NSTS Bancorp, Inc. 10-K

Item 1. Business Forward-Looking Statements This filing contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to: ● statements of our goals, intentions and expectations; ● statements regarding our business plans, prospects, growth and operating strategies; ● statements regarding the quality of our loan and investment portfolios; and ● estimates of our risks and future costs and benefits. These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: ● general economic conditions, either nationally or in our market areas, that are different than expected; ● changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for credit losses; ● fluctuations in real estate values and both residential and commercial real estate market conditions; ● inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans; ● our ability to manage our liquidity and to access cost-effective funding, including significant fluctuations in our deposit accounts; ● major catastrophes such as tornadoes, floods or other natural disasters, as well as public health emergencies and pandemics, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies; ● further data processing and other technological changes that may be more difficult or expensive than expected; ● success or consummation of new business initiatives may be more difficult or expensive than expected; ● interruptions involving information technology and communications systems of service providers; ● breaches or failures of information security controls or cyber-related incidents; ● demand for loans and deposits in our market area; ● our ability to continue to implement our business strategies; ● competition among depository and other financial institutions; ● adverse changes in the securities markets; 1 Table of Contents ● 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; ● our ability to enter new markets successfully and capitalize on growth opportunities; ● our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; ● changes in consumer spending, borrowing and savings habits; ● changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; ● our ability to hire and retain key employees and our reliance on our executive officers; and ● our compensation expense associated with equity allocated or awarded to our employees. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. NSTS Bancorp, Inc. NSTS Bancorp, Inc. ("NSTS" or the "Company", "we" or "our") is a Delaware corporation which was incorporated in September 2021. As a savings and loan holding company, NSTS Bancorp, Inc. is regulated by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”). NSTS Bancorp, Inc. was formed to serve as the stock holding company for North Shore Trust and Savings (the “Bank”) in connection with the conversion of North Shore Trust and Savings, NSTS Financial Corporation and North Shore MHC, from the mutual to the stock form of organization, which was completed on January 18, 2022. NSTS Bancorp Inc.’s executive offices are located at 700 S. Lewis Ave., Waukegan, Illinois 60085, and its telephone number is (847) 336-4430. NSTS Bancorp, Inc. completed its stock offering in connection with the conversion on January 18, 2022. NSTS Bancorp, Inc. sold 5,290,000 shares of common stock at $10.00 per share in its subscription offering for gross proceeds of approximately $52.9 million. In connection with the conversion, it also issued 107,959 shares of common stock and $150,000 in cash to NSTS Charitable Foundation, Inc. Shares of NSTS Bancorp, Inc.’s common stock began trading on January 19, 2022 on The Nasdaq Capital Market under the trading symbol “NSTS.” NSTS Bancorp, Inc., as the holding company of North Shore Trust and Savings, is authorized to pursue other business activities permitted by applicable laws and regulations, which may include the acquisition of banking and financial services companies. We currently have no agreements to acquire other financial institutions or financial services companies, although we may determine to do so in the future. NSTS Bancorp, Inc.’s cash flow depends on earnings from the investment of the net proceeds of the stock offering and from any dividends it receives from North Shore Trust and Savings. North Shore Trust and Savings is subject to regulatory limitations on the amount of dividends that it may pay. NSTS Bancorp, Inc. does not own or lease any property, but instead pays North Shore Trust and Savings for the use of its premises, furniture and equipment. We employ as officers of NSTS Bancorp, Inc. only persons who are also officers of North Shore Trust and Savings. However, we use the support staff of North Shore Trust and Savings from time to time. We pay North Shore Trust and Savings for the time devoted to NSTS Bancorp, Inc. by employees of North Shore Trust and Savings; however, these individuals are not separately compensated by NSTS Bancorp, Inc. NSTS Bancorp, Inc. may hire additional employees, as appropriate, to the extent it expands its business in the future. 2 Table of Contents North Shore Trust and Savings North Shore Trust and Savings, a federally-chartered stock savings institution, was established in 1921 as North Shore Building and Loan, an Illinois-chartered institution. The Bank is a wholly owned subsidiary of NSTS Bancorp, Inc., and operates as a traditional savings institution focused primarily on serving the banking needs of customers in our market area of Lake County, Illinois and adjacent communities. We operate from our headquarters and main banking office in Waukegan, Illinois, as well as two additional full-service branch offices located in Waukegan and Lindenhurst, Illinois, respectively. 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”). Our Business and Franchise For over 100 years, we have served Lake County, Illinois and the surrounding communities. We have established deep ties to the community and developed customer relationships which have spanned generations. We pride ourselves in matching our products and services to the needs of the community. North Shore Trust and Savings is primarily engaged in attracting deposits from the general public and using those funds to invest in loans and securities. Our principal sources of funds are customer deposits, repayments of loans, maturities of investments and funds borrowed from outside sources such as the Federal Home Loan Bank of Chicago (“FHLB”). 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, 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. BOLI also generally provides us noninterest income that is non-taxable. North Shore Trust and Savings’ primary expenses are interest expense on deposits and borrowings and general operating expenses. 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 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 headquarters office is located at 700 S. Lewis Avenue, Waukegan, Illinois, and our telephone number is (847) 336-4430. We maintain a website at www.northshoretrust.com, and we provide our customers with on-line banking services. Information on our website should not be considered a part of this filing. 3 Table of Contents Market Area and Competition 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 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. Our market area consists of Lake County, Cook County and Will County which are located in Illinois, and Kenosha County which is located in Wisconsin. The largest employers in Lake County are pharmaceutical and healthcare companies, including Abbott Laboratories, AbbVie, and Baxter International. The largest employers in Cook County are government entities, including the U.S. Government, Chicago Public Schools, and the City of Chicago. Will County's largest employers include Amazon and the local school district. Kenosha County’s largest employers include Amazon, Uline, and Snap-on. Overall, Lake, Cook, Will and Kenosha counties have a diversified employment base which helps to maintain a relatively stable economy. We face significant competition in originating loans and attracting deposits. This competition stems primarily from credit unions, commercial banks, other savings banks and savings associations, and mortgage-banking companies. Many of the financial service providers operating in our market area are significantly larger and have greater financial resources than we do. 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 General . As of December 31, 2024 , our net loan portfolio totaled $130.4 million or 46.8% of total assets. Our principal lending activity has been the origination of loans collateralized by one- to four-family residential real estate loans located in our market area. We also originate commercial real estate, multi-family residential mortgage loans, one- to four- family residential construction loans and consumer loans, consisting of loans secured by deposits at North Shore Trust and Savings and other collateral and unsecured personal loans. Loan Portfolio Composition . The following table shows the composition of our loan portfolio by type of loan at the dates indicated. December 31, 2024 2023 Amount % Amount % (Dollars in thousands) First mortgage loans: 1-4 family residential $ 119,409 91.22 % $ 111,081 91.97 % Multi-family 3,368 2.57 % 3,111 2.58 % Commercial 4,197 3.21 % 3,835 3.17 % Construction 3,651 2.79 % 2,508 2.08 % Total first mortgage loans 130,625 120,535 Consumer loans 282 0.21 % 248 0.20 % Total loans 130,907 100.00 % 120,783 100.00 % Net deferred loan costs 650 1,016 Allowance for credit losses (1,201 ) (1,176 ) Total loans, net $ 130,356 $ 120,623 Contractual Terms to Final Maturities . The following table shows the scheduled contractual maturities of our loans as of December 31, 2024 , before giving effect to net deferred loan costs and the allowance for credit losses. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. The amounts shown below do not take into account loan prepayments. 1-4 Family Residential Multi-Family Residential Commercial Construction Consumer Total (Dollars in thousands) Amounts due after December 31, 2024 in: One year or less $ 116 $ — $ 198 $ — $ 43 $ 357 After one year through two years 160 — — 93 48 301 After two years through three years 218 — — 189 68 475 After three years through five years 2,940 515 183 — 79 3,717 After five years through ten years 7,981 — 1,716 — 36 9,733 After ten years through 15 years 15,006 1,726 1,863 — 6 18,601 After 15 years 92,988 1,127 237 3,369 2 97,723 Total $ 119,409 $ 3,368 $ 4,197 $ 3,651 $ 282 $ 130,907 4 Table of Contents The following table shows the dollar amount of our loans as of December 31, 2024 , due after December 31, 2025 , as shown in the preceding table, which have fixed interest rates or which have floating or adjustable interest rates. Floating or Total at Fixed-Rate Adjustable-Rate December 31, 2024 (Dollars in thousands) 1-4 family residential $ 80,330 $ 38,963 $ 119,293 Multi-family 515 2,853 3,368 Commercial 71 3,928 3,999 Construction 3,462 189 3,651 Consumer 181 58 239 Total $ 84,559 $ 45,991 $ 130,550 Loan Originations, Participations and Sales. Our lending activities are subject to underwriting standards and loan origination procedures established by our board of directors and management. Loan originations are obtained through a variety of sources, primarily existing customers as well as new customers obtained from referrals and local advertising and promotional efforts. One- to four-family residential mortgage loan applications and consumer loan applications are taken at any of North Shore Trust and Savings’ branch offices or customers may submit an application on-line. Applications for other loans typically are taken personally by one of our loan officers, although they may be received by a branch office initially and then referred to a loan officer. All loan applications are processed and underwritten at our office locations in Lindenhurst, Plainfield and Aurora, Illinois. 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”). 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. 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. Such participations will be reviewed for compliance with our underwriting criteria before they are purchased. We will actively monitor the performance of such loans made in the future through the receipt of regular reports from the lead lender regarding the loan’s performance, physically inspecting the loan security property on a periodic basis, discussing the loan with the lead lender on a regular basis and receiving copies of updated financial statements from the borrower. 5 Table of Contents Loan Originations and Sales The following table shows our total loans originated, purchased, sold and repaid during the periods indicated. Year Ended December 31, 2024 2023 (Dollars in thousands) Loan originations: 1-4 family residential $ 83,709 $ 29,077 Multi-family 517 — Commercial 979 928 Construction 3,500 2,510 Consumer 144 164 Total loan originations $ 88,849 $ 32,679 Loans sold 53,129 3,358 Loan principal repayments 24,758 11,153 Total loans sold and principal repayments $ 77,887 $ 14,511 Change due to other items, net (1) (391 ) (524 ) Net increase in loans, net and loans held for sale $ 10,571 $ 17,644 (1) Other items consist of deferred fees and the change in allowance for credit losses. One to Four-Family Residential Mortgage Lending . 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, 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. 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. We also offer adjustable rate mortgage (“ARM”) loans where the interest rate either adjusts on an annual basis or is fixed for the initial three or five years and then adjusts annually. 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. 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. At the same time, the ability of the borrower to repay the loan and the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by the maximum periodic and lifetime rate adjustments permitted by our loan documents. 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. 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 the portfolio and we generally exercise our rights under these clauses. 6 Table of Contents Multi-Family Residential and Commercial Real Estate Lending . At December 31, 2024 , our multi-family residential mortgage loans amounted to $3.4 million, or 2.6% of the total loan portfolio. 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, 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. Our commercial real estate loan portfolio amounted to $4.2 million, or 3.2% of the total loan portfolio, at December 31, 2024 . These commercial real estate loans included 14 loans secured primarily by investor properties, which include multiple one to four-family residences. Additionally, North Shore Trust and Savings has two commercial real estate loans secured by retail frontage. The two largest commercial real estate loans outstanding were $1.6 million and $1.1 million, and both loans were paying in accordance with all of their contractual terms. Although terms for commercial real estate and multi-family residential loans vary, our underwriting standards generally allow for terms not exceeding 30 years and loan-to-value ratios of not more than 75%. Interest rates are typically adjustable, based upon designated market indices such as The Wall Street Journal prime rate, or fixed-rate, and fees are charged to the borrower at the origination of the loan. The actual lives of such loans generally are less than their contractual terms to maturity due to prepayments and re-financings. Generally, we obtain personal guarantees of the principals as additional collateral for commercial real estate and multi-family residential loans. Commercial real estate and multi-family residential lending involves a greater degree of risk than one to four-family residential lending. These risks include larger loans to individual borrowers and loan payments that are dependent upon the successful operation of the project or the borrower’s business. These risks can be affected by supply and demand conditions of rental housing units, office and retail space and other commercial space in the project’s market area. We attempt to minimize these risks for loans we originate by soliciting loans from businesses with existing operating performance. We also use conservative debt coverage ratios in our underwriting, and periodically monitor the operation of the business or project and the physical condition of the property. At December 31, 2024 , none of our commercial real estate or multi-family loans were delinquent more than 30 days, nor were any on non-accrual. We have had no charge-offs of commercial real estate and multi-family residential loans for the years ended December 31, 2024 and 2023 . Various aspects of commercial real estate and multi-family residential transactions are evaluated in an effort to mitigate the additional risk in these types of loans. In our underwriting procedures, consideration is given to the stability of the property’s cash flow history, future operating projections, current and projected occupancy levels, location and physical condition. Generally, we impose a debt service ratio (the ratio of net cash flows from operations before the payment of debt service to debt service) of not less than 1.25x in the case of commercial real estate and multi-family residential loans. We also evaluate the credit and financial condition of the borrower, and if applicable, the guarantor. Appraisal reports prepared by independent appraisers are obtained on each loan to substantiate the property’s market value and are reviewed by us prior to the closing of the loan. Construction Lending. 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 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. 7 Table of Contents Consumer Lending . In our efforts to provide a full range of financial services to our customers, we offer various types of consumer loans. Our consumer loans amounted to $282,000 , or 0.2% , of our total loan portfolio at December 31, 2024 . At December 31, 2024 , our consumer loans were comprised of loans secured by deposits, auto loans and unsecured personal loans. Consumer loans generally have higher interest rates and shorter terms than residential loans; however, they have additional credit risk due to the type of collateral securing the loan or in some cases the absence of collateral. We had no charge-offs on consumer loans during the years ended December 31, 2024 and 2023. Loan Approval Procedures and Authority . Our board of directors establishes North Shore Trust and Savings’ lending policies and procedures. Our Loan Policy is reviewed on at least an annual basis by our management team in order to propose modifications as a result of market conditions, regulatory changes and other factors. All modifications must be approved by our board of directors. Various officers or combinations of officers of North Shore Trust and Savings have the authority within specifically identified limits to approve new loans. 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 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. All other loans must be approved by the board of directors of North Shore Trust and Savings. Asset Quality General . One of our key objectives has been, and continues to be, maintaining a high level of asset quality. In addition to maintaining credit standards for new originations which we believe are sound, we are proactive in our loan monitoring, collection and workout processes in dealing with delinquent or problem loans. When a borrower fails to make a scheduled payment, we attempt to cure the deficiency by making personal contact with the borrower. Initial contacts are generally made within 30 days after the date the payment is due. In most cases, deficiencies are promptly resolved. If the delinquency continues, late charges are assessed, and additional efforts are made to collect the deficiency. All loans which are designated as “special mention,” substandard, doubtful or delinquent 90 days or more are reported to the board of directors of North Shore Trust and Savings on a monthly basis. We stop accruing interest on loans (“non-accrual” loans) at the time the loan is 90 days past due unless the credit is adequately collateralized and in process of collection. Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt. Property acquired through foreclosure is initially recorded at fair value at the date of acquisition, which is fair value of the related assets at the date of foreclosure, less estimated costs to sell. Thereafter, if there is a further deterioration in value, we charge earnings for the diminution in value. 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. We also conduct inspections on foreclosed properties. We account for our problem and potential problem loans in accordance with generally accepted accounting principles. Loans are reviewed on a regular basis. Loans are listed on the “watch/special mention list” where management has some concern that the collateral or debt service ability may not be adequate, although the collectability of the contractual loan payments is still probable. If a loan deteriorates in asset quality, the classification is changed to “substandard,” “doubtful” or “loss” depending on the circumstances and the evaluation. When a loan is identified for individual evaluation for expected credit losses, the measurement of the loan in the allowance for credit losses is based on present value of expected future cash flows, except that expected credit losses for all collateral-dependent loans are measured based on the fair value of the collateral. As of December 31, 2024 , and 2023 , loans identified for individual evaluation of expected credit losses, amounted to $0 and $200,000 , respectively. Federal regulations and our policies require that we utilize an internal asset classification system as a means of reporting problem and potential problem assets. We have incorporated an internal asset classification system, consistent with federal banking regulations, as a part of our credit monitoring system. We currently classify problem and potential problem assets as “special mention,” “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated “special mention.” A savings institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional general or specific loss allowances. The federal banking agencies have adopted an interagency policy statement on the allowance for credit losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. General valuation allowances represent loss allowances which have been established to recognize the estimated credit losses associated with lending activities, but which, unlike specific allocations, have not been allocated to specific problem assets. When an insured institution classifies one or more assets, or portions thereof, as “loss,” it is required to charge off such amount. 8 Table of Contents Our allowance for credit losses includes a portion which is allocated by type of loan, based primarily upon our periodic reviews of the risk elements within the various categories of loans. The specific components relate to certain individually evaluated loans. The general components cover non-classified loans and are based on proxy expected lifetime loss rates, adjusted for bank-specific facts and circumstances. The allowance for credit losses is maintained by management at a level believed adequate to absorb estimated credit losses that are expected to occur within the existing loan portfolio through their contractual terms. 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. 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, 2024 , we had no loans classified as "special mention," “doubtful,” “loss,” or "substandard." 9 Table of Contents Modifications on loans to borrowers experiencing financial difficulty . We occasionally modify loans to extend the term or make other concessions to help a borrower stay current on his or her loan and to avoid foreclosure. We consider modifications only after analyzing the borrower’s current repayment capacity, evaluating the strength of any guarantors based on documented current financial information, and assessing the current value of any collateral pledged. We generally do not forgive principal or interest on loans but may do so if it is in our best interest and increases the likelihood that we can collect the remaining principal balance. We may modify the terms of loans to lower interest rates (which may be at below market rates), to provide for fixed interest rates on loans where fixed rates are otherwise not available, to provide for longer amortization schedules, or to provide for interest-only terms. These modifications are made only when a workout plan has been agreed to by the borrower that we believe is reasonable and attainable and in our best interests. There were no modifications on loans to borrowers experiencing financial difficulty during the years ended December 31, 2024 and 2023. Delinquent Loans . The following table shows the delinquencies in our loan portfolio as of the dates indicated. 31-89 Days 90 Days or Past Due Greater Past Total Past Total and Due and Due and Loan Accruing Accruing Non-Accrual Non-Accrual Current Balance (Dollars in thousands) December 31, 2024 1-4 family residential $ 371 $ — $ — $ 371 $ 119,038 $ 119,409 Multi-family — — — — 3,368 3,368 Commercial — — — — 4,197 4,197 Construction — — — — 3,651 3,651 Consumer — — — — 282 282 Total $ 371 $ — $ — $ 371 $ 130,536 $ 130,907 December 31, 2023 1-4 family residential $ 131 $ — $ 200 $ 331 $ 110,750 $ 111,081 Multi-family — — — — 3,111 3,111 Commercial — — — — 3,835 3,835 Construction — — — — 2,508 2,508 Consumer — — — — 248 248 Total $ 131 $ — $ 200 $ 331 $ 120,452 $ 120,783 The following table sets forth the amounts of our classified loans at the dates indicated. There was no related specific valuation allowance in the allowance for credit losses on our classified loans at December 31, 2024 and 2023 . At December 31, 2024 2023 (Dollars in thousands) Substandard loans $ — $ 200 Doubtful loans — — Loss loans — — Total classified loans $ — $ 200 In addition to classified loans, our other real estate owned, (“OREO”) is classified as substandard. There were no OREO properties as of December 31, 2024 and 2023 . 10 Table of Contents 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. At December 31, 2024 2023 (Dollars in thousands) Non-accruing loans: 1-4 family residential $ — $ 200 Multi-family — — Commercial — — Construction — — Consumer — — Total non-accruing loans $ — $ 200 Accruing loans 90 days or more past due: 1-4 family residential — — Multi-family — — Commercial — — Construction — — Consumer — — Total accruing loans 90 days or more past due — — Total non-performing loans — 200 Other real estate owned — — Total non-performing assets — 200 Total loans outstanding $ 130,907 $ 120,783 Total assets outstanding $ 278,688 $ 256,776 Total non-accruing loans as a percentage of total loans outstanding — % 0.17 % Total non-performing loans as a percentage of total loans outstanding — % 0.17 % Total non-performing loans as a percentage of total assets — % 0.08 % Total non-performing assets as a percentage of total assets — % 0.08 % Allowance for Credit Losses . The following table shows changes in our allowance for credit losses during the periods presented. At or for the Year Ended December 31, 2024 2023 (Dollars in thousands) Total loans outstanding at end of period $ 130,907 $ 120,783 Total non-accrual loans at end of period — 200 Total non-performing loans at end of period — 200 Total average loans outstanding 133,176 107,438 Allowance for credit losses, beginning of period 1,176 624 Cumulative effect of ASU 2016-13 adoption (CECL) N/A 384 Provision for credit losses 25 168 Charge-offs: 1-4 family residential — — Multi-family — — Commercial — — Construction — — Consumer — — Total charge-offs $ — $ — Recoveries on loans previously charged-off: 1-4 family residential $ — $ — Multi-family — — Commercial — — Construction — — Consumer — — Total recoveries $ — $ — Net (recoveries) charge-offs $ — $ — Allowance for credit losses, end of period $ 1,201 $ 1,176 Allowance for credit losses as a percent of non-performing loans — % 588.00 % Allowance for credit losses as a percent of total loans outstanding 0.92 % 0.97 % Allowance for credit losses as a percent of total non-accrual loans — % 588.00 % Ratio of net (recoveries) charge-offs during the period to average loans outstanding during the period 0.00 % 0.00 % 11 Table of Contents The allowance for credit losses is established through a provision for credit losses. We maintain the allowance at a level believed, to the best of management’s knowledge, to cover estimated lifetime credit losses in the loan portfolio at each reporting date. Management reviews the allowance for credit losses on no less than a quarterly basis. Our evaluation process includes, among other things, an analysis of delinquency trends, non-performing loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of our loans, the value of collateral securing the loan, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, national and local economic conditions and industry experience. Such risk ratings are periodically reviewed by management and revised as deemed appropriate. 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. Various regulatory agencies, as an integral part of their examination process, periodically review our allowance for credit losses. Such agencies may require North Shore Trust and Savings to make additional provisions for estimated credit losses based upon judgments different from those of management. The following table shows how our allowance for credit losses is allocated by type of loan at each of the dates indicated. At December 31, 2024 2023 Percent Percent of Percent of Percent of of Allowance Loans in Allowance Loans in Amount of to Total Category to Amount of to Total Category to Allowance Allowance Total Loans Allowance Allowance Total Loans (Dollars in thousands) 1-4 family residential $ 1,056 87.93 % 91.22 % $ 1,094 93.03 % 91.97 % Multi-family 37 3.08 % 2.57 % 40 3.40 % 2.58 % Commercial 41 3.41 % 3.21 % 37 3.15 % 3.17 % Construction 65 5.41 % 2.79 % 4 0.34 % 2.08 % Consumer 2 0.17 % 0.21 % 1 0.08 % 0.20 % Total $ 1,201 100.00 % 100.00 % $ 1,176 100.00 % 100.00 % Investment Activities We have authority to invest in various types of securities, including mortgage-backed securities, U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, time deposits at federally insured banks and savings institutions, corporate debt obligations and federal funds. Our investment strategy is established by the board of directors. At December 31, 2024 2023 Amortized Market Amortized Market Cost Value Cost Value (Dollars in thousands) Securities available-for-sale U.S. Treasuries $ — $ — $ 2,995 $ 2,973 U.S. Government and agency obligations 9,719 8,657 10,234 9,106 Municipal obligations 14,103 11,736 15,451 13,570 Mortgage-backed securities 30,681 25,915 34,884 30,351 Collateralized mortgage obligations 28,783 24,941 30,073 26,135 Total securities available-for-sale $ 83,286 $ 71,249 $ 93,637 $ 82,135 12 Table of Contents The investment policy is designed primarily to manage the interest rate sensitivity of the assets and liabilities, to generate a favorable return without incurring undue interest rate and credit risk, to complement the lending activities and to provide and maintain liquidity. The current investment policy generally permits investments in debt securities issued by the U.S. government and U.S. agencies, municipal bonds, and corporate debt obligations, as well as investments in preferred and common stock of government agencies and government sponsored enterprises such as Fannie Mae, Freddie Mac and the FHLB of Chicago. 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”). As of December 31, 2024 , our securities available-for-sale portfolio totaled $71.2 million, or 25.6% of total assets at such date. The largest component of our investment securities portfolio at December 31, 2024 was investment in pass-through mortgage-backed securities issued by Fannie Mae, Ginnie Mae and Freddie Mac, which amounted to $25.9 million, followed by collateralized mortgage obligations issued by Fannie Mae, Ginnie Mae and Freddie Mac, which amounted to $24.9 million. Our investment in U.S. government and federal agency obligations as of December 31, 2024 , was $8.7 million and our investment in municipal obligations as of December 31, 2024 , was $11.7 million. During the year ended December 31, 2024, the investments in short term U.S. 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. Ginnie Mae securities are backed by loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. The timely payment of principal and interest on Ginnie Mae securities is guaranteed by Ginnie Mae and backed by the full faith and credit of the U.S. Government. Freddie Mac is a private corporation chartered by the U.S. Government. Freddie Mac issues participation certificates backed principally by conventional mortgage loans. Freddie Mac guarantees the timely payment of interest and the ultimate return of principal on participation certificates. Fannie Mae is a private corporation chartered by the U.S. Congress with a mandate to establish a secondary market for mortgage loans. Fannie Mae guarantees the timely payment of principal and interest on Fannie Mae securities. Freddie Mac and Fannie Mae securities are not backed by the full faith and credit of the U.S. Government. Investments in mortgage-backed securities involve the 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. Investment securities are classified at the time of acquisition as securities available for sale, held to maturity or trading. Securities classified as held to maturity must be purchased with the intent and ability to hold that security until its final maturity and can be sold prior to maturity only under rare circumstances. Held-to-maturity securities are accounted for based upon the amortized cost of the security. Available-for-sale securities can be sold at any time based upon needs or market conditions. Available-for-sale securities are accounted for at fair value, with unrealized gains and losses on these securities, net of income tax provisions, reflected as accumulated other comprehensive income. At December 31, 2024 , all securities were classified as securities available for sale. At December 31, 2024 , we had no investments in a single issuer other than securities issued by U.S. Government agencies or U.S. Government sponsored enterprises, which had an aggregate book value in excess of 10% of our stockholders’ equity. At December 31, 2024, the available-for-sale securities portfolio had a net unrealized loss position of $12.0 million. Some investment securities held in the portfolio have declined in value but do not presently represent realized losses. Unrealized losses on investment securities have not been recognized into income because the securities are of high credit quality, the Bank has the intent and ability to hold the securities for the foreseeable future, and the declines in fair value are primarily due to market volatility and increased market interest rates. The fair values are expected to recover as the securities approach their maturity dates. The following table sets forth the amount of investment securities which mature during each of the periods indicated and the weighted average yields for each range of maturities as of December 31, 2024 . Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Therefore, these securities have been included in based on average remaining life. The below yields represent tax equivalent yield. Amounts at December 31, 2024, Which Mature In After One After Five One Year through Five through 10 Over 10 or Less Years Years Years Total (Dollars in thousands) Securities available for sale: U.S. Government and agency obligations $ 1,000 $ 3,047 $ 4,610 $ — $ 8,657 Municipal obligations — 1,452 2,401 7,883 11,736 Mortgage-backed securities — 8,971 15,794 1,150 25,915 Collateralized mortgage obligations — 15,086 7,786 2,069 24,941 Total $ 1,000 $ 28,556 $ 30,591 $ 11,102 $ 71,249 Weighted average yield: U.S. Government and agency obligations 4.54 % 2.30 % 1.53 % N/A 2.12 % Municipal obligations N/A 2.43 2.62 2.27 2.35 Mortgage-backed securities N/A 1.77 2.06 2.61 1.94 Collateralized mortgage obligations N/A 2.04 2.00 1.94 2.02 Total weighted average yield 4.54 % 1.99 % 2.00 % 2.14 % 2.05 % 13 Table of Contents The following table sets forth the composition of our investment securities portfolio at each of the dates indicated. At December 31, 2024 2023 (Dollars in thousands) Fixed-rate $ 70,095 $ 80,899 Adjustable-rate 1,154 1,236 Total securities available for sale $ 71,249 $ 82,135 Additionally, we hold interest-bearing deposits at financial institutions throughout the United States. Some of these accounts have balances above the FDIC’s per account insurance limit of $250,000. We monitor that credit risk on a quarterly basis. We also hold funds in the Federal Reserve Bank of Chicago and the FHLB of Chicago. Sources of Funds General . Deposits, loan repayments and prepayments, proceeds from investment sales, calls, maturities and pay-downs, cash flows generated from operations and FHLB of Chicago advances are the primary sources of our funds for use in lending, investing and for other general purposes. Deposits . We offer a variety of deposit accounts with a range of interest rates and terms. Our deposits consist of checking, both interest-bearing and noninterest-bearing, money market, savings and time deposit accounts. As of December 31, 2024 , 51.2% of the funds deposited with North Shore Trust and Savings were in core deposits, which are deposits other than time deposits. The flow of deposits is influenced significantly by general economic conditions, changes in money market rates, prevailing interest rates and competition. Our deposits are obtained predominantly from the areas where our branch offices are located. We have historically relied primarily on customer service and long-standing relationships with customers to attract and retain these deposits; however, market interest rates and rates offered by competing financial institutions significantly affect our ability to attract and retain deposits. 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. 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. 14 Table of Contents The following table shows the distribution of, and certain other information relating to, our deposits by type of deposit, as of the dates indicated. At December 31, 2024 2023 Amount % Amount % (Dollars in thousands) Certificate accounts: 0.00% - 0.99% $ 5,938 3.12 % $ 12,301 7.29 % 1.00% - 1.99% 18,246 9.60 % 13,064 7.74 % 2.00% - 2.99% 7,093 3.73 % 12,260 7.26 % 3.00% - 3.99% 538 0.28 % 4,336 2.57 % 4.00% - 4.99% 26,540 13.96 % 1,968 1.16 % 5.00% - or more 34,464 18.12 % 23,326 13.82 % Total certificate accounts $ 92,819 48.81 % $ 67,255 39.84 % Transaction accounts: Savings $ 41,544 21.85 % $ 41,774 24.74 % Checking: Interest-bearing 14,930 7.85 % 15,346 9.09 % Noninterest-bearing 11,896 6.26 % 12,424 7.36 % Money market 28,967 15.23 % 32,027 18.97 % Total transaction accounts $ 97,337 51.19 % $ 101,571 60.16 % Total deposits $ 190,156 100.00 % $ 168,826 100.00 % The following tables show the average balance of each type of deposit and the average rate paid on each type of deposit for the periods indicated. At and for the Year Ended December 31, 2024 2023 Average Balance Interest Expense Average Rate Paid Average Balance Interest Expense Average Rate Paid (Dollars in thousands) Savings accounts $ 41,273 $ 62 0.15 % $ 45,696 $ 68 0.15 % Checking-interest bearing 15,316 8 0.05 % 16,714 9 0.05 % Money market 30,617 196 0.64 % 36,875 226 0.61 % Time deposit 80,485 2,734 3.40 % 56,573 1,033 1.83 % Total interest-bearing deposits $ 167,691 $ 3,000 1.79 % $ 155,858 $ 1,336 0.86 % Total deposits $ 178,921 $ 3,000 1.68 % $ 168,682 $ 1,336 0.79 % The following table shows, by various interest rate categories and maturities, the amount of time deposits as of December 31, 2024 . Balance at December 31, 2024 Maturing in the 12 Months Ending December 31, Time deposit 2025 2026 2027 2028 Thereafter Total (Dollars in thousands) 0.00% - 0.99% $ 4,085 $ 859 $ 994 $ — $ — $ 5,938 1.00% - 1.99% 10,486 2,204 307 2,631 2,618 18,246 2.00% - 2.99% 1,499 813 380 1,576 2,825 7,093 3.00% - 3.99% — — 206 332 — 538 4.00% - 4.99% 13,096 9,138 345 3,961 — 26,540 5.00% - or more 34,464 — — — — 34,464 Total certificate accounts $ 63,630 $ 13,014 $ 2,232 $ 8,500 $ 5,443 $ 92,819 15 Table of Contents The following table shows the maturities of our time deposits in excess of the FDIC insurance limit (generally, $250,000) as of December 31, 2024 by time remaining to maturity. Quarter Ending: Amount Weighted Average Rate (Dollars in thousands) March 31, 2025 $ 3,098 3.88 % June 30, 2025 2,288 4.32 % September 30, 2025 1,732 5.00 % December 31, 2025 7,516 4.50 % After December 31, 2025 7,356 3.70 % Total time deposits with balances of $250,000 or more $ 21,990 4.17 % 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. Borrowings . 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: At or For the Year Ended December 31, 2024 2023 (Dollars in thousands) FHLB of Chicago advances and other borrowings: Average balance outstanding $ 5,000 $ 3,461 Maximum amount outstanding at any month-end during the period 5,000 15,000 Balance outstanding at end of period 5,000 5,000 Average interest rate during the period 4.8 % 5.0 % Weighted average interest rate at end of period 4.8 % 4.8 % As of December 31, 2024 , there was $5.0 million in outstanding borrowings with the FHLB Chicago. The Bank is eligible to borrow up to a total of $78.1 million and $77.2 million at December 31, 2024 and 2023 , respectively, which would be collateralized by $103.8 million and $102.6 million of first mortgage loans under a blanket lien arrangement at December 31, 2024 and 2023 , respectively. Additionally, at December 31, 2024 and 2023 we had a $10.0 million federal funds line of credit with the BMO Harris Bank, none of which was drawn at December 31, 2024 and 2023. Expense and Tax Allocation North Shore Trust and Savings has an agreement with NSTS Bancorp, Inc., to provide it with certain administrative support services for compensation not less than the fair market value of the services provided. During the year ended December 31, 2024, the total of these services was $1.3 million. In addition, North Shore Trust and Savings and NSTS Bancorp, Inc. have an agreement that establishes a method for allocating and for reimbursing the payment of their consolidated tax liability. Employees and Human Capital Resources At December 31, 2024 , we had 53 full-time equivalent employees. None of such employees are represented by a collective bargaining group, and we believe that our relationship with our employees is excellent. The success of our business is highly dependent on our employees, who provide value to our customers and communities. Our workplace culture provides a set of core values: a concern for others, trust, respect, hard work and a dedication to our customers. We seek to hire well-qualified employees who are also a good fit for our value system. We believe that our ability to attract and retain top quality employees is a key to our future success. We continue to elevate individuals from within the organization into new roles and we expect to continue to assess our management and staffing needs and are likely to add personnel in the future in order to fully implement our business strategy. 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. 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. Shares held in the ESOP will be released and allocated to employees on an annual basis based on the ratio of each such participant's annual compensation. 16 Table of Contents Employee retention helps us operate efficiently and achieve one of our business objectives, which is being a low-cost provider. We believe our commitment to living out our core values, actively prioritizing concern for our employees’ well-being, supporting our employees’ career goals, offering competitive wages and providing valuable fringe benefits aids in retention of our top-performing employees. Federal Income Taxation General . NSTS Bancorp, Inc. and North Shore Trust and Savings are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal and state income taxation is only intended to summarize certain pertinent income tax matters and is not a comprehensive description of the applicable tax rules. North Shore Trust and Savings’ income tax returns have not been audited by a taxing authority during the past five years. Beginning in 2022, NSTS Bancorp, Inc. filed a consolidated federal income tax return with North Shore Trust and Savings. Any cash distributions made by NSTS Bancorp, Inc. to its stockholders would be treated as cash dividends and not as returns of capital to stockholders for federal and state income tax purposes. Method of Accounting . For federal income tax purposes, we report income and expenses on the accrual method of accounting and use a December 31 tax year for filing our federal income tax returns. Corporate Dividends-Received Deduction . NSTS Bancorp, Inc., as an affiliate of North Shore Trust and Savings, is able to exclude from its income for federal income tax purposes 100% of the dividends received from North Shore Trust and Savings. State Taxation NSTS Bancorp, Inc. is subject to Illinois corporate income tax and replacement tax based on its Illinois taxable income and Wisconsin corporate income tax on its Wisconsin taxable income. SUPERVISION AND REGULATION General As a federal savings association, North Shore Trust and Savings is subject to examination and regulation by the OCC, and is also subject to examination by the FDIC as deposit insurer. The federal system of regulation and supervision establishes a comprehensive framework of activities in which North Shore Trust and Savings may engage and is intended primarily for the protection of depositors and the FDIC's Deposit Insurance Fund (the "DIF"), and not for the protection of stockholders. North Shore Trust and Savings, also, is a member of and owns stock in the FHLB of Chicago, which is one of the 11 regional banks in the FHLB System. Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; provide oversight for the adequacy of loan loss reserves for regulatory purposes; 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 (known as an institution's CAMELS rating). 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. 17 Table of Contents 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. is required to comply with the rules and regulations of the Federal Reserve Board. It is required to file certain reports with the Federal Reserve Board and is subject to examination by and the enforcement authority of the Federal Reserve Board. NSTS Bancorp, Inc. 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 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. and North Shore Trust and Savings. Set forth below is a brief description of material regulatory requirements that are applicable to North Shore Trust and Savings and NSTS Bancorp, Inc. The description is limited to certain material aspects of the statutes and regulations addressed in this filing, and is not intended to be a complete description of such statutes and regulations and their effects on North Shore Trust and Savings and NSTS Bancorp, Inc. Federal Banking Regulation Business Activities . A federal savings association derives its lending and investment powers from the Home Owners' Loan Act, as amended, and applicable federal regulations. Under these laws and regulations, a federal savings association may generally invest in mortgage loans secured by residential real estate without an aggregate limit, and commercial business, commercial real estate and consumer loans, certain types of debt securities and certain other assets, subject to overall percentage of assets or capital limits. Federal savings associations are also subject to a "Qualified Thrift Lender Test," or "QTL Test," which generally requires that a specified percentage of overall assets be residential mortgages and related investments. 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, 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. The CSA is also subject to the same duties, restrictions, liabilities and limitations applicable to a national bank. A CSA retains its federal savings association charter and continues to be subject to the corporate governance laws and regulations applicable to such associations, including as to its bylaws, board of directors and stockholders, capital distributions and mergers. A CSA may make loans to its customers without regard to the lending restrictions applicable to federal savings associations, such as the percentage of capital or assets limits on various types of loans and the QTL Test. However, federal savings associations that have made such an election are subject to the narrower authority of national banks in certain areas such as branching and subsidiary activities in certain respects. A CSA may generally not retain any assets, subsidiaries or activities not permitted for national banks. 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. 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 . Federal regulations require federally insured depository institutions to meet several minimum capital standards: 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"). 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. A qualifying institution may opt in and out of the CBLR framework on its quarterly call report. 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 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. 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. Qualifying institutions may elect to utilize the CBLR in lieu of the generally applicable risk-based capital requirements. North Shore Trust and Savings has elected to utilize the CBLR framework. At December 31, 2024, North Shore Trust and Savings' CBLR was 23.53%. 18 Table of Contents As of December 31, 2024 , North Shore Trust and Savings’ capital exceeded all applicable requirements including the applicable conservation buffer. Loans-to-One Borrower . Generally, a federal savings association, including a CSA, may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the excess is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2024, North Shore Trust and Savings was in compliance with the loans-to-one borrower limitations. Capital Distributions . Federal regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the savings association’s capital account. A federal savings association must file an application with the OCC for approval of a capital distribution if: ● the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus the savings association’s retained net income for the preceding two years; ● the savings association would not be at least adequately capitalized following the distribution; ● the distribution would violate any applicable statute, regulation, agreement or regulatory condition; or ● the savings association is not eligible for expedited treatment of its filings, generally due to an unsatisfactory CAMELS rating or being subject to a cease and desist order or formal written agreement that requires action to improve the institution’s financial condition. Even if an application is not otherwise required, every savings association that is a subsidiary of a savings and loan holding company, such as North Shore Trust and Savings, must still file a notice with the Federal Reserve Board at least 30 days before the board of directors declares a dividend or approves a capital distribution. 19 Table of Contents A notice or application related to a capital distribution may be disapproved if: ● the federal savings association would be undercapitalized following the distribution; ● the proposed capital distribution raises safety and soundness concerns; or ● the capital distribution would violate a prohibition contained in any statute, regulation or agreement. In addition, the Federal Deposit Insurance Act generally provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. A federal savings association also may not make a capital distribution that would reduce its regulatory capital below the amount required for the liquidation account established in connection with its conversion to stock form. Furthermore, the current Capital Rules limit capital distributions if the institution does not hold a "capital conservation buffer" consisting of 2.5% common equity Tier 1 capital to risk-based assets above the amount necessary to meet its minimum risk-based capital requirements. Community Reinvestment Act and Fair Lending Laws . All insured depository institutions have a responsibility under the CRA and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. 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 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. The failure to comply with the ECOA and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the U.S. Department of Justice. The CRA requires all institutions insured by the FDIC to publicly disclose their rating. North Shore Trust and Savings received an "Outstanding" CRA rating in its most recent federal examination. 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 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. Under the final rule, federal agencies will evaluate small banks (i.e., those with assets of less than $600.0 million as of December 31 in either of the prior two calendar years), such as North Shore Trust and Savings, under either the current small bank test, referred to in the final rule as the Small Bank Lending Test or, at the Bank's option, the new "Retail Lending Test," however, banks of all sizes will maintain the option to elect to be evaluated under a strategic plan with the final rule updating the standards for obtaining approval for such plan. The new Retail Lending Test evaluates a bank's record of helping to meet the credit needs of its community through the origination and purchase of home mortgage, multifamily, small business, small farm and, in certain cases, automobile loans. For small banks that opt to be evaluated under the Retail Lending Test, the agencies will evaluate the distribution of the bank's major product lines in its facility-based assessment areas and any outside retail lending area, if applicable. For each applicable performance test, the agencies will assign conclusions reflecting the bank's performance in its facility-based assessment areas, and in the case of the new Retail Lending Test, the agencies will assign one of five conclusions to the bank: "Outstanding;" "High Satisfactory;" "Low Satisfactory;" "Needs to Improve;" or "Substantial Noncompliance." For small banks evaluated under the current Small Bank Lending Test, the agencies will assign one of four conclusions: "Outstanding;" "Satisfactory;" "Needs to Improve;" or "Substantial Noncompliance." At this time, we are unable to determine what impact, if any, the CRA reform may have on the operations of North Shore Trust and Savings. Small Business Lending Rule. 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 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. 20 Table of Contents 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 . An insured depository institution’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and its implementing Regulation W. An affiliate is generally a company that controls, or is under common control with, an insured depository institution such as North Shore Trust and Savings. NSTS Bancorp, Inc. is an affiliate of North Shore Trust and Savings because of its control of North Shore Trust and Savings. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. North Shore Trust and Savings’ authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders: ● be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and ● not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of North Shore Trust and Savings’ capital. In addition, extensions of credit in excess of certain limits must be approved by North Shore Trust and Savings’ board of directors. Extensions of credit to executive officers are subject to additional restrictions, including limits on various types of loans. Enforcement . The OCC has primary enforcement responsibility over federal savings associations and has authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, stockholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association. Formal enforcement actions by the OCC may range from the issuance of a capital directive, formal agreement or cease and desist order against institutions, and can also include the removal of officers and/or directors of the institution. The OCC can appoint receivers and/or conservators for the institutions it supervises if certain circumstances are met. Civil penalties can be assessed for various types of conduct against the institution and/or its officers and directors. The maximum civil money penalties that can be assessed are generally based on the type and severity of the violation, unsafe and unsound practice or other action, and are adjusted annually for inflation. The FDIC also has the authority to terminate deposit insurance or recommend to the OCC that enforcement action be taken with respect to a particular federal savings association. 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 . Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. 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. Branching . A federal savings association that has elected CSA status is subject to the laws and regulations governing the establishment of branches by national banks. Generally, intrastate and interstate branching is authorized to the extent that the law of the state involved authorizes branching for banks that it charters. Such authority is subject to OCC approval for new branches. 21 Table of Contents Prompt Corrective Action . Federal law requires, among other things, that federal bank regulators take "prompt corrective action" with respect to institutions that do not meet minimum capital requirements. For this purpose, the law establishes five capital categories: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under applicable regulations, an institution is deemed to be "well-capitalized" if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 8% or greater, a leverage ratio of 5% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is "adequately capitalized" if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 6% or greater, a leverage ratio of 4% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is "undercapitalized" if it has a total risk-based capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than 6%, a leverage ratio of less than 4% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be "significantly undercapitalized" if it has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 4%, a leverage ratio of less than 3% or a common equity Tier 1 ratio of less than 3%. An institution is considered to be "critically undercapitalized" if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2%. At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on the payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank's compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5% of the institution's total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an "undercapitalized" bank fails to submit an acceptable plan, it is treated as if it is "significantly undercapitalized." "Significantly undercapitalized" banks must comply with one or more of a number of additional restrictions, including a regulatory order to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, ceasing receipt of deposits from correspondent banks, dismissal of directors or officers and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. "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 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 . The DIF of the FDIC insures deposits at FDIC-insured financial institutions such as North Shore Trust and Savings, generally up to a maximum of $250,000 per separately insured depositor. The FDIC charges insured depository institutions premiums to maintain the DIF. Under the FDIC's risk-based assessment system, institutions deemed less risky of failure pay lower assessments. Assessments for institutions of less than $10.0 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution's failure within three years. 22 Table of Contents The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of North Shore Trust and Savings. We cannot predict what assessment rates will be in the future. 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 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 $5.0 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. We do not know of any practice, condition or violation that may lead to termination of our deposit insurance. Privacy and Cybersecurity . The Gramm-Leach-Bliley Act (the "GLBA"), and its implementing regulations issued by federal regulatory agencies require financial institutions (including banks) to adopt policies and procedures regarding the disclosure of nonpublic personal information about their customers to non-affiliated third parties. In general, financial institutions are required to explain to customers their policies and procedures regarding the disclosure of such nonpublic personal information and, unless otherwise required or permitted by law, financial institutions are prohibited from disclosing such information except as provided in their policies and procedures. Specifically, the GLBA established certain information security guidelines that require each financial institution, under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to develop, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, to protect against anticipated threats or hazards to the security or integrity of such information and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. North Shore Trust and Savings currently has a privacy protection policy and security program in place and believes that such policy and program are in compliance with applicable regulations. Recent cyber-attacks against banks and other financial institutions that resulted in unauthorized access to confidential customer information have prompted the federal banking regulators to issue extensive guidance on cybersecurity. Among other things, financial institutions are expected to design multiple layers of security controls to establish lines of defense and ensure that their risk management processes address the risks posed by compromised customer credentials, including security measures to authenticate customers accessing Internet-based services. A financial institution also should have a robust business continuity program to recover from a cyberattack and procedures for monitoring the security of third-party service providers that may have access to nonpublic data at the institution. In November 2021, the federal regulators finalized a rule concerning notification requirements for banks related to significant computer security incidents. Under the final rule, a bank or its holding company is required to notify its applicable federal banking regulators within 36 hours of incidents that have materially disrupted or degraded, or are reasonably likely to materially disrupt or degrade, the banking organization's ability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the organization, or impact the stability of the financial sector. The rule was effective April 1, 2022 and compliance was required as of May 1, 2022. In March 2022, the Cyber Incident Reporting for Critical Infrastructure Act of 2022 ("CIRCIA") was signed into law. The enactment of CIRCIA requires the U.S. 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 . North Shore Trust and Savings is subject to the Bank Secrecy Act (the "BSA") and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA PATRIOT Act"). These statutes and related rules and regulations impose requirements and limitations on specified financial transactions and accounts and other relationships intended to guard against money laundering and terrorism financing. The principal requirements for an insured depository institution include (i) establishment of an anti-money laundering program that includes training and audit components, (ii) establishment of a "know your customer" program involving due diligence to confirm the identities of persons seeking to open accounts and to deny accounts to those persons unable to demonstrate their identities, (iii) the filing of currency transaction reports for deposits and withdrawals of large amounts of cash, (iv) additional precautions for accounts sought and managed for non-U.S. persons and (v) verification and certification of money-laundering risk with respect to private banking and foreign correspondent banking relationships. For many of these tasks a bank must keep records to be made available to its primary federal regulator. Anti-money laundering rules and policies are developed by a bureau within the U.S. Department of the Treasury (the "U.S. Treasury"), the Financial Crimes Enforcement Network ("FinCEN"), but compliance by individual institutions is overseen by its primary federal regulator. North Shore Trust and Savings has established appropriate anti-money laundering and customer identification programs. North Shore Trust and Savings also maintains records of cash purchases of negotiable instruments, files reports of certain cash transactions exceeding $10,000 (daily aggregate amount) and reports suspicious activity that might signify money laundering, tax evasion or other criminal activities pursuant to the BSA. North Shore Trust and Savings otherwise has implemented policies and procedures to comply with the foregoing requirements. The U.S. Treasury's Office of Foreign Assets Control ("OFAC") is responsible for helping to ensure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of the U.S. Congress. OFAC publishes lists of persons, organizations and countries suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons. If North Shore Trust and Savings finds a name on any transaction, account or wire transfer that is on an OFAC list, North Shore Trust and Savings must freeze or block such account or transaction, file a suspicious activity report and notify the appropriate authorities. 23 Table of Contents On January 1, 2021, the U.S. Congress passed the Corporate Transparency Act (the "CTA") as part of the National Defense Authorization Act, which enacted the most significant overhaul of the anti-money laundering laws since the USA PATRIOT Act. Notable amendments include (i) significant changes to the collection of beneficial ownership information ("BOI") and the establishment of a beneficial ownership registry, which requires corporate entities (generally, any corporation, limited liability company, or other similar entity with 20 or fewer employees and annual gross income of $5.0 million or less) to report BOI to FinCEN (which will be maintained by FinCEN and made available upon request to financial institutions); (ii) enhanced whistleblower provisions, which provide that one or more whistleblowers who voluntarily provide original information leading to the successful prosecution of violations of the anti-money laundering laws in any judicial or administrative action brought by the Secretary of the U.S. Treasury or the U.S. Attorney General resulting in monetary sanctions exceeding $1.0 million (including disgorgement and interest but excluding forfeiture, restitution, or compensation to victims) will receive not more than 30% of the monetary sanctions collected and will receive increased protections; (iii) increased penalties for violations of anti-money laundering laws and regulations; (iv) improvements to existing information sharing provisions that permit financial institutions to share information relating to suspicious activity reports with foreign branches, subsidiaries, and affiliates (except those located in the People's Republic of China, the Russian Federation or certain other jurisdictions) for the purpose of combating illicit finance risks; and (v) expanded duties and enforcement powers for FinCEN. Many of the amendments, including those with respect to beneficial ownership, require FinCEN to promulgate rules. On September 29, 2022, FinCEN finalized the first of three proposed rules to implement changes to the beneficial ownership requirements and related amendments set forth in the CTA. The final rule prescribes which corporate entities created in or registered to do business in the U.S. will be required to report BOI directly to 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. The second final rule identifies the entities FinCEN is allowed to provide access to BOI to include (i) federal agencies engaged in national security, intelligence or law enforcement activity, (ii) state, local and tribal law enforcement agencies with court authorization, (iii) foreign law enforcement agencies, judges, prosecutors and other authorities that meet specific criteria, (iv) U.S. 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 ("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 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 . Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution. 24 Table of Contents Other Regulations Interest and other charges collected or contracted by North Shore Trust and Savings are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to state and federal laws applicable to credit transactions, such as the: ● Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; ● Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; ● Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; ● Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; ● Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and ● Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations of North Shore Trust and Savings also are subject to, among others, the: ● Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; ● Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and ● Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. Federal Home Loan Bank System North Shore Trust and Savings is a member of the FHLB System, which consists of 11 regional FHLBs. Each FHLB provides a central credit facility primarily for member institutions, and such member institutions are required to acquire and hold shares of capital stock in the FHLB. North Shore Trust and Savings was in compliance with this requirement as of December 31, 2024 based on its ownership of $585,000 in capital stock of the FHLB of Chicago. The stock has no quoted market value and is carried at cost. North Shore Trust and Savings reviews for impairment, based on the ultimate recoverability, the cost basis of the FHLB of Chicago’s stock. As of December 31, 2024 , no impairment had been recognized. 25 Table of Contents Holding Company Regulation NSTS Bancorp, Inc. is a unitary savings and loan holding company subject to regulation and supervision by the Federal Reserve Board. The Federal Reserve Board has enforcement authority over NSTS Bancorp, Inc. and its non-savings institution subsidiaries. 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 an election to be treated as a financial holding company is made) or multiple savings and loan holding companies. NSTS Bancorp, Inc. has no present intention to make an election to be treated as a financial holding company. A financial holding company may engage in activities that are financial in nature, incidental to financial activities or complementary to a financial activity. Such activities include lending and other activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, insurance and underwriting equity securities. Multiple savings and loan holding companies are authorized to engage in activities specified by federal regulation, including activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act. Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of another savings institution or savings and loan holding company without prior written approval of the Federal Reserve Board, and from acquiring or retaining control of any depository institution not insured by the FDIC. In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider such factors as the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on and the risk to the federal DIF, the convenience and needs of the community and competitive factors. A savings and loan holding company may not acquire a savings institution in another state and hold the target institution as a separate subsidiary unless it is a supervisory acquisition or the law of the state in which the target is located authorizes such acquisitions by out-of-state companies. As a savings and loan holding company with less than $3.0 billion in consolidated assets, NSTS Bancorp, Inc. is currently exempt from consolidated regulatory capital requirements. The Federal Reserve Board has promulgated regulations implementing the "source of strength" doctrine that require holding companies, including savings and loan holding companies, to act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress. The Federal Reserve Board has issued supervisory policies regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization's capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company's net income for the past four quarters, net of capital distributions previously paid over that period, is insufficient to fully fund the dividend or the company's overall rate of earnings retention is inconsistent with the company's capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also states that a holding company should inform the Federal Reserve Board supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability of NSTS Bancorp, Inc. 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 Under the Change in Bank Control Act, no person may acquire "control" of a savings and loan holding company, such as NSTS Bancorp, Inc., unless the Federal Reserve Board has been given 60 days' prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution's directors or a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. 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 The new U.S. 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. 26 Table of Contents Federal Securities Laws NSTS Bancorp, Inc. common stock is registered with the SEC. Accordingly, NSTS Bancorp, Inc. is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act. Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. We have established policies, procedures and systems designed to comply with the Sarbanes-Oxley Act of 2002 and its implementing regulations, and we review and document such policies, procedures and systems to ensure continued compliance. Emerging Growth Company Status NSTS Bancorp, Inc. is an emerging growth company. For as long as NSTS Bancorp, Inc. continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As an emerging growth company, NSTS Bancorp, Inc. also will not be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting. We plan to elect to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Such an election is irrevocable during the period a company is an emerging growth company. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. NSTS Bancorp, Inc. 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 This Annual Report on Form 10-K is available on our website at www.northshoretrust.com . Information on the website is not incorporated into, and is not otherwise considered a part of, this Annual Report on Form 10-K. Subsidiaries NSTS Bancorp, Inc.'s only subsidiary is North Shore Trust and Savings. The Bank does not have any subsidiaries. 27 Table of Contents Item 1A. Risk Factors Not required for smaller reporting companies.