What changed in this filing

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Item 9A. Controls and Procedures

2024-03-28 compared with 2023-03-30 · 785 added, 638 removed, 666 unchanged (68% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls & Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.

Based upon that evaluation, the principal executive officer and principal financial officer concluded that, as of December 31, 2023 , our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by NSTS Bancorp, Inc.

in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to NSTS Bancorp, Inc.'s management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. 

Management's Annual Report on Internal Control Over Financial Reporting

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

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

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

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

Management assessed the effectiveness of NSTS Bancorp, Inc.’s internal control over financial reporting as of December 31, 2023.

This assessment was based on criteria for effective internal control over financial reporting established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) .

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

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

Changes in Internal Control Over Financial Reporting

There were no changes made in our internal control over financial reporting during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, NSTS Bancorp, Inc.’s internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

There were no changes made in our internal control over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, NSTS Bancorp, Inc.’s internal control over financial reporting.

Other Information

Not Applicable.

On March 27, 2024, the Board of Directors approved the amended and restated employment agreement by and among NSTS Bancorp, Inc., North Shore Trust and Savings and Stephen G.

The amended and restated employment contract was revised to reflect the now current title and position of Mr.

Lear of Chief Executive Officer, President and Chairman of the Board of NSTS Bancorp, Inc.

and Chairman of the Board of North Shore Trust and Savings.

In addition, the amended and restated employment agreement provides that upon termination of Mr.

Lear’s employment for any reason, other than cause, we will provide for the continuation of the welfare benefits of medical, dental or other health coverage, at the same premium cost to Mr.

Lear and at the same coverage level as in effect as of the effective date of termination until the eighteen month anniversary of the effective date of termination.

A copy of the amended and restated employment agreement with Mr.

Lear is filed as an exhibit to this Annual Report on Form 10 -K.

Additionally, on March 27, 2024, the Board of Directors approved the employment agreement by and among NSTS Bancorp, Inc., North Shore Trust and Savings and Nathan E.

Walker, President and Chief Executive Officer of North Shore Trust and Savings and Executive Vice President of NSTS Bancorp, Inc.

The employment agreement has an initial term of three years, which extends automatically for one additional year on each anniversary of the effective date of the agreement, so that the remaining term is again three years, unless one party gives the other party written notice of nonrenewal at least 90 days prior to the applicable anniversary date.

The employment agreement provides that Mr.

Walker's base salary may be increased, but not decreased, at the discretion of the Board of Directors.

In addition to the base salary, the agreement provides that Mr.

Walker will be eligible to receive an annual bonus as may be determined by the Board of Directors.

Walker is also eligible to participate in the NSTS Bancorp, Inc.

2023 Equity Incentive Plan as well as in any additional short-term incentive compensation or long-term or equity incentive plans that may be adopted by the Board of Directors in the future.

Walker is also entitled to participate in all employee benefit plans arrangements and perquisites offered to our employees and officers, and the reimbursement of reasonable business expenses incurred in the performance of his duties.

We may also provide Mr.

Walker with reimbursement for monthly membership dues at a country club or similar club, and other perquisites such as an automobile allowance and/or cell phone expense reimbursement as determined by the Board of Directors.

The employment agreement is terminable with or without cause by us.

Walker has no right to compensation or other benefits pursuant to the employment agreement for any period after termination for cause, as defined in the agreement.

In the event we terminate Mr.

Walker's employment without cause or Mr.

voluntarily resigns for “good reason” (i.e., a “qualifying termination event”), we will pay Mr.

Walker a severance payment equal to the base salary that Mr.

Walker would have received had he continued employment for the remainder of the then-current term.

The severance payment will be paid as salary continuation in substantially equal installments in accordance with our regular payroll practice over the remainder of the then-current term.

Walker must sign a general release of claims to receive the severance payment.

A “good reason” condition for purposes of the employment agreement includes a material reduction in base salary, a material adverse change in responsibilities, titles, powers or duties, relocation of Mr.

Walker's principal place of employment to a location more than 25 miles from his current principal place of employment, or material breach of the employment agreement by us.

In addition, the agreement provides that upon termination of Mr.

Walker’s employment for any reason, other than cause, we will provide for the continuation of the welfare benefits of medical, dental or other health coverage, at the same premium cost to Mr.

Walker and at the same coverage level as in effect as of the effective date of termination until the eighteen month anniversary of the effective date of termination.

If a qualifying termination event occurs within 24 months following a change in control of NSTS Bancorp, Inc.

or North Shore Trust and Savings, Mr.

Walker would be entitled to (in lieu of the payments and benefits described in the previous paragraph) a severance payment equal to two and one -half times the sum of (i) Mr.

Walker's base salary, plus (ii) the average annual bonus earned by Mr.

Walker for the three ( 3 ) years immediately preceding the year in which the change in control occurs.

This change in control severance will be paid in a lump sum payment.

Walker must sign a general release of claims to receive the change in control severance payment.

Also, upon termination of employment, Mr.

Walker will be required to adhere to a one -year non-solicitation restriction set forth in his employment agreement.

The employment agreement terminates upon Mr.

Walker’s death, and in such event, his estate or beneficiary will be paid his accrued benefits through such date.

The foregoing description of Mr.

Walker's employment agreement is a summary only, and accordingly, does not purport to be complete and is qualified in its entirety to the full text of the agreement, a copy of which is included as an exhibit to this Annual Report on Form 10 -K.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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Lewis Ave., Waukegan, Illinois 60085 without charge.

If we amend or grant any waiver from a provision of our Code of Ethics that applies to our executive officers, we will publicly disclose such amendment or waiver on our website and as required by applicable law, including by filing a Current Report on Form 8-K. 

The information required by this Item is incorporated herein by reference to the sections captioned “Proposal I –

Election of Directors”

and "Stockholder Proposals and Nominations" in NSTS Bancorp, Inc.'s definitive Proxy Statement for its 2023 Annual Meeting of Stockholders, a copy of which will be filed with the SEC no later than 120 days after the end of our fiscal year (the “Proxy Statement”).

The information required by this Item is incorporated herein by reference to the sections captioned “Proposal I – Election of Directors” and "Stockholder Proposals and Nominations" in NSTS Bancorp, Inc.'s definitive Proxy Statement for its 2024 Annual Meeting of Stockholders, a copy of which will be filed with the SEC no later than 120 days after the end of our fiscal year (the “Proxy Statement”).

Executive Compensation

The information required by this Item is incorporated herein by reference to the sections captioned “Executive and Director Compensation”

in the Proxy Statement.

The information required by this Item is incorporated herein by reference to the sections captioned “Executive and Director Compensation” in the Proxy Statement.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Securities Authorized for issuance under Stock-Based Compensation Plans

Not applicable.

NSTS Bancorp, Inc.

has not adopted any stock-based compensation plans as of December 31, 2022.  

Set forth below is information as of December 31, 2023 regarding the Company’s equity compensation plans that have been approved by shareholders.

The Company has no equity-based benefit plans, other than its employee stock ownership plan, that were not approved by shareholders.

Number of Securities to be Issued Upon Exercise of Outstanding Options and rights (1)

Weighted Average Exercise Price (2)

Number of Securities Remaining Available for Issuance Under Plan (3)

2023 Equity Incentive Plan

(1) Consists of outstanding stock options to purchase 465,500 shares of common stock granted under the Company’s stock-based compensation plans.

(2) Represents the weighted average exercise price of stock options granted in 2023.

(3) Represents the number of available shares that may be granted as stock options and other stock awards under the 2023 Equity Incentive Plan.

Security Ownership of Certain Beneficial Owners

The information required by this Item is incorporated herein by reference to the section captioned "Beneficial Ownership" in the Proxy Statement. 

The information required by this Item is incorporated herein by reference to the section captioned "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement.

Security Ownership of Management

The information required by this Item is incorporated herein by reference to the section captioned "Beneficial Ownership" in the Proxy Statement. 

The information required by this Item is incorporated herein by reference to the section captioned "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement.

Changes in Control

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Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated herein by reference to the sections captioned “Transactions with Certain Related Persons,”

 “Corporate Governance— Board Independence”

and  “Corporate Governance — Meetings and Committees of the Board of Directors”

in the Proxy Statement.

The information required by this Item is incorporated herein by reference to the sections captioned “Transactions with Certain Related Persons,” “Board Independence” and “Meetings and Committees of the Board of Directors” in the Proxy Statement.

Principal Accountant Fees and Services

The information required by this Item is incorporated herein by reference to the section captioned “Proposal II—Ratification of Appointment of Independent Registered Public Accounting Firm”

in the Proxy Statement.

The information required by this Item is incorporated herein by reference to the section captioned “Proposal II—Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement.

Exhibit and Financial Statement Schedules

Plan of Conversion of North Shore MHC, as amended 

Plan of Conversion of North Shore MHC, as amended (1)

Certificate of Incorporation of NSTS Bancorp, Inc.

Bylaws of NSTS Bancorp, Inc.

Amendment to Article III, Section 12 of the Bylaws of NSTS Bancorp, Inc.

Description of NSTS Bancorp, Inc.'s securities registered under the Securities Exchange Act of 1934, as amended

Employment Agreement by and among NSTS Bancorp, Inc., North Shore Trust and Savings and Stephen G.

Lear dated January 18, 2022* (2)

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

Walker dated January 18, 2022* (2)

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

and Carissa H.

Amended and Restated Employment Agreement by and among NSTS Bancorp, Inc., North Shore Trust and Savings and Stephen G.

Lear dated March 27, 2024*

mployment Agreement by and among NSTS Bancorp, Inc., North Shore Trust and Savings and Nathan E.

Walker dated March 27, 2024*

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

Schoolcraft dated January 18, 2022* (2)

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

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

Avakian dated January 18, 2022* (2)

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

and Christine E.

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

Stickler dated January 18, 2022* (2)

NSTS Bancorp, Inc.

2023 Equity Incentive Plan* (4)

Form of Restricted Stock Award Grant Notice under the NSTS Bancorp, Inc.

2023 Equity Incentive Plan* (5)

Form of Stock Option Grant Notice under the NSTS Bancorp, Inc.

2023 Equity Incentive Plan* (5)

Subsidiaries of NSTS Bancorp, Inc.

Consent of Independent Registered Public Accounting Firm, Plante & Moran, PLLC

Power of Attorney (set forth on signature page)

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certifications pursuant to 18 U.S.C.

§ 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

§ 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Policy Concerning Recovery of Erroneously Awarded Compensation

Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

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(1) Filed as an exhibit to NSTS Bancorp, Inc.'s Registration Statement on Form S-1 (File No.

333-259483) and incorporated herein by reference. 

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

333-259483) and incorporated herein by reference.

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

001-41232) and incorporated herein by reference.

(3) Filed as an exhibit to NSTS Bancorp, Inc.'s Current Report on Form 8-K (File No.

001-41232) filed on March 31, 2023, and incorporated herein by reference.

(4) Filed as Appendix A to the Proxy Statement for the NSTS Bancorp, Inc.

annual meeting of stockholders (File No.

001-41232) filed on April 14, 2023 and incorporated herein by reference.

(5) Filed as an exhibit to NSTS Bancorp, Inc.'s Current Report on Form 8-K (File No.

001-41232) filed on June 16, 2023, and incorporated herein by reference.

Form 10-K Summary

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

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

equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

and its Subsidiary (the “Company”) as of December 31, 2023 and 2022, the related statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 18 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2023 due to the adoption of Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses (ASC 326) .

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously acceptable generally accepted accounting principles.

Our opinion is not modified with respect to this matter.

Basis for Opinion

The Company's management is responsible for these financial statements.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

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/s/ Plante & Moran, PLLC

We have served as the Company’s auditor since 2019.

Chicago, Illinois

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Year ended December 31,

(Dollars in thousands)  

Cash and due from banks

$ 1,583  

$ 1,000 $ 1,583

Interest-bearing bank deposits

11,564  

120,797  

30,388 11,564

Cash and cash equivalents

13,147  

121,611  

31,388 13,147

Time deposits with other financial institutions

Securities available for sale

121,205  

100,950  

Federal Home Loan Bank stock

82,135 121,205

Federal Home Loan Bank stock (FHLB)

Loans held for sale

Loans, net of unearned income

103,983  

97,313  

Allowance for loan losses

( 624 )  

103,359  

96,534  

121,799 103,983

Allowance for credit losses on loans

( 1,176 ) ( 624 )

120,623 103,359

Premises and equipment, net

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Bank-owned life insurance (BOLI)

$ 264,206  

$ 340,869  

$ 256,776 $ 264,206

Noninterest bearing

$ 12,977  

$ 99,090  

$ 12,424 $ 12,977

Interest-bearing

Demand and NOW checking

18,659  

17,931  

42,624  

45,414  

49,068  

50,312  

15,346 18,659

32,027 42,624

41,774 49,068

Time deposits over $250,000

Other time deposits

46,585  

63,494  

57,280 46,585

Total deposits

178,714  

285,621  

168,826 178,714

Escrow deposits

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Total liabilities

183,664  

295,686  

179,231 183,664

Stockholders' equity:

1 unchanged sentence

10,000,000 shares authorized;

5,397,959 shares issued and outstanding)

5,315,261 and 5,397,959 shares outstanding at December 31, 2023 and December 31, 2022, respectively)

Treasury Stock, at cost ( 269,898 shares at December 31, 2023)

Additional paid-in capital

50,420  

50,920 50,420

Retained earnings

45,291  

45,264  

41,055 45,291

Unallocated common shares held by ESOP

( 4,098 )  

( 3,882 ) ( 4,098 )

Accumulated other comprehensive loss, net

( 11,125 )  

( 8,223 ) ( 11,125 )

Total stockholders' equity

80,542  

45,183  

77,545 80,542

Total liabilities and stockholders' equity

$ 264,206  

$ 340,869  

$ 256,776 $ 264,206

See accompanying notes to consolidated financial statements

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Year ended December 31,

(Dollars in thousands)  

Interest income:

Loans, including fees

$ 3,618  

$ 3,569  

$ 4,360 $ 3,618

Federal funds sold and other

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Interest expense:

Other borrowings

Total interest expense

Net interest income

Reversal of provision for loan losses

( 230 )  

Net interest income after reversal of provision for loan losses

Provision for (reversal of) credit losses

Net interest income after provision for (reversal of) credit losses

Noninterest income:

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

( 1,150 ) 1,236

Noninterest expense:

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Total noninterest expense

Income (losses) before income taxes

(Loss) income before income taxes

( 2,958 ) 173

Income tax expense (benefit)

Net income (losses)

Basic and diluted earnings per share

Net (loss) income

$ ( 3,957 ) $ 27

Basic and diluted (loss) earnings per share

( 0.79 ) 0.01

Weighted average shares outstanding

4,729,236  

5,004,498 4,729,236

See accompanying notes to consolidated financial statements

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Year ended December 31,

(Dollars in thousands)  

Net income (losses)

Unrealized net holding loss on securities

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

( 15,447 )  

Other comprehensive loss, net of taxes

( 11,044 )  

(Dollars in thousands)

Net (loss) income

$ ( 3,957 ) $ 27

Unrealized net holding gain (loss) on securities

Unrealized net holding gain (loss) on securities arising during period, net of realized loss on sales of $ 1,794,000 and $ 0 , in the years ended December 31, 2023 and 2022, respectively

4,058 ( 15,447 )

( 1,156 ) 4,403

Other comprehensive income (loss), net of taxes

2,902 ( 11,044 )

Comprehensive loss

$ ( 11,017 )  

$ ( 1,055 ) $ ( 11,017 )

See accompanying notes to consolidated financial statements

NSTS BANCORP, INC. AND SUBSIDIARIES

NSTS BANCORP, INC.

AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

2 unchanged sentences

Paid-In Capital

income (loss)

(Dollars in thousands)

Balance at January 1,2022

$ 45,319  

$ 1,406  

$ 46,725  

( 55 )  

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

( 1,487 )  

Balance at December 31, 2021

$ 45,264  

$ ( 81 )  

$ 45,183  

— $ — $ — $ — $ 45,264 $ ( 81 ) $ — $ 45,183

— — — — 27 — — 27

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

5,290,000  

49,387  

49,440  

5,290,000 53 — 49,387 — — — 49,440

Issuance of common shares donated to the NSTS Charitable Foundation

107,959  

107,959 1 — 1,008 — — — 1,009

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

( 4,319 )  

— — — — — — ( 4,319 ) ( 4,319 )

ESOP shares committed to be released

— — — 25 — — 221 246

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

( 11,044 )  

— — — — — ( 11,044 ) — ( 11,044 )

Balance at December 31, 2022

5,397,959  

$ 50,420  

$ 45,291  

$ ( 11,125 )  

$ ( 4,098 )  

$ 80,542  

5,397,959 $ 54 $ — $ 50,420 $ 45,291 $ ( 11,125 ) $ ( 4,098 ) $ 80,542

Cumulative impact of ASU 2016-13

— — — — ( 279 ) — — ( 279 )

— — — — ( 3,957 ) — — ( 3,957 )

ESOP shares committed to be released

— — — ( 17 ) — — 216 199

Purchase of treasury stock from stock repurchase program

( 269,898 ) — ( 2,381 ) — — — — ( 2,381 )

Compensation cost for stock options and restricted stock

— — — 519 — — — 519

Issuance of common shares for the restricted stock plan

187,200 2 — ( 2 ) — — — —

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

— — — — — 2,902 — 2,902

Balance at December 31, 2023

5,315,261 $ 56 $ ( 2,381 ) $ 50,920 $ 41,055 $ ( 8,223 ) $ ( 3,882 ) $ 77,545

See accompanying notes to consolidated financial statements

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Year ended December 31,

(Dollars in thousands)  

Cash flows from operating activities:

Net income (losses)

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

Net (loss) income

$ ( 3,957 ) $ 27

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

Securities amortization and accretion, net

Loans originated for sale

( 8,540 )  

( 3,738 ) ( 8,540 )

Proceeds from sales of loans held for sale

21,580  

Gain on sale of mortgage loans

( 106 )  

Gain on sale of securities available for sale

Gain on sale of OREO

Gain on transfer to OREO

Reversal of provision for loan losses

( 230 )  

( 32 ) ( 106 )

Loss on sale of securities

Provision for (reversal of) credit losses

Earnings on bank owned life insurance

( 178 )  

( 192 ) ( 178 )

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

Stock based compensation expense

Change in deferred income taxes

Decrease (increase) in accrued interest receivable and other assets

Net increase in accrued expenses and other liabilities

Net change in accrued interest receivable and other assets

Net change in accrued expenses and other liabilities

Net cash provided by operating activities

1 unchanged sentence

Purchases of loans, net

( 5,357 )  

Net (increase) decrease in portfolio loans

( 1,238 )  

Net change in portfolio loans

( 17,816 ) ( 1,238 )

Principal repayments on mortgage-backed securities

16,165  

17,552  

Purchases of securities available for sale

( 59,530 )  

Sales of securities available for sale

Maturities and calls of securities available for sale

Purchase of Federal Home Loan Bank stock

Proceeds from sale of other real estate owned

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

( 1,008 )  

Sales of securities available for sale

Decrease (increase) in time deposits with other financial institutions, net

2,486 ( 1,008 )

Purchases of premises and equipment, net

( 215 )  

Net cash used in investing activities

( 44,478 )  

( 516 ) ( 215 )

Net cash provided by (used in) investing activities

24,950 ( 44,478 )

Cash flows from financing activities:

Net change in deposits

( 106,907 )  

99,217  

( 9,888 ) ( 106,907 )

Net change in escrow deposits

( 189 )  

Repayment of FHLB advance

( 5,000 )  

Proceeds from FHLB advance

Proceeds from Federal Reserve Bank - Bank Term Funding Program

Repayment of Federal Reserve Bank - Bank Term Funding Program

Purchase of treasury shares

Net proceeds from issuance of common shares

49,440  

( 4,319 )  

Net cash (used in) provided by financing activities

( 66,975 )  

100,140  

Net cash used in financing activities

( 7,140 ) ( 66,975 )

Net change in cash and cash equivalents

( 108,464 )  

89,743  

18,241 ( 108,464 )

Cash and cash equivalents at beginning of period

121,611  

31,868  

13,147 121,611

Cash and cash equivalents at end of period

$ 13,147  

$ 121,611  

$ 31,388 $ 13,147

Supplemental disclosures of cash flow information:

Loans transferred to OREO

Cash paid during the period for:

1 unchanged sentence

Summary of Significant Accounting Policies

The accompanying consolidated financial statements (“the financial statements”) have been prepared in conformity with accounting principles generally accepted in the United States of America and conform to practices within the banking industry.

Nature of Operations

NSTS Bancorp, Inc.

was formed to serve as the stock holding company for North Shore Trust and Savings (the “Bank”) in connection with the conversion of North Shore Trust and Savings, NSTS Financial Corporation and North Shore MHC, from the mutual to the stock form of organization, which was completed on January 18, 2022.

The audited financial statements, as well as other financial information at or prior to January 18, 2022, contained in this Annual Report on Form 10 -K relate solely to the consolidated financial results of North Shore MHC and its consolidated subsidiaries, NSTS Financial Corporation and North Shore Trust and Savings.

The audited financial statements as well as other financial information at or prior to January 18, 2022 contained in this Annual Report on Form 10 -K relate solely to the consolidated financial results of North Shore MHC and its consolidated subsidiaries, NSTS Financial Corporation and North Shore Trust and Savings.

NSTS Bancorp, Inc.

7 unchanged sentences

The Bank offers a variety of financial services to customers in the surrounding community.

Financial services consist primarily of 1 - 4 family mortgage loans, savings accounts, and certificate of deposit accounts.

Financial services consist primarily of one to four -family mortgage loans, savings accounts, and certificate of deposit accounts.

There are no significant concentrations of loans to any one industry or customer.

The Bank’s exposure to credit risk is significantly affected by changes in the economy in the Bank’s market area.

All significant intercompany balances and transactions have been eliminated in consolidation.

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

Certain amounts in prior year financial statements have been reclassified to conform to the 2023 presentation.

Employee Retention Credit

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

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

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

The Bank utilized the gross receipts method of calculating eligibility.

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

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

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

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

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

During 2023, the Bank has received $ 259,000 of the Employee Retention Credit, which represents the tax credit for the quarter ended June 30, 2021.

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

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Actual results may vary from those estimates.

The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.

The determination of the adequacy of the allowance for credit losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.

In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral.

The Bank’s loans are generally secured by specific items of collateral including real property, consumer assets, and business assets.

Although the Bank has a diversified loan portfolio, a substantial portion of its debtors’

ability to honor their contracts is dependent on local economic conditions.

The Bank’s loans are generally secured by specific items of collateral including real property, consumer assets, and business assets.

Although the Bank has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on local economic conditions.

While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions.

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Securities available-for-sale are securities that are intended to be held for indefinite periods of time, but which may not be held to maturity.

These securities may be used as a part of the Bank’s asset/liability management strategy and may be sold in response to changes in interest rates, deterioration of issuer’s creditworthiness, or due to a desire to increase liquidity.

The Bank conducts a periodic review of available-for-sale securities with declines in fair value below their cost to evaluate if the impairment is other than temporary.

In estimating other-than-temporary impairment, management considers ( 1 ) the length of time and the extent to which the fair value has been less than amortized cost, ( 2 ) the financial condition and near-term prospects of the issuer, and ( 3 ) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Credit-related impairments of debt securities are recorded through earnings, and any impairment as a result of other factors is included in accumulated other comprehensive income.

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will sell, the security before recovery of its amortized cost basis.

If either of the aforementioned criteria exists, the Company will record an ACL related to securities available-for-sale with an offsetting entry to the provision for credit losses on securities on the income statement.

Losses are charged against the allowance when management believes the available-for-sale security is uncollectible or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available-for-sale securities, totaling $ 351,000 as of December 31, 2023, is excluded from the estimate of credit losses.

If either of these criteria does not exist, the Company will evaluate the securities individually to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors, such as market interest rate fluctuations.

In evaluating securities available-for sale for potential impairment, the Company considers many factors, including the financial condition and near-term prospects of the issuer, which for debt securities considers external credit ratings and recent downgrades;

and its ability and intent to hold the security for a period of time sufficient for a recovery in value.

The Company also considers the extent to which the securities are issued by the federal government or its agencies, and any guarantee of issued amounts by those agencies.

The amount of the impairment related to other factors is recognized in other comprehensive income (loss).

Prior to the adoption of ASU No.

2016 - 13 (CECL) on January 1, 2023, the Company evaluated its available-for-sale securities in accordance with the methodology specified in the preceding paragraph except that the credit portion of the impairment would reduce the amortized cost basis of the security.

Federal Home Loan Bank Stock

The Bank, as a member of the Federal Home Loan Bank (FHLB) system, is required to maintain an investment in capital stock of the FHLB.

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

Based on redemption provisions of the FHLB, the stock has no quoted market price and is carried at cost of $ 550,000 at December 31, 2023 and 2022 and is evaluated for impairment at each reporting date.

Loans Held for Sale

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Gains or losses are recognized through earnings.

The Bank’s loan portfolio includes segments for mortgage loans and consumer loans.

Mortgage loans include classes for 1 - 4 family, multi-family, and commercial.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge offs, the allowance for loan losses, and any deferred fees or costs on originated loans.

The Bank’s loan portfolio includes segments for mortgage loans and consumer loans.

Mortgage loans include classes for one to four -family, construction, multi-family, and commercial.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge offs, the allowance for credit losses on loans, and any deferred fees or costs on originated loans.

Interest income is accrued on the unpaid principal balance.

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Loans are returned to accrual status when payment of all the principal and interest amounts contractually due is reasonably assured.

Allowance for Loan Losses

The allowance for loan losses (the “allowance”) is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.

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

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

The allowance for loan losses is evaluated on a regular basis by management.

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

The allowance consists of general and allocated components, as further described below.

General Component

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments:

first mortgage loans and consumer loans.

Management uses an average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment.

This historical loss factor is adjusted for the following qualitative factors:

levels/trends in delinquencies;

trends in volume and terms of loans;

effects of changes in risk selection and underwriting standards, and other changes in lending policies, procedures and practices;

experience/ability/depth of lending management and staff;

and national and local economic trends and conditions.

Allowance for Credit Losses

The allowance for credit losses (“ACL”) is an estimate of the expected credit losses on the loans held for investment, unfunded loan commitments, and available-for-sale debt securities portfolios.

Allowance for Credit Losses on Loans

The ACL is calculated according to GAAP standards and 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.

The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on loans.

Determination of the ACL is inherently subjective in nature since it requires significant estimates and management judgment, and includes a level of imprecision given the difficulty of identifying and assessing the factors impacting loan repayment and estimating the timing and amount of losses.

While management utilizes its best judgment and information available, the ultimate adequacy of the ACL is dependent upon a variety of factors beyond the Company’s direct control, including, but not limited to, the performance of the loan portfolio, consideration of current economic trends, changes in interest rates and property values, estimated losses on pools of homogeneous loans based on an analysis that uses historical loss experience for prior periods, portfolio growth and concentration risk, management and staffing changes, the interpretation of loan risk classifications by regulatory authorities and other credit market factors.

While each component of the ACL is determined separately, the entire balance is available for the entire loan portfolio.

The ACL methodology consists of measuring loans on a collective (pool) basis when similar risk characteristics exist.

The Company has identified five loan portfolios and measures the ACL using the Scaled CECL Allowance for Losses Estimator (“SCALE”) method.

The loan portfolios are one to four -family residential real estate, commercial real estate, multi-family real estate, construction and consumer.

The SCALE method uses publicly available data from Schedule RI-C of the Call Report to derive the initial proxy expected lifetime loss rates.

These proxy expected lifetime loss rates are then adjusted for bank-specific facts and circumstances to arrive at the final ACL estimate that adequately reflects the Company’s loss history and credit risk within our portfolio.

The qualitative factors are determined based on the various risk characteristics of each loan segment.

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

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

These risks can be affected by supply and demand conditions of rental housing units, office and retail space and other commercial space in the project’s market area.

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

These risks can be affected by supply and demand conditions of rental housing units, office and retail space and other commercial space in the project’s market area.

We attempt to minimize these risks for loans we originate by soliciting loans from businesses with existing operating performance.

We also use conservative debt coverage ratios in our underwriting, and periodically monitor the operation of the business or project and the physical condition of the property.

Construction lending is generally originated with a loan-to-value ratio, based on the estimated cost to construct, less than or equal to 80 %.

Additionally, the construction loan terms generally include interest only payments for the first 18 months.

The overall costs of construction, building material supply chain and health of the economy, including housing prices, will have an effect on the credit quality in this segment.

Consumer Loans

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Repayment is dependent on the credit quality of the individual borrower or borrowers.

The qualitative factors applied to each loan portfolio consist of the impact of other internal and external qualitative and credit market factors as assessed by management through a detailed loan review, ACL analysis and credit discussions.

These internal and external qualitative and credit market factors include:

changes in lending policies and procedures, including changes in underwriting standards and collections, charge-offs and recovery practices;

changes in international, national, regionally and local conditions;

● changes in the experience, depth and ability of lending management;

● changes in the volume and severity of past due loans and other similar loan conditions;

● changes in the nature and volume of the loan portfolio and terms of loans;

● the existence and effect of any concentrations of credit and changes in the levels of such concentrations;

● effects of other external factors, such as competition, legal or regulatory factors, on the level of estimated credit losses;

● changes in the quality of our loan review functions;

● changes in the value of underlying collateral for collateral dependent loans.

The impact of the above listed internal and external qualitative and credit market risk factors is assessed within predetermined ranges to adjust the ACL totals calculated.

In addition to the pooled analysis performed for the majority of our loan and commitment balances, we also review those loans that have collateral dependency or nonperforming status which requires a specific review of that loan, per our individually analyzed CECL calculations.

Loans are charged off against the ACL when management believes the uncollectibility of a loan balance is confirmed, while recoveries of amounts previously charged-off are credited to the ACL.

Approved releases from previously established ACL reserves authorized under our ACL methodology also reduce the ACL.

Additions to the ACL are established through the provision for credit losses on loans, which is charged to expense.

The Company’s ACL methodology is intended to reflect all loan portfolio risk, but management recognizes the inability to accurately depict all future credit losses in a current ACL estimate, as the impact of various factors cannot be fully known.

Accrued interest receivable on loans, totaling $ 392,000 as of December 31, 2023, is excluded from the amortized cost basis of financing receivables for the purpose of determining the allowance for credit losses.

Allowance for Credit Losses on Unfunded Loan Commitments

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk by a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.

The ACL related to off-balance sheet credit exposures, which is within other liabilities on the Company’s Consolidated Balance Sheet, is estimated at each balance sheet date under the CECL model, and is adjusted as determined necessary through the provision for credit losses on the statement of operations.

The estimate for ACL on unfunded loan commitments includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Prior to the implementation of ASU No.

2016 - 13 (CECL) on January 1, 2023, the allowance for credit losses was subject to the guidance included in ASC 310 and ASC 450.

Under that guidance, the Company was required to use an incurred loss methodology to estimate credit losses that were estimated to be incurred in the loan portfolio and that could ultimately materialize into confirmed losses in the form of charge-offs.

The incurred loss methodology was a backward-looking approach to loss recognition and based on the concept of a triggering event having taken place, causing a loss to be inherent within the portfolio.

Additionally, loans that were identified as impaired under the definition of ASC 310, were required to be assessed on an individual basis.

The allowance for credit losses and resulting provision expense levels for comparative periods presented were estimated in accordance with these requirements.

The allowance for loan losses (the “allowance”) is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.

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

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

The allowance for loan losses is evaluated on a regular basis by management.

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

The allowance consists of general and allocated components, as further described below.

General Component

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments:

first mortgage loans and consumer loans.

Management uses an average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment.

This historical loss factor is adjusted for the following qualitative factors:

levels/trends in delinquencies;

trends in volume and terms of loans;

effects of changes in risk selection and underwriting standards, and other changes in lending policies, procedures and practices;

experience/ability/depth of lending management and staff;

and national and local economic trends and conditions.

Allocated Component

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Based on internal ratings, loans are evaluated for impairment on a loan-by-loan basis.

Impairment is measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan.

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Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all circumstances surrounding the loan and borrower, including the length of the delay, reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the amount of principal and interest owed.

The Bank periodically may agree to modify the contractual terms of loans.

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Land improvements

3 - 10  

Office building and improvements

10 - 40  

Furniture and equipment

3 - 10  

Deferred taxes are recognized using the asset/liability method.

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Property acquired in satisfaction of debt or through foreclosure is carried at the lower of cost or market value less estimated costs to sell.

At foreclosure, if the fair value of the property acquired is less than the recorded investment in the related loan, a reduction in the carrying amount of the loan is recognized with a charge to the allowance for loan losses.

The cost of carrying the assets subsequent to foreclosure and any decrease in the market value occurring after that date are charged to operating expenses as incurred.

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Service charges on deposits represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue, or some other individual attribute-based revenue.

Revenue is recognized when the Bank’s performance obligation is completed, which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer).

Payment for such performance obligations are generally received at the time performance obligations are satisfied.

Dividend Restrictions

Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to its stockholders. 

Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the holding company or by the holding company to its stockholders.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been relinquished.

Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Bank, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before maturity. 

Stock Based Compensation

The Company maintains an equity incentive plan under which restricted stock and stock options may be granted to employees and directors, see Note 12.

The Company recognizes the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards in accordance with ASC 718, “Compensation-Stock Compensation”.

The Company estimates the per share fair value of option grants on the date of grant using the Black-Scholes option pricing model using assumptions for the expected dividend yield, expected stock price volatility, risk-free interest rate and expected option term.

These assumptions are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision.

The Black-Scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public markets.

The per share fair value of options is highly sensitive to changes in assumptions.

In general, the per share fair value of options will move in the same direction as changes in the expected stock price volatility, risk-free interest rate and expected option term, and in the opposite direction as changes in the expected dividend yield.

For example, the per share fair value of options will generally increase as expected stock price volatility increases, risk-free interest rate increases, expected option term increases and expected dividend yield decreases.

The use of different assumptions or different option pricing models could result in materially different per share fair values of options.

The Company recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards.

The Company’s accounting policy is to recognize forfeitures as they occur.

Forfeited shares are added back to the pool of shares available for future grants.

Employee Stock Ownership Plan

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Dividends on allocated ESOP shares reduce retained earnings;

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

Treasury Stock

Treasury stock acquired is recorded at cost and is carried as a reduction of stockholders’ equity in the Consolidated Balance Sheets.

Treasury stock issued is valued based on the “last in, first out” inventory method.

The difference between the consideration received upon issuance and the carrying value is charged or credited to additional paid-in capital.

Earnings per Share

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1 year or less

$ 2,433  

$ 1,007  

$ 3,968  

11,511  

20,033  

22,809  

64,602  

$ 2,973 $ — $ 1,292 $ — $ — $ 4,265

— 4,769 1,461 8,976 12,919 28,125

5 to 10 years

15,046  

11,848  

38,421  

— 4,337 882 19,777 9,756 34,752

After 10 years

11,060  

14,214  

$ 7,288  

$ 21,390  

$ 19,637  

$ 35,738  

$ 37,152  

$ 121,205  

— — 9,935 1,598 3,460 14,993

$ 2,973 $ 9,106 $ 13,570 $ 30,351 $ 26,135 $ 82,135

Gross unrealized gains

Gross unrealized losses

( 155 )  

( 1,870 )  

( 2,972 )  

( 5,464 )  

( 5,105 )  

( 22 ) ( 1,128 ) ( 1,882 ) ( 4,533 ) ( 3,938 ) ( 11,503 )

Amortized cost

$ 7,443  

$ 23,260  

$ 22,603  

$ 41,202  

$ 42,257  

$ 136,765  

$ 2,995 $ 10,234 $ 15,451 $ 34,884 $ 30,073 $ 93,637

December 31, 2022

government agency obligations  

Municipal obligations

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Collateralized mortgage obligations

Total available-for-sale  

(Dollars in thousands)

1 year or less

$ 1,631  

$ 1,064  

$ 3,051  

29,375  

16,097  

55,000  

$ 2,433 $ 1,007 $ 528 $ — $ — $ 3,968

4,855 11,511 5,394 20,033 22,809 64,602

5 to 10 years

12,417  

11,976  

31,103  

— 8,872 2,655 15,046 11,848 38,421

After 10 years

10,184  

11,796  

$ 10,053  

$ 18,000  

$ 42,148  

$ 30,749  

$ 100,950  

— — 11,060 659 2,495 14,214

$ 7,288 $ 21,390 $ 19,637 $ 35,738 $ 37,152 $ 121,205

Gross unrealized gains

Gross unrealized losses

( 78 )  

( 14 )  

( 612 )  

( 443 )  

( 155 ) ( 1,870 ) ( 2,972 ) ( 5,464 ) ( 5,105 ) ( 15,566 )

Amortized cost

$ 10,058  

$ 17,591  

$ 42,501  

$ 30,913  

$ 101,063  

$ 7,443 $ 23,260 $ 22,603 $ 41,202 $ 42,257 $ 136,765

As of December 31, 2023 and 2022 , no securities were pledged to secure public deposits or for other purposes as required or permitted by law.

At December 31, 2022  and 2021 , there were no holdings of securities of any one issuer, other than the U.S.

Government and its agencies, in an amount greater than 10% of equity. 

At December 31, 2023 and 2022 , there were no holdings of securities of any one issuer, other than the U.S.

Government and its agencies, in an amount greater than 10% of equity.

Information pertaining to securities with gross unrealized losses at December 31, 2023 and 2022 , aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows:

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(Dollars in thousands)

$ 7,288  

$ — $ — $ 2,973 $ 22 $ 2,973 $ 22

government agency obligations

17,274  

21,390  

— — 9,106 1,128 9,106 1,128

Municipal obligations

16,823  

18,860  

279 1 12,796 1,881 13,075 1,882

Mortgage-backed residential obligations

14,365  

21,373  

35,738  

— — 30,351 4,533 30,351 4,533

Collateralized mortgage obligations

21,449  

15,703  

37,152  

$ 77,199  

$ 7,432  

$ 43,229  

$ 8,134  

$ 120,428  

$ 15,566  

— — 26,135 3,938 26,135 3,938

$ 279 $ 1 $ 81,361 $ 11,502 $ 81,640 $ 11,503

December 31, 2022

$ 7,288 $ 155 $ — $ — $ 7,288 $ 155

government agency obligations

$ 4,020  

$ 1,105  

$ 5,125  

17,274 1,296 4,116 574 21,390 1,870

Municipal obligations

16,823 2,349 2,037 623 18,860 2,972

Mortgage-backed residential obligations

26,540  

29,321  

14,365 1,618 21,373 3,846 35,738 5,464

Collateralized mortgage obligations

16,715  

21,101  

$ 49,674  

$ 8,519  

$ 58,193  

$ 1,147  

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

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

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

21,449 2,014 15,703 3,091 37,152 5,105

$ 77,199 $ 7,432 $ 43,229 $ 8,134 $ 120,428 $ 15,566

At December 31, 2023 and 2022, certain investment securities were in unrealized loss positions.

There were no securities with identified credit losses at December 31, 2023, and no securities with other than temporary impairment losses at December 31, 2022.

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

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

Treasuries, U.S.

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

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

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

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

government.  

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

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

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

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

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

The following table represents the proceeds from the sale of securities available-for-sale and the related gross gains and losses during the periods presented. 

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

There have been no declines in investment grade ratings on bonds in a loss position and as of December 31, 2023, all municipal bonds are paying as agreed.

The following table represents the proceeds from the sale of securities available-for-sale and the related gross gains and losses during the periods presented.

At December 31,

1 unchanged sentence

Sales of securities available for sale

$ 6,769  

Gross gain realized on the sale of securities available for sale

1 unchanged sentence

A summary of loans by major category as of December 31, 2023 and 2022 is as follows:

(Dollars in thousands)  

December 31, 2023

December 31, 2022

(Dollars in thousands)

First mortgage loans

1-4 family residential

$ 95,584  

$ 88,028  

$ 111,081 $ 95,584

Total first mortgage loans

102,742  

96,129  

120,535 102,742

Consumer loans

102,991  

96,501  

120,783 102,991

Net deferred loan costs

Allowance for loan losses

( 624 )  

Allowance for credit losses on loans

( 1,176 ) ( 624 )

Total loans, net

$ 103,359  

$ 96,534  

First mortgage loans serviced for others are not included in the accompanying balance sheets.

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

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

$ 120,623 $ 103,359

First mortgage loans serviced for others are not included in the accompanying Consolidated Balance Sheets.

The unpaid principal balance of these loans totaled $ 13.2 million and $ 13.7 million at December 31, 2023 and 2022 , respectively.

Custodial escrow balances maintained in connection with the foregoing loan servicing were $ 231,000 at December 31, 2023 and 2022 .

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

The terms of these loans, including interest rate and collateral, are similar to those prevailing for comparable transactions with other customers and do not involve more than a normal risk of collectability.

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

Allowance for Loan Losses

Changes in the allowance for loan losses and the related loan balance information by portfolio segment as of and for the years ended December 31, 2022 and 2021 were as follows:

At December 31, 2023 and 2022 , such borrowers were indebted to the Bank in the aggregate amount of $ 550,000 and $ 597,000 , respectively.

Allowance for Credit Losses

The following tables present the activity in the allowance for credit losses and allowance for loan losses for the years ended December 31, 2023 and 2022:

December 31, 2023

2 unchanged sentences

Beginning balance

Net recoveries

Reversal of provision for loan losses

( 169 )  

( 50 )  

$ 581 $ 19 $ 19 $ — $ 5 $ 624

Cumulative effect of change in accounting principle

335 23 29 — ( 3 ) 384

Net recoveries (charge-offs)

Provision for (release of) credit losses

178 ( 2 ) ( 11 ) 4 ( 1 ) 168

Ending balance

$ 1,094 $ 40 $ 37 $ 4 $ 1 $ 1,176

December 31, 2022

1-4 family residential

(Dollars in thousands)  

Beginning balance

( 99 )  

Net recoveries (charge-offs)

( 99 )  

(Reversal of) Provision for loan losses

( 154 )  

( 13 )  

$ 675 $ 69 $ 25 $ 10 $ 779

Net recoveries

Release of loan losses

( 169 ) ( 50 ) ( 6 ) ( 5 ) ( 230 )

Ending balance

The balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2022  and 2021 , were as follows:

$ 581 $ 19 $ 19 $ 5 $ 624

The ACL on loans excludes $ 14,000 of allowance for off-balance sheet exposures as of December 31, 2023 recorded within Other Liabilities on the Consolidated Balance Sheets.

The balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2022 were as follows:

Collectively evaluated

9 unchanged sentences

1-4 family residential

$ 94,711  

$ 95,584  

$ 102,118  

$ 102,991  

December 31, 2021

1-4 family residential

$ 86,892  

$ 1,136  

$ 88,028  

$ 95,365  

$ 1,136  

$ 96,501  

$ 512 $ 94,711 $ 69 $ 873 $ 581 $ 95,584

19 3,237 — — 19 3,237

19 3,921 — — 19 3,921

5 249 — — 5 249

$ 555 $ 102,118 $ 69 $ 873 $ 624 $ 102,991

As of December 31, 2023, collateral dependent loans totaled $ 200,000 in the one to four -family residential loan segment.

These loans are collateralized by residential real estate and have no ACL as of December 31, 2023.

There were no other collateral dependent loans as of December 31, 2023.

The Bank evaluates collectability based on payment activity and other factors.

2 unchanged sentences

Special Mention

Loans in this category are internally designated by management as “watch loans.”

These loans are starting to show signs of potential weakness and are closely monitored by management.

Loans in this category are internally designated by management as “substandard.”

Generally, a loan is considered substandard if it is inadequately protected by the paying capacity of the obligors or the current net worth of the collateral pledged.

Loans in this category are internally designated by management as “watch loans.” These loans are starting to show signs of potential weakness and are closely monitored by management.

Loans in this category are internally designated by management as “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the paying capacity of the obligors or the current net worth of the collateral pledged.

Substandard loans present a distinct possibility that the Bank will sustain losses if such weaknesses are not corrected.

Loans classified as doubtful have all the weaknesses inherent in those designated as “substandard”

with the added characteristic that the weaknesses may make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans classified as doubtful have all the weaknesses inherent in those designated as “substandard” with the added characteristic that the weaknesses may make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

On an annual basis, or more often if needed, the Bank formally reviews the ratings on commercial loans.

1 unchanged sentence

Management uses the results of the independent review as part of its annual review process.

The following table presents loan balances based on risk rating by class of loans as of December 31, 2022 and 2021 :

Special  

The following tables present the credit risk profile of the Company's loan portfolio based on risk rating category and year of origination as of December 31, 2023 and the risk rating category and class of loan as of December 31, 2022.

As of December 31, 2023

Term loans amortized cost basis by origination year

Revolving loans amortized cost basis

Revolving loans converted to term loans amortized cost basis

(Dollars in thousands)

December 31, 2022

1-4 family residential

$ 95,353  

$ 95,584  

$ 102,760  

$ 102,991  

$ 23,395 $ 18,950 $ 19,605 $ 47,517 $ 1,414 $ — $ 110,881

Special Mention

— — — — — — —

— — — 200 — — 200

Total 1-4 family residential

23,395 18,950 19,605 47,717 1,414 — 111,081

Current year-to-date gross write-offs

— — — — — — —

— — 239 2,872 — — 3,111

Special Mention

— — — — — — —

Total multi-family

— — 239 2,872 — — 3,111

Current year-to-date gross write-offs

— — — — — — —

186 — 100 3,399 150 — 3,835

Special Mention

— — — — — — —

Total commercial

186 — 100 3,399 150 — 3,835

Current year-to-date gross write-offs

— — — — — — —

2,508 — — — — — 2,508

Special Mention

— — — — — — —

Total construction

2,508 — — — — — 2,508

Current year-to-date gross write-offs

— — — — — — —

122 95 28 3 — — 248

Special Mention

— — — — — — —

Total consumer

122 95 28 3 — — 248

Current year-to-date gross write-offs

— — — — — — —

$ 26,211 $ 19,045 $ 19,972 $ 53,991 $ 1,564 $ — $ 120,783

Special Mention

(Dollars in thousands)

December 31, 2022

1-4 family residential

$ 87,881  

$ 88,028  

$ 96,354  

$ 96,501  

The aging of the Bank’s loan portfolio by class of loans as of December 31, 2022 and 2021 , is as follows:

31-89 Days Past Due and Accruing  

Greater than 90 Days Past Due and Accruing  

$ 95,353 $ 43 $ 188 $ — $ 95,584

3,237 — — — 3,237

3,921 — — — 3,921

249 — — — 249

$ 102,760 $ 43 $ 188 $ — $ 102,991

The aging of the Bank’s loan portfolio as of December 31, 2023 and 2022, is as follows:

31-89 Days Past Due and Accruing

Greater than 90 Days Past Due and Accruing

Total Past Due and Non-Accrual

Total Loan Balance

(Dollars in thousands)  

December 31, 2023

1-4 family residential

$ 95,402  

$ 95,584  

$ 102,809  

$ 102,991  

$ 131 $ — $ 200 $ 331 $ 110,750 $ 111,081

— — — — 3,111 3,111

— — — — 3,835 3,835

— — — — 2,508 2,508

— — — — 248 248

$ 131 $ — $ 200 $ 331 $ 120,452 $ 120,783

December 31, 2022

1-4 family residential

$ 87,885  

$ 88,028  

$ 96,358  

$ 96,501  

Loans individually evaluated for impairment by class of loans as of December 31, 2022 and 2021 , were as follows:

$ 28 $ — $ 154 $ 182 $ 95,402 $ 95,584

— — — — 3,237 3,237

— — — — 3,921 3,921

— — — — 249 249

$ 28 $ — $ 154 $ 182 $ 102,809 $ 102,991

The following table presents the amortized cost basis of loans on nonaccrual status recorded at December 31, 2023 and 2022.

December 31, 2023

December 31, 2022

Nonaccrual with no Allowance for Credit Losses

(Dollars in thousands)

First mortgage loans

1-4 family residential

$ 200 $ 200 $ 154

Consumer loans

$ 200 $ 200 $ 154

Loans individually evaluated for impairment by class of loans as of December 31, 2022 were are follows:

Recorded investment

Unpaid principal balance  

Related allowance

Average recorded investment

Interest income recognized  

(Dollars in thousands)

2 unchanged sentences

1-4 family residential

With a related allowance recorded

1-4 family residential

Total individually assessed as of December 31, 2022

$ 1,079  

December 31, 2021

With no related allowance recorded

1-4 family residential

$ 429 $ 635 $ — $ 442 $ 29

With a related allowance recorded

1-4 family residential

$ 444 $ 444 $ 69 $ 452 $ 21

Total individually assessed as of December 31, 2022

$ 1,136  

$ 1,392  

$ 1,145  

$ 873 $ 1,079 $ 69 $ 894 $ 50

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net, due to immateriality.

For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs. 

Troubled debt restructurings provide for modifications to repayment terms;

For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.

The Bank may modify loans to borrowers experiencing financial difficulty by providing modifications to repayment terms;

more specifically, modifications to loan interest rates.

Management performs an impairment analysis at the time of restructuring and periodically thereafter.

Any reserve required is recorded through a provision to the allowance for loan losses.

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

Management performs an analysis at the time of loan modification.

Any reserve required is recorded through a provision to the allowance for credit losses on loans.

As of January 1, 2023, the Company adopted ASU 2022 - 02, Financial Instruments - Credit Losses (Topic 326 ):

Troubled Debt Restructuring and Vintage Disclosures , see Note 1.

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

There were no new troubled debt restructurings during the year ended December 31, 2022.

Premises and Equipment

The components of premises and equipment as of December 31, 2023 and 2022 , are as follows:

(Dollars in thousands)  

Land and improvements

$ 2,703  

$ 2,701  

$ 2,940 $ 2,703

Building and improvements

1 unchanged sentence

Total gross equipment

10,861  

10,649  

11,376 10,861

Less accumulated depreciation

Premises and equipment, net

$ 5,035  

$ 5,087  

$ 5,285 $ 5,035

Other Real Estate Owned

There was no other real estate owned ("OREO") at December 31, 2023 and 2022.

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

At December 31,

(Dollars in thousands)

Transfer of loans to OREO

Gross gain realized on transfer to OREO

Gross gain realized on sale of OREO

The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process is $ 0 and $ 60,000 , as of December 31, 2022 and 2021 , respectively.

Additionally, there was no movement in OREO during the years ended December 31, 2023 and 2022.

The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process is $ 64,000 as of December 31, 2023.

There were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process as of December 31, 2022.

As of December 31, 2023 , for years below ended December 31, the scheduled maturities of time deposits are as follows:

(Dollars in thousands)  

$ 30,618  

14,651  

(Dollars in thousands)

2028 and beyond

$ 55,386  

In the normal course of business, deposit accounts are held by directors and officers of the Bank (related parties).

The terms for these accounts, including interest rates, fees, and other attributes, are similar to those prevailing for comparable transactions with other customers and do not involve more than the normal level of risk associated with deposit accounts.

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

At December 31, 2023 and 2022 , total deposits held by directors and officers of the Company and the Bank were $ 739,000 and $ 724,000 , respectively.

Other Borrowings

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

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

The Bank is eligible to borrow up to a total of $ 68.6 million and $ 60.8 million at December 31, 2022 and 2021 , respectively, which would be collateralized by $ 86.6 million and $ 76.8 million of first mortgage loans under a blanket lien arrangement at December 31, 2022 and 2021 , respectively.

Additionally, at December 

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

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

Year Ended December 31,  

During the year ended December 31, 2023, the Company borrowed $ 5.0 million from the FHLB Chicago at a rate of 4.78 % for 24 months, payable on June 20, 2025.

The advance is collateralized by loans pledged to the FHLB and is payable at maturity, with a prepayment penalty if repayment is made prior to the maturity date.

Additionally, during the fourth quarter of 2023, the Company borrowed $ 10.0 million from the Federal Reserve Bank of Chicago as part of the Bank Term Funding Program, at a rate of 5.31 % for 12 months, payable in November 2024.

The borrowing was repaid in December 2023.

The borrowing was collateralized by securities pledged to the FRB and was payable at maturity with no prepayment penalty.

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

At or For the Year Ended December 31,

(Dollars in thousands)

Current (benefit) expense

$ ( 133 )  

Total current (benefit) expense

( 133 )  

Deferred expense (benefit)

FHLB of Chicago advances and other borrowings:

Average balance outstanding

$ 3,461 $ 1,945

Maximum amount outstanding at any month-end during the period

Balance outstanding at end of period

Average interest rate during the period

Weighted average interest rate at end of period

The following table shows the outstanding advances, additional borrowing capacity and total borrowing capacity from the FHLB Chicago at the dates presented.

December 31, 2023

December 31, 2022

(Dollars in thousands)

Outstanding advances

Additional borrowing capacity

72,200 68,586

Total borrowing capacity

$ 77,200 $ 68,586

The eligible borrowings are collateralized by

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.

Income tax expense for the years ended December 31, 2023 and 2022 , is summarized as follows:

Year Ended December 31,

(Dollars in thousands)

Current expense (benefit)

$ 9 $ ( 133 )

Total current expense (benefit)

Deferred (benefit) expense

Change in valuation allowance

Total deferred expense (benefit)

Total income tax expense (benefit)

The difference between the income tax expense shown on the statements of income and the amounts computed by applying the statutory federal income tax rate to income before income taxes is primarily due to tax-exempt income, the change in valuation allowance, and the adjustment of deferred taxes for enacted changes in tax laws. The provision for income taxes differs from that computed are as follows:

Total deferred expense

Total income tax expense

The provision for income taxes differs from that computed are as follows:

Year Ended December 31,

(Dollars in thousands)

Income (losses) before income tax expense

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

( 36 )  

State income tax, net of federal effect

( 13 )  

(Loss) Income before income tax expense

$ ( 2,958 ) $ 173

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

State income tax benefit (expense), net of federal effect

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

Valuation allowance on Federal NOL

( 150 )  

( 67 )  

Total income tax (expense) benefit

$ ( 146 )  

Change in valuation allowance

( 2,140 ) ( 150 )

Total income tax expense

$ ( 999 ) $ ( 146 )

Effective tax rate

( 84.4 )%  

( 33.8 )% ( 84.4 )%

The tax effects of existing temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2023 and 2022 , are as follows:

Year Ended December 31,  

(Dollars in thousands)  

Year Ended December 31,

(Dollars in thousands)

Deferred tax assets

Allowance for loan losses

Allowance for credit losses

Deferred compensation

5 unchanged sentences

Gross deferred tax assets

Valuation allowance on federal and state NOLs

( 521 )  

Valuation allowance

( 2,661 ) ( 521 )

Net deferred tax assets

1 unchanged sentence

FHLB stock dividends

( 101 )  

( 101 ) ( 101 )

Accumulated depreciation

( 80 )  

Deferred tax liabilities

( 181 )  

( 105 ) ( 181 )

Net deferred tax asset

$ 5,315  

$ 3,279 $ 5,315

The Bank does not expect the total amount of unrecognized tax benefits to change significantly in the next twelve months.

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

Gross Federal net operating losses (NOL) as of December 31, 2023 and 2022 are $ 5.0 million, and $ 1.7 million, respectively.

A portion of the Federal NOL, related to charitable contributions, totaling $ 1.3 million, as of December 31, 2023, will expire in 2027.

The remainder of the Federal NOL does not expire.

During 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 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.

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 NOLs has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized.

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

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

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

On the basis of this evaluation, as of December 31, 2023, a full valuation allowance of $ 2.1 million on Federal NOLs and other temporary differences, other than those arising from the unrealized loss on securities available-for-sale, has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized.

NOL carryforwards for state income tax purposes were approximately $ 5.6 million and $ 3.9 million at December 31, 2023 and 2022 , respectively, and will begin expiring in 2024.

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.

1 unchanged sentence

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.

Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under accounting principles generally accepted in the United States of America, regulatory reporting requirements and regulatory capital standards.

The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements.

The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulatory reporting standards to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, common equity Tier 1 capital to total risk-weighted assets and of Tier I capital to average assets, as such individual components and calculations are defined by related standards.

As of December 31, 2023 , the most recent notification from the regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

There are no conditions or events since that notification which management believes have changed the Bank’s category.

On November 13, 2019, the federal regulators finalized and adopted a regulatory capital rule establishing a new community bank leverage ratio (“CBLR”), which became effective on January 1, 2020.

There are no conditions or events since that notification which management believes have changed the Bank’s category.

On November 13, 2019, the federal regulators finalized and adopted a regulatory capital rule establishing a new community bank leverage ratio (“CBLR”), which became effective on January 1, 2020.

The intent of CBLR is to provide a simple alternative measure of capital adequacy for electing qualifying depository institutions and depository institution holding companies, as directed under the Economic Growth, Relief, and Consumer Protection Act.

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

In April 2020, under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the 9% leverage ratio threshold was temporarily reduced to 8% in response to the COVID- 19 pandemic.

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

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

Management believes, as of December 31, 2023 , that the Bank met all capital adequacy requirements to which it was subject.

The Bank’s actual capital amounts and ratios as of December 31, 2022 and 2021 , are presented below:

The Bank’s actual capital amounts and ratios as of December 31, 2023 and 2022 , are presented below:

Minimum Required to be Well-Capitalized (1)

2 unchanged sentences

Tier 1 capital (to Average Assets)

$ 65,634  

24.81 %  

$ 23,809  

$ 63,258 24.72 % $ 23,031 >9%

As of December 31, 2022

Tier 1 capital (to Average Assets)

$ 44,262  

16.11 %  

$ 23,349  

$ 65,634 24.81 % $ 23,809 >9%

( 1 ) As defined by regulatory agencies.

4 unchanged sentences

Benefit Plans

During 2021, the Bank made final payouts for the Directors' Retirement Fund and Equity Value Plan.

Both plans were fully accrued for prior to 2020.

The Bank sponsors a noncontributory Profit-Sharing Plan covering all employees who have worked more than 1,000 hours during the plan year.

Profit sharing expense for the years ended 

2022 and 

2021 was $ 0 .

Management implemented a 401 (k)-benefit plan during 2007.

Employee contributions are matched up to the first 6 % of compensation contributed by the employee.

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

Employer match contributions totaled $ 161,000 for 2023 and $ 150,000 for 2022 .

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

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

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

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

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

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

The Bank sponsors a noncontributory Profit-Sharing Plan covering all employees who have worked more than 1,000 hours during the plan year.

Profit sharing expense for the years ended 2023 and 2022 was $ 0 .

Stock Based Compensation

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

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

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

2 unchanged sentences

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

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

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

4 unchanged sentences

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

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

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

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

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

The ESOP compensation expense for the year ended December 31, 2023 and 2022 was $ 199,000 and $ 246,000

Shares held by the ESOP were as follows:

1 unchanged sentence

(Dollars in thousands)

Shares committed for allocation

22,009  

409,827  

Shares allocated

43,624 22,009

388,212 409,827

Total ESOP shares

431,836  

Fair value of unearned shares at December 31, 2022

$ 4,152  

431,836 431,836

Fair value of unearned shares as of December 31, 2023 and December 31, 2022 respectively

$ 3,692 $ 4,152

Equity Incentive Plan

At the Company's annual meeting of stockholders held on May 24, 2023, stockholders approved the NSTS Bancorp, Inc.

2023 Equity Incentive Plan ( “2023 Equity Plan”), which provides for the granting of up to 755,714 shares ( 215,918 shares of restricted stock and 539,796 shares available for future grants of stock options) of the Company’s common stock pursuant to equity awards made under the 2023 Equity Plan.

Stock options granted under the 2023 Equity Plan generally vest in equal annual installments over a service period of five years beginning on the date of grant.

The vesting of the options accelerates upon death, disability or an involuntary termination at or following a change in control of the Company.

Stock options are generally granted at an exercise price equal to the fair value of the Company’s common stock on the grant date based on the closing market price of the Company's common stock on the date of grant, and have an expiration period of ten years.

In June 2023, the Company granted 465,500 stock options under the 2023 Equity Plan.

As of December 31, 2023, the Company has 74,296 shares available for future grants of stock options under the 2023 Equity Plan.

The fair value of stock options granted is estimated utilizing the Black-Scholes option pricing model using the following assumptions:

an expected life of 6.5 years, risk-free rate of 3.82 %, volatility of 29.0 % and a dividend yield of 0.0 %.

Due to the limited historical information of the Company’s stock, management considered the weighted historical volatility of the common stock of the Company and other similar entities for an appropriate period in determining the volatility rate used in the estimation of fair value.

The expected life of the stock option was estimated using the simplified method.

The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time of grant.

The Company recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards.

Upon exercise of vested options, management expects to first draw on treasury stock as the source for shares.

The weighted average grant date fair value of stock options granted during the year ended December 31, 2023 was $ 3.56 .

The following is a summary of the Company's stock option activity and related information for the periods presented.

There was no stock option activity for the year ended December 31, 2022.

Weighted Average Exercise Price

Aggregate Intrinsic Value (1)

Options, outstanding January 1, 2023

( 23,000 ) 9.36

Options, outstanding December 31, 2023

442,500 $ 9.36 $ 66

Exercisable - End of Period

23,000 $ 9.36 $ 3

( 1 ) Dollars in thousands.

Expected future expense relating to the non-vested options outstanding as of December 31, 2023 is $ 1.4 million over a weighted average period of 4.5 years.

As of December 31, 2023, the Company had 442,500 in nonvested stock options with a weighted average remaining life of 9.5 years.

Restricted shares granted under the 2023 Equity Plan generally vest in equal annual installments over a service period of five years beginning on the date of grant.

The vesting of the awards accelerates upon death, disability or an involuntary termination at or following a change in control of the Company.

The product of the number of shares granted and the grant date closing market price of the Company’s common stock determines the fair value of restricted shares under the 2023 Equity Plan.

Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period.

On June 15, 2023, the Company granted to employees, under the 2023 Equity Plan, 187,200 shares of restricted stock with a total grant-date fair value of $ 1.8 million.

These restricted stock awards vest in equal installments over a five -year period beginning one year from the date of grant.

As of December 31, 2023, the Company has 28,718 shares of restricted stock available for future grants under the 2023 Equity Plan.

The following is a summary of the status of the Company's restricted shares as of December 31, 2023 and changes thereto during the period presented.

Restricted Stock

Weighted Average Grant Date Fair Value

Nonvested balance as of December 31, 2022

( 9,200 ) 9.36

Nonvested balance as of December 31, 2023

178,000 $ 9.36

Expected future expense related to the non-vested restricted shares outstanding as of period end is $ 1.5 million over a weighted average period of 4.5 years.

The following table presents the stock based compensation expense for the periods presented.

Year Ended December 31,

(Dollars in thousands)

Stock option expense

Restricted stock expense

Total stock based compensation expense

For the year ended December 31, 2023, the total deferred tax benefit related to the $ 519,000 of stock based compensation expense was $ 123,000 .

Due to the passing of Director Dolan, 23,000 stock options and 9,200 restricted stock awards vested during the fourth quarter of the year ended December 31, 2023.

The early vesting of the stock options and restricted stock awards resulted in an additional expense of $ 73,000 and $ 77,000 , respectively, during the year ended December 31, 2023.

Commitments and Contingencies

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Unused line of credit

$ 2,872  

$ 4,001  

$ 4,050 $ 2,872

Commitments to originate loans

Total commitments

$ 3,665  

$ 4,220  

$ 7,820 $ 3,665

Concentrations of Credit Risk

The Bank generally originates single-family residential loans within its primary lending area which is Waukegan, Illinois and the surrounding area.

The Bank’s underwriting policies require such loans to be made at approximately 80 % loan-to-value, based upon appraised values, unless private mortgage insurance is obtained, or the loan is guaranteed by the government.

These loans are secured by the underlying properties.

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Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities

An asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Following is a description of the valuation methodologies used for assets measured at fair value.

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In certain cases where Level 1 or Level 2 inputs are not available, securities would be classified within Level 3 of the hierarchy.

Impaired Loans (Nonrecurring)

Impaired loans are recorded at fair value on a nonrecurring basis.

Individually Evaluated (Nonrecurring)

Individually evaluated (formerly, impaired) loans are recorded at fair value on a nonrecurring basis.

The fair value of loans is generally based on recent real estate appraisals.

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Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification.

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

The following table presents the Bank’s assets that are measured at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of December 31, 2022 and 2021 :

Individually evaluated loans are evaluated on a quarterly basis for additional credit losses and adjusted accordingly.

Fair Value Measurements Using

(Dollars in thousands)  

December 31, 2023

Securities Available-for-sale

Treasury Notes

$ 7,288  

$ 2,973 $ 2,973 $ — $ —

government agency obligations

21,390  

9,106 — 9,106 —

Municipal obligations

19,637  

13,570 — 13,570 —

Mortgage-backed residential obligations

35,738  

30,351 — 30,351 —

Collateralized mortgage obligations

37,152  

$ 121,205  

$ 7,288  

$ 113,917  

26,135 — 26,135 —

$ 82,135 $ 2,973 $ 79,162 $ —

December 31, 2022

Securities Available-for-sale

$ 7,288 $ 7,288 $ — $ —

government agency obligations

$ 10,053  

10,053  

21,390 — 21,390 —

Municipal obligations

18,000  

19,637 — 19,637 —

Mortgage-backed residential obligations

42,148  

35,738 — 35,738 —

Collateralized mortgage obligations

30,749  

$ 100,950  

100,950  

37,152 — 37,152 —

$ 121,205 $ 7,288 $ 113,917 $ —

The Bank may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with accounting principles generally accepted in the United States of America.

These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period.

Assets measured at fair value on a nonrecurring basis and the valuation techniques used to measure nonrecurring Level 3 fair value measurements as of December 31, 2022 and 2021 , were as follows:

There were no assets measured at fair value on a nonrecurring basis as of December 31, 2023 and the valuation techniques used to measure nonrecurring Level 3 fair value measurements as of December 31, 2023 and 2022 , were as follows:

Fair Value Measurements Using

(Dollars in thousands)  

December 31, 2022

Impaired loans

(Dollars in thousands)

December 31, 2022

Impaired loans

$ 375 — — 375 $ —

The numerical range of unobservable inputs for the valuation assumptions used in calculating the amounts disclosed above is not meaningful to this presentation.

Fair Value of Financial Instruments

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

Fair Value Measurements.

The following disclosures include financial instruments that are not carried at fair value on the Consolidated Balance Sheets.

The calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values. 

Certain financial instruments generally expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market.

The carrying value of these financial instruments assumes to approximate the fair value of these instruments.

These instruments include cash and cash equivalents, 

non-interest-bearing deposit accounts, time deposits with other financial institutions, FHLB stock, escrow deposits, FHLB advances and accrued interest receivable and payable.  

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

Fair value estimates, methods and assumptions for the Company’s financial instruments that are

not recorded at fair value on a recurring or non-recurring basis are set forth below.

Fair values are estimated for portfolios of loans with similar financial characteristics.

Loans are segregated by type such as residential mortgage and consumer.

Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories.

Estimated fair value of loans is determined using a discounted cash flow model that employs an exit discount rate that reflects the current market pricing for loans with similar characteristics and remaining maturity, adjusted for estimated credit losses inherent in the portfolio at the balance sheet date.

Interest-bearing deposits:

The fair value of interest-bearing deposits is based on the discounted value of contractual cash flows.

The discount rate is estimated using rates for currently offered deposits of similar remaining maturities.

Other borrowings:

The fair value of borrowings is based on securities dealers’ estimated fair values, when available, or estimated using discounted cash flow analysis.

The discount rates used approximate the rates offered for similar borrowings of similar remaining terms.

Certain financial instruments generally expose the Company to limited credit risk and have

no stated maturities or have short-term maturities and carry interest rates that approximate market.

The carrying value of these financial instruments assumes to approximate the fair value of these instruments.

These instruments include cash and cash equivalents, non-interest-bearing deposit accounts, time deposits with other financial institutions, FHLB stock, escrow deposits and accrued interest receivable and payable.

The carrying amounts and estimated fair values by fair value hierarchy of certain financial instruments are as follows:

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Financial assets:

$ 103,359  

$ 94,779  

$ 120,623 $ — $ — $ 110,288 $ 110,288

Loans held for sale

380 — 387 — 387

Financial liabilities:

Interest-bearing deposits

$ 165,737  

$ 165,535  

156,402 — 156,092 — 156,092

Other borrowings

5,000 — 4,990 — 4,990

December 31, 2022

Financial assets:

$ 96,534  

$ 96,391  

Loans held for sale

$ 103,359 $ — $ — $ 94,779 $ 94,779

Financial liabilities:

Interest-bearing deposits

$ 186,531  

$ 181,564  

165,737 — 165,535 — 165,535

Earnings Per Share

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

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

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

There were no securities or other contracts that had a dilutive effect during the twelve months ended December 31, 2023 and 2022, and therefore the weighted-average common shares outstanding used to calculate both basic and diluted EPS are the same.

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

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

as the Company had no shares outstanding.

Year Ended December 31,

Net income applicable to common shares

Net (loss) income applicable to common shares

$ ( 3,957 ) $ 27

Average number of common shares outstanding

5,131,758  

5,404,371 5,131,758

Average unallocated ESOP shares

402,522  

399,873 402,522

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

4,729,236  

Earnings per common share basic and diluted

$ 0.01  

5,004,498 4,729,236

(Loss) Earnings per common share basic and diluted

$ ( 0.79 ) $ 0.01

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

The computation of diluted earnings per share excludes certain outstanding share option awards that were outstanding and anti-dilutive, since the grant date fair value of these outstanding share option awards exceeded the average market price of the Company's common shares.

Condensed Parent Only Financial Information

The Parent Company’s condensed balance sheet and related condensed statements of operations and cash flows are as follows.

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

The Parent Company’s condensed balance sheet and related condensed statements of operations and cash flows are as follows.

NSTS BANCORP, INC.

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Year ended December 31,

(Dollars in thousands)  

$ 22,194  

(Dollars in thousands)

$ 18,634 $ 22,194

Investment in subsidiary

54,510  

44,181  

$ 80,953  

$ 45,183  

55,035 54,510

$ 77,649 $ 80,953

Accrued expense and other liabilities

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Stockholders' equity

Treasury Stock

Additional paid-in capital

50,420  

50,920 50,420

Retained earnings

45,291  

45,264  

41,055 45,291

Unallocated common shares held by ESOP

( 4,098 )  

( 3,882 ) ( 4,098 )

Accumulated other comprehensive loss, net

( 11,125 )  

( 8,223 ) ( 11,125 )

Total stockholders' equity

80,542  

45,183  

Total liabilities and stockholders’

$ 80,953  

$ 45,183  

77,545 80,542

Total liabilities and stockholders’ equity

$ 77,649 $ 80,953

NSTS BANCORP, INC.

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Year ended December 31,

(Dollars in thousands)  

Interest income

Noninterest expense

$ 1,180 $ 425

Total expense

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

$ ( 285 )  

Income tax (benefit) expense

( 91 )  

Losses before equity in undistributed earnings of subsidiary

$ ( 194 )  

Equity in undistributed earnings of subsidiary

Net income (losses)

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

$ ( 1,045 ) $ ( 285 )

Income tax expense (benefit)

Losses before equity in undistributed (losses) earnings of subsidiary

$ ( 1,141 ) $ ( 194 )

Equity in undistributed (losses) earnings of subsidiary

( 2,816 ) 221

Net (loss) income

$ ( 3,957 ) $ 27

NSTS BANCORP, INC.

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Year ended December 31,

(Dollars in thousands)  

Cash flows from operating activities:

Net income (losses)

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

Decrease (increase) in other assets

Increase (decrease) in accrued expenses and other liabilities

Net (loss) income

$ ( 3,957 ) $ 27

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

Net change in other assets

Net change in accrued expenses and other liabilities

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

Equity in undistributed earnings of subsidiary

( 221 )  

Net cash provided by (used in) operating activities

Equity in undistributed losses (earnings) of subsidiary

2,816 ( 221 )

Net cash (used in) provided by operating activities

( 1,351 ) 1,877

Cash flows from investing activities:

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Net proceeds from issuance of common shares

49,440  

( 4,319 )  

Proceeds from conversion transferred to subsidiary

( 25,225 )  

Net cash provided by financing activities

19,896  

Purchase of treasury shares

Net cash (used in ) provided by financing activities

( 2,381 ) 19,896

Net change in cash

21,947  

( 3,560 ) 21,947

Cash at beginning of period

Cash at end of period

$ 22,194  

$ 18,634 $ 22,194

Changes in Accounting Principles

Accounting for Financial Instruments –

Credit Losses

The FASB issued Accounting Standards Update ("ASU") No.

2016 - 13, Financial Instruments —

Credit Losses (Topic 326 ) .

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

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

The CECL model utilizes a lifetime “expected credit loss”

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

Accounting for Financial Instruments – Credit Losses

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.

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

Management will periodically refine the model as needed.

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

equity balance as of January 1, 2023.

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

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

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

$ 916 $ 581 $ 335

Consumer loans

Allowance for credit losses for all loans

$ 1,008 $ 624 $ 384

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.

January 1, 2023, we adopted ASU

02, which superseded the current disclosure requirements for TDRs.

Subsequent Events

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

Management evaluated subsequent events through March 28, 2024 , the date the financial statements were issued.

Management does not believe there were any material subsequent events during this period that would have required further recognition or disclosure in the consolidated financial statements included in this report.

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NSTS BANCORP, INC.

Dated: March 30, 2023

March 28, 2024

/s/ Stephen G.

President and Chief Executive Officer

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Lear and Carissa H.

Schoolcraft, with full power to act without the other, his or her trust and lawful attorney-in-fact and agency, with full and several powers of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully as to all intents and purposes as each of the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. 

Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

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March 28, 2024

March 30, 2023

/s/ Thomas M.

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

What changed 10-K

Item 9A. Controls and Procedures