NSTS Bancorp, Inc. 10-K

Item 9A. Controls and Procedures   Evaluation of Disclosure Controls & Procedures   Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that, as of December 31, 2021, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by NSTS Bancorp, Inc. is in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to NSTS Bancorp, Inc.'s management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.    Evaluation of Internal Control Over Financial Reporting   This Annual Report on Form 10-K does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of NSTS Bancorp, Inc.'s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.   Changes in Internal Control Over Financial Reporting   There were no changes made in our internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, NSTS Bancorp, Inc.’s internal control over financial reporting.   Item 9B. Other Information   Not Applicable.   Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections   None.     PART III   Item 10. Directors, Executive Officers and Corporate Governance   NSTS Bancorp, Inc. has adopted a Code of Ethics that applies to its principal executive officer and principal financial officer, as well as all of its senior officers. A copy of the Code of Ethics is available on our website at https://ir.northshoretrust.com, or upon written request to Ms. Christine Stickler at 700 S. Lewis Ave., Waukegan, Illinois 60085 without charge. If we amend or grant any waiver from a provision of our Code of Ethics that applies to our executive officers, we will publicly disclose such amendment or waiver on our website and as required by applicable law, including by filing a Current Report on Form 8-K.    The information required by this Item is incorporated herein by reference to the sections captioned “Proposal I – Election of Directors” and "Stockholder Proposals and Nominations" in NSTS Bancorp, Inc.'s definitive Proxy Statement for its 2022 Annual Meeting of Stockholders, a copy of which will be filed with the SEC no later than 120 days after the end of our fiscal year (the “Proxy Statement”).   Item 11. Executive Compensation   The information required by this Item is incorporated herein by reference to the sections captioned “Executive and Director Compensation” in the Proxy Statement.   37 Table of Contents   Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   (a) Securities Authorized for issuance under Stock-Based Compensation Plans   Not applicable. NSTS Bancorp, Inc. has not adopted any stock-based compensation plans as of December 31, 2021.     (b) Security Ownership of Certain Beneficial Owners   The information required by this Item is incorporated herein by reference to the section captioned "Beneficial Ownership" in the Proxy Statement.    (c) Security Ownership of Management   The information required by this Item is incorporated herein by reference to the section captioned "Beneficial Ownership" in the Proxy Statement.    (d) Changes in Control   Management knows of no arrangements, including any pledge by any person of securities of NSTS Bancorp, Inc., the operation of which may at a subsequent date result in a change in control of NSTS Bancorp, Inc.   Item 13. Certain Relationships and Related Transactions, and Director Independence   The information required by this Item is incorporated herein by reference to the sections captioned “Transactions with Certain Related Persons,”  “Corporate Governance— Board Independence” and  “Corporate Governance — Meetings and Committees of the Board of Directors” in the Proxy Statement.   Item 14. Principal Accountant Fees and Services   The information required by this Item is incorporated herein by reference to the section captioned “Proposal II—Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement.   38 Table of Contents   PART IV   Item 15. Exhibit and Financial Statement Schedules   Exhibit Number     2.1   Plan of Conversion of North Shore MHC, as amended  (1)       3.1   Certificate of Incorporation of NSTS Bancorp, Inc.   (1)       3.2   Bylaws of NSTS Bancorp, Inc.   (1)       4.1   Description of NSTS Bancorp, Inc.'s securities registered under the Securities Exchange Act of 1934, as amended       10.1   Employment Agreement by and among NSTS Bancorp, Inc., North Shore Trust and Savings and Stephen G. Lear dated January 18, 2022*       10.2   Change in Control Agreement by and between North Shore Trust and Savings and Nathan E. Walker dated January 18, 2022*       10.3   Change in Control Agreement by and between North Shore Trust and Savings  and Carissa H. Schoolcraft dated January 18, 2022*       10.4   Change in Control Agreement by and between North Shore Trust and Savings  and Amy L. Avakian dated January 18, 2022*       10.5   Change in Control Agreement by and between North Shore Trust and Savings  and Christine E. Stickler dated January 18, 2022*       21.1   Subsidiaries of NSTS Bancorp, Inc.       24.1   Power of Attorney (set forth on signature page)       31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.       31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.       32.1   Certifications pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       101.INS   Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)       101.SCH   Inline XBRL Taxonomy Extension Schema Document       101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document       101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document       101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document       101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document       104   Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101)   * Indicates a management contract or compensatory plan. (1)  Filed as an exhibit to NSTS Bancorp, Inc.'s Registration Statement on Form S-1 (File No. 333-259483) and incorporated herein by reference.    Item 16. Form 10-K Summary   None.   39 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENT OF NORTH SHORE MHC   2021 and 2020 Consolidated Annual Financial Statements   Report of Independent Registered Public Accounting Firm 41 Consolidated Balance Sheets at December 31, 2021 and 2020 42 Consolidated Statements of Operations for the years ended December 31, 2021 and 2020 43 Consolidated Statements of Comprehensive Income for the years ended December 31, 2021 and 2020 44 Consolidated Statements of Members' Equity for the years ended December 31, 2021 and 2020 45 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 46 Notes to Consolidated Financial Statements 47   40 Table of Contents   Report of Independent Registered Public Accounting Firm   To the Board of Directors of North Shore MHC   Opinion on the Financial Statements   We have audited the accompanying consolidated balance sheets of North Shore MHC and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, members' equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.   Basis for Opinion   The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.   Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.   /s/ Plante & Moran, PLLC   We have served as the Company’s auditor since 2019.   Chicago, Illinois   March 22, 2022         41 Table of Contents     NORTH SHORE MHC AND SUBSIDIARIES Consolidated Balance Sheets       Year ended December 31,       2021     2020       (Dollars in thousands)   Assets:                 Cash and due from banks   $ 814     $ 884   Interest-bearing bank deposits     120,797       30,984   Cash and cash equivalents     121,611       31,868   Time deposits with other financial institutions     3,469       12,436   Securities available for sale     100,950       81,620   Federal Home Loan Bank stock     550       512   Loans held for sale     104       1,972   Loans, net of unearned income     97,313       99,325   Allowance for loan losses     ( 779 )     ( 870 ) Loans, net     96,534       98,455   Premises and equipment, net     5,087       5,213   Accrued interest receivable     641       672   Bank-owned life insurance (BOLI)     9,071       8,890   Other assets     2,852       581   Total assets   $ 340,869     $ 242,219   Liabilities:                 Deposits:                 Noninterest bearing   $ 99,090     $ 9,734   Interest-bearing                 Demand and NOW checking     17,931       16,364   Money market     45,414       50,143   Savings     50,312       42,251   Time deposits over $250,000     9,380       10,705   Other time deposits     63,494       57,207   Total deposits     285,621       186,404   Escrow deposits     1,442       1,519   Other borrowings     5,000       4,000   Accrued expenses and other liabilities     3,623       3,571   Total liabilities     295,686       195,494   Members' equity:                 Retained earnings     45,264       45,319   Accumulated other comprehensive income, net     ( 81 )     1,406   Total members' equity     45,183       46,725   Total liabilities and members' equity   $ 340,869     $ 242,219     See accompanying notes to consolidated financial statements   42 Table of Contents     NORTH SHORE MHC AND SUBSIDIARIES Consolidated Statements of Operations       Year ended December 31,       2021     2020       (Dollars in thousands)   Interest income:                 Loans, including fees   $ 3,569     $ 4,086   Securities                 Taxable     1,107       1,146   Tax-exempt     248       271   Federal funds sold and other     35       128   Time deposits with other financial institutions     66       379   FHLB Stock     13       13   Total interest income     5,038       6,023   Interest expense:                 Deposits     940       1,488   Net interest income     4,098       4,535   (Reversal of) Provision for loan losses     ( 23 )     464   Net interest income after provision for loan losses     4,121       4,071   Noninterest income:                 Gain on sale of mortgage loans     410       788   Gain on sale of securities     131       59   Rental income on office building     42       42   Service charges on deposits     289       255   Increase in cash surrender value of BOLI     181       183   Other     156       264   Total noninterest income     1,209       1,591   Noninterest expense:                 Salaries and employee benefits     3,352       3,691   Equipment and occupancy     665       689   Data processing     613       565   Professional services     139       484   Advertising     71       68   Supervisory fees and assessments     126       117   Loan expenses     129       141   Deposit expenses     183       155   Other     321       367   Total noninterest expense     5,599       6,277   Losses before income taxes     ( 269 )     ( 615 ) Income tax benefit     ( 214 )     ( 503 ) Net losses   $ ( 55 )   $ ( 112 )     See accompanying notes to consolidated financial statements   43 Table of Contents     NORTH SHORE MHC AND SUBSIDIARIES Consolidated Statements of Comprehensive Income       Year ended December 31,       2021     2020       (Dollars in thousands)   Net income (losses)   $ ( 55 )   $ ( 112 ) Unrealized net holding gain (loss) on securities                 Unrealized net holding gain (loss) on securities arising during period, net of realized gains on sales of $131,000 and $59,000 , in the years ended December 31, 2021 and 2020, respectively     ( 2,080 )     1,501   Tax effect     593       ( 428 ) Other comprehensive income, net of taxes     ( 1,487 )     1,073   Comprehensive income (loss)   $ ( 1,542 )   $ 961     See accompanying notes to consolidated financial statements   44 Table of Contents       NORTH SHORE MHC AND SUBSIDIARIES Consolidated Statements of Members' Equity       Retained earnings     Accumulated other comprehensive income (loss)     Total       (Dollars in thousands) Balance at January 1, 2020   $ 45,431     $ 333     $ 45,764   Net losses     ( 112 )     —       ( 112 ) Change in net unrealized gain on securities available for sale, net     —       1,073       1,073   Balance at December 31, 2020     45,319       1,406       46,725   Net losses     ( 55 )     —       ( 55 ) Change in net unrealized loss on securities available for sale, net     —       ( 1,487 )     ( 1,487 ) Balance at December 31, 2021   $ 45,264     $ ( 81 )   $ 45,183     See accompanying notes to consolidated financial statements   45 Table of Contents     NORTH SHORE MHC AND SUBSIDIARIES Consolidated Statements of Cash Flows       Year ended December 31,       2021     2020       (Dollars in thousands)   Cash flows from operating activities:                 Net losses   $ ( 55 )   $ ( 112 ) Adjustments to reconcile net losses to net cash (used in) provided by operating activities:                 Depreciation     268       290   Securities amortization and accretion, net     1,323       835   Loans originated for sale     ( 19,302 )     ( 37,725 ) Proceeds from sales of loans held for sale     21,580       37,263   Gain on sale of mortgage loans     ( 410 )     ( 788 ) Gain on sale of securities available for sale     ( 131 )     ( 59 ) Gain on sale of OREO     ( 7 )     —   Gain on transfer to OREO     ( 15 )     —   (Reversal of) Provision for loan losses     ( 23 )     464   Earnings on bank owned life insurance     ( 181 )     ( 183 ) Increase in accrued interest receivable and other assets     ( 1,647 )     ( 272 ) Net increase (decrease) in accrued expenses and other liabilities     52       ( 333 ) Net cash provided by (used in) operating activities     1,452       ( 620 ) Cash flows from investing activities:                 Net (increase) decrease in portfolio loans     1,772       ( 1,241 ) Principal repayments on mortgage-backed securities     17,552       12,730   Purchases of securities available for sale     ( 48,968 )     ( 38,631 ) Sales of securities available for sale     6,769       12,112   Maturities and calls of securities available for sale     2,045       1,465   Purchase of Federal Home Loan Bank Stock     ( 38 )     —   Proceeds from sale of other real estate owned     194       —   Decrease in time deposits with other financial institutions, net     8,967       7,735   Purchases of premises and equipment, net     ( 142 )     ( 104 ) Net cash used in investing activities     ( 11,849 )     ( 5,934 ) Cash flows from financing activities:                 Net change in deposits     99,217       2,033   Net change in escrow deposits     ( 77 )     10   Repayment of FHLB Advance     ( 4,000 )     —   Proceeds from FHLB Advance     5,000       4,000   Net cash provided by financing activities     100,140       6,043   Net change in cash and cash equivalents     89,743       ( 511 ) Cash and cash equivalents at beginning of period     31,868       32,379   Cash and cash equivalents at end of period   $ 121,611     $ 31,868   Supplemental disclosures of cash flow information:                 Loans transferred to OREO   $ 172     $ —   Cash paid during the period for: Interest     948       1,543   Income taxes     —       37     See accompanying notes to consolidated financial statements   46 Table of Contents     Note 1: Summary of Significant Accounting Policies   The accompanying consolidated financial statements (“the financial statements”) have been prepared in conformity with accounting principles generally accepted in the United States of America and conform to practices within the banking industry.   Nature of Operations   NSTS Bancorp, Inc. was formed to serve as the stock holding company for North Shore Trust and Savings (the “Bank”) in connection with the conversion of North Shore Trust and Savings, NSTS Financial Corporation and North Shore MHC, into the stock form of organization, which was completed on January 18, 2022. As of December 31, 2021 , the conversion had not yet been completed and NSTS Bancorp, Inc. had not conducted any business activities other than organizational activities. As of December 31, 2021, NSTS Bancorp, Inc. had received payments totaling $ 87.3 million from potential investors in connection with the stock offering. These funds were held in a deposit account at the Bank. Accordingly, the audited financial statements, as well as other financial information at or prior to January 18, 2022, contained in this Annual Report on Form 10 -K relate solely to the consolidated financial results of North Shore MHC and its consolidated subsidiaries, NSTS Financial Corporation and North Shore Trust and Savings.   NSTS Bancorp, Inc. completed its stock offering on January 18, 2022. The Company sold 5,290,000 shares of common stock at $ 10.00 per share in its subscription offering for gross proceeds of approximately $ 53.0 million. In connection with the subscription offering, NSTS Bancorp, Inc. also issued 107,959 shares of common stock and $ 150,000 in cash to NSTS Charitable Foundation. Shares of NSTS Bancorp, Inc. stock began trading on January 19, 2022 on the Nasdaq Capital Market under the trading symbol "NSTS."   These financial statements include the accounts of North Shore MHC, a federal mutual holding company; its wholly owned subsidiary NSTS Financial Corporation, a stock holding company; and North Shore Trust and Savings (the “Bank”), a federal stock savings bank.   The Bank operates primarily in the northern suburbs of Chicago, Illinois. The Bank offers a variety of financial services to customers in the surrounding community. Financial services consist primarily of 1 - 4 family mortgage loans, savings accounts, and certificate of deposit accounts. There are no significant concentrations of loans to any one industry or customer. The Bank’s exposure to credit risk is significantly affected by changes in the economy in the Bank’s market area.   All significant intercompany balances and transactions have been eliminated in consolidation.   Certain amounts in prior year financial statements have been reclassified to conform to the 2021 presentation.    Use of Estimates   The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may vary from those estimates.   The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral.   The Bank’s loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on local economic conditions.   While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments of information available to them at the time of their examination. Due to these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.   Additional material estimates that are particularly susceptible to significant change in the near term include the determination of the valuation allowance on deferred tax assets and the valuation of investment securities.   Comprehensive Income   Comprehensive income includes net income (losses) and other changes in net worth which bypass the statement of operations. For all periods presented, other comprehensive income includes only one additional component, the change in unrealized gains and losses on available-for-sale investment securities.   Cash and Cash Equivalents   For purposes of reporting cash flows, cash and cash equivalents includes cash on hand and amounts due from banks, including cash items in process of clearing.   Time Deposits with Other Financial Institutions   Time deposits with other financial institutions are carried at cost and generally mature within the next two years.   47 Table of Contents   Investment Securities   Securities are classified as available-for-sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). Discounts are accreted into interest income over the estimated life of the related security and premiums are amortized against income over the earlier of the call date or weighted average life of the related security using the level yield method. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.   Securities available-for-sale are securities that are intended to be held for indefinite periods of time, but which may not be held to maturity. These securities may be used as a part of the Bank’s asset/liability management strategy and may be sold in response to changes in interest rates, deterioration of issuer’s creditworthiness, or due to a desire to increase liquidity.   The Bank conducts a periodic review of available-for-sale securities with declines in fair value below their cost to evaluate if the impairment is other than temporary. In estimating other-than-temporary impairment, management considers ( 1 ) the length of time and the extent to which the fair value has been less than amortized cost, ( 2 ) the financial condition and near-term prospects of the issuer, and ( 3 ) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Credit-related impairments of debt securities are recorded through earnings, and any impairment as a result of other factors is included in accumulated other comprehensive income.   Federal Home Loan Bank Stock   The Bank, as a member of the Federal Home Loan Bank (FHLB) system, is required to maintain an investment in capital stock of the FHLB. Based on redemption provisions of the FHLB, the stock has no quoted market price and is carried at cost of $ 550,000 and $ 512,000 at December 31, 2021 and 2020 and is evaluated for impairment at each reporting date.   Loans Held for Sale   Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or market value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Mortgage loans held for sale are generally sold with servicing rights released. Gains or losses are recognized through earnings.   Loans   The Bank’s loan portfolio includes segments for mortgage loans and consumer loans. Mortgage loans include classes for 1 - 4 family, multi-family, and commercial.   Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment to the related loan yield using the interest method, adjusted for prepayments.   The accrual of interest on all loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until the loans qualify for return to accrual. Loans are returned to accrual status when payment of all the principal and interest amounts contractually due is reasonably assured.   Allowance for Loan Losses   The allowance for loan losses (the “allowance”) is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.   The allowance for loan losses is evaluated on a regular basis by management. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of general and allocated components, as further described below.   48 Table of Contents   General Component The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: first mortgage loans and consumer loans. Management uses an average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards, and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions.   The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:   Mortgage Loans 1 - 4 family mortgage loans in this segment are made to individuals. The loans are secured by real estate with the Bank typically in a first lien position. The Bank generally does not originate loans with a loan-to-value ratio greater than 80 % unless mortgage insurance is obtained and generally does not grant loans that would be classified as subprime upon origination. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.   Although terms for commercial real estate and multi-family residential loans vary, our underwriting standards generally allow for terms not exceeding 30 years and loan-to-value ratios of not more than 75 %. Interest rates are typically adjustable, based upon designated market indices such as The Wall Street Journal prime rate, or fixed-rate, and fees are charged to the borrower at the origination of the loan. The actual lives of such loans generally are less than their contractual terms to maturity due to prepayments and re-financings. Generally, we obtain personal guarantees of the principals as additional collateral for commercial real estate and multi-family residential loans.   Commercial real estate and multi-family residential lending involve a greater degree of risk than one - to four -family residential lending. These risks include larger loans to individual borrowers and loan payments that are dependent upon the successful operation of the project or the borrower’s business. These risks can be affected by supply and demand conditions of rental housing units, office and retail space and other commercial space in the project’s market area. We attempt to minimize these risks for loans we originate by soliciting loans from businesses with existing operating performance. We also use conservative debt coverage ratios in our underwriting, and periodically monitor the operation of the business or project and the physical condition of the property.   Consumer Loans Loans in this segment are generally to individuals and are supported by non-real estate collateral, such as deposit accounts and personal property. Unsecured loans are also included in this segment. Repayment is dependent on the credit quality of the individual borrower or borrowers.   Allocated Component The allocated component relates to loans that are classified as impaired. Based on internal ratings, loans are evaluated for impairment on a loan-by-loan basis. Impairment is measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan.   A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all circumstances surrounding the loan and borrower, including the length of the delay, reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the amount of principal and interest owed.   The Bank periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (TDR). All TDRs are classified as impaired and management performs an impairment analysis at the time of restructuring.   49 Table of Contents   Premises and Equipment   Land is stated at cost. Property, improvements, and equipment are stated at cost less accumulated depreciation. Depreciation is determined under the straight-line method over the following estimated useful lives of assets:       Years   Land improvements     3 - 10   Office building and improvements     10 - 40   Furniture and equipment     3 - 10     Income Taxes   Deferred taxes are recognized using the asset/liability method. Deferred tax assets are recognized for deductible temporary differences, operating loss and tax credit carryforwards; deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the financial statement amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.   When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than- not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceed the amount measured as described above, if any, is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet, along with any associated interest and penalties that would be payable to the taxing authorities upon examination.   50 Table of Contents   Interest and penalties associated with unrecognized tax benefits, if any, are classified as additional income taxes in the statement of operations. Bank management believes that the Bank maintains no uncertain tax positions for tax reporting purposes and accordingly, no liability is required to be recorded.   The Bank is subject to U.S. federal income tax as well as income tax of the States of Illinois and Wisconsin.   Other Real Estate Owned   Property acquired in satisfaction of debt or through foreclosure is carried at the lower of cost or market value less estimated costs to sell. At foreclosure, if the fair value of the property acquired is less than the recorded investment in the related loan, a reduction in the carrying amount of the loan is recognized with a charge to the allowance for loan losses. The cost of carrying the assets subsequent to foreclosure and any decrease in the market value occurring after that date are charged to operating expenses as incurred.   Bank-owned Life Insurance   The Bank purchased life insurance policies on certain key executives. Bank-owned life insurance is recorded at the amount estimated to be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due which are probable at settlement.   Service Charges on Deposits   Service charges on deposits represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue, or some other individual attribute-based revenue. Revenue is recognized when the Bank’s performance obligation is completed, which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time performance obligations are satisfied.   Dividend Restrictions   Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to its stockholders.    Transfers of Financial Assets   Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Bank, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before maturity.    51 Table of Contents     Note 2: Securities   The amortized cost and estimated fair value of debt securities at December 31, 2021 and 2020 , by contractual maturity, are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties, therefore, these securities have been included in 1 to 5 years based on average remaining life.   December 31, 2021   U.S. government agency obligations     Municipal obligations     Mortgage-backed residential obligations     Collateralized mortgage obligations     Total available-for-sale         (Dollars in thousands) 1 year or less   $ —     $ 1,631     $ 356     $ 1,064     $ 3,051   1 to 5 years     5,587       3,941       29,375       16,097       55,000   5 to 10 years     4,466       2,244       12,417       11,976       31,103   After 10 years   $ —       10,184       —       1,612       11,796   Fair value   $ 10,053     $ 18,000     $ 42,148     $ 30,749     $ 100,950   Gross unrealized gains     73       423       259       279       1,034   Gross unrealized losses     ( 78 )     ( 14 )     ( 612 )     ( 443 )     ( 1,147 ) Amortized cost   $ 10,058     $ 17,591     $ 42,501     $ 30,913     $ 101,063     December 31, 2020   U.S. government agency obligations     Municipal obligations     Mortgage-backed residential obligations     Collateralized mortgage obligations     Total available-for-sale         (Dollars in thousands) 1 year or less   $ 1,000     $ 769     $ 1,443     $ 382     $ 3,594   1 to 5 years     4,863       3,726       34,485       14,452     $ 57,526   5 to 10 years     1,284       4,353       7,166       5,565     $ 18,368   After 10 years     —       2,132       —       —     $ 2,132   Fair value   $ 7,147     $ 10,980     $ 43,094     $ 20,399     $ 81,620   Gross unrealized gains     153       518       883       534     $ 2,088   Gross unrealized losses     ( 17 )     ( 18 )     ( 21 )     ( 66 )   $ ( 122 ) Amortized cost   $ 7,011     $ 10,480     $ 42,232     $ 19,931     $ 79,654     As of December 31, 2021 and 2020 , no securities were pledged to secure public deposits or for other purposes as required or permitted by law. At December 31, 2021 and 2020, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of members' equity.    Information pertaining to securities with gross unrealized losses at December 31, 2021 and 2020 , aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows:       Less than 12 Months     12 Months or Longer     Total       Fair     Unrealized     Fair     Unrealized     Fair     Unrealized   December 31, 2021   Value     Losses     Value     Losses     Value     Losses         (Dollars in thousands) U.S. government agency obligations   $ 4,020     $ 62     $ 1,105     $ 16     $ 5,125     $ 78   Municipal obligations     2,399       8       247       6       2,646       14   Mortgage-backed residential obligations     26,540       535       2,781       77       29,321       612   Collateralized mortgage obligations     16,715       338       4,386       105       21,101       443   Total   $ 49,674     $ 943     $ 8,519     $ 204     $ 58,193     $ 1,147   December 31, 2020                                                 U.S. government agency obligations   $ 1,284     $ 17     $ -     $ —     $ 1,284     $ 17   Municipal obligations     —       —       238       18       238       18   Mortgage-backed residential obligations     5,265       16       1,170       5       6,435       21   Collateralized mortgage obligations     8,694       66       241       —       8,935       66   Total   $ 15,243     $ 99     $ 1,649     $ 23     $ 16,892     $ 122     At December 31, 2021 and 2020 , certain investment securities were in unrealized loss positions. Some investment securities have declined in value but do not presently represent realized losses. Unrealized losses on investment securities have not been recognized into income because the issuers’ bonds are of high credit quality, the Bank has the intent and ability to hold the securities for the foreseeable future, and the declines in fair value are primarily due to market volatility. The fair values are expected to recover as the bonds approach their maturity dates.   The following table represents the proceeds from the sale of securities available-for-sale and the related gross gains and losses during the periods presented.        At December 31,       2021     2020       (Dollars in thousands)   Sales of securities available for sale   $ 6,769     $ 12,112   Gross gain realized on the sale of securities available for sale     131       114   Gross loss realized on the sale of securities available for sale     —       ( 55 )   52 Table of Contents     Note 3: Loans   A summary of loans by major category as of December 31, 2021 and 2020 is as follows:       2021     2020         (Dollars in thousands)   First mortgage loans                 1-4 family residential   $ 88,028     $ 87,198   Multi-family     3,497       5,736   Commercial     4,604       5,340   Total first mortgage loans     96,129       98,274   Consumer loans     372       385   Total loans     96,501       98,659   Net deferred loan costs     812       666   Allowance for loan losses     ( 779 )     ( 870 ) Total loans, net   $ 96,534     $ 98,455     First mortgage loans serviced for others are not included in the accompanying balance sheets. The unpaid principal balance of these loans totaled $ 15.8 million and $ 16.0 million at December 31, 2021 and 2020 , respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing were $ 270,000  and $ 268,000 at December 31, 2021 and 2020 , respectively.   In the normal course of business, loans are made to directors and officers of the Bank (related parties). The terms of these loans, including interest rate and collateral, are similar to those prevailing for comparable transactions with other customers and do not involve more than a normal risk of collectability. At December 31, 2021 and 2020 , such borrowers were indebted to the Bank in the aggregate amount of $ 556,000 and $ 928,000 , respectively.   53 Table of Contents     Note 4: Allowance for Loan Losses   Changes in the allowance for loan losses and the related loan balance information by portfolio segment as of and for the years ended December 31, 2021 and 2020 were as follows:       December 31, 2021       1-4 family residential     Multi-family     Commercial     Consumer     Total       (Dollars in thousands)   Year ended:                                         Beginning balance   $ 798       29       38       5     $ 870   Charge-offs     —       —       —       ( 99 )     ( 99 ) Recoveries     31       —       —       —       31   Net recoveries (charge-offs)     31       —       —       ( 99 )     ( 68 ) Provision for loan losses     ( 154 )     40       ( 13 )     104       ( 23 ) Ending balance   $ 675       69       25       10     $ 779         December 31, 2020       1-4 family residential     Multi-family     Commercial     Consumer     Total       (Dollars in thousands)   Year ended:                                         Beginning balance   $ 362       10       9       8     $ 389   Charge-offs     —       —       —       —       —   Recoveries     17       —       —       —       17   Net recoveries (charge-offs)     17       —       —       —       17   Provision for loan losses     419       19       29       ( 3 )     464   Ending balance   $ 798       29       38       5     $ 870     The balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2021 and 2020, were as follows:       Collectively evaluated     Individually evaluated     Total       Allowance for loan losses     Recorded investment in loans     Allowance for loan losses     Recorded investment in loans     Allowance for loan losses     Recorded investment in loans         (Dollars in thousands) December 31, 2021                                                 1-4 family residential   $ 557     $ 86,892     $ 118     $ 1,136     $ 675     $ 88,028   Multi-family     69       3,497       —       —       69       3,497   Commercial     25       4,604       —       —       25       4,604   Consumer     10       372       —       —       10       372   Total   $ 661     $ 95,365     $ 118     $ 1,136     $ 779     $ 96,501   December 31, 2020                                                 1-4 family residential   $ 648     $ 84,775     $ 150     $ 2,423     $ 798     $ 87,198   Multi-family     29       5,736       —       —       29       5,736   Commercial     38       5,340       —       —       38       5,340   Consumer     5       286       —       99       5       385   Total   $ 720     $ 96,137     $ 150     $ 2,522     $ 870     $ 98,659     54 Table of Contents   The Bank evaluates collectability based on payment activity and other factors. The Bank uses a graded loan rating system as a means of identifying potential problem loans, as follows:   Pass Loans in these categories are performing as expected with low to average risk.   Special Mention Loans in this category are internally designated by management as “watch loans.” These loans are starting to show signs of potential weakness and are closely monitored by management.   Substandard Loans in this category are internally designated by management as “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the paying capacity of the obligors or the current net worth of the collateral pledged. Substandard loans present a distinct possibility that the Bank will sustain losses if such weaknesses are not corrected.   Doubtful Loans classified as doubtful have all the weaknesses inherent in those designated as “substandard” with the added characteristic that the weaknesses may make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.   On an annual basis, or more often if needed, the Bank formally reviews the ratings on commercial loans. In addition, the Bank performs an independent review of a significant portion of the commercial loan portfolio. Management uses the results of the independent review as part of its annual review process.   The following table presents loan balances based on risk rating by class of loans as of December 31, 2021 and 2020 :               Special                               Pass     Mention     Substandard     Doubtful     Total loans         (Dollars in thousands) December 31, 2021                                         1-4 family residential   $ 87,881     $ 45     $ 102     $ —     $ 88,028   Multi-family     3,497       —       —       —       3,497   Commercial     4,604       —       —       —       4,604   Consumer     372       —       —       —       372   Total   $ 96,354     $ 45     $ 102     $ —     $ 96,501   December 31, 2020                                         1-4 family residential   $ 86,501     $ 417     $ 280     $ —     $ 87,198   Multi-family     5,736       —       —       —       5,736   Commercial     5,340       —       —       —       5,340   Consumer     286       99       —       —       385   Total   $ 97,863     $ 516     $ 280     $ —     $ 98,659     The aging of the Bank’s loan portfolio by class of loans as of December 31, 2021 and 2020 , is as follows:       31-89 Days Past Due and Accruing     Greater than 90 Days Past Due and Accruing     Non-Accrual     Total Past Due and Non-Accrual     Current     Total Loan Balance         (Dollars in thousands)   December 31, 2021                                                 1-4 family residential   $ —     $ 41     $ 102     $ 143     $ 87,885     $ 88,028   Multi-family     —       —       —       —       3,497       3,497   Commercial     —       —       —       —       4,604       4,604   Consumer     —       —       —       —       372       372   Total   $ —     $ 41     $ 102     $ 143     $ 96,358     $ 96,501   December 31, 2020                                                 1-4 family residential   $ —     $ 75     $ 280     $ 355     $ 86,843     $ 87,198   Multi-family     —       —       —       —       5,736       5,736   Commercial     —       —       —       —       5,340       5,340   Consumer     99       —       —       99       286       385   Total   $ 99     $ 75     $ 280     $ 454     $ 98,205     $ 98,659     55 Table of Contents   Loans individually evaluated for impairment by class of loans as of December 31, 2021 and 2020 , were as follows:       Recorded investment     Unpaid principal balance     Related allowance     Average recorded investment     Interest income recognized         (Dollars in thousands) December 31, 2021                                         With no related allowance recorded                                   1-4 family residential   $ 355     $ 595     $ —     $ 348     $ 26   Multi-family     —       —       —       —       —   Commercial     —       —       —       —       —   Consumer     —       —       —       —       —   Total   $ 355     $ 595     $ —     $ 348     $ 26   With a related allowance recorded                                         1-4 family residential   $ 781     $ 797     $ 118     $ 797     $ 35   Multi-family     —       —       —       —       —   Commercial     —       —       —       —       —   Consumer     —       —       —       —       —   Total   $ 781     $ 797     $ 118     $ 797     $ 35   Total individually assessed as of December 31, 2021   $ 1,136     $ 1,392     $ 118     $ 1,145     $ 61   December 31, 2020                                         With no related allowance recorded                                   1-4 family residential   $ 1,348     $ 1,676     $ —     $ 1,382     $ 73   Multi-family     —       —       —       —       —   Commercial     —       —       —       —       —   Consumer     99       99       —       89       6   Total   $ 1,447     $ 1,775     $ —     $ 1,471     $ 79   With a related allowance recorded                                   1-4 family residential   $ 1,075     $ 1,120     $ 150     $ 1,104     $ 51   Multi-family     —       —       —       —       —   Commercial     —       —       —       —       —   Consumer     —       —       —       —       —   Total   $ 1,075     $ 1,120     $ 150     $ 1,104     $ 51   Total individually assessed as of December 31, 2020   $ 2,522     $ 2,895     $ 150     $ 2,575     $ 130     The recorded investment in loans excludes accrued interest receivable and loan origination fees, net, due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.    Troubled debt restructurings provide for modifications to repayment terms; more specifically, modifications to loan interest rates. Management performs an impairment analysis at the time of restructuring and periodically thereafter. Any reserve required is recorded through a provision to the allowance for loan losses.   There were no new troubled debt restructurings during the years ended December 31, 2021 and 2020 . In March 2021, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed into law. Among other things, the CARES Act suspends the requirements related to accounting for TDRs for certain loan modifications related to the COVID- 19 pandemic.   The Company has minimal direct exposure to consumer, commercial, and other small businesses that may be negatively impacted by COVID- 19, but management has analyzed and increased the qualitative factors in these and other loan categories for incurred, but not yet identified loan losses attributable to COVID- 19.  As of December 31, 2021 , management did not see significant disruption with existing customers related to COVID- 19.  However, Management did grant customer requests to defer payments on 50 loans with unpaid balances of $ 9.7 million.  As of December 31, 2021, all COVID- 19 loan modifications have returned to repayment. Management has also assisted small businesses that could benefit from the CARES Act, particularly in the SBA’s Paycheck Protection Program (“PPP”). As of December 31, 2021, the Company has funded approximately $ 1.3  million in loans to small businesses under this program since it launched on April 3, 2020. As of December 31, 2021, all PPP loans have been forgiven by the SBA.      Note 5: Premises and Equipment   The components of premises and equipment as of December 31, 2021 and 2020 , are as follows:       2021     2020         (Dollars in thousands)   Land and improvements   $ 2,701     $ 2,703   Building and improvements     6,576       6,486   Furniture and equipment     1,372       1,617   Total gross equipment     10,649       10,806   Less accumulated depreciation     5,562       5,593   Premises and equipment, net   $ 5,087     $ 5,213     56 Table of Contents     Note 6: Other Real Estate Owned   At December 31, 2021 and December  31, 2020, the balance for other real estate owned ("OREO") was $ 0 .    The following table represents the movement in OREO during the periods presented.       At December 31,       2021     2020       (Dollars in thousands)   Transfer of loans to OREO   $ 172     $ —   Sale of OREO     194       —   Gross gain realized on transfer to OREO     15       —   Gross gain realized on sale of OREO     7       —     The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process is $ 60,000  and $ 111,000 , as of December 31, 2021 and 2020 , respectively.     Note 7: Deposits   As of December 31, 2021 , for years below ended December 31, the scheduled maturities of time deposits are as follows:   Years Ended   Amount       (Dollars in thousands)   2022   $ 39,927   2023     15,037   2024     9,508   2025     5,537   2026 and beyond     2,865   Total   $ 72,874       In the normal course of business, deposit accounts are held by directors and officers of the Bank (related parties). The terms for these accounts, including interest rates, fees, and other attributes, are similar to those prevailing for comparable transactions with other customers and do not involve more than the normal level of risk associated with deposit accounts. At December 31, 2021 and 2020 , total deposits held by directors and officers of the Bank was $ 1.1 million and $ 4.3 million, respectively. Additionally, NSTS Bancorp, Inc. held cash in a non-interest bearing deposit account at North Shore Trust and Savings of $ 87.3 million as of December 31, 2021.      Note 8: Other Borrowings   On May 21, 2021, the Bank obtained a non-interest bearing FHLB advance totaling $ 5.0 million. This advance is collateralized by loans pledged to the FHLB and matures on May 21, 2022. Additionally, on May 21, 2021, the Bank repaid the existing non-interest bearing FHLB advance totaling $ 4.0 million that was due on May 24, 2021. The Bank is eligible to borrow up to a total of $ 60.8 million and $ 61.1 million at December 31, 2021 and 2020, respectively, which is collateralized by $ 76.8 million and $ 77.3 million of first mortgage loans under a blanket lien arrangement at December 31, 2021 and 2020, respectively.   57 Table of Contents     Note 9: Income Taxes   Income tax expense (benefit) for the years ended December 31, 2021 and 2020 , is summarized as follows:         Year Ended December 31,       2021     2020         (Dollars in thousands) Current (benefit) expense                 Federal   $ 62     $ ( 262 ) State     —       3   Total current benefit     62       ( 259 )                   Deferred benefit     ( 379 )     ( 233 ) Change in valuation allowance     103       ( 11 ) Total deferred benefit     ( 276 )     ( 244 ) Total income tax benefit   $ ( 214 )   $ ( 503 )   The difference between the income tax expense shown on the statements of income and the amounts computed by applying the statutory federal income tax rate to income before income taxes is primarily due to tax-exempt income, the change in valuation allowance, and the adjustment of deferred taxes for enacted changes in tax laws. The provision for income taxes differs from that computed are as follows:       Year Ended December 31,       2021     2020       (Dollars in thousands)   Income before income tax expense   $ ( 269 )   $ ( 615 ) Tax benefit at statutory federal rate of 21% applied to income before income tax benefit     56       129   State income tax, net of federal effect     51       117   Tax-exempt security and loan income, net of TEFRA adjustments     50       54   BOLI     38       38   Other     19       165   Total income tax expense   $ 214     $ 503   Effective tax rate     ( 79.6 )%     ( 81.8 )%   The tax effects of existing temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2021 and 2020 , are as follows:       Year Ended December 31,       2021     2020       (Dollars in thousands)   Deferred tax assets                 Allowance for loan losses   $ 222     $ 248   Deferred compensation     432       422   Retirement plans     55       147   Premises held for sale impairment     101       101   Unrealized loss on securities available-for-sale     32       —   Federal net operating loss carryforwards     218       —   Other     53       39   State net operating loss carryforwards     306       203   Gross deferred tax assets     1,419       1,160   Valuation allowance     ( 306 )     ( 203 ) Net deferred tax assets     1,113       957   Deferred tax liabilities                 FHLB stock dividends     ( 101 )     ( 101 ) Accumulated depreciation     ( 36 )     ( 46 ) Unrealized gain on securities available-for-sale     —       ( 561 ) Other     —       ( 142 ) Deferred tax liabilities     ( 137 )     ( 850 ) Net deferred tax asset   $ 976     $ 107       The Bank does not expect the total amount of unrecognized tax benefits to change significantly in the next twelve months. Federal net operating losses as of December 31, 2021 and 2020 are $ 1.5 million, and $ 0 , respectively, and do not expire. Net operating loss (NOL) carryforwards for state income tax purposes were approximately $ 3.2 million and $ 2.3  million at December 31, 2021 and 2020 , respectively, and will begin expiring in 2022. Due to the uncertainty that the Bank will be able to generate future state taxable income sufficient to utilize the net operating loss carryforwards, a full valuation allowance was recorded on the related deferred tax asset.   There were no uncertain tax positions outstanding as of December 31, 2021 and 2020 . As of December 31, 2021 , tax years remaining open for State of Illinois and Wisconsin were 2017 through 2020. Federal tax years that remained open were 2018 through 2020. As of December 31, 2021 , there were also no unrecognized tax benefits that are expected to significantly increase or decrease within the next twelve months.   58 Table of Contents     Note 10: Capital Ratios   The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under accounting principles generally accepted in the United States of America, regulatory reporting requirements and regulatory capital standards. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.   Quantitative measures established by regulatory reporting standards to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, common equity Tier 1 capital to total risk-weighted assets and of Tier I capital to average assets, as such individual components and calculations are defined by related standards. As of December 31, 2021, the most recent notification from the regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification which management believes have changed the Bank’s category.   On November 13, 2019, the federal regulators finalized and adopted a regulatory capital rule establishing a new community bank leverage ratio (“CBLR”), which became effective on January 1, 2020. The intent of CBLR is to provide a simple alternative measure of capital adequacy for electing qualifying depository institutions and depository institution holding companies, as directed under the Economic Growth, Relief, and Consumer Protection Act. Under CBLR, if a qualifying depository institution or depository institution holding company elects to use such measure, such institution or holding company will be considered well capitalized if its ratio of Tier 1 capital to average total assets (i.e., leverage ratio) exceeds 9% subject to a limited two quarter grace period, during which the leverage ratio cannot go 100 basis points below the then applicable threshold, and will not be required to calculate and report risk-based capital ratios. In April 2020, under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the 9% leverage ratio threshold was temporarily reduced to 8% in response to the COVID- 19 pandemic. The threshold will increase to 8.5% in 2021 and return to 9% in 2022. The Bank elected to begin using CBLR for the first quarter of 2020. Management believes, as of December 31, 2021, that the Bank met all capital adequacy requirements to which it was subject.   The Bank’s actual capital amounts and ratios as of December 31, 2021 and 2020 , are presented below:       Actual     Minimum Required to be Well-Capitalized (1)       Amount     Ratio     Amount     Ratio       (Dollars in thousands)   As of December 31, 2021                                 Tier 1 capital (to Average Assets)   $ 44,262       16.11 %   $ 23,349       >8.5%                                     As of December 31, 2020                                 Tier 1 capital (to Average Assets)   $ 44,256       18.41 %   $ 21,636       >8%                                     (1) As defined by regulatory agencies. Failure to exceed the leverage ratio thresholds required under CBLR in the future, subject to any applicable grace period, would require the Company to return to the risk-based capital ratio thresholds previously utilized under the fully phased-in Basel III Capital Rules to determine capital adequacy.   The Company's principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that the Bank may pay without prior approval of regulatory agencies. Under these regulations, the amount of dividends that the Bank may pay in any calendar year is limited to the current year's profits, combined with the retained profit of the previous two years, subject to the capital requirements described above which include a requirement that the Bank maintain a capital conservation buffer of 2.5 % on all risk-based capital requirements in order to avoid additional limitations on capital distributions.   Note 11: Benefit Plans   During 2021, the Bank made final payouts for the Directors' Retirement Fund and Equity Value Plan. Both plans were fully accrued for prior to 2020.   The Bank sponsors a noncontributory Profit-Sharing Plan covering all employees who have worked more than 1,000 hours during the plan year. Profit sharing expense for the years ended  2021 and  2020 were $ 0 .   59 Table of Contents   Management implemented a 401 (k)-benefit plan during 2007. Employee contributions are matched up to the first 6 % of compensation contributed by the employee. Employer match contributions totaled $ 156,000 for 2021 and $ 163,000 for 2020.     Note 12: Commitments and Contingencies   In the ordinary course of business, the Bank has various commitments and contingent liabilities that are not reflected in the accompanying financial statements. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the financial position of the Bank.   Financial Instruments The Bank does not engage in the use of interest rate swaps or futures, forwards or option contracts.   At December 31, 2021 and 2020 , unused lines of credit and outstanding commitments to originate loans were as follows:       2021     2020         (Dollars in thousands) Unused line of credit   $ 4,001     $ 4,372   Commitments to originate loans     219       784   Total commitments   $ 4,220     $ 5,156     Concentrations of Credit Risk The Bank generally originates single-family residential loans within its primary lending area which is Waukegan, Illinois and the surrounding area. The Bank’s underwriting policies require such loans to be made at approximately 80 % loan-to-value, based upon appraised values, unless private mortgage insurance is obtained, or the loan is guaranteed by the government. These loans are secured by the underlying properties.   The Bank maintains its cash in deposit accounts at the Federal Reserve Bank or other institutions, the balances of which may exceed federally insured limits. The Bank has not experienced any losses in such accounts. The Bank believes it is not exposed to any significant credit risk on cash and cash equivalents.   Interest Rate Risk The Bank assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, fair values of its financial instruments will change when interest rate levels change, and that change may be either favorable or unfavorable to the Bank. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the overall interest rate risk.   Litigation Due to the nature of its business activities, the Bank is at times subject to legal action which arises in the normal course of business. In the opinion of management, the ultimate resolution of these matters is not expected to have a material effect on the financial position or results of operations of the Bank.   60 Table of Contents     Note 13: Fair Value Measurements   Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:     Level 1 Quoted prices in active markets for identical assets or liabilities     Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities     Level 3 Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities   An asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.   Following is a description of the valuation methodologies used for assets measured at fair value.   There have been no changes in the methodologies used at December 31, 2021 and 2020 .   Available-for-Sale Securities (Recurring) Where quoted market prices are available in an active market, securities such as U.S. Treasuries, would be classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities would be classified within Level 3 of the hierarchy.   Impaired Loans (Nonrecurring) Impaired loans are recorded at fair value on a nonrecurring basis. The fair value of loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Impaired loans that are valued based on the present value of future cash flows are not considered in the fair value hierarchy.   The following table presents the Bank’s assets that are measured at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of December 31, 2021 and 2020 :       Fair Value Measurements Using       Fair Value     Level 1     Level 2     Level 3       (Dollars in thousands)   December 31, 2021                                 Securities Available-for-sale                                 U.S. government agency obligations   $ 10,053       —       10,053     $ —   Municipal obligations     18,000       —       18,000       —   Mortgage-backed residential obligations     42,148       —       42,148       —   Collateralized mortgage obligations     30,749       —       30,749       —   Total   $ 100,950       —       100,950     $ —   December 31, 2020                                 Securities Available-for-sale                                 U.S. government agency obligations   $ 7,147       —       7,147     $ —   Municipal obligations     10,980       —       10,980       —   Mortgage-backed residential obligations     43,094       —       43,094       —   Collateralized mortgage obligations     20,399       —       20,399       —   Total   $ 81,620       —       81,620     $ —     61 Table of Contents   The Bank may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with accounting principles generally accepted in the United States of America. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis and the valuation techniques used to measure nonrecurring Level 3 fair value measurements as of December 31, 2021 and 2020 , were as follows:     Fair Value Measurements Using       Fair Value     Level 1     Level 2     Level 3     Gain/(Loss)       (Dollars in thousands)   December 31, 2021                                         Impaired loans   $ 663       —       —       663     $ —                                             December 31, 2020                                         Impaired loans   $ 925       —       —       925     $ —     The numerical range of unobservable inputs for the valuation assumptions used in calculating the amounts disclosed above is not meaningful to this presentation.     Note 14: Fair Value of Financial Instruments   Financial instruments are classified within the fair value hierarchy using the methodologies described in Note 13 – Fair Value Measurements. The following disclosures include financial instruments that are not carried at fair value on the Consolidated Balance Sheets. The calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.    Certain financial instruments generally expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market. The carrying value of these financial instruments assumes to approximate the fair value of these instruments. These instruments include cash and cash equivalents,  non-interest-bearing deposit accounts, Time deposits with other financial institutions, FHLB stock, escrow deposits, interest-bearing deposits, FHLB Advances and accrued interest receivable and payable.     The carrying amounts and estimated fair values by fair value hierarchy of certain financial instruments are as follows:       Carrying                             Estimated       Amount     Level 1     Level 2     Level 3     Fair Value     (Dollars in thousands) December 31, 2021                                         Financial assets:                                         Loans, net   $ 96,534     $ —     $ 96,391     $ —     $ 96,391   Loans held for sale     104       —       112       —       112   Financial liabilities:                                         Interest-bearing deposits   $ 186,531     $ —     $ 181,564     $ —     $ 181,564                                             December 31, 2020                                         Financial assets:                                         Loans, net   $ 98,455     $ —     $ 102,034     $ —     $ 102,034   Loans held for sale     1,972       —       1,972       —       1,972   Financial liabilities:                                         Interest-bearing deposits   $ 176,670     $ —     $ 177,280     $ —     $ 177,280       62 Table of Contents     Note 15: Condensed Parent Only Financial Information   The Parent Company’s condensed balance sheet and related condensed statements of operations and cash flows are as follows.     NORTH SHORE MHC Condensed Balance Sheets       Year ended December 31,       2021     2020       (Dollars in thousands)   Assets:                 Cash   $ 230     $ 993   Investment in subsidiary     44,200       45,687   Other assets     753       48   Total assets   $ 45,183     $ 46,728   Liabilities:                 Accrued expense and other liabilities   $ —     $ 3   Total liabilities     —       3   Members’ equity:                 Members’ equity     45,183       46,725   Total members’ equity     45,183       46,725   Total liabilities and members’ equity   $ 45,183     $ 46,728     NORTH SHORE MHC Condensed Statements of Operations       Year ended December 31,       2021     2020       (Dollars in thousands)   Income:                 Interest income   $ 1     $ 1   Total income     1       1   Expense:                 Noninterest expense   $ 19     $ 229   Total expense     19       229   Losses before income tax benefit and equity in undistributed earnings of subsidiary   $ ( 18 )   $ ( 228 ) Income tax benefit     38       ( 56 ) Losses before equity in undistributed earnings of subsidiary   $ ( 56 )   $ ( 172 ) Equity in undistributed earnings of subsidiary     1       60   Net (losses) income   $ ( 55 )   $ ( 112 )     NORTH SHORE MHC Condensed Statements of Cash Flows       Year ended December 31,       2021     2020       (Dollars in thousands)   Cash flows from operating activities:                 Net (losses) income   $ ( 55 )   $ ( 112 ) Adjustments to reconcile net (losses) income to net cash used in operating activities:                 Decrease (increase) in other assets     ( 704 )     80   Increase (decrease) in accrued expenses and other liabilities     ( 3 )     3   Equity in undistributed earnings of subsidiary     ( 1 )     ( 60 ) Net cash used in operating activities     ( 763 )     ( 89 ) Cash flows from financing activities:                 Dividends received from subsidiary     —       950   Net cash provided by financing activities     —       950   Net change in cash     ( 763 )     861   Cash at beginning of period     993       132   Cash at end of period   $ 230     $ 993     63 Table of Contents     Note 16: Changes in Accounting Principles   Accounting for Financial Instruments – Credit Losses The FASB issued Accounting Standards Update ("ASU") No. 2016 - 13, Financial Instruments — Credit Losses (Topic 326 ) . The ASU introduces a new credit loss model, the current expected credit loss model (CECL), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk.   The CECL model utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities, and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. For available for-sale securities where fair value is less than cost, credit-related impairment, if any, will be recognized in an allowance for credit losses and adjusted each period for changes in expected credit risk. This model replaces the multiple existing impairment models, which generally require that a loss be incurred before it is recognized.   The CECL model represents a significant change from existing practice and may result in material changes to the Bank’s accounting for financial instruments. The Bank is evaluating the effect ASU 2016 - 13 will have on its consolidated financial statements and related disclosures. The impact of the ASU will depend upon the state of the economy, and the nature of the Bank’s portfolios at the date of adoption. The new standard is effective January 2023 for emerging growth companies.     Note 17: Subsequent Events   Management evaluated subsequent events through March 22, 2022,  the date the financial statements were issued. Except for the completion of the Plan of Conversion as discussed in Note 1, management does not believe there were any material subsequent events during this period that would have required further recognition or disclosure in the consolidated financial statements included in this report.   64 Table of Contents     SIGNATURES   Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.     NSTS BANCORP, INC.                   Dated: March 22, 2022 By: /s/  Stephen G. Lear       Stephen G. Lear       President and Chief Executive Officer             POWER OF ATTORNEY   KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints each of Stephen G. Lear and Carissa H. Schoolcraft, with full power to act without the other, his or her trust and lawful attorney-in-fact and agency, with full and several powers of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully as to all intents and purposes as each of the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.    Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.   Signatures Title Date /s/ Stephen G. Lear Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) March 22, 2022 Stephen G. Lear     /s/ Carissa H. Schoolcraft Chief Financial Officer (Principal Financial and Accounting Officer) March 22, 2022 Carissa H. Schoolcraft     /s/ Apolonio Arenas Director March 22, 2022 Apolonio Arenas     /s/ Thaddeus M. Bond, Jr. Director March 22, 2022 Thaddeus M. Bond, Jr.     /s/ Kevin M. Dolan Director March 22, 2022 Kevin M. Dolan     /s/ Thomas M. Ivantic Director March 22, 2022 Thomas M. Ivantic     /s/ Thomas J. Kneesel Director March 22, 2022 Thomas J. Kneesel     /s/ Rodney J. True Director March 22, 2022 Rodney J. True       65