What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-03-30 compared with 2022-03-22 · 314 added, 167 removed, 990 unchanged (33% of the section changed)

3 unchanged sentences

Based upon that evaluation, the principal executive officer and principal financial officer concluded that, as of December 31, 2022, 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.

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. 

Management's Annual Report on Internal Control Over Financial Reporting

Management of NSTS Bancorp, Inc.

is responsible for establishing and maintaining effective internal control over financial reporting.

Internal control is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements.

Internal control over financial reporting includes self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.

Management assessed the effectiveness of NSTS Bancorp, Inc.’s internal control over financial reporting as of December 31, 2022.

This assessment was based on criteria for effective internal control over financial reporting established in Internal Control –

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) .

Based on this assessment, our Chief Executive Officer and our Chief Financial Officer have determined that NSTS Bancorp, Inc.

maintained effective internal control over financial reporting as of December 31, 2022, based on the specified criteria.

All internal control systems, no matter how well designed, have inherent limitations.

Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control Over Financial Reporting

12 unchanged sentences

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”).

and "Stockholder Proposals and Nominations" in NSTS Bancorp, Inc.'s definitive Proxy Statement for its 2023 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”).

Executive Compensation

27 unchanged sentences

Lear dated January 18, 2022* (2)

Change in Control Agreement by and between North Shore Trust and Savings and Nathan E.

Change in Control Severance Agreement by and between North Shore Trust and Savings and Nathan E.

Walker dated January 18, 2022* (2)

Change in Control Agreement by and between North Shore Trust and Savings 

Change in Control Severance Agreement by and between North Shore Trust and Savings 

and Carissa H.

Schoolcraft dated January 18, 2022* (2)

Change in Control Agreement by and between North Shore Trust and Savings 

Change in Control Severance Agreement by and between North Shore Trust and Savings 

Avakian dated January 18, 2022* (2)

Change in Control Agreement by and between North Shore Trust and Savings 

Change in Control Severance Agreement by and between North Shore Trust and Savings 

and Christine E.

16 unchanged sentences

333-259483) and incorporated herein by reference. 

(2) Filed as an exhibit to NSTS Bancorp, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (File No.

001-41232) and incorporated herein by reference.

Form 10-K Summary

INDEX TO CONSOLIDATED FINANCIAL STATEMENT OF NORTH SHORE MHC

INDEX TO CONSOLIDATED FINANCIAL STATEMENT OF NSTS BANCORP, INC.

2022 and 2021 Consolidated Annual Financial Statements

3 unchanged sentences

Consolidated Statements of Comprehensive Income for the years ended December 31, 2022 and 2021

Consolidated Statements of Members' Equity for the years ended December 31, 2021 and 2020

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

1 unchanged sentence

Report of Independent Registered Public Accounting Firm

To the Board of Directors of North Shore MHC

To the Stockholders and Board of Directors of

NSTS Bancorp, Inc.

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”).

We have audited the accompanying balance sheets of NSTS Bancorp, Inc.

and its Subsidiary (the “Company”) as of December 31, 2022 and 2021, the related statements of operations, comprehensive income, stockholders’

equity, and cash flows for each of the years in the two-year period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

5 unchanged sentences

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.

Those standards require that we plan and perform the audit 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.

9 unchanged sentences

March 30, 2023

NORTH SHORE MHC AND SUBSIDIARIES

NSTS BANCORP, INC.

AND SUBSIDIARIES

Consolidated Balance Sheets

2 unchanged sentences

Cash and due from banks

$ 1,583  

Interest-bearing bank deposits

5 unchanged sentences

Time deposits with other financial institutions

12,436  

Securities available for sale

27 unchanged sentences

Time deposits over $250,000

10,705  

Other time deposits

10 unchanged sentences

295,686  

Members' equity:

Stockholders' equity:

Common stock ($ 0.01 par value;

10,000,000 shares authorized;

5,397,959 shares issued and outstanding)

Additional paid-in capital

50,420  

Retained earnings

1 unchanged sentence

45,264  

Accumulated other comprehensive income, net

Unallocated common shares held by ESOP

( 4,098 )  

Total members' equity

Accumulated other comprehensive loss, net

( 11,125 )  

Total stockholders' equity

80,542  

Total liabilities and members' equity

45,183  

Total liabilities and stockholders' equity

$ 264,206  

$ 340,869  

See accompanying notes to consolidated financial statements

NORTH SHORE MHC AND SUBSIDIARIES

NSTS BANCORP, INC.

AND SUBSIDIARIES

Consolidated Statements of Operations

12 unchanged sentences

( 230 )  

Net interest income after provision for loan losses

Net interest income after reversal of provision for loan losses

Noninterest income:

13 unchanged sentences

Deposit expenses

Director fees

Total noninterest expense

Losses before income taxes

( 269 )  

Income tax benefit

( 214 )  

Income (losses) before income taxes

Income tax expense (benefit)

Net income (losses)

Basic and diluted earnings per share

Weighted average shares outstanding

4,729,236  

See accompanying notes to consolidated financial statements

NORTH SHORE MHC AND SUBSIDIARIES

NSTS BANCORP, INC.

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

2 unchanged sentences

Net income (losses)

$ ( 55 )  

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

Unrealized net holding loss on securities

Unrealized net holding loss on securities arising during period, net of realized gains on sales of $ 0 and $ 131,000 , in the years ended December 31, 2022 and 2021, respectively

( 15,447 )  

Other comprehensive income, net of taxes

Other comprehensive loss, net of taxes

( 11,044 )  

Comprehensive income (loss)

Comprehensive loss

$ ( 11,017 )  

See accompanying notes to consolidated financial statements

NORTH SHORE MHC AND SUBSIDIARIES

Consolidated Statements of Members' Equity

Retained earnings

Accumulated other comprehensive income (loss)

NSTS BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

comprehensive

Common Shares

Paid-In Capital

income (loss)

(Dollars in thousands)

3 unchanged sentences

$ 46,725  

Change in net unrealized gain on securities available for sale, net

( 55 )  

Change in net unrealized loss on securities available for sale, net

( 1,487 )  

Balance at December 31, 2021

2 unchanged sentences

$ 45,183  

Proceeds of stock offering and issuance of common shares (net of issuance costs of $ 2.5 million)

5,290,000  

49,387  

49,440  

Issuance of common shares donated to the NSTS Charitable Foundation

107,959  

Purchase of common shares by the ESOP ( 431,836 shares)

( 4,319 )  

ESOP shares committed to be released

Change in net unrealized loss on securities available for sale, net

4 unchanged sentences

$ 45,291  

$ ( 11,125 )  

$ ( 4,098 )  

$ 80,542  

See accompanying notes to consolidated financial statements

NORTH SHORE MHC AND SUBSIDIARIES

NSTS BANCORP, INC.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

2 unchanged sentences

Cash flows from operating activities:

$ ( 55 )  

Adjustments to reconcile net losses to net cash (used in) provided by operating activities:

Net income (losses)

Adjustments to reconcile net income (losses) to net cash provided by operating activities:

Securities amortization and accretion, net

3 unchanged sentences

21,580  

37,263  

Gain on sale of mortgage loans

1 unchanged sentence

Gain on sale of securities available for sale

( 131 )  

Gain on sale of OREO

Gain on transfer to OREO

( 15 )  

Reversal of provision for loan losses

2 unchanged sentences

( 178 )  

Increase in accrued interest receivable and other assets

( 1,647 )  

Net increase (decrease) in accrued expenses and other liabilities

Net cash provided by (used in) operating activities

Issuance of common shares donated to North Shore Trust and Savings Charitable Foundation

Change in deferred income taxes

Decrease (increase) in accrued interest receivable and other assets

Net increase in accrued expenses and other liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Purchases of loans, net

( 5,357 )  

Net (increase) decrease in portfolio loans

( 1,238 )  

Principal repayments on mortgage-backed securities

4 unchanged sentences

Sales of securities available for sale

12,112  

Maturities and calls of securities available for sale

Purchase of Federal Home Loan Bank stock

( 38 )  

Proceeds from sale of other real estate owned

Decrease in time deposits with other financial institutions, net

(Increase) decrease in time deposits with other financial institutions, net

( 1,008 )  

Purchases of premises and equipment, net

5 unchanged sentences

( 106,907 )  

99,217  

Net change in escrow deposits

3 unchanged sentences

Proceeds from FHLB advance

Net cash provided by financing activities

Net proceeds from issuance of common shares

49,440  

( 4,319 )  

Net cash (used in) provided by financing activities

( 66,975 )  

100,140  

Net change in cash and cash equivalents

( 108,464 )  

89,743  

Cash and cash equivalents at beginning of period

12 unchanged sentences

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.

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, from the mutual to the stock form of organization, which was completed on January 18, 2022.

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.

4 unchanged sentences

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.

common stock began trading on January 19, 2022 on the Nasdaq Capital Market under the trading symbol "NSTS."

The Bank operates primarily in the northern suburbs of Chicago, Illinois.

4 unchanged sentences

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. 

Certain amounts in prior year financial statements have been reclassified to conform to the 2022  presentation. 

Employee Retention Credit

Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020 and the subsequent extension of the CARES Act, the Bank was eligible for a refundable employee retention credit subject to certain criteria.

The Bank qualified for the tax credit for the quarters ended June 30, 2021 and September 30, 2021 under the CARES Act.

The Bank utilized the gross receipts method of calculating eligibility.

Based on the eligibility, the tax credit is equal to 70 % of qualified wages paid to employees during a quarter, and the limit on qualified wages per employee is $ 10,000 of qualified wages per quarter.

The Employee Retention Credit was recorded during the second quarter of 2022, when the Bank determined it was eligible.

The credit is recorded as other non-interest income and offsets $ 503,000 of salaries and employee benefits expense previously recorded during 2021.

Subsequent to December 31, 2022, the Bank has received $ 259,000 of the Employee Retention Credit, which represents the tax credit for the quarter ended June 30, 2021.

The Bank cannot reasonably estimate when it will receive the remaining refunds.

A receivable is recorded in other assets on the consolidated balance sheets to reflect the remaining amount of the credit yet to be received.

The CARES Act and related Employee Retention Credit was terminated as of September 30, 2021, and therefore the Company does not expect to file for any additional refunds.

Use of Estimates

30 unchanged sentences

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.

Based on redemption provisions of the FHLB, the stock has no quoted market price and is carried at cost of $ 550,000  at December 31, 2022 and 2021 and is evaluated for impairment at each reporting date.

Loans Held for Sale

104 unchanged sentences

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. 

Employee Stock Ownership Plan

The ESOP shares pledged as collateral are reported as unearned ESOP shares in the Consolidated Balance Sheets.

As shares are committed to be released from collateral, the Bank reports compensation expense equal to the average market price of the shares during the year, and the shares become outstanding for basic net income per common share computations.

Dividends on allocated ESOP shares reduce retained earnings;

dividends on unearned ESOP shares reduce the ESOP’s debt and accrued interest.

Earnings per Share

Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period.

Unallocated ESOP shares are not deemed outstanding for earnings per share calculations.

ESOP shares committed to be released are considered to be outstanding for purposes of the earnings per share computation.

ESOP shares that have not been legally released, but that relate to employee services rendered during an accounting period (interim or annual) ending before the related debt service payment is made, are considered committed to be released.

Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

The amortized cost and estimated fair value of debt securities at December 31, 2022 and 2021 , by contractual maturity, are shown below.

1 unchanged sentence

December 31, 2022

government agency obligations  

Municipal obligations

1 unchanged sentence

Collateralized mortgage obligations

Total available-for-sale  

(Dollars in thousands)

6 unchanged sentences

22,809  

64,602  

5 to 10 years

10 unchanged sentences

$ 37,152  

$ 121,205  

Gross unrealized gains

4 unchanged sentences

( 5,464 )  

( 5,105 )  

Amortized cost

4 unchanged sentences

$ 42,257  

$ 136,765  

December 31, 2021

14 unchanged sentences

12,417  

11,976  

31,103  

After 10 years

5 unchanged sentences

$ 30,749  

Gross unrealized gains

$ 100,950  

Gross unrealized gains

Gross unrealized losses

10 unchanged sentences

As of December 31, 2022 and 2021 , 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. 

At December 31, 2022  and 2021 , 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 equity. 

Information pertaining to securities with gross unrealized losses at December 31, 2022 and 2021 , aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows:

3 unchanged sentences

(Dollars in thousands)

government agency obligations

$ 7,288  

government agency obligations

17,274  

21,390  

Municipal obligations

16,823  

18,860  

Mortgage-backed residential obligations

1 unchanged sentence

21,373  

35,738  

Collateralized mortgage obligations

5 unchanged sentences

$ 43,229  

$ 8,134  

$ 120,428  

$ 15,566  

December 31, 2021

2 unchanged sentences

$ 1,105  

$ 5,125  

Municipal obligations

Mortgage-backed residential obligations

26,540  

29,321  

Collateralized mortgage obligations

2 unchanged sentences

$ 49,674  

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.

$ 8,519  

$ 58,193  

$ 1,147  

There were no securities with other than temporary impairment losses at December 31, 2022 or 2021 respectively.  

Unrealized losses have not been recognized into income because, based on management’s evaluation, the decline in fair value is largely due to increased market rates, temporary market conditions and trading spreads, and, as such, are considered to be temporary by the Bank.

In addition, management has the intent and ability to hold these securities until they mature or they recover their carrying values.

Treasuries, U.S.

government agency obligations, mortgage-backed residential obligations and collateralized mortgage obligations are agency-issued or government-sponsored enterprise issued.

Agency-issued securities are generally guaranteed by a U.S.

government agency, such as the Government National Mortgage Association.

Government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, or the Small Business Administration, have either a direct or implied guarantee by the U.S.

government.  

The Bank holds two classifications of municipal bonds, general obligation bonds and revenue bonds.

General obligation bonds are backed by the general revenue of the issuing municipality, while revenue bonds are supported by a specific revenue source.

All general obligation and revenue bonds have a bond rating of investment grade by Standard and Poor’s or Moody’s Investor Services or are not rated.

The bonds that are not rated have been in a loss position less than 12 months.

As of December 31, 2022, all municipal bond securities are paying as agreed. 

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. 

3 unchanged sentences

$ 6,769  

$ 12,112  

Gross gain realized on the sale of securities available for sale

19 unchanged sentences

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 unpaid principal balance of these loans totaled $ 13.7  million and $ 15.8  million at December 31, 2022 and 2021 , respectively.

Custodial escrow balances maintained in connection with the foregoing loan servicing were $ 231,000 and $ 270,000 at December 31, 2022 and 2021 , respectively.

In the normal course of business, loans are made by the Bank to directors and officers of the Company and 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.

At December 31, 2022 and 2021 , such borrowers were indebted to the Bank in the aggregate amount of $ 597,000 and $ 556,000 , respectively.

Allowance for Loan Losses

4 unchanged sentences

Beginning balance

( 99 )  

Net recoveries (charge-offs)

( 99 )  

Provision for loan losses

Net recoveries

Reversal of provision for loan losses

( 169 )  

5 unchanged sentences

Beginning balance

( 99 )  

Net recoveries (charge-offs)

Provision for loan losses

( 99 )  

(Reversal of) Provision for loan losses

( 154 )  

( 13 )  

Ending balance

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:

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, 2022  and 2021 , were as follows:

Collectively evaluated

13 unchanged sentences

$ 102,991  

$ 1,136  

$ 96,501  

December 31, 2021

67 unchanged sentences

$ 1,079  

$ 1,392  

$ 1,145  

December 31, 2021

1 unchanged sentence

1-4 family residential

$ 1,348  

$ 1,676  

$ 1,382  

$ 1,447  

$ 1,775  

$ 1,471  

With a related allowance recorded

1-4 family residential

$ 1,075  

$ 1,120  

$ 1,104  

$ 1,075  

$ 1,120  

$ 1,104  

Total individually assessed as of December 31, 2021

8 unchanged sentences

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. 

There were no new troubled debt restructurings during the years ended December 31, 2022 and 2021 . 

Premises and Equipment

14 unchanged sentences

Other Real Estate Owned

At December 31, 2021 and December 

31, 2020, the balance for other real estate owned ("OREO") was $ 0 . 

There was no other real estate owned ("OREO") at December 31, 2022 and 2021 .

The following table represents the movement in OREO during the periods presented.

13 unchanged sentences

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. 

At December 31, 2022 and 2021 , total deposits held by directors and officers of the Company and the Bank were $ 724,000 and $ 1.1 million, respectively. 

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.

On May 12, 2022, the Bank repaid the existing FHLB advance totaling $ 5.0 million with a 0 % interest rate 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 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.

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 

Income tax expense (benefit) for the years ended December 31, 2022 and 2021 , is summarized as follows:

2 unchanged sentences

Current (benefit) expense

Total current benefit

Deferred benefit

$ ( 133 )  

Change in valuation allowance

Total deferred benefit

( 276 )  

Total income tax benefit

Total current (benefit) expense

( 133 )  

Deferred expense (benefit)

Change in valuation allowance

Total deferred expense (benefit)

Total income tax expense (benefit)

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:

1 unchanged sentence

(Dollars in thousands)

Income before income tax expense

Income (losses) before income tax expense

Tax (expense) benefit at statutory federal rate of 21% applied to income before income tax (expense) benefit

( 36 )  

Tax benefit at statutory federal rate of 21% applied to income before income tax benefit

State income tax, net of federal effect

( 13 )  

Tax-exempt security and loan income, net of TEFRA adjustments

Total income tax expense

Valuation allowance on Federal NOL

( 150 )  

( 67 )  

Total income tax (expense) benefit

$ ( 146 )  

Effective tax rate

12 unchanged sentences

Gross deferred tax assets

Valuation allowance

Valuation allowance on federal and state NOLs

( 521 )  

5 unchanged sentences

( 80 )  

Unrealized gain on securities available-for-sale

Deferred tax liabilities

1 unchanged sentence

Net deferred tax asset

$ 5,315  

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.

Federal net operating losses (NOL) as of December 31, 2022 and 2021  are $ 1.7 million, and $ 1.5 million, respectively, and do not expire.

During 2022, management assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

A significant piece of objective negative evidence evaluated is the cumulative taxable loss incurred over the three -year period ended December 31, 2022.

Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, as of December 31, 2022, a valuation allowance of $ 150,000 on Federal NOLs has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized.

The amount of the deferred tax asset considered realizable, however, could be adjusted, and an additional valuation allowance recorded, if estimates of future taxable income during the carryforward period are reduced or if objective negative evidence in the form of cumulative losses is present and additional weight cannot be given to subjective evidence such as our projections for growth.

Our projections for growth are based on growth within our deposit and loan portfolios and maintaining an adequate net interest margin. 

NOL carryforwards for state income tax purposes were approximately $ 3.9  million and $ 3.2 million at December 31, 2022 and 2021 , respectively, and will begin expiring in 2023.

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 of $ 371,000 has been recorded on the related deferred tax asset.

There were no uncertain tax positions outstanding as of December 31, 2022 and 2021 .

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, 2022 , tax years remaining open for State of Illinois and Wisconsin were 2018  through 2021.

Federal tax years that remained open were 2019  through 2021.

As of December 31, 2022 , there were also no unrecognized tax benefits that are expected to significantly increase or decrease within the next twelve months.

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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 threshold increased to 8.5% in 2021 and returned to 9% in 2022.

The Bank elected to begin using CBLR for the first quarter of 2020.

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2022 and 

2020 were $ 0 .

2021 was $ 0 .

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.

Employer match contributions totaled $ 150,000  for 2022 and $ 156,000  for 2021 .

As part of the conversion, North Shore Trust and Savings established the Employee Stock Ownership Plan ("ESOP") for its employees.

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

Refer to Note 12 for additional information surrounding the ESOP and related expenses. 

In connection with the Bank’s mutual to stock conversion in January 2022, the Bank established the North Shore Trust and Savings Employee Stock Ownership Plan (“ESOP”) for all eligible employees.

The ESOP purchased 431,836 shares of Company common stock in the Company’s initial public offering at $ 10.00 per share with the proceeds of a twenty-five ( 25 ) year loan from the Company in the amount of $ 4.3 million.

The interest rate on the ESOP loan is fixed at 3.25 %.

The Bank intends to make annual contributions to the ESOP that at a minimum will permit the ESOP to repay the principal and interest due on the ESOP debt.

However, the Bank may prepay the principal of the note, partially or in full and without penalty or premium at any time and from time to time without prior notice to the holder.

Any dividends declared on Company common stock held by the ESOP and not allocated to the account of a participant can be used to repay the loan.

As the ESOP loan is repaid, shares of Company common stock pledged as collateral for the loan are released from the loan suspense account for allocation to Plan participants on the basis of each active participant’s proportional share of compensation.

Participants vest 100 % in their ESOP allocations after five years of service.

In connection with the implementation of the ESOP, participants were given credit for past service with the Bank for vesting purposes.

Participants will become fully vested upon death, disability, retirement, a change in control, or termination of the ESOP.

Generally, participants will receive distributions from the ESOP upon separation from service.

The plan reallocates any unvested shares of common stock forfeited upon termination of employment among the remaining participants in the plan.

ESOP compensation represents the average fair market value of the shares of Company common stock allocated or committed to be released as of that date.

The difference between the market price and the cost of shares committed to be released is recorded as an adjustment to additional paid-in capital.

Dividends, if any, on allocated shares are recorded as a reduction of retained earnings and dividends, if any, on unallocated shares are recorded as a reduction of the debt service.

The ESOP compensation expense for the year ended December 31, 2022 was $ 246,000 .

Shares held by the ESOP were as follows:

As of December 31, 2022

(Dollars in thousands)

Shares committed for allocation

22,009  

409,827  

Total ESOP shares

431,836  

Fair value of unearned shares at December 31, 2022

$ 4,152  

Commitments and Contingencies

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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.

Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. 

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, 2022 and 2021 :

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Securities Available-for-sale

Treasury Notes

$ 7,288  

government agency obligations

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$ 7,288  

$ 113,917  

December 31, 2021

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$ 10,053  

10,053  

Municipal obligations

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Fair Value of Financial Instruments

Financial instruments are classified within the fair value hierarchy using the methodologies described in Note 13 –

Financial instruments are classified within the fair value hierarchy using the methodologies described in Note 14  –

Fair Value Measurements.

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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.  

non-interest-bearing deposit accounts, time deposits with other financial institutions, FHLB stock, escrow 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:

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$ 94,779  

Loans held for sale

Financial liabilities:

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$ 181,564  

Earnings Per Share

Basic EPS represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period.

Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common shares (such as stock options) were exercised or converted into additional common shares that should then share in the earnings of the entity.

Diluted EPS is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding for the period, plus the effect of potential dilutive common share equivalents.

There were no securities or other contracts that had a dilutive effect during the 

twelve months ended December 31, 2022 , and therefore the weighted-average common shares outstanding used to calculate both basic and diluted EPS are the same.

Shares held by the Employee Stock Ownership Plan ("ESOP") that have not been allocated to employees in accordance with the terms of the ESOP, referred to as "unallocated ESOP shares", are not deemed outstanding for purposes of the EPS calculation.

EPS data is not applicable for the twelve months ended December 31, 2021 

as the Company had no shares outstanding.

Year Ended December 31,

Net income applicable to common shares

Average number of common shares outstanding

5,131,758  

Average unallocated ESOP shares

402,522  

Average number of common shares outstanding used to calculate basic earnings per common share

4,729,236  

Earnings per common share basic and diluted

$ 0.01  

All unallocated ESOP shares have been excluded from the calculation of basic and diluted EPS.

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

The information presented for the year ended December 31, 2021 represents the consolidated holding companies of North Shore Trust and Savings as of December 31, 2021 of North Shore MHC and NSTS Financial Corporation. 

NSTS BANCORP, INC.

Condensed Balance Sheets

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(Dollars in thousands)  

$ 22,194  

Investment in subsidiary

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Total liabilities

Members’

Stockholders' equity

Additional paid-in capital

50,420  

Retained earnings

45,291  

Total members’

45,264  

Unallocated common shares held by ESOP

( 4,098 )  

Total liabilities and members’

Accumulated other comprehensive loss, net

( 11,125 )  

Total stockholders' equity

80,542  

NORTH SHORE MHC

45,183  

Total liabilities and stockholders’

$ 80,953  

$ 45,183  

NSTS BANCORP, INC.

Condensed Statements of Operations

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Total expense

Losses before income tax benefit and equity in undistributed earnings of subsidiary

Losses before income tax (benefit) expense and equity in undistributed earnings of subsidiary

$ ( 285 )  

Income tax benefit

Income tax (benefit) expense

( 91 )  

Losses before equity in undistributed earnings of subsidiary

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Equity in undistributed earnings of subsidiary

Net (losses) income

$ ( 55 )  

NORTH SHORE MHC

Net income (losses)

NSTS BANCORP, INC.

Condensed Statements of Cash Flows

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Cash flows from operating activities:

Net (losses) income

$ ( 55 )  

Adjustments to reconcile net (losses) income to net cash used in operating activities:

Net income (losses)

Adjustments to reconcile net income (losses) to net cash used in operating activities:

Decrease (increase) in other assets

( 704 )  

Increase (decrease) in accrued expenses and other liabilities

Issuance of common shares donated to North Shore Trust and Savings Charitable Foundation

Equity in undistributed earnings of subsidiary

Net cash used in operating activities

( 221 )  

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Principal payments on loan to ESOP

Net cash provided by investing activities

Cash flows from financing activities:

Dividends received from subsidiary

Net proceeds from issuance of common shares

49,440  

( 4,319 )  

Proceeds from conversion transferred to subsidiary

( 25,225 )  

Net cash provided by financing activities

19,896  

Net change in cash

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Cash at end of period

$ 22,194  

Changes in Accounting Principles

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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 ASU is effective for the Company as of January 1, 2023. 

The CECL model utilizes a lifetime “expected credit loss”

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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.

Management has developed a CECL allowance model which calculates credit loss reserves over the life of the loan and is largely driven by peer data adjusted for loan portfolio characteristics unique to the Bank.

Management will periodically refine the model as needed.

The Company expects to incur a $ 250,000 to $ 300,000 after-tax charge during the first quarter of 2023 as a result of the implementation of CECL, which will be a decrease to the opening stockholders’

equity balance as of January 1, 2023.

The total estimated impact equates to a 9 to 12 basis point decrease to our Tangible Common Equity ratio.

Management is in the process of finalizing the review of the most recent model run and finalizing assumptions including qualitative adjustments and economic forecasts.

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.

Management evaluated subsequent events through March 30, 2023 , the date the financial statements were issued.

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.

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.

March 22, 2022

Dated: March 30, 2023

President and Chief Executive Officer

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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 9A. Controls and Procedures