CLST's Q2 Earnings Flat Y/Y, Merger Costs and Loan Weakness Hurt

Net interest income rose 5% to $2.6 million from $2.5 million a year earlier, supported by higher interest income. Total interest income increased 3.6% to $3.6 million, while non-interest income edged up 4.9% to $0.4 million. Total non-interest expense climbed 9.3% to $2.4 million, reflecting higher operating costs, including merger-related expenses.

The company’s net income of $0.5 million remained essentially flat year over year.

Other Key Business Metrics

Total assets increased to $290 million at June 30, 2026, from $273.8 million a year earlier. Deposits rose 7.8% year over year to $196.4 million, while net loans receivable declined 2.7% to $160.6 million. On a linked-quarter basis, total loans decreased 2.9% to $162.8 million, primarily due to lower residential and construction lending, partly offset by growth in commercial real estate and commercial and industrial loans. Commercial real estate loans increased 11% from the prior quarter, aided by the conversion of a $5 million construction loan into an amortizing commercial real estate loan, while construction and land loans declined 19%. 

Credit quality improved during the quarter. Non-performing assets fell 14% sequentially to $2.3 million, reducing the ratio of non-performing assets to total assets to 0.80% from 0.94%. Non-performing loans declined to 1.43% of total loans from 1.64%. The allowance for credit losses on loans decreased to $2.2 million, or 1.34% of total loans, from 1.40% in the prior quarter. Catalyst recorded a $0.1 million reversal of credit losses, compared with a $0.07 million reversal in the first quarter. Net interest margin expanded three basis points sequentially to 3.86%.

Management Commentary

President and Chief Executive Officer Joe Zanco said that while loan balances declined during the first half of 2026, credit quality remained sound and the company continued to add new deposit customers. He also expressed optimism about Louisiana's economic outlook and highlighted the company's entry into the Southwest Louisiana market following the Lakeside acquisition.

Factors Influencing the Quarter

Quarterly results reflected the impact of merger-related expenses associated with the acquisition of Lakeside Bancshares, which totaled $0.09 million before taxes, down from $0.1 million in the previous quarter. Higher non-interest expense also reflected increased advertising, marketing, training, education and annual report distribution costs. Deposit growth continued to be driven by high-yield savings accounts, while seasonal declines in public fund deposits reduced average interest-bearing deposit balances and contributed to lower interest expense.

Other Developments

Catalyst completed the acquisition of Lakeside Bancshares, Inc. and its subsidiary, Lakeside Bank, on July 14, 2026, expanding its presence into Southwest Louisiana. Management estimated that, following the merger, consolidated shareholders' equity would be approximately $78.7 million, representing about 12.5% of total assets based on June 30, 2026 data. During the quarter, the company also repurchased 24,206 shares at an average price of $16.20 per share under its existing buyback program before pausing repurchases during merger-related due diligence and negotiations.

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