Distribution; Selling Agent and Underwriting Compensation” for information regarding compensation to be received by Piper Sandler & Co. in the subscription and community offerings and the compensation to be received by Piper Sandler & Co. and other participating broker-dealers in the syndicated offering.
(2)
Excludes records agent fees and expenses payable to Piper Sandler & Co., which are included in estimated offering expenses. See “The Conversion and Offering – Records Management.”
This investment involves a degree of risk, including the possible loss of principal. See “Risk Factors” beginning on page 13.
Shares of our common stock are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or by any other government agency. Neither the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, nor any state securities regulator has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
Piper Sandler
For assistance, please contact the Stock Information Center at (844) 303-2265.
The date of this prospectus is                         , 2021.

 
MAP OF OUR OFFICE LOCATIONS
[MISSING IMAGE: tm2114322d1-map_home4clr.jpg]
 

 
TABLE OF CONTENTS
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SUMMARY
The following summary explains material information in this prospectus, but it may not contain all of the information that is important to you. Before making an investment decision, you should read carefully this entire document, including the financial statements and the notes thereto and the section entitled “Risk Factors.” The terms “we,” “our,” and “us” refer to Catalyst Bancorp, Inc. and St. Landry Homestead Federal Savings Bank, unless the context indicates another meaning.
Catalyst Bancorp, Inc.
Catalyst Bancorp, Inc., is a Louisiana corporation which was incorporated by St. Landry Homestead Federal Savings Bank in February 2021. The offering of common stock by means of this prospectus is being made by Catalyst Bancorp in connection with the conversion of St. Landry Homestead Federal Savings Bank from a mutual savings bank to a stock savings bank. Upon completion of the conversion, Catalyst Bancorp will become the bank holding company for St. Landry Homestead Federal Savings Bank by owning all of the outstanding shares of capital stock of St. Landry Homestead Federal Savings Bank. As a bank holding company, Catalyst Bancorp will be regulated by the Federal Reserve Board. To date, Catalyst Bancorp has engaged in organizational activities only. Following the conversion, Catalyst Bancorp’s primary business activity will relate to owning all of the outstanding shares of capital stock of St. Landry Homestead Federal Savings Bank.
Currently, the depositors of St. Landry Homestead Federal Savings Bank are deemed to be its members and have voting rights as to all matters requiring membership action. Upon completion of the conversion, St. Landry Homestead Federal Savings Bank will cease to have members and former members will no longer have voting rights. Upon completion of the conversion, all voting rights in St. Landry Homestead Federal Savings Bank will be vested in Catalyst Bancorp as the sole shareholder of St. Landry Homestead Federal Savings Bank. The shareholders of Catalyst Bancorp will possess exclusive voting rights with respect to Catalyst Bancorp common stock.
St. Landry Homestead Federal Savings Bank
St. Landry Homestead Federal Savings Bank is a federally-chartered mutual savings bank that serves the banking needs of customers in our market area in the Acadiana region of south central Louisiana. We operate from our headquarters and main banking office in Opelousas, Louisiana, as well as three additional full service branch offices located in St. Landry Parish (including a newly constructed branch opened in July 2019) and one branch office located in Lafayette Parish, Louisiana, which was opened in October 2020. Our primary business activity is attracting deposits from the general public and using those funds primarily to originate loans and purchase investment securities. We are subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency.
At March 31, 2021, we had total assets of $236.7 million, total deposits of $176.7 million and equity of $50.4 million. Our headquarters and main banking office is located at 235 N. Court Street, Opelousas, Louisiana. Our website address is www.stlandryhomestead.com. Information on our website is not and should not be considered a part of this prospectus.
St. Landry Homestead Federal Savings Bank dates its founding to 1922. We have operated as a traditional savings bank focused primarily on serving the banking needs of customers in St. Landry Parish and its environs. Historically, our lending focus has been on making long-term loans to individuals secured by first mortgages on the borrower’s residence. At March 31, 2021, $95.1 million, or 65.1% of our total loan portfolio, consisted of one- to four-family residential mortgage loans. In recent periods, our growth has been relatively limited. Our total assets amounted to $236.7 million at March 31, 2021, a $12.1 million, or 5.4%, increase compared to December 31, 2020. Our net loans receivable decreased by $5.8 million, or 3.9%, during the three months ended March 31, 2021 and by $12.8 million, or 7.9%, during 2020.
We have undertaken a revised business strategy designed to make St. Landry Homestead Federal Savings Bank a more dynamic community bank with an enhanced emphasis on serving the banking needs of small- to mid-sized businesses and professionals located in the bank’s current market areas and surrounding areas, while continuing to serve our traditional customer base. We expect to focus on moderately growing
 
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our asset size, improving and diversifying our loan and deposit products and services to facilitate growth in our business and professional customer base and targeting expansion opportunities in Lafayette Parish and other areas that we serve in the Acadiana region of south central Louisiana. In August 2020, we hired Joseph B. Zanco as President and Chief Executive Officer of St. Landry Homestead Federal Savings Bank in order to spearhead our efforts. Mr. Zanco has nearly 20 years experience as a community bank executive including over 12 years serving as Executive Vice President and Chief Financial Officer of a Lafayette based bank holding company which successfully completed its initial public stock offering, acquired five other institutions and grew to $2.5 billion in total assets during his tenure. Since joining St. Landry Homestead Federal Savings Bank, Mr. Zanco has enhanced the executive management team by hiring a Chief Credit Officer with over 20 years banking experience and two new commercial bankers. We believe that these recent hires, together with the anticipated successful completion of our mutual-to-stock conversion, will provide a strong foundation for us to achieve our business strategy.
Business Strategy
Our business strategy is focused on transforming St. Landry Homestead Federal Savings Bank into a more dynamic institution by embracing a relationship-oriented community bank model targeting small- to mid-sized businesses and business professionals in our market areas while continuing to serve our traditional customer base. Highlights of our business strategy, which is designed to facilitate our ability to operate and grow as a profitable community-based banking institution, include the following:

Growing the loan portfolio with greater diversification. Our primary lending focus has been the origination of one- to four-family residential mortgage loans. At March 31, 2021, $95.1 million, or 65.1% of our loan portfolio, was secured by single-family residential mortgage loans. We believe increased commercial lending offers an opportunity to enhance our profitability and our growth prospects. We intend to increase our commercial lending activities, particularly with respect to commercial real estate loans, commercial and industrial loans and multi-family residential real estate loans. We plan to emphasize building full-service banking relationships with small- to mid-sized businesses and business professionals in our market area. We anticipate that our commercial real estate lending originations will focus on loans ranging in size from $500,000 to $2.0 million and that the focus of our commercial and industrial lending originations will be on loans ranging in size from $100,000 to $500,000.

Grow our franchise organically through enhanced banking products and services. We expect to embark on a strategy of prudent growth following the conversion and offering. We believe we have an opportunity to grow organically by focusing on building relationships with small- to mid-sized businesses and business professionals in our market area and by enhancing the products and services we offer. We expect to increase our commercial loan originations while building strong relationships with an increased base of small- to mid-sized business and professional banking customers. To accomplish our goal, we are reviewing policies and procedures to facilitate our abilities to compete for new business customers. We will continue to enhance our staff capacity through training and hiring of new employees as needed to facilitate our growth. In addition, we continue to review our technology and infrastructure and will implement new and enhanced technology tools and on-line services preferred by many of our existing and prospective customers.

Recruiting and retaining top talent and personnel. Mr. Zanco was hired as our new President and Chief Executive Officer in August 2020. Since then, we have also hired a new Chief Credit Officer and two commercial bankers. Recruiting and retaining talented individuals to guide us through the implementation of our business strategy will be critical to our success. While we believe we have assembled a strong management team, we will continue assessing our personnel needs and expect to add new bankers and management staff in order to complement the group that we have assembled. Critical to our efforts to attract and retain talent is our mutual-to-stock conversion and the adoption and implementation of employee stock benefit plans, consistent with federal banking regulations, after the conversion.

Expand our franchise through de novo branching and possible acquisition of other financial institutions. We opened an additional office in Opelousas, Louisiana in July 2019, and expanded our branch network into Lafayette Parish with our Carencro office which was opened in October 2020. We are
 
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planning to add to our presence in Lafayette Parish and we recently purchased a building in Lafayette which we expect to open as a new branch office by the end of 2021. In addition, after the conversion and offering, we believe there will be opportunities for expansion through acquisitions of other financial institutions in our current market area and adjoining markets in south Louisiana. While we do not currently have any understandings or agreements regarding any specific transactions, the conversion and offering will enhance our ability to undertake future acquisitions.

Rebranding our banking franchise. Once we have largely implemented our business strategy, we expect to rebrand St. Landry Homestead Federal Savings Bank. Such re-branding efforts may include a new name, a new marketing campaign, updated on-line and website materials and new signage and logos to capture and reflect the new focus of the bank.

Manage credit risk to reduce our level of non-performing assets. We believe that strong asset quality is a key to long-term financial success. Our strategy for credit risk management focuses on an experienced team of credit professionals, well-defined credit policies and procedures, appropriate loan underwriting criteria and active credit monitoring. Our ratio of non-performing assets to total assets was 0.94% at March 31, 2021.
Reasons for the Conversion
Our primary reasons for converting and raising additional capital through the offering are to:

Enhance our capital base to support growth on a prudent basis. We intend to grow our franchise, both organically and through strategic transactions as opportunities arise, on a prudent basis. While we currently exceed all regulatory capital requirements, the offering proceeds will strengthen our capital position and support our planned growth. In addition, the offering proceeds will enhance our lending capacity by increasing our legal lending limit. We believe this increased capacity will improve our competitive position relative to the many larger banks operating in our market area.

Offer our employees and directors an equity ownership interest in St. Landry Homestead Federal Savings Bank. We believe that the conversion and offering will enable us to attract and retain directors, management and employees through various stock-based benefit plans, including an employee stock ownership plan and one or more equity incentive plans.

Facilitate future mergers and acquisitions, if available, on a prudent basis. Although we do not currently have any understandings or agreements regarding any specific transactions, the additional capital raised in the offering may be used to finance mergers with, and acquisitions of, other financial institutions, asset portfolios and branch offices when and if attractive opportunities arise.

Offer our depositors an equity ownership interest. The offering will allow us to offer our depositors the ability to acquire our common stock, and, thus, have an equity interest in our future.
Terms of the Offering
We are offering between 3,400,000 and 4,600,000 shares of Catalyst Bancorp common stock in a subscription offering first to eligible depositors of St. Landry Homestead Federal Savings Bank and to our tax-qualified employee stock ownership plan, and, to the extent shares remain available, to the general public in a community offering. If necessary, we will also offer shares to the general public in a syndicated offering. The number of shares of common stock to be sold may be increased to up to 5,290,000 shares as a result of demand for the shares of common stock in the offering or changes in market conditions. Unless the number of shares of common stock to be offered is increased to more than 5,290,000 shares or decreased to fewer than 3,400,000 shares, or the subscription and community offerings are extended beyond         , 2021, subscribers will not have the opportunity to change or cancel their stock orders once submitted. If the subscription and community offerings are extended past         , 2021, all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, your order will be canceled and we will promptly return your funds with interest at 0.10% per annum or cancel your deposit account withdrawal authorization. If the number of shares to be sold is increased to more than 5,290,000 shares or decreased to less than 3,400,000 shares, all subscribers’ stock orders will be canceled, all withdrawal authorizations will be canceled and funds delivered to us to purchase shares of common stock in the subscription and community offerings will be returned promptly with interest at the same rate. We
 
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will then resolicit subscribers, giving them an opportunity to place new orders for a period of time. No shares purchased in the subscription offering and community offering will be issued until the completion of any syndicated offering.
The purchase price of each share of common stock offered for sale in the offering is $10.00. All investors will pay the same purchase price per share, regardless of whether the shares are purchased in the subscription offering, the community offering or the syndicated offering. Investors will not be charged a commission to purchase shares of common stock in the offering. Piper Sandler & Co., our marketing agent in the subscription and community offerings, will use its best efforts to assist us in selling shares of our common stock in the subscription and community offerings but is not obligated to purchase any shares of common stock in the subscription and community offerings.
How We Determined the Offering Range and the $10.00 per Share Offering Price
The amount of common stock we are offering for sale is based on an independent appraisal of the estimated market value of Catalyst Bancorp, assuming the offering has been completed. RP Financial, LC., our independent appraiser, has estimated that, at May 14, 2021, and assuming we had undertaken the offering, this market value, was $40.0 million. Based on applicable regulations, this market value forms the midpoint of a valuation range with a minimum of $34.0 million and a maximum of $46.0 million. Based on this valuation range and the offering price of $10.00 per share, Catalyst Bancorp is offering for sale a range of shares of common stock, from 3,400,000 shares to 4,600,000 shares. The $10.00 per share price was selected primarily because it is the price most commonly used in mutual-to-stock conversion transactions undertaken by financial institutions. If demand for shares or market conditions warrant, the appraisal can be increased by up to 15%, which would result in an appraised value of $52.9 million, and we may sell up to 5,290,000 shares of common stock.
RP Financial advised our board of directors that the appraisal was prepared in conformance with the regulatory appraisal methodology, which requires a valuation based on an analysis of the trading prices of comparable public companies whose stock have traded for at least one year prior to the valuation date. RP Financial selected a group of 10 comparable public companies for this analysis.
RP Financial considered adjustments to the pro forma market value based on a comparison of Catalyst Bancorp with the peer group. The independent valuation is also based on an analysis of a peer group of publicly traded bank holding companies and savings and loan holding companies that RP Financial considered comparable to Catalyst Bancorp under regulatory guidelines applicable to the independent valuation. Under these guidelines, a minimum of ten peer group companies are selected from the universe of all publicly-traded financial institutions with relatively comparable resources, strategies and financial and other operating characteristics. Such companies must also be traded on an exchange (such as Nasdaq or the New York Stock Exchange). The peer group companies selected for Catalyst Bancorp also consisted of fully-converted stock institutions that were not subject to an actual or rumored acquisition and that had been in fully-converted form for at least one year. In addition, based on financial data as of and for the 12 months ended September 30, 2020, RP Financial limited the peer group companies to the following two selection criteria: (i) institutions located in the Southeast and Southwest with assets less than $750 million, tangible equity-to-assets ratios of greater than 7.0%, and positive core earnings; (ii) institutions located in the Midwest, Mid-Atlantic and Northeast with assets less than $750 million, tangible equity-to-assets ratios of greater than 7.0%, and positive core earnings.
The peer group consists of 10 publicly traded savings institutions or their holding companies that were deemed by RP Financial, based on regulatory guidelines, to be reasonably comparable to Catalyst Bancorp. In selecting the peer group, RP Financial considered certain key criteria such as asset size, market capitalization, capital, profitability and other financial characteristics, operating strategy, pricing characteristics and market area. To the extent there are differences between Catalyst Bancorp and the institutions comprising the peer group, RP Financial made certain valuation adjustments. RP Financial made a moderate downward adjustment for: (i) profitability growth and viability of earnings; and a slight downward adjustment for: (ii) primary market area and made no adjustments for: (i) dividends; (ii) liquidity of the shares; (iii) marketing of the issue; (iv) management; (v) effect of government regulations and regulatory reform; and (vi) financial condition. The slight downward adjustment applied for primary market area took into consideration St. Landry Parish’s relatively less favorable demographic measures with
 
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respect to population growth and income levels compared to the peer group’s primary market area counties. The moderate downward adjustment applied for profitability, growth and viability of earnings took into consideration Catalyst Bancorp’s less favorable efficiency ratio, higher implied credit risk exposure, and lower pro forma returns as a percent of assets and equity relative to the comparable peer group measures.
The appraisal is based in part on St. Landry Homestead Federal Savings Bank’s financial condition and results of operations, the pro forma effect of the additional capital raised by the sale of shares of common stock in the offering, and an analysis of a peer group of 10 publicly-traded bank holding companies and savings and loan holding companies that RP Financial considers comparable to Catalyst Bancorp. The appraisal peer group consists of the following companies, all of which are traded on the Nasdaq Stock Market.
Company Name
Ticker
Symbol
Headquarters
Total Assets at
March 31, 2021
(In millions)
CBM Bancorp, Inc.
CBMB
Baltimore, MD
$ 240
Cincinnati Bancorp, Inc.
CNNB
Cincinnati, OH
$ 241
Elmira Savings Bank
ESBK Elmira, NY $ 645(1)
FFBW, Inc.
FFBW
Brookfield, WI
$ 338
Home Federal Bancorp, Inc. of Louisiana
HFBL
Shreveport, LA
$ 563
HV Bancorp, Inc.
HVBC
Doylestown, PA
$ 596
IF Bancorp, Inc.
IROQ Watseka, IL $ 745
Mid-Southern Bancorp, Inc.
MSVB Salem, IN $ 245
Randolph Bancorp, Inc.
RNDB
Stoughton, MA
$ 738
WVS Financial Corp.
WVFC Pittsburgh, PA $ 314
(1)
As of December 31, 2020
Source: S&P Global Market Intelligence.
The following table presents a summary of selected pricing ratios for Catalyst Bancorp (on a pro forma basis) at and for the 12-months ended March 31, 2021, and for the peer group companies based on earnings and other information at and for the 12-months ended March 31, 2021, with stock prices at May 14, 2021, as reflected in the appraisal report. Compared to the average pricing of the peer group, our pro forma pricing ratios at the midpoint of the offering range indicated a discount of 49.90% on a price-to-book value basis and a discount of 51.03% on a price-to-tangible book value basis.
Price-to-
earnings
multiple(1)
Price-to-
book
value ratio
Price-to-
tangible book
value ratio
Catalyst Bancorp (pro forma assuming completion of offering)(2)
Adjusted Maximum
NM 55.49% 55.49%
Maximum
NM 51.52% 51.52%
Midpoint
NM 47.57% 47.57%
Minimum
NM 43.12% 43.12%
Valuation of peer group companies (historical)
Averages
10.57x 94.95% 97.15%
Medians
11.04x 98.69% 100.18%
(1)
Price-to-earnings multiples calculated by RP Financial are based on an estimate of “core” or recurring earnings. These ratios are different than those presented in “Pro Forma Data.”
(2)
Pro forma pricing ratios for Catalyst Bancorp are based on pro forma data at and for the 12-months ended March 31, 2021, and are different than the pro forma pricing ratios presented in “Pro Forma Data.”
 
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The pro forma calculations for Catalyst Bancorp are based on the following assumptions:

A number of shares equal to 8% of the shares sold in the offering are purchased by the employee stock ownership plan, with the expense to be amortized over 20 years;

A number of shares equal to 4% of the shares sold in the offering are purchased by a stock-based benefit plan, with the expense to be amortized over five years; and

A number of options equal to 10% of the shares sold in the offering are granted under a stock-based benefit plan, with option expense of $3.55 per option amortized over five years.
The independent appraisal does not indicate trading market value. Do not assume or expect that our valuation as indicated in the appraisal means that after the offering the shares of our common stock will trade at or above the $10.00 per share price. Furthermore, RP Financial used the pricing ratios presented in the appraisal to estimate our pro forma appraised value for regulatory purposes and not to compare the relative value of shares of our common stock with the value of the capital stock of the peer group. The value of the capital stock of a particular company may be affected by a number of factors such as financial performance, asset size and market location.
For a more complete discussion of the amount of common stock we are offering for sale and the independent appraisal, see “The Conversion and Offering — Stock Pricing and Number of Shares to be Issued.”
How We Intend to Use the Proceeds from the Offering
We intend to invest at least 50% of the net proceeds from the offering in St. Landry Homestead Federal Savings Bank, fund the loan to our employee stock ownership plan to finance its purchase of shares of common stock in the offering, and retain the remainder of the net proceeds at Catalyst Bancorp.
Assuming we sell 4,000,000 shares of common stock in the offering at the midpoint of the offering range, resulting in estimated net proceeds of $38.5 million, we intend to invest $19.3 million in St. Landry Homestead Federal Savings Bank, lend $3.2 million to our employee stock ownership plan to fund its purchase of shares of common stock (which may include, subject to market conditions, open market purchases after the completion of the conversion and offering if the employee stock ownership plan is unable to purchase its shares in the subscription offering due to an oversubscription by our eligible account holders), and retain the remaining $16.1 million of the net proceeds at Catalyst Bancorp. Assuming we sell 5,290,000 shares of common stock in the offering at the adjusted maximum of the offering range, resulting in estimated net proceeds of $51.3 million, we intend to invest $25.7 million in St. Landry Homestead Federal Savings Bank, lend $4.2 million to our employee stock ownership plan to fund its purchase of shares of common stock, and retain the remaining $21.4 million of the net proceeds at Catalyst Bancorp.
Catalyst Bancorp may use the funds it retains for investment, for capital management strategies, including the repurchase of shares of common stock, to acquire other financial institutions or financial services companies, to pay cash dividends and for other general corporate purposes. St. Landry Homestead Federal Savings Bank may use the proceeds it receives to support increased lending and investment or to acquire other financial institutions or financial services companies. We do not currently have any agreement or understanding regarding any acquisition transaction.
See “How We Intend to Use the Proceeds from the Offering” for more information on the proposed use of the proceeds from the offering.
Persons Who May Order Shares of Common Stock in the Offering
We are offering the shares of common stock in a subscription offering in the following descending order of priority:
PRIORITY 1:
ELIGIBLE ACCOUNT HOLDERS (St. Landry Homestead Federal Savings Bank depositors with a balance of at least $50 at the close of business on December 31, 2019);
PRIORITY 2:
OUR EMPLOYEE STOCK OWNERSHIP PLAN;
 
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PRIORITY 3:
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (St. Landry Homestead Federal Savings Bank depositors with a balance of at least $50 at the close of business on         , 2021); and
PRIORITY 4:
OTHER MEMBERS (St. Landry Homestead Federal Savings Bank depositors at the close of business on         , 2021).
Shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given first to natural persons (including trusts of natural persons) residing in St. Landry Parish and the adjacent parishes of Acadia Parish, Lafayette Parish, St. Martin Parish, Point Coupée Parish, Avoyelles Parish and Evangeline Parish. The community offering may begin concurrently with, during or promptly after the subscription offering. We also may offer for sale shares of common stock not purchased in the subscription offering and the community offering through a syndicated offering. Piper Sandler & Co. will act as sole manager for the syndicated offering. We have the right to accept or reject, in our sole discretion and reasonably consistent with achieving a reasonably wide distribution of the common stock, orders received in the community offering or syndicated offering, and our interpretation of the terms and conditions of the plan of conversion will be final. Any determination to accept or reject stock orders in the community offering or syndicated offering will be based on the facts and circumstances then available to us.
If we receive orders for more shares than we are offering, we may not be able to fully or partially fill your order. See “The Conversion and Offering” for a detailed description of the subscription offering, the community offering, the syndicated offering, as well as a discussion regarding allocation procedures.
Limits on How Much Common Stock You May Purchase
The minimum number of shares of common stock that may be purchased is 25 shares.
Generally, no individual may purchase more than 15,000 shares ($150,000) of common stock. If any of the following persons purchase shares of common stock, their purchases, in all categories of the offering, when combined with your purchases, cannot exceed 25,000 shares ($250,000) of common stock:

most companies, trusts or other entities in which you are a senior officer, partner, trustee or have a substantial beneficial interest; or

your spouse or any relative of you or your spouse living in your house or who is a director, trustee, or officer of Catalyst Bancorp or St. Landry Homestead Federal Savings Bank; or

other persons who may be your associates or persons acting in concert with you.
Unless we determine otherwise, persons having the same address and persons exercising subscription rights through qualifying deposit accounts registered to the same address will be subject to the overall purchase limitation of 25,000 shares ($250,000).
Subject to regulatory approval, we may increase or decrease the purchase limitations at any time. See “The Conversion and Offering — Additional Limitations on Common Stock Purchases.”
How You May Purchase Shares of Common Stock in the Subscription Offering and the Community Offering
In the subscription offering and community offering, you may pay for your shares by:
(i)
personal check, bank check or money order made payable to Catalyst Bancorp, Inc.; or
(ii)
authorizing us to withdraw available funds from the types of deposit account(s) at St. Landry Homestead Federal Savings Bank listed on the stock order form.
St. Landry Homestead Federal Savings Bank is prohibited from lending funds to anyone to purchase shares of common stock in the offering. Additionally, you may not use a line of credit check from St. Landry Homestead Federal Savings Bank or any type of third party check (such as a check payable to you and endorsed over to Catalyst Bancorp) to pay for shares of common stock. No wire transfer will be accepted
 
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without our prior approval. You may not authorize direct withdrawal from an individual retirement account (“IRA”) at St. Landry Homestead Federal Savings Bank. See “— Using IRA Funds to Purchase Shares of Common Stock.”
You may subscribe for shares of common stock in the subscription and community offerings by delivering a signed and completed original stock order form, together with full payment payable to Catalyst Bancorp, Inc. or authorization to withdraw funds from one or more of your deposit accounts at St. Landry Homestead Federal Savings Bank, provided that we receive your stock order form before 4:00 p.m., Central Time, on         , 2021, which is the end of the subscription offering period. You may submit your stock order form and payment by mail using the stock order reply envelope provided or by overnight delivery to the address listed on the stock order form. You may also hand deliver stock order forms to our drop box located at our main office at 235 N. Court Street, Opelousas, Louisiana 70570 during branch hours. We will accept hand-delivered stock order forms only at this location. We will not accept stock order forms at our other banking offices. Do not mail stock order forms to any of St. Landry Homestead Federal Savings Bank’s banking offices.
See “The Conversion and Offering — Procedure for Purchasing Shares in Subscription and Community Offerings — Payment for Shares” for a complete description of how to purchase shares in the subscription and community offerings.
Using IRA Funds to Purchase Shares of Common Stock
You may be able to subscribe for shares of common stock using funds in your IRA. If you wish to use some or all of the funds in an IRA at St. Landry Homestead Federal Savings Bank, the applicable funds must be transferred to a self-directed account maintained by an independent trustee, such as a brokerage firm, and the purchase must be made through that account. If you do not have such an account, you will need to establish one before placing your stock order. A one-time and/or annual administrative fee may be payable to the independent trustee. Because individual circumstances differ and the processing of retirement fund orders takes additional time, we recommend that you contact our Stock Information Center promptly, preferably at least two weeks before the         , 2021 offering deadline, for assistance with purchases using your IRA or other retirement account you may have at St. Landry Homestead Federal Savings Bank or elsewhere. Whether you may use such funds to purchase shares in the offering may depend on timing constraints and, possibly, limitations imposed by the institution where the funds are held.
See “The Conversion and Offering — Procedure for Purchasing Shares in Subscription and Community Offerings — Payment for Shares” and “— Using Individual Retirement Account Funds.”
Market for Common Stock
We have received approval to list our common stock on the Nasdaq Capital Market under the symbol “CLST.” Piper Sandler & Co. has advised us that it intends to make a market in our common stock following the offering, but is not obligated to do so.
Our Dividend Policy
We have not determined whether we will pay dividends on the common stock. After the offering, we will consider a policy of paying regular cash dividends. Our ability to pay dividends will depend on a number of factors, including capital requirements, regulatory limitations and our operating results and financial condition. Initially, our ability to pay dividends will be limited to the net proceeds retained by Catalyst Bancorp and earnings from the investment of such proceeds, as well as dividends from St. Landry Homestead Federal Savings Bank, if any. At the maximum of the offering range, Catalyst Bancorp will retain approximately $18.6 million of the net proceeds. Additionally, funds could be provided by St. Landry Homestead Federal Savings Bank through dividends; however, the ability of St. Landry Homestead Federal Savings Bank to dividend funds to Catalyst Bancorp is subject to regulatory limitations. For information regarding our proposed dividend policy, see “Our Dividend Policy.”
Stock Purchases by Directors and Executive Officers
We expect our directors and executive officers, together with their associates, to subscribe for 152,500 shares of common stock in the offering, representing 4.5% of shares to be outstanding at the minimum of
 
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the offering range and 3.3% of shares to be sold in the offering at the maximum of the offering range. They will pay the same $10.00 per share price that will be paid by all other persons who purchase shares of common stock in the offering. See “Proposed Management Purchases.”
Deadline for Orders of Shares of Common Stock in the Subscription and Community Offerings
The deadline for ordering shares of common stock in the subscription and community offerings is 4:00 p.m., Central Time, on         , 2021, unless we extend this deadline. If you wish to order shares of common stock, a properly completed and signed original stock order form, together with full payment, must be received (not postmarked) by this time.
Although we will make reasonable attempts to provide this prospectus and offering materials to holders of subscription rights, the subscription offering and all subscription rights will expire at 4:00 p.m., Central Time, on         , 2021, whether or not we have been able to locate each person entitled to subscription rights.
See “The Conversion and Offering — Procedure for Purchasing Shares in Subscription and Community Offerings — Expiration Date” for a complete description of the deadline for ordering shares in the offering.
You May Not Sell or Transfer Your Subscription Rights
Applicable regulations prohibit you from transferring your subscription rights. If you order shares of common stock in the subscription offering, you must sign a written certification that you are purchasing the common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights or the shares that you are purchasing. We intend to take legal action, including reporting persons to federal or state agencies, against anyone who we believe has sold or transferred his or her subscription rights. We will not accept your order if we have reason to believe that you have sold or transferred your subscription rights. On the order form, you cannot add the names of other individuals for joint stock registration unless they are also named on the qualifying deposit account. Doing so may jeopardize your subscription rights. In addition, the stock order form requires that you list all deposit accounts, giving all names on each account and the account number at the applicable eligibility date. Failure to provide this information, or providing incomplete or incorrect information, may result in a loss of part or all of your share allocation if there is an oversubscription.
Delivery of Shares of Common Stock
All shares of common stock sold will be issued in book entry form. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock issued in the subscription and community offerings will be mailed by our transfer agent to the persons entitled thereto at the registration address noted by them on their stock order forms as soon as practicable following consummation of the offering. We expect trading in the stock to begin on the day of completion of the offering or the next business day. The offering is expected to be completed as soon as practicable following satisfaction of the conditions described below in “— Conditions to Completion of the Conversion.” Until a statement reflecting ownership of shares of common stock is available and delivered to purchasers, purchasers might not be able to sell the shares of common stock that they purchased, even though the common stock will have begun trading. Your ability to sell your shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.
Conditions to Completion of the Conversion
We cannot complete the conversion and offering unless:

The plan of conversion is approved by the required votes of the depositors of St. Landry Homestead Federal Savings Bank at a special meeting of depositors to be held on         , 2021;

We receive orders for at least the minimum number of shares of common stock offered in the offering; and
 
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We receive final regulatory approval from the Office of the Comptroller of the Currency to complete the conversion and offering. Any approval by the Office of the Comptroller of the Currency does not constitute a recommendation or endorsement of the plan of conversion.
Steps We May Take if We Do Not Receive Orders for the Minimum Number of Shares
If we do not receive orders for at least 3,400,000 shares of common stock, we may take several steps in order to sell the minimum number of shares of common stock in the offering range. Specifically, we may:
(i)
increase the purchase limitations; and/or
(ii)
seek regulatory approval to extend the offering beyond         , 2021, so long as we resolicit subscribers who previously submitted subscriptions in the offering.
If we extend the offering past          , 2021, all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will cancel your stock order and promptly return your funds with interest at 0.10% per annum for funds received in the subscription and community offering or cancel your deposit account withdrawal authorization. If one or more purchase limitations are increased, subscribers in the subscription offering who ordered the maximum amount will be given the opportunity to increase their subscriptions up to the then-applicable limit.
Possible Change in the Offering Range
RP Financial will update its appraisal before we complete the offering. If, as a result of demand for the shares or changes in market conditions, RP Financial determines that our pro forma market value has increased, we may sell up to 5,290,000 shares in the offering without further notice to you. If, however, the updated appraisal indicates our pro forma market value is either below $34.0 million or above $52.9 million, then, after consulting with the Office of the Comptroller of the Currency, we may:

terminate the offering and promptly return all funds (with interest paid on funds received in the subscription and community offerings);

set a new offering range; or

take such other actions as may be permitted by the Office of the Comptroller of the Currency and the Securities and Exchange Commission.
If we set a new offering range, we will promptly return funds, with interest at 0.10% per annum for funds received for purchases in the subscription and community offerings, and cancel any authorization to withdraw funds from deposit accounts for the purchase of shares of common stock. We will then resolicit subscribers, allowing them to place a new stock order for a period of time.
Possible Termination of the Offering
We may terminate the offering at any time with regulatory approval. If we terminate the offering, we will promptly return your funds with interest at 0.10% per annum, and we will cancel deposit account withdrawal authorizations.
Benefits to Management and Potential Dilution to Shareholders Resulting from the Offering
We expect our employee stock ownership plan, which is a tax-qualified retirement plan for the benefit of all employees of St. Landry Homestead Federal Savings Bank, to purchase up to 8% of the shares of common stock we sell in the offering. If market conditions warrant, in the judgment of its trustees, the employee stock ownership plan’s subscription order may not be filled in the subscription offering and the employee stock ownership plan may elect to purchase shares in the open market following the completion of the offering, subject to the approval of the Office of the Comptroller of the Currency.
We intend to implement one or more new stock-based benefit plans no earlier than six months after completion of the offering. Shareholder approval of these plans would be required. We have not determined whether we will adopt the plans within 12 months following the completion of the offering or more than
 
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12 months following the completion of the offering. If we implement stock-based benefit plans within 12 months following the completion of the offering, the stock-based benefit plans would reserve a number of shares (i) up to 4% of the shares of common stock sold in the offering, for awards of restricted stock to key employees and directors, at no cost to the recipients, and (ii) up to 10% of the shares of common stock sold in the offering for issuance pursuant to the exercise of stock options by key employees and directors. These percentage limitations are required by the Office of the Comptroller of the Currency regulations. If the stock-based benefit plans are adopted more than 12 months after the completion of the offering, they would not be subject to the percentage limitations set forth above. Our employment agreement with Mr. Zanco provides that we will offer him the maximum allocation allowed for stock options and restricted stock awards (currently 25% of the respective plans), and that he will receive a $100,000 bonus upon completion of the conversion.
The following table summarizes the number of shares of common stock and the aggregate dollar value of grants that are available under one or more stock-based benefit plans if such plans reserve for restricted stock awards and stock options, respectively, a number of shares of common stock equal to 4% and 10% of the shares sold in the offering. The table shows the dilution to shareholders if all such shares are issued from authorized but unissued shares, instead of shares purchased in the open market. The table also sets forth the number of shares of common stock to be acquired by the employee stock ownership plan for allocation to all qualifying employees.
Number of Shares to be Granted or Purchased
Value of Grants(1)
At
Minimum
of Offering
Range
At
Adjusted
Maximum
of Offering
Range
As a
Percentage
of Common
Stock to be
Sold in the
Offering
As a
Percentage
of Common
Stock to be
Outstanding
Dilution
Resulting
From
Issuance of
Shares for
Stock-Based
Benefit Plans
At
Minimum
of Offering
Range
At
Adjusted
Maximum
of Offering
Range
Employee stock ownership plan(2)
272,000 423,200 8.00% 8.00% 0.00% $ 2,720,000 $ 4,232,000
Restricted stock awards
136,000 211,600 4.00 4.00 3.85 1,360,000 2,116,000
Stock options
340,000 529,000 10.00 10.00 9.09 1,207,000 1,877,950
Total
748,000 1,163,800 22.00% 22.00% 12.28% $ 5,287,000 $ 8,225,950
(1)
The actual value of restricted stock awards will be determined based on their fair value at the date of grant. For purposes of this table, the fair value for awards is assumed to be the same as the offering price of $10.00 per share. The fair value of stock options has been estimated at $3.55 per option using the Black-Scholes option pricing model with the following assumptions: a grant-date share price and option exercise price of $10.00; an expected option term of 10 years; no dividend yield; a risk-free rate of return of 1.74%; and expected volatility of 23.62%. The actual value of option grants will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing model ultimately adopted.
(2)
No dilution is reflected for the employee stock ownership shares because such shares are assumed to be purchased in the offering.
Tax Consequences
Catalyst Bancorp and St. Landry Homestead Federal Savings Bank have received an opinion of counsel, Silver, Freedman, Taff & Tiernan LLP, regarding the material federal income tax consequences, and have received the opinion of Castaing, Hussey & Lolan, LLC regarding the material Louisiana income tax consequences, of the conversion and offering. As a general matter, the conversion and offering will not be a taxable transaction for purposes of federal or state income taxes to Catalyst Bancorp, St. Landry Homestead Federal Savings Bank or persons eligible to subscribe for shares of stock in the subscription offering.
 
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Emerging Growth Company Status
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012. For as long as we so qualify we exempt ourselves from various reporting requirements applicable to other public companies but not to emerging growth companies. See “Risk Factors — Risks Related to the Offering — We are an emerging growth company, and any decision by us to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors” and “Supervision and Regulation — Emerging Growth Company Status.”
We intend to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
Risk Factors
An investment in Catalyst Bancorp’s common stock is subject to risk, including risks related to our business and this offering.
Specific risks related to our business include, but are not limited to, those related to the ongoing coronavirus disease 2019 (“COVID-19”) pandemic and the associated economic slowdown; our emphasis on residential mortgage lending; our planned increase in commercial and multi-family real estate and commercial lending; our allowance for loan losses; the susceptibility of the markets we operate in to natural disasters; the geographic concentration of our loan portfolio and local and national economic conditions; our net loss for the year ended December 31, 2020 and our prospects for profitability in the near-term; economic conditions in our local market areas; our business strategy to grow our business and operations; our dependence on our management team; our strategy to grow through mergers and acquisitions; our branch office strategy; our liquidity management; competition within our market area; changes in interest rates; reputation risk; our dependence on information technology and telecommunications systems and third-party service providers; cybersecurity risks; our ability to keep pace with technological changes; operational risks resulting from the high volume of transactions we process; acts of terrorism or other external events; and changes in and compliance with laws and regulations and accounting rules and best practices.
Specific risks related to this offering include, but are not limited to, those related to the future trading price of the common stock of Catalyst Bancorp; the trading market for the common stock of Catalyst Bancorp; the broad discretion we have over the use of the net offering proceeds; the intended new stock-based benefit plans; the return on equity after the completion of the offering; anti-takeover factors; the potential lack of dividends on our common stock; the potential for delay in an investor’s ability to sell shares of common stock immediately following the offering; the irrevocability of your investment decision; and, our status as an emerging growth company.
Before making an investment decision, you should read this entire document carefully, including the section entitled “Risk Factors” that follows and that discusses the above risks in further detail.
How You Can Obtain Additional Information — Stock Information Center
Our banking personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the conversion and offering, call our Stock Information Center at (844) 303-2265. The Stock Information Center is open Monday through Friday between 10:00 a.m. and 4:00 p.m., Central Time. The Stock Information Center will be closed on weekends and bank holidays.
 
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RISK FACTORS
You should consider carefully the following risk factors, in addition to all other information in this prospectus, in evaluating an investment in our common stock.
Risks Related to Our Business
Risks Related to the COVID-19 Pandemic and the Associated Economic Slowdown
The widespread outbreak of COVID-19 pandemic has adversely affected, and will likely continue to adversely affect, our business, financial condition, and results of operations. Moreover, the longer the pandemic persists, the more material the ultimate effects are likely to be.
The COVID-19 pandemic continues to negatively impact economic and commercial activity and financial markets, both globally and within the United States. In our market area, stay-at-home orders and travel restrictions — and similar orders imposed across the United States to restrict the spread of COVID-19 — resulted in significant business and operational disruptions, including business closures, supply chain disruptions, and mass layoffs and furloughs. Local jurisdictions have subsequently lifted stay-at-home orders and moved to phased reopening of businesses, although capacity restrictions and health and safety recommendations that encourage continued physical distancing and working remotely have limited the ability of businesses to return to pre-pandemic levels of activity.
We have implemented business continuity plans and continue to provide financial services to clients, while taking health and safety measures such as limiting access to the interior of our facilities, frequently cleaning our facilities, and using a remote workforce where possible. Despite these safeguards, we may nonetheless experience business disruptions.
The COVID-19 pandemic has negatively affected our business and is likely to continue to do so. Through March 31, 2021, we had provided $7.1 million in Paycheck Protection Program (“PPP”) loans for approximately 150 new and existing customers. During the three months ended March 31, 2021 and the year ended December 31, 2020, we also granted eligible loan modifications in the form of payment deferral of principal for an aggregate of $27.8 million of loans under the 2020 Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Generally, these modifications included the deferral of principal payments for a period of three months and a three-month extension of the maturity date. At March 31, 2021, we had one loan outstanding with a balance of $39,000 on a COVID-19 related extension. In addition, at March 31, 2021, included in our commercial real estate loans portfolio were nine loans, with an aggregate outstanding balance of $11.6 million at such date, which were secured by hotel properties. While all of such loans were performing in accordance with their terms at such date, the hospitality industry has been particularly hard-hit by the COVID-19 pandemic, and we are closely monitoring our loans in the hotel segment.
The extent to which COVID-19 will continue to negatively affect our business is unknown and will depend on the geographic spread of the virus, the overall severity of the disease, the duration of the pandemic, the actions undertaken by national, state and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume. The longer the pandemic persists, the more material the ultimate effects are likely to be.
The continued spread of COVID-19 and the efforts to contain the virus, including stay-at-home orders and travel restrictions, could, among other things: (1) cause changes in consumer and business spending, borrowing and saving habits, which may affect the demand for loans and other products and services we offer, as well as the creditworthiness of potential and current borrowers; (2) cause our borrowers to be unable to meet existing payment obligations, particularly those borrowers that may be disproportionately affected by business shut downs and travel restrictions, such as those operating in the lodging, retail, travel and entertainment industries, resulting in increases in loan delinquencies, problem assets, and foreclosures; (3) cause the value of collateral for loans, especially real estate, to decline in value; (4) reduce the availability and productivity of our employees; (5) require us to increase our allowance for credit losses; (6) cause our vendors and counterparties to be unable to meet existing obligations to us; (7) negatively impact the business
 
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and operations of third party service providers that perform critical services for our business; (8) impede our ability to close mortgage loans, if appraisers and title companies are unable to perform their functions; (9) cause the value of our securities portfolio to decline; and (10) cause the net worth and liquidity of loan guarantors to decline, impairing their ability to honor commitments to us.
Any one or a combination of the above events could have a material, adverse effect on our business, financial condition, and results of operations.
Risks Related to Our Lending Activities
Our emphasis on residential mortgage loans exposes us to lending risks.
At March 31, 2021, $95.1 million, or 65.1%, of our loan portfolio was secured by one- to four-family residential real estate and we intend to continue to make loans of this type after the offering. One- to four-family residential mortgage lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. Declines in real estate values could cause some of our residential mortgages to be inadequately collateralized, which would expose us to a greater risk of loss if we seek to recover on defaulted loans by selling the real estate collateral. In addition, a significant portion of our one- to four-family residential loans are considered non-conforming loans. We estimate that, during the three months ended March 31, 2021 and the years ended December 31, 2020 and 2019, approximately 48%, 57% and 66%, respectively, of our newly originated one -to four-family residential mortgage loans were non-conforming, primarily due to relatively low credit scores or relatively high debt to income ratios of our borrowers and/or high loan to value ratios of the properties securing the loans. By making such non-conforming loans, we believe we are serving the credit needs of our low- and moderate-income customers in our service areas. However, by their terms, non-conforming mortgage loans are not readily saleable into the secondary mortgage market. Accordingly, such loans have increased risk as we likely will have to continue to hold such loans in our portfolio until their maturity or refinancing with another institution.
Our planned increase in commercial and multi-family real estate and commercial lending could expose us to increased lending risks and related loan losses.
At March 31, 2021, we had an aggregate of $41.7 million in commercial real estate, multi-family and commercial and industrial loans (which include non-residential real estate loans, multi-family loans and commercial business loans), which represented 28.6% of our total loan portfolio at that date. Our current business strategy is to increase our originations of commercial real estate loans and commercial and industrial loans in accordance with our underwriting guidelines. Commercial real estate loans generally expose a lender to greater risk of non-payment and loss than one- to four-family residential mortgage loans because repayment of the loans often depends on the successful operation of the properties and the income stream of the borrowers. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans.
The offering will allow us to increase our loans-to-one borrower limit which may result in larger loan balances. In addition, to the extent that borrowers have more than one commercial loan outstanding, an adverse development with respect to one loan or one credit relationship could expose us to a significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential real estate loan. Furthermore, if loans that are collateralized by commercial real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could cause us to increase our provision for loan losses and adversely affect our operating results and financial condition.
If our allowance for loan losses is not sufficient to cover actual loan losses, our results of operations would be negatively affected.
In determining the amount of the allowance for loan losses, we analyze, among other things, our loss and delinquency experience by portfolio segments and we consider the effect of existing economic conditions. In addition, we make various assumptions and judgments about the collectability of our loan portfolio,
 
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including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. If the actual results are different from our estimates, or our analyses are inaccurate, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to our allowance and would decrease our net income. Our emphasis on loan growth and on increasing our portfolio, as well as any future credit deterioration, will require us to increase our allowance further in the future.
In addition, Federal banking regulators periodically review 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. Any increase in our allowance for loan losses or loan charge-offs may have a material adverse effect on our results of operations and financial condition.
The markets in which we operate are susceptible to hurricanes and other natural disasters, which could result in a disruption of our operations and increases in loan losses.
A significant portion of our business is generated from markets in southern Louisiana that have been, and may continue to be, damaged by major hurricanes, floods, tropical storms, tornadoes and other natural disasters. Natural disasters can disrupt our operations, cause widespread property damage, and severely depress the local economies in which we operate. Natural disasters could harm our operations directly through interference with communications and damage to our facilities and our operational, financial and management information systems, any of which could impair our ability to conduct business. In addition, if the economies in our primary markets experience an overall decline as a result of adverse weather or other natural disasters, demand for loans and our other products and services could be reduced. The rates of delinquencies, foreclosures, bankruptcies and losses in our loan portfolios may increase substantially, as uninsured property losses or sustained job interruption or loss may materially impair borrowers’ abilities to repay their loans. Moreover, the value of real estate or other collateral that secures our loans could be materially and adversely affected by a natural disaster. A natural disaster could, therefore, result in decreased revenue and increased loan losses. All of these consequences could have a material adverse effect on our business, financial condition and results of operations.
The geographic concentration of our loan portfolio and lending activities makes us vulnerable to a downturn in our local market area.
While there is not a single employer or industry in our market area on which a significant number of our customers are dependent, a substantial portion of our loan portfolio is comprised of loans secured by property located in the Acadiana region, particularly in St. Landry Parish and contiguous parishes in south central Louisiana. This makes us vulnerable to a downturn in the local economy and real estate markets. Adverse conditions in the local economy such as unemployment, recession, a catastrophic event or other factors beyond our control could impact the ability of our borrowers to repay their loans, which could impact our net interest income. Decreases in local real estate values caused by economic conditions, recent changes in tax laws or other events could adversely affect the value of the property used as collateral for our loans, which could cause us to realize a loss in the event of a foreclosure. Further, deterioration in local economic conditions could drive the level of loan losses beyond the level we have provided for in our allowance for loan losses, which in turn could necessitate an increase in our provision for loan losses and a resulting reduction to our earnings and capital. Although the markets we operate in have not, during the past year, experienced any material declines in real estate values or material increases in the number of foreclosures, no assurance can be given that such adverse events will not occur.
Economic conditions could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which could have an adverse effect on our results of operations.
Prolonged deteriorating economic conditions could significantly affect the markets in which we do business, the value of our loans and investment securities, and our ongoing operations, costs and profitability. Further, declines in real estate values and sales volumes and elevated unemployment levels may result in higher loan delinquencies, increases in our non-performing and classified assets and a decline in demand for
 
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our products and services. These events may cause us to incur losses and may adversely affect our financial condition and results of operations. Reduction in problem assets can be slow, and the process can be exacerbated by the condition of the properties securing non-performing loans and the foreclosure process in Louisiana, where the majority of our borrowers reside. To the extent that we must work through the resolution of assets, economic problems may cause us to incur losses and adversely affect our capital, liquidity, and financial condition.
Risks Related to our Business Strategy
We incurred a net loss in the year ended December 31, 2020, and we may not achieve significant profitability from our business strategies and growth plan in the near term.
During the year ended December 31, 2020, we had a net loss of $703,000. Our loss in 2020 compared to net income of $1.3 million in the year ended December 31, 2019, primarily was the result of a $1.7 million increase in non-interest expense, which included $1.5 million (pre-tax) in prepayment penalties recognized on Federal Home Loan Bank advances, and a $910,000 increase in the provision for loan losses. For the three months ended March 31, 2021, our net income was $151,000.
We believe growth and expansion of our business operations is essential to our future profitability. We expect to incur expenses related to the implementation of our growth plan, including possible hiring initiatives, and the development and marketing of new products and services. In addition, the conversion and offering will have a short-term adverse impact on our operating results, due to additional costs related to becoming a public company, increased compensation expenses associated with our employee stock ownership plan and the possible implementation of a stock-based benefit plan after the completion of the conversion and offering.
Our ability to achieve profitability depends upon a number of factors, including, we believe, most importantly our ability to increase our revenues and grow our asset size. In order to grow, we need to successfully implement our business strategy, including increasing our loan originations, especially commercial loans, while managing expenses. Our ability to achieve profitability will also be affected by competition with other financial institutions, changes to the interest rate environment that may reduce our profit margins or impair our business strategy, adverse changes in the securities markets, changes in laws or government regulations, changes in consumer spending, borrowing, or saving, and changes in accounting policies, as well as other risks and uncertainties described in this “Risk Factors” section.
We are not in a high-growth market area, and continued adverse economic conditions, especially affecting our market area, could adversely affect our financial condition and results of operations. Additionally, economic growth in the United States has been slow and unemployment levels are high.
Our success depends primarily on the general economic conditions in our market area which we consider to be St. Landry Parish, Lafayette Parish and adjoining areas in the Acadiana region of south central Louisiana. We have relatively few loans outside of our market area, and, as a result, we have a greater risk of loan defaults and losses in the event of an economic downturn in our market area, as adverse economic conditions may have a negative effect on the ability of our borrowers to make timely payments of their loans. According to the United States census, the estimated July 2019 population of St. Landry Parish was 82,124, representing a 1.5% decrease from the 2010 census population of 83,390. The estimated July 2019 population of Lafayette Parish was 244,390, a 10.2% increase from the 2010 census population. During the same period, the population in Louisiana is estimated to have grown by 2.5%. According to U.S. Census data, the median household income in St. Landry Parish and Lafayette Parish, in 2019 dollars (for 2015-2019), was $36,403 and $56,999, respectively, compared to median household income of $49,969 and $62,843, respectively, for Louisiana and the United States for such period. For the same period, 22.6% and 16.6% of residents of St. Landry Parish and Lafayette Parish, respectively, lived below the poverty level.
Unlike larger banks that are more geographically diversified, we provide banking and financial services to customers primarily in this area. The local economic conditions in our market area, therefore, have a significant impact on our lending, the ability of the borrowers to repay their loans and the value of the collateral securing loans.
 
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Our business strategy includes loan growth, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively. Growing our operations could also cause our expenses to increase faster than our revenues.
Our business strategy primarily focuses on loan growth, funded by deposits. Achieving such growth may require us to attract customers that currently bank at other financial institutions in our market area. Our ability to successfully grow will depend on a variety of factors, including our ability to attract and retain experienced bankers, the continued availability of desirable business opportunities, the level of competition from other financial institutions in our market area and our ability to manage our growth. Growth opportunities may not be available or we may not be able to manage our growth successfully. If we do not manage our growth effectively, our financial condition and operating results could be negatively affected. Furthermore, there can be considerable costs involved in opening branches and expanding lending capacity, and generally a period of time is required to generate the necessary revenues to offset these costs, especially in areas in which we do not have an established presence. Accordingly, any such business expansion can be expected to negatively impact our earnings until certain economies of scale are reached. Our expenses could be further increased if we encounter delays in executing our business strategy.
We depend on our management team and other key personnel to implement our business strategy and execute successful operations and we could be harmed by the loss of their services or the inability to hire additional personnel.
We depend on the services of the members of our senior management team who direct our strategy and operations. Our executive officers and lending personnel possess substantial expertise, extensive knowledge of our markets and key business relationships, and will be integral in implementing our business strategy. Any one of them could be difficult to replace. Our loss of these persons, or our inability to hire additional qualified personnel, could impact our ability to implement our business strategy and could have a material adverse effect on our results of operations and our ability to compete in our markets. See “Management.”
We are subject to certain risks in connection with our strategy of growing through mergers and acquisitions.
We expect that acquisitions of banking institutions and other financial service companies within and surrounding our market area will be a component of our business strategy. While we do not currently have any understandings, commitments or agreements regarding any acquisitions, we anticipate that we will seek to acquire other banking institutions, other financial services companies or branches of financial institutions in the future. Acquisitions typically involve the payment of a premium over book and trading values and, therefore, may result in the dilution of our tangible book value per share. Our ability to engage in future mergers and acquisitions depends on various factors, including: (1) our ability to identify suitable merger partners and acquisition opportunities; (2) our ability to finance and complete transactions on acceptable terms and at acceptable prices; and (3) our ability to receive the necessary regulatory and, when required, shareholder approvals. Our inability to engage in an acquisition or merger for any of these reasons could have an adverse impact on the implementation of our business strategies. Furthermore, mergers and acquisitions involve a number of risks and challenges, including (1) our ability to achieve planned synergies and to integrate the branches and operations we acquire, and the internal controls and regulatory functions of the acquired entity into our current operations and (2) the diversion of management’s attention from existing operations, which may adversely affect our ability to successfully conduct our business and negatively impact our financial results.
The building of market share through our branch office strategy, and our ability to achieve profitability on new branch offices, may increase our expenses and negatively affect our earnings.
We have opened two new branch banking offices in the past two years and we recently contracted to purchase an office in Lafayette, which we expect to open as a new branch office by year-end 2021. We anticipate that the capitalized costs for the purchase and renovation of this new office site will be approximately $1.4 million. We may open additional offices within our market area and adjacent markets after the conversion as part of our efforts to grow our deposit base. There are considerable costs involved in opening branch offices, especially in light of the capabilities needed to compete in today’s environment. Moreover,
 
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new branch offices generally require a period of time to generate sufficient revenues to offset their costs, especially in areas in which we do not have an established presence. Based on our two newest branch offices, we anticipate that a three- to five-year period is required before a new branch banking office becomes profitable to our operations. Accordingly, new branch offices could negatively impact our earnings and may do so for some period of time. Our investments in products and services, and the related personnel required to implement new policies and procedures, take time to earn returns and can be expected to negatively impact our earnings for the foreseeable future. The profitability of our expansion strategy will depend on whether the income that we generate from the new branch offices will offset the increased expenses resulting from operating these branch offices.
Risks Related to Our Business and Industry Generally
Ineffective liquidity management could adversely affect our financial results and condition.
Effective liquidity management is essential for the operation of our business. We require sufficient liquidity to meet customer loan requests, customer deposit maturities/withdrawals, payments on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances causing industry or general financial market stress. Our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that could detrimentally impact our access to liquidity sources include a downturn in the geographic markets in which our loans and operations are concentrated or difficult credit markets. Our access to deposits may also be affected by the liquidity needs of our depositors. In particular, a majority of our liabilities are checking accounts and other liquid deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial majority of our assets are loans, which cannot be called or sold in the same time frame. Although we have historically been able to replace maturing deposits and advances as necessary, we might not be able to replace such funds in the future, especially if a large number of our depositors seek to withdraw their accounts, regardless of the reason. A failure to maintain adequate liquidity could materially and adversely affect our business, results of operations or financial condition.
Strong competition within our market area could hurt our profits and slow growth.
Our profitability depends upon our continued ability to compete successfully in our market area. We face intense competition both in making loans and attracting deposits. We continue to face stiff competition for one- to four-family residential loans from other financial service providers, including large national residential lenders, local community banks and credit unions. Other competitors for one- to four-family residential loans include credit unions and mortgage brokers which keep overhead costs and mortgage rates down by selling loans and not holding or servicing them. Our competitors for commercial real estate loans include other community banks and commercial lenders, some of which are larger than us and have greater resources and lending limits than we have and offer services that we do not provide. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which reduces net interest income. We expect competition to remain strong in the future.
We are a community bank and our ability to maintain our reputation is critical to the success of our business. The failure to do so may adversely affect our performance.
We are a community bank and our reputation is one of the most valuable assets of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area and contiguous areas. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers. If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers or otherwise, our business and operating results may be materially adversely affected.
 
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We are dependent on our information technology and telecommunications systems and third-party service providers; systems failures, interruptions and cybersecurity breaches could have a material adverse effect on us.
Our business is dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party service providers. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If significant, sustained or repeated, a system failure or service denial could compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on us.
Our third-party service providers may be vulnerable to unauthorized access, computer viruses, phishing schemes and other security breaches. We likely will expend additional resources to protect against the threat of such security breaches and computer viruses, or to alleviate problems caused by such security breaches or viruses. To the extent that the activities of our third-party service providers or the activities of our customers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, regulatory scrutiny, litigation costs and other possible liabilities.
Security breaches and cybersecurity threats could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, as well as personally identifiable information about our customers and employees. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. We, our customers, and other financial institutions with which we interact, are subject to ongoing, continuous attempts to penetrate key systems by individual hackers, organized criminals, and in some cases, state-sponsored organizations. We have established policies and procedures to prevent or limit the impact of cyber-attacks and cybersecurity threats. Although to date we have not experienced any losses or other material consequences relating to cyber-attacks of our systems, cybersecurity threats involving our information technology network or our data collection and storage function, there can be no assurance that such events will not occur or will be adequately addressed if they do. In addition, we also outsource certain cybersecurity functions, such as penetration testing, to third party service providers, and the failure of these service providers to adequately perform such functions could increase our exposure to security breaches and cybersecurity threats. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other malicious code and cyber-attacks that could have an impact on information security. Any such breach or attacks could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such unauthorized access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties; disrupt our operations and the services we provide to customers; damage our reputation; and cause a loss of confidence in our products and services, all of which could adversely affect our financial condition and results of operations. Recently, we discovered that one of our business customers had been the target of an apparent fraud involving the hacking of the customer’s e-mail account and a subsequent unauthorized transfer of $250,000 from the customer’s account at the Bank. The fraud did not involve an intrusion of any of our computer systems. Recently, $134,000 of such funds were returned to us from the recipient financial institution that received the fraudulent transfer. We are still reviewing the matter, but expect that a charge to earnings, expected to be no more than $116,000 ($92,000 net of tax effect), will be taken in the quarter ending June 30, 2021 due to this fraud. Our loss may be reduced further depending upon the result of a potential insurance claim that we may pursue.
We must keep pace with technological change to remain competitive.
Financial products and services have become increasingly technology-driven. Our ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on the ability to keep
 
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pace with technological advances and to invest in new technology as it becomes available, as well as related essential personnel. In addition, technology has lowered barriers to entry into the financial services market and made it possible for financial technology companies and other non-bank entities to offer financial products and services traditionally provided by banks. The ability to keep pace with technological change is important, and the failure to do so, due to cost, proficiency or otherwise, could have a material adverse impact on our business and therefore on our financial condition and results of operations.
Because the nature of the financial services business involves a high volume of transactions, we face significant operational risks.
We operate in diverse markets and rely on the ability of our employees and systems to process a high number of transactions. Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by employees or outside persons, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of our internal control system and compliance requirements, and business continuation and disaster recovery. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulations, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. Although our control testing has not identified any significant deficiencies in our internal control system, a breakdown in our internal control system, improper operation of our systems or improper employee actions could result in material financial loss to us, the imposition of regulatory action, and damage to our reputation.
Acts of terrorism and other external events could impact our business.
Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and communication systems. Such events could cause significant damage, impact the stability of our facilities and result in additional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing repayment of our loans, and result in the loss of revenue. The occurrence of any such event could have a material adverse effect on our business, operations and financial condition.
Regulation of the financial services industry is intense, and we may be adversely affected by changes in laws and regulations.
St. Landry Homestead Federal Savings Bank is subject to extensive government regulation, supervision and examination by the Office of the Comptroller of the Currency. In addition, Catalyst Bancorp will be subject to extensive regulation, supervision and examination by the Federal Reserve Board. Such regulation, supervision and examination govern the activities in which we may engage and are intended primarily for the protection of the deposit insurance fund and St. Landry Homestead Federal Savings Bank’s depositors and not for the protection of shareholders. Federal and state regulatory agencies have the ability to take strong supervisory actions against financial institutions that have experienced increased loan production and losses and other underwriting weaknesses or have compliance weaknesses. These actions include the entering into of formal or informal written agreements and cease and desist orders that place certain limitations on their operations. If we were to become subject to a regulatory action, such action could negatively impact our ability to execute our business plan, and result in operational restrictions, as well as our ability to grow, pay dividends, repurchase stock or engage in mergers and acquisitions. See “Supervision and Regulation — Federal Banking Regulation — Capital Requirements” for a discussion of regulatory capital requirements.
A tightening of credit markets and liquidity risk could impair our ability to fund operations and jeopardize our financial condition.
Liquidity is essential to our business. A tightening of the credit markets and the inability to obtain adequate funding to replace deposits and fund continued loan growth may affect asset growth, our earnings capability and capital levels negatively. We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of liquidity are increases in deposit accounts, including brokered deposits, as well as cash flows from loan payments and our securities portfolio. Borrowings, especially
 
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from the Federal Home Loan Bank, also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include adverse regulatory action against us or a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated. Our ability to borrow also could be impaired by factors that are not specific to us, such as a disruption in the financial markets, negative views and expectations about the prospects for the financial services industry or deterioration in credit markets.
Future changes in interest rates could reduce our profits and affect the value of our assets and liabilities.
Net income is the amount by which net interest income and non-interest income exceed non-interest expense, the provision for loan losses and taxes. Net interest income makes up a majority of our net income and is based on the difference between:

the interest income we earn on interest-earning assets, such as loans and securities; and

the interest expense we pay on interest-bearing liabilities, such as deposits and borrowings.
The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. Like many financial institutions, our liabilities generally have shorter contractual maturities than our assets. This imbalance can create significant earnings volatility because market interest rates change over time. In addition, changes in interest rates can affect the average life of loans and mortgage-backed and related securities. In a period of rising interest rates, the interest income we earn on our assets may not increase as rapidly as the interest we pay on our liabilities. A decline in interest rates results in increased prepayments of loans and mortgage-backed and related securities as borrowers refinance their debt to reduce their borrowing costs. This creates reinvestment risk, which is the risk that we may not be able to reinvest prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities. Furthermore, an inverted interest rate yield curve, where short-term interest rates (which are usually the rates at which financial institutions borrow funds) are higher than long-term interest rates (which are usually the rates at which financial institutions lend funds for fixed-rate loans) can reduce a financial institution’s net interest margin and create financial risk for financial institutions that originate longer-term, fixed-rate mortgage loans. At March 31, 2021, 24.2% of our loans with maturities after March 31, 2022 consisted of fixed-rate loans.
Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Changes in the level of interest rates also may negatively affect the value of our assets and liabilities and ultimately affect our earnings.
We monitor interest rate risk through the use of simulation models, including estimates of net portfolio value (“NPV”), which is the estimated market value of assets minus the market value of liabilities adjusted for off-balance sheet items, would change in the event of a range of assumed changes in market interest rates. As of March 31, 2021, in the event of an immediate and sustained 300 basis point increase in interest rates, we estimate that we would experience a 7.0% decrease in NPV. For further discussion of how changes in interest rates could impact us, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Exposure to Changes in Interest Rates.”
Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.
St. Landry Homestead Federal Savings Bank is subject to extensive regulation, supervision and examination by the Office of the Comptroller of the Currency, and Catalyst Bancorp will be subject to extensive regulation, supervision and examination by the Federal Reserve Board. Such regulation and supervision govern the activities in which an institution and its holding company may engage and are intended primarily for the protection of the federal deposit insurance fund and the depositors of St. Landry Homestead Federal Savings Bank, rather than for our shareholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our
 
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operations, the classification of our assets and determination of the level of our allowance for loan and lease losses. These regulations, along with existing tax, accounting, securities, insurance and monetary laws, rules, standards, policies, and interpretations, control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent accounting firm. These changes could materially impact, potentially even retroactively, how we report our financial condition and results of operations. See “—  We are subject to an extensive body of accounting rules and best practices. Periodic changes to such rules may change the treatment and recognition of critical financial line items and affect our profitability.”
We are subject to an extensive body of accounting rules and best practices. Periodic changes to such rules may change the treatment and recognition of critical financial line items and affect our profitability.
The nature of our business makes us sensitive to the large body of accounting rules in the United States. From time to time, the governing bodies that oversee changes to accounting rules and reporting requirements may release new guidance for the preparation of our financial statements. These changes can materially impact how we record and report our financial condition and results of operations. In some instances, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. Changes which have been approved for future implementation, or which are currently proposed or expected to be proposed or adopted include requirements that we calculate the allowance for loan and lease losses on the basis of the current expected credit losses over the lifetime of our loans, referred to as the CECL model, which is expected to be applicable to us, as an emerging growth company, beginning in 2023. CECL adoption will have broad impact on our financial statements, which will affect key profitability and solvency measures, including, but not limited to higher loan loss reserve levels and related deferred tax assets. Increased reserve levels also may lead to a reduction in capital levels. Any such changes could have a material adverse effect on our business, financial condition and results of operations.
Under the CECL model, banks will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The forward-looking modeling required by CECL relies on a number of macroeconomic variables. Unexpected changes to such indicators between periods could potentially result in greater earnings volatility from period to period. Our reserves may need to be adjusted in response to not only our actual experience, but also to external factors. If we are required to materially increase the level of the allowance for loan losses for any reason, such increase could adversely affect our business, financial condition and results of operations.
An additional impact of CECL will be the asymmetry in accounting between loan related income, which will continue to be recognized on a periodic basis based on the effective interest method, and the related credit losses, which will be recognized up front at origination. This will make periods of loan expansion seem less profitable due to the immediate recognition of expected credit losses. Periods of stable or declining loan levels will look comparatively more profitable as the income trickles in for loans, where losses had been previously recognized.
Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.
The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are suspected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish
 
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procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on pursuing acquisitions or establishing new branches. The policies and procedures we have adopted that are designed to assist in compliance with these laws and regulations may not be effective in preventing violations of these laws and regulations. Furthermore, these rules and regulations continue to evolve and expand. Although to date we have not been subject to any fines or other sanctions related to these rules and regulations, there can be no assurance that we will not suffer any penalties or other consequences in the future.
The cost of additional finance and accounting systems, procedures, compliance and controls in order to satisfy our new public company reporting requirements will increase our expenses.
As a result of the completion of this offering, we will become a public reporting company. We expect that the obligations of being a public company, including the substantial public reporting obligations, will require significant expenditures and place additional demands on our management team. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. Any failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business and stock price. In addition, we may need to hire additional compliance, accounting and financial staff with appropriate public company experience and technical knowledge, and we may not be able to do so in a timely fashion. As a result, we may need to rely on outside consultants to provide these services for us until qualified personnel are hired. These obligations will increase our operating expenses and could divert our management’s attention from our operations.
Changes in management’s estimates and assumptions may have a material impact on our financial statements and our financial condition or operating results.
In preparing this prospectus as well as periodic reports we will be required to file under the Securities Exchange Act of 1934, including our financial statements, our management is and will be required under applicable rules and regulations to make estimates and assumptions as of a specified date. These estimates and assumptions are based on management’s best estimates and experience as of that date and are subject to substantial risk and uncertainty. Materially different results may occur as circumstances change and additional information becomes known. Areas requiring significant estimates and assumptions by management include our evaluation of the adequacy of our allowance for loan and lease losses and our determinations with respect to amounts owed for income taxes.
We are subject to environmental liability risk associated with lending activities or properties we own.
A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties, or with respect to properties that we own in operating our business. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous conditions or toxic substances are found on these properties, we may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected any particular property. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Our policies, may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.
Risks Related to the Offering
The future price of our common stock may be less than the $10.00 per share purchase price in the offering.
If you purchase shares of common stock in the offering, you may not be able to sell them later at or above the $10.00 per share purchase price in the offering. In some cases, shares of common stock issued by
 
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newly converted financial institutions or mutual holding companies have traded below the initial offering price. The aggregate purchase price of the shares of common stock sold in the offering will be based on an independent appraisal. The independent appraisal is not intended, and should not be construed, as a recommendation of any kind as to the advisability of purchasing shares of common stock. The independent appraisal is based on certain estimates, assumptions and projections, all of which are subject to change from time to time. After the shares begin trading, the trading price of our common stock will be determined by the marketplace, and may be influenced by many factors, including prevailing interest rates, the overall performance of the economy, changes in federal tax laws, new regulations, investor perceptions of Catalyst Bancorp and the outlook for the financial services industry in general. Price fluctuations in our common stock may be unrelated to our operating performance.
The capital we raise in the offering may negatively impact our return on equity until we can fully implement our business plan. This could negatively affect the trading price of our shares of common stock.
Net income divided by average equity, known as “return on equity,” is a ratio many investors use to compare the performance of a financial institution to its peers. Although we anticipate increasing net interest income using proceeds of the offering, our return on equity will be reduced by the capital raised in the offering, higher expenses from the costs of being a public company, and added expenses associated with our employee stock ownership plan and the stock-based benefit plans we intend to adopt. Until we can implement our business plan and increase our net interest income through investment of the proceeds of the offering, we expect our return on equity to remain relatively low compared to our peer group, which may reduce the value of our shares.
We have broad discretion in using the proceeds of the offering. Our failure to effectively deploy the net proceeds of the offering may have an adverse effect on our financial performance and the value of our common stock.
We intend to invest between $16.3 million and $22.2 million, or $25.7 million if the offering is increased by 15%, of the net proceeds of the offering in St. Landry Homestead Federal Savings Bank. We also expect to use a portion of the net proceeds we retain to fund a loan to the employee stock ownership plan for the purchase of shares of common stock in the offering by the employee stock ownership plan. We may use the remaining net proceeds to invest in short-term investments and for general corporate purposes, including, subject to regulatory limitations, the repurchase of shares of common stock and the payment of dividends. St. Landry Homestead Federal Savings Bank generally intends to use the net proceeds it receives to fund new loans, expand its retail banking franchise by establishing or acquiring new branches or by acquiring other financial institutions or other financial services companies, or for other general corporate purposes. We currently have no understandings, agreements or commitments regarding any acquisitions. Recently, we entered into an agreement to purchase an office site in Lafayette to establish an additional branch office. The anticipated capitalized costs for the purchase and renovation of this new office site will be approximately $1.4 million. With the exception of the loan to the employee stock ownership plan, we have not allocated specific amounts of the net proceeds for any purposes, and we will have significant flexibility in determining the amount of the net proceeds we apply to different uses and the timing of such applications. Also, certain of these uses, such as any potential acquisition, paying dividends and repurchasing common stock, may require prior regulatory approval. We have not established a timetable for reinvesting the net proceeds, and we cannot predict how long it will take to reinvest the net proceeds. Our failure to utilize these funds effectively and timely would reduce our profitability and may adversely affect the value of our common stock.
At March 31, 2021, St. Landry Homestead Federal Savings Bank had equity of  $50.4 million, and for the three months ended March 31, 2021 a return on average equity of 1.21%. Upon completion of the conversion, Catalyst Bancorp, on a consolidated basis, will have shareholders’ equity of between $78.8 million and $95.3 million at the minimum and adjusted maximum of the offering range, respectively. For additional information see “How We Intend to Use the Proceeds from the Offering.”
There may be a limited trading market in our common stock, which would hinder your ability to sell our common stock and may lower the market price of the stock.
We have never issued capital stock and there is no established market for our common stock. We have received approval for our common stock to be quoted on the Nasdaq Capital Market under the symbol
 
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“CLST” upon conclusion of the offering, subject to completion of the offering and compliance with certain conditions, including having 300 “round lot” shareholders (shareholders owning more than 100 shares) and at least three companies making a market for our common stock. Piper Sandler & Co. has advised us that it intends to make a market in shares of our common stock following the offering, but it is not obligated to do so or to continue to do so once it begins. While we will attempt before completion of the offering to obtain commitments from at least two other broker-dealers to make a market in shares of our common stock, we may not be able to obtain such commitments. This would result in our common stock not being listed for trading on the Nasdaq Capital Market, which could reduce the liquidity of our common stock.
The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of the shares of common stock at any particular time may be limited. Under such circumstances, you could have difficulty selling your shares of common stock on short notice, and, therefore, you should not view the shares of common stock as a short-term investment.
Our stock-based and other benefit plans will increase our costs, which will reduce our net income.
We intend to adopt new stock-based benefit plans after the conversion and offering, subject to shareholder approval, which will increase our annual compensation and benefit expenses related to the stock options and stock awards granted to participants under the new stock-based benefit plans. The actual amount of these new stock-related compensation and benefit expenses will depend on the number of options and stock awards actually granted under the plans, the fair market value of our stock or options on the date of grant, the vesting period, and other factors that we cannot predict at this time. If we adopt stock-based benefit plans within 12 months following the conversion, the total shares of common stock reserved for issuance pursuant to awards of restricted stock and grants of options under such plans would be limited to 4% and 10%, respectively, of the total shares of our common stock sold in the offering. If we award restricted shares of common stock or grant options in excess of these amounts under stock-based benefit plans adopted more than 12 months after the completion of the offering, our costs would increase further.
We also will recognize expense for our employee stock ownership plan when shares are committed to be released to participants’ accounts, and we will recognize expense for restricted stock awards and stock options over the vesting period of awards made to recipients. The expense in the first year following the offering for shares purchased by the employee stock ownership plan in the offering and for our new stock-based benefit plans has been estimated to be approximately $1.0 million ($857,000 after tax) at the adjusted maximum of the offering range as set forth in the pro forma financial information under “Pro Forma Data,” assuming the $10.00 per share offering price as fair market value. Actual expense may be higher if the price of our common stock at the time the shares are allocated or awarded is greater than $10.00 per share.
For further discussion of our proposed stock-based plans, see “Management — New Benefit Plans —  Employee Stock Ownership Plan” and “—  Stock Option and Recognition and Retention Plans.”
The implementation of our stock-based benefit plans may dilute your ownership interest.
We intend to adopt stock-based benefit plans following the conversion and offering. The stock-based benefit plan will be funded through either open market purchases, if permitted, or from the issuance of authorized but unissued shares. Our ability to repurchase shares of common stock to fund these plans will be subject to many factors, including applicable regulatory restrictions on common stock repurchases, the availability of stock in the market, the trading price of the stock, our capital levels, alternative uses for our capital and our financial performance. While our intention is to fund the new stock-based benefit plans through open market purchases, shareholders would experience a reduction in ownership interest totaling 12.3% in the event newly issued shares are used to fund stock options and restricted stock awards in an amount equal to 10.0% and 4.0%, respectively, of the total shares issued in the offering.
Various factors may make takeover attempts more difficult to achieve.
Certain provisions of our articles of incorporation and bylaws and state and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire control of Catalyst Bancorp without our board of directors’ prior approval.
 
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Under Federal Reserve Board regulations no person may directly or indirectly acquire or offer to acquire beneficial ownership of more than 10% of our common stock without prior approval of the Federal Reserve Board. Under federal law, subject to certain exemptions, a person, entity or group must notify the Federal Reserve Board before acquiring control of a bank holding company. Acquisition of 10% or more of any class of voting stock of a bank holding company creates a rebuttable presumption that the acquirer “controls” the holding company. Also, a bank holding company must obtain the prior approval of the Federal Reserve Board before, among other things, acquiring direct or indirect ownership or control of more than 5% of any class of voting shares of any bank, including St. Landry Homestead Federal Savings Bank.
There also are provisions in our articles of incorporation that may be used to delay or block a takeover attempt, including a provision that prohibits any person from acquiring or voting more than 10% of the shares of common stock outstanding. Furthermore, shares of restricted stock and stock options that we may grant to employees and directors, stock ownership by our management and directors and other factors may make it more difficult for companies or persons to acquire control of Catalyst Bancorp without the consent of our board of directors. Taken as a whole, these statutory provisions and provisions in our articles of incorporation could result in our being less attractive to a potential acquirer and thus could adversely affect the market price of our common stock.
See “Restrictions on Acquisition of Catalyst Bancorp” for a discussion of applicable Federal Reserve Board regulations regarding acquisitions and provisions in our articles of incorporation and bylaws that could impact acquisitions of control of Catalyst Bancorp.
You may not receive dividends on our common stock.
Holders of our common stock are only entitled to receive such dividends as our board of directors may declare out of funds legally available for such payments. The declaration and payment of future cash dividends will be subject to, among other things, regulatory restrictions, our then current and projected consolidated operating results, financial condition, tax considerations, future growth plans, general economic conditions, and other factors our board of directors deems relevant. Catalyst Bancorp will depend primarily upon the proceeds it retains from the offering as well as earnings of St. Landry Homestead Federal Savings Bank to provide funds to pay dividends on our common stock. The payment of dividends by Catalyst Bancorp also is subject to certain regulatory restrictions. Federal law generally prohibits a depository institution from making any capital distributions (including payment of a dividend) to its parent holding company if the depository institution would thereafter be or continue to be undercapitalized, and dividends by a depository institution are subject to additional limitations. As a result, any payment of dividends in the future by Catalyst Bancorp will depend, in large part, on St. Landry Homestead Federal Savings Bank’s ability to satisfy these regulatory restrictions and its earnings, capital requirements, financial condition and other factors.
You may not be able to sell your shares of common stock until you have received a statement reflecting ownership of shares, which will affect your ability to take advantage of changes in the stock price immediately following the offering.
A statement reflecting ownership of shares of common stock purchased in the offering may not be delivered for several days after the completion of the offering and the commencement of trading in the common stock. Your ability to sell the shares of common stock before receiving your ownership statement will depend on arrangements you may make with a brokerage firm, and you may not be able to sell your shares of common stock until you have received your ownership statement. As a result, you may not be able to take advantage of fluctuations in the price of the common stock immediately following the offering.
You may not revoke your decision to purchase Catalyst Bancorp common stock in the subscription or community offerings after you send us your order.
Funds submitted or automatic withdrawals authorized in connection with the purchase of shares of common stock in the subscription and community offerings will be held by us until the completion or termination of the conversion and offering, including any extension of the expiration date and consummation of a syndicated offering. Because completion of the conversion and offering will be subject to regulatory approvals and an update of the independent appraisal prepared by RP Financial, LC., among other factors,
 
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there may be one or more delays in completing the conversion and offering. Orders submitted in the subscription and community offerings are irrevocable, and purchasers will have no access to their funds unless the offering is terminated, or extended beyond August 5, 2021, or the number of shares to be sold in the offering is increased to more than 5,290,000 shares or decreased to fewer than 3,400,000 shares.
We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.
We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation or on any golden parachute payments not previously approved. As an emerging growth company, we also will not be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting. We intend to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
We could remain an “emerging growth company” for up to five years, or until the earliest of  (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period.
As a result, our shareholders may not have access to certain information they may deem important, and investors may find our common stock less attractive if we choose to rely on these exemptions. This could result in a less active trading market for our common stock and the price of our common stock may be more volatile.
 
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SELECTED FINANCIAL AND OTHER DATA
Set forth below is selected financial and other data of St. Landry Homestead Federal Savings Bank at and for the dates indicated. The following is only a summary and should be read in conjunction with the business and financial information regarding St. Landry Homestead Federal Savings Bank included elsewhere in this prospectus, including the financial statements beginning on page F-1 of this prospectus. The information at and for the years ended December 31, 2020 and 2019 is derived in part from the audited financial statements that appear elsewhere in this prospectus. The information at March 31, 2021 and for the three months ended March 31, 2021 and 2020 is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be achieved for the remainder of the year ending December 31, 2021.
At March 31,
2021
At December 31,
2020
2019
(In thousands)
Selected Financial Condition Data:
Total assets
$ 236,742 $ 224,688 $ 218,499
Cash and cash equivalents
37,071 25,245 17,909
Investment securities:
Held to maturity
17,517 17,523 13,129
Available for sale
26,493 20,730 14,221
FHLB stock
1,397 1,394 1,372
Loans receivable, net
142,929 148,778 161,582
Total deposits
176,669 164,598 141,629
FHLB advances
8,883 8,838 25,000
Total equity
50,357 50,533 51,117
For the Three Months Ended
March 31,
For the Year Ended
December 31,
2021
2020
2020
2019
(Dollars in thousands)
Selected Operating Data:
Total interest income
$ 1,907 $ 2,178 $ 8,490 $ 8,968
Total interest expense
223 458 1,705 1,907
Net interest income
1,684 1,720 6,785 7,061
Provision for loan losses
65 985 75
Net interest income after provision for loan losses
1,684 1,655 5,800 6,986
Total non-interest income
223 190 966 954
Total non-interest expense
1,726 1,640 7,943 6,283
Income (loss) before income taxes
181 205 (1,177) 1,657
Income taxes
30 50 (474) 329
Net income (loss)
$ 151 $ 155 $ (703) $ 1,328
Selected Performance Ratios:(1)
Average yield on interest-earning assets
3.64% 4.29% 3.90% 4.31%
Average rate on interest-bearing liabilities
0.60% 1.23% 1.09% 1.24%
Average interest rate spread(2)
3.04% 3.06% 2.81% 3.07%
Net interest margin(2)
3.21% 3.39% 3.12% 3.39%
Average interest-earning assets to average interest-bearing liabilities
140.58% 136.27% 138.83% 135.07%
Net interest income after provision for loan losses to non-interest expense
97.57% 100.91% 73.02% 111.19%
(Footnotes on next page)
 
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For the Three Months
Ended
March 31,
For the Year Ended
December 31,
2021
2020
2020
2019
(Dollars in thousands)
Total non-interest expense to average assets
3.05% 3.01% 3.41% 2.84%
Efficiency ratio(3)
90.51% 85.86% 102.48% 78.39%
Return on average assets (ratio of net income to average total
assets)
0.27% 0.28% -0.30% 0.60%
Return on average equity (ratio of net income to average total equity)
1.21% 1.22% -1.36% 2.64%
At or For the Three Months Ended
March 31,
At or For the Year Ended
December 31,
2021
2020
2020
2019
Asset Quality Ratios:(4)
Non-accrual loans as a percent of total loans outstanding
0.98% 1.01% 0.85% 0.97%
Non-performing assets as a percent of total assets(5)
0.94% 1.31% 0.93% 1.31%
Non-performing assets and troubled debt restructurings as a percent of total assets(5)
2.33% 1.87% 2.60% 1.97%
Allowance for loan losses as a percent of total loans outstanding
2.03% 1.31% 1.99% 1.27%
Allowance for loan losses as a percent of non-performing loans
174.85% 106.95% 180.74% 114.55%
Net charge-offs to average loans receivable
0.16% 0.03% 0.02% 0.08%
Capital Ratios:(4)
Common equity Tier 1 capital (to risk-weighted assets)
41.09% 39.70% 40.92% 40.00%
Tier 1 leverage (core) capital (to adjusted tangible assets)
22.01% 23.24% 21.06% 23.19%
Tier 1 risk-based capital (to risk-weighted assets)
41.09% 39.70% 40.92% 40.00%
Total risk-based capital (to risk-weighted assets)
42.36% 40.96% 42.29% 41.21%
Average equity to average assets
22.06% 23.30% 22.18% 22.71%
Other Data:
Banking offices
5 4 5 4
Full-time equivalent employees
54 52 52 48
(1)
With the exception of end of period ratios, all ratios are based on average daily balances during the indicated periods and are annualized where appropriate.
(2)
Average interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities, and net interest margin represents net interest income as a percentage of average interest-earning assets.
(3)
The efficiency ratio represents the ratio of non-interest expense divided by the sum of net interest income and non-interest income.
(4)
Asset quality ratios and capital ratios are end of period ratios, except for net charge-offs to average loans receivable.
(5)
Non-performing assets consist of non-performing loans and real estate owned. Non-performing loans consist of all loans 90 days or more past due. Real estate owned consists of real estate acquired through foreclosure, real estate acquired by acceptance of a deed-in-lieu of foreclosure.
 
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. 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.
These forward-looking statements are based on current beliefs and expectations of our management and 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.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

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;

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;
 
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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 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.
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. See “Risk Factors” beginning on page 13.
 
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HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
Although we cannot determine what the actual net offering proceeds will be until the offering is completed, we estimate that the net proceeds will be between $32.6 million and $44.5 million, or $51.3 million if the offering range is increased by 15.0%.
We intend to distribute the net proceeds as follows:
Based Upon the Sale at $10.00 Per Share of
3,400,000 Shares
4,000,000 Shares
4,600,000 Shares
5,290,000 Shares(1)
Amount
Percent of
Net
Proceeds
Amount
Percent of
Net
Proceeds
Amount
Percent of
Net
Proceeds
Amount
Percent of
Net
Proceeds
(Dollars in thousands)
Gross offering proceeds
$ 34,000 $ 40,000 $ 46,000 $ 52,900
Less: offering expenses
(1,438) (1,487) (1,537) (1,594)
Net offering proceeds
$ 32,562 100.0% $ 38,513 100.0% $ 44,463 100.0% $ 51,306 100.0%
Distribution of net proceeds:
Proceeds contributed to St. Landry Homestead Federal Savings Bank
$ 16,281 50.0% $ 19,257 50.0% $ 22,232 50.0% $ 25,653 50.0%
Loan to employee stock ownership plan
2,720 8.4 3,200 8.3 3,680 8.3 4,232 8.2
Proceeds retained by Catalyst Bancorp
$ 13,561 41.6% $ 16,057 41.7% $ 18,552 41.7% $ 21,421 41.8%
(1)
As adjusted to give effect to an increase in the number of shares, which increase could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.
Payments for shares of common stock made through withdrawals from existing deposit accounts will not result in the receipt of new funds for investment but will reduce St. Landry Homestead Federal Savings Bank’s deposits. The net proceeds may vary because total expenses relating to the offering may be more or less than our estimates. For example, our expenses would increase if fewer shares were sold in the subscription and community offerings and more in the syndicated offering than we have assumed.
Catalyst Bancorp may use the proceeds it retains from the offering:

to invest in securities;

for capital management strategies, including repurchases to fund stock-based benefit plans and additional stock repurchases, subject to regulatory limitations;

to finance the potential acquisitions of financial institutions or financial services companies, although we do not currently have any agreements or understandings regarding any specific acquisition transaction; and

for other general corporate purposes.
See “Our Dividend Policy” for a discussion of our expected dividend policy following the completion of the offering. Under current federal regulations, we may not repurchase shares of our common stock during the first year following the completion of the conversion, except when extraordinary circumstances exist and with prior regulatory approval, or except to fund the granting of restricted stock awards or tax-qualified employee stock benefit plans.
St. Landry Homestead Federal Savings Bank may use the net proceeds it receives from the offering:

to fund new loans;
 
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to invest in securities;

to expand its retail banking franchise by establishing or acquiring new branches or by acquiring other financial institutions or other financial services companies as opportunities arise, although we do not currently have any understandings or agreements to acquire a financial institution or other entity; and

for other general corporate purposes.
Initially, a substantial portion of the net proceeds will be invested in short-term investment securities of the type currently held by St. Landry Homestead Federal Savings Bank. We have not determined specific amounts of the net proceeds that would be used for the purposes described above. The use of the proceeds outlined above may change based on many factors, including, but not limited to, changes in interest rates, equity markets, laws and regulations affecting the financial services industry, the attractiveness and availability of potential acquisitions to expand our operations, and overall market conditions.
We expect our return on equity to be low until we are able to effectively deploy the additional capital raised in the offering. See “Risk Factors — Risks Related to the Offering — We have broad discretion in using the proceeds of the offering. Our failure to effectively deploy the net proceeds may have an adverse effect on our financial performance and the value of our common stock” and “— Risks Related to the Offering —  The capital we raise in the offering may negatively impact our return on equity until we can fully implement our business plan. This could negatively affect the trading price of our shares of common stock.”
 
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OUR DIVIDEND POLICY
Following completion of the stock offering, our board of directors will have the authority to declare dividends on our shares of common stock. The board’s determination of whether to declare a dividend and the amount of any such dividend is subject to our financial condition and results of operations, tax considerations, capital requirements and available alternative uses for capital, statutory and regulatory limitations, and general economic conditions. No decision has been made with respect to the amount, if any, and timing of any dividend payments. We cannot assure you that we will pay dividends in the future, or, if dividends are paid, that any such dividends will not be reduced or eliminated in the future.
The source of dividends will depend on the net proceeds retained by Catalyst Bancorp and earnings thereon, and dividends from St. Landry Homestead Federal Savings Bank to Catalyst Bancorp. In addition, Catalyst Bancorp will be subject to state law limitations and federal bank regulatory policy on the payment of dividends. Louisiana law generally limits dividends if the corporation would not be able to pay its debts in the usual course of business after giving effect to the dividend or if the corporation’s total assets would be less than the corporation’s total liabilities (subject to the amount necessary to satisfy the payment due any shareholders with preferential rights).
After the completion of the conversion, St. Landry Homestead Federal Savings Bank will not be permitted to pay dividends to Catalyst Bancorp, its sole shareholder, if St. Landry Homestead Federal Savings Bank’s shareholder’s equity would be reduced below the amount of the liquidation account established in connection with the conversion. In addition, St. Landry Homestead Federal Savings Bank will not be permitted to make a capital distribution if, after making such distribution, it would be undercapitalized. St. Landry Homestead Federal Savings Bank must file an application with the Office of the Comptroller of the Currency for approval of a capital distribution if the total capital distributions for the applicable calendar year exceed the sum of its net income for that year to date plus its retained net income for the preceding two years, or it would not be at least adequately capitalized following the distribution.
Any payment of dividends by St. Landry Homestead Federal Savings Bank to Catalyst Bancorp that would be deemed to be drawn from St. Landry Homestead Federal Savings Bank’s bad debt reserves established before 1988, if any, would require a payment of taxes at the then-current tax rate by St. Landry Homestead Federal Savings Bank on the amount of earnings deemed to be removed from the pre-1988 bad debt reserves for such distribution. St. Landry Homestead Federal Savings Bank does not intend to make any distribution that would create such a federal tax liability.
We intend to file a consolidated federal tax return with St. Landry Homestead Federal Savings Bank. Accordingly, it is anticipated that any cash distributions made by Catalyst Bancorp to our shareholders would be treated as cash dividends and not as a non-taxable return of capital for federal tax purposes. Additionally, pursuant to regulations of the Federal Reserve Board, during the three-year period following the conversion and stock offering, Catalyst Bancorp will not take any action to declare an extraordinary dividend to shareholders that would be treated by recipients as a tax-free return of capital for federal income tax purposes.
 
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MARKET FOR THE COMMON STOCK
We have never issued capital stock and there is no established market for our shares of common stock. We have received approval to list our shares of common stock on the Nasdaq Capital Market under the symbol “CLST”, subject to completion of the conversion and compliance with certain listing conditions, including the presence of at least three registered and active market makers. Piper Sandler & Co. has advised us that it intends to make a market in shares of our common stock following the offering, but it is not obligated to do so or to continue to do so once it begins. While we will attempt before completion of the offering to obtain commitments from at least two other broker-dealers to make a market in shares of our common stock, there can be no assurance that we will be successful in obtaining such commitments.
The development and maintenance of a public market, having the desirable characteristics of depth, liquidity and orderliness, depends on the existence of willing buyers and sellers, the presence of which is not within our control or that of any market maker. The number of active buyers and sellers of shares of our common stock at any particular time may be limited, which may have an adverse effect on the price at which shares of our common stock can be sold. There can be no assurance that persons purchasing the shares of common stock will be able to sell their shares at or above the $10.00 offering purchase price per share.
 
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HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
At March 31, 2021, St. Landry Homestead Federal Savings Bank exceeded all of the applicable regulatory capital requirements and was considered “well capitalized.” The table below sets forth the historical equity capital and regulatory capital of St. Landry Homestead Federal Savings Bank at March 31, 2021, and the pro forma equity capital and regulatory capital of St. Landry Homestead Federal Savings Bank after giving effect to the sale of shares of common stock at $10.00 per share. The table also compares historical and pro forma capital levels to those required to be considered “well capitalized.” The table assumes that St. Landry Homestead Federal Savings Bank receives 50% of the net offering proceeds. See “How We Intend to Use the Proceeds from the Offering.”
St. Landry Homestead
Federal Savings Bank
Historical at
March 31, 2021
St. Landry Homestead Federal Savings Bank
Pro Forma at March 31, 2021 Based Upon the Sale in the Offering of:
3,400,000
Shares
4,000,000
Shares
4,600,000
Shares
5,290,000
Shares(1)
Amount
Percent
of Assets
Amount
Percent
of Assets
Amount
Percent
of Assets
Amount
Percent
of Assets
Amount
Percent
of Assets
(Dollars in thousands)
Equity
$ 50,357 21.27% $ 62,558 24.72% $ 64,814 25.32% $ 67,069 25.90% $ 69,662 26.55%
Tier 1 leverage capital(2)(3)
$ 50,577 22.01% $ 62,778 25.51% $ 65,034 26.11% $ 67,289 26.69% $ 69,882 27.35%
Tier 1 leverage requirement
11,492 5.00 12,306 5.00 12,455 5.00 12,603 5.00 12,775 5.00
Excess
$ 39,085 17.01% $ 50,472 20.51% $ 52,579 21.11% $ 54,686 21.69% $ 57,107 22.35%
Tier 1 risk-based capital(2)(3)
$ 50,577 41.09% $ 62,778 49.69% $ 65,034 51.23% $ 67,289 52.76% $ 69,882 54.51%
Tier 1 risk-based requirement
9,846 8.00 10,107 8.00 10,155 8.00 10,202 8.00 10,257 8.00
Excess
$ 40,731 33.09% $ 52,671 41.69% $ 54,879 43.23% $ 57,087 44.76% $ 59,625 46.51%
Common equity tier 1 risk-based capital(2)(3)
$ 50,577 41.09% $ 62,778 49.69% $ 65,034 51.23% $ 67,289 52.76% $ 69,882 54.51%
Common equity tier 1 risk-based requirement
8,000 6.50 8,212 6.50 8,251 6.50 8,289 6.50 8,334 6.50
Excess
$ 42,577 34.59% $ 54,566 43.19% $ 56,783 44.73% $ 59,000 46.26% $ 61,548 48.01%
Total risk-based capital(2)(3)
$ 52,134 42.36% $ 64,335 50.92% $ 66,591 52.46% $ 68,846 53.98% $ 71,439 55.72%
Total risk-based requirement
12,308 10.00 12,634 10.00 12,693 10.00 12,753 10.00 12,821 10.00
Excess
$ 39,826 32.36% $ 51,701 40.92% $ 53,898 42.46% $ 56,093 43.98% $ 58,618 45.72%
Reconciliation of capital infused into
St. Landry Homestead Federal
Savings Bank:
Net proceeds
$ 16,281 $ 19,257 $ 22,232 $ 25,653
Less: Common stock acquired by employee stock ownership plan
(2,720) (3,200) (3,680) (4,232)
Less: Common stock acquired by recognition and retention plan
(1,360) (1,600) (1,840) (2,116)
Pro forma increase
$ 12,201 $ 14,457 $ 16,712 $ 19,305
(1)
As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.
(2)
Tier 1 leverage capital levels are shown as a percentage of total average assets. Risk-based capital levels are shown as a percentage of risk-weighted assets.
(3)
Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting.
 
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CAPITALIZATION
The following table presents, at March 31, 2021, the historical capitalization of St. Landry Homestead Federal Savings Bank and the pro forma consolidated capitalization of Catalyst Bancorp after giving effect to the conversion and offering based upon the assumptions set forth under “Pro Forma Data.”
St. Landry
Homestead
Federal
Savings Bank
Historical at
March 31,
2021
Catalyst Bancorp Pro Forma at March 31, 2021 Based upon the
Sale in the Offering at $10.00 per Share of:
3,400,000
Shares
4,000,000
Shares
4,600,000
Shares
5,290,000
Shares(1)
(Dollars in thousands)
Deposits(2) $ 176,669 $ 176,669 $ 176,669 $ 176,669 $ 176,669
Borrowings
8,883 8,883 8,883 8,883 8,883
Total deposits and borrowed funds
$ 185,552 $ 185,552 $ 185,552 $ 185,552 $ 185,552
Shareholders’ equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized
$ $ $ $ $
Common stock, $0.01 par value,
30,000,000 shares authorized; shares
to be issued as reflected(3)
34 40 46 53
Additional paid-in capital
32,528 38,473 44,417 51,253
Retained earnings(4)
50,577 50,577 50,577 50,577 50,577
Accumulated other comprehensive income (loss)
(220) (220) (220) (220) (220)
Less:
Common stock to be acquired by employee stock ownership plan(5)
(2,720) (3,200) (3,680) (4,232)
Common stock to be acquired by stock-based benefit plans(6)
(1,360) (1,600) (1,840) (2,116)
Total shareholders’ equity
$ 50,357 $ 78,839 $ 84,070 $ 89,300 $ 95,315
Pro Forma Shares Outstanding
3,400,000 4,000,000 4,600,000 5,290,000
Total shareholders’ equity as a percentage of total assets
21.27% 29.73% 31.08% 32.39% 33.84%
(1)
As adjusted to give effect to an increase in the number of shares, which increase could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.
(2)
Does not reflect withdrawals from deposit accounts at St. Landry Homestead Federal Savings Bank for the purchase of shares of common stock. These withdrawals would reduce pro forma deposits and assets by the amount of the withdrawals.
(3)
No effect has been given to the issuance of additional shares of common stock pursuant to the exercise of options under one or more stock-based benefit plans. The implementation of such plans will require shareholder approval. If the plans are implemented within the first year after the closing of the offering, an amount up to 10% of the shares of common stock sold in the offering will be reserved for issuance upon the exercise of options under the plans. See “Management.”
(4)
The retained earnings of St. Landry Homestead Federal Savings Bank will be substantially restricted after the offering. See “Supervision and Regulation — Federal Banking Regulations — Capital Distributions.”
 
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(5)
Assumes that 8% of the shares sold in the offering will be acquired by the employee stock ownership plan financed by a loan from Catalyst Bancorp. The loan will be repaid principally from St. Landry’s Homestead Federal Savings Bank’s contributions to the employee stock ownership plan. Since Catalyst Bancorp will finance the employee stock ownership plan debt, this debt will be eliminated through consolidation and no liability will be reflected on Catalyst Bancorp’s consolidated balance sheet. Accordingly, the dollar amount of shares of common stock acquired by the employee stock ownership plan is shown in this table as a reduction of total shareholders’ equity. See “Management — New Stock Benefit Plans — Employee Stock Ownership Plan.”
(6)
Assumes a number of shares of common stock equal to 4% of the shares of common stock to be sold in the offering will be purchased for grant by a stock-based recognition and retention plan. The funds to be used by such plan to purchase the shares will be provided by Catalyst Bancorp. The dollar amount of common stock to be purchased is based on the $10.00 per share offering price and represents unearned compensation. This amount does not reflect possible increases or decreases in the value of common stock relative to the offering price. Catalyst Bancorp will accrue compensation expense to reflect the vesting of shares pursuant to such recognition and retention plan and will credit capital in an amount equal to the charge to operations. Implementation of such plan will require shareholder approval. See “Management — New Stock Benefit Plans — Stock Option and Recognition and Retention Plans.”
 
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PRO FORMA DATA
The following table illustrates the pro forma impact of the conversion and offering on our net income and shareholders’ equity based on the sale of common stock at the minimum, the midpoint and the maximum of the offering range. The actual net proceeds from the sale of the common stock cannot be determined until the offering is completed. Net proceeds indicated in the following table is based upon the following assumptions, although actual expenses may vary from these estimates:

all of the shares of common stock will be sold in the subscription offering and no shares will be sold in the syndicated offering;

our employee stock ownership plan will purchase a number of shares equal to 8% of the shares sold in the offering with a loan from Catalyst Bancorp that will be repaid in equal installments over 20 years;

our directors, executive officers and their associates will purchase an aggregate of 152,500 shares of common stock in the offering;

we will pay Piper Sandler & Co. a fee equal to 0.90% of the aggregate amount of common stock sold in the subscription offering, except that no fee will be paid with respect to shares purchased by our employee stock ownership plan and by our officers, directors and employees or members of their immediate families; and

total expenses of the offering, excluding selling agent fees and commissions, will be approximately $1,170,000.
We calculated pro forma consolidated net income for the three months ended March 31, 2021 and the year ended December 31, 2020, as if the estimated net investable proceeds had been invested at an assumed interest rate of 0.92% (0.73% on an after-tax basis using an assumed tax rate of 21.0%). This represents the yield on the five-year United States Treasury Note at March 31, 2021, which, in light of current market interest rates, we consider to more accurately reflect the pro forma reinvestment rate than the arithmetic average of the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our deposits, which is the reinvestment rate generally required by federal banking regulators.
We calculated historical and pro forma per share amounts by dividing historical and pro forma consolidated net income and shareholders’ equity by the indicated number of shares of common stock. We computed per share amounts as if the shares of common stock were outstanding at the beginning of the period, but we did not adjust per share historical or pro forma shareholders’ equity to reflect the earnings on the estimated net proceeds.
The pro forma table gives effect to the implementation of a new stock-based Recognition and Retention Plan (“RRP”). We have assumed that the stock-based benefit plan will acquire for restricted stock awards a number of shares of common stock equal to 4% of the shares of common stock sold in the stock offering at the same $10.00 per share price for which they were sold in the stock offering. We have assumed that awards of common stock granted under such plan will vest over a five-year period.
We also have assumed that options will be granted under a new stock option plan to acquire shares of common stock equal to 10% of the shares of common stock sold in the stock offering. In preparing the table below, we assumed that shareholder approval was obtained, that the exercise price of the stock options and the market price of the stock at the date of grant were $10.00 per share and that the stock options had a term of ten years and vested over five years. We applied the Black-Scholes option pricing model to estimate a grant-date fair value of $3.55 for each option.
We may grant options and award shares of common stock under one or more stock-based benefit plans in excess of 10% and 4%, respectively, of the shares of common stock sold in the stock offering and that vest more rapidly than over a five-year period if the stock-based benefit plans are adopted more than one year following the completion of the conversion and offering.
As discussed under “How We Intend to Use the Proceeds from the Offering,” we intend to contribute 50% of the net offering proceeds to St. Landry Homestead Federal Savings Bank, and Catalyst Bancorp will retain the remainder of the net proceeds from the stock offering. Catalyst Bancorp will use a portion of
 
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the proceeds we retain to fund a loan to the employee stock ownership plan and retain the rest of the proceeds for future use.
The pro forma table does not give effect to:

withdrawals from deposit accounts to purchase shares of common stock in the offering;

Increased fees that we would pay Piper Sandler & Co. and other broker-dealers in the event that we have to conduct a syndicated offering;

our results of operations after the offering; or

changes in the market price of the shares of common stock after the offering.
The following pro forma information may not be representative of the financial effects of the offering at the dates on which the offering actually occurs, and should not be taken as indicative of future results of operations. Pro forma consolidated shareholders’ equity represents the difference between the stated amounts of our assets and liabilities. The pro forma shareholders’ equity is not intended to represent the fair market value of the shares of common stock and may be different than the amounts that would be available for distribution to shareholders if we liquidated. Moreover, pro forma shareholders’ equity per share does not give effect to the liquidation accounts to be established in the conversion or, in the unlikely event of a liquidation of St. Landry Homestead Federal Savings Bank, to the tax effect of the recapture of the bad debt reserve. See “The Conversion and Offering  —  Liquidation Rights.”
 
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At or for the Three Months Ended March 31, 2021
Based upon the Sale at $10.00 Per Share of
3,400,000
Shares
4,000,000
Shares
4,600,000
Shares
5,290,000
Shares
(Dollars in thousands, except per share amounts)
Gross proceeds of offering:
$ 34,000 $ 40,000 $ 46,000 $ 52,900
Expenses
(1,438) (1,487) (1,537) (1,594)
Estimated net proceeds
32,562 38,513 44,463 51,306
Common stock purchased by ESOP(1)
(2,720) (3,200) (3,680) (4,232)
Common stock purchased by RRP(2)
(1,360) (1,600) (1,840) (2,116)
Estimated net proceeds, as adjusted
$ 28,482 $ 33,713 $ 38,943 $ 44,958
For the Three Months Ended March 31, 2021
Consolidated net income (loss):
Historical
$ 151 $ 151 $ 151 $ 151
Income on net proceeds
52 61 71 82
Less: state shares tax(3)
(78) (82) (87) (92)
Employee stock ownership plan(1)
(27) (32) (36) (42)
RRP awards(2)
(54) (63) (73) (84)
Stock options(4)
(57) (67) (77) (89)
Pro forma net income (loss)
$ (13) $ (32) $ (51) $ (74)
Net income (loss) per share(5):
Historical
$ 0.05 $ 0.04 $ 0.04 $ 0.03
Income on net proceeds
0.02 0.02 0.02 0.02
Less: state shares tax(3)
(0.02) (0.02) (0.02) (0.02)
Employee stock ownership plan(1)
(0.01) (0.01) (0.01) (0.01)
RRP awards(2)
(0.02) (0.02) (0.02) (0.02)
Stock options(4)
(0.02) (0.02) (0.02) (0.02)
Pro forma net income (loss) per share(5)
$ (0.00) $ (0.01) $ (0.01) $ (0.02)
Offering price to pro forma net earnings per share
NM NM NM NM
Number of shares used in earnings per share calculations
3,131,400 3,684,000 4,263,600 4,872,090
At March 31, 2021
Shareholders’ equity:
Historical
$ 50,357 $ 50,357 $ 50,357 $ 50,357
Estimated net proceeds
32,562 38,513 44,463 51,306
Common stock acquired by ESOP(1)
(2,720) (3,200) (3,680) (4,232)
RRP awards(2)
(1,360) (1,600) (1,840) (2,116)
Pro forma shareholders’ equity
$ 78,839 $ 84,070 $ 89,300 $ 95,315
Shareholders’ equity per share:
Historical
$ 14.81 $ 12.59 $ 10.95 $ 9.52
Estimated net proceeds
9.58 9.63 9.66 9.70
Common stock acquired by ESOP(1)
(0.80) (0.80) (0.80) (0.80)
Common stock acquired by RRP(2)
(0.40) (0.40) (0.40) (0.40)
Pro forma shareholders’ equity per share(6)
23.19 21.02 19.41 18.02
Less: Intangibles
Pro forma tangible shareholders’ equity per share(6)
$ 23.19 $ 21.02 $ 19.41 $ 18.02