NSTS Bancorp, Inc. 10-K

Item 9A. Controls and Procedures   Evaluation of Disclosure Controls & Procedures   Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that, as of December 31, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by NSTS Bancorp, Inc. 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   There were no changes made in our internal control over financial reporting during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, NSTS Bancorp, Inc.’s internal control over financial reporting.   Item 9B. Other Information   Not Applicable.   Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections   None.   PART III   Item 10. Directors, Executive Officers and Corporate Governance   NSTS Bancorp, Inc. has adopted a Code of Ethics that applies to its principal executive officer and principal financial officer, as well as all of its senior officers. A copy of the Code of Ethics is available on our website at https://ir.northshoretrust.com, or upon written request to Ms. Christine Stickler at 700 S. Lewis Ave., Waukegan, Illinois 60085 without charge. If we amend or grant any waiver from a provision of our Code of Ethics that applies to our executive officers, we will publicly disclose such amendment or waiver on our website and as required by applicable law, including by filing a Current Report on Form 8-K.    The information required by this Item is incorporated herein by reference to the sections captioned “Proposal I – Election of Directors” and "Stockholder Proposals and Nominations" in NSTS Bancorp, Inc.'s definitive Proxy Statement for its 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”).   Item 11. Executive Compensation   The information required by this Item is incorporated herein by reference to the sections captioned “Executive and Director Compensation” in the Proxy Statement.   37 Table of Contents   Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   (a) Securities Authorized for issuance under Stock-Based Compensation Plans   Not applicable. NSTS Bancorp, Inc. has not adopted any stock-based compensation plans as of December 31, 2022.     (b) Security Ownership of Certain Beneficial Owners   The information required by this Item is incorporated herein by reference to the section captioned "Beneficial Ownership" in the Proxy Statement.    (c) Security Ownership of Management   The information required by this Item is incorporated herein by reference to the section captioned "Beneficial Ownership" in the Proxy Statement.    (d) Changes in Control   Management knows of no arrangements, including any pledge by any person of securities of NSTS Bancorp, Inc., the operation of which may at a subsequent date result in a change in control of NSTS Bancorp, Inc.   Item 13. Certain Relationships and Related Transactions, and Director Independence   The information required by this Item is incorporated herein by reference to the sections captioned “Transactions with Certain Related Persons,”  “Corporate Governance— Board Independence” and  “Corporate Governance — Meetings and Committees of the Board of Directors” in the Proxy Statement.   Item 14. Principal Accountant Fees and Services   The information required by this Item is incorporated herein by reference to the section captioned “Proposal II—Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement.   38 Table of Contents   PART IV   Item 15. Exhibit and Financial Statement Schedules   Exhibit Number     2.1   Plan of Conversion of North Shore MHC, as amended  (1)       3.1   Certificate of Incorporation of NSTS Bancorp, Inc.   (1)       3.2   Bylaws of NSTS Bancorp, Inc.   (1)       4.1   Description of NSTS Bancorp, Inc.'s securities registered under the Securities Exchange Act of 1934, as amended       10.1   Employment Agreement by and among NSTS Bancorp, Inc., North Shore Trust and Savings and Stephen G. Lear dated January 18, 2022* (2)       10.2   Change in Control Severance Agreement by and between North Shore Trust and Savings and Nathan E. Walker dated January 18, 2022* (2)       10.3   Change in Control Severance Agreement by and between North Shore Trust and Savings  and Carissa H. Schoolcraft dated January 18, 2022* (2)       10.4   Change in Control Severance Agreement by and between North Shore Trust and Savings  and Amy L. Avakian dated January 18, 2022* (2)       10.5   Change in Control Severance Agreement by and between North Shore Trust and Savings  and Christine E. Stickler dated January 18, 2022* (2)       21.1   Subsidiaries of NSTS Bancorp, Inc.       24.1   Power of Attorney (set forth on signature page)       31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.       31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.       32.1   Certifications pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       101.INS   Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)       101.SCH   Inline XBRL Taxonomy Extension Schema Document       101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document       101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document       101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document       101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document       104   Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101)   * Indicates a management contract or compensatory plan. (1)  Filed as an exhibit to NSTS Bancorp, Inc.'s Registration Statement on Form S-1 (File No. 333-259483) and incorporated herein by reference.  (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.   Item 16. Form 10-K Summary   None.   39 Table of Contents   INDEX TO CONSOLIDATED FINANCIAL STATEMENT OF NSTS BANCORP, INC.   2022 and 2021 Consolidated Annual Financial Statements   Report of Independent Registered Public Accounting Firm 41 Consolidated Balance Sheets at December 31, 2022 and 2021 42 Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 43 Consolidated Statements of Comprehensive Income for the years ended December 31, 2022 and 2021 44 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2022 and 2021 45 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 46 Notes to Consolidated Financial Statements 47   40 Table of Contents   Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of NSTS Bancorp, Inc.   Opinion on 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.   Basis for Opinion   The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the 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. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.   Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.   /s/ Plante & Moran, PLLC   We have served as the Company’s auditor since 2019.   Chicago, Illinois March 30, 2023   41 Table of Contents     NSTS BANCORP, INC. AND SUBSIDIARIES Consolidated Balance Sheets       Year ended December 31,       2022     2021       (Dollars in thousands)   Assets:                 Cash and due from banks   $ 1,583     $ 814   Interest-bearing bank deposits     11,564       120,797   Cash and cash equivalents     13,147       121,611   Time deposits with other financial institutions     4,477       3,469   Securities available for sale     121,205       100,950   Federal Home Loan Bank stock     550       550   Loans held for sale     —       104   Loans, net of unearned income     103,983       97,313   Allowance for loan losses     ( 624 )     ( 779 ) Loans, net     103,359       96,534   Premises and equipment, net     5,035       5,087   Accrued interest receivable     852       641   Bank-owned life insurance (BOLI)     9,249       9,071   Other assets     6,332       2,852   Total assets   $ 264,206     $ 340,869   Liabilities:                 Deposits:                 Noninterest bearing   $ 12,977     $ 99,090   Interest-bearing                 Demand and NOW checking     18,659       17,931   Money market     42,624       45,414   Savings     49,068       50,312   Time deposits over $250,000     8,801       9,380   Other time deposits     46,585       63,494   Total deposits     178,714       285,621   Escrow deposits     1,253       1,442   Other borrowings     —       5,000   Accrued expenses and other liabilities     3,697       3,623   Total liabilities     183,664       295,686   Stockholders' equity:                 Common stock ($ 0.01 par value; 10,000,000 shares authorized; 5,397,959 shares issued and outstanding)     54       —   Additional paid-in capital     50,420       —   Retained earnings     45,291       45,264   Unallocated common shares held by ESOP     ( 4,098 )     —   Accumulated other comprehensive loss, net     ( 11,125 )     ( 81 ) Total stockholders' equity     80,542       45,183   Total liabilities and stockholders' equity   $ 264,206     $ 340,869     See accompanying notes to consolidated financial statements   42 Table of Contents     NSTS BANCORP, INC. AND SUBSIDIARIES Consolidated Statements of Operations       Year ended December 31,       2022     2021       (Dollars in thousands)   Interest income:                 Loans, including fees   $ 3,618     $ 3,569   Securities                 Taxable     2,013       1,107   Tax-exempt     402       248   Federal funds sold and other     259       35   Time deposits with other financial institutions     41       66   FHLB stock     15       13   Total interest income     6,348       5,038   Interest expense:                 Deposits     764       940   Net interest income     5,584       4,098   Reversal of provision for loan losses     ( 230 )     ( 23 ) Net interest income after reversal of provision for loan losses     5,814       4,121   Noninterest income:                 Gain on sale of mortgage loans     106       410   Gain on sale of securities     —       131   Rental income on office building     53       42   Service charges on deposits     291       289   Increase in cash surrender value of BOLI     178       181   Other     608       156   Total noninterest income     1,236       1,209   Noninterest expense:                 Salaries and employee benefits     3,846       3,141   Equipment and occupancy     658       665   Data processing     632       613   Professional services     500       139   Advertising     90       71   Supervisory fees and assessments     142       126   Loan expenses     86       129   Deposit expenses     203       183   Director fees     223       225   Other     497       307   Total noninterest expense     6,877       5,599   Income (losses) before income taxes     173       ( 269 ) Income tax expense (benefit)     146       ( 214 ) Net income (losses)   $ 27     $ ( 55 ) Basic and diluted earnings per share     0.01       N/A   Weighted average shares outstanding     4,729,236       N/A       See accompanying notes to consolidated financial statements   43 Table of Contents     NSTS BANCORP, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income       Year ended December 31,       2022     2021       (Dollars in thousands)   Net income (losses)   $ 27     $ ( 55 ) 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 )     ( 2,080 ) Tax effect     4,403       593   Other comprehensive loss, net of taxes     ( 11,044 )     ( 1,487 ) Comprehensive loss   $ ( 11,017 )   $ ( 1,542 )   See accompanying notes to consolidated financial statements   44 Table of Contents       NSTS BANCORP, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity                                       Accumulated                                                       other     Unallocated               Common     Common     Additional     Retained     comprehensive     Common Shares               Shares     Stock     Paid-In Capital     earnings     income (loss)     Held by ESOP     Total               (Dollars in thousands)   Balance at January 1, 2021     —     $ —     $ —     $ 45,319     $ 1,406     $ —     $ 46,725   Net losses     —       —       —       ( 55 )     —       —       ( 55 ) Change in net unrealized loss on securities available for sale, net     —       —       —       —       ( 1,487 )     —       ( 1,487 ) Balance at December 31, 2021     —     $ —     $ —     $ 45,264     $ ( 81 )   $ —     $ 45,183   Net income     —       —       —       27       —       —       27   Proceeds of stock offering and issuance of common shares (net of issuance costs of $ 2.5 million)     5,290,000       53       49,387       —       —       —       49,440   Issuance of common shares donated to the NSTS Charitable Foundation     107,959       1       1,008       —       —       —       1,009   Purchase of common shares by the ESOP ( 431,836 shares)     —       —       —       —       —       ( 4,319 )     ( 4,319 ) ESOP shares committed to be released     —       —       25       —       —       221       246   Change in net unrealized loss on securities available for sale, net     —       —       —       —       ( 11,044 )     —       ( 11,044 ) Balance at December 31, 2022     5,397,959     $ 54     $ 50,420     $ 45,291     $ ( 11,125 )   $ ( 4,098 )   $ 80,542     See accompanying notes to consolidated financial statements   45 Table of Contents     NSTS BANCORP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows       Year ended December 31,       2022     2021       (Dollars in thousands)   Cash flows from operating activities:                 Net income (losses)   $ 27     $ ( 55 ) Adjustments to reconcile net income (losses) to net cash provided by operating activities:                 Depreciation     267       268   Securities amortization and accretion, net     958       1,323   Loans originated for sale     ( 8,540 )     ( 19,302 ) Proceeds from sales of loans held for sale     8,750       21,580   Gain on sale of mortgage loans     ( 106 )     ( 410 ) Gain on sale of securities available for sale     —       ( 131 ) Gain on sale of OREO     —       ( 7 ) Gain on transfer to OREO     —       ( 15 ) Reversal of provision for loan losses     ( 230 )     ( 23 ) Earnings on bank owned life insurance     ( 178 )     ( 181 ) Issuance of common shares donated to North Shore Trust and Savings Charitable Foundation     1,009       —   ESOP expense     246       —   Change in deferred income taxes     64       ( 379 ) Decrease (increase) in accrued interest receivable and other assets     648       ( 1,268 ) Net increase in accrued expenses and other liabilities     74       52   Net cash provided by operating activities     2,989       1,452   Cash flows from investing activities:                 Purchases of loans, net     ( 5,357 )     —   Net (increase) decrease in portfolio loans     ( 1,238 )     1,772   Principal repayments on mortgage-backed securities     16,165       17,552   Purchases of securities available for sale     ( 59,530 )     ( 48,968 ) Sales of securities available for sale     —       6,769   Maturities and calls of securities available for sale     6,705       2,045   Purchase of Federal Home Loan Bank stock     —       ( 38 ) Proceeds from sale of other real estate owned     —       194   (Increase) decrease in time deposits with other financial institutions, net     ( 1,008 )     8,967   Purchases of premises and equipment, net     ( 215 )     ( 142 ) Net cash used in investing activities     ( 44,478 )     ( 11,849 ) Cash flows from financing activities:                 Net change in deposits     ( 106,907 )     99,217   Net change in escrow deposits     ( 189 )     ( 77 ) Repayment of FHLB advance     ( 5,000 )     ( 4,000 ) Proceeds from FHLB advance     —       5,000   Net proceeds from issuance of common shares     49,440       —   Loan to ESOP     ( 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     121,611       31,868   Cash and cash equivalents at end of period   $ 13,147     $ 121,611   Supplemental disclosures of cash flow information:                 Loans transferred to OREO   $ —     $ 172   Cash paid during the period for: Interest     766       948   Income taxes     —       —     See accompanying notes to consolidated financial statements   46 Table of Contents     Note 1: Summary of Significant Accounting Policies   The accompanying consolidated financial statements (“the financial statements”) have been prepared in conformity with accounting principles generally accepted in the United States of America and conform to practices within the banking industry.   Nature of Operations   NSTS Bancorp, Inc. was formed to serve as the stock holding company for North Shore Trust and Savings (the “Bank”) in connection with the conversion of North Shore Trust and Savings, NSTS Financial Corporation and North Shore MHC, 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. completed its stock offering on January 18, 2022. The Company sold 5,290,000 shares of common stock at $ 10.00 per share in its subscription offering for gross proceeds of approximately $ 53.0 million. In connection with the subscription offering, NSTS Bancorp, Inc. also issued 107,959 shares of common stock and $ 150,000 in cash to NSTS Charitable Foundation. Shares of NSTS Bancorp, Inc. 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. The Bank offers a variety of financial services to customers in the surrounding community. Financial services consist primarily of 1 - 4 family mortgage loans, savings accounts, and certificate of deposit accounts. There are no significant concentrations of loans to any one industry or customer. The Bank’s exposure to credit risk is significantly affected by changes in the economy in the Bank’s market area.   All significant intercompany balances and transactions have been eliminated in consolidation.   Certain amounts in prior year financial statements have been reclassified to conform to the 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   The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may vary from those estimates.   The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral.   The Bank’s loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on local economic conditions.   While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments of information available to them at the time of their examination. Due to these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.   Additional material estimates that are particularly susceptible to significant change in the near term include the determination of the valuation allowance on deferred tax assets and the valuation of investment securities.   47 Table of Contents   Comprehensive Income   Comprehensive income includes net income (losses) and other changes in net worth which bypass the statement of operations. For all periods presented, other comprehensive income includes only one additional component, the change in unrealized gains and losses on available-for-sale investment securities.   Cash and Cash Equivalents   For purposes of reporting cash flows, cash and cash equivalents includes cash on hand and amounts due from banks, including cash items in process of clearing.   Time Deposits with Other Financial Institutions   Time deposits with other financial institutions are carried at cost and generally mature within the next two years.   Investment Securities   Securities are classified as available-for-sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). Discounts are accreted into interest income over the estimated life of the related security and premiums are amortized against income over the earlier of the call date or weighted average life of the related security using the level yield method. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.   Securities available-for-sale are securities that are intended to be held for indefinite periods of time, but which may not be held to maturity. These securities may be used as a part of the Bank’s asset/liability management strategy and may be sold in response to changes in interest rates, deterioration of issuer’s creditworthiness, or due to a desire to increase liquidity.   The Bank conducts a periodic review of available-for-sale securities with declines in fair value below their cost to evaluate if the impairment is other than temporary. In estimating other-than-temporary impairment, management considers ( 1 ) the length of time and the extent to which the fair value has been less than amortized cost, ( 2 ) the financial condition and near-term prospects of the issuer, and ( 3 ) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Credit-related impairments of debt securities are recorded through earnings, and any impairment as a result of other factors is included in accumulated other comprehensive income.   Federal Home Loan Bank Stock   The Bank, as a member of the Federal Home Loan Bank (FHLB) system, is required to maintain an investment in capital stock of the FHLB. Based on redemption provisions of the FHLB, the stock has no quoted market price and is carried at cost of $ 550,000  at December 31, 2022 and 2021 and is evaluated for impairment at each reporting date.   Loans Held for Sale   Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or market value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Mortgage loans held for sale are generally sold with servicing rights released. Gains or losses are recognized through earnings.   Loans   The Bank’s loan portfolio includes segments for mortgage loans and consumer loans. Mortgage loans include classes for 1 - 4 family, multi-family, and commercial.   Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment to the related loan yield using the interest method, adjusted for prepayments.   The accrual of interest on all loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until the loans qualify for return to accrual. Loans are returned to accrual status when payment of all the principal and interest amounts contractually due is reasonably assured.   48 Table of Contents   Allowance for Loan Losses   The allowance for loan losses (the “allowance”) is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.   The allowance for loan losses is evaluated on a regular basis by management. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of general and allocated components, as further described below.   General Component The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: first mortgage loans and consumer loans. Management uses an average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards, and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions.   The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:   Mortgage Loans 1 - 4 family mortgage loans in this segment are made to individuals. The loans are secured by real estate with the Bank typically in a first lien position. The Bank generally does not originate loans with a loan-to-value ratio greater than 80 % unless mortgage insurance is obtained and generally does not grant loans that would be classified as subprime upon origination. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.   Although terms for commercial real estate and multi-family residential loans vary, our underwriting standards generally allow for terms not exceeding 30 years and loan-to-value ratios of not more than 75 %. Interest rates are typically adjustable, based upon designated market indices such as The Wall Street Journal prime rate, or fixed-rate, and fees are charged to the borrower at the origination of the loan. The actual lives of such loans generally are less than their contractual terms to maturity due to prepayments and re-financings. Generally, we obtain personal guarantees of the principals as additional collateral for commercial real estate and multi-family residential loans.   Commercial real estate and multi-family residential lending involve a greater degree of risk than one - to four -family residential lending. These risks include larger loans to individual borrowers and loan payments that are dependent upon the successful operation of the project or the borrower’s business. These risks can be affected by supply and demand conditions of rental housing units, office and retail space and other commercial space in the project’s market area. We attempt to minimize these risks for loans we originate by soliciting loans from businesses with existing operating performance. We also use conservative debt coverage ratios in our underwriting, and periodically monitor the operation of the business or project and the physical condition of the property.   Consumer Loans Loans in this segment are generally to individuals and are supported by non-real estate collateral, such as deposit accounts and personal property. Unsecured loans are also included in this segment. Repayment is dependent on the credit quality of the individual borrower or borrowers.   Allocated Component The allocated component relates to loans that are classified as impaired. Based on internal ratings, loans are evaluated for impairment on a loan-by-loan basis. Impairment is measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan.   A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all circumstances surrounding the loan and borrower, including the length of the delay, reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the amount of principal and interest owed.   The Bank periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (TDR). All TDRs are classified as impaired and management performs an impairment analysis at the time of restructuring.   49 Table of Contents   Premises and Equipment   Land is stated at cost. Property, improvements, and equipment are stated at cost less accumulated depreciation. Depreciation is determined under the straight-line method over the following estimated useful lives of assets:       Years   Land improvements     3 - 10   Office building and improvements     10 - 40   Furniture and equipment     3 - 10     Income Taxes   Deferred taxes are recognized using the asset/liability method. Deferred tax assets are recognized for deductible temporary differences, operating loss and tax credit carryforwards; deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the financial statement amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.   When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than- not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceed the amount measured as described above, if any, is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet, along with any associated interest and penalties that would be payable to the taxing authorities upon examination.   Interest and penalties associated with unrecognized tax benefits, if any, are classified as additional income taxes in the statement of operations. Bank management believes that the Bank maintains no uncertain tax positions for tax reporting purposes and accordingly, no liability is required to be recorded.   The Bank is subject to U.S. federal income tax as well as income tax of the States of Illinois and Wisconsin.   50 Table of Contents   Other Real Estate Owned   Property acquired in satisfaction of debt or through foreclosure is carried at the lower of cost or market value less estimated costs to sell. At foreclosure, if the fair value of the property acquired is less than the recorded investment in the related loan, a reduction in the carrying amount of the loan is recognized with a charge to the allowance for loan losses. The cost of carrying the assets subsequent to foreclosure and any decrease in the market value occurring after that date are charged to operating expenses as incurred.   Bank-owned Life Insurance   The Bank purchased life insurance policies on certain key executives. Bank-owned life insurance is recorded at the amount estimated to be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due which are probable at settlement.   Service Charges on Deposits   Service charges on deposits represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue, or some other individual attribute-based revenue. Revenue is recognized when the Bank’s performance obligation is completed, which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time performance obligations are satisfied.   Dividend Restrictions   Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to its stockholders.    Transfers of Financial Assets   Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Bank, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before maturity.    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.   51 Table of Contents     Note 2: Securities   The amortized cost and estimated fair value of debt securities at December 31, 2022 and 2021 , by contractual maturity, are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties, therefore, these securities have been included in 1 to 5 years based on average remaining life.   December 31, 2022   U.S. Treasuries     U.S. government agency obligations     Municipal obligations     Mortgage-backed residential obligations     Collateralized mortgage obligations     Total available-for-sale               (Dollars in thousands)   1 year or less   $ 2,433     $ 1,007     $ 528     $ —     $ —     $ 3,968   1 to 5 years     4,855       11,511       5,394       20,033       22,809       64,602   5 to 10 years     —       8,872       2,655       15,046       11,848       38,421   After 10 years     —       —       11,060       659       2,495       14,214   Fair value   $ 7,288     $ 21,390     $ 19,637     $ 35,738     $ 37,152     $ 121,205   Gross unrealized gains     —       —       6       —       —       6   Gross unrealized losses     ( 155 )     ( 1,870 )     ( 2,972 )     ( 5,464 )     ( 5,105 )     ( 15,566 ) Amortized cost   $ 7,443     $ 23,260     $ 22,603     $ 41,202     $ 42,257     $ 136,765       December 31, 2021   U.S. government agency obligations     Municipal obligations     Mortgage-backed residential obligations     Collateralized mortgage obligations     Total available-for-sale         (Dollars in thousands) 1 year or less   $ —     $ 1,631     $ 356     $ 1,064     $ 3,051   1 to 5 years     5,587       3,941       29,375       16,097       55,000   5 to 10 years     4,466       2,244       12,417       11,976       31,103   After 10 years     —       10,184       —       1,612       11,796   Fair value   $ 10,053     $ 18,000     $ 42,148     $ 30,749     $ 100,950   Gross unrealized gains     73       423       259       279       1,034   Gross unrealized losses     ( 78 )     ( 14 )     ( 612 )     ( 443 )     ( 1,147 ) Amortized cost   $ 10,058     $ 17,591     $ 42,501     $ 30,913     $ 101,063     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, 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:       Less than 12 Months     12 Months or Longer     Total       Fair     Unrealized     Fair     Unrealized     Fair     Unrealized   December 31, 2022   Value     Losses     Value     Losses     Value     Losses         (Dollars in thousands) U.S. Treasuries   $ 7,288     $ 155     $ —     $ —     $ 7,288     $ 155   U.S. government agency obligations     17,274       1,296       4,116       574       21,390       1,870   Municipal obligations     16,823       2,349       2,037       623       18,860       2,972   Mortgage-backed residential obligations     14,365       1,618       21,373       3,846       35,738       5,464   Collateralized mortgage obligations     21,449       2,014       15,703       3,091       37,152       5,105   Total   $ 77,199     $ 7,432     $ 43,229     $ 8,134     $ 120,428     $ 15,566   December 31, 2021                                                 U.S. government agency obligations   $ 4,020     $ 62     $ 1,105     $ 16     $ 5,125     $ 78   Municipal obligations     2,399       8       247       6       2,646       14   Mortgage-backed residential obligations     26,540       535       2,781       77       29,321       612   Collateralized mortgage obligations     16,715       338       4,386       105       21,101       443   Total   $ 49,674     $ 943     $ 8,519     $ 204     $ 58,193     $ 1,147     52 Table of Contents   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.   All U.S. 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.        At December 31,       2022     2021       (Dollars in thousands)   Sales of securities available for sale   $ —     $ 6,769   Gross gain realized on the sale of securities available for sale     —       131   Gross loss realized on the sale of securities available for sale     —       —       Note 3: Loans   A summary of loans by major category as of December 31, 2022 and 2021 is as follows:       2022     2021         (Dollars in thousands)   First mortgage loans                 1-4 family residential   $ 95,584     $ 88,028   Multi-family     3,237       3,497   Commercial     3,921       4,604   Total first mortgage loans     102,742       96,129   Consumer loans     249       372   Total loans     102,991       96,501   Net deferred loan costs     992       812   Allowance for loan losses     ( 624 )     ( 779 ) Total loans, net   $ 103,359     $ 96,534     First mortgage loans serviced for others are not included in the accompanying balance sheets. 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, 2022 and 2021 , such borrowers were indebted to the Bank in the aggregate amount of $ 597,000 and $ 556,000 , respectively.   53 Table of Contents     Note 4: Allowance for Loan Losses   Changes in the allowance for loan losses and the related loan balance information by portfolio segment as of and for the years ended December 31, 2022 and 2021 were as follows:       December 31, 2022       1-4 family residential     Multi-family     Commercial     Consumer     Total       (Dollars in thousands)   Year ended:                                         Beginning balance   $ 675       69       25       10     $ 779   Charge-offs     —       —       —       —       —   Recoveries     75       —       —       —       75   Net recoveries     75       —       —       —       75   Reversal of provision for loan losses     ( 169 )     ( 50 )     ( 6 )     ( 5 )     ( 230 ) Ending balance   $ 581       19       19       5     $ 624         December 31, 2021       1-4 family residential     Multi-family     Commercial     Consumer     Total       (Dollars in thousands)   Year ended:                                         Beginning balance   $ 798       29       38       5     $ 870   Charge-offs     —       —       —       ( 99 )     ( 99 ) Recoveries     31       —       —       —       31   Net recoveries (charge-offs)     31       —       —       ( 99 )     ( 68 ) (Reversal of) Provision for loan losses     ( 154 )     40       ( 13 )     104       ( 23 ) Ending balance   $ 675       69       25       10     $ 779     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     Individually evaluated     Total       Allowance for loan losses     Recorded investment in loans     Allowance for loan losses     Recorded investment in loans     Allowance for loan losses     Recorded investment in loans         (Dollars in thousands) December 31, 2022                                                 1-4 family residential   $ 512     $ 94,711     $ 69     $ 873     $ 581     $ 95,584   Multi-family     19       3,237       —       —       19       3,237   Commercial     19       3,921       —       —       19       3,921   Consumer     5       249       —       —       5       249   Total   $ 555     $ 102,118     $ 69     $ 873     $ 624     $ 102,991   December 31, 2021                                                 1-4 family residential   $ 557     $ 86,892     $ 118     $ 1,136     $ 675     $ 88,028   Multi-family     69       3,497       —       —       69       3,497   Commercial     25       4,604       —       —       25       4,604   Consumer     10       372       —       —       10       372   Total   $ 661     $ 95,365     $ 118     $ 1,136     $ 779     $ 96,501     54 Table of Contents   The Bank evaluates collectability based on payment activity and other factors. The Bank uses a graded loan rating system as a means of identifying potential problem loans, as follows:   Pass Loans in these categories are performing as expected with low to average risk.   Special Mention Loans in this category are internally designated by management as “watch loans.” These loans are starting to show signs of potential weakness and are closely monitored by management.   Substandard Loans in this category are internally designated by management as “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the paying capacity of the obligors or the current net worth of the collateral pledged. Substandard loans present a distinct possibility that the Bank will sustain losses if such weaknesses are not corrected.   Doubtful Loans classified as doubtful have all the weaknesses inherent in those designated as “substandard” with the added characteristic that the weaknesses may make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.   On an annual basis, or more often if needed, the Bank formally reviews the ratings on commercial loans. In addition, the Bank performs an independent review of a significant portion of the commercial loan portfolio. Management uses the results of the independent review as part of its annual review process.   The following table presents loan balances based on risk rating by class of loans as of December 31, 2022 and 2021 :               Special                               Pass     Mention     Substandard     Doubtful     Total loans         (Dollars in thousands) December 31, 2022                                         1-4 family residential   $ 95,353     $ 43     $ 188     $ —     $ 95,584   Multi-family     3,237       —       —       —       3,237   Commercial     3,921       —       —       —       3,921   Consumer     249       —       —       —       249   Total   $ 102,760     $ 43     $ 188     $ —     $ 102,991   December 31, 2021                                         1-4 family residential   $ 87,881     $ 45     $ 102     $ —     $ 88,028   Multi-family     3,497       —       —       —       3,497   Commercial     4,604       —       —       —       4,604   Consumer     372       —       —       —       372   Total   $ 96,354     $ 45     $ 102     $ —     $ 96,501     The aging of the Bank’s loan portfolio by class of loans as of December 31, 2022 and 2021 , is as follows:       31-89 Days Past Due and Accruing     Greater than 90 Days Past Due and Accruing     Non-Accrual     Total Past Due and Non-Accrual     Current     Total Loan Balance         (Dollars in thousands)   December 31, 2022                                                 1-4 family residential   $ 28     $ —     $ 154     $ 182     $ 95,402     $ 95,584   Multi-family     —       —       —       —       3,237       3,237   Commercial     —       —       —       —       3,921       3,921   Consumer     —       —       —       —       249       249   Total   $ 28     $ —     $ 154     $ 182     $ 102,809     $ 102,991   December 31, 2021                                                 1-4 family residential   $ —     $ 41     $ 102     $ 143     $ 87,885     $ 88,028   Multi-family     —       —       —       —       3,497       3,497   Commercial     —       —       —       —       4,604       4,604   Consumer     —       —       —       —       372       372   Total   $ —     $ 41     $ 102     $ 143     $ 96,358     $ 96,501     55 Table of Contents   Loans individually evaluated for impairment by class of loans as of December 31, 2022 and 2021 , were as follows:       Recorded investment     Unpaid principal balance     Related allowance     Average recorded investment     Interest income recognized         (Dollars in thousands) December 31, 2022                                         With no related allowance recorded                                   1-4 family residential   $ 429     $ 635     $ —     $ 442     $ 29   Multi-family     —       —       —       —       —   Commercial     —       —       —       —       —   Consumer     —       —       —       —       —   Total   $ 429     $ 635     $ —     $ 442     $ 29   With a related allowance recorded                                         1-4 family residential   $ 444     $ 444     $ 69     $ 452     $ 21   Multi-family     —       —       —       —       —   Commercial     —       —       —       —       —   Consumer     —       —       —       —       —   Total   $ 444     $ 444     $ 69     $ 452     $ 21   Total individually assessed as of December 31, 2022   $ 873     $ 1,079     $ 69     $ 894     $ 50   December 31, 2021                                         With no related allowance recorded                                   1-4 family residential   $ 355     $ 595     $ —     $ 348     $ 26   Multi-family     —       —       —       —       —   Commercial     —       —       —       —       —   Consumer     —       —       —       —       —   Total   $ 355     $ 595     $ —     $ 348     $ 26   With a related allowance recorded                                   1-4 family residential   $ 781     $ 797     $ 118     $ 797     $ 35   Multi-family     —       —       —       —       —   Commercial     —       —       —       —       —   Consumer     —       —       —       —       —   Total   $ 781     $ 797     $ 118     $ 797     $ 35   Total individually assessed as of December 31, 2021   $ 1,136     $ 1,392     $ 118     $ 1,145     $ 61     The recorded investment in loans excludes accrued interest receivable and loan origination fees, net, due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.    Troubled debt restructurings provide for modifications to repayment terms; more specifically, modifications to loan interest rates. Management performs an impairment analysis at the time of restructuring and periodically thereafter. Any reserve required is recorded through a provision to the allowance for loan losses.   There were no new troubled debt restructurings during the years ended December 31, 2022 and 2021 .      Note 5: Premises and Equipment   The components of premises and equipment as of December 31, 2022 and 2021 , are as follows:       2022     2021         (Dollars in thousands)   Land and improvements   $ 2,703     $ 2,701   Building and improvements     6,768       6,576   Furniture and equipment     1,390       1,372   Total gross equipment     10,861       10,649   Less accumulated depreciation     5,826       5,562   Premises and equipment, net   $ 5,035     $ 5,087     56 Table of Contents     Note 6: Other Real Estate Owned   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.       At December 31,       2022     2021       (Dollars in thousands)   Transfer of loans to OREO   $ —     $ 172   Sale of OREO     —       194   Gross gain realized on transfer to OREO     —       15   Gross gain realized on sale of OREO     —       7     The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process is $ 0 and $ 60,000 , as of December 31, 2022 and 2021 , respectively.     Note 7: Deposits   As of December 31, 2022 , for years below ended December 31, the scheduled maturities of time deposits are as follows:   Years Ended   Amount       (Dollars in thousands)   2023   $ 30,618   2024     14,651   2025     5,427   2026     2,822   2027 and beyond     1,868   Total   $ 55,386     In the normal course of business, deposit accounts are held by directors and officers of the Bank (related parties). The terms for these accounts, including interest rates, fees, and other attributes, are similar to those prevailing for comparable transactions with other customers and do not involve more than the normal level of risk associated with deposit accounts. At December 31, 2022 and 2021 , total deposits held by directors and officers of the Company and the Bank were $ 724,000 and $ 1.1 million, respectively.      Note 8: Other Borrowings   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 $ 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.     57 Table of Contents     Note 9: Income Taxes   Income tax expense (benefit) for the years ended December 31, 2022 and 2021 , is summarized as follows:         Year Ended December 31,       2022     2021         (Dollars in thousands) Current (benefit) expense                 Federal   $ ( 133 )   $ 62   State     —       —   Total current (benefit) expense     ( 133 )     62                     Deferred expense (benefit)     64       ( 379 ) Change in valuation allowance     215       103   Total deferred expense (benefit)     279       ( 276 ) Total income tax expense (benefit)   $ 146     $ ( 214 )   The difference between the income tax expense shown on the statements of income and the amounts computed by applying the statutory federal income tax rate to income before income taxes is primarily due to tax-exempt income, the change in valuation allowance, and the adjustment of deferred taxes for enacted changes in tax laws. The provision for income taxes differs from that computed are as follows:       Year Ended December 31,       2022     2021       (Dollars in thousands)   Income (losses) before income tax expense   $ 173     $ ( 269 ) Tax (expense) benefit at statutory federal rate of 21% applied to income before income tax (expense) benefit     ( 36 )     56   State income tax, net of federal effect     ( 13 )     51   Tax-exempt security and loan income, net of TEFRA adjustments     83       50   BOLI     37       38   Valuation allowance on Federal NOL     ( 150 )     -   Other     ( 67 )     19   Total income tax (expense) benefit   $ ( 146 )   $ 214   Effective tax rate     ( 84.4 )%     79.6 %   58 Table of Contents   The tax effects of existing temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2022 and 2021 , are as follows:       Year Ended December 31,       2022     2021       (Dollars in thousands)   Deferred tax assets                 Allowance for loan losses   $ 178     $ 222   Deferred compensation     481       432   Retirement plans     55       55   Premises held for sale impairment     101       101   Unrealized loss on securities available-for-sale     4,435       32   Federal net operating loss carryforwards     358       218   Other     38       53   State net operating loss carryforwards     371       306   Gross deferred tax assets     6,017       1,419   Valuation allowance on federal and state NOLs     ( 521 )     ( 306 ) Net deferred tax assets     5,496       1,113   Deferred tax liabilities                 FHLB stock dividends     ( 101 )     ( 101 ) Accumulated depreciation     ( 80 )     ( 36 ) Deferred tax liabilities     ( 181 )     ( 137 ) Net deferred tax asset   $ 5,315     $ 976     The Bank does not expect the total amount of unrecognized tax benefits to change significantly in the next twelve months. 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, 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.   59 Table of Contents     Note 10: Capital Ratios   The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under accounting principles generally accepted in the United States of America, regulatory reporting requirements and regulatory capital standards. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.   Quantitative measures established by regulatory reporting standards to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, common equity Tier 1 capital to total risk-weighted assets and of Tier I capital to average assets, as such individual components and calculations are defined by related standards. As of December 31, 2022 , the most recent notification from the regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification which management believes have changed the Bank’s category.   On November 13, 2019, the federal regulators finalized and adopted a regulatory capital rule establishing a new community bank leverage ratio (“CBLR”), which became effective on January 1, 2020. The intent of CBLR is to provide a simple alternative measure of capital adequacy for electing qualifying depository institutions and depository institution holding companies, as directed under the Economic Growth, Relief, and Consumer Protection Act. Under CBLR, if a qualifying depository institution or depository institution holding company elects to use such measure, such institution or holding company will be considered well capitalized if its ratio of Tier 1 capital to average total assets (i.e., leverage ratio) exceeds 9% subject to a limited two quarter grace period, during which the leverage ratio cannot go 100 basis points below the then applicable threshold, and will not be required to calculate and report risk-based capital ratios. In April 2020, under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the 9% leverage ratio threshold was temporarily reduced to 8% in response to the COVID- 19 pandemic. The threshold 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. Management believes, as of December 31, 2022 , that the Bank met all capital adequacy requirements to which it was subject.   The Bank’s actual capital amounts and ratios as of December 31, 2022 and 2021 , are presented below:       Actual     Minimum Required to be Well-Capitalized (1)       Amount     Ratio     Amount     Ratio       (Dollars in thousands)   As of December 31, 2022                                 Tier 1 capital (to Average Assets)   $ 65,634       24.81 %   $ 23,809       >9%                                     As of December 31, 2021                                 Tier 1 capital (to Average Assets)   $ 44,262       16.11 %   $ 23,349       >8.5%     ( 1 ) As defined by regulatory agencies. Failure to exceed the leverage ratio thresholds required under CBLR in the future, subject to any applicable grace period, would require the Company to return to the risk-based capital ratio thresholds previously utilized under the fully phased-in Basel III Capital Rules to determine capital adequacy.   The Company's principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that the Bank may pay without prior approval of regulatory agencies. Under these regulations, the amount of dividends that the Bank may pay in any calendar year is limited to the current year's profits, combined with the retained profit of the previous two years, subject to the capital requirements described above which include a requirement that the Bank maintain a capital conservation buffer of 2.5 % on all risk-based capital requirements in order to avoid additional limitations on capital distributions.   Note 11: Benefit Plans   During 2021, the Bank made final payouts for the Directors' Retirement Fund and Equity Value Plan. Both plans were fully accrued for prior to 2020.   The Bank sponsors a noncontributory Profit-Sharing Plan covering all employees who have worked more than 1,000 hours during the plan year. Profit sharing expense for the years ended  2022 and  2021 was $ 0 .   60 Table of Contents   Management implemented a 401 (k)-benefit plan during 2007. Employee contributions are matched up to the first 6 % of compensation contributed by the employee. Employer match contributions totaled $ 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.      Note 12: ESOP   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   Unallocated     409,827   Total ESOP shares     431,836             Fair value of unearned shares at December 31, 2022   $ 4,152     61 Table of Contents     Note 13: Commitments and Contingencies   In the ordinary course of business, the Bank has various commitments and contingent liabilities that are not reflected in the accompanying financial statements. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the financial position of the Bank.   Financial Instruments The Bank does not engage in the use of interest rate swaps or futures, forwards or option contracts.   At December 31, 2022 and 2021 , unused lines of credit and outstanding commitments to originate loans were as follows:       2022     2021         (Dollars in thousands) Unused line of credit   $ 2,872     $ 4,001   Commitments to originate loans     793       219   Total commitments   $ 3,665     $ 4,220     Concentrations of Credit Risk The Bank generally originates single-family residential loans within its primary lending area which is Waukegan, Illinois and the surrounding area. The Bank’s underwriting policies require such loans to be made at approximately 80 % loan-to-value, based upon appraised values, unless private mortgage insurance is obtained, or the loan is guaranteed by the government. These loans are secured by the underlying properties.   The Bank maintains its cash in deposit accounts at the Federal Reserve Bank or other institutions, the balances of which may exceed federally insured limits. The Bank has not experienced any losses in such accounts. The Bank believes it is not exposed to any significant credit risk on cash and cash equivalents.   Interest Rate Risk The Bank assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, fair values of its financial instruments will change when interest rate levels change, and that change may be either favorable or unfavorable to the Bank. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the overall interest rate risk.   Litigation Due to the nature of its business activities, the Bank is at times subject to legal action which arises in the normal course of business. In the opinion of management, the ultimate resolution of these matters is not expected to have a material effect on the financial position or results of operations of the Bank.   62 Table of Contents     Note 14: Fair Value Measurements   Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:     Level 1 Quoted prices in active markets for identical assets or liabilities     Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities     Level 3 Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities   An asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.   Following is a description of the valuation methodologies used for assets measured at fair value.   There have been no changes in the methodologies used at December 31, 2022 and 2021 .   Available-for-Sale Securities (Recurring) Where quoted market prices are available in an active market, securities such as U.S. Treasuries, would be classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities would be classified within Level 3 of the hierarchy.   Impaired Loans (Nonrecurring) Impaired loans are recorded at fair value on a nonrecurring basis. The fair value of loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.    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 :       Fair Value Measurements Using       Fair Value     Level 1     Level 2     Level 3       (Dollars in thousands)   December 31, 2022                                 Securities Available-for-sale                                 U.S. Treasury Notes   $ 7,288     $ 7,288     $ —     $ —   U.S. government agency obligations     21,390       —       21,390       —   Municipal obligations     19,637       —       19,637       —   Mortgage-backed residential obligations     35,738       —       35,738       —   Collateralized mortgage obligations     37,152       —       37,152       —   Total   $ 121,205     $ 7,288     $ 113,917     $ —   December 31, 2021                                 Securities Available-for-sale                                 U.S. government agency obligations   $ 10,053       —       10,053     $ —   Municipal obligations     18,000       —       18,000       —   Mortgage-backed residential obligations     42,148       —       42,148       —   Collateralized mortgage obligations     30,749       —       30,749       —   Total   $ 100,950       —       100,950     $ —     63 Table of Contents   The Bank may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with accounting principles generally accepted in the United States of America. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis and the valuation techniques used to measure nonrecurring Level 3 fair value measurements as of December 31, 2022 and 2021 , were as follows:   Fair Value Measurements Using       Fair Value     Level 1     Level 2     Level 3     Gain/(Loss)       (Dollars in thousands)   December 31, 2022                                         Impaired loans   $ 375       —       —       375     $ —                                             December 31, 2021                                         Impaired loans   $ 663       —       —       663     $ —     The numerical range of unobservable inputs for the valuation assumptions used in calculating the amounts disclosed above is not meaningful to this presentation.     Note 15: Fair Value of Financial Instruments   Financial instruments are classified within the fair value hierarchy using the methodologies described in Note 14  – Fair Value Measurements. The following disclosures include financial instruments that are not carried at fair value on the Consolidated Balance Sheets. The calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.    Certain financial instruments generally expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market. The carrying value of these financial instruments assumes to approximate the fair value of these instruments. These instruments include cash and cash equivalents,  non-interest-bearing deposit accounts, time deposits with other financial institutions, FHLB stock, escrow deposits, FHLB advances and accrued interest receivable and payable.     The carrying amounts and estimated fair values by fair value hierarchy of certain financial instruments are as follows:       Carrying                             Estimated       Amount     Level 1     Level 2     Level 3     Fair Value     (Dollars in thousands) December 31, 2022                                         Financial assets:                                         Loans, net   $ 103,359     $ —     $ —     $ 94,779     $ 94,779   Financial liabilities:                                         Interest-bearing deposits   $ 165,737     $ —     $ 165,535     $ —     $ 165,535                                             December 31, 2021                                         Financial assets:                                         Loans, net   $ 96,534     $ —     $ —     $ 96,391     $ 96,391   Loans held for sale     104       —       112       —       112   Financial liabilities:                                         Interest-bearing deposits   $ 186,531     $ —     $ 181,564     $ —     $ 181,564     64 Table of Contents     Note 16: 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,       2022             Net income applicable to common shares   $ 27             Average number of common shares outstanding     5,131,758   Less: 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.   65 Table of Contents     Note 17: Condensed Parent Only Financial Information   The Parent Company’s condensed balance sheet and related condensed statements of operations and cash flows are as follows. 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       Year ended December 31,       2022     2021       (Dollars in thousands)   Assets:                 Cash   $ 22,194     $ 247   Investment in subsidiary     54,510       44,181   Loan to ESOP     4,145         Other assets     104       755   Total assets   $ 80,953     $ 45,183   Liabilities:                 Accrued expense and other liabilities   $ 411     $ —   Total liabilities     411       —   Stockholders' equity                 Common Stock     54       —   Additional paid-in capital     50,420       —   Retained earnings     45,291       45,264   Unallocated common shares held by ESOP     ( 4,098 )     —   Accumulated other comprehensive loss, net     ( 11,125 )     ( 81 ) Total stockholders' equity     80,542       45,183   Total liabilities and stockholders’ equity   $ 80,953     $ 45,183     NSTS BANCORP, INC. Condensed Statements of Operations       Year ended December 31,       2022     2021       (Dollars in thousands)   Income:                 Interest income   $ 140     $ 1   Total income     140       1   Expense:                 Noninterest expense   $ 425     $ 19   Total expense     425       19   Losses before income tax (benefit) expense and equity in undistributed earnings of subsidiary   $ ( 285 )   $ ( 18 ) Income tax (benefit) expense     ( 91 )     38   Losses before equity in undistributed earnings of subsidiary   $ ( 194 )   $ ( 56 ) Equity in undistributed earnings of subsidiary     221       1   Net income (losses)   $ 27     $ ( 55 )     66 Table of Contents   NSTS BANCORP, INC. Condensed Statements of Cash Flows       Year ended December 31,       2022     2021       (Dollars in thousands)   Cash flows from operating activities:                 Net income (losses)   $ 27     $ ( 55 ) Adjustments to reconcile net income (losses) to net cash used in operating activities:                 Decrease (increase) in other assets     651       ( 704 ) Increase (decrease) in accrued expenses and other liabilities     411       ( 3 ) Issuance of common shares donated to North Shore Trust and Savings Charitable Foundation     1,009       —   Equity in undistributed earnings of subsidiary     ( 221 )     ( 1 ) Net cash provided by (used in) operating activities     1,877       ( 763 ) Cash flows from investing activities:                 Principal payments on loan to ESOP   $ 174     $ —   Net cash provided by investing activities     174       —   Cash flows from financing activities:                 Net proceeds from issuance of common shares     49,440       —   Loan to ESOP     ( 4,319 )     —   Proceeds from conversion transferred to subsidiary     ( 25,225 )     —   Net cash provided by financing activities     19,896       —   Net change in cash     21,947       ( 763 ) Cash at beginning of period     247       1,010   Cash at end of period   $ 22,194     $ 247     67 Table of Contents     Note 18: Changes in Accounting Principles   Accounting for Financial Instruments – Credit Losses The FASB issued Accounting Standards Update ("ASU") No. 2016 - 13, Financial Instruments — Credit Losses (Topic 326 ) . The ASU introduces a new credit loss model, the current expected credit loss model (CECL), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. The ASU is effective for the Company as of January 1, 2023.    The CECL model utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities, and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. For available for-sale securities where fair value is less than cost, credit-related impairment, if any, will be recognized in an allowance for credit losses and adjusted each period for changes in expected credit risk. This model replaces the multiple existing impairment models, which generally require that a loss be incurred before it is recognized.   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.     Note 19: Subsequent Events   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.   68 Table of Contents     SIGNATURES   Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.     NSTS BANCORP, INC.                   Dated: March 30, 2023 By: /s/  Stephen G. Lear       Stephen G. Lear       President and Chief Executive Officer             POWER OF ATTORNEY   KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints each of Stephen G. Lear and Carissa H. Schoolcraft, with full power to act without the other, his or her trust and lawful attorney-in-fact and agency, with full and several powers of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully as to all intents and purposes as each of the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.    Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.   Signatures Title Date /s/ Stephen G. Lear Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) March 30, 2023 Stephen G. Lear     /s/ Carissa H. Schoolcraft Chief Financial Officer (Principal Financial and Accounting Officer) March 30, 2023 Carissa H. Schoolcraft     /s/ Apolonio Arenas Director March 30, 2023 Apolonio Arenas     /s/ Thaddeus M. Bond, Jr. Director March 30, 2023 Thaddeus M. Bond, Jr.     /s/ Kevin M. Dolan Director March 30, 2023 Kevin M. Dolan     /s/ Thomas M. Ivantic Director March 30, 2023 Thomas M. Ivantic     /s/ Thomas J. Kneesel Director March 30, 2023 Thomas J. Kneesel     /s/ Rodney J. True Director March 30, 2023 Rodney J. True       69