NSTS filing — read by section

nsts20240930_10q.htm 
 
 Table of Contents 

 UNITED STATES 

 SECURITIES AND EXCHANGE COMMISSION 

 Washington, D.C. 20549 

 FORM 10-Q 

 (Mark one) 

 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 For the quarterly period ended September 30, 2024 

 Or 

 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 Commission File Number 001-41232 

 NSTS BANCORP, INC. 

 (Exact name of the registrant as specified in its charter) 

 Delaware 
 87-2522769 
 
 (State or Other Jurisdiction of 
 (I.R.S. Employer 
 
 Incorporation or Organization) 
 Identification Number) 
 
 700 S. Lewis Ave. Waukegan , Illinois 
 60085 
 
 (Address of principal executive offices) 
 (Zip Code) 
 
 ( 847 ) 336-4430 

 (Registrant ’ s telephone number, including area code) 

 Securities registered pursuant to Section 12(b) of the Act:

 Title of each class
 Trading Symbol(s)
 Name of each exchange on which registered
 
 Common Stock 
 NSTS 
 NASDAQ Capital Market
 
 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 Large accelerated filer
 ☐
 Accelerated filer
 ☐
 
 Non-accelerated filer 
 ☒
 Smaller reporting company
 ☒ 
 
 Emerging growth company
 ☒ 
 
 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

 As of November 7, 2024, the Registrant had 5,260,144 shares of its common stock outstanding.

 Table of Contents 
 
 NSTS Bancorp, Inc.

 Form 10Q

 Index

 PART I. 
 
 FINANCIAL INFORMATION 
 
 2 
 
 ITEM 1. 
 
 CONSOLIDATED FINANCIAL STATEMENTS 
 
 2 
 
 CONSOLIDATED BALANCE SHEETS 
 
 2 
 
 CONSOLIDATED STATEMENTS OF OPERATIONS 
 
 3 
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 
 
 4 
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 
 
 5 
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS 
 
 7 
 
 NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 
 
 8 
 
 ITEM 2. 
 
 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
 
 26 
 
 ITEM 3. 
 
 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
 
 38 
 
 ITEM 4. 
 
 CONTROLS AND PROCEDURES 
 
 39 
 
 PART II. 
 
 OTHER INFORMATION 
 
 39 
 
 ITEM 1. 
 
 LEGAL PROCEEDINGS 
 
 39 
 
 ITEM 1A. 
 
 RISK FACTORS 
 
 39 
 
 ITEM 2. 
 
 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 
 
 39 
 
 ITEM 3. 
 
 DEFAULTS UPON SENIOR SECURITIES 
 
 39 
 
 ITEM 4. 
 
 MINE SAFETY DISCLOSURES 
 
 39 
 
 ITEM 5. 
 
 OTHER INFORMATION 
 
 39 
 
 ITEM 6. 
 
 EXHIBITS 
 
 40 
 
 SIGNATURES 
 
 41 
 
 Table of Contents 
 
 Part I. Financial Information 

 Item 1. Consolidated Financial Statements 

 NSTS BANCORP, INC. 

 Consolidated Balance Sheets 

 September 30, 2024 
 
 (unaudited) 
 December 31, 2023 
 
 (Dollars in thousands) 
 
 Assets: 
 
 Cash and due from banks
 $ 1,027 $ 1,000 

 Interest-bearing bank deposits
 33,565 30,388 

 Cash and cash equivalents
 34,592 31,388 

 Time deposits with other financial institutions
 1,494 1,991 

 Securities available for sale
 75,240 82,135 

 Federal Home Loan Bank stock (FHLB)
 585 550 

 Loans held for sale
 3,120 380 

 Loans, net of unearned income
 135,082 121,799 

 Allowance for credit losses on loans
 ( 1,271 ) ( 1,176 ) 

 Loans, net
 133,811 120,623 

 Premises and equipment, net
 5,250 5,285 

 Accrued interest receivable
 855 758 

 Bank-owned life insurance (BOLI)
 9,603 9,441 

 Other assets
 3,889 4,225 

 Total assets
 $ 268,439 $ 256,776 

 Liabilities: 
 
 Deposits:
 
 Noninterest bearing
 $ 10,599 $ 12,424 

 Interest-bearing
 
 Demand and NOW checking
 15,127 15,346 

 Money market
 28,878 32,027 

 Savings
 40,223 41,774 

 Time deposits over $250,000
 17,351 9,975 

 Other time deposits
 67,709 57,280 

 Total deposits
 179,887 168,826 

 Escrow deposits
 874 1,382 

 Other borrowings
 5,000 5,000 

 Accrued expenses and other liabilities
 4,242 4,023 

 Total liabilities
 $ 190,003 $ 179,231 

 Stockholders' equity: 
 
 Common Stock ($ 0.01 par value; 10,000,000 shares authorized; 5,275,013 shares outstanding at September 30, 2024 and 5,315,261 shares at December 31, 2023)
 56 56 

 Treasury Stock, at cost ( 310,146 shares at September 30, 2024 and 269,898 shares at December 31, 2023)
 ( 2,792 ) ( 2,381 ) 

 Additional paid-in capital
 51,410 50,920 

 Retained earnings
 40,312 41,055 

 Unallocated common shares held by ESOP
 ( 3,723 ) ( 3,882 ) 

 Accumulated other comprehensive loss, net
 ( 6,827 ) ( 8,223 ) 

 Total stockholders' equity
 78,436 77,545 

 Total liabilities and stockholders' equity
 $ 268,439 $ 256,776 

 See accompanying notes to consolidated unaudited financial statements 

 2
 
 Table of Contents 
 
 NSTS BANCORP, INC. 

 Consolidated Statements of Operations (unaudited) 

 For the three months ended 
 For the nine months ended 
 
 September 30, 
 September 30, 
 
 2024 
 2023 
 2024 
 2023 
 
 (Dollars in thousands) 
 
 Interest income: 
 
 Loans, including fees
 $ 1,797 $ 1,079 $ 4,993 $ 3,119 

 Securities
 
 Taxable
 370 633 1,175 1,923 

 Tax-exempt
 60 100 184 302 

 Federal funds sold and other
 409 99 1,183 210 

 Time deposits with other financial institutions
 14 21 65 75 

 FHLB Stock
 10 7 28 16 

 Total interest income
 2,660 1,939 7,628 5,645 

 Interest expense: 
 
 Deposits
 769 362 2,123 845 

 Other borrowings
 61 61 182 68 

 Total interest expense
 830 423 2,305 913 

 Net interest income 
 1,830 1,516 5,323 4,732 

 Provision for credit losses 
 20 50 142 52 

 Net interest income after provision for credit losses 
 1,810 1,466 5,181 4,680 

 Noninterest income: 
 
 Gain on sale of mortgage loans
 268 — 695 13 

 Rental income on office building
 16 16 48 48 

 Service charges on deposits
 67 70 192 203 

 Increase in cash surrender value of BOLI
 56 49 162 141 

 Other non-interest income
 16 15 139 39 

 Total noninterest income
 423 150 1,236 444 

 Noninterest expense: 
 
 Salaries and employee benefits
 1,483 1,162 4,325 3,095 

 Equipment and occupancy
 190 166 602 499 

 Data processing
 212 159 624 481 

 Professional services
 115 150 398 394 

 Advertising
 60 14 235 65 

 Supervisory fees and assessments
 36 49 107 123 

 Loan expenses
 53 25 148 69 

 Deposit expenses
 63 56 175 163 

 Director fees
 56 56 160 168 

 Other non-interest expense
 136 116 386 353 

 Total noninterest expense
 2,404 1,953 7,160 5,410 

 Loss before income taxes
 ( 171 ) ( 337 ) ( 743 ) ( 286 ) 

 Income tax benefit 
 — ( 105 ) — ( 98 ) 

 Net loss 
 $ ( 171 ) $ ( 232 ) $ ( 743 ) $ ( 188 ) 

 Basic and diluted loss per share 
 $ ( 0.03 ) $ ( 0.05 ) $ ( 0.15 ) $ ( 0.04 ) 

 Weighted average shares outstanding 
 4,908,504 5,093,587 4,921,445 5,020,262 

 See accompanying notes to consolidated unaudited financial statements 

 3
 
 Table of Contents 
 
 NSTS BANCORP, INC. 

 Consolidated Statements of Comprehensive Income (Loss) (unaudited) 

 For the three months ended September 30, 
 
 2024 
 
 2023 
 
 (Dollars in thousands) 
 
 Net loss 
 
 $ 
 ( 171 
 ) 
 
 $ 
 ( 232 
 ) 
 
 Unrealized net holding gain (loss) on securities 
 
 Unrealized net holding gain (loss) on securities arising during period
 
 2,943 
 
 ( 3,081 
 ) 
 
 Tax effect
 
 ( 838 
 ) 
 
 878 
 
 Other comprehensive income (loss), net of taxes
 
 2,105 
 
 ( 2,203 
 ) 
 
 Comprehensive income (loss) 
 
 $ 
 1,934 
 
 $ 
 ( 2,435 
 ) 
 
 For the nine months ended September 30, 
 
 2024 
 
 2023 
 
 (Dollars in thousands) 
 
 Net loss 
 
 $ 
 ( 743 
 ) 
 
 $ 
 ( 188 
 ) 
 
 Unrealized net holding gain (loss) on securities 
 
 Unrealized net holding gain (loss) on securities arising during period
 
 1,952 
 
 ( 2,671 
 ) 
 
 Tax effect
 
 ( 556 
 ) 
 
 762 
 
 Other comprehensive income (loss), net of taxes
 
 1,396 
 
 ( 1,909 
 ) 
 
 Comprehensive income (loss) 
 
 $ 
 653 
 
 $ 
 ( 2,097 
 ) 
 
 See accompanying notes to consolidated unaudited financial statements 

 4
 
 Table of Contents 
 
 NSTS BANCORP, INC. 

 Consolidated Statements of Stockholders ’ Equity (unaudited) 

 Common Shares 
 
 Common Stock 
 
 Treasury Stock 
 
 Additional Paid-In Capital 
 
 Retained earnings 
 
 Accumulated other comprehensive loss 
 
 Unallocated Common Shares Held by ESOP 
 
 Total 
 
 (Dollars in thousands) 
 
 Quarter ended September 30, 2023 
 
 Balance at June 30, 2023 
 
 5,510,864 
 
 $ 
 56 
 
 $ 
 ( 649 
 ) 
 
 $ 
 50,440 
 
 $ 
 45,056 
 
 $ 
 ( 10,831 
 ) 
 
 $ 
 ( 3,990 
 ) 
 
 $ 
 80,082 
 
 Net loss
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 232 
 ) 
 
 — 
 
 — 
 
 ( 232 
 ) 
 
 ESOP shares committed to be released
 
 — 
 
 — 
 
 — 
 
 ( 4 
 ) 
 
 — 
 
 — 
 
 54 
 
 50 
 
 Purchase of treasury stock from stock repurchase program
 
 ( 78,386 
 ) 
 
 — 
 
 ( 706 
 ) 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 706 
 ) 
 
 Compensation cost for stock options and restricted stock
 
 — 
 
 — 
 
 — 
 
 170 
 
 — 
 
 — 
 
 — 
 
 170 
 
 Change in net unrealized loss on securities available for sale, net
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 2,203 
 ) 
 
 — 
 
 ( 2,203 
 ) 
 
 Balance at September 30, 2023 
 
 5,432,478 
 
 $ 
 56 
 
 $ 
 ( 1,355 
 ) 
 
 $ 
 50,606 
 
 $ 
 44,824 
 
 $ 
 ( 13,034 
 ) 
 
 $ 
 ( 3,936 
 ) 
 
 $ 
 77,161 
 
 Quarter ended September 30, 2024 
 
 Balance at June 30, 2024 
 
 5,295,459 
 
 $ 
 56 
 
 $ 
 ( 2,571 
 ) 
 
 $ 
 51,240 
 
 $ 
 40,483 
 
 $ 
 ( 8,932 
 ) 
 
 $ 
 ( 3,776 
 ) 
 
 $ 
 76,500 
 
 Net loss
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 171 
 ) 
 
 — 
 
 — 
 
 ( 171 
 ) 
 
 ESOP shares committed to be released
 
 — 
 
 — 
 
 — 
 
 ( 1 
 ) 
 
 — 
 
 — 
 
 53 
 
 52 
 
 Purchase of treasury stock from stock repurchase program
 
 (43,446 
 ) 
 
 — 
 
 ( 427 
 ) 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 427 
 ) 
 
 Reissuance of treasury stock for options exercised
 
 23,000 
 
 — 
 
 206 
 
 9 
 
 — 
 
 — 
 
 — 
 
 215 
 
 Compensation cost for stock options and restricted stock
 
 — 
 
 — 
 
 — 
 
 162 
 
 — 
 
 — 
 
 — 
 
 162 
 
 Change in net unrealized loss on securities available for sale, net
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 2,105 
 
 — 
 
 2,105 
 
 Balance at September 30, 2024 
 
 5,275,013 
 
 $ 
 56 
 
 $ 
 ( 2,792 
 ) 
 
 $ 
 51,410 
 
 $ 
 40,312 
 
 $ 
 ( 6,827 
 ) 
 
 $ 
 ( 3,723 
 ) 
 
 $ 
 78,436 
 
 See accompanying notes to consolidated unaudited financial statements 

 5
 
 Table of Contents 
 
 Common Shares 
 
 Common Stock 
 
 Treasury Stock 
 
 Additional Paid-In Capital 
 
 Retained earnings 
 
 Accumulated other comprehensive loss 
 
 Unallocated Common Shares Held by ESOP 
 
 Total 
 
 (Dollars in thousands) 
 
 Nine months ended September 30, 2023 
 
 Balance at December 31, 2022 
 
 5,397,959 
 
 $ 
 54 
 
 $ 
 — 
 
 $ 
 50,420 
 
 $ 
 45,291 
 
 $ 
 ( 11,125 
 ) 
 
 $ 
 ( 4,098 
 ) 
 
 $ 
 80,542 
 
 Cumulative impact of ASU 2016-13
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 279 
 ) 
 
 — 
 
 — 
 
 ( 279 
 ) 
 
 Net loss
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 188 
 ) 
 
 — 
 
 — 
 
 ( 188 
 ) 
 
 ESOP shares committed to be released
 
 — 
 
 — 
 
 — 
 
 ( 10 
 ) 
 
 — 
 
 — 
 
 162 
 
 152 
 
 Purchase of treasury stock from stock repurchase program
 
 ( 152,681 
 ) 
 
 — 
 
 ( 1,355 
 ) 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 1,355 
 ) 
 
 Compensation cost for stock options and restricted stock
 
 — 
 
 — 
 
 — 
 
 198 
 
 — 
 
 — 
 
 — 
 
 198 
 
 Issuance of common shares for the restricted stock plan
 
 187,200 
 
 2 
 
 — 
 
 ( 2 
 ) 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Change in net unrealized loss on securities available for sale, net
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 1,909 
 ) 
 
 — 
 
 ( 1,909 
 ) 
 
 Balance at September 30, 2023 
 
 5,432,478 
 
 $ 
 56 
 
 ( 1,355 
 ) 
 
 $ 
 50,606 
 
 $ 
 44,824 
 
 $ 
 ( 13,034 
 ) 
 
 $ 
 ( 3,936 
 ) 
 
 $ 
 77,161 
 
 Nine months ended September 30, 2024 
 
 Balance at December 31, 2023 
 
 5,315,261 
 
 $ 
 56 
 
 $ 
 ( 2,381 
 ) 
 
 $ 
 50,920 
 
 $ 
 41,055 
 
 $ 
 ( 8,223 
 ) 
 
 $ 
 ( 3,882 
 ) 
 
 $ 
 77,545 
 
 Net loss
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 743 
 ) 
 
 — 
 
 — 
 
 ( 743 
 ) 
 
 ESOP shares committed to be released
 
 — 
 
 — 
 
 — 
 
 ( 5 
 ) 
 
 — 
 
 — 
 
 159 
 
 154 
 
 Purchase of treasury stock from stock repurchase program
 
 (51,845 
 ) 
 
 — 
 
 ( 508 
 ) 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 508 
 ) 
 
 Purchase of treasury stock from taxes withheld on stock awards
 
 ( 11,403 
 ) 
 
 — 
 
 ( 109 
 ) 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 109 
 ) 
 
 Reissuance of treasury stock for stock options exercised
 
 23,000 
 
 — 
 
 206 
 
 9 
 
 — 
 
 — 
 
 — 
 
 215 
 
 Compensation cost for stock options and restricted stock
 
 — 
 
 — 
 
 — 
 
 486 
 
 — 
 
 — 
 
 — 
 
 486 
 
 Change in net unrealized loss on securities available for sale, net
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 1,396 
 
 — 
 
 1,396 
 
 Balance at September 30, 2024 
 
 5,275,013 
 
 $ 
 56 
 
 $ 
 ( 2,792 
 ) 
 
 $ 
 51,410 
 
 $ 
 40,312 
 
 $ 
 ( 6,827 
 ) 
 
 $ 
 ( 3,723 
 ) 
 
 $ 
 78,436 
 
 See accompanying notes to consolidated unaudited financial statements 

 6
 
 Table of Contents 
 
 NSTS BANCORP, INC. 

 Consolidated Statements of Cash Flows (unaudited) 

 For the nine months ended September 30, 
 
 2024 
 2023 
 
 (Dollars in thousands) 
 
 Cash flows from operating activities: 
 
 Net loss
 $ ( 743 ) $ ( 188 ) 

 Adjustments to reconcile net loss to net cash provided by operating activities:
 
 Depreciation
 219 193 

 Securities amortization and accretion, net
 393 412 

 Loans originated for sale
 ( 33,617 ) ( 880 ) 

 Proceeds from sales of loans held for sale
 34,042 716 

 Gain on sale of mortgage loans
 ( 695 ) ( 13 ) 

 Provision for credit losses
 142 52 

 Earnings on bank owned life insurance
 ( 162 ) ( 141 ) 

 ESOP expense
 154 152 

 Stock based compensation
 486 198 

 Net change in accrued interest receivable and other assets
 ( 317 ) 74 

 Net change in accrued expenses and other liabilities
 172 ( 212 ) 

 Net cash provided by operating activities
 74 363 

 Cash flows from investing activities: 
 
 Net change in portfolio loans
 ( 15,753 ) ( 3,887 ) 

 Principal repayments on mortgage-backed securities
 4,154 6,517 

 Maturities and calls of securities available for sale
 4,300 2,080 

 Purchase of Federal Home Loan Bank stock
 ( 35 ) — 

 Net change in time deposits with other financial institutions
 497 2,735 

 Purchases of premises and equipment, net
 ( 184 ) ( 79 ) 

 Net cash (used in) provided by investing activities
 ( 7,021 ) 7,366 

 Cash flows from financing activities: 
 
 Net change in deposits
 11,061 ( 13,384 ) 

 Net change in escrow deposits
 ( 508 ) ( 448 ) 

 Proceeds from FHLB Advance
 — 5,000 

 Purchase of treasury shares ( 51,845 and 152,681 shares for the nine months ended September 30, 2024 and 2023, respectively)
 ( 508 ) ( 1,355 ) 

 Purchase of treasury stock from taxes withheld on stock awards
 ( 109 ) — 

 Proceeds from exercise of stock options
 215 — 

 Net cash provided by (used in) financing activities
 10,151 ( 10,187 ) 

 Net change in cash and cash equivalents
 3,204 ( 2,458 ) 

 Cash and cash equivalents at beginning of period
 31,388 13,147 

 Cash and cash equivalents at end of period 
 $ 34,592 $ 10,689 

 Supplemental disclosures of cash flow information: 
 
 Cash paid during the period for interest
 $ 2,320 $ 879 

 Loans transferred to held for sale from portfolio, net
 2,470 — 

 See accompanying notes to consolidated unaudited financial statements 

 7
 
 Table of Contents 
 
 Notes to the Unaudited Consolidated Financial Statements 

 Note 1: Summary of Significant Accounting Policies 

 The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and conform to practices within the banking industry. The accounting policies followed in the preparation of the interim consolidated financial statements are consistent with those used in the preparation of the annual financial statements. The interim consolidated financial statements reflect all normal and recurring adjustments that are necessary, in the opinion of management, for fair statement of results for the interim periods presented. Results for the three and nine month periods ended September 30, 2024 , are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 

 Nature of Operations 

 NSTS Bancorp, Inc. (“NSTS” or the “Company”, “we” or “our”) was formed to serve as the stock holding company for North Shore Trust and Savings (the “Bank”) in connection with the conversion of North Shore Trust and Savings, NSTS Financial Corporation and North Shore MHC, into the stock form of organization, which was completed on January 18, 2022. Shares of NSTS Bancorp, Inc. stock began trading on January 19, 2022 on the Nasdaq Capital Market under the trading symbol "NSTS."

 The Bank operates primarily out of three bank branch locations in the northern suburbs of Chicago, Illinois. In efforts to expand our loan originations within the Chicagoland area, the Bank also has three loan production offices, located in Chicago, Aurora and Plainfield, Illinois. The lending team operates as Oak Leaf Community Mortgage, powered by North Shore Trust and Savings. The Bank offers a variety of financial services to customers in our surrounding community. Financial services consist primarily of 1 - 4 family mortgage loans, savings accounts, and certificate of deposit accounts. There are no significant concentrations of loans to any one industry or customer. The Bank’s exposure to credit risk is significantly affected by changes in the economy in the Bank’s market area.

 Basis of Presentation 

 The accompanying unaudited Consolidated Financial Statements were prepared in accordance with GAAP and the instructions to Form 10 -Q and Rule 10 - 01 of Regulation S- X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with NSTS Bancorp, Inc.’s Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2023 . The unaudited Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may vary from those estimates. Material estimates that could significantly change in the near-term include the adequacy of the allowance for credit losses, determination of the valuation allowance on deferred tax assets and the valuation of investment securities and the related tax effect. The results of operations for the three and nine months ended September 30, 2024 , are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending December 31, 2024. Certain amounts in prior year financial statements have been reclassified to conform to the current presentation. Subsequent events have been evaluated through the date of issuance of the unaudited Consolidated Financial Statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.

 In March 2024, the FASB issued ASU No. 2024 - 01, “Compensation—Stock Compensation (Topic 718 ): Scope Applications of Profits Interests and Similar Awards” (ASU 2024 - 01 ). ASU 2024 - 01 adds an example to Topic 718 which illustrates how to apply the scope guidance to determine whether profits interests and similar awards should be accounted for as share-based payment arrangements under Topic 718 or under other U.S. GAAP. ASU 2024 - 01 is effective for annual periods beginning after December 15, 2025, although early adoption is permitted. Upon adoption, ASU 2024 - 01 is not expected to have an impact on the Company’s consolidated balance sheets or consolidated statements of income.

 8 
 
 Table of Contents 
 
 Note 2: Securities Available for Sale 

 The amortized cost and estimated fair value of debt securities at September 30, 2024 and December 31, 2023 , by contractual maturity, are shown below. The accrued interest receivable for securities available for sale was $ 244,000 and $ 351,000 on September 30, 2024 and December 31, 2023, respectively. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties, therefore, these securities have been included in the below table based on average remaining life.

 September 30, 2024 
 U.S. Treasury Notes U.S. government agency obligations Municipal obligations Mortgage-backed residential obligations Collateralized mortgage obligations Total available-for-sale 

 (Dollars in thousands) 
 
 1 year or less
 $ — $ 999 $ — $ — $ — $ 999 

 1 to 5 years
 — 3,154 1,470 9,704 13,756 28,084 

 5 to 10 years
 — 4,775 1,282 17,099 10,152 33,308 

 After 10 years
 — — 9,462 1,241 2,146 12,849 

 Fair value
 — 8,928 12,214 28,044 26,054 75,240 

 Gross unrealized gains
 — — — — — — 

 Gross unrealized losses
 — ( 848 ) ( 1,901 ) ( 3,646 ) ( 3,155 ) ( 9,550 ) 

 Amortized cost
 $ — $ 9,776 $ 14,115 $ 31,690 $ 29,209 $ 84,790 

 December 31, 2023 
 U.S. Treasury Notes U.S. government agency obligations Municipal obligations Mortgage-backed residential obligations Collateralized mortgage obligations Total available-for-sale 

 (Dollars in thousands) 
 
 1 year or less
 $ 2,973 $ — $ 1,292 $ — $ — $ 4,265 

 1 to 5 years
 — 4,769 1,461 8,976 12,919 28,125 

 5 to 10 years
 — 4,337 882 19,777 9,756 34,752 

 After 10 years
 — — 9,935 1,598 3,460 14,993 

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

 Gross unrealized gains
 — — 1 — — 1 

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

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

 As of September 30, 2024 , and December 31, 2023 , no securities were pledged to secure public deposits or for other purposes as required or permitted by law.

 Information pertaining to securities with gross unrealized losses at September 30, 2024 and December 31, 2023 , aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows:

 Less than 12 Months 
 12 Months or Longer 
 Total 
 
 (Dollars in thousands) 
 
 Fair 
 Unrealized 
 Fair 
 Unrealized 
 Fair 
 Unrealized 
 
 Value 
 Losses 
 Value 
 Losses 
 Value 
 Losses 
 
 September 30, 2024 
 
 U.S. Treasury Notes
 $ — $ — $ — $ — $ — $ — 

 U.S. government agency obligations
 — — 8,928 848 8,928 848 

 Municipal obligations
 484 10 11,730 1,891 12,214 1,901 

 Mortgage-backed residential obligations
 — — 28,044 3,646 28,044 3,646 

 Collateralized mortgage obligations
 — — 26,054 3,155 26,054 3,155 

 Total
 $ 484 $ 10 $ 74,756 $ 9,540 $ 75,240 $ 9,550 

 December 31, 2023 
 
 U.S. Treasury Notes
 $ — $ — $ 2,973 $ 22 $ 2,973 $ 22 

 U.S. government agency obligations
 — — 9,106 1,128 9,106 1,128 

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

 Mortgage-backed residential obligations
 — — 30,351 4,533 30,351 4,533 

 Collateralized mortgage obligations
 — — 26,135 3,938 26,135 3,938 

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

 9 
 
 Table of Contents 
 
 At September 30, 2024 and December 31, 2023 , certain investment securities were in unrealized loss positions. There were no securities with identified credit losses at September 30, 2024 and December 31, 2023 , 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 the securities until they mature or they recover their carrying values. 

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

 The Bank holds two classifications of municipal bonds, general obligation bonds and revenue bonds. General obligation bonds are backed by the general revenue of the issuing municipality, while revenue bonds are supported by a specific revenue source. All general obligation and revenue bonds have a bond rating of investment grade by Standard and Poor's or Moody's Investor Services or are not rated. There have been no declines in investment grades on bonds in a loss position and as of September 30, 2024 , all municipal bonds are paying as agreed. 

 There were no sales of securities available-for-sale during the three and nine months ended September 30, 2024 and 2023 . 

 Note 3: Loans and allowance for credit losses 

 A summary of loans by major category as of September 30, 2024 and December 31, 2023 is as follows:

 September 30, 2024 
 December 31, 2023 
 
 (Dollars in thousands) 
 
 First mortgage loans
 
 1-4 family residential
 $ 125,052 $ 111,081 

 Multi-family
 3,539 3,111 

 Commercial
 4,152 3,835 

 Construction
 1,380 2,508 

 Total first mortgage loans
 134,123 120,535 

 Consumer loans
 275 248 

 Total loans
 134,398 120,783 

 Net deferred loan costs
 684 1,016 

 Allowance for credit losses on loans
 ( 1,271 ) ( 1,176 ) 

 Total loans, net
 $ 133,811 $ 120,623 

 First mortgage loans serviced for others are not included in the accompanying balance sheets. The unpaid principal balance of these loans totaled $ 15.2 million and $ 13.2 million at September 30, 2024 and December 31, 2023 , respectively. Custodial escrow balances maintained in connection with the loans serviced were $ 116,000 and $ 231,000 at September 30, 2024 and December 31, 2023 , respectively.

 The accrued interest receivable for loans, net, was $ 566,000 and $ 392,000 for September 30, 2024 and December 31, 2023, respectively

 In the normal course of business, loans are made by the Bank to directors and officers of the Company and the Bank (related parties). The terms of these loans, including interest rate and collateral, are similar to those prevailing for comparable transactions with other customers and do not involve more than a normal risk of collectability. At September 30, 2024 and December 31, 2023 , such borrowers were indebted to the Bank in the aggregate amount of $ 535,000 and $ 550,000 , respectively.

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 The following tables present the activity in the allowance for credit losses ("ACL") for the three and nine months ended September 30, 2024 and 2023 :

 September 30, 2024 
 
 1-4 family 
 
 residential 
 Multi-family 
 Commercial 
 Construction 
 Consumer 
 Total 
 
 (Dollars in thousands) 
 
 Three months ended 
 
 Beginning balance
 $ 1,165 $ 36 $ 41 $ 24 $ 1 $ 1,267 

 Charge-offs
 — — — — — — 

 Recoveries
 — — — — — — 

 Net recoveries (charge-offs)
 — — — — — — 

 (Release of) Provision for credit losses
 ( 1 ) 3 1 — 1 4 
 
 Ending balance
 $ 1,164 $ 39 $ 42 $ 24 $ 2 $ 1,271 

 September 30, 2024 
 
 1-4 family 
 
 residential 
 Multi-family 
 Commercial 
 Construction 
 Consumer 
 Total 
 
 (Dollars in thousands) 
 
 Nine months ended 
 
 Beginning balance
 $ 1,094 $ 40 $ 37 $ 4 $ 1 $ 1,176 

 Charge-offs
 — — — — — — 

 Recoveries
 — — — — — — 

 Net recoveries (charge-offs)
 — — — — — — 

 Provision for (release of ) credit losses
 70 ( 1 ) 5 20 1 95 

 Ending balance
 $ 1,164 $ 39 $ 42 $ 24 $ 2 $ 1,271 

 September 30, 2023 
 
 1-4 family 
 
 residential 
 Multi-family 
 Commercial 
 Construction 
 Consumer 
 Total 
 
 (Dollars in thousands) 
 
 Three months ended 
 
 Beginning balance
 $ 928 $ 41 $ 39 $ — $ 2 $ 1,010 

 Charge-offs
 — — — — — — 

 Recoveries
 — — — — — — 

 Net recoveries (charge-offs)
 — — — — — — 

 Provision for (release of ) credit losses
 56 ( 2 ) ( 3 ) — — 51 

 Ending balance
 $ 984 $ 39 $ 36 $ — $ 2 $ 1,061 

 September 30, 2023 
 
 1-4 family 
 
 residential 
 Multi-family 
 Commercial 
 Construction 
 Consumer 
 Total 
 
 (Dollars in thousands) 
 
 Nine months ended 
 
 Beginning balance
 $ 581 $ 19 $ 19 $ — $ 5 $ 624 

 Cumulative effect of change in accounting principle
 335 23 29 — ( 3 ) 384 

 Charge-offs
 — — — — — — 

 Recoveries
 — — — — — — 

 Net recoveries (charge-offs)
 — — — — — — 

 Provision for (release of ) credit losses
 68 ( 3 ) ( 12 ) — — 53 

 Ending balance
 $ 984 $ 39 $ 36 $ — $ 2 $ 1,061 

 The ACL on loans excludes $ 60,000 and $ 4,000 of allowance for off-balance sheet exposures as of September 30, 2024 and 2023, respectively, recorded within Other Liabilities. The provision for credit losses excludes $ 16,000 and $ 47,000 related to off-balance sheet exposures, for the three and nine months ended September 30, 2024 , respectively. 

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 As of September 30, 2024 , there were no collateral dependent loans. 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. The Bank uses a graded loan rating system as a means of identifying potential problem loans, as follows:

 Pass 

 Loans in these categories are performing as expected with low to average risk.

 Special Mention 

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

 Substandard 

 Loans in this category are internally designated by management as “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the paying capacity of the obligors or the current net worth of the collateral pledged. Substandard loans present a distinct possibility that the Bank will sustain losses if such weaknesses are not corrected.

 Doubtful 

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

 On an annual basis, or more often if needed, the Bank formally reviews the ratings on commercial loans. In addition, the Bank performs an independent review of a significant portion of the commercial loan portfolio. Management uses the results of the independent review as part of its annual review process.

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 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 September 30, 2024 and December 31, 2023 .

 As of September 30, 2024 
 
 Term loans amortized cost basis by origination year 
 
 2024 
 2023 
 2022 
 2021 
 Prior 
 Revolving loans amortized cost basis 
 Revolving loans converted to term loans amortized cost basis 
 Total 
 
 (Dollars in thousands) 
 
 1-4 family residential 
 
 Pass
 $ 19,220 $ 22,310 $ 17,575 $ 18,295 $ 44,242 $ 3,410 $ — 125,052 

 Special Mention
 — — — — — — — — 

 Substandard
 — — — — — — — — 

 Total 1-4 family residential
 19,220 22,310 17,575 18,295 44,242 3,410 — 125,052 

 Current year-to-date gross write-offs
 — — — — — — — — 

 Multi-family 
 
 Pass
 517 — — 232 2,790 — — 3,539 

 Special Mention
 — — — — — — — — 

 Substandard
 — — — — — — — — 

 Total multi-family
 517 — — 232 2,790 — — 3,539 

 Current year-to-date gross write-offs
 — — — — — — — — 

 Commercial 
 
 Pass
 83 179 — 97 3,171 622 — 4,152 

 Special Mention
 — — — — — — — — 

 Substandard
 — — — — — — — — 

 Total commercial
 83 179 — 97 3,171 622 — 4,152 

 Current year-to-date gross write-offs
 — — — — — — — — 

 Construction 
 
 Pass
 999 381 — — — — — 1,380 

 Special Mention
 — — — — — — — — 

 Substandard
 — — — — — — — — 

 Total construction
 999 381 — — — — — 1,380 

 Current year-to-date gross write-offs
 — — — — — — — — 

 Consumer 
 
 Pass
 106 84 64 20 1 — — 275 

 Special Mention
 — — — — — — — — 

 Substandard
 — — — — — — — — 

 Total consumer
 106 84 64 20 1 — — 275 

 Current year-to-date gross write-offs
 — — — — — — — — 

 Total 
 $ 20,925 $ 22,954 $ 17,639 $ 18,644 $ 50,204 $ 4,032 $ — $ 134,398 

 13 
 
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 As of December 31, 2023 
 
 Term loans amortized cost basis by origination year 
 
 2023 
 2022 
 2021 
 Prior 
 Revolving loans amortized cost basis 
 Revolving loans converted to term loans amortized cost basis 
 Total 
 
 (Dollars in thousands) 
 
 1-4 family residential 
 
 Pass
 $ 23,395 $ 18,950 $ 19,605 $ 47,517 $ 1,414 $ — $ 110,881 

 Special Mention
 — — — — — — — 

 Substandard
 — — — 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
 — — — — — — — 

 Multi-family 
 
 Pass
 — — 239 2,872 — — 3,111 

 Special Mention
 — — — — — — — 

 Substandard
 — — — — — — — 

 Total multi-family 
 — — 239 2,872 — — 3,111 

 Current year-to-date gross write-offs
 — — — — — — — 

 Commercial 
 
 Pass
 186 — 100 3,399 150 — 3,835 

 Special Mention
 — — — — — — — 

 Substandard
 — — — — — — — 

 Total commercial 
 186 — 100 3,399 150 — 3,835 

 Current year-to-date gross write-offs
 — — — — — — — 

 Construction 
 
 Pass
 2,508 — — — — — 2,508 

 Special Mention
 — — — — — — — 

 Substandard
 — — — — — — — 

 Total construction 
 2,508 — — — — — 2,508 

 Current year-to-date gross write-offs
 — — — — — — — 

 Consumer 
 
 Pass
 122 95 28 3 — — 248 

 Special Mention
 — — — — — — — 

 Substandard
 — — — — — — — 

 Total consumer 
 122 95 28 3 — — 248 

 Current year-to-date gross write-offs
 — — — — — — — 

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

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 The aging of the Bank’s loan portfolio as of September 30, 2024 and December 31, 2023 , is as follows:

 31-89 Days Past Due and Accruing 
 Greater than 90 Days Past Due and Accruing 
 Non-Accrual 
 Total Past Due and Non-Accrual 
 Current 
 Total Loan Balance 
 
 (Dollars in thousands) 
 
 September 30, 2024 
 
 1-4 family residential
 $ 99 $ 264 $ — $ 363 $ 124,689 $ 125,052 

 Multi-family
 — — — — 3,539 3,539 

 Commercial
 — — — — 4,152 4,152 

 Construction
 — — — — 1,380 1,380 

 Consumer
 — — — — 275 275 

 Total
 $ 99 $ 264 $ — $ 363 $ 134,035 $ 134,398 

 December 31, 2023 
 
 1-4 family residential
 $ 131 $ — $ 200 $ 331 $ 110,750 $ 111,081 

 Multi-family
 — — — $ — 3,111 $ 3,111 

 Commercial
 — — — $ — 3,835 $ 3,835 

 Construction
 — — — $ — 2,508 $ 2,508 

 Consumer
 — — — $ — 248 $ 248 

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

 The following table presents the amortized cost basis of loans on nonaccrual status recorded at September 30, 2024 and December 31, 2023 . There was no interest recognized on non-accrual loans for the nine months ended September 30, 2024 . 

 September 30, 2024 
 December 31, 2023 
 
 Nonaccrual with no Allowance for Credit Losses 
 Nonaccrual 
 Nonaccrual with no Allowance for Credit Losses 
 Nonaccrual 
 
 (Dollars in thousands) 
 
 First mortgage loans
 
 1-4 family residential
 $ — $ — $ 200 $ 200 

 Multi-family
 — — — — 

 Commercial
 — — — — 

 Construction
 — — — — 

 Consumer loans
 — — — — 

 Total loans
 $ — $ — $ 200 $ 200 

 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 analysis at the time of loan modification. Any reserve required is recorded through a provision to the allowance for credit losses on loans. There were no modifications on loans to borrowers experiencing financial difficulty during the nine months ended September 30, 2024 and 2023. 

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 Note 4: Deposits 

 As of September 30, 2024 the scheduled maturities of time deposits are as follows:

 For the 12 months ended 
 
 September 30, 
 Amount 
 
 (Dollars in thousands) 
 
 2025
 $ 54,027 

 2026
 14,296 

 2027
 2,322 

 2028
 7,276 

 2029 and beyond
 7,139 

 Total
 $ 85,060 

 In the normal course of business, deposit accounts are held by directors and executive officers of the Company and 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 September 30, 2024 and December 31, 2023 , total deposits held by directors and officers of the Company and the Bank were $ 853,000 and $ 739,000 , respectively.

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 Note 5: Other Borrowings 

 There were no additional borrowings made during the nine months ended September 30, 2024. In June 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 following table shows certain information regarding our borrowings at or for the dates indicated:

 For the three months ended 
 For the nine months ended 
 
 September 30, 
 September 30, 
 
 2024 
 2023 
 2024 
 2023 
 
 (Dollars in thousands) 
 
 FHLB of Chicago advances and other borrowings: 
 
 Average balance outstanding
 $ 5,000 $ 5,000 $ 5,000 $ 1,886 

 Maximum amount outstanding at any month-end during the period
 5,000 5,000 5,000 5,000 

 Average interest rate during the period
 4.9 % 4.9 % 4.9 % 4.8 % 

 September 30, 2024 
 December 31, 2023 
 
 (Dollars in thousands) 
 
 Balance outstanding at end of period
 5,000 5,000 

 Weighted average interest rate at end of period
 4.8 % 4.8 % 

 The eligible borrowings are collateralized by $ 110.1 million and $ 102.6 million of first mortgage loans under a blanket lien arrangement at September 30, 2024 and December 31, 2023 , respectively.

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

 September 30, 2024 
 December 31, 2023 
 
 (Dollars in thousands) 
 
 Outstanding advances
 $ 5,000 $ 5,000 

 Additional borrowing capacity
 78,065 72,200 

 Total borrowing capacity
 $ 83,065 $ 77,200 

 Additionally, at September 30, 2024 and December 31, 2023 , we had a $ 10.0 million federal funds line of credit with BMO Harris Bank, none of which was drawn at September 30, 2024 and December 31, 2023 . 

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 Note 6: Fair Value Measurements 

 Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

 Level 1 
 Quoted prices in active markets for identical assets or liabilities
 
 Level 2 
 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
 
 Level 3 
 Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities
 
 An asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

 Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at September 30, 2024 or December 31, 2023 .

 Securities available for sale (Recurring) 

 Where quoted market prices are available in an active market, securities such as U.S. Treasuries, would be classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities would be classified within Level 3 of the hierarchy.

 18 
 
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 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 September 30, 2024 and December 31, 2023 :

 Fair Value Measurements Using 
 
 Fair Value 
 Level 1 
 Level 2 
 Level 3 
 
 (Dollars in thousands) 
 
 September 30, 2024 
 
 Securities available-for-sale
 
 U.S. Treasury Notes
 $ — $ — $ — $ — 

 U.S. government agency obligations
 8,928 — 8,928 — 

 Municipal obligations
 12,214 — 12,214 — 

 Mortgage-backed residential obligations
 28,044 — 28,044 — 

 Collateralized mortgage obligations
 26,054 — 26,054 — 

 Total
 $ 75,240 $ — $ 75,240 $ — 

 December 31, 2023 
 
 Securities available-for-sale
 
 U.S. Treasury Notes
 $ 2,973 $ 2,973 $ — $ — 

 U.S. government agency obligations
 9,106 — 9,106 $ — 

 Municipal obligations
 13,570 — 13,570 — 

 Mortgage-backed residential obligations
 30,351 — 30,351 — 

 Collateralized mortgage obligations
 26,135 — 26,135 — 

 Total
 $ 82,135 $ 2,973 $ 79,162 $ — 

 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. There were no assets measured at fair value on a nonrecurring basis as of September 30, 2024 and December 31, 2023. 

 19 
 
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 Note 7: Fair Value of Financial Instruments 

 Financial instruments are classified within the fair value hierarchy using the methodologies described in Note 6 – 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 and accrued interest receivable and payable. 

 The carrying amounts and estimated fair values by fair value hierarchy of certain financial instruments are as follows:
 
 Carrying 
 Estimated 
 
 Amount 
 Level 1 
 Level 2 
 Level 3 
 Fair Value 
 
 (Dollars in thousands) 
 
 September 30, 2024 
 
 Financial assets:
 
 Loans, net
 $ 133,811 $ — $ — $ 126,382 $ 126,382 

 Loans held for sale
 3,120 — 3,182 — 3,182 

 Financial liabilities:
 
 Interest-bearing deposits
 $ 169,288 $ — $ 169,734 $ — $ 169,734 

 Other Borrowings
 5,000 — 5,025 — 5,025 

 December 31, 2023 
 
 Financial assets:
 
 Loans, net
 $ 120,623 $ — $ — $ 110,288 $ 110,288 

 Loans held for sale
 380 — 387 — 387 

 Financial liabilities:
 
 Interest-bearing deposits
 $ 156,402 $ — $ 156,092 $ — $ 156,092 

 Other Borrowings
 5,000 — 4,990 — 4,990 

 Note 8: Capital Ratios 

 The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under accounting principles generally accepted in the United States of America, regulatory reporting requirements and regulatory capital standards. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

 Quantitative measures established by regulatory reporting standards to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) 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 September 30, 2024 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 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 consolidated assets (i.e., leverage ratio) exceeds 9% subject to a limited two quarter grace period, during which the leverage ratio cannot drop 100 basis points below the then applicable threshold, and will not be required to calculate and report risk-based capital ratios. The Bank elected to begin using CBLR for the first quarter of 2020. Management believes, as of September 30, 2024 , that the Bank met all capital adequacy requirements to which it was subject.

 20 
 
 Table of Contents 
 
 The Bank’s actual capital amounts and ratios as of September 30, 2024 and December 31, 2023 , are presented below:

 Minimum Required to be 
 
 Actual 
 Well-Capitalized (1) 
 
 Amount 
 Ratio 
 Amount 
 Ratio 
 
 As of September 30, 2024 
 (Dollars in thousands) 
 
 Tier 1 capital (to Average Assets)
 $ 63,962 23.96 % $ 24,026 >9% 

 As of December 31, 2023 
 
 Tier 1 capital (to Average Assets)
 $ 63,258 24.72 % $ 23,031 >9% 

 ( 1 ) As defined by regulatory agencies. Failure to exceed the leverage ratio thresholds required under CBLR in the future, subject to any applicable grace period, would require the Bank to return to the risk-based capital ratio thresholds previously utilized under the fully phased-in Basel III Capital Rules to determine capital adequacy.

 Note 9: Commitments and Contingencies 

 In the ordinary course of business, the Bank has various commitments and contingent liabilities that are not reflected in the accompanying financial statements. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the financial position of the Bank.

 Financial Instruments 

 The Bank does not engage in the use of interest rate swaps or futures, forwards or option contracts.

 At September 30, 2024 and December 31, 2023 , unused lines of credit and outstanding commitments to originate loans were as follows:

 September 30, 2024 
 December 31, 2023 
 
 (Dollars in thousands) 
 
 Unused line of credit
 $ 8,242 $ 4,050 

 Commitments to originate loans
 2,506 3,770 

 Total commitments
 $ 10,748 $ 7,820 

 Concentrations of Credit Risk 

 The Bank generally originates single-family residential loans within its primary lending area which is Waukegan, Illinois and the surrounding area. The Bank’s underwriting policies require such loans to be made at approximately 80 % loan-to-value, based upon appraised values, unless private mortgage insurance is obtained, or the loan is guaranteed by the government. These loans are secured by the underlying properties.

 The Bank maintains its cash in deposit accounts at the Federal Reserve Bank or other institutions, the balances of which may exceed federally insured limits. The Bank has not experienced any losses in such accounts. The Bank believes it is not exposed to any significant credit risk on cash and cash equivalents.

 Interest Rate Risk 

 The Bank assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, fair values of its financial instruments will change when interest rate levels change, and that change may be either favorable or unfavorable to the Bank. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the overall interest rate risk.

 Litigation 

 Due to the nature of its business activities, the Bank is at times subject to legal action which arises in the normal course of business. In the opinion of management, the ultimate resolution of these matters is not expected to have a material effect on the financial position or results of operations of the Bank.

 21 
 
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 Note 10: Earnings Per Share 

 Basic EPS represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common shares (such as stock options) were exercised or converted into additional common shares that should then share in the earnings of the entity. Diluted EPS is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period, plus the effect of potential dilutive common share equivalents. 

 There were no securities or other contracts that had a dilutive effect for the three and nine months ended September 30, 2024 and 2023, 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 EPS calculations. 

 Three Months Ended September 30, 
 Nine months ended September 30, 
 
 2024 
 2023 
 2024 
 2023 
 
 (Income in thousands) 
 (Income in thousands) 
 
 Net loss applicable to common shares
 $ ( 171 ) $ ( 232 ) $ ( 743 ) $ ( 188 ) 

 Average number of common shares outstanding
 5,284,380 5,490,825 5,302,574 5,422,851 

 Less: Average unallocated ESOP shares
 375,876 397,238 381,129 402,589 

 Average number of common shares outstanding used to calculate basic loss per common share
 4,908,504 5,093,587 4,921,445 5,020,262 

 Loss per common share basic and diluted
 $ ( 0.03 ) $ ( 0.05 ) $ ( 0.15 ) $ ( 0.04 ) 

 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 stock options that were outstanding and anti-dilutive, since the Company was in a loss position.

 22 
 
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 Note 11: Stock Based Compensation 

 ESOP 

 Employees participate in an Employee Stock Ownership Plan ("ESOP"). The ESOP borrowed funds from the Company to purchase 431,836 shares of stock at $ 10 per share. The Bank makes discretionary contributions to the ESOP, as well as paying dividends on unallocated shares to the ESOP, and the ESOP uses funds it receives to repay the loan. When loan payments are made, ESOP shares are allocated to participants based on relative compensation. Participants receive the shares at the end of employment. Dividends on allocated shares increase participants accounts. 

 There were no contributions to the ESOP during the first nine months of 2024, as the annual loan payment will be made during the fourth quarter. Expense recorded was $ 154,000 and $ 152,000 for the nine months ended September 30, 2024 and 2023 , respectively, and $ 52,000 and $ 50,000 for the three months ended September 30, 2024 and 2023, respectively, and is recognized over the service period. 

 Shares held by the ESOP were as follows: 

 As of September 30, 
 
 2024 
 2023 
 
 (Dollars in thousands) 
 
 Shares allocated
 43,624 22,009 

 Shares committed for allocation
 15,885 16,212 

 Unallocated
 372,327 393,615 

 Total ESOP shares
 431,836 431,836 

 Fair value of unearned shares as of September 30, 2024 and 2023, respectively
 $ 3,854 $ 3,562 

 Fair value of unearned shares is based on a stock price of $ 10.35 and $ 9.05 as of September 30, 2024 and 2023 , respectively. 

 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. As of September 30, 2024 , the Company has 74,296 shares available for future grants of stock options under the 2023 Equity Plan. 

 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. 

 23 
 
 Table of Contents 
 
 The following is a summary of the Company's stock option activity and related information for the periods presented. 

 Stock Option 
 Shares 
 Weighted Average Exercise Price 
 Aggregate Intrinsic Value (1) 
 
 Outstanding at June 30, 2023
 465,500 $ 9.36 

 Granted
 — — 

 Forfeited
 — — 

 Outstanding at September 30, 2023
 465,500 $ 9.36 N/A 

 Exercisable - End of Period
 — 

 Outstanding at June 30, 2024
 465,500 $ 9.36 

 Granted
 — — 

 Exercised
 23,000 9.36 

 Forfeited
 — — 

 Outstanding at September 30, 2024
 442,500 $ 9.36 $ 438 

 Exercisable - End of Period
 88,500 9.36 88 

 Stock Option 
 Shares 
 Weighted Average Exercise Price 
 Aggregate Intrinsic Value (1) 
 
 Outstanding at December 31, 2022
 — $ — 

 Granted
 465,500 9.36 

 Forfeited
 — — 

 Outstanding at September 30, 2023
 465,500 $ 9.36 N/A 

 Exercisable - End of Period
 — 

 Outstanding at December 31, 2023
 465,500 $ 9.36 

 Granted
 — — 

 Exercised
 23,000 9.36 

 Forfeited
 — — 

 Outstanding at September 30, 2024
 442,500 $ 9.36 $ 438 

 Exercisable - End of Period
 88,500 9.36 88 

 ( 1 ) Dollars in thousands. The aggregate intrinsic value of outstanding and exercisable options at September 30, 2024 and 2023 were calculated based on the closing market price of the Company's common stock of September 30, 2024 and 2023 of $ 10.35 and $ 9.05 , respectively, per share less the exercise price. 

 Expected future expense relating to the non-vested options outstanding as of September 30, 2024 is $ 1.2 million over a weighted average period of 3.7 years. As of September 30, 2024, the Company had 442,500 in outstanding stock options with a weighted average remaining life of 8.7 years outstanding. 

 24 
 
 Table of Contents 
 
 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.

 As of September 30, 2024 , 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 September 30, 2024 and changes thereto during the periods presented. 

 Restricted Stock 
 Shares 
 Weighted Average Grant Date Fair Value 
 
 Nonvested balance as of June 30, 2023
 187,200 $ 9.36 

 Granted
 — — 

 Forfeited
 — — 

 Nonvested balance as of September 30, 2023
 187,200 $ 9.36 

 Nonvested balance as of June 30, 2024
 142,400 $ 9.36 

 Granted
 — — 

 Vested
 — — 

 Forfeited
 — — 

 Nonvested balance as of September 30, 2024
 142,400 $ 9.36 

 Restricted Stock 
 Shares 
 Weighted Average Grant Date Fair Value 
 
 Nonvested balance as of December 31, 2022
 — $ — 

 Granted
 187,200 9.36 

 Forfeited
 — — 

 Nonvested balance as of September 30, 2023
 187,200 $ 9.36 

 Nonvested balance as of December 31, 2023
 178,000 $ 9.36 

 Granted
 — — 

 Vested
 35,600 9.36 

 Forfeited
 — — 

 Nonvested balance as of September 30, 2024
 142,400 $ 9.36 

 Expected future expense related to the non-vested restricted shares outstanding as of period end is $ 1.2 million over a weighted average period of 3.7 years. 

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

 Three Months Ended September 30, 
 Nine months ended September 30, 
 
 2024 
 2023 
 2024 
 2023 
 
 (Dollars in thousands) 
 (Dollars in thousands) 
 
 Stock option expense
 $ 79 $ 82 $ 236 $ 96 

 Restricted stock expense
 83 88 250 102 

 Total stock based compensation expense
 $ 162 $ 170 $ 486 $ 198 

 25 
 
 Table of Contents 
 
 ITEM 2. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

 This section is intended to assist in the understanding of our financial performance through a discussion of our financial condition as of September 30, 2024 and as compared to our financial condition as of December 31, 2023, and our results of operations for the three and nine months ended September 30, 2024 and 2023. This section should be read in conjunction with the unaudited interim consolidated financial statements and notes thereto appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 Forward-Looking Statements 

 This filing contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

 ●
 
 statements of our goals, intentions and expectations;
 
 ●
 
 statements regarding our business plans, prospects, growth and operating strategies;
 
 ●
 
 statements regarding the quality of our loan and investment portfolios; and
 
 ●
 
 estimates of our risks and future costs and benefits.
 
 These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

 26
 
 Table of Contents 
 
 The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 ●
 
 general economic conditions, either nationally or in our market areas, that are different than expected;
 
 ●
 
 changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for credit losses;
 
 ●
 
 fluctuations in real estate values and both residential and commercial real estate market conditions; 
 
 ●
 
 inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans;
 
 ●
 
 our ability to manage our liquidity and to access cost-effective funding, including significant fluctuations in our deposit accounts;
 
 ●
 
 major catastrophes such as tornadoes, floods or other natural disasters, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies;
 
 ●
 
 further data processing and other technological changes that may be more difficult or expensive than expected;
 
 ●
 
 success or consummation of new business initiatives may be more difficult or expensive than expected;
 
 ●
 
 interruptions involving information technology and communications systems of service providers; 
 
 ●
 
 breaches or failures of information security controls or cyber-related incidents; 
 
 ●
 
 demand for loans and deposits in our market area;
 
 ●
 
 our ability to continue to implement our business strategies;
 
 ●
 
 competition among depository and other financial institutions;
 
 ●
 
 adverse changes in the securities markets;
 
 ●
 
 changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
 
 ●
 
 our ability to manage market risk, credit risk and operational risk in the current economic conditions;
 
 ●
 
 our ability to enter new markets successfully and capitalize on growth opportunities;
 
 ●
 
 our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;
 
 ●
 
 changes in consumer spending, borrowing and savings habits;
 
 ●
 
 changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
 
 ●
 
 our ability to hire and retain key employees and our reliance on our executive officers; and
 
 ●
 
 our compensation expense associated with equity allocated or awarded to our employees.
 
 Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. 

 27
 
 Table of Contents 
 
 General 

 On January 18, 2022, NSTS Bancorp, Inc. (“the Company”) became the holding company for North Shore Trust and Savings (“the Bank”) when North Shore MHC completed its conversion into the stock holding company form of organization. Shares of the Company's common stock began trading on January 19, 2022 on the Nasdaq Capital Market under the trading symbol “NSTS.”

 NSTS Bancorp, Inc. 

 NSTS Bancorp, Inc. is a Delaware corporation which was incorporated in September 2021. As a savings and loan holding company, NSTS Bancorp, Inc. is regulated by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”). The Company’s primary business activities relate to owning all of the outstanding shares of capital stock of the Bank.

 The unaudited financial statements and other financial information contained in this Quarterly Report on Form 10-Q should be read in conjunction with NSTS Bancorp, Inc.'s Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. 

 North Shore Trust and Savings 

 North Shore Trust and Savings, a federally-chartered stock savings institution, was established in 1921 as North Shore Building and Loan, an Illinois-chartered institution. The Bank is a wholly owned subsidiary of NSTS Bancorp, Inc., and operates as a traditional savings institution focused primarily on serving the banking needs of customers in our market area of Lake County, Illinois and adjacent communities. We operate from our headquarters and main banking office in Waukegan, Illinois, as well as two additional full-service branch offices located in Waukegan and Lindenhurst, Illinois, respectively. During the third quarter of 2023, we added additional loan production offices in Aurora and Plainfield, Illinois to complement the existing loan production office in Chicago, Illinois. Our primary business activity is attracting deposits from the general public and using those funds to originate one- to four-family residential mortgage loans and purchase investments. We are subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency (the “OCC”).

 Our Business and Franchise 

 For over 100 years, we have served Lake County, Illinois and the surrounding communities. We have established deep ties to the community and developed customer relationships which have spanned generations. We pride ourselves in matching our products and services to the needs of the community.

 Our principal business consists of originating loans for one- to four-family residential properties, multi-family and non-owner occupied commercial real estate loans, and to a lesser extent home equity loans and lines of credit, construction loans, and other consumer loans in the market areas surrounding our branch footprint. We also established a loan production office in Chicago, Illinois in 2016 to originate loans outside of our branch network in a more densely populated metropolitan area, which we believe benefits us geographically. To complement the existing offices, during the third quarter of 2023, we established two additional loan production offices in Aurora and Plainfield, Illinois to expand our loan originations within the Chicagoland area. The lending teams operating in the Aurora and Plainfield, Illinois loan production offices originate as Oak Leaf Community Mortgage, a division of North Shore Trust and Savings. We attract retail deposits from the general public in the areas surrounding our main office and branches, offering a wide variety of deposit products. We also invest in investment securities. Our revenues are derived primarily from interest on loans, noninterest income from the sale of one- to four-family residential mortgage loans in the secondary market and interest on investments. Our primary sources of funds are deposits, and principal and interest payments on loans and securities.

 Critical Accounting Policies and Estimates 

 Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated unaudited interim financial statements for the three and nine months ended September 30, 2024 and 2023, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results could differ from these estimates.

 Of the significant accounting policies used in the preparation of our consolidated financial statements, we have identified certain items as critical accounting policies based on the associated estimates, assumptions, judgments and complexity. See “ Management ’ s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies ” in our Annual Report on Form 10-K for the year ended December 31, 2023. 

 28
 
 Table of Contents 
 
 Overview 

 This discussion is intended to focus on certain financial information regarding our consolidated company and may not contain all the information that is important to the reader. The purpose of this discussion is to provide the reader with a more thorough understanding of our financial statements. As such, this discussion should be read carefully and in conjunction with the consolidated financial statements and accompanying notes contained elsewhere in this report.

 Our results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on our loan and investment portfolios and interest expense on deposits and borrowings. Our net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. Results of operations are also affected by our provisions for credit losses, fee income and other noninterest income and noninterest expense. Noninterest expense principally consists of compensation, office occupancy and equipment expense, data processing, advertising and business promotion and other expenses. We expect that our noninterest expenses will increase as we grow and expand our operations. Our results of operations and financial condition are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, changes in accounting guidance, government policies and actions of regulatory authorities.

 Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances. The table also reflects the yields on the Company’s interest-earning assets and costs of interest-bearing liabilities for the periods shown.

 29
 
 Table of Contents 
 
 For the Three Months Ended September 30, 
 
 2024 
 
 2023 
 
 Average 
 
 Average 
 
 Outstanding 
 
 Average Yield/ 
 
 Outstanding 
 
 Average Yield/ 
 
 Balance 
 
 Interest 
 
 Rate 
 
 Balance 
 
 Interest 
 
 Rate 
 
 (Dollars in thousands) 
 
 Interest-earning assets: 
 
 Loans, net
 
 $ 
 135,302 
 
 $ 
 1,797 
 
 5.31 
 % 
 
 $ 
 106,202 
 
 $ 
 1,079 
 
 4.06 
 % 
 
 Federal funds sold and interest-bearing deposits in other banks
 
 35,353 
 
 409 
 
 4.63 
 % 
 
 11,323 
 
 99 
 
 3.50 
 % 
 
 Time deposits with other financial institutions
 
 1,291 
 
 14 
 
 4.34 
 % 
 
 1,842 
 
 21 
 
 4.56 
 % 
 
 Securities available for sale
 
 74,547 
 
 430 
 
 2.31 
 % 
 
 114,417 
 
 733 
 
 2.56 
 % 
 
 FHLB stock
 
 585 
 
 10 
 
 6.84 
 % 
 
 550 
 
 7 
 
 5.09 
 % 
 
 Total interest-earning assets
 
 247,078 
 
 $ 
 2,660 
 
 4.31 
 % 
 
 234,334 
 
 $ 
 1,939 
 
 3.31 
 % 
 
 Noninterest-earning assets
 
 19,625 
 
 21,373 
 
 Total assets
 
 $ 
 266,703 
 
 $ 
 255,707 
 
 Interest-bearing liabilities: 
 
 Interest-bearing demand
 
 $ 
 16,011 
 
 $ 
 2 
 
 0.05 
 % 
 
 $ 
 15,661 
 
 $ 
 3 
 
 0.08 
 % 
 
 Money market
 
 30,157 
 
 49 
 
 0.65 
 % 
 
 35,549 
 
 57 
 
 0.64 
 % 
 
 Savings
 
 40,885 
 
 15 
 
 0.15 
 % 
 
 44,788 
 
 17 
 
 0.15 
 % 
 
 Time deposits
 
 80,780 
 
 703 
 
 3.48 
 % 
 
 57,467 
 
 285 
 
 1.98 
 % 
 
 Total interest-bearing deposits
 
 $ 
 167,833 
 
 $ 
 769 
 
 1.83 
 % 
 
 $ 
 153,465 
 
 $ 
 362 
 
 0.94 
 % 
 
 Other borrowings
 
 5,000 
 
 61 
 
 4.88 
 % 
 
 5,000 
 
 61 
 
 4.88 
 % 
 
 Total interest-bearing liabilities
 
 172,833 
 
 $ 
 830 
 
 1.92 
 % 
 
 158,465 
 
 $ 
 423 
 
 1.07 
 % 
 
 Noninterest-bearing liabilities
 
 16,516 
 
 17,438 
 
 Total liabilities
 
 $ 
 189,349 
 
 $ 
 175,903 
 
 Equity
 
 77,354 
 
 79,804 
 
 Total liabilities and equity
 
 $ 
 266,703 
 
 $ 
 255,707 
 
 Net interest income
 
 $ 
 1,830 
 
 $ 
 1,516 
 
 Interest rate spread (1) 
 
 2.39 
 % 
 
 2.24 
 % 
 
 Net interest-earning assets (2) 
 
 $ 
 74,245 
 
 $ 
 75,869 
 
 Net interest margin (3) 
 
 2.96 
 % 
 
 2.59 
 % 
 
 Average interest-earning assets to average-interest bearing liabilities
 
 142.96 
 % 
 
 147.88 
 % 
 
 (1)
 
 Equals the difference between the yield on average earning-assets and the cost of average interest-bearing liabilities.
 
 (2)
 
 Equals total interest-earning assets less total interest-bearing liabilities.
 
 (3)
 
 Equals net interest income divided by average interest-earning assets. 
 
 30
 
 Table of Contents 
 
 For the Nine Months Ended September 30, 
 
 2024 
 
 2023 
 
 Average 
 
 Average 
 
 Outstanding 
 
 Average Yield/ 
 
 Outstanding 
 
 Average Yield/ 
 
 Balance 
 
 Interest 
 
 Rate 
 
 Balance 
 
 Interest 
 
 Rate 
 
 (Dollars in thousands) 
 
 Interest-earning assets: 
 
 Loans, net
 
 $ 
 131,801 
 
 $ 
 4,993 
 
 5.05 
 % 
 
 $ 
 105,084 
 
 $ 
 3,119 
 
 3.96 
 % 
 
 Federal funds sold and interest-bearing deposits in other banks
 
 33,417 
 
 1,183 
 
 4.72 
 % 
 
 8,827 
 
 210 
 
 3.17 
 % 
 
 Time deposits with other financial institutions
 
 1,698 
 
 65 
 
 5.10 
 % 
 
 3,089 
 
 75 
 
 3.24 
 % 
 
 Securities available for sale
 
 77,158 
 
 1,359 
 
 2.35 
 % 
 
 118,339 
 
 2,225 
 
 2.51 
 % 
 
 FHLB stock
 
 573 
 
 28 
 
 6.52 
 % 
 
 550 
 
 16 
 
 3.88 
 % 
 
 Total interest-earning assets
 
 244,647 
 
 $ 
 7,628 
 
 4.16 
 % 
 
 235,889 
 
 $ 
 5,645 
 
 3.19 
 % 
 
 Noninterest-earning assets
 
 19,702 
 
 21,227 
 
 Total assets
 
 $ 
 264,349 
 
 $ 
 257,116 
 
 Interest-bearing liabilities: 
 
 Interest-bearing demand
 
 $ 
 15,453 
 
 $ 
 6 
 
 0.05 
 % 
 
 $ 
 17,157 
 
 $ 
 7 
 
 0.05 
 % 
 
 Money market
 
 30,942 
 
 148 
 
 0.64 
 % 
 
 38,237 
 
 173 
 
 0.60 
 % 
 
 Savings
 
 41,378 
 
 46 
 
 0.15 
 % 
 
 46,777 
 
 53 
 
 0.15 
 % 
 
 Time deposits
 
 77,480 
 
 1,923 
 
 3.31 
 % 
 
 54,182 
 
 612 
 
 1.51 
 % 
 
 Total interest-bearing deposits
 
 $ 
 165,253 
 
 $ 
 2,123 
 
 1.71 
 % 
 
 $ 
 156,353 
 
 $ 
 845 
 
 0.72 
 % 
 
 Other borrowings
 
 5,000 
 
 182 
 
 4.85 
 % 
 
 1,886 
 
 68 
 
 4.81 
 % 
 
 Total interest-bearing liabilities
 
 170,253 
 
 $ 
 2,305 
 
 1.81 
 % 
 
 158,239 
 
 $ 
 913 
 
 0.77 
 % 
 
 Noninterest-bearing liabilities
 
 17,192 
 
 11,488 
 
 Total liabilities
 
 $ 
 187,445 
 
 $ 
 169,727 
 
 Equity
 
 76,904 
 
 87,389 
 
 Total liabilities and equity
 
 $ 
 264,349 
 
 $ 
 257,116 
 
 Net interest income
 
 $ 
 5,323 
 
 $ 
 4,732 
 
 Interest rate spread (1) 
 
 2.35 
 % 
 
 2.42 
 % 
 
 Net interest-earning assets (2) 
 
 $ 
 74,394 
 
 $ 
 77,650 
 
 Net interest margin (3) 
 
 2.90 
 % 
 
 2.67 
 % 
 
 Average interest-earning assets to average-interest bearing liabilities
 
 143.70 
 % 
 
 149.07 
 % 
 
 (1)
 
 Equals the difference between the yield on average earning-assets and the cost of average interest-bearing liabilities.
 
 (2)
 
 Equals total interest-earning assets less total interest-bearing liabilities.
 
 (3)
 
 Equals net interest income divided by average interest-earning assets. 
 
 31
 
 Table of Contents 
 
 COMPARISON OF OPERATING RESULTS FOR THE Three and Nine MONTHS ENDED September 30, 2024 and 2023 

 General. For the three months ended September 30, 2024, we had a net loss of $171,000, compared to a net loss of $232,000 for the three months ended September 30, 2023. For the nine months ended September 30, 2024, we had a net loss of $743,000, compared to a net loss of $188,000 for the nine months ended September 30, 2023. The decrease in net loss for the three-month period is primarily attributable to an increase in noninterest income, specifically related to the gain on sale of mortgages. The increase in net loss, for the nine-month period is primarily attributable to an increase in noninterest expenses related to the continued investment in people and processes with the expansion of the mortgage lending team, Oak Leaf Community Mortgage. This increase is partially offset by an increase in noninterest income specifically related to the gain on loans held for sale and an increase in net interest income driven by increased interest income on loans and interest income on funds held at the Federal Reserve Bank of Chicago.

 Net Interest Income. Net interest income increased $314,000, to $1.8 million for the three months ended September 30, 2024 compared to $1.5 million for the three months ended September 30, 2023. Our interest rate spread increased to 2.39% for the three months ended September 30, 2024 from 2.24% for the same period ended September 30, 2023. Our net interest margin increased to 2.96% for the three months ended September 30, 2024 compared to 2.59% for the three months ended September 30, 2023. These increases are driven by an increase in yields earned on loans and interest-bearing deposits in other banks.

 Average interest-earning assets of $247.1 million in the third quarter 2024 increased $12.8 million compared to $234.3 million for the third quarter 2023. The increase in average earning assets was driven by an increase in loans and interest-bearing deposits at other banks, funded by an increase in average deposit balances during the period. The average outstanding balance of loans, net, increased to $135.3 million for the three-month period ended September 30, 2024, an increase of $29.1 million from $106.2 million for the three months ended September 30, 2023. Additionally, the average yield earned on those loans outstanding increased 125 basis points to 5.31% for the three months ended September 30, 2024. This increase is a result of an overall increase in market rates on mortgage loans originated during 2024, as well as increased loan demand for specialty portfolio products which are originated at higher interest rates and with additional origination fees.

 The cost of interest-bearing deposits increased 89 basis points for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The net increase in our funding costs was primarily due to an increase in rates offered on time deposit accounts to remain competitive with the local market. 

 Net interest income increased $591,000, to $5.3 million for the nine months ended September 30, 2024 compared to $4.7 million for the nine months ended September 30, 2023. Our interest rate spread decreased to 2.35% for the nine months ended September 30, 2024 from 2.42% for the same period ended September 30, 2023. Our net interest margin increased to 2.90% for the nine months ended September 30, 2024 compared to 2.67% for the nine months ended September 30, 2023. The decrease in interest rate spread is driven by an increased average balance of higher earning interest-bearing liabilities, specifically interest-bearing deposits, as a percentage of total assets. The increase in the interest margin is driven by an increase in yields earned on loans and interest-bearing deposits in other banks.

 Average interest-earning assets of $244.6 million for the nine months ended September 30, 2024 increased $8.8 million compared to $235.9 million for the same period ending September 30, 2023. The increase in average earning assets was driven by an increase in loans and interest-bearing deposits at other banks, funded by an increase in average deposit balances during the period and reduction in investment securities. The average outstanding balance of loans, net increased to $131.8 million for the nine-month period ended September 30, 2024, an increase of $26.7 million from $105.1 million for the nine months ended September 30, 2023. Additionally, the average yield earned on those loans outstanding increased 109 basis points to 5.05% for the nine months ended September 30, 2024. This increase is a result of an overall increase in market rates on mortgage loans originated during 2024, as well as an increased loan demand for specialty portfolio products which are originated at higher interest rates and with additional origination fees.

 The cost of interest-bearing deposits increased 99 basis points for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The net increase in our funding costs was primarily due to an increase in rates offered on time deposit accounts to remain competitive with the local market.

 Provision for Credit Losses. For the three months ended September 30, 2024 and 2023, a provision for credit losses was recorded based on the current allowance for credit loss ("ACL") assessment. During the three months ended September 30, 2024, we recorded a provision for credit losses of $20,000, comprised of $4,000 in provision for credit losses to loans and $16,000 in provision for credit losses related to unfunded commitments, including loans committed for origination. During the three months ended September 30, 2023, we recorded a provision for credit losses of $50,000, comprised of $51,000 in provision for credit losses on loans and a $1,000 reversal of provision of credit losses related to unfunded commitments. During the nine months ended September 30, 2024, we recorded a provision for credit losses of $142,000, comprised of $95,000 provision for credit losses on loans and $47,000 provision for credit losses related to unfunded commitments. During the nine months ended September 30, 2023, we recorded a provision for credit losses of $52,000, comprised of $53,000 provision for credit losses on loans and a $1,000 reversal of provision of credit losses related to unfunded commitments.

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

 32
 
 Table of Contents 
 
 Noninterest Income. The following table shows the components of noninterest income for the periods presented.

 Three months ended September 30, 
 
 Nine months ended September 30, 
 
 Noninterest income: 
 
 2024 
 
 2023 
 
 2024 
 
 2023 
 
 (Dollars in thousands) 
 
 Gain on sale of mortgage loans
 
 $ 
 268 
 
 $ 
 — 
 
 $ 
 695 
 
 $ 
 13 
 
 Rental income on office building
 
 16 
 
 16 
 
 48 
 
 48 
 
 Service charges on deposits
 
 67 
 
 70 
 
 192 
 
 203 
 
 Increase in cash surrender value of BOLI
 
 56 
 
 49 
 
 162 
 
 141 
 
 Other
 
 16 
 
 15 
 
 139 
 
 39 
 
 Total noninterest income
 
 $ 
 423 
 
 $ 
 150 
 
 $ 
 1,236 
 
 $ 
 444 
 
 For the three months ended September 30, 2024 compared to the three months ended September 30, 2023, noninterest income increased $273,000 to $423,000 from $150,000. For the nine months ended September 30, 2024 compared to the same period ended September 30, 2023, noninterest income increased $792,000 from $444,000 to $1.2 million. In each case, the increases were driven by an increase in the gain on sale of mortgage loans and an increase in other noninterest income. Other noninterest income for the nine months ended September 30, 2024, increased as a result of insurance recovery funds received, totaling $70,000, due to damage from an accident that occurred at one of the branches. Management anticipates the costs associated with the capital improvements will exceed that of the funds received as additional necessary upgrades will be made concurrently.

 Gain on sale of mortgages increased $268,000 for the three months ended September 30, 2024 compared to 2023. Gain on sale of mortgage loans increased $682,000, from $13,000 to $695,000 for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increases in gain on sale of mortgages were primarily the result of an overall increase in total mortgage loans originated during the period. During the nine months ended September 30, 2024, we sold 125 loans totaling $33.3 million for a gain on sale of $695,000. Included in the number and amount of loans sold during the period were loans sold that were originated as held for investment, but subsequently sold to local community banks, totaling $2.5 million, for a total gain on sale of $79,000. Management continues to look for opportunities and markets to sell loans as we continue to see increased loan production compared to prior years.

 Noninterest Expense. The following table shows the components of noninterest expense for the periods presented.

 Three months ended September 30, 
 
 Nine months ended September 30, 
 
 Noninterest expense: 
 
 2024 
 
 2023 
 
 2024 
 
 2023 
 
 (Dollars in thousands) 
 
 Salaries and employee benefits
 
 $ 
 1,483 
 
 $ 
 1,162 
 
 $ 
 4,325 
 
 $ 
 3,095 
 
 Equipment and occupancy
 
 190 
 
 166 
 
 602 
 
 499 
 
 Data processing
 
 212 
 
 159 
 
 624 
 
 481 
 
 Professional services
 
 115 
 
 150 
 
 398 
 
 394 
 
 Advertising
 
 60 
 
 14 
 
 235 
 
 65 
 
 Supervisory fees and assessments
 
 36 
 
 49 
 
 107 
 
 123 
 
 Loan expenses
 
 53 
 
 25 
 
 148 
 
 69 
 
 Deposit expenses
 
 63 
 
 56 
 
 175 
 
 163 
 
 Director fees
 
 56 
 
 56 
 
 160 
 
 168 
 
 Other
 
 136 
 
 116 
 
 386 
 
 353 
 
 Total noninterest expense
 
 $ 
 2,404 
 
 $ 
 1,953 
 
 $ 
 7,160 
 
 $ 
 5,410 
 
 Noninterest expenses increased $451,000 for the three months ended September 30, 2024, compared to the same period ended September 30, 2023. Noninterest expenses increased $1.8 million for the nine months ended September 30, 2024, compared to the same period ended September 30, 2023. For both the three- and nine-month periods, the increase in noninterest expenses was primarily driven by increases in salaries and employee benefits. The average number of employees increased to 49 for the nine months ended September 30, 2024 compared to 37 for the nine months ended September 30, 2023. The increase in headcount is based on the addition of the Oak Leaf Community Mortgage team brought on during the fourth quarter of 2023 as well as additional hires during 2024 to supplement the lending team as operations continue to expand. Additionally, the Company implemented the 2023 Equity Incentive Plan on June 15, 2023, and began recognizing expenses associated with this plan in June 2023, as such expenses were higher for the periods ended 2024 compared to 2023. Marketing and advertising costs increased during 2024 as a result of an increased focus on lending operations and related marketing to our new lending area, Will County, Illinois. Data processing expenses increased as we have continued to invest in systems and processes to improve the lending experience for our customers as well as implement efficiencies within our internal processes. Additionally, certain data processing expenses are based on per employee costs, which increased due to an increase in headcount. Loan expenses increased as a result of an increase in loan originations during the periods. Equipment and occupancy costs increased as a result of two additional loan production office rental agreements in place during 2024 that were not in place during the first nine months of 2023. Management intends to continue to invest in the people and processes in place to achieve efficiencies as loan production continues to grow.

 Provision for Income Tax Expense (Benefit). There was no provision for income tax expense recorded during the three and nine months ended September 30, 2024. Management estimates a taxable net loss for the year ended December 31, 2024 due to non-taxable income, such as income on tax exempt municipal securities and BOLI.

 During the quarter ended September 30, 2024, management assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing net operating losses. A significant piece of objective negative evidence evaluated is the cumulative taxable loss incurred over the three-year period ended September 30, 2024. 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 September 30, 2024, management maintained the full valuation allowance against the federal net operating losses and net deferred tax assets 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.

 33
 
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 COMPARISON OF FINANCIAL CONDITION AT September 30, 2024 and December 31, 2023 

 At September 30, 
 
 At December 31, 
 
 2024 
 
 2023 
 
 (Dollars in thousands) 
 
 Selected Consolidated Financial Condition Data: 
 
 Cash and cash equivalents
 
 $ 
 34,592 
 
 $ 
 31,388 
 
 Securities available for sale
 
 75,240 
 
 82,135 
 
 FHLB stock
 
 585 
 
 550 
 
 Loans held for sale
 
 3,120 
 
 380 
 
 Loans, net
 
 133,811 
 
 120,623 
 
 Total assets
 
 268,439 
 
 256,776 
 
 Total deposits
 
 179,887 
 
 168,826 
 
 Total equity
 
 $ 
 78,436 
 
 $ 
 77,545 
 
 Total Assets . Total assets increased $11.7 million to $268.4 million as of September 30, 2024 compared to $256.8 million at December 31, 2023. The increase was driven by an increase in loans, net, funded by an increase in time deposits and a reduction in securities available for sale due to maturities and principal payments of securities.

 Cash and cash equivalents. Cash and cash equivalents increased $3.2 million to $34.6 million as of September 30, 2024, from $31.4 million at December 31, 2023. The increase in cash was driven by an increase in time deposits during the same period and principal payments received on securities available for sale. Currently, the Bank holds a majority of the cash on hand at the Federal Reserve Bank of Chicago, earning 4.90%, to keep the funds available for increasing loan demand. Management continues to actively monitor our liquidity position on a daily basis and maintain levels of liquid assets deemed adequate.

 Time deposits with other financial institutions. Time deposits with other financial institutions decreased $500,000 to $1.5 million as of September 30, 2024, from $2.0 million at December 31, 2023. The decrease in time deposits with other financial institutions was driven by maturities during the year to date. Management has been reinvesting the matured funds into lending activities, increasing the average yield on assets for the nine months ended September 30, 2024 to 4.16% compared to 3.19% for the same period ending September 30, 2023.

 Securities Available for Sale . Securities available-for-sale decreased to $75.2 million as of September 30, 2024, compared to $82.1 million at December 31, 2023. There were no purchases or sales of securities available-for-sale during the nine months ended September 30, 2024. During the nine months ended September 30, 2024, the Bank received principal payments of $4.2 million, had maturities of $4.3 million, had net premium amortization and discount accretion of $393,000 and had a decrease in the unrealized loss on the portfolio of $2.0 million. 

 As of September 30, 2024, the securities available for sale portfolio included an unrealized loss position of $9.6 million, or 11.3% of the total book value of the portfolio. Management monitors the portfolio for credit losses and believes that the decline in value does not presently represent realized losses and is due to market volatility and increased market interest rates. While the Bank does not currently intend to sell securities in a loss position, management may consider the opportunity to reposition the investment securities portfolio in the future.

 Loans held for sale. Our loans held for sale increased $2.7 million to $3.1 million at September 30, 2024 compared to $380,000 at December 31, 2023. With the addition of Oak Leaf Community Mortgage during the late third and early fourth quarters of 2023, and the related increase in loan originations, management has increased the proportion of loan originations held for sale to the secondary market. During the nine months ended September 30, 2024, the Bank originated $33.6 million in loans held for sale. 

 Loans, net . Our loans, net, increased by $13.2 million to $133.8 million at September 30, 2024 compared to $120.6 million at December 31, 2023. The Bank originated $38.6 million in loans to be held in the portfolio during the nine months ended September 30, 2024 and had loan principal payments and payoffs of $22.8 million. The Bank continues to focus lending efforts on one- to four-family residential properties, which has seen the largest increase in balances during the nine months ended September 30, 2024. Additionally, the balance of construction loans has decreased from December 31, 2023 to September 30, 2024, however, the current available balance on construction loans is $3.4 million as of September 30, 2024 and is expected to be drawn upon within the next 12 months. In an effort to continue to grow loan originations, the Bank hired three additional mortgage loan originators during the nine months ended September 30, 2024. The Bank sold $2.5 million in loans that were originally held in the portfolio to local community banks. 

 As of September 30, 2024, the allowance for credit losses (“ACL”) which includes the allowance for credit losses on loans, and the allowance for credit losses on off-balance sheet exposures (recorded in Other Liabilities), totaled $1.3 million, an increase of $95,000 compared to December 31, 2023. The increase in the ACL is driven by an increase in the portfolio loan balances. As of September 30, 2024, there were no loans individually assessed and no loans were rated substandard or watch. As of September 30, 2024, the Bank has no non-accrual loans and two loan past due greater than 30 days. The Bank actively monitors the loan portfolio for signs of weakening credit quality, noting as of September 30, 2024 the portfolio remains of high quality with limited credit concerns. As of September 30, 2024, the balance of unfunded commitments increased as a result of an increase in the HELOCs and construction loans originated during the first nine months of 2024 and not yet drawn upon as well as in loans committed for origination.

 34
 
 Table of Contents 
 
 Deposits . Total deposits increased $11.1 million to $179.9 million at September 30, 2024 compared to $168.8 million at December 31, 2023. The increase in deposits is primarily within the time deposit accounts as the Bank continued to offer a competitive CD special during the nine months ended September 30, 2024. Based on current offering rates in our market area and our current deposit pricing strategy, as well as our strong historical deposit retention, management anticipates that a significant portion of maturing time deposits will be retained. Management continues to actively monitor the deposit balances and interest rates offered to maintain an adequate level of liquidity.

 Additionally, management notes the percentage of time deposit accounts greater than $250,000 as a percentage of total time deposits has increased to 20.4% as of September 30, 2024 compared to December 31, 2023. The total balance of deposit accounts greater than $250,000 as of September 30, 2024 is $40.0 million, or 22.2% of total deposits. This represents an increase from December 31, 2023 of $34.3 million, or 20.3% of total deposits. Management works closely with depositors to reduce the uninsured balances through beneficiaries as well as to ensure depositors understand the risks. 

 Total Equity . Total equity increased $891,000 to $78.4 million at September 30, 2024. The increase is primarily due to a decrease in the unrealized loss position on the securities available-for-sale portfolio. The decrease in the unrealized loss position of $1.4 million, net of the related tax effect, is due to changes in market interest rates. Additionally, the Bank began repurchasing treasury stock during the second quarter 2024, resulting in an additional $411,000 of treasury stock as of September 30, 2024, compared to December 31, 2023.

 35
 
 Table of Contents 
 
 Asset Quality 

 The following table sets forth certain information with respect to our nonperforming assets. The decrease in non-accrual loans from December 31, 2023 to September 30, 2024 was the result of payoffs or payment requirements met bringing the loans off of non-accrual as of September 30, 2024. 

 At September 30, 
 
 At December 31, 
 
 2024 
 
 2023 
 
 (Dollars in thousands) 
 
 Nonaccrual loans
 
 $ 
 — 
 
 $ 
 200 
 
 Loans 90+ days past due and accruing
 
 264 
 
 — 
 
 Total non-performing loans
 
 264 
 
 200 
 
 Other real estate owned, net
 
 — 
 
 — 
 
 Total non-performing assets
 
 $ 
 264 
 
 $ 
 200 
 
 Asset Quality Ratios: (1) 
 
 Non-accrual loans as a percent of total loans outstanding
 
 — 
 % 
 
 0.17 
 % 
 
 Non-performing assets as a percent of total assets
 
 0.10 
 % 
 
 0.08 
 % 
 
 Allowance for credit losses on loans as a percent of total loans outstanding
 
 0.95 
 % 
 
 0.97 
 % 
 
 Allowance for credit losses on loans as a percent of non-performing loans(2)
 
 481.44 
 % 
 
 588.00 
 % 
 
 Net charge-offs (recoveries) to average loans receivable
 
 — 
 % 
 
 — 
 % 
 
 (1)
 
 Asset quality ratios and capital ratios are end of period ratios, except for net charge-offs to average loans receivable.
 
 (2)
 
 Non-performing loans consist of non-accrual loans and loans that are 90 or more days past due and still accruing.
 
 The allowance for credit losses on loans as a percentage of total loans as of September 30, 2024 was 0.95%. The allowance for loan losses as a percentage of total loans at December 31, 2023 was 0.97%. 

 36
 
 Table of Contents 
 
 Liquidity and Capital Resources 

 The Bank maintains levels of liquid assets deemed adequate by management. We adjust our liquidity levels to fund deposit outflows, repay our borrowings, and to fund loan commitments. We also adjust liquidity, as appropriate, to meet asset and liability management objectives.

 Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We also have the ability to borrow from the FHLB of Chicago and a $10.0 million unsecured Fed Funds line of credit with BMO Harris Bank. At September 30, 2024, we had one outstanding advance from the FHLB of Chicago totaling $5.0 million and had the capacity to borrow approximately $78.1 million additional from the FHLB of Chicago. Additionally, we had no outstanding balance under our $10.0 million federal funds line of credit with BMO Harris Bank.

 While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

 Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $74,000 and $363,000 for the nine months ended September 30, 2024 and 2023, respectively. Net cash (used in) provided by investing activities, which consists primarily of net change in loans receivable and net change in investment securities, was $(7.0) million and $7.4 million for the nine months ended September 30, 2024 and 2023, respectively, with the increase in cash used in 2024 driven by the increase in the portfolio loans. Net cash provided by (used in) financing activities, consisting primarily of the activity in deposit accounts was $10.2 million and $(10.2) million for the nine months ended September 30, 2024 and 2023, respectively. 

 We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Time deposits that are scheduled to mature in less than one year from September 30, 2024, totaled $54.0 million. Based on our deposit retention experience and current pricing strategy we anticipate that a significant portion of maturing time deposits will be retained. However, if a substantial portion of these deposits is not retained, we may utilize FHLB of Chicago advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. 

 As of September 30, 2024, the Bank was well capitalized under the regulatory framework for prompt corrective action. During the year ended December 31, 2020, the Bank elected to begin using the CBLR. Under CBLR, if a qualifying depository institution or depository institution holding company elects to use such measure, such institution or holding company will be considered well capitalized if its ratio of Tier 1 capital to average total consolidated assets (i.e., leverage ratio) exceeds 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. North Shore Trust and Savings’ Tier 1 capital to Average Assets was 23.96% and 24.72% at September 30, 2024 and December 31, 2023, respectively. 

 Off-Balance Sheet Arrangements . At September 30, 2024, we had $2.5 million of outstanding commitments to originate loans. Our total letters and lines of credit and unused lines of credit totaled $8.2 million at September 30, 2024.

 Commitments . The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans at September 30, 2024.

 Total Amounts Committed at 
 
 Amount of Commitment Expiration – Per Period 
 
 September 30, 2024 
 
 To 1 Year 
 
 1-3 Years 
 
 4-5 Years 
 
 After 5 Years 
 
 (Dollars in thousands) 
 
 Unused line of credit
 
 $ 
 8,242 
 
 $ 
 305 
 
 $ 
 693 
 
 $ 
 956 
 
 $ 
 6,288 
 
 Commitments to originate loans
 
 2,506 
 
 2,506 
 
 — 
 
 — 
 
 — 
 
 Total commitments
 
 $ 
 10,748 
 
 $ 
 2,811 
 
 $ 
 693 
 
 $ 
 956 
 
 $ 
 6,288 
 
 Contractual Cash Obligations . The following table summarizes our contractual cash obligations at September 30, 2024.

 Total at 
 
 Payments Due By Period 
 
 September 30, 2024 
 
 To 1 Year 
 
 1-3 Years 
 
 4-5 Years 
 
 After 5 Years 
 
 (Dollars in thousands) 
 
 Time deposits
 
 $ 
 85,060 
 
 $ 
 54,027 
 
 $ 
 16,618 
 
 $ 
 14,415 
 
 $ 
 — 
 
 FHLB advances
 
 5,000 
 
 5,000 
 
 — 
 
 — 
 
 — 
 
 Total contractual obligations
 
 $ 
 90,060 
 
 $ 
 59,027 
 
 $ 
 16,618 
 
 $ 
 14,415 
 
 $ 
 — 
 
 37
 
 Table of Contents 
 
 Impact of Inflation and Changing Prices 

 The consolidated financial statements and the accompanying notes presented elsewhere in this document have been prepared in accordance with U.S. GAAP, which generally requires the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. Unlike most industrial companies, virtually all of our assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on our performance than inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

 Changes in Accounting Principles 

 In March 2024, the FASB issued ASU No. 2024-01, “Compensation—Stock Compensation (Topic 718): Scope Applications of Profits Interests and Similar Awards” (ASU 2024-01). ASU 2024-01 adds an example to Topic 718 which illustrates how to apply the scope guidance to determine whether profits interests and similar awards should be accounted for as share-based payment arrangements under Topic 718 or under other U.S. GAAP. ASU 2024-01 is effective for annual periods beginning after December 15, 2025, although early adoption is permitted. Upon adoption, ASU 2024-01 is not expected to have an impact on the Company’s consolidated balance sheets or consolidated statements of income.

 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

 Not required for smaller reporting companies.

 38
 
 Table of Contents 
 
 ITEM 4. CONTROLS AND PROCEDURES 

 We maintain disclosure controls and procedures that are designed to provide assurance that the information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. 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 September 30, 2024, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company 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 the Company's management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. 

 There were no changes in our internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 PART II. OTHER INFORMATION 

 ITEM 1. LEGAL PROCEEDINGS 

 We are not presently involved in any legal proceedings of a material nature. From time to time, we are subject to various legal actions arising in the normal course of our business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on our financial condition, results of operations or cash flows.

 ITEM 1A. RISK FACTORS 

 Not required for smaller reporting companies.

 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 

 Issuer Purchases of Equity Securities 

 The following table reports information regarding repurchases of our common stock during the quarter ended September 30, 2024, and the stock repurchase plans approved by our board of directors. 

 (a) 
 
 (b) 
 
 (c) 
 
 (d) 
 
 Period 
 
 Total number of Shares Purchased (1) 
 
 Average Price Paid Per Share 
 
 Total Number of Shares Purchased As part of Publicly Announced Plans or Programs 
 
 Maximum Number of Shares that May Yet to be Purchased Under the Plans or Programs (2) 
 
 July 1 - July 31, 2024
 
 9,343
 
 $ 10.07
 
 9,343
 
 248,021
 
 August 1 - August 31, 2024
 
 6,035
 
 10.03
 
 6,035
 
 241,986
 
 September 1 - September 30, 2024
 
 28,068
 
 9.70
 
 28,068
 
 213,918
 
 Total
 
 43,446
 
 $ 9.82
 
 43,446
 
 213,918
 
 (1) On December 21, 2023, the Company adopted its second repurchase program to repurchase up to 265,763 shares, or 5% of its then outstanding common stock. The program will be in effect until December 31, 2024, unless earlier terminated. 

 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 

 Not Applicable.

 ITEM 4. MINE SAFETY DISCLOSURES 

 Not Applicable.

 ITEM 5. OTHER INFORMATION 

 None . 

 39
 
 Table of Contents 
 
 ITEM 6. EXHIBITS 

 31.1
 
 Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of Steven G. Lear, President and Chief Executive Officer. 
 
 31.2
 
 Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of Carissa H. Schoolcraft, Chief Financial Officer. 
 
 32.1
 
 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Stephen G. Lear, President and Chief Executive Officer, and Carissa H. Schoolcraft, Chief Financial Officer* 
 
 101.INS
 
 Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) 
 
 101.SCH 
 
 Inline XBRL Taxonomy Extension Schema Document
 
 101.CAL 
 
 Inline XBRL Taxonomy Extension Calculation Linkbase Document 
 
 101.DEF 
 
 Inline XBRL Taxonomy Extension Definition Linkbase Document 
 
 101.LAB 
 
 Inline XBRL Taxonomy Extension Label Linkbase Document 
 
 101.PRE 
 
 Inline XBRL Taxonomy Extension Presentation Linkbase Document 
 
 104
 
 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
 
 *The certification attached as Exhibit 32.1 to this quarterly report on Form 10-Q is “furnished” to the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 40
 
 Table of Contents 
 
 SIGNATURES 

 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 NSTS BANCORP, INC. 
 
 Dated: November 13, 2024
 
 By:
 
 /s/ Stephen G. Lear
 
 Stephen G. Lear
 
 President and Chief Executive Officer
 
 (Principal Executive Officer)
 
 Dated: November 13, 2024
 
 By:
 
 /s/ Carissa H. Schoolcraft
 
 Carissa H. Schoolcraft
 
 Chief Financial Officer
 
 (Principal Financial and Accounting Officer)
 
 41
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
NSTS Bancorp, Inc. 10-Q
