What changed in this filing

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Item 1. Business

2025-03-28 compared with 2024-03-28 · 119 added, 89 removed, 771 unchanged (21% of the section changed)

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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;

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements, especially in light of the new United States presidential administration;

our ability to manage market risk, credit risk and operational risk in the current economic conditions;

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

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.

We have three loan production offices in Chicago, Aurora and Plainfield, Illinois.

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

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

Conversion of North Shore MHC

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

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

Our Business and Franchise

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

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

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

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

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

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

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

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.

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

Our traditional lending market is centered in our retail branch area of Lake County, Illinois.

We are also an active originator of residential home loans in Lake County, Illinois as well as other counties in the greater Chicagoland area, as well as Kenosha County in Wisconsin.

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

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

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

The lending team originates loans as Oak Leaf Community Mortgage, powered by North Shore Trust and Savings.

As of December 31, 2024 , $119.4 million, or 91.2% of our total loan portfolio, consisted of one- to four-family residential mortgage loans.

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

Our headquarters office is located at 700 S.

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We are headquartered in Waukegan, Illinois.

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

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

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

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We face additional competition for deposits from short-term money market funds and other corporate and government securities funds, mutual funds and from other non-depository financial institutions such as brokerage firms and insurance companies.

Operating Segment

While the Company has assigned certain management responsibilities by region and business line, the Company’s chief decision-maker monitors and evaluates financial performance on a Company-wide basis.

The majority of the Company’s revenue is from the business of banking and the Company’s assigned business lines have similar economic characteristics, products, services and customers.

Accordingly, all of the Company’s operations are considered by management to be aggregated in one reportable operating segment.

Lending Activities

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

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

With the addition of the Oak Leaf Community Mortgage lending team in 2023, we sell the majority of loans originated that conform to secondary market standards into the secondary market.

Our portfolio underwriting standards allow for unique portfolio products that do not conform with those secondary market standards, with exceptions for factors such as the borrower’s job status or income, debt-to-income ratios, credit score, the condition or age of the residence or other factors.

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

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

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

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

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

All loans were purchased with servicing retained by the originating bank.

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

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

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

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Total loan originations

Loan pool purchases

Loan principal repayments

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One to Four-Family Residential Mortgage Lending .

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

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

As of December 31, 2024 , $119.4 million, or 91.2% of our total loan portfolio, consisted of one to four-family residential mortgage loans.

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

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

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

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

Beginning in 2024, the majority of loan originations that conform to secondary market standards are sold, on a servicing released basis, to the secondary mortgage market.

We offer a variety of specialized portfolio loan products to address the needs of borrowers who do not meet secondary market standards.

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

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As of December 31, 2024 , approximately 32.7% of our one to four-family residential mortgage loans maturing after December 31, 2025 were ARM loans.

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

The interest rate on our ARM loans is based on the one-year Treasury or SOFR.

The interest rate on our ARM loans is based on either the Wall Street Journal Prime rate, the one-year Treasury rate or SOFR.

Although adjustable-rate one to four-family residential real estate loans may reduce our vulnerability to changes in market interest rates because they periodically reprice, as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower.

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As a result, the effectiveness of adjustable-rate one to four-family residential real estate loans in compensating for changes in market interest rates may be limited during periods of rapidly rising interest rates.

We underwrite one to four-family residential mortgage loans with loan-to-value ratios which generally do not exceed 97% in the case of ARM loans and 95% in the case of fixed-rate loans, provided that the borrower obtains private mortgage insurance on loans that exceed 80% of the appraised value of the secured property.

We also require that title insurance, hazard insurance and, if appropriate, flood insurance be maintained on all properties securing real estate loans.

We underwrite one to four-family residential mortgage loans with loan-to-value ratios which generally do not exceed 97% in the case of ARM loans and 95% in the case of fixed-rate loans.

We require that title insurance, hazard insurance and, if appropriate, flood insurance be maintained on all properties securing real estate loans.

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

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

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

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

Multi-Family Residential and Commercial Real Estate Lending .

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

At December 31, 2023 , our largest multi-family residential mortgage loan was an $823,000 loan secured by various one to four-family investment homes and one multi-family apartment building located in Waukegan and North Chicago, Illinois, and was performing in accordance with its terms.

At December 31, 2024 , our largest multi-family residential mortgage loan relationship, which consists of two loans, was $1.3 million, secured by various one to four-family investment homes and one multi-family apartment building located in Waukegan and North Chicago, Illinois, and was performing in accordance with its terms.

At December 31, 2024 , we had a total of 10 multi-family residential mortgage loans and the average size of our multi-family residential mortgage loans was approximately $337,000.

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At December 31, 2024, our construction lending amounted to $3.7 million, or 2.8% of the total loan portfolio.

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

The construction loan portfolio consisted of 13 loans, the largest totaling $940,000, which is the construction of a single family home in the Chicago, Illinois metro area expected to be completed in 2025, in which the loan will convert to a conventional mortgage loan with a remaining term of 29 years.

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

There are unfunded commitments of $4.8 million related to construction loans as of December 31, 2024.

Consumer Lending .

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As of December 31, 2024 , the maximum loan amount that may be approved by an individual officer is $766,550, which is consistent with secondary market limits for conforming loans.

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

Loans up to $1.0 million are reviewed by a single member of our management loan committee and loans up to $1.75 million are reviewed by our management loan committee, with a minimum of two members’ approval.

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

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

Our policy is to obtain an appraisal on real estate subject to foreclosure proceedings prior to the time of foreclosure.

Prior to the time of foreclosure, our policy is to obtain an appraisal on real estate subject to foreclosure proceedings.

We obtain re-appraisals on a periodic basis, generally on at least an annual basis, on foreclosed properties.

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

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

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

Refer to “Item 7.

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

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

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

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

At December 31, 2024 , we had no loans classified as "special mention," “doubtful,” “loss,” or "substandard."

Modifications on loans to borrowers experiencing financial difficulty .

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Non-performing Assets .

The following table shows the amounts of our non-performing assets, which include non-accruing loans, accruing loans 90 days or more past due and real estate owned at the dates indicated, and, only for December 31, 2022 and prior, our performing Troubled Debt Restructurings ("TDR").

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

At December 31,

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Total non-performing assets

Performing troubled debt restructurings

Total non-performing assets and performing TDRs

Total loans outstanding

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Cumulative effect of ASU 2016-13 adoption (CECL)

Provision for (reversal of) credit losses

Provision for credit losses

1-4 family residential

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

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

At both December 31, 2024 and December 31, 2023 our allowance for credit losses amounted to $1.2 million .

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

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1-4 family residential

Securities Available for Sale

Investment Activities

We have authority to invest in various types of securities, including mortgage-backed securities, U.S.

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

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

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

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

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

As of December 31, 2024 , our securities available-for-sale portfolio totaled $71.2 million, or 25.6% of total assets at such date.

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During the year ended December 31, 2024, the investments in short term U.S.

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

Treasuries matured, resulting in no holdings at the end of the year.

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

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Total securities available for sale

Investment Activities

Investments in mortgage-backed securities involve a risk that actual prepayments will be greater than estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments thereby changing the net yield on such securities.

There is also reinvestment risk associated with the cash flows from such securities or in the event such securities are redeemed by the issuer.

In addition, the market value of such securities may be adversely affected by changes in interest rates.

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

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We use traditional means of advertising deposit products, including broadcast and print media and we generally do not solicit deposits from outside our market area.

In recent years, we have emphasized the origination of core deposits.

During 2023 and 2024, we offered a CD Special that attracted funds into Time Deposits.

We continue to see a strong retention of our core deposits.

The following table shows the distribution of, and certain other information relating to, our deposits by type of deposit, as of the dates indicated.

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The amount of our total deposits with accounts over the FDIC's insurance limit of $250,000 was $44.5 million or 23.4% of total deposits, and $34.3 million or 20.3% of total deposits, at December 31, 2024 and 2023 , respectively.

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

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

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

There were no additional borrowings made during the year ended December 31, 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 advance is collateralized by loans pledged to the FHLB and is payable at maturity, with a prepayment penalty if repayment is made prior to the maturity date.

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

The borrowing was repaid in December 2023.

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

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

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

During the year ended December 31, 2024, the Bank continued to invest in the mortgage lending team, adding additional loan officers and support staff.

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

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and establish the timing and amounts of assessments and fees.

Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors.

These ratings are inherently subjective and the receipt of a less-than-satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution.

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

These CAMELS ratings are inherently subjective and the receipt of a less-than-satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution.

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

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

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

The Consumer Financial Protection Bureau (the "CFPB"), has broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws with respect to certain consumer financial products and services, including the ability to require reimbursements and other payments to customers for alleged legal violations.

The CFPB has the authority to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices.

The CFPB is also authorized to engage in consumer financial education, track consumer complaints, request data and promote the availability of financial services to underserved consumers and communities.

Although all institutions are subject to rules adopted by the CFPB and examination by the CFPB in conjunction with examinations by the institution’s primary federal regulator, the CFPB has primary examination and enforcement authority over banks with assets of $10.0 billion or more.

The OCC has primary responsibility for examination of North Shore Trust and Savings and enforcement with respect to various federal consumer protection laws so long as North Shore Trust and Savings has total consolidated assets of less than $10.0 billion, and state authorities are responsible for monitoring our compliance with all state consumer laws.

The CFPB also has the authority to require reports from institutions with less than $10.0 billion in assets, such as North Shore Trust and Savings, to support the CFPB in implementing federal consumer protection laws, supporting examination activities, and assessing and detecting risks to consumers and financial markets.

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

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

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

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

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

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

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

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

The election is available to federal savings associations that had total consolidated assets of $20.0 billion or less as of December 31, 2017, and is referred to as the covered savings association ("CSA") election.

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

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

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

North Shore Trust and Savings has not exercised the CSA election and has no current plans to elect to be treated as a CSA.

Capital Requirements .

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a common Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6%, a total capital to risk-based assets ratio of 8%, and a 4% Tier 1 capital to total assets (known as the "leverage ratio").

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

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

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

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

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

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The CBLR option was effective January 1, 2020 and is available to institutions with assets of less than $10.0 billion that meet other specified criteria.

The federal banking agencies issued a rule implementing the lower ratio, effective April 23, 2020.

The rule also established a two-quarter grace period for a qualifying institution whose leverage ratio falls below the 8% requirement so long as the bank maintains a leverage ratio of 7% or greater.

Another rule was issued to transition to the 9% CBLR by increasing the ratio to 8.5% for calendar year 2021 and 9% thereafter.

A qualifying community bank that exercises the election and has capital equal to or exceeding the applicable percentage is considered compliant with all applicable regulatory capital requirements.

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

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

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

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

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

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

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

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

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Small Business Lending Rule.

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

On March 30, 2023, the CFPB issued a final rule amending Regulation B, the implementing regulation of the ECOA, to implement section 1071 of the Dodd-Frank Act.

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

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

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

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

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

Compliance with the small business lending rule beginning July 18, 2025 is required for covered financial institutions that originate the most covered credit transactions for small businesses (i.e., at least 2,500 covered originations in either 2022 and 2023 or 2023 and 2024).

However, institutions with a moderate transaction volume (i.e., at least 500 but less than 2,500 covered originations in either 2022 and 2023 or 2023 and 2024) have until January 16, 2026 to begin complying with the rule and those with the lowest volume (i.e., at least 100 but less than 500 covered originations in either 2022 and 2023 or 2023 and 2024) have until October 18, 2026.

A financial institution that did not originate at least 100 covered originations in calendar years 2022 and 2023 or 2023 and 2024, but subsequently originates at least 100 covered originations in two consecutive calendar years will be required to comply with the final rule.

North Shore Trust and Savings had less than 100 covered originations in both 2022 and 2023 and 2023 and 2024, and therefore is not yet subject to comply.

Interchange Fees .

The Dodd-Frank Act includes provisions that restrict interchange fees to those which are reasonable and proportionate for certain debit card issuers and limits the ability of networks and issuers to restrict debit card transaction routing, known as the Durbin Amendment.

On October 25, 2023, the FRB proposed rules that would reduce the maximum permissible interchange fee cap and would adopt an approach for future adjustments to such cap.

Although the interchange fee restrictions in the Durbin Amendment do not apply to debit card issuers with total assets of less than $10.0 billion, which would include North Shore Trust and Savings, such restrictions may negatively impact the pricing all debit card processors may charge.

Incentive Compensation .

The Dodd-Frank Act requires that the federal banking agencies issue a rule related to incentive-based compensation.

No final rule implementing this provision of the Dodd-Frank Act has been adopted, but a proposed rule was published by the FDIC in May 2024.

The proposed rule is intended to (i) prohibit incentive-based payment arrangements that the banking agencies determine could encourage certain financial institutions to take inappropriate risks by providing excessive compensation or that could lead to material financial loss, (ii) require the board of directors of those financial institutions to take certain oversight actions related to incentive-based compensation, and (iii) require those financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate federal regulator.

While the proposed rule is not final, we have made efforts to ensure that our incentive compensation plans do not encourage unsound risks.

Transactions with Related Parties .

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

Assessments .

Federal savings associations pay assessments to the OCC to fund its operations.

The general assessments, paid on a semi-annual basis, are based upon the federal savings association’s total assets (including consolidated subsidiaries), its financial condition and the complexity of its portfolio.

During 2024, our assessments totaled $44,835.

Standards for Safety and Soundness .

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

Reserve Requirements .

The Federal Reserve Board’s regulations require insured depository institutions to maintain non-interest earning reserves against their transaction accounts (e.g., negotiable order of withdrawal accounts, standard checking accounts, etc.).

On March 24, 2020, the Federal Reserve Board issued an interim final rule amending its Regulation D (Reserve Requirements of Depository Institutions, 12 CFR part 204) to lower reserve ratios on transaction accounts maintained at depository institutions to zero percent.

While the Federal Reserve Board has indicated that it does not plan to reinstate such Regulation D reserve requirements, it may do so in the future.

As of December 31, 2024, North Shore Trust and Savings was in compliance with these requirements.

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

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

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

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

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

As noted above, North Shore Trust and Savings elected to use the CBLR framework and its capital exceeds the CBLR.

As a result, as of December 31, 2024, North Shore Trust and Savings met the criteria for being considered "well-capitalized."

Insurance of Deposit Accounts .

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On November 16, 2023, the FDIC approved a final rule to implement a special assessment on certain banking organizations with financial institution subsidiaries with more than $5.0 billion in assets, in order to recover the costs associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank in March 2023.

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

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

The assessment base is equal to uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5.0 billion.

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

Because North Shore Trust and Savings' uninsured deposits at the measurement date were below $5.0 billion, North Shore Trust and Savings was not subject to this special assessment.

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

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The enactment of CIRCIA requires the U.S.

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

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

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

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

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

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

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

On March 28, 2024, CISA issued a notice of proposed rulemaking to implement CIRCIA and, under such proposal, regulated financial institutions such as banks would be required to comply with CIRCIA.

CISA has indicated that it intends to finalize the rule in late 2025.

It is uncertain what impact, if any, the final CIRCIA rule may have on banks.

NSTS will continue to monitor the status of this proposed rule going forward.

Anti-Money Laundering and the USA PATRIOT Act .

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will be required to report BOI directly to FinCEN.

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

This first rule is effective and compliance is required as of January 1, 2025 for reporting companies created or registered prior to January 1, 2024, however, on December 26, 2024, a federal appeals court issued a nationwide injunction halting enforcement of BOI reporting requirements.

NSTS will continue to monitor the status of the BOI rule going forward.

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

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

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

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

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

The second final rule is effective February 20, 2024.

The second final rule became effective on February 20, 2024.

On July 19, 2024, the federal banking agencies, proposed amendments to update the requirements for supervised institutions to establish, implement and maintain effective, risk-based and reasonably designed AML and CFT programs.

The proposed amendments would require supervised institutions to identify, evaluate and document the regulated institution’s money laundering, terrorist financing and other illicit finance activity risks, as well as consider FinCEN’s published AML/CFT priorities.

We are currently evaluating the effects, if any, of the proposed amendments on North Shore Trust and Savings and its AML programs were they to be adopted as final.

Brokered Deposits .

The FDIA and FDIC regulations generally restrict the ability of an insured depository institution to accept, renew or rollover a brokered deposit if the institution's capital category is not "well capitalized" or, upon application to and a waiver from the FDIC, "adequately capitalized." Less-than-well-capitalized banks are further subject to limitations on the interest rates that they may pay on deposits.

The characterization of deposits as "brokered" may lead to the imposition of higher assessments on such deposits.

As required by the EGRRCPA, the FDIC's brokered deposit regulations provide a limited exception for reciprocal deposits for banks that are well managed and well capitalized (or adequately capitalized and have obtained a waiver from the FDIC as mentioned above).

Under such limited exception, qualified banks are permitted for exemption from treatment as "brokered" deposits up to $5.0 billion, or 20% of the bank's total liabilities in reciprocal deposits.

Prohibitions against Tying Arrangements .

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

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

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

As a savings and loan holding company, NSTS Bancorp, Inc.'s activities are limited to those activities permissible by law for financial holding companies (if an election to be treated as a financial holding company is made) or multiple savings and loan holding companies.

NSTS Bancorp, Inc.

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to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.

As a Delaware corporation, we are subject to the limitations of the Delaware General Corporation Law (the “DGCL”).

The DGCL allows us to pay dividends only out of our surplus (as defined and computed in accordance with the provisions of the DGCL) or if we have no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.

Change in Control Regulations

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

Future Legislation and Regulation

presidential administration has recently taken action to put new leadership in place at various U.S.

federal bank supervisory agencies, including appointing a new Acting Chairman of the FDIC and Acting Comptroller of the OCC, and nominating individuals to serve as the permanent Comptroller of the OCC and Director of the CFPB.

The administration has also indicated that it would like to see changes made to certain financial regulations, including the Dodd-Frank Act.

Further, the U.S.

Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states.

Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied.

The substance or impact of the proposed new leadership changes at the federal bank supervisory agencies, pending or future legislation or regulation, and any changes to existing financial regulations, cannot be predicted, although these developments could affect the regulatory structure under which we operate and may materially impact our business operations.

Our business, financial condition, results of operations or prospects may be adversely affected, perhaps materially, as a result.

Federal Securities Laws

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NSTS Bancorp, Inc.

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

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

Availability of Annual Report on Form 10-K

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

What changed 10-K

Item 1. Business