What changed in this filing

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Item 1. Business

2023-03-30 compared with 2022-03-22 · 128 added, 165 removed, 750 unchanged (28% of the section changed)

18 unchanged sentences

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 tornadoes, 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;

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;

our ability to access cost-effective funding, including significant fluctuations in our deposit accounts;

major catastrophes such as tornadoes, floods or other natural disasters, as well as public health emergencies and pandemics, 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;

further data processing and other technological changes that may be more difficult or expensive than expected;

5 unchanged sentences

competition among depository and other financial institutions;

adverse changes in the securities markets;

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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 hire and retain key employees;

our ability to hire and retain key employees and our reliance on our executive officers;

our compensation expense associated with equity allocated or awarded to our employees.

8 unchanged sentences

“we”

or “our”), 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 no assets or liabilities and had not conducted any business activities other than organizational activities.

Since the conversion in January, other than holding the common stock of North Shore Trust and Savings, NSTS Bancorp, Inc.

retained approximately 50% of the net cash proceeds of the stock offering, made a loan to the employee stock ownership plan of North Shore Trust and Savings, and has not engaged in any other business activities to date.

NSTS Bancorp Inc.’s executive offices are located at 700 S.

or “our”), from the mutual to the stock form of organization, which was completed on January 18, 2022. NSTS Bancorp Inc.’s executive offices are located at 700 S.

Lewis Ave., Waukegan, Illinois 60085, and its telephone number is (847) 336-4430.

6 unchanged sentences

NSTS Bancorp, Inc., as the holding company of North Shore Trust and Savings, is authorized to pursue other business activities permitted by applicable laws and regulations, which may include the acquisition of banking and financial services companies.  We currently have no agreements to acquire other financial institutions or financial services companies, although we may determine to do so in the future.

NSTS Bancorp, Inc.’s cash flow depends on earnings from the investment of the net offering proceeds and from any dividends it receives from North Shore Trust and Savings.  North Shore Trust and Savings is subject to regulatory limitations on the amount of dividends that it may pay.  Initially, NSTS Bancorp, Inc.

will not own or lease any property, but instead pays North Shore Trust and Savings for the use of its premises, furniture and equipment.  We employ as officers of NSTS Bancorp, Inc.

only persons who are officers of North Shore Trust and Savings. However, we use the support staff of North Shore Trust and Savings from time to time.  We pay North Shore Trust and Savings for the time devoted to NSTS Bancorp, Inc.

NSTS Bancorp, Inc.’s cash flow depends on earnings from the investment of the net proceeds of the stock offering and from any dividends it receives from North Shore Trust and Savings.  North Shore Trust and Savings is subject to regulatory limitations on the amount of dividends that it may pay. NSTS Bancorp, Inc.

does not own or lease any property, but instead pays North Shore Trust and Savings for the use of its premises, furniture and equipment.  We employ as officers of NSTS Bancorp, Inc.

only persons who are also officers of North Shore Trust and Savings. However, we use the support staff of North Shore Trust and Savings from time to time.  We pay North Shore Trust and Savings for the time devoted to NSTS Bancorp, Inc.

by employees of North Shore Trust and Savings;

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North Shore Trust and Savings is primarily engaged in attracting deposits from the general public and using those funds to invest in loans and securities.

Our principal sources of funds are customer deposits, repayments of loans, maturities of investments and funds borrowed from outside sources such as the FHLB of Chicago (“FHLB”).

Our principal sources of funds are customer deposits, repayments of loans, maturities of investments and funds borrowed from outside sources such as the Federal Home Loan Bank of Chicago (“FHLB”).

These funds are primarily used for the origination of loans, including one- to four-family residential first mortgage loans, commercial real estate mortgage loans, multi-family residential mortgage loans and consumer loans.

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North Shore Trust and Savings is a traditional thrift institution with an emphasis on long-term one- to four-family residential first mortgage loans secured by residences located in our traditional market area centered in Waukegan, Illinois.

As of December 31, 2021, $88.0 million, or 91.2% of our total loan portfolio, consisted of one- to four-family residential mortgage loans.

As of December 31, 2022, $95.6 million, or 92.8% of our total loan portfolio, consisted of one- to four-family residential mortgage loans.

Our business strategy is to enhance our products and services, continue to focus on long-term one- to four-family residential first mortgage loans, and to increase our holdings of commercial real estate and multi-family residential real estate loans.

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In addition to our main office, we have two additional full service offices in Waukegan and Lindenhurst, Illinois, respectively, and one loan production office in Chicago, Illinois.

We currently are evaluating sites for up to three additional loan production branch offices in surrounding communities to be established over the next few years.

We currently are evaluating sites for additional loan production branch offices in surrounding communities to be established over the next few years.

Our market area consists of Lake County and Cook County which are located in Illinois, and Kenosha County which is located in Wisconsin.

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Lending Activities

As of December 31, 2021, our net loan portfolio totaled $96.5 million or 28.3% of total assets.

As of December 31, 2022, our net loan portfolio totaled $103.4 million or 39.1% of total assets.

Our principal lending activity has been the origination of loans collateralized by one- to four-family residential real estate loans located in our market area.

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First mortgage loans:

One- to four-family residential

Commercial real estate

1-4 family residential

Total first mortgage loans

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The amounts shown below do not take into account loan prepayments.

One- to Four-

1-4 Family Residential

Multi-Family Residential

Commercial Real Estate

(Dollars in thousands)

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(Dollars in thousands)

One- to four-family residential

Multi-family residential

Commercial real estate

The following table shows the dollar amount of our loans as of December 31, 2020, due after December 31, 2021 which have fixed interest rates or which have floating or adjustable interest rates.

Adjustable-Rate

December 31, 2020

(Dollars in thousands)

One- to four-family residential

Multi-family residential

Commercial real estate

1-4 family residential

Loan Originations, Participations and Sales.

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Consistent with our interest rate risk strategy, we have sold, on a servicing released basis a significant portion of our fixed rate one- to four-family residential mortgage loans.

We consider our balance sheet as well as market conditions on an ongoing basis in making decisions as to whether to hold loans we originate for investment or to sell such loans choosing the strategy that is most advantageous to us from a profitability and risk management standpoint.

In addition to originating loans, although we have not previously purchased participation interests in commercial real estate mortgage loans, we will consider purchasing such participation interests in modest amounts from other financial institutions in our market area.

We consider our balance sheet as well as market conditions on an ongoing basis in making decisions as to whether to hold loans we originate for investment or to sell such loans choosing the strategy that we believe is most advantageous to us from a profitability and risk management standpoint.

In addition to originating loans, during the year ended December 31, 2022, we purchased nine loans totaling $5.3 million, which consisted primarily of 1-4 family adjustable rate mortgages in our primary lending area.

Prior to purchasing, these loans were reviewed for compliance with our underwriting criteria.

All loans were purchased with servicing retained by the originating bank.

We actively monitor the performance of these loans through the receipt of regular reports from the originating lender regarding the loan's performance.

As of December 31, 2022, all purchased loans are paying as pursuant to their contractual terms. 

Further, although we have not previously purchased participation interests in commercial real estate mortgage loans, we will consider purchasing such participation interests from other financial institutions in our market area.

Such participations will be reviewed for compliance with our underwriting criteria before they are purchased.

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Loan Originations and Sales

The following table shows our total loans originated, sold and repaid during the periods indicated.

The following table shows our total loans originated, purchased, sold and repaid during the periods indicated.

Year Ended December 31,

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Loan originations:

One- to four-family residential

Multi-family residential

Commercial real estate

1-4 family residential

Total loan originations

Loan pool purchases

Loan principal repayments

Total loans sold and principal repayments

Increase or (decrease) due to other items, net (1)

Increase due to other items, net (1)

Net increase (decrease) in loans, net and loans held for sale

2 unchanged sentences

One of our primary lending activities continues to be the origination of loans secured by first mortgages on one- to four-family residences in our market area.

As of December 31, 2021, $88.0 million, or 91.2% of our total loan portfolio, consisted of one- to four-family residential mortgage loans.

As of December 31, 2022, $95.6 million, or 92.8% of our total loan portfolio, consisted of one- to four-family residential mortgage loans.

Applications for one-to four-family residential mortgage loans are accepted at any of our banking offices for processing, which consists primarily of obtaining all documents required to complete the underwriting, which includes making a determination whether the loan meets our underwriting standards.

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We also offer adjustable rate mortgage (“ARM”) loans where the interest rate either adjusts on an annual basis or is fixed for the initial three or five years and then adjusts annually.

As of December 31, 2021, approximately 12.3% of our one- to four-family residential mortgage loans maturing after December 31, 2022 were ARM loans.

As of December 31, 2022, approximately 15.6% of our one- to four-family residential mortgage loans maturing after December 31, 2023 were ARM loans.

Our ARM loans have a cap on any increase or decrease in the interest rate of up to 2% at any adjustment date and a 5% cap above or below the initial interest rate over the life of the loan.

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Multi-Family Residential and Commercial Real Estate Lending .

As of December 31, 2021, our commercial real estate and multi-family residential loans amounted to an aggregate of $8.1 million, or 8.4% of our total loan portfolio at such date.

We plan to moderately increase our emphasis on commercial real estate loans and multi-family residential real estate loans as they generally have shorter terms to maturity, improving North Shore Trust and Savings’

As of December 31, 2022, our commercial real estate and multi-family residential loans amounted to an aggregate of $7.1 million, or 7.0% of our total loan portfolio. We plan to moderately increase our emphasis on commercial real estate loans and multi-family residential real estate loans as they generally have shorter terms to maturity, improving North Shore Trust and Savings’

interest rate risk profile, and provide higher yields than one- to four-family residential mortgage loans.

At December 31, 2021, our multi-family residential mortgage loans amounted to $3.5 million, or 3.6% of the total loan portfolio.

At December 31, 2022, our multi-family residential mortgage loans amounted to $3.2 million, or 3.2% of the total loan portfolio.

Our multi-family residential mortgage loans, which are underwritten and approved in a manner consistent with our commercial real estate loans, are secured by residential properties with more than four units or secured by multiple one- to four-family residential properties located in our market area.

At December 31, 2021, our largest multi-family residential mortgage loan was a $912,000 loan secured by various one- to four-family investment homes and one multi-family apartment building located in Waukegan and North Chicago, Illinois, and was performing in accordance with its terms.

At December 31, 2022, our largest multi-family residential mortgage loan was an $861,000 loan secured by various one- to four-family investment homes and one multi-family apartment building located in Waukegan and North Chicago, Illinois, and was performing in accordance with its terms.

At December 31, 2022, we had a total of 10 multi-family residential mortgage loans and the average size of our multi-family residential mortgage loans was approximately $324,000.

Our commercial real estate loan portfolio amounted to $4.6 million, or 4.8% of the total loan portfolio, at December 31, 2021.

These commercial real estate loans included 14 loans secured primarily by investor properties, which include multiple one- to four-family residences.

Our commercial real estate loan portfolio amounted to $3.9 million, or 3.8% of the total loan portfolio, at December 31, 2022.

These commercial real estate loans included 12 loans secured primarily by investor properties, which include multiple one- to four-family residences.

Additionally, North Shore Trust and Savings has two commercial real estate loans secured by retail frontage.

At such date, the average commercial real estate loan size was $329,000.

The five largest commercial real estate loans outstanding were $1.9 million, $1.3 million, $323,000, $248,000 and $200,000, and all of such loans were paying in accordance with all their contractual terms.

The two largest commercial real estate loans outstanding were $1.8 million and $1.2 million, and both loans were paying in accordance with all of their contractual terms.

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%.

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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.

Commercial real estate and multi-family residential lending involves 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.

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At December 31, 2022, none of our commercial real estate or multi-family loans were delinquent more than 30 days, nor were any on non-accrual.

We have had no charge-offs of commercial real estate and multi-family residential loans for the years ended December 31, 2021 and 2020.

We have had no charge-offs of commercial real estate and multi-family residential loans for the years ended December 31, 2022 and 2021.

Various aspects of commercial real estate and multi-family residential transactions are evaluated in an effort to mitigate the additional risk in these types of loans.

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however, they have additional credit risk due to the type of collateral securing the loan or in some cases the absence of collateral.

For the year ended December 31, 2021, we charged off a $99,000 unsecured consumer loan because it was six months past due but our collection efforts are continuing.

There were no consumer charge-offs during the year ended December 31, 2020.

We had no charge-offs on consumer loans during the year ended December 31, 2022, however, for the year ended December 31, 2021, we charged off a $99,000 unsecured consumer loan because it was six months past due.

Our collection efforts are continuing. 

Loan Approval Procedures and Authority .

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As of December 31, 2022, the maximum loan amount that may be approved by an individual officer is $648,250, which is consistent with secondary market limits for conforming loans.

Loans up to $750,000 are reviewed by our management loan committee, with a minimum of two members’

Our board level loan committee has authority to approve loans up to $2.0 million.

Loans up to $1.0 million are reviewed by our management loan committee, with a minimum of two members’

Our board level loan committee has authority to approve loans up to $2.5 million.

All other loans must be approved by the board of directors of North Shore Trust and Savings.

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When a loan is determined to be impaired, the measurement of the loan in the allowance for loan losses is based on present value of expected future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral.

As of December 31, 2021, and 2020, loans identified as impaired and individually evaluated for impairment, amounted to $1.1 million and $2.5 million, respectively.

As of December 31, 2022, and 2021, loans identified as impaired and individually evaluated for impairment, amounted to $873,000 and $1.1 million, respectively.

Federal regulations and our policies require that we utilize an internal asset classification system as a means of reporting problem and potential problem assets.

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Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated “special mention.”

A savings institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional general or specific loss allowances.

The federal banking agencies have adopted an interagency policy statement on the allowance for loan losses.

The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines.

Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems;

that management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner;

and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement.

General valuation allowances represent loss allowances which have been established to recognize the inherent losses associated with lending activities, but which, unlike specific allocations, have not been allocated to specific problem assets.

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However, actual losses are dependent upon future events and, as such, further additions to the level of the allowance for loan losses may become necessary.

As of January 1, 2023, the Company adopted ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326) .

Refer to “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Current Accounting Developments" for further discussion. 

We review and classify loans on no less frequently than a quarterly basis and our board of directors is provided with reports on our classified and criticized assets.

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or “loss,”

$102,000 of loans classified as “substandard”

and $45,000 of loans designated as “special mention.”

The federal banking agencies have adopted an interagency policy statement on the allowance for loan losses.

Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems;

that management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner;

and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement.

Our management believes that, based on information currently available, its allowance for loan losses is maintained at a level which covers all known and inherent losses that are both probable and reasonably estimable at each reporting date.

However, actual losses are dependent upon future events and, as such, further additions to the level of allowances for loan losses may become necessary.

$188,000 of loans classified as “substandard”

and $43,000 of loans designated as “special mention.”

Troubled Debt Restructurings .

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These modifications are made only when a workout plan has been agreed to by the borrower that we believe is reasonable and attainable and in our best interests.

As of December 31, 2021, our loans which were classified as TDRs and were on accrual status and not more than 90 days past due amounted to $1.0 million.

All of such TDRs were performing in accordance with their restructured terms at December 31, 2021 and 2020.

During the year ended December 31, 2022, one loan which was classified as TDR was moved to nonaccrual status due to late payments.

As of December 31, 2022, our loans which were classified as TDRs and were on accrual status and not more than 90 days past due amounted to $685,000.

With the exception of the one loan moved to nonaccrual, all of such TDRs were performing in accordance with their restructured terms at December 31, 2022 and 2021.

Delinquent Loans .

2 unchanged sentences

December 31, 2022

One- to four-family residential

Commercial real estate

1-4 family residential

December 31, 2021

One- to four-family residential

Commercial real estate

1-4 family residential

The following table sets forth the amounts of our classified loans at the dates indicated.

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Non-accruing loans:

One-to four-family residential

Multi-family residential

Commercial real estate

1-4 family residential

Total non-accruing loans

Accruing loans 90 days or more past due:

One-to four-family residential

Multi-family residential

Commercial real estate

1-4 family residential

Total accruing loans 90 days or more past due

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Total non-performing assets as a percentage of total assets

Under the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications.

Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief will not be considered troubled debt restructurings.

We administered loan payment modification requests on a case-by-case basis.

Since the beginning of the program, through December 31, 2021, we modified 50 loans with principal balances totaling $9.7 million.

At December 31, 2021, all of our COVID-19 modifications were in repayment.

Allowance for Loan Losses .

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Allowance for loan losses, beginning of period

Provision for loan losses

One-to four-family residential

Multi-family residential

Commercial real estate

Reversal of provision for loan losses

1-4 family residential

Total charge-offs

Recoveries on loans previously charged-off:

One-to four-family residential

Multi-family residential

Commercial real estate

1-4 family residential

Total recoveries

Net charge-offs (recoveries)

Net (recoveries) charge-offs

Allowance for loan losses, end of period

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Allowance for loan losses as a percent of total non-accrual loans

Ratio of net charge-offs during the period to average loans outstanding during the period

Ratio of net (recoveries) charge-offs during the period to average loans outstanding during the period

The allowance for loan losses is established through a provision for loan losses.

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Such risk ratings are periodically reviewed by management and revised as deemed appropriate.

At December 31, 2021, and 2020, our allowance for loan losses amounted to $779,000 and $870,000 respectively.

In our evaluation of the allowance for loan losses in 2021 and 2020, particular consideration was given to the continuing economic impact of the COVID-19 pandemic.

At December 31, 2022, and 2021, our allowance for loan losses amounted to $624,000 and $779,000 respectively.

The establishment of the allowance for loan losses is significantly affected by uncertainties and management judgment and there is a likelihood that different amounts would be reported under different conditions or assumptions.

4 unchanged sentences

(Dollars in thousands)

One-to four-family residential

Multi-family residential

Commercial real estate

1-4 family residential

Securities Available for Sale

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Securities available-for-sale

Mortgage-backed securities

Government and agency obligations

Municipal obligations

Mortgage-backed securities

Collateralized mortgage obligations

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The policy also permits investments in mortgage-backed securities, including pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and the Government National Mortgage Association (“Ginnie Mae”).

As of December 31, 2021, our securities available-for-sale portfolio totaled $101.0 million, or 29.6% of total assets at such date.

The largest component of our investment securities portfolio at December 31, 2021 was investment in pass-through mortgage-backed securities issued by Fannie Mae, Ginnie Mae and Freddie Mac, which amounted to $42.1 million, followed by collateralized mortgage obligations issued by Fannie Mae, Ginnie Mae and Freddie Mac, which amounted to $30.7 million.

As of December 31, 2022, our securities available-for-sale portfolio totaled $121.2 million, or 45.9% of total assets at such date.

The largest component of our investment securities portfolio at December 31, 2022 was investment in collateralized mortgage obligations issued by Fannie Mae, Ginnie Mae and Freddie Mac, which amounted to $37.2 million, followed by pass-through mortgage-backed securities issued by Fannie Mae, Ginnie Mae and Freddie Mac, which amounted to $35.7 million.

Our investment in U.S.

government and federal agency obligations as of December 31, 2021, were $10.1 million and our investment in municipal obligations as of December 31, 2021, were $18.0 million.

government and federal agency obligations as of December 31, 2022, was $21.4 million and our investment in municipal obligations as of December 31, 2022, was $19.6 million.

During the year ended December 31, 2022, we invested in short term U.S.

Treasuries, which amounted to $7.3 million as of December 31, 2022.

Ginnie Mae is a government agency within the Department of Housing and Urban Development which is intended to help finance government-assisted housing programs.

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Government sponsored enterprises, which had an aggregate book value in excess of 10% of our stockholders’

At December 31, 2022, the available-for-sale securities portfolio had a net unrealized loss position of $15.6 million.

Some investment securities held in the portfolio have declined in value but do not presently represent realized losses.

Unrealized losses on investment securities have not been recognized into income because the securities 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 and increased market interest rates.

The fair values are expected to recover as the securities approach their maturity dates.  

The following table sets forth the amount of investment securities which mature during each of the periods indicated and the weighted average yields for each range of maturities as of December 31, 2022.

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Securities available for sale:

Mortgage-backed securities

Government and agency obligations

Municipal obligations

Mortgage-backed securities

Collateralized mortgage obligations

Weighted average yield:

Mortgage-backed securities

Government and agency obligations

Municipal obligations

Mortgage-backed securities

Collateralized mortgage obligations

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Some of these accounts have balances above the FDIC’s per account insurance limit of $250,000.

The amount of our total deposits with accounts over the FDIC's insurance limit of $250,000 was $43.6 million, or 24.4% of total deposits, and $42.5 million or 14.9% of total deposits, at December 31, 2022 and 2021, respectively.

We monitor that credit risk on a quarterly basis.

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Our deposits consist of checking, both interest-bearing and noninterest-bearing, money market, savings and time deposit accounts.

As of December 31, 2021, 74.5% of the funds deposited with North Shore Trust and Savings were in core deposits, which are deposits other than time deposits.

As of December 31, 2022, 69.0% of the funds deposited with North Shore Trust and Savings were in core deposits, which are deposits other than time deposits.

The flow of deposits is influenced significantly by general economic conditions, changes in money market rates, prevailing interest rates and competition.

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Total deposits

The following table shows, by various interest rate categories and maturities, the amount of time deposit as of December 31, 2021.

The following table shows, by various interest rate categories and maturities, the amount of time deposits as of December 31, 2022.

Balance at December 31, 2022

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(Dollars in thousands)

0.00% - 0.99%

1.00% - 1.99%

2.00% - 2.99%

3.00% - or more

Total certificate accounts

The following table shows the maturities of our time deposit in excess of the FDIC insurance limit (generally, $250,000) as of December 31, 2021 by time remaining to maturity.

The following table shows the maturities of our time deposits in excess of the FDIC insurance limit (generally, $250,000) as of December 31, 2022 by time remaining to maturity.

Quarter Ending:

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After December 31, 2023

Total time deposit with balances of $250,000 or more

The amount of our total uninsured deposits (that is deposits in excess of the FDIC’s insurance limit) was $42.5 million and $45.8 million, respectively, at December 31, 2021 and 2020.

Total time deposits with balances of $250,000 or more

The amount of our total deposits with accounts over the FDIC's insurance limit of $250,000 was $43.6 million or 24.4% of total deposits, and $42.5 million or 14.9% of total deposits, at December 31, 2022 and 2021, respectively.

Historically, we have not utilized advances from the FHLB of Chicago.

During 2020, the FHLB of Chicago offered a $4.0 million advance at a 0% interest rate.

The advance matured in May 2021 and was replaced with a $5.0 million advance, also at a 0% interest rate.

The advance is collateralized by loans pledged to the FHLB of Chicago and matures on May 23, 2022.

However, during the COVID-19 pandemic, the FHLB offered advances with a 0% interest rate that the Bank utilized.

On May 12, 2022, the Bank repaid the existing 0% interest rate FHLB advance totaling $5.0 million that was due on May 23, 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 following table shows certain information regarding our borrowings at or for the dates indicated:

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Weighted average interest rate at end of period

As of December 31, 2021, all of our borrowings were short term (maturities of one year or less).

As of December 31, 2022, there were no outstanding borrowings. The Bank is eligible to borrow up to a total of $68.6 million and $60.8 million at December 31, 2022 and 2021, respectively, which would be collateralized by $86.6 million and $76.8 million of first mortgage loans under a blanket lien arrangement at December 31, 2022 and 2021, respectively.

Additionally, at December 31, 2022 we had a $10.0 million federal funds line of credit with the BMO Harris Bank, none of which was drawn at December 31, 2022. 

Expense and Tax Allocation

North Shore Trust and Savings has an agreement with NSTS Bancorp, Inc., to provide it with certain administrative support services for compensation not less than the fair market value of the services provided.

During the year ended December 31, 2022, the total of these services was $411,000.

In addition, North Shore Trust and Savings and NSTS Bancorp, Inc.

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We seek to hire well-qualified employees who are also a good fit for our value system.

We believe that our ability to attract and retain top quality employees will be a key to our future success.

We recently elevated Nathan E.

Walker to President of North Shore Trust and Savings in December 2020 and promoted Carissa H.

Schoolcraft to Chief Financial Officer from Controller in April 2021.

We expect to continue to assess our management and staffing needs and are likely to add personnel in the future in order to fully implement our business strategy.

We believe that our ability to attract and retain top quality employees is a key to our future success.

During 2022, we elevated Nathan E.

Walker to Chief Executive Officer of North Shore Trust and Savings.

Additionally, we welcomed Ronald K.

Jackson to the Mortgage Lending Team as the VP of Mortgage Originations.

Ronald comes to us with over 29 years experience in the mortgage industry, primarily in our lending area.

We continue to elevate individuals from within the organization into new roles and we expect to continue to assess our management and staffing needs and are likely to add personnel in the future in order to fully implement our business strategy.

In an effort to continue our investment in our employees and as part of the conversion, North Shore Trust and Savings established the Employee Stock Ownership Plan ("ESOP") for its employees.

Shares held in the ESOP will be released and allocated to employees on an annual basis based on the ratio of each such participant's annual compensation. 

The safety, health and wellness of our employees is a top priority.

The COVID-19 pandemic has presented a unique challenge with regard to maintaining employee safety while continuing successful operations.

Through teamwork and the adaptability of our management and staff, we were and remain able to provide a safely distanced working environment for employees performing customer-facing activities, at branches and operations centers.

On an ongoing basis, we further promote the health and wellness of our employees by strongly encouraging work-life balance, offering flexible work schedules, and keeping the employee portion of health care premiums to a low amount.

The COVID-19 pandemic presented a unique challenge with regard to maintaining employee safety while continuing successful operations.

Through teamwork and the adaptability of our management and staff, we were able to provide a safely distanced working environment for employees performing customer-facing activities, at branches and operations centers.

On an ongoing basis, we further promote the health and wellness of our employees by strongly encouraging work-life balance, offering flexible work schedules, and keeping the dollar amount of the employee portion of health care premiums relatively low.

Employee retention helps us operate efficiently and achieve one of our business objectives, which is being a low-cost provider.

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Beginning in 2022, NSTS Bancorp, Inc.

will file a consolidated federal income tax return with North Shore Trust and Savings.

filed a consolidated federal income tax return with North Shore Trust and Savings.

Any cash distributions made by NSTS Bancorp, Inc.

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For federal income tax purposes, we report income and expenses on the accrual method of accounting and use a December 31 tax year for filing our federal income tax returns.

Bad Debt Reserves .

The Small Business Job Protection Act of 1996 eliminated the use of the reserve method of accounting for bad debt reserves by savings institutions, effective for taxable years beginning after 1995.

Prior to that time, North Shore Trust and Savings was permitted to establish a reserve for bad debts.

Taxable Distributions and Recapture .

If North Shore Trust and Savings makes certain non-dividend distributions or ceases to maintain a bank charter, then its pre-1988 reserves remain subject to recapture into taxable income.

As of December 31, 2021, the total federal pre-1988 reserve was $0.

The reserve reflects the cumulative effects of federal income tax deductions by North Shore Trust and Savings for which no federal income tax provisions have been made.

Corporate Dividends-Received Deduction .

NSTS Bancorp, Inc., as an affiliate of North Shore Trust and Savings, will be able to exclude from its income for federal income tax purposes 100% of the dividends received from North Shore Trust and Savings.

NSTS Bancorp, Inc., as an affiliate of North Shore Trust and Savings, is able to exclude from its income for federal income tax purposes 100% of the dividends received from North Shore Trust and Savings.

State Taxation

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capital exceeded all applicable requirements including the applicable conservation buffer.

CARES Act and CAA, 2021 .

In response to the COVID-19 pandemic, Congress, through the enactment of the CARES Act, and the federal banking agencies, though rulemaking, interpretive guidance and modifications to agency policies and procedures, have taken a series of actions to provide national emergency economic relief measures including, among others, the following:

The CARES Act allows banks to elect to suspend requirements under GAAP for loan modifications related to the COVID-19 pandemic (for loans that were not more than 30 days past due as of December 31, 2019) that would otherwise be categorized as a TDR until the earlier of 60 days after the termination date of the national emergency or December 31, 2020.

The suspension of certain GAAP requirements is applicable for the entire term of the modification.

In addition, the bank regulatory agencies issued interagency guidance stating that banks may presume borrowers are not experiencing financial difficulty for COVID-19 related short-term modifications (i.e., six months or less) granted to loans that were current as of the loan modification program implementation date, therefore supporting these modifications are not required to be classified as TDRs under US GAAP.

North Shore Trust and Savings is applying this guidance to qualifying COVID-19 modifications.

The CARES Act amended the SBA’s loan program to create a guaranteed, unsecured loan program, the Paycheck Protection Program ("PPP"), to fund payroll and operational costs of eligible businesses, organizations and self-employed persons during the COVID-19 pandemic.

The loans are provided through participating financial institutions that process loan applications and service the loans and are eligible for SBA repayment and loan forgiveness if the borrower meets the PPP conditions.

The application period for an SBA PPP loan closed on August 8, 2020.

The SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders on October 2, 2020.

The CAA, which was signed into law on December 27, 2020, renewed and extended the PPP until June 30, 2021.

As of December 31, 2021, all loans originated by North Shore Trust and Savings under the PPP have received full forgiveness.

As the ongoing COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19.

We continue to assess the impact of the CARES Act and other statutes, regulations and supervisory guidance related to the COVID-19 pandemic.

Loans-to-One Borrower .

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The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice.

On May 20, 2020, the OCC issued a final rule which would have comprehensively amended and modernized how banks received credit under the Community Reinvestment Act in serving low- and moderate-income individuals and communities.

However, on July 20, 2021, the OCC issued a statement that it was rescinding the final rule.

Simultaneously with that announcement, the Federal Reserve Board, the OCC and the FDIC announced that the agencies would be working together to jointly strengthen and modernize regulations implementing the Community Reinvestment Act in the future.

On July 20, 2021, the OCC, FDIC and the Federal Reserve Board issued a joint statement committing to work together to strengthen and modernize the Community Reinvestment Act rules.

On May 5, 2022, the OCC, FDIC and Federal Reserve Board issued an Advanced Notice of Proposed Rulemaking with the goals of (i) expanding access to credit, investment and basic banking services in low- and moderate-income communities, (ii) adapting to changes in the banking industry, including internet and mobile banking, (iii) providing greater clarity, consistency and transparency, (iv) tailoring Community Reinvestment Act evaluation and data collection to bank size and type, and (v) maintaining a unified approach. 

However, these agencies have not yet issued a new proposed rule.

At this time, no rules have been proposed or finalized, and we are unable to determine what impact, if any, any finalized rule may have on the operations of North Shore Trust and Savings.

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NSTS Bancorp, Inc.

will be an affiliate of North Shore Trust and Savings because of its control of North Shore Trust and Savings.

is an affiliate of North Shore Trust and Savings because of its control of North Shore Trust and Savings.

In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements.

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A financial institution also should have a robust business continuity program to recover from a cyberattack and procedures for monitoring the security of third-party service providers that may have access to nonpublic data at the institution.

On December 18, 2020, the Federal Reserve Board, the OCC and the FDIC issued a proposed rule that would impose new notification requirements for significant cybersecurity incidents.

If adopted without substantial change, the proposed rule would require banking organizations to notify their primary federal regulator promptly, and not later than 36 hours after, the discovery of such incidents termed “computer-security incidents”

that are “notification incidents.”

This proposed rule would be in addition to existing statutory and regulatory obligations North Shore Trust and Savings has for notification of security incidents, including those prescribed under the Interagency Guidelines Establishing Information Security Standards, federal and state laws and regulations.

At this time, the proposed rule has yet to be finalized and we are unable to determine what impact, if any, any finalized rule may have on the operations of North Shore Trust and Savings.

USA PATRIOT Act .

In November 2021, the federal regulators finalized a rule concerning notification requirements for banks related to significant computer security incidents.

Under the final rule, a bank or its holding company is required to notify its applicable federal banking regulators within 36 hours of incidents that have materially disrupted or degraded, or are reasonably likely to materially disrupt or degrade, the banking organization’s ability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the organization, or impact the stability of the financial sector. 

The rule was effective April 1, 2022 and compliance was required by May 1, 2022.

Anti-Money Laundering and the USA PATRIOT Act .

North Shore Trust and Savings is subject to the Bank Secrecy Act and USA PATRIOT Act.

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If North Shore Trust and Savings finds a name on any transaction, account or wire transfer that is on an OFAC list, North Shore Trust and Savings must freeze or block such account or transaction, file a suspicious activity report and notify the appropriate authorities.

On January 1, 2021, Congress passed the Corporate Transparency Act as part of the National Defense Authorization Act, which enacted the most significant overhaul of the anti-money laundering laws since the USA PATRIOT Act.

Notable amendments include (i) significant changes to the collection of beneficial ownership information and the establishment of a beneficial ownership registry, which requires corporate entities (generally, any corporation, limited liability company or other similar entity with 20 or fewer employees and annual gross income of $5 million or less) to report beneficial ownership information to FinCEN (which will be maintained by the FinCEN and made available upon request to financial institutions);

(ii) enhanced whistleblower provisions, which provide that one or more whistleblowers who voluntarily provide original information leading to the successful prosecution of violations of the anti-money laundering laws in any judicial or administrative action brought by the Secretary of the Treasury or the U.S.

On January 1, 2021, Congress passed the Corporate Transparency Act as part of the National Defense Authorization Act, which enacted the most significant overhaul of the anti-money laundering laws since the USA PATRIOT Act.

Notable amendments include (i) significant changes to the collection of beneficial ownership information and the establishment of a beneficial ownership registry, which requires corporate entities (generally, any corporation, limited liability company, or other similar entity with 20 or fewer employees and annual gross income of $5 million or less) to report beneficial ownership information to FinCEN (which will be maintained by FinCEN and made available upon request to financial institutions);

(ii) enhanced whistleblower provisions, which provide that one or more whistleblowers who voluntarily provide original information leading to the successful prosecution of violations of the anti-money laundering laws in any judicial or administrative action brought by the Secretary of the Treasury or the U.S.

Attorney General resulting in monetary sanctions exceeding $1 million (including disgorgement and interest but excluding forfeiture, restitution, or compensation to victims) will receive not more than 30% of the monetary sanctions collected and will receive increased protections;

(iii) increased penalties for violations of anti-money laundering laws and regulations;

(iv) improvements to existing information sharing provisions that permit financial institutions to share information relating to suspicious activity reports with foreign branches, subsidiaries, and affiliates (except those located in China, Russia or certain other jurisdictions) for the purpose of combating illicit finance risks;

and (v) expanded duties and enforcement powers for the FinCEN.

Many of the amendments, including those with respect to beneficial ownership, require the U.S.

Department of Treasury and the FinCEN to promulgate rules.

On December 7, 2021, FinCEN issued the first of three proposed rules to implement changes to the beneficial ownership requirements and related amendments set forth in the Corporate Transparency Act.

At this time, since the other two rules have not yet been issued, we are unable to determine what impact, if any, the finalized rules may have on the operations of North Shore Trust and Savings.

(iii) increased penalties for violations of anti-money laundering laws and regulations;

(iv) improvements to existing information sharing provisions that permit financial institutions to share information relating to suspicious activity reports with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks;

and (v) expanded duties and enforcement powers for FinCEN.

Many of the amendments, including those with respect to beneficial ownership, require FinCEN to promulgate rules.

On September 29, 2022, FinCEN finalized the first of three proposed rules to implement changes to the beneficial ownership requirements and related amendments set forth in the Corporate Transparency Act. 

The final rule prescribes which corporate entities created in or registered to do business in the U.S.

will be required to report beneficial ownership information directly to FinCEN. 

The rule is effective and compliance is required on January 1, 2024. 

On December 15, 2022, FinCEN issued a second proposed rule to establish and manage access to beneficial ownership information that FinCEN will collect and maintain once all three rules are finalized. 

At this time, due to the fact that two of the proposed rules have not yet been finalized and issued, respectively, we are unable to determine what impact, if any, the finalized rules may have on the operations of North Shore Trust and Savings.

Prohibitions against Tying Arrangements .

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There is a presumption of control upon the acquisition of 10% or more of a class of voting stock if the holding company involved has its shares registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or, if the holding company involved does not have its shares registered under the Exchange Act, if no other persons will own, control or hold the power to vote a greater percentage of that class of voting security after the acquisition.

The Federal Reserve Board adopted a final rule, effective September 30, 2020, that revises its framework for determining whether a company, under the Bank Holding Company Act, has a “controlling influence”

over a bank or savings and loan holding company.

Federal Securities Laws

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business