What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2025-03-28 compared with 2024-03-28 · 121 added, 180 removed, 249 unchanged (55% of the section changed)

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Is suer Purchases of Securities

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

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

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

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

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

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

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

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

The program was in effect until December 31, 2024.

The following table sets forth information about the Company's purchases of its common stock during the three months ended December 31, 2024.

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

There were no repurchases during the month ended December 31, 2024.

Total number of Shares Purchased

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October 1 - October 31, 2024

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

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

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

November 1 - November 31, 2024

December 1 - December 31, 2024

There were no unregistered sales of NSTS Bancorp, Inc.'s common stock during the year ended December 31, 2024 .

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North Shore Trust and Savings is a community-oriented savings institution headquartered in Waukegan, Illinois.

We operate as a traditional thrift relying on the origination of long-term one to four-family residential mortgage loans secured by property in Lake County, Illinois and surrounding communities.

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

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 and has expanded to counties in the greater Chicagoland area in Illinois as well as Kenosha County in Wisconsin.

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

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As of December 31, 2024 , we had total assets of $278.7 million, including $130.4 million in net loans and $71.2 million of securities available for sale, total deposits of $190.2 million and total equity of $76.5 million.

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

For the year ended December 31, 2024, we had a net loss of $789,000 compared to a net loss of $4.0 million for the year ended December 31, 2023 .

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.

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These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

Employee Retention Credit.

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

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

The Bank utilized the gross receipts method of calculating eligibility.

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

The Employee Retention Credit of $503,000 was recorded during the second quarter of 2022, when the Bank determined it was eligible.

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

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

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

A receivable is recorded in other assets on the consolidated balance sheets to reflect the remaining amount of the credit yet to be received.

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

Allowance for Credit Losses .

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

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

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

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

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

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

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

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

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

Comparison of Financial Condition at December 31, 2024 and December 31, 2023

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Federal Home Loan Bank stock

Loans held for sale

Total deposits

Other borrowings

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

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

With the introduction of this offer, deposit balances stabilized.

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

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

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

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

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

This program was completed during the fourth quarter of 2023.

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

This program is expected to be completed during 2024.

Total Assets .

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

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

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

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

Total assets increased $21.9 million to $278.7 million as of December 31, 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 $22.1 million to $53.5 million as of December 31, 2024, from $31.4 million at December 31, 2023.

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

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

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

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

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

Time deposits with other financial institutions.

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

The decrease is due to maturities within the portfolio.

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

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

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.

Additionally, the Bank sold $5.9 million of loans on December 30, 2024, resulting in an increase in cash held as of the end of the year.

Currently, the Bank holds a majority of the cash on hand at the Federal Reserve Bank of Chicago, earning 4.40%, to keep the funds available to fund loan demand.

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

Securities Available for Sale.

Securities available-for-sale decreased to $71.2 million as of December 31, 2024, compared to $82.1 million at December 31, 2023.

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

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

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

There were no purchases or sales of securities available-for-sale during the year ended December 31, 2024.

During the year ended December 31, 2024, the Bank received principal payments of $5.5 million, had maturities of $4.3 million, had net premium amortization and discount accretion of $515,000 and had an increase in the unrealized loss on the portfolio of $535,000.

As of December 31, 2024, the securities available for sale portfolio included an unrealized loss position of $12.0 million, or 14.5% of the total book value of the portfolio.

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

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

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 $838,000 to $1.2 million at December 31, 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 year ended December 31, 2024, the Bank originated $45.6 million in loans held for sale.

Our loans, net, increased by $9.8 million to $130.4 million at December 31, 2024 compared to $120.6 million at December 31, 2023.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Bank originated $43.2 million in loans to be held in the portfolio during the year ended December 31, 2024 and had loan principal payments and payoffs and changes to deferred fees and costs of $25.0 million.

In an effort to continue to grow loan originations, the Bank hired three additional mortgage loan originators during the year ended December 31, 2024.

The Bank sold $8.4 million in loans that were originally held in the portfolio to local community banks.

As of December 31, 2024, the allowance for credit losses on loans (“ACL”) totaled $1.2 million, an increase of $25,000 compared to December 31, 2023.

The increase in the ACL is driven by an increase in the portfolio loan balances, partially offset by a reduction in proxy expected lifetime loss rates due to high credit quality of the portfolio and positive economic factors such as a lower inflation rate and stable unemployment rates.

As of December 31, 2024, there were no loans individually assessed and no loans were rated substandard or watch.

As of December 31, 2024, the Bank has no non-accrual loans and two loans past due greater than 30 days.

The Bank actively monitors the loan portfolio for signs of weakening credit quality, noting as of December 31, 2024 the portfolio remains of high quality with limited credit concerns.

Total deposits increased $21.4 million to $190.2 million at December 31, 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 year ended December 31, 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.

Other Borrowings.

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

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

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

As of December 31, 2024, the Bank has $5.0 million in outstanding advances from FHLB Chicago with a term of 24 months at 4.78%, that is scheduled to mature in June 2025.

No additional borrowings were made during the year ended December 31, 2024.

Total Equity.

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

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

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

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

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

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

Total equity decreased $1.0 million to $76.5 million at December 31, 2024.

The decrease is primarily due to an increase in the unrealized loss position on the securities available-for-sale portfolio, a reduction in retained earnings due to a net loss during the year and an increase in treasury stock as a result of stock repurchases completed during the year ended December 31, 2024.

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

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Comparison of Operating Results for the Years Ended December 31, 2024 and 2023

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

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

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

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

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

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

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

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

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

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

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

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

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

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

For the year ended December 31, 2024, we had a net loss of $789,000, compared to a net loss of $4.0 million for the year ended December 31, 2023.

The decrease in net loss for the year-ended December 31, 2024 is primarily due to a loss on sale of securities and a valuation allowance on the deferred tax assets recognized in 2023 which did not occur in 2024.

Additionally, net interest income after provision for credit losses increased $946,000, and the gain on sale of loans increased $1.2 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.

However, the increase in noninterest expenses of $1.9 million during year ended December 31, 2024 compared to December 31, 2023 partially offsets the decrease in net loss.

Net Interest Income.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Provision for (Reversal of) Credit Losses.

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

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

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

On January 1, 2023, we adopted ASU No.

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

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

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

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

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

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

Net interest income increased $841,000, to $7.1 million for year ended December 31, 2024 compared to $6.2 million for the year ended December 31, 2023.

Our interest rate spread decreased to 2.29% for the year ended December 31, 2024 from 2.33% for the year ended December 31, 2023.

Our net interest margin increased to 2.86% for the year ended December 31, 2024 compared to 2.64% for the year ended December 31, 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 $247.2 million for the year ended December 31, 2024 increased $11.9 million compared to $235.3 million for the year ended December 31, 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 year and reduction in investment securities.

The average outstanding balance of loans, net increased to $133.2 million for the year ended December 31, 2024, an increase of $25.8 million from $107.4 million for the year ended December 31, 2023.

Additionally, the average yield earned on those loans outstanding increased 103 basis points to 5.09% for the year ended December 31, 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 liabilities increased 93 basis points for the year ended December 31, 2024 compared to the year ended December 31, 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.

During the year ended December 31, 2024, we recorded a provision for credit losses of $71,000, comprised of $25,000 provision for credit losses on loans and $46,000 provision for 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.

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Total noninterest income

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

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

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

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

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

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

For the year ended December 31, 2024 compared to the same period ended December 31, 2023, noninterest income increased $3.1 million to $1.9 million.

The increase was driven by an increase in the gain on sale of mortgage loans and no loss on sale of securities during the year ended December 31, 2024.

Gain on sale of mortgage loans increased $1.2 million, from $32,000 to $1.2 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.

The increase in gain on sale of mortgages was primarily the result of an overall increase in total mortgage loans originated during the period.

During the year ended December 31, 2024, we sold 199 loans totaling $53.1 million for a gain on sale of $1.2 million.

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 $8.4 million, for a total gain on sale of $352,000.

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 .

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Total noninterest expense

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

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

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

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

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

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

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

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

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

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

Noninterest expenses increased $1.8 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The increase in noninterest expenses was primarily driven by increases in salaries and employee benefits.

The average number of employees increased to 50 for the year ended December 31, 2024 compared to 39 for the year ended December 31, 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 year 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 year.

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.

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

During the year ended December 31, 2024, the Bank recorded no income tax expense.

The change in valuation allowance of $389,000 was offset by an equal deferred tax benefit.

Federal net operating losses as of December 31, 2024 are $6.7 million, of which $1.3 million is subject to expire in 2027, the remainder does not expire.

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(Dollars in thousands)

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

The table above indicates that as of December 31, 2024 , in the event of an immediate and sustained 300 basis point increase in interest rates, our net interest income for the twelve months ending December 31, 2025 would be expected to increase by $173,000, or 2.5% to $7.1 million.

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

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

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

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

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

Net cash provided by operating activities was $9.4 million and $431,000 for the years ended December 31, 2024 and 2023 , respectively.

Net cash (used in) or provided by investing activities, which consists primarily of net change in loans receivable and net change in investment securities, was $(8.2) million and $25.0 million for the years ended December 31, 2024 and 2023 , respectively.

Net cash provided by (used in) financing activities, consisting primarily of the activity in deposit accounts and FHLB of Chicago advances, was $20.8 million and $(7.1) million for the years ended December 31, 2024 and 2023 , respectively.

We are committed to maintaining a strong liquidity position.

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

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

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 23.53% and 24.72% at December 31, 2024 and 2023 , respectively.

Off-Balance Sheet Arrangements .

Commitments .

At December 31, 2024 , we had $1.1 million of outstanding commitments to originate loans.

Our total letters and lines of credit and unused lines of credit totaled $9.0 million at December 31, 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 December 31, 2024 .

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Total commitments

Contractual Cash Obligations .

The following table summarizes our contractual cash obligations at December 31, 2023 .

Cash Obligations .

The following table summarizes our cash obligations at December 31, 2024 .

Payments Due By Period

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Other borrowings

Total contractual obligations

Total cash obligations

Impact of Inflation and Changing Prices

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Current Accounting Developments

In June 2016, the FASB issued ASU No.

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

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

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

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

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

For available for-sale securities where fair value is less than cost, credit-related impairment, if any, will be recognized in an allowance for credit losses and adjusted each period for changes in expected credit risk.

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

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

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

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

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

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

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

Allowance for credit losses as reported under ASU 2016-13

Allowance pre-ASU 2016-13 Adoption

Impact on Allowance of ASU 2016-13 Adoption

(Dollars in thousands)

First mortgage loans

1-4 family residential

Consumer loans

Allowance for credit losses for all loans

Allowance for credit losses on off-balance sheet exposures

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

Troubled Debt Restructurings and Vintage Disclosures .

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

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

Early adoption of the amendments in this update is permitted.

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

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

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

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.

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.

On November 27, 2023, the FASB issued ASU 2023-07, "Segment Reporting (ASC 280):

Improvements to Reportable Segment Disclosures", intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

Provisions in the amendment include:

(1) Requirement that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss (collectively referred to as the "significant expense principle");

(2) Requirement that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition.

The other segment items category is the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss;

(3) Requirement that a public entity provide all annual disclosures about a reportable segment's profit or loss and assets currently required by ASC 280 in interim periods;

(4) Clarification that if the CODM uses more than one measure of a segment's profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit.

However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity's consolidated financial statements;

(5) Requirement that a public entity disclose the title and position of the CODM and explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources;

and (6) Requirement that a public entity that has a single reportable segment provide all the disclosures by the amendments in the update and all existing segment disclosures in ASC 280.

The amendments in the update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

For public business entities, amendments in the update should be applied retrospectively to all periods presented in the financial statements, and upon transition the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption.

The Company adopted this standard effective January 1, 2024, and did not have a material impact on the consolidated financial statements.

On December 14, 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures”.

The amendments require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation, and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate).

The amendments require that all entities disclose on an annual basis the following information about income taxes paid:

(1) The amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes, and (2) The amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received).

The amendments also require that all entities disclose the following information:

(1) Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign, and (2) Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign.

The ASU is effective for public business entities for annual periods beginning after December 15, 2024.

Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.

The amendments should be applied on a prospective basis.

Retrospective application is permitted.

The Company will adopt this ASU for the reporting period beginning January 1, 2025, and does not expect the amendments to have a material impact to the financial statements of the Company.

Quantitative and Qualitative Disclosures About Market Risk

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

Financial Statements and Supplementary Data

The consolidated Financial Statements of NSTS Bancorp, Inc.

and its consolidated subsidiaries begins on page 46 of this Annual Report on Form 10-K.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity