What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-03-28 compared with 2023-03-30 · 224 added, 172 removed, 205 unchanged (66% of the section changed)

Market for Registrant ’

s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

NSTS Bancorp, Inc.'s common stock is listed on the Nasdaq Capital Market, under the symbol “NSTS”.

As of March 27, 2023, there were 5,397,959 shares of our common stock issued and outstanding, which were held by approximately 280 stockholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms).

Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

NSTS Bancorp, Inc.'s common stock is listed on the Nasdaq Capital Market, under the symbol “NSTS”.

As of March 25, 2024, there were 5,585,159 shares of our common stock issued and 5,315,261 shares outstanding, which were held by approximately 229 stockholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms).

Our common stock began trading on the Nasdaq Capital Market on January 19, 2022, with an initial price of $10.00 per share.

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Additionally, Federal Reserve policy could restrict future dividends on our common stock, depending on our earnings and capital position and likely needs.

See “Supervision and Regulation –

Federal Banking Regulations - Capital Distributions”

and "Supervision and Regulation - Holding Company Regulations". 

See “Supervision and Regulation – Federal Banking Regulations - Capital Distributions” and "Supervision and Regulation - Holding Company Regulations".

Is suer Purchases of Securities

On March 29, 2023, the Company adopted a program to repurchase up to 269,898 shares, or 5%, of its then outstanding common stock.

The original program expired on September 29, 2023 and was extended with a new expiration date of September 30, 2024, unless terminated earlier.

As of October 30, 2023, the Company had completed the share repurchase program, repurchasing a total of 269,898 shares for approximately $2.4 million at an average cost of $8.82 per share.

Effective December 21, 2023, the Company's Board of Directors authorized a new share repurchase program that authorizes the Company to repurchase up to an aggregate of 265,763 shares, or 5%, of its then outstanding common stock.

The program will be in effect until December 31, 2024, unless earlier terminated.

Under the new share repurchase program, the Company is authorized to repurchase shares from time to time in the open market or negotiated transactions at prevailing market rates, or by other means in accordance with federal securities laws.

In connection with the share repurchase program, the Company intends to implement a trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1 under the Securities Exchange Act.

The trading plan will allow the Company to repurchase shares of its common stock at times when it otherwise might have been prevented from doing so under insider trading laws by requiring that an agent selected by the Company repurchase shares of common stock on the Company's behalf on pre-determined terms.

The following table sets forth information about the Company's purchases of its common stock during the three months ended December 31, 2023.

There were no repurchases during the months ended November 30, 2023 and December 31, 2023.

Total number of Shares Purchased (1)

Average Price Paid Per Share

Total Number of Shares Purchased As part of Publicly Announced Plans or Programs

Maximum Number of Shares that May Yet to be Purchased Under the Plans or Programs (1)

October 1 - October 31, 2023

(1) On March 29, 2023, the Company adopted a program to repurchase up to 269,898 shares, or 5%, of its then outstanding common stock.

The original program expired on September 29, 2023 and was extended with a new expiration date of September 30, 2024, unless terminated earlier.

As of October 30, 2023, the Company had repurchased all of the shares remaining available to be repurchased pursuant to the terms of the then existing stock repurchase program.

There were no unregistered sales of NSTS Bancorp, Inc.'s common stock during the year ended December 31, 2023 .

Additionally, there were no repurchases of shares of NSTS Bancorp, Inc.’s common stock during the year ended December 31, 2022.

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis reflects the consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of the financial condition and results of operations of NSTS Bancorp, Inc. and North Shore Trust and Savings for the years ended December 31, 2022 and 2021.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

and North Shore Trust and Savings for the years ended December 31, 2023 and 2022 .

The purpose of this discussion is to provide information about our financial condition and results of operations which is not otherwise apparent from the consolidated financial statements.

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We also originate multi-family and commercial real estate loans and, to a lesser extent, construction, home equity, and consumer loans.

We currently operate three full-service banking offices in Lake County, Illinois and one loan production office in Chicago.

Our primary sources of funds consist of attracting deposits from the general public and using those funds along with funds from the FHLB of Chicago and other sources to originate loans to our customers and invest in securities.

As of December 31, 2022, we had total assets of $264.2 million, including $103.4 million in net loans and $121.2 million of securities available for sale, total deposits of $178.7 million and total equity of $80.5 million.

For the year ended December 31, 2022, we had a net income of $27,000 compared to a net loss of $55,000 for the year ended December 31, 2021.

We currently operate three full-service banking offices in Lake County, Illinois and three loan production offices in Chicago, Plainfield and Aurora, Illinois.

Our primary sources of funds consist of attracting deposits from the general public and using those funds along with funds from the FHLB of Chicago and other sources to originate loans to our customers and invest in securities.

As of December 31, 2023 , we had total assets of $256.8 million, including $120.6 million in net loans and $82.1 million of securities available for sale, total deposits of $168.8 million and total equity of $77.5 million.

For the year ended December 31, 2023, we had a net loss of $4.0 million compared to net income of $27,000 for the year ended December 31, 2022 .

Our results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on our loan and investment portfolios and interest expense on deposits and borrowings.

Our net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities.

Results of operations are also affected by our provisions for loan losses, fee income and other noninterest income and noninterest expense.

Results of operations are also affected by our provisions for credit losses, fee income and other noninterest income and noninterest expense.

Noninterest expense principally consists of compensation, office occupancy and equipment expense, data processing, advertising and business promotion and other expenses.

We expect that our noninterest expenses will increase as we grow and expand our operations.

In addition, our compensation expense will increase due to the new stock benefit plans we intend to implement.

Our results of operations and financial condition are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, changes in accounting guidance, government policies and actions of regulatory authorities.

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In reviewing and understanding financial information for NSTS Bancorp, Inc., you are encouraged to read and understand the significant accounting policies used in preparing our financial statements.

These policies are described in Note 1 of the notes to our consolidated financial statements beginning on page 47 of this filing.

These policies are described in Note 1 of the notes to our consolidated financial statements included within this filing.

Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.

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The JOBS Act of 2012 contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies.

As an “emerging growth company”

we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.

As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.

We intend to take advantage of the benefits of this extended transition period.

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Employee Retention Credit.

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

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

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

The Bank utilized the gross receipts method of calculating eligibility.

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

Allowance for Loan Losses .

We have identified the evaluation of the allowance for loan losses as a critical accounting policy where amounts are sensitive to material variation.

The allowance for loan losses represents management’s estimate for probable losses that are inherent in our loan portfolio but which have not yet been realized as of the date of our balance sheet.

It is established through a provision for loan losses charged to earnings.

Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely.

Subsequent recoveries are added to the allowance.

The allowance is an amount that management believes will cover known and inherent losses in the loan portfolio based on evaluations of the collectability of loans.

The evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, and current economic conditions.

This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impacted loans, value of collateral, estimated losses on our commercial and residential loan portfolios, and general amounts for historical loss experience.

All of these estimates may be susceptible to significant changes as more information becomes available.

While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance.

Historically, our estimates of the allowance for loan loss have not required significant adjustments from management’s initial estimates.

In addition, the OCC as an integral part of their examination processes periodically reviews our allowance for loan losses.

The OCC may require the recognition of adjustments to the allowance for loan losses based on its judgment of information available to them at the time of their examinations.

To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods.

Allowance for Credit Losses .

Determining the allowance for loan and lease losses has historically been identified as a critical accounting policy.

On January 1, 2023, we adopted the new CECL accounting methodology which requires entities to estimate and recognize an allowance for lifetime expected credit losses for loans and other financial assets measured at amortized cost.

Previously, an allowance for loan and lease losses was recognized based on probable incurred losses.

The accounting estimates relating to the allowance for credit losses is also a “critical accounting policy” as:

changes in the provision for credit losses can materially affect our financial results;

estimates relating to the allowance for credit losses require us to project future borrower performance, including cash flows, delinquencies and charge-offs, along with, when applicable, collateral values, based on a reasonable and supportable forecast period utilizing forward-looking economic scenarios in order to estimate probability of default and loss given default;

the allowance for credit losses is influenced by factors outside of our control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions such as trends in housing prices, interest rates, GDP, inflation, energy prices and unemployment;

considerable judgment is required to determine whether the models used to generate the allowance for credit losses produce an estimate that is sufficient to encompass the current view of lifetime expected credit losses.

Because our estimates of the allowance for credit losses involve judgment and are influenced by factors outside our control, there is uncertainty inherent in these estimates.

Our estimate of lifetime expected credit losses is inherently uncertain because it is highly sensitive to changes in economic conditions and other factors outside of our control.

Changes in such estimates could significantly impact our allowance and provision for credit losses.

See Note 1 – Basis of Presentation and Changes in Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report for a discussion of our allowance for credit losses.

Comparison of Financial Condition at December 31, 2023 and December 31, 2022

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Other borrowings

During the first half of the year ended December 31, 2023, deposit balances decreased as a result of various large customers moving money to higher yielding accounts outside the Bank.

During the second half of the year ended December 31, 2023, the Bank offered highly competitive special CDs for terms of 13 and 30 months.

With the introduction of this offer, deposit balances stabilized.

As a result of the overall decrease in deposits, the Bank borrowed $5.0 million from the FHLB Chicago in June, 2023 and an additional $10.0 million from the Federal Reserve Bank in November, 2023.

Additionally, with the continued rise of market interest rates, the unrealized losses on the securities available-for-sale portfolio increased during 2023.

During the fourth quarter, management repositioned the balance sheet by selling $30.3 million in securities for a recognized loss of $1.8 million.

A portion of the funds received from the sale was used to pay down a portion of the borrowings entered into during 2023 with the remaining held primarily in cash as of December 31, 2023.

During 2023, the Board approved a stock buyback program totaling 5% of the then outstanding shares.

This program was completed during the fourth quarter of 2023.

A second stock buyback program was approved during the fourth quarter, allowing for an additional 5% of the then outstanding shares to be repurchased.

This program is expected to be completed during 2024.

Total Assets .

Total assets decreased $76.7 million, or 22.5%, to $264.2 million at December 31, 2022 compared to $340.9 million at December 31, 2021.

The decrease is a direct result of a decrease in cash and cash equivalents as a result of refunds issued due to the oversubscription of stock purchases related to the stock offering and conversion. 

Cash and cash equivalents. 

The funds received as part of the conversion were primarily held in cash and cash equivalents at December 31, 2021, and excess funds were disbursed during the first quarter of 2022.

The disbursement resulted in a decrease in cash and cash equivalents during the period.

Additionally, management continued to deploy the remaining funds from the stock offering primarily in securities available for sale, resulting in a further decrease to the balance of cash and cash equivalents as of December 31, 2022 compared to December 31, 2021.

The Bank monitors our liquidity position on a daily basis and continues to maintain levels of liquid assets deemed adequate by management. 

Total assets decreased $7.4 million to $256.8 million as of December 31, 2023 compared to $264.2 million at December 31, 2022.

The decrease in total assets was driven by a decrease in deposits during the year.

The decrease in deposits resulted in an overall reduction to cash throughout the year prior to the balance sheet repositioning.

Subsequent to the balance sheet repositioning, cash and cash equivalents increased while securities available-for-sale decreased.

Cash and cash equivalents.

Cash and cash equivalents increased $18.3 million to $31.4 million as of December 31, 2023 from $13.1 million at December 31, 2022.

The increase in cash was the result of the balance sheet repositioning described above, which resulted in proceeds of approximately $28.5 million.

A portion of the proceeds was used to repay $10.0 million in borrowings from the Federal Reserve Bank.

Additionally, during December 2023, the Bank invested approximately $750,000 in time deposits with other financial institutions.

The remaining proceeds remain in an interest-bearing deposit account with the Federal Reserve Bank.

Management continues to actively monitor our liquidity position on a daily basis and maintain levels of liquid assets deemed adequate.

Time deposits with other financial institutions.

Time deposits with other financial institutions decreased $2.5 million to $2.0 million as of December 31, 2023, compared to $4.5 million at December 31, 2022.

The decrease is due to maturities within the portfolio.

Management has redeployed the maturing time deposits to higher yielding loan originations.

With a portion of the proceeds of the securities sale, management invested approximately $750,000 in time deposits with other financial institutions, with maturities of six months and a weighted average rate of 5.65%.

Securities Available for Sale .

Securities available for sale increased $20.2 million, or 20.0%, to $121.2 million at December 31, 2022 compared to $101.0 million at December 31, 2021.

This increase was the result of management's efforts to reduce the cash and cash equivalents balance by investing in higher yielding assets.

During the year ended December 31, 2022, the Bank purchased $59.5 million in securities available for sale, which was partially offset by principal repayments and maturities of $22.9 million, an increase in the unrealized loss on available for sale securities of $15.4 million, due to increases in market interest rates, and amortization and accretion of premiums and discounts of $958,000.

During the year ended December 31, 2022, the Bank purchased U.S.

Treasury Notes of $12.3 million, resulting in a slight adjustment to the mix of the securities available-for-sale as well as reducing the duration of the portfolio while maintaining a higher yielding portfolio. 

Our loans, net, increased by $6.8 million, or 7.0%, to $103.4 million at December 31, 2022 compared to $96.5 million at December 31, 2021.

The increase in loans was primarily driven by the purchase of a loan pool consisting of 9 loans totaling $5.3 million.

The loan pool was purchased with a $113,000 premium that is amortized over the life of the loans.

The loans included in the loan pool followed the same underwriting standards required for loans originated by the Bank and are 1-4 family residential mortgages located in Cook County.

Additionally, this pool has a weighted average coupon of 4.13%, with adjustable rates set to adjust in 3-7 years.

The Bank originated $16.5 million in loans for the portfolio during the year, offset by loan repayments of $15.3 million. 

At December 31, 2022, the allowance for loan losses was $624,000, a decrease of $155,000 compared to December 31, 2021, primarily due to a decrease in specific reserves on troubled debt restructurings as a result of payoffs, and general economic improvements during 2022.

During the year ending December 31, 2022, six impaired loans, totaling $302,000 as of December 31, 2021, with a combined specific reserve of $29,000 as of December 31, 2021 paid off in full.

The rolling average unemployment rate in Kenosha/Lake Counties continues to decline, resulting in a reduction to qualitative adjustments in the allowance for loan losses.

Additionally, the Bank has reduced its qualitative adjustment due to reduced COVID-19 uncertainties.

The Bank has not experienced losses specific to COVID-19 during the pandemic.

Non-performing loans, consisting of 2 loans, were $154,000 at December 31, 2022 compared to $143,000 at December 31, 2021. 

Our total deposits were $178.7 million at December 31, 2022, a decrease of $106.9 million, or 37.4%, from $285.6 million at December 31, 2021.

The decrease in deposits was primarily the result of refunds issued due to the oversubscription of stock purchases related to the stock offering and a capital infusion into the Bank in the amount of half the net proceeds received as part of the conversion.

As of December 31, 2021, prior to the conversion, the Company held a deposit account at the Bank of approximately $87.3 million.

Subsequent to the conversion, the balance of the deposit account held at the Bank is eliminated during consolidation.

Additionally, prior to September 30, 2021, the Bank received an increase in funds within the deposit accounts as individuals opened accounts to receive priority in purchasing stock as part of the offering.

Subsequent to the conversion, approximately $10.0 million in funds remaining in those accounts were withdrawn by depositors.

A majority of these funds were held in short-term time deposits and were subject to interest penalties upon withdrawal.

Additionally, during the fourth quarter, deposits continued to decrease as a result of various large customers moving money to high yielding accounts outside the Bank.

Management continues to actively monitor the deposit balances and interest rates offered to maintain an adequate level of liquidity. 

Securities available-for-sale decreased to $82.1 million as of December 31, 2023, compared to $121.2 million at December 31, 2022.

In the fourth quarter of 2023, the Bank sold securities with a fair value of approximately $30.3 million.

During the year ended December 31, 2023, the Bank received principal and interest payments of $8.2 million, had calls and maturities of $4.1 million, had net premium amortization and discount accretion of $538,000 and had a decrease in the unrealized loss on the portfolio of $4.1 million.

There were no purchases of securities available-for-sale during the year ended December 31, 2023.

As of December 31, 2023, the securities available for sale portfolio included an unrealized loss position of $11.5 million, or 12.3% of the total book value of the portfolio.

Management monitors the portfolio for credit losses and believes that the decline in value does not presently represent realized losses and is due to market volatility and increased market interest rates.

While the Bank did sell securities for a loss in 2023, it does not currently intend to sell additional securities in a loss position and has the ability to hold securities through maturity with sufficient liquidity and available borrowing sources.

Our loans, net, increased by $17.3 million to $120.6 million at December 31, 2023 compared to $103.3 million at December 31, 2022.

The Bank originated $29.4 million in loans to be held in the portfolio during the year ended December 31, 2023.

Additionally, during the year ended December 31, 2023, loan principal payments and paydowns totaled $11.2 million.

During the year ended December 31, 2023, the Bank expanded the residential mortgage lending department with the hire of the Oak Leaf Community Mortgage team.

The team consists of two senior mortgage loan originators and an additional support staff of eight.

Oak Leaf Community Mortgage focuses on one to four-family residential lending within the expanded Chicagoland area.

During the fourth quarter of 2023, with the addition of the Oak Leaf Community Mortgage team, the Bank originated $16.4 million in loans to be held in the portfolio with a weighted average rate of 7.50%.

As of December 31, 2023, the allowance for credit losses (“ACL”) which includes the allowance for credit losses on loans, and the allowance for credit losses on off-balance sheet exposures, totaled $1.2 million, an increase of $176,000 from the date of adoption of ASU No.

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

As of December 31, 2023, there were three loans rated substandard or watch which were individually assessed, totaling $200,000, of which none had specific reserves.

Additionally, the Bank individually assessed the largest loan in the residential construction loan portfolio, noting no specific reserve was required as of December 31, 2023.

Total deposits decreased $9.9 million to $168.8 million at December 31, 2023 compared to $178.7 million at December 31, 2022, representing a decrease of 5.5%.

During the first half of 2023, deposits decreased as a result of various large customers moving money to higher yielding accounts outside the Bank.

The decrease in deposits was primarily out of money market and savings accounts.

During the second half of 2023, time deposits increased $13.1 million to $67.3 million as of December 31, 2023 compared to $54.2 million as of June 30, 2023, as a result of special CD offers.

Management continues to actively monitor the deposit balances and interest rates offered to maintain an adequate level of liquidity.

Other borrowings.

During the year ended December 31, 2022, the Bank repaid the 0% interest FHLB Advance of $5.0 million, resulting in no Other Borrowings as of December 31, 2022. 

During the year ended December 31, 2023, the Bank borrowed $5.0 million from the FHLB Chicago with a term of 24 months at 4.78%.

Additionally, the Bank borrowed $10.0 million from the Federal Reserve Bank as part of the Bank Term Funding Program during the fourth quarter of 2023 with a term of 12 months at 5.31%.

The Bank repaid the $10.0 million to the Federal Reserve Bank during the fourth quarter with a portion of the proceeds from the securities sales.

Total Equity .

Total equity increased $35.3 million, or 78.1%, to $80.5 million at December 31, 2022, from $45.2 million at December 31, 2021.

The increase in total equity is the result of the net proceeds of the conversion stock offering, less unallocated shares of the ESOP, offset by the increase in the unrealized loss on securities available for sale. At December 31, 2022, our ratio of total equity to total assets was 30.5%.

Total equity decreased $3.0 million to $77.5 million at December 31, 2023 primarily due to the net loss of $4.0 million for the year ended December 31, 2023 and the repurchase of outstanding shares.

This decrease was partially offset by a decrease in the unrealized loss position on the securities available-for-sale portfolio.

The decrease in the unrealized loss position of $2.9 million is due to changes in market interest rates and the result of the recognized losses in conjunction with the balance sheet reposition transaction described above.

Additionally, during 2023, the Bank began repurchasing outstanding shares as part of the Board approved share repurchase program.

As of December 31, 2023, the Bank completed the repurchase program and repurchased 269,898 shares, for a total value of $2.4 million.

The Board approved a second share repurchase program during December 2023, that expires on December 31, 2024.

Average Balances, Net Interest Income, and Yields Earned and Rates Paid .

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All average balances are based on daily balances.

The table also reflects the yields on North Shore Trust and Savings’

interest-earning assets and costs of interest-bearing liabilities for the periods shown.

The table also reflects the yields on North Shore Trust and Savings’ interest-earning assets and costs of interest-bearing liabilities for the periods shown.

At or For the Year Ended December 31,

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Average interest-earning assets to average-interest bearing liabilities

Other borrowing consists of 0% interest rate FHLB of Chicago advances.

Equals the difference between the yield on average earning-assets and the cost of average interest-bearing liabilities.

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The following table shows the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated.

For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in volume, which is the change in volume multiplied by prior year rate.

For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in volume, which is the change in volume multiplied by prior year rate.

The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.

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Interest-bearing demand

Total interest-bearing deposits

Other borrowings

Total interest-bearing liabilities

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Comparison of Operating Results for the Years Ended December 31, 2023 and 2022

For the year ended December 31, 2022, we had net income of $27,000, compared to a net loss of $55,000 for the year ended December 31, 2021.

The increase in net income is primarily the result of an increase in interest income on securities available-for-sale, a decrease in interest expense on deposits, recognition of the Employee Retention Credit and a higher reversal of the provision for loan losses, offset by an increase in noninterest expense.

During the year ended December 31, 2023, the Federal Reserve Board increased the federal funds rate 100 basis points, continuing the increases that occurred during the year ended December 31, 2022.

These increases drove market rates for bonds, loans and deposits to rise.

As a result of these increases, management saw increased cost of funds and an increase in the unrealized loss on securities available-for-sale.

As market rates for loans continued to rise, the originations of loans slowed.

During the loan origination slow down, the Bank decided to expand our mortgage lending department by hiring a mortgage lending team, operating as Oak Leaf Community Mortgage, powered by North Shore Trust and Savings.

This mortgage lending team offers a variety of different products including higher yielding loans with additional upfront fees.

During the year ended December 31, 2023 the Bank approved the 2023 Equity Incentive Plan to attract and retain employees.

During the fourth quarter, 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.

For the year ended December 31, 2023, we had a net loss of $4.0 million, compared to net income of $27,000 for the year ended December 31, 2022.

The increase in net loss is primarily the result of the balance sheet repositioning, which resulted in a loss on sale of securities of $1.8 million and the tax expense related to the addition to the valuation allowance on the remaining portion of the deferred tax asset of $1.0 million.

Additionally, the Bank recorded a higher provision for credit losses during the year ended 2023 compared to the year ended 2022.

Net Interest Income.

Net interest income increased $1.5 million, or 36.6%, to $5.6 million for the year ended December 31, 2022 compared to $4.1 million for the year ended December 31, 2021.

Our interest rate spread increased to 2.01% for the year ended December 31, 2022 from 1.64% for the year ended December 31, 2021, and our net interest margin increased to 2.15% for the year ended December 31, 2022 from 1.75% for the year ended December 31, 2021. The increase in interest rate spread and net interest margin was primarily the result of the deployment of funds from the conversion into higher yielding assets, such as securities available-for-sale, while maintaining deposit rates.

Average interest-earning assets of $259.2 million in 2022 increased $25.7 million compared to 2021.

The increase in average earning assets was driven by the funds received as part of the conversion.

With the additional funds we had a $24.7 million, or 26.2%, increase in average securities available for sale, as a result of the decision to invest available cash in securities available for sale to achieve a higher yield.

The average outstanding balance of loans decreased $695,000, or 0.7%, in 2022; however, due to higher interest rates earned on the loan portfolio of 7 basis points, interest earned increased $49,000, or 1.4%.

Notwithstanding a general increase in market interest rates during 2022, the cost of interest-bearing liabilities decreased 8 basis points for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The net decrease in our funding costs was primarily driven by a decrease in the average yield of time deposits.

During the first quarter of 2022, subsequent to the conversion closing, certain customers withdrew their funds held in time deposits prior to the maturity of these deposits.

Upon the withdrawal of these funds, the customers were charged an interest penalty which resulted in a lower overall funding cost during the quarter.

During the fourth quarter of 2022, management increased interest rates on premium money market accounts and new time deposits to stay competitive with rates offered in our market area. 

Reversal of Provision for Loan Losses. 

The allowance for loan losses is established through a provision for loan losses charged to earnings as losses are estimated to have occurred in our loan portfolio. 

Loan losses are charged against the allowance when management believes the collectability of a loan balance is confirmed. 

Net interest income increased $636,000, or 11.4%, to $6.2 million for the year ended December 31, 2023 compared to $5.6 million for the year ended December 31, 2022.

Our interest rate spread increased to 2.33% for the year ended December 31, 2023 from 2.01% for the same period ending December 31, 2022.

Our net interest margin increased to 2.64% for the year ended December 31, 2023 from 2.15% for the same period ended December 31, 2022.

Average interest-earning assets of $235.3 million for the year ended December 31, 2023 reflect a decrease of $24.0 million compared to 2022.

The decrease in average earning assets was driven by the refunds issued on the stock oversubscription in the prior year.

The average outstanding balance of loans, net increased to $107.4 million, an increase of $9.7 million for the year ended December 31, 2023.

Additionally, the average yield earned on those loans outstanding increased 36 basis points to 4.06% for the year ended December 31, 2023, which is the result of new originations made at higher market rates.

Additionally, interest earned on securities available-for-sale increased $487,000 on a lower average balance of securities available-for-sale of $114.7 million, resulting in a higher average yield on securities of 2.53%.

The lower average balance of securities is driven by a higher average unrealized loss on the available-for-sale investment securities as well as paydowns of the portfolio throughout the year.

The increased yield on securities available-for-sale was the result of an overall increase in market rates available at the time of purchase throughout 2022.

The cost of interest-bearing deposits increased 42 basis points, to 0.86%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The net increase in our funding costs for 2023 was primarily due to a CD special offered during 2023 to attract and retain customers, as well as an increase in rates offered on money market accounts, which were increased in the fourth quarter of 2022 and the first quarter of 2023 to remain competitive with the local market and to seek to retain deposits.

During 2023, the Bank borrowed $5.0 million from the FHLB Chicago at a rate of 4.78%, which matures in June 2025.

Additionally, in November 2023, the Bank borrowed $10.0 million from the Federal Reserve Bank of Chicago through the Bank Term Funding Program at 5.31%.

During December 2023, the Bank repaid the Bank Term Funding Program borrowing with a portion of the proceeds received from the securities sale.

Interest expense on other borrowings totaled $172,000 for the year ended December 31, 2023.

Provision for (Reversal of) Credit Losses.

The allowance for credit losses, including the allowance for credit losses on loans, allowance for credit losses on off-balance sheet liabilities and the allowance for credit losses on available-for-sale securities, is established through a provision for credit losses charged to earnings.

Credit losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed.

Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, and prevailing economic conditions. 

The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information or events, it is probable that we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. 

When a loan is impaired, the measurement of such impairment is based upon the fair value of the collateral of the loan. 

If the fair value of the collateral is less than the recorded investment in the loan, we will recognize the impairment by creating a valuation allowance with a corresponding charge against earnings.

An allowance is also established for uncollectible interest on loans classified as substandard. 

The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received. 

When, in management’s judgment, the borrower’s ability to make interest and principal payments is back to normal, the loan is returned to accrual status.

During the year ended December 31, 2022, a reversal of the provision for loan losses of $230,000 was recorded due to a decrease in specific reserves on troubled debt restructurings as a result of payoffs and general economic improvements during 2022.

The rolling average unemployment rate in Kenosha/Lake Counties continues to decline.

Additionally, the Bank has reduced its qualitative adjustment due to reduced COVID-19 uncertainties.

The Bank has not experienced losses specific to COVID-19 during the pandemic.

Additionally, we recorded net recoveries of $75,000 for the year ended December 31, 2022 compared to net charge-offs of $68,000 for the year ended December 31, 2021. 

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 us to make additional provisions for estimated loan losses based upon judgments different from those of management.

On January 1, 2023, we adopted ASU No.

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

As a result of the adoption of this new standard, we recorded a reduction to retained earnings of approximately $279,000, which was net of the $110,000 deferred tax asset impact stemming from adoption.

For the year ended December 31, 2023, a provision for credit losses was recorded based on the current allowance for credit loss ("ACL") assessment.

The increase in ACL was not considered part of the ASU 2016-13 adoption, as these changes in the assessment of the ACL occurred after the January 1, 2023 adoption.

We recorded a provision for credit losses of $176,000 during the year ended December 31, 2023, comprised of $168,000 in provision of credit losses to loans and $8,000 in provision of credit losses related to unfunded commitments.

The increase in the ACL is driven by an increase in loan balances throughout the year.

We will continue to assess and evaluate the estimated future credit loss impact of current market conditions in subsequent reporting periods, which will be highly dependent on credit quality, macroeconomic forecasts and conditions, as well as the composition of our loan and available-for-sale securities portfolios.

Noninterest Income .

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Gain on sale of mortgage loans

Gain on sale of securities

Loss on sale of securities

Rental income on office building

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Total noninterest income

Noninterest income stayed flat at $1.2 million for the years ended December 31, 2022 and 2021.

During the year ended December 31, 2022, the Bank recognized a one time Employee Retention Credit of $503,000.

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

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

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

This increase in other non-interest income was offset by a decrease in gain on sale of securities and gain on sale of loans.

During the year ended December 31, 2022, the Bank did not sell any securities available for sale, primarily as a result of the unrealized loss position of the securities. Management does not currently intend to sell securities in an unrealized loss position.

Additionally, during 2022, we sold $8.6 million in loans compared to $21.2 million during 2021.

The decrease in the sale of mortgage loans was partially due to the decision to originate a higher percentage of loans for the portfolio, as well as an overall decrease in total loans originated during 2022.

Noninterest income decreased $2.4 million for the year ended December 31, 2023 compared 2022.

During 2023, the Bank sold approximately $30.3 million in book value of lower yielding available-for-sale investment securities, generating a loss of $1.8 million.

Additionally, the gain on sale of mortgage loans decreased $74,000, or 69.8%, to $32,000 for the year ended December 31, 2023 compared to $106,000 for the year ended December 31, 2022.

The decrease in gain on sale of mortgages was due to a reduction in the number of loans sold, which was a strategic decision to grow the loan portfolio.

With the addition of Oak Leaf Community Mortgage, the Bank anticipates selling a higher percentage of the total loans originated during 2024, resulting in higher non-interest income.

Other non-interest income in 2022 included the Employee Retention Credit of $502,000.

Noninterest Expense .

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Total noninterest expense

Noninterest expense increased $1.3 million, or 23.2%, to $6.9 million for the year ended December 31, 2022, compared to $5.6 million for the year ended December 31, 2021.

The primary drivers for the increase in noninterest expense are salaries and employee benefits and professional services expenses.

Salaries and employee benefits increased $705,000 as a result of a continued investment in our employees, including an increase in average headcount from 35 employees during 2021 to 37 employees during 2022 primarily in management roles, $246,000 in expenses related to the Employee Stock Ownership Plan, annual raises and merit increases.

Professional service fees increased $361,000 to $500,000 during the year ended December 31, 2022.

This increase is the result of additional expenses associated with being a public company and are expected to reoccur in future periods.

Other noninterest expense increased $190,000 during the year ended December 31, 2022 primarily due to additional expenses associated with the filing for the Employee Retention Credit.

We expect noninterest expense to increase because of costs associated with operating as a newly public company, including the increased compensation expenses associated with the purchase of shares of common stock by our employee stock ownership plan and the implementation of stock-based benefit plans, if approved by our stockholders.

In addition, we will incur increased noninterest expense related to the implementation of our business strategy related to planned additions to our employee base and potential new loan production office openings.

Provision for Income Tax Expense (Benefit). 

During the year ended December 31, 2022, the Bank recorded income tax expense of $146,000, consisting of $133,000 current tax benefit, $64,000 deferred tax expense and $215,000 change in valuation allowance.

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

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

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

Noninterest expense increased $975,000 for the year ended December 31, 2023 to $7.9 million compared to $6.9 million for 2022.

The increase is primarily driven by an increase in salaries and employee benefits and professional services expenses.

Salaries and employee benefits increased 18.4% primarily as a result of the introduction of the 2023 Equity Incentive Plan on June 15, 2023, as well as merit increases to employees and health insurance premiums.

During the year ended December 31, 2023, the 2023 Equity Incentive Plan expense totaled $519,000.

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.

Additional expenses related to salaries and benefits for these employees is anticipated during 2024.

Professional services expenses increased $101,000 for the year ended December 31, 2023 to $601,000 compared to $500,000 for the year ended December 31, 2022 due to an increase in legal fees and other costs associated with the implementation of the 2023 Equity Incentive Plan.

Equipment and occupancy expenses increased due to necessary repairs to our buildings and parking lots.

Data processing expenses increased due to the addition of new employees and their related technology onboarding during the year.

Provision for Income Tax Expense.

During the year ended December 31, 2023, the Bank recorded income tax expense of $1.0 million, consisting of $9,000 current tax expense, $2.1 million change in valuation allowance and $1.2 million deferred tax benefit.

Federal net operating losses as of December 31, 2023 are $5.0 million, of which $1.3 million is subject to expire in 2027, the remainder does not expire.

During the year ended December 31, 2023, management assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing net operating losses.

A significant piece of objective negative evidence evaluated is the cumulative taxable loss incurred over the four-year period ended December 31, 2023.

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

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

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

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

Due to the uncertainty that the Bank will be able to generate future state taxable income sufficient to utilize the net operating loss carryforwards, a full valuation allowance of $371,000 has been recorded on the related deferred tax asset.

On the basis of this evaluation, as of December 31, 2023, a full valuation allowance of $2.1 million, against the net deferred tax assets has been recorded.

Additionally, due to the uncertainty that the Bank will be able to generate future state taxable income sufficient to utilize the net operating loss carryforwards, a full valuation allowance of $532,000 has been recorded on the related deferred tax asset.

There were no uncertain tax positions outstanding as of December 31, 2023 and 2022 .

As of December 31, 2022, tax years remaining open for State of Illinois and Wisconsin were 2018 through 2021.

Federal tax years that remained open were 2019 through 2021.

As of December 31, 2023 , tax years remaining open for State of Illinois and Wisconsin were 2019 through 2022.

Federal tax years that remained open were 2020 through 2022.

As of December 31, 2023 , there were also no unrecognized tax benefits that are expected to significantly increase or decrease within the next twelve months.

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Management reviews the quarterly reports from the OCC, which show the impact of changing interest rates on net portfolio value.

The following table sets forth our NPV as of December 31, 2022 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated.

The following table sets forth our NPV as of December 31, 2023 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated.

Change in Interest

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Net Interest Income Analysis .

In addition to modeling changes in NPV, we also analyze potential changes to net interest income (“NII”) for a 12-month period under rising and falling interest rate scenarios.

The following table shows our NII model as of December 31, 2023 .

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(Dollars in thousands)

The table above indicates that as of December 31, 2022, in the event of an immediate and sustained 300 basis point increase in interest rates, our net interest income for the twelve months ending December 31, 2023 would be expected to decrease by $736,000, or 10.3% to $6.4 million.

The table above indicates that as of December 31, 2023 , in the event of an immediate and sustained 300 basis point increase in interest rates, our net interest income for the twelve months ending December 31, 2024 would be expected to decrease by $239,000, or 3.8% to $6.0 million.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements.

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We also have the ability to borrow from the FHLB of Chicago and a $10.0 million unsecured Fed Funds facility with BMO Harris Bank.

At December 31, 2022, we had no outstanding advances from the FHLB of Chicago and had the capacity to borrow approximately $68.6 million from the FHLB of Chicago.

The Bank is eligible to borrow up to a total of $72.2 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, we had no outstanding balance with BMO Harris Bank.

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cash flows from operating activities, investing activities, and financing activities.

Net cash provided by operating activities was $3.0 million and $1.5 million for the year ended December 31, 2022 and 2021, respectively.

Net cash used in investing activities, which consists primarily of net change in loans receivable and net change in investment securities, was $44.5 million and $11.8 million for the years ended December 31, 2022 and 2021, respectively.

Net cash (used in) provided by financing activities, consisting primarily of the activity in deposit accounts, proceeds from the issuance of common stock and FHLB of Chicago advances, was $(67.0) million and $100.1 million for the years ended December 31, 2022 and 2021, respectively.

Net cash provided by operating activities was $431,000 and $3.0 million for the years ended December 31, 2023 and 2022 , respectively.

Net cash provided by or (used in) investing activities, which consists primarily of net change in loans receivable and net change in investment securities, was $25.0 million and $(44.5) million for the years ended December 31, 2023 and 2022 , respectively.

Net cash used in financing activities, consisting primarily of the activity in deposit accounts, proceeds from the issuance of common stock and FHLB of Chicago advances, was $7.1 million and $67.0 million for the years ended December 31, 2023 and 2022 , respectively.

We are committed to maintaining a strong liquidity position.

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Time deposits that are scheduled to mature in less than one year from December 31, 2023 , totaled $46.6 million.

Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

However, if a substantial portion of these deposits is not retained, we may utilize FHLB of Chicago advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. 

While we historically have experienced strong deposit retention, many of the new time deposits were brought in with a growth pricing strategy.

As such, we expect a decrease in the time deposits as these mature during 2024.

As of December 31, 2023 , North Shore Trust and Savings was well capitalized under the regulatory framework for prompt corrective action.

During the year ended December 31, 2020, North Shore Trust and Savings elected to begin using the CBLR.

During the year ended December 31, 2020, North Shore Trust and Savings elected to begin using the CBLR.

Under CBLR, if a qualifying depository institution or depository institution holding company elects to use such measure, such institution or holding company will be considered well capitalized if its ratio of Tier 1 capital to average total consolidated assets (i.e., leverage ratio) exceeds 8% in 2020, 8.5% in 2021 and 9% in 2022, subject to a limited two quarter grace period, during which the leverage ratio cannot go 100 basis points below the then applicable threshold, and will not be required to calculate and report risk-based capital ratios.

North Shore Trust and Savings’

Tier 1 capital to Average Assets was 24.81% and 16.11% at December 31, 2022 and 2021, respectively. 

North Shore Trust and Savings’ Tier 1 capital to Average Assets was 24.72% and 24.81% at December 31, 2023 and 2022 , respectively.

Off-Balance Sheet Arrangements .

At December 31, 2022, we had $793,000 of outstanding commitments to originate loans.

Our total letters and lines of credit and unused lines of credit totaled $2.9 million at December 31, 2022. 

At December 31, 2023 , we had $3.8 million of outstanding commitments to originate loans.

Our total letters and lines of credit and unused lines of credit totaled $4.1 million at December 31, 2023 .

Commitments .

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Total Amounts Committed at

Amount of Commitment Expiration –

Amount of Commitment Expiration – Per Period

December 31, 2023

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Time deposits

Other borrowings

Total contractual obligations

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Current Accounting Developments

The following ASU has been issued by the FASB but is not yet effective.

The FASB issued ASU No.

2016-13, Financial Instruments —

Credit Losses (Topic 326) .

The ASU introduces a new credit loss model, the current expected credit loss model ("CECL"), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk.

The CECL model utilizes a lifetime “expected credit loss”

measurement objective for the recognition of credit losses for loans, held-to-maturity securities, and other receivables at the time the financial asset is originated or acquired.

In June 2016, the FASB issued ASU No.

2016-13, “ Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ,” also known as Current Expected Credit Losses, or CECL.

ASU 2016-13 was issued to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date to enhance the decision making process.

The CECL model utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities, and other receivables at the time the financial asset is originated or acquired.

The expected credit losses are adjusted each period for changes in expected lifetime credit losses.

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This model replaces the multiple existing impairment models, which generally require that a loss be incurred before it is recognized.

The CECL model represents a significant change from existing practice and may result in material changes to our accounting for financial instruments.

We are evaluating the effect ASU 2016-13 will have on our consolidated financial statements and related disclosures.

The impact of the ASU will depend upon the state of the economy, and the nature of our loan portfolio at the date of adoption.

The new standard is effective January 1, 2023 for emerging growth companies.

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

Management will periodically refine the model as needed.

We expect to incur a $250,000 to $300,000 after-tax charge, during the first quarter of 2023 as a result of the adoption of CECL, which will decrease the opening stockholders’

equity balance as of January 1, 2023.

The total estimated impact equates to a 9 to 12 basis point decrease to the tangible common equity ratio.

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

We adopted ASU 2016-13 using the current expected credit loss (“CECL”) methodology for financial assets measured at amortized cost, effective January 1, 2023.

Results for the periods beginning after January 1, 2023 are presented under ASU 2016-13, while prior period amounts are reported in accordance with the previously applicable accounting standards.

The Company recorded a reduction to retained earnings of approximately $279,000 upon adoption of ASU 2016-13.

The transition adjustment included an increase to the allowance for credit losses on loans of $384,000 and an increase to the allowance for credit losses on off-balance sheet credit exposure of approximately $5,000.

The transition adjustment included a corresponding increase in deferred tax assets.

The following table illustrates the impact of ASU 2016-13 adoption:

Allowance for credit losses as reported under ASU 2016-13

Allowance pre-ASU 2016-13 Adoption

Impact on Allowance of ASU 2016-13 Adoption

(Dollars in thousands)

First mortgage loans

1-4 family residential

Consumer loans

Allowance for credit losses for all loans

Allowance for credit losses on off-balance sheet exposures

In March 2022, FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures .

The amendments in this update eliminate the accounting guidance and related disclosures for TDRs by creditors in Subtopic 310-40, Receivables — Troubled Debt Restructurings by Creditors , while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty and requiring an entity to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments — Credit Losses — Measured at Amortized Cost .

The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and are applied prospectively, except with respect to the recognition and measurement of TDRs, where an entity has the option to apply a modified retrospective transition method.

Early adoption of the amendments in this update is permitted.

An entity may elect to early adopt the amendments regarding TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures.

As of January 1, 2023, we adopted ASU No.

2022-02, which superseded the current disclosure requirements for TDRs.

Quantitative and Qualitative Disclosures About Market Risk

For information regarding market risk, see “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Exposure to Changes in Interest Rates”.

For information regarding market risk, see “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Exposure to Changes in Interest Rates”.

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 5. Market for Registrant’s Common Equity