What changed in this filing

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Item 1. Business

2024-03-28 compared with 2023-03-30 · 313 added, 331 removed, 547 unchanged (54% of the section changed)

Forward-Looking Statements

This filing contains forward-looking statements, which can be identified by the use of words such as “estimate,”

“project,”

“believe,”

“intend,”

“anticipate,”

“plan,”

“seek,”

“expect”

and words of similar meaning.

This filing contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning.

These forward-looking statements include, but are not limited to:

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general economic conditions, either nationally or in our market areas, that are different than expected;

changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;

changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for credit losses;

fluctuations in real estate values and both residential and commercial real estate market conditions;

inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans;

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

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

major catastrophes such as tornadoes, floods or other natural disasters, as well as public health emergencies and pandemics, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies;

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success or consummation of new business initiatives may be more difficult or expensive than expected;

the inability of third-party service providers to perform;

fluctuations in real estate values and both residential and commercial real estate market conditions;

interruptions involving information technology and communications systems of service providers;

breaches or failures of information security controls or cyber-related incidents;

demand for loans and deposits in our market area;

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Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

NSTS Bancorp,  

NSTS Bancorp, Inc.

is a Delaware corporation which was incorporated in September 2021.

As a savings and loan holding company, NSTS Bancorp, Inc.

is regulated by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”).

Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

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 (collectively, the “Company,”

“we”

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

NSTS Bancorp, Inc.

("NSTS" or the "Company", "we" or "our") is a Delaware corporation which was incorporated in September 2021.

As a savings and loan holding company, NSTS Bancorp, Inc.

is regulated by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”).

NSTS Bancorp, Inc.

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

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

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In connection with the conversion, it also issued 107,959 shares of common stock and $150,000 in cash to NSTS Charitable Foundation, Inc.

Shares of NSTS Bancorp, Inc.’s common stock began trading on January 19, 2022 on The Nasdaq Capital Market under the trading symbol “NSTS.”

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

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

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

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

Shares of NSTS Bancorp, Inc.’s common stock began trading on January 19, 2022 on The Nasdaq Capital Market under the trading symbol “NSTS.”

We currently have no agreements to acquire other financial institutions or financial services companies, although we may determine to do so in the future.

NSTS Bancorp, Inc.’s cash flow depends on earnings from the investment of the net proceeds of the stock offering and from any dividends it receives from North Shore Trust and Savings.

North Shore Trust and Savings is subject to regulatory limitations on the amount of dividends that it may pay.

NSTS Bancorp, Inc.

does not own or lease any property, but instead pays North Shore Trust and Savings for the use of its premises, furniture and equipment.

We employ as officers of NSTS Bancorp, Inc.

only persons who are also officers of North Shore Trust and Savings.

However, we use the support staff of North Shore Trust and Savings from time to time.

We pay North Shore Trust and Savings for the time devoted to NSTS Bancorp, Inc.

by employees of North Shore Trust and Savings;

however, these individuals are not separately compensated by NSTS Bancorp, Inc.  NSTS Bancorp, Inc.

however, these individuals are not separately compensated by NSTS Bancorp, Inc.

NSTS Bancorp, Inc.

may hire additional employees, as appropriate, to the extent it expands its business in the future.

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We operate from our headquarters and main banking office in Waukegan, Illinois, as well as two additional full-service branch offices located in Waukegan and Lindenhurst, Illinois, respectively.

We have a loan production office in Chicago, Illinois.

During the third quarter of 2023, we added

additional loan production offices in Aurora and Plainfield, Illinois to complement the existing loan production office in Chicago, Illinois.

Our primary business activity is attracting deposits from the general public and using those funds to originate one- to four-family residential mortgage loans and purchase investments.

We are subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency (the “OCC”).

Conversion of North Shore MHC

Pursuant to the conversion, North Shore MHC converted from the mutual holding company to the stock holding company corporate structure.

Upon the completion of the conversion on January 18, 2022, North Shore MHC and NSTS Financial Corporation ceased to exist, and the Bank became a wholly owned subsidiary of NSTS Bancorp, Inc.

Pursuant to the conversion, North Shore MHC converted from the mutual holding company to the stock holding company corporate structure.

Upon the completion of the conversion on January 18, 2022, North Shore MHC and NSTS Financial Corporation ceased to exist, and the Bank became a wholly owned subsidiary of NSTS Bancorp, Inc.

Our Business and Franchise

For 100 years, we have served Lake County, Illinois and the surrounding communities.

For over 100 years, we have served Lake County, Illinois and the surrounding communities.

We have established deep ties to the community and developed customer relationships which have spanned generations.

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

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

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

North Shore Trust and Savings derives its income principally from interest earned on loans and investment securities and, to a lesser extent, from fees received in connection with the origination of loans, service charges on deposit accounts and for other services.

We invest in bank owned life insurance (“BOLI”) to provide us with a funding source for our benefit plan obligations.

BOLI also generally provides us noninterest income that is non-taxable.

North Shore Trust and Savings’

primary expenses are interest expense on deposits and borrowings and general operating expenses.

North Shore Trust and Savings’ primary expenses are interest expense on deposits and borrowings and general operating expenses.

We are an active originator of residential home mortgage loans in our market area.

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

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

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

Commercial real estate loans are deemed attractive due to their generally higher yields and shorter anticipated lives compared to one- to four-family residential mortgage loans.

established a loan production office in Chicago, Illinois in 2016 to originate loans outside of our branch network in a more densely populated metropolitan area, which we believe benefits us geographically.

To complement the existing offices, during the third quarter of 2023, we established two additional loan production offices in Aurora and Plainfield, Illinois to expand our loan originations within the Chicagoland area.

The lending teams operating in the Aurora and Plainfield, Illinois loan production offices originate as Oak Leaf Community Mortgage, powered by North Shore Trust and Savings.

As of December 31, 2023 , $111.1 million, or 92.0% of our total loan portfolio, consisted of one- to four-family residential mortgage loans.

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

Our headquarters office is located at 700 S.

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We are headquartered in Waukegan, Illinois.

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

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

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

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

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

The largest employers in Lake County are pharmaceutical and healthcare companies, including Abbott Laboratories, AbbVie, and Baxter International.

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Government, Chicago Public Schools, and the City of Chicago.

Kenosha County’s largest employers include Amazon, Uline, and Snap-on.

Overall, Lake, Cook, and Kenosha counties have a diversified employment base which helps to maintain a relatively stable economy. 

Will County's largest employers include Amazon and the local school district.

Kenosha County’s largest employers include Amazon, Uline, and Snap-on.

Overall, Lake, Cook, Will and Kenosha counties have a diversified employment base which helps to maintain a relatively stable economy.

We face significant competition in originating loans and attracting deposits.

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Lending Activities

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

As of December 31, 2023 , our net loan portfolio totaled $120.6 million or 47.0% of total assets.

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

We also originate commercial real estate, multi-family residential mortgage loans and consumer loans, consisting of loans secured by deposits at North Shore Trust and Savings and other collateral and unsecured personal loans.

We also originate commercial real estate, multi-family residential mortgage loans, one- to four- family residential construction loans and consumer loans, consisting of loans secured by deposits at North Shore Trust and Savings and other collateral and unsecured personal loans.

Loan Portfolio Composition .

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Net deferred loan costs

Allowance for loan losses

Allowance for credit losses

Total loans, net

Contractual Terms to Final Maturities .

The following table shows the scheduled contractual maturities of our loans as of December 31, 2022, before giving effect to net deferred loan costs and the allowance for loan losses.

The following table shows the scheduled contractual maturities of our loans as of December 31, 2023 , before giving effect to net deferred loan costs and the allowance for credit losses.

Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.

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Loan originations are obtained through a variety of sources, primarily existing customers as well as new customers obtained from referrals and local advertising and promotional efforts.

One- to four-family residential mortgage loan applications and consumer loan applications are taken at any of North Shore Trust and Savings’

branch offices or customers may submit an application on-line.

One- to four-family residential mortgage loan applications and consumer loan applications are taken at any of North Shore Trust and Savings’ branch offices or customers may submit an application on-line.

Applications for other loans typically are taken personally by one of our loan officers, although they may be received by a branch office initially and then referred to a loan officer.

All loan applications are processed and underwritten centrally at our branch office located in Lindenhurst, Illinois.

Our one- to four-family residential first mortgage loans are written on standardized documents used by the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Federal National Mortgage Association (“Fannie Mae”).

Our underwriting standards generally require that new one- to four-family residential mortgage loans conform to secondary market standards but a portion of our one- to four-family residential mortgage loans are considered “non-conforming”

due to factors such as the borrower’s job status or income, the condition or age of the residence or other factors.

All loan applications are processed and underwritten at our office locations in Lindenhurst, Plainfield and Aurora, Illinois.

Our one to four-family residential first mortgage loans are written on standardized documents used by the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Federal National Mortgage Association (“Fannie Mae”).

Our underwriting standards generally require that new one to four-family residential mortgage loans conform to secondary market standards but a portion of our one to four-family residential mortgage loans are considered “non-conforming” due to factors such as the borrower’s job status or income, the condition or age of the residence or other factors.

For loans which are secured by real estate, property valuations are undertaken by an independent third-party appraiser approved by our board of directors.

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

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

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

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

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

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

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

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

As of December 31, 2023, all purchased loans are paying as pursuant to their contractual terms.

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

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

We will actively monitor the performance of such loans made in the future through the receipt of regular reports from the lead lender regarding the loan’s performance, physically inspecting the loan security property on a periodic basis, discussing the loan with the lead lender on a regular basis and receiving copies of updated financial statements from the borrower.

Loan Originations and Sales

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Total loans sold and principal repayments

Increase due to other items, net (1)

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

(1)         Other items consist of deferred fees, the change in allowance for loan losses and the transfer of loans to real estate owned.

Change due to other items, net (1)

Net increase in loans, net and loans held for sale

(1) Other items consist of deferred fees and the change in allowance for credit losses.

One to Four-Family Residential Mortgage Lending .

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

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

As of December 31, 2023 , $111.1 million, or 92.0% of our total loan portfolio, consisted of one to four-family residential mortgage loans.

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

While our one to four-family residential first mortgage loans are written on standardized documents used by Freddie Mac and Fannie Mae, our underwriting standards do not require that new one to four-family residential mortgage loans conform to secondary market standards.

A small portion of our one- to four-family residential mortgage loans are considered “non-conforming”, due to factors such as the borrower’s job status or income, the condition or age of the residence or other factors and are not readily saleable into the secondary mortgage market.

A small portion of our one to four-family residential mortgage loans are considered “non-conforming”, due to factors such as the borrower’s job status or income, the condition or age of the residence or other factors and are not readily saleable into the secondary mortgage market.

We currently originate fixed-rate, fully amortizing mortgage loans with maturities up to 30 years.

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

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

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

As of December 31, 2023 , approximately 25.5% of our one to four-family residential mortgage loans maturing after December 31, 2024 were ARM loans.

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

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We require that a licensed appraiser from our list of approved appraisers perform and submit to us an appraisal on all properties securing one to four-family first mortgage loans.

Our mortgage loans generally include due-on-sale clauses which provide us with the contractual right to deem the loan immediately due and payable in the event the borrower transfers ownership of the property.

Due-on-sale clauses are an important means of adjusting the yields of fixed-rate mortgage loans in portfolio and we generally exercise our rights under these clauses.

Our mortgage loans generally include due-on-sale clauses which provide us with the contractual right to deem the loan immediately due and payable in the event the borrower transfers ownership of the property.

Due-on-sale clauses are an important means of adjusting the yields of fixed-rate mortgage loans in portfolio and we generally exercise our rights under these clauses.

Multi-Family Residential and Commercial Real Estate Lending .

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

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

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

At December 31, 2023 , our multi-family residential mortgage loans amounted to $3.1 million, or 2.5% of the total loan portfolio.

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

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At December 31, 2023 , we had a total of 10 multi-family residential mortgage loans and the average size of our multi-family residential mortgage loans was approximately $311,000.

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

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

Our commercial real estate loan portfolio amounted to $3.8 million, or 3.2% of the total loan portfolio, at December 31, 2023 .

These commercial real estate loans included 13 loans secured primarily by investor properties, which include multiple one to four-family residences.

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

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

The two largest commercial real estate loans outstanding were $1.7 million and $1.2 million, and both loans were paying in accordance with all of their contractual terms.

Although terms for commercial real estate and multi-family residential loans vary, our underwriting standards generally allow for terms not exceeding 30 years and loan-to-value ratios of not more than 75%.

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Commercial real estate and multi-family residential lending involves a greater degree of risk than one to four-family residential lending.

These risks include larger loans to individual borrowers and loan payments that are dependent upon the successful operation of the project or the borrower’s business.

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.

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.

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At December 31, 2023 , none of our commercial real estate or multi-family loans were delinquent more than 30 days, nor were any on non-accrual.

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

We have had no charge-offs of commercial real estate and multi-family residential loans for the years ended December 31, 2023 and 2022 .

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

In our underwriting procedures, consideration is given to the stability of the property’s cash flow history, future operating projections, current and projected occupancy levels, location and physical condition.

Generally, we impose a debt service ratio (the ratio of net cash flows from operations before the payment of debt service to debt service) of not less than 1.25x in the case of commercial real estate and multi-family residential loans.

We also evaluate the credit and financial condition of the borrower, and if applicable, the guarantor.

Appraisal reports prepared by independent appraisers are obtained on each loan to substantiate the property’s market value and are reviewed by us prior to the closing of the loan.

Construction Lending.

At December 31, 2023, our construction lending amounted to $2.5 million, or 2.1% of the total loan portfolio.

The construction loan portfolio consisted of three loans, the largest totaling $2.3 million, which is the construction of a single family home in the Chicago, Illinois metro area expected to be completed in 2024, in which the loan will convert to a conventional mortgage loan with a remaining term of 29 years.

In addition to single family residential construction projects, our construction lending consists of land loans for properties zoned for residential construction.

Consumer Lending .

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

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

Our collection efforts are continuing. 

We had no charge-offs on consumer loans during the years ended December 31, 2023 and 2022.

Loan Approval Procedures and Authority .

Our board of directors establishes North Shore Trust and Savings’

lending policies and procedures.

Our board of directors establishes North Shore Trust and Savings’ lending policies and procedures.

Our Loan Policy is reviewed on at least an annual basis by our management team in order to propose modifications as a result of market conditions, regulatory changes and other factors.

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As of December 31, 2023 , the maximum loan amount that may be approved by an individual officer is $648,250, which is consistent with secondary market limits for conforming loans.

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

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

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

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

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

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If the delinquency continues, late charges are assessed, and additional efforts are made to collect the deficiency.

All loans which are designated as “special mention,”

substandard, doubtful or delinquent 90 days or more are reported to the board of directors of North Shore Trust and Savings on a monthly basis.

We stop accruing interest on loans (“non-accrual”

loans) at the time the loan is 90 days past due unless the credit is adequately collateralized and in process of collection.

Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt.

Property acquired through foreclosure is initially recorded at fair value at the date of acquisition, which is fair value of the related assets at the date of foreclosure, less estimated costs to sell.

All loans which are designated as “special mention,” substandard, doubtful or delinquent 90 days or more are reported to the board of directors of North Shore Trust and Savings on a monthly basis.

We stop accruing interest on loans (“non-accrual” loans) at the time the loan is 90 days past due unless the credit is adequately collateralized and in process of collection.

Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt.

Property acquired through foreclosure is initially recorded at fair value at the date of acquisition, which is fair value of the related assets at the date of foreclosure, less estimated costs to sell.

Thereafter, if there is a further deterioration in value, we charge earnings for the diminution in value.

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We also conduct inspections on foreclosed properties.

We account for our impaired loans in accordance with generally accepted accounting principles.

Loans are reviewed on a regular basis. Loans are listed on the “watch/special mention list”

where management has some concern that the collateral or debt service ability may not be adequate, although the collectability of the contractual loan payments is still probable.

If a loan deteriorates in asset quality, the classification is changed to “substandard,”

“doubtful”

or “loss”

depending on the circumstances and the evaluation.

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

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

We account for our problem and potential problem loans in accordance with generally accepted accounting principles.

Loans are reviewed on a regular basis.

Loans are listed on the “watch/special mention list” where management has some concern that the collateral or debt service ability may not be adequate, although the collectability of the contractual loan payments is still probable.

If a loan deteriorates in asset quality, the classification is changed to “substandard,” “doubtful” or “loss” depending on the circumstances and the evaluation.

When a loan is identified for individual evaluation for expected credit losses, the measurement of the loan in the allowance for credit losses is based on present value of expected future cash flows, except that expected credit losses for all collateral-dependent loans are measured based on the fair value of the collateral.

As of December 31, 2023 , and 2022 , loans identified for individual evaluation of expected credit losses, amounted to $200,000 and $873,000 , respectively.

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

We have incorporated an internal asset classification system, consistent with federal banking regulations, as a part of our credit monitoring system.

We currently classify problem and potential problem assets as “special mention,”

“substandard,”

“doubtful”

or “loss”

An asset is considered “substandard”

if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

“Substandard”

assets include those characterized by the “distinct possibility”

that the insured institution will sustain “some loss”

if the deficiencies are not corrected.

Assets classified as “doubtful”

have all of the weaknesses inherent in those classified “substandard”

with the added characteristic that the weaknesses present make “collection or liquidation in full,”

on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.”

Assets classified as “loss”

are those considered “uncollectible”

and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

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

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

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

We currently classify problem and potential problem assets as “special mention,” “substandard,” “doubtful” or “loss” assets.

An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

“Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected.

Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

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

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

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

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

When an insured institution classifies one or more assets, or portions thereof, as “loss,”

it is required to charge off such amount.

Our allowance for loan losses includes a portion which is allocated by type of loan, based primarily upon our periodic reviews of the risk elements within the various categories of loans.

The specific components relate to certain impaired loans.

The general components cover non-classified loans and are based on historical loss experience adjusted for qualitative factors in response to changes in risk and market conditions.

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

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

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

When an insured institution classifies one or more assets, or portions thereof, as “loss,” it is required to charge off such amount.

Our allowance for credit losses includes a portion which is allocated by type of loan, based primarily upon our periodic reviews of the risk elements within the various categories of loans.

The specific components relate to certain individually evaluated loans.

The general components cover non-classified loans and are based on proxy expected lifetime loss rates, adjusted for bank-specific facts and circumstances.

The allowance for credit losses is maintained by management at a level believed adequate to absorb estimated credit losses that are expected to occur within the existing loan portfolio through their contractual terms.

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

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

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

Refer to “Item 7.

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

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

Refer to “Item 7.

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

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

We classify assets in accordance with the management guidelines described above.

At December 31, 2022, we had no loans classified as “doubtful”

or “loss,”

$188,000 of loans classified as “substandard”

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

Troubled Debt Restructurings .

At December 31, 2023 , we had no loans classified as "special mention," “doubtful” or “loss,” and $200,000 of loans classified as "substandard."

Modifications on loans to borrowers experiencing financial difficulty .

We occasionally modify loans to extend the term or make other concessions to help a borrower stay current on his or her loan and to avoid foreclosure.

We consider modifications only after analyzing the borrower’s current repayment capacity, evaluating the strength of any guarantors based on documented current financial information, and assessing the current value of any collateral pledged.

We generally do not forgive principal or interest on loans but may do so if it is in our best interest and increases the likelihood that we can collect the remaining principal balance.

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

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

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

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

There were no modifications on loans to borrowers experiencing financial difficulty during the years ended December 31, 2023 and 2022.

Delinquent Loans .

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

There was no related specific valuation allowance in the allowance for loan losses on our classified loans at December 31, 2022 and 2021.

There was no related specific valuation allowance in the allowance for credit losses on our classified loans at December 31, 2023 and 2022 .

At December 31,

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Total classified loans

In addition to classified loans, our other real estate owned, (“OREO”) was classified as substandard.

In addition to classified loans, our other real estate owned, (“OREO”) is classified as substandard.

There were no OREO properties as of December 31, 2023 and 2022 .

Non-performing Assets .

The following table shows the amounts of our non-performing assets, which include non-accruing loans, accruing loans 90 days or more past due and real estate owned at the dates indicated, and our performing TDRs.

At December 31,

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Total non-performing assets as a percentage of total assets

Allowance for Loan Losses .

The following table shows changes in our allowance for loan losses during the periods presented.

Allowance for Credit Losses .

The following table shows changes in our allowance for credit losses during the periods presented.

At or for the Year Ended

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Total average loans outstanding

Allowance for loan losses, beginning of period

Reversal of provision for loan losses

Allowance for credit losses, beginning of period

Cumulative effect of ASU 2016-13 adoption (CECL)

Provision for (reversal of) credit losses

1-4 family residential

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Net (recoveries) charge-offs

Allowance for loan losses, end of period

Allowance for loan losses as a percent of non-performing loans

Allowance for loan losses as a percent of total loans outstanding

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

Allowance for credit losses, end of period

Allowance for credit losses as a percent of non-performing loans

Allowance for credit losses as a percent of total loans outstanding

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

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

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

We maintain the allowance at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date.

Management reviews the allowance for loan losses on no less than a quarterly basis in order to identify those inherent losses and to assess the overall collection probability for the loan portfolio.

Our evaluation process includes, among other things, an analysis of delinquency trends, non-performing loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of our loans, the value of collateral securing the loan, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, national and local economic conditions and industry experience.

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

We maintain the allowance at a level believed, to the best of management’s knowledge, to cover estimated lifetime credit losses in the loan portfolio at each reporting date.

Management reviews the allowance for credit losses on no less than a quarterly basis.

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

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

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

Various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses.

Such agencies may require North Shore Trust and Savings to make additional provisions for estimated loan losses based upon judgments different from those of management.

The following table shows how our allowance for loan losses is allocated by type of loan at each of the dates indicated.

At December 31, 2023 , our allowance for credit losses amounted to $1.2 million and our allowance for loan losses amount to $624,000 at December 31, 2022.

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

Various regulatory agencies, as an integral part of their examination process, periodically review our allowance for credit losses.

Such agencies may require North Shore Trust and Savings to make additional provisions for estimated credit losses based upon judgments different from those of management.

The following table shows how our allowance for credit losses is allocated by type of loan at each of the dates indicated.

At December 31,

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agencies, municipal bonds, and corporate debt obligations, as well as investments in preferred and common stock of government agencies and government sponsored enterprises such as Fannie Mae, Freddie Mac and the FHLB of Chicago.

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

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

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

During the fourth quarter of 2023, management repositioned the balance sheet by selling approximately $30.3 million in book value of available-for-sale investment securities with an average yield of 2.83%.

The sale of these securities is designed to seek to improve the Bank’s earnings going forward, beginning in fiscal year 2024, and to provide liquidity to deleverage its balance sheet.

Proceeds from the sale were used to repay $10.0 million in existing debt with a current rate of 5.31%, with the remainder deployed into cash and short-term U.S.

Treasury notes with an average expected yield in excess of 5.0% and to fund additional residential loan growth and general working capital at the Bank.

As of December 31, 2023 , our securities available-for-sale portfolio totaled $82.1 million, or 32.0% of total assets at such date.

The largest component of our investment securities portfolio at December 31, 2023 was investment in pass-through mortgage-backed securities issued by Fannie Mae, Ginnie Mae and Freddie Mac, which amounted to $30.3 million, followed by collateralized mortgage obligations issued by Fannie Mae, Ginnie Mae and Freddie Mac, which amounted to $26.1 million.

Our investment in U.S.

government and federal agency obligations as of December 31, 2023 , was $9.1 million and our investment in municipal obligations as of December 31, 2023 , was $13.6 million.

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

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

During the year ended December 31, 2023, the investments in short term U.S.

Treasuries began maturing and we sold a portion of the holdings, resulting in an ending balance of $3.0 million as of December 31, 2023 .

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

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Government agencies or U.S.

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

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

At December 31, 2023, the available-for-sale securities portfolio had a net unrealized loss position of $11.5 million.

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Unrealized losses on investment securities have not been recognized into income because the securities are of high credit quality, the Bank has the intent and ability to hold the securities for the foreseeable future, and the declines in fair value are primarily due to market volatility and increased market interest rates.

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

The following table sets forth the amount of investment securities which mature during each of the periods indicated and the weighted average yields for each range of maturities as of December 31, 2023 .

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Additionally, we hold interest-bearing deposits at financial institutions throughout the United States.

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

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

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

We monitor that credit risk on a quarterly basis.

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

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

As of December 31, 2023 , 60.2% of the funds deposited with North Shore Trust and Savings were in core deposits, which are deposits other than time deposits.

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

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2.00% - 2.99%

3.00% - 3.99%

4.00% - 4.99%

5.00% - or more

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2.00% - 2.99%

3.00% - 3.99%

4.00% - 4.99%

5.00% - or more

Total certificate accounts

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

The following table shows the maturities of our time deposits in excess of the FDIC insurance limit (generally, $250,000) as of December 31, 2023 by time remaining to maturity.

Quarter Ending:

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

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

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

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

On May 12, 2022, the Bank repaid the existing 0% interest rate FHLB advance totaling $5.0 million that was due on May 23, 2022.

Additionally, on May 21, 2021, the Bank repaid the existing non-interest bearing FHLB advance totaling $4.0 million that was due on May 24, 2021. 

The amount of our total deposits with accounts over the FDIC's insurance limit of $250,000 was $34.3 million or 20.3% of total deposits, and $43.6 million or 24.4% of total deposits, at December 31, 2023 and 2022 , respectively.

During the year ended December 31, 2023, the Company borrowed $5.0 million from the FHLB Chicago and an additional $10.0 million from the Federal Reserve Bank of Chicago as part of the Bank Term Funding Program.

The advance from the FHLB Chicago was taken in June 2023 and is payable in June 2025 with a fixed borrowing rate of 4.78%.

The borrowing from the Federal Reserve Bank of Chicago was taken in November 2023 and was repaid in December 2023, with a fixed borrowing rate of 5.31%.

The following table shows certain information regarding our borrowings at or for the dates indicated:

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Weighted average interest rate at end of period

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

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

As of December 31, 2023 , there was $5.0 million in outstanding borrowings with the FHLB Chicago.

The Bank is eligible to borrow up to a total of $77.2 million and $68.6 million at December 31, 2023 and 2022 , respectively, which would be collateralized by $102.6 million and $86.6 million of first mortgage loans under a blanket lien arrangement at December 31, 2023 and 2022 , respectively.

Additionally, at December 31, 2023 and 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, 2023 and 2022.

Expense and Tax Allocation

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

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

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

During the year ended December 31, 2023, the total of these services was $1.2 million.

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

have an agreement that establishes a method for allocating and for reimbursing the payment of their consolidated tax liability.

have an agreement that establishes a method for allocating and for reimbursing the payment of their consolidated tax liability.

Employees and Human Capital Resources

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

During 2022, we elevated Nathan E.

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

Additionally, we welcomed Ronald K.

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

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

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

During the year ended December 31, 2023, as part of the strategic growth initiatives, the Bank hired a mortgage lending team of 10 individuals, operating as Oak Leaf Community Mortgage, powered by North Shore Trust and Savings.

These additional employees joined the Bank between September 11, 2023 and October 2, 2023.

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

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

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

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

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

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

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

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

We believe our commitment to living out our core values, actively prioritizing concern for our employees’

well-being, supporting our employees’

career goals, offering competitive wages and providing valuable fringe benefits aids in retention of our top-performing employees. 

We believe our commitment to living out our core values, actively prioritizing concern for our employees’ well-being, supporting our employees’ career goals, offering competitive wages and providing valuable fringe benefits aids in retention of our top-performing employees.

Federal Income Taxation

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The following discussion of federal and state income taxation is only intended to summarize certain pertinent income tax matters and is not a comprehensive description of the applicable tax rules.

North Shore Trust and Savings’

income tax returns have not been audited by a taxing authority during the past five years.

North Shore Trust and Savings’ income tax returns have not been audited by a taxing authority during the past five years.

Beginning in 2022, NSTS Bancorp, Inc.

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Method of Accounting .

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

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

Corporate Dividends-Received Deduction .

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

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

State Taxation

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As a federal savings association, North Shore Trust and Savings is subject to examination and regulation by the OCC, and is also subject to examination by the FDIC as deposit insurer.

The federal system of regulation and supervision establishes a comprehensive framework of activities in which North Shore Trust and Savings may engage and is intended primarily for the protection of depositors and the FDIC’s Deposit Insurance Fund, and not for the protection of stockholders.

North Shore Trust and Savings, also, is a member of and owns stock in the FHLB of Chicago, which is one of the 11 regional banks in the Federal Home Loan Bank System.

North Shore Trust and Savings, also, is a member of and owns stock in the FHLB of Chicago, which is one of the 11 regional banks in the FHLB System.

Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that:

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A less than satisfactory rating may also prevent a financial institution, such as North Shore Trust and Savings or its holding company, NSTS Bancorp, Inc., from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches.

In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations.

In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, the Community Reinvestment Act of 1977 (the "CRA") and fair lending laws and regulations.

Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network.

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is also subject to the rules and regulations of the Securities and Exchange Commission (the "SEC") under the federal securities laws.

Any change in applicable laws or regulations, whether by the OCC, the FDIC, the Federal Reserve Board, the SEC or Congress, could have a material adverse impact on the operations and financial performance of NSTS Bancorp, Inc.

Any change in applicable laws or regulations, whether by the OCC, the FDIC, the Federal Reserve Board, the SEC or the U.S.

Congress, could have a material adverse impact on the operations and financial performance of NSTS Bancorp, Inc.

and North Shore Trust and Savings.

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Business Activities .

A federal savings association derives its lending and investment powers from the Home Owners’

Loan Act, as amended, and applicable federal regulations.

A federal savings association derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and applicable federal regulations.

Under these laws and regulations, a federal savings association may generally invest in mortgage loans secured by residential real estate without an aggregate limit, and commercial business, commercial real estate and consumer loans, certain types of debt securities and certain other assets, subject to overall percentage of assets or capital limits.

Federal savings associations are also subject to a “Qualified Thrift Lender Test,”

or “QTL Test,”

which generally requires that a specified percentage of overall assets be residential mortgages and related investments. 

Effective July 1, 2019, the OCC issued a final rule, pursuant to a provision of the Economic Growth Regulatory Relief and Consumer Protection Act (“EGRRCPA”), that permits a federal savings association to elect to exercise national bank powers without converting to a national bank charter.

The election is available to federal savings associations that had total consolidated assets of $20 billion or less as of December 31, 2017.

North Shore Trust and Savings has not exercised the covered savings association election.

A federal savings association that has exercised the “covered savings association”

election generally has the same rights and privileges as a national bank that has its main office in the same location as the home office of the covered savings association.

The covered savings association is also subject to the same duties, restrictions, liabilities and limitations applicable to a national bank.

A covered savings association retains its federal savings association charter and continues to be subject to the corporate governance laws and regulations applicable to such associations, including as to its bylaws, board of directors and stockholders, capital distributions and mergers.

A covered savings association may make loans to its customers without regard to the lending restrictions applicable to federal savings associations, such as the percentage of capital or assets limits on various types of loans and the QTL Test.

Federal savings associations are also subject to a “Qualified Thrift Lender Test,” or “QTL Test,” which generally requires that a specified percentage of overall assets be residential mortgages and related investments.

Effective July 1, 2019, the OCC issued a final rule, pursuant to a provision of the Economic Growth Regulatory Relief and Consumer Protection Act (“EGRRCPA”), that permits a federal savings association to elect to exercise national bank powers without converting to a national bank charter.

The election is available to federal savings associations that had total consolidated assets of $20.0 billion or less as of December 31, 2017.

North Shore Trust and Savings has not exercised the covered savings association ("CSA") election.

A federal savings association that has exercised the CSA election generally has the same rights and privileges as a national bank that has its main office in the same location as the home office of the CSA.

The CSA is also subject to the same duties, restrictions, liabilities and limitations applicable to a national bank.

A CSA retains its federal savings association charter and continues to be subject to the corporate governance laws and regulations applicable to such associations, including as to its bylaws, board of directors and stockholders, capital distributions and mergers.

A CSA may make loans to its customers without regard to the lending restrictions applicable to federal savings associations, such as the percentage of capital or assets limits on various types of loans and the QTL Test.

However, federal savings associations that have made such an election are subject to the narrower authority of national banks in certain areas such as branching and subsidiary activities in certain respects.

A covered savings association may generally not retain any assets, subsidiaries or activities not permitted for national banks.

Applicable regulations authorize a federal association that has exercised the covered savings association election to terminate the election and thereby again operate as a federal savings association that has not made a covered savings association election.

We have no current plans to elect to be treated as a covered savings association.

A CSA may generally not retain any assets, subsidiaries or activities not permitted for national banks.

Applicable regulations authorize a federal association that has exercised the CSA election to terminate the election and thereby again operate as a federal savings association that has not made a CSA election.

We have no current plans to elect to be treated as a CSA.

Capital Requirements .

Federal regulations require federally insured depository institutions to meet several minimum capital standards:

a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.

EGRRCPA required the federal banking agencies, including the OCC, to establish a “community bank leverage ratio,”

referred to in this filing as the CBLR, of between 8% and 10% for institutions with assets of less than $10 billion.

The community bank leverage is the ratio of a bank’s tangible Tier 1 equity capital to average total consolidated assets and was established by the regulators at 9%.

a common Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets (known as the "leverage ratio").

EGRRCPA required the federal banking agencies, including the OCC, to establish a “community bank leverage ratio” (the "CBLR") of between 8% and 10% for institutions with assets of less than $10.0 billion.

The CBLR is the ratio of a bank’s tangible Tier 1 equity capital to average total consolidated assets and is set by the regulators at 9%.

Institutions with capital complying with the ratio and otherwise meeting the specified requirements and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements.

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North Shore Trust and Savings has elected to utilize the CBLR framework.

As of December 31, 2022, North Shore Trust and Savings’

capital exceeded all applicable requirements including the applicable conservation buffer.

At December 31, 2023, North Shore Trust and Savings' CBLR was 24.72% .

As of December 31, 2023 , North Shore Trust and Savings’ capital exceeded all applicable requirements including the applicable conservation buffer.

Loans-to-One Borrower .

Generally, a federal savings association, including a covered savings association, may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus.

Generally, a federal savings association, including a CSA, may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus.

An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the excess is secured by readily marketable collateral, which generally does not include real estate.

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Capital Distributions .

Federal regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the savings association’s capital account.

A federal savings association must file an application with the OCC for approval of a capital distribution if:

the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus the savings association’s retained net income for the preceding two years;

the savings association would not be at least adequately capitalized following the distribution;

the distribution would violate any applicable statute, regulation, agreement or regulatory condition;

the savings association is not eligible for expedited treatment of its filings, generally due to an unsatisfactory CAMELS rating or being subject to a cease and desist order or formal written agreement that requires action to improve the institution’s financial condition.

Even if an application is not otherwise required, every savings association that is a subsidiary of a savings and loan holding company, such as North Shore Trust and Savings, must still file a notice with the Federal Reserve Board at least 30 days before the board of directors declares a dividend or approves a capital distribution.

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A federal savings association also may not make a capital distribution that would reduce its regulatory capital below the amount required for the liquidation account established in connection with its conversion to stock form.

Furthermore, the current Capital Rules limit capital distributions if the institution does not hold a "capital conservation buffer" consisting of 2.5% common equity Tier 1 capital to risk-based assets above the amount necessary to meet its minimum risk-based capital requirements.

Community Reinvestment Act and Fair Lending Laws .

All insured depository institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers.

The OCC is required to assess the federal savings association’s record of compliance with the Community Reinvestment Act.

A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities.

In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices.

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

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

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

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

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

The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating.

North Shore Trust and Savings received an “Outstanding”

Community Reinvestment Act rating in its most recent federal examination.

All insured depository institutions have a responsibility under the CRA and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers.

The OCC is required to assess the federal savings association’s record of compliance with the CRA.

A savings association’s failure to comply with the provisions of the CRA could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities.

In addition, the Equal Credit Opportunity Act (the "ECOA") and the Fair Housing Act prohibit lenders from discriminating on the basis of race, creed or other prohibited factors in their lending practices.

The failure to comply with the ECOA and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the U.S.

Department of Justice.

The CRA requires all institutions insured by the FDIC to publicly disclose their rating.

North Shore Trust and Savings received an "Outstanding" CRA rating in its most recent federal examination.

On October 24, 2023, the OCC, the FDIC and the Federal Reserve Board jointly issued a final rule to revise the CRA's implementing regulations.

While the final rule formally takes effect on April 1, 2024, the majority of its provisions have a compliance date of January 1, 2026.

The final rule implements a revised regulatory framework that, like the current framework, is based on bank asset size and business model.

Under the final rule, federal agencies will evaluate small banks (i.e., those with assets of less than $600 million as of December 31 in either of the prior two calendar years), such as North Shore Trust and Savings, under either the current small bank test, referred to in the final rule as the Small Bank Lending Test or, at the Bank's option, the new "Retail Lending Test," however, banks of all sizes will maintain the option to elect to be evaluated under a strategic plan with the final rule updating the standards for obtaining approval for such plan.

The new Retail Lending Test evaluates a bank's record of helping to meet the credit needs of its community through the origination and purchase of home mortgage, multifamily, small business, small farm and, in certain cases, automobile loans.

For small banks that opt to be evaluated under the Retail Lending Test, the agencies will evaluate the distribution of the bank's major product lines in its facility-based assessment areas and any outside retail lending area, if applicable.

For each applicable performance test, the agencies will assign conclusions reflecting the bank's performance in its facility-based assessment areas, and in the case of the new Retail Lending Test, the agencies will assign one of five conclusions to the bank:

"Outstanding;" "High Satisfactory;" "Low Satisfactory;" "Needs to Improve;" or "Substantial Noncompliance." For small banks evaluated under the current Small Bank Lending Test, the agencies will assign one of four conclusions:

"Outstanding;" "Satisfactory;" "Needs to Improve;" or "Substantial Noncompliance." At this time, we are unable to determine what impact, if any, the CRA reform may have on the operations of North Shore Trust and Savings.

Small Business Lending Rule.

On March 30, 2023, the Consumer Finance Protection Bureau (the "CFPB") issued a final rule amending Regulation B, the implementing regulation of the ECOA, to implement section 1071 of the Dodd-Frank Act.

Consistent with section 1071, covered financial institutions are required to collect and report to the CFPB data on applications for credit for small businesses, including those that are owned by women or minorities.

The rule also addresses the CFPB's approach to privacy interests and the publication of section 1071 data, shielding certain demographic data from underwriters and other persons, recordkeeping requirements and enforcement provisions.

Compliance with the small business lending rule beginning October 1, 2024 is required for covered financial institutions that originate the most covered credit transactions for small businesses (i.e., at least 2,500 covered originations in both 2022 and 2023).

However, institutions with a moderate transaction volume (i.e., at least 500 but less than 2,500 covered originations in both 2022 and 2023) have until April 1, 2025 to begin complying with the rule and those with the lowest volume (i.e., at least 100 but less than 500 covered originations in both 2022 and 2023) have until January 1, 2026.

North Shore Trust and Savings has less than 100 covered originations in both 2022 and 2023, and therefore is not yet subject to comply.

Transactions with Related Parties .

An insured depository institution’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation.

An insured depository institution’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and its implementing Regulation W.

An affiliate is generally a company that controls, or is under common control with, an insured depository institution such as North Shore Trust and Savings.

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Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates.

North Shore Trust and Savings’

authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board.

North Shore Trust and Savings’ authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board.

Among other things, these provisions generally require that extensions of credit to insiders:

be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features;

not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of North Shore Trust and Savings’ capital.

In addition, extensions of credit in excess of certain limits must be approved by North Shore Trust and Savings’

board of directors.

Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.

In addition, extensions of credit in excess of certain limits must be approved by North Shore Trust and Savings’ board of directors.

Extensions of credit to executive officers are subject to additional restrictions, including limits on various types of loans.

Enforcement .

The OCC has primary enforcement responsibility over federal savings associations and has authority to bring enforcement action against all “institution-affiliated parties,”

including directors, officers, stockholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association.

Formal enforcement action by the OCC may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator.

Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day.

The OCC has primary enforcement responsibility over federal savings associations and has authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, stockholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association.

Formal enforcement actions by the OCC may range from the issuance of a capital directive, formal agreement or cease and desist order against institutions, and can also include the removal of officers and/or directors of the institution.

The OCC can appoint receivers and/or conservators for the institutions it supervises if certain circumstances are met.

Civil penalties can be assessed for various types of conduct against the institution and/or its officers and directors.

The maximum civil money penalties that can be assessed are generally based on the type and severity of the violation, unsafe and unsound practice or other action, and are adjusted annually for inflation.

The FDIC also has the authority to terminate deposit insurance or recommend to the OCC that enforcement action be taken with respect to a particular federal savings association.

If such action is not taken, the FDIC has authority to take the action under specified circumstances.

If such action is not taken by the OCC, the FDIC has authority to take action under specified circumstances.

Standards for Safety and Soundness .

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Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.

A federal savings association that has elected covered savings association status is subject to the laws and regulations governing the establishment of branches by national banks.

A federal savings association that has elected CSA status is subject to the laws and regulations governing the establishment of branches by national banks.

Generally, intrastate and interstate branching is authorized to the extent that the law of the state involved authorizes branching for banks that it charters.

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Prompt Corrective Action .

Federal law requires, among other things, that federal bank regulators take “prompt corrective action”

with respect to institutions that do not meet minimum capital requirements.

Federal law requires, among other things, that federal bank regulators take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements.

For this purpose, the law establishes five capital categories:

well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

Under applicable regulations, an institution is deemed to be “well-capitalized”

if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater.

An institution is “adequately capitalized”

if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater.

An institution is “undercapitalized”

if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%.

An institution is deemed to be “significantly undercapitalized”

if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%.

An institution is considered to be “critically undercapitalized”

if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

Under applicable regulations, an institution is deemed to be “well-capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 8% or greater, a leverage ratio of 5% or greater and a common equity Tier 1 ratio of 6.5% or greater.

An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 6% or greater, a leverage ratio of 4% or greater and a common equity Tier 1 ratio of 4.5% or greater.

An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than 6%, a leverage ratio of less than 4% or a common equity Tier 1 ratio of less than 4.5%.

An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 4%, a leverage ratio of less than 3% or a common equity Tier 1 ratio of less than 3%.

An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2%.

At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on the payment of dividends, and restrictions on the acceptance of brokered deposits.

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Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment.

An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized.

If an “undercapitalized”

bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.”

“Significantly undercapitalized”

banks must comply with one or more of a number of additional restrictions, including a regulatory order to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, ceasing receipt of deposits from correspondent banks, dismissal of directors or officers and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company.

“Critically undercapitalized”

institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

The previously referenced final rule establishing an elective “community bank leverage ratio”

regulatory capital framework provides that a qualifying institution whose capital exceeds the community bank leverage ratio and opts to use that framework will be considered “well-capitalized”

for purposes of prompt corrective action.

As of December 31, 2022, North Shore Trust and Savings met the criteria for being considered “well-capitalized.”

An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized.

If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including a regulatory order to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, ceasing receipt of deposits from correspondent banks, dismissal of directors or officers and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company.

“Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

The previously referenced final rule establishing an elective “community bank leverage ratio” regulatory capital framework provides that a qualifying institution whose capital exceeds the community bank leverage ratio and opts to use that framework will be considered “well-capitalized” for purposes of prompt corrective action.

As of December 31, 2023 , North Shore Trust and Savings met the criteria for being considered “well-capitalized.”

Insurance of Deposit Accounts .

The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured financial institutions such as North Shore Trust and Savings, generally up to a maximum of $250,000 per separately insured depositor.

The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund.

Under the FDIC’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments.

Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years.

The DIF of the FDIC insures deposits at FDIC-insured financial institutions such as North Shore Trust and Savings, generally up to a maximum of $250,000 per separately insured depositor.

The FDIC charges insured depository institutions premiums to maintain the DIF.

Under the FDIC’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments.

The FDIC has authority to increase insurance assessments.

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We cannot predict what assessment rates will be in the future.

On November 16, 2023, the FDIC approved a final rule to implement a special assessment on certain banking organizations with financial institution subsidiaries with more than $5 billion in assets, in order to recover the costs associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank in March 2023.

The special assessment will be collected beginning with the first quarterly assessment period of 2024 at an annual rate of approximately 13.4 basis points for an anticipated total of eight quarterly periods and is subject to periodic adjustments.

The assessment base is equal to uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion.

Because North Shore Trust and Savings' uninsured deposits at the measurement date were below $5 billion, North Shore Trust and Savings will not be subject to this special assessment.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

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Privacy and Cybersecurity .

The Gramm-Leach-Bliley Act, or GLBA, and its implementing regulations issued by federal regulatory agencies require financial institutions (including banks) to adopt policies and procedures regarding the disclosure of nonpublic personal information about their customers to non-affiliated third parties.

The Gramm-Leach-Bliley Act (the "GLBA"), and its implementing regulations issued by federal regulatory agencies require financial institutions (including banks) to adopt policies and procedures regarding the disclosure of nonpublic personal information about their customers to non-affiliated third parties.

In general, financial institutions are required to explain to customers their policies and procedures regarding the disclosure of such nonpublic personal information and, unless otherwise required or permitted by law, financial institutions are prohibited from disclosing such information except as provided in their policies and procedures.

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

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

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

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

In March 2022, the Cyber Incident Reporting for Critical Infrastructure Act of 2022 ("CIRCIA") was signed into law.

The enactment of CIRCIA requires the U.S.

Department of Homeland Security's Cybersecurity and Infrastructure Security Agency (the "CISA") to develop and implement regulations requiring covered entities to report covered cyber incidents and ransomware payments to the CISA in an effort to better equip the CISA to provide resources and assistance to victims suffering attacks and share information necessary to warn other potential victims.

In part, CIRCIA requires the CISA to develop and issue regulations requiring covered entities to report to the CISA within 72 hours from the time an entity reasonably believes a covered cyber incident occurred and within 24 hours of making any ransom payments made as a result of a ransomware attack.

The CISA is required to complete mandatory rulemaking activities before the reporting requirements go into effect.

It is possible, but not yet confirmed, that banks could be subject to CIRCIA.

Anti-Money Laundering and the USA PATRIOT Act .

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

North Shore Trust and Savings is subject to the Bank Secrecy Act (the "BSA") and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA PATRIOT Act").

These statutes and related rules and regulations impose requirements and limitations on specified financial transactions and accounts and other relationships intended to guard against money laundering and terrorism financing.

program involving due diligence to confirm the identities of persons seeking to open accounts and to deny accounts to those persons unable to demonstrate their identities, (iii) the filing of currency transaction reports for deposits and withdrawals of large amounts of cash, (iv) additional precautions for accounts sought and managed for non-U.S.

persons and (v) verification and certification of money-laundering risk with respect to private banking and foreign correspondent banking relationships.

The principal requirements for an insured depository institution include (i) establishment of an anti-money laundering program that includes training and audit components, (ii) establishment of a “know your customer” program involving due diligence to confirm the identities of persons seeking to open accounts and to deny accounts to those persons unable to demonstrate their identities, (iii) the filing of currency transaction reports for deposits and withdrawals of large amounts of cash, (iv) additional precautions for accounts sought and managed for non-U.S.

persons and (v) verification and certification of money-laundering risk with respect to private banking and foreign correspondent banking relationships.

For many of these tasks a bank must keep records to be made available to its primary federal regulator.

Anti-money laundering rules and policies are developed by a bureau within the Treasury Department, the Financial Crimes Enforcement Network ("FinCEN"), but compliance by individual institutions is overseen by its primary federal regulator.

Anti-money laundering rules and policies are developed by a bureau within the U.S.

Department of the Treasury (the "U.S.

Treasury"), the Financial Crimes Enforcement Network ("FinCEN"), but compliance by individual institutions is overseen by its primary federal regulator.

North Shore Trust and Savings has established appropriate anti-money laundering and customer identification programs.

North Shore Trust and Savings also maintains records of cash purchases of negotiable instruments, files reports of certain cash transactions exceeding $10,000 (daily aggregate amount) and reports suspicious activity that might signify money laundering, tax evasion or other criminal activities pursuant to the Bank Secrecy Act.

North Shore Trust and Savings otherwise has implemented policies and procedures to comply with the foregoing requirements.

The Treasury Department’s Office of Foreign Assets Control, or OFAC, is responsible for helping to ensure that U.S.

entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress.

Treasury's Office of Foreign Assets Control ("OFAC") is responsible for helping to ensure that U.S.

entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of the U.S.

OFAC publishes lists of persons, organizations and countries suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons.

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

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

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

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

On January 1, 2021, the U.S.

Congress passed the Corporate Transparency Act (the "CTA") as part of the National Defense Authorization Act, which enacted the most significant overhaul of the anti-money laundering laws since the USA PATRIOT Act.

Notable amendments include (i) significant changes to the collection of beneficial ownership information ("BOI") and the establishment of a beneficial ownership registry, which requires corporate entities (generally, any corporation, limited liability company, or other similar entity with 20 or fewer employees and annual gross income of $5.0 million or less) to report BOI to FinCEN (which will be maintained by FinCEN and made available upon request to financial institutions);

Treasury or the U.S.

Attorney General resulting in monetary sanctions exceeding $1.0 million (including disgorgement and interest but excluding forfeiture, restitution, or compensation to victims) will receive not more than 30% of the monetary sanctions collected and will receive increased protections;

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

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

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

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

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

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

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

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

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

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

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

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

will be required to report BOI directly to FinCEN.

The first rule is effective and compliance is required as of January 1, 2024, however, reporting companies created or registered prior to that date will have until January 1, 2025 to file their initial reports with FinCEN.

On December 21, 2023, FinCEN finalized the second of the three proposed rules which allows for FinCEN, upon request, to disclose BOI to a statutorily defined group of governmental authorities and financial institutions.

The second final rule identifies the entities FinCEN is allowed to provide access to BOI to include (i) federal agencies engaged in national security, intelligence or law enforcement activity, (ii) state, local and tribal law enforcement agencies with court authorization, (iii) foreign law enforcement agencies, judges, prosecutors and other authorities that meet specific criteria, (iv) U.S.

Treasury personnel, (v) financial institutions using BOI in order to comply with customer due diligence ("CDD") requirements and (vi) regulators, acting in a supervisory capacity, evaluating such institutions for CDD-related compliance.

The second final rule provides that such CDD requirements could include anti-money laundering and countering the financing of terrorism obligations set forth under the BSA (e.g., anti-money laundering program, customer identification, suspicious activity reports filing and enhanced due diligence requirements) and compliance with the OFAC sanctions.

This rule provides that FinCEN may disclose BOI to an authorized financial institution provided that such institution has developed and implemented administrative, technical, and physical safeguards reasonably designed to protect the information and has received the relevant reporting company's consent to such disclosure.

The second final rule is effective February 20, 2024.

Prohibitions against Tying Arrangements .

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Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;

Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

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Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.

Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.

Federal Home Loan Bank System

North Shore Trust and Savings is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks.

Each Federal Home Loan Bank provides a central credit facility primarily for member institutions, and such member institutions are required to acquire and hold shares of capital stock in the Federal Home Loan Bank.

North Shore Trust and Savings is a member of the FHLB System, which consists of 11 regional FHLBs.

Each FHLB provides a central credit facility primarily for member institutions, and such member institutions are required to acquire and hold shares of capital stock in the FHLB.

North Shore Trust and Savings was in compliance with this requirement as of December 31, 2023 based on its ownership of $550,000 in capital stock of the FHLB of Chicago.

The stock has no quoted market value and is carried at cost.

North Shore Trust and Savings reviews for impairment, based on the ultimate recoverability, the cost basis of the FHLB of Chicago’s stock.

As of December 31, 2023 , no impairment had been recognized.

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Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a risk to North Shore Trust and Savings.

As a savings and loan holding company, NSTS Bancorp, Inc.’s activities are limited to those activities permissible by law for financial holding companies (if NSTS Bancorp, Inc.

makes an election to be treated as a financial holding company and meets the other requirements to be a financial holding company) or multiple savings and loan holding companies.

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A financial holding company may engage in activities that are financial in nature, incidental to financial activities or complementary to a financial activity.

Such activities include lending and other activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, insurance and underwriting equity securities.

Multiple savings and loan holding companies are authorized to engage in activities specified by federal regulation, including activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act.

Such activities include lending and other activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, insurance and underwriting equity securities.

Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of another savings institution or savings and loan holding company without prior written approval of the Federal Reserve Board, and from acquiring or retaining control of any depository institution not insured by the FDIC.

In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider such factors as the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on and the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors.

In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider such factors as the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on and the risk to the federal DIF, the convenience and needs of the community and competitive factors.

A savings and loan holding company may not acquire a savings institution in another state and hold the target institution as a separate subsidiary unless it is a supervisory acquisition or the law of the state in which the target is located authorizes such acquisitions by out-of-state companies.

As a savings and loan holding company with less than $3.0 billion in consolidated assets, NSTS Bancorp, Inc.

is currently exempt from consolidated regulatory capital requirements.

The Federal Reserve Board has promulgated regulations implementing the “source of strength”

doctrine that require holding companies, including savings and loan holding companies, to act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

is currently exempt from consolidated regulatory capital requirements.

The Federal Reserve Board has promulgated regulations implementing the “source of strength” doctrine that require holding companies, including savings and loan holding companies, to act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

The Federal Reserve Board has issued supervisory policies regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies.

In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition.

Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of capital distributions previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition.

The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized.

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Change in Control Regulations

Under the Change in Bank Control Act, no person may acquire “control”

of a savings and loan holding company, such as NSTS Bancorp, Inc., unless the Federal Reserve Board has been given 60 days’

prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition.

Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors or a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution.

Under the Change in Bank Control Act, no person may acquire “control” of a savings and loan holding company, such as NSTS Bancorp, Inc., unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition.

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

6 unchanged sentences

The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.

We have established policies, procedures and systems designed to comply with the Sarbanes-Oxley Act of 2002 and its implementing regulations, and we review and document such policies, procedures and systems to ensure continued compliance.

Emerging Growth Company Status

2 unchanged sentences

For as long as NSTS Bancorp, Inc.

including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

As an emerging growth company, NSTS Bancorp, Inc.

also will not be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting.

also will not be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting.

We plan to elect to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.

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NSTS Bancorp, Inc.

could remain an “emerging growth company”

for up to five years, or until the earliest of 

(a) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (b) the date that we become a “large accelerated filer”

as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period.

Availability of Annual Report on Form  

This Annual Report on Form 10-K is available on our website at 

www.northshoretrust.com .

Information on the website is not incorporated into, and is not otherwise considered a part of, this Annual Report on Form 10-K.

NSTS Bancorp, Inc.'s only subsidiary is North Shore Trust and Savings.

The Bank does not have any subsidiaries. 

could remain an “emerging growth company” for up to five years following its intital public offering in 2022, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period.

Availability of Annual Report on Form 10-K

This Annual Report on Form 10-K is available on our website at www.northshoretrust.com .

Information on the website is not incorporated into, and is not otherwise considered a part of, this Annual Report on Form 10-K.

NSTS Bancorp, Inc.'s only subsidiary is North Shore Trust and Savings.

The Bank does not have any subsidiaries.

Not required for smaller reporting companies.

Unresolved Staff Comments

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

What changed 10-K

Item 1. Business