NSTS Bancorp, Inc. 10-K

Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities NSTS Bancorp, Inc.'s common stock is listed on the Nasdaq Capital Market, under the symbol “NSTS”. As of March 24, 2025, there were 5,599,859 shares of our common stock issued and 5,247,826 shares outstanding, which were held by approximately 222 stockholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms). Our common stock began trading on the Nasdaq Capital Market on January 19, 2022, with an initial price of $10.00 per share. We do not currently intend to pay cash dividends to our stockholders, and no assurances can be given that any such dividends will be paid in the future. The payment and amount of any dividends will be subject to statutory and regulatory limitations, and will depend upon a number of factors, including the following: regulatory capital requirements; our financial condition and results of operations; our other uses of funds for the long-term value of stockholders; tax considerations; and general economic conditions. We are subject to state law limitations and federal bank regulatory policy on the payment of dividends. Delaware law generally limits dividends to be paid out of capital surplus or, if there is no surplus, out of net profits from the fiscal year in which the dividend is declared, and the preceding fiscal year, subject to certain limitations. Additionally, Federal Reserve policy could restrict future dividends on our common stock, depending on our earnings and capital position and likely needs. See “Supervision and Regulation – Federal Banking Regulations - Capital Distributions” and "Supervision and Regulation - Holding Company Regulations". Is suer Purchases of Securities Effective December 21, 2023, the Company's Board of Directors authorized a new share repurchase program that authorizes the Company to repurchase up to an aggregate of 265,763 shares, or 5%, of its then outstanding common stock. The program was in effect until December 31, 2024. The following table sets forth information about the Company's purchases of its common stock during the three months ended December 31, 2024. There were no repurchases during the month ended December 31, 2024. (a) (b) (c) (d) Period Total number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased As part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet to be Purchased Under the Plans or Programs October 1 - October 31, 2024 12,766 $ 10.73 12,766 201,152 November 1 - November 31, 2024 29,121 11.13 29,121 172,031 December 1 - December 31, 2024 — N/A — 172,031 Total 41,887 $ 11.01 41,887 172,031 There were no unregistered sales of NSTS Bancorp, Inc.'s common stock during the year ended December 31, 2024 . 30 Table of Contents Item 6. [Reserved] Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations This discussion and analysis reflects the consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of the financial condition and results of operations of NSTS Bancorp, Inc. and North Shore Trust and Savings for the years ended December 31, 2024 and 2023 . The purpose of this discussion is to provide information about our financial condition and results of operations which is not otherwise apparent from the consolidated financial statements. You should read the information in this section in conjunction with the other business and financial information provided in this annual report. Overview North Shore Trust and Savings is a community-oriented savings institution headquartered in Waukegan, Illinois. Our business strategy is to continually enhance our products and services with a focus on one- to four- family residential first mortgage loans, and to maintain our holdings of commercial real estate and multi-family residential real estate loans. Our traditional lending market is centered in our retail branch area of Lake County, Illinois and has expanded to counties in the greater Chicagoland area in Illinois as well as Kenosha County in Wisconsin. We currently operate three full-service banking offices in Lake County, Illinois and three loan production offices in Chicago, Plainfield and Aurora, Illinois. Our primary sources of funds consist of attracting deposits from the general public and using those funds along with funds from the FHLB of Chicago and other sources to originate loans to our customers and invest in securities. As of December 31, 2024 , we had total assets of $278.7 million, including $130.4 million in net loans and $71.2 million of securities available for sale, total deposits of $190.2 million and total equity of $76.5 million. For the year ended December 31, 2024, we had a net loss of $789,000 compared to a net loss of $4.0 million for the year ended December 31, 2023 . Our results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on our loan and investment portfolios and interest expense on deposits and borrowings. Our net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. Results of operations are also affected by our provisions for credit losses, fee income and other noninterest income and noninterest expense. Noninterest expense principally consists of compensation, office occupancy and equipment expense, data processing, advertising and business promotion and other expenses. We expect that our noninterest expenses will increase as we grow and expand our operations. Our results of operations and financial condition are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, changes in accounting guidance, government policies and actions of regulatory authorities. 31 Table of Contents Critical Accounting Policies In reviewing and understanding financial information for NSTS Bancorp, Inc., you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our consolidated financial statements included within this filing. Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The JOBS Act of 2012 contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods. Allowance for Credit Losses . On January 1, 2023, we adopted the new CECL accounting methodology which requires entities to estimate and recognize an allowance for lifetime expected credit losses for loans and other financial assets measured at amortized cost. The accounting estimates relating to the allowance for credit losses is a “critical accounting policy” as: ● changes in the provision for credit losses can materially affect our financial results; ● estimates relating to the allowance for credit losses require us to project future borrower performance, including cash flows, delinquencies and charge-offs, along with, when applicable, collateral values, based on a reasonable and supportable forecast period utilizing forward-looking economic scenarios in order to estimate probability of default and loss given default; ● the allowance for credit losses is influenced by factors outside of our control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions such as trends in housing prices, interest rates, GDP, inflation, energy prices and unemployment; and ● considerable judgment is required to determine whether the models used to generate the allowance for credit losses produce an estimate that is sufficient to encompass the current view of lifetime expected credit losses. Because our estimates of the allowance for credit losses involve judgment and are influenced by factors outside our control, there is uncertainty inherent in these estimates. Our estimate of lifetime expected credit losses is inherently uncertain because it is highly sensitive to changes in economic conditions and other factors outside of our control. Changes in such estimates could significantly impact our allowance and provision for credit losses. See Note 1 – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report for a discussion of our allowance for credit losses. 32 Table of Contents Comparison of Financial Condition at December 31, 2024 and December 31, 2023 At December 31, 2024 2023 (Dollars in thousands) Selected Consolidated Financial Condition Data: Total assets $ 278,688 $ 256,776 Cash and cash equivalents 53,481 31,388 Securities available for sale 71,249 82,135 Federal Home Loan Bank stock 585 550 Loans held for sale 1,218 380 Loans, net 130,356 120,623 Total deposits 190,156 168,826 Other borrowings 5,000 5,000 Total equity 76,490 77,545 Total Assets . Total assets increased $21.9 million to $278.7 million as of December 31, 2024 compared to $256.8 million at December 31, 2023. The increase was driven by an increase in loans, net, funded by an increase in time deposits and a reduction in securities available for sale due to maturities and principal payments of securities. Cash and cash equivalents. Cash and cash equivalents increased $22.1 million to $53.5 million as of December 31, 2024, from $31.4 million at December 31, 2023. The increase in cash was driven by an increase in time deposits during the same period and principal payments received on securities available for sale. Additionally, the Bank sold $5.9 million of loans on December 30, 2024, resulting in an increase in cash held as of the end of the year. Currently, the Bank holds a majority of the cash on hand at the Federal Reserve Bank of Chicago, earning 4.40%, to keep the funds available to fund loan demand. Management continues to actively monitor our liquidity position on a daily basis and maintains levels of liquid assets deemed adequate. Securities Available for Sale. Securities available-for-sale decreased to $71.2 million as of December 31, 2024, compared to $82.1 million at December 31, 2023. There were no purchases or sales of securities available-for-sale during the year ended December 31, 2024. During the year ended December 31, 2024, the Bank received principal payments of $5.5 million, had maturities of $4.3 million, had net premium amortization and discount accretion of $515,000 and had an increase in the unrealized loss on the portfolio of $535,000. As of December 31, 2024, the securities available for sale portfolio included an unrealized loss position of $12.0 million, or 14.5% of the total book value of the portfolio. Management monitors the portfolio for credit losses and believes that the decline in value does not presently represent realized losses and is due to market volatility and increased market interest rates. While the Bank does not currently intend to sell securities in a loss position, management may consider the opportunity to reposition the investment securities portfolio in the future. Loans held for sale. Our loans held for sale increased $838,000 to $1.2 million at December 31, 2024 compared to $380,000 at December 31, 2023. With the addition of Oak Leaf Community Mortgage during the late third and early fourth quarters of 2023, and the related increase in loan originations, management has increased the proportion of loan originations held for sale to the secondary market. During the year ended December 31, 2024, the Bank originated $45.6 million in loans held for sale. Loans, net. Our loans, net, increased by $9.8 million to $130.4 million at December 31, 2024 compared to $120.6 million at December 31, 2023. The Bank originated $43.2 million in loans to be held in the portfolio during the year ended December 31, 2024 and had loan principal payments and payoffs and changes to deferred fees and costs of $25.0 million. In an effort to continue to grow loan originations, the Bank hired three additional mortgage loan originators during the year ended December 31, 2024. The Bank sold $8.4 million in loans that were originally held in the portfolio to local community banks. As of December 31, 2024, the allowance for credit losses on loans (“ACL”) totaled $1.2 million, an increase of $25,000 compared to December 31, 2023. The increase in the ACL is driven by an increase in the portfolio loan balances, partially offset by a reduction in proxy expected lifetime loss rates due to high credit quality of the portfolio and positive economic factors such as a lower inflation rate and stable unemployment rates. As of December 31, 2024, there were no loans individually assessed and no loans were rated substandard or watch. As of December 31, 2024, the Bank has no non-accrual loans and two loans past due greater than 30 days. The Bank actively monitors the loan portfolio for signs of weakening credit quality, noting as of December 31, 2024 the portfolio remains of high quality with limited credit concerns. Deposits. Total deposits increased $21.4 million to $190.2 million at December 31, 2024 compared to $168.8 million at December 31, 2023. The increase in deposits is primarily within the time deposit accounts as the Bank continued to offer a competitive CD special during the year ended December 31, 2024. Based on current offering rates in our market area and our current deposit pricing strategy, as well as our strong historical deposit retention, management anticipates that a significant portion of maturing time deposits will be retained. Management continues to actively monitor the deposit balances and interest rates offered to maintain an adequate level of liquidity. Other Borrowings. As of December 31, 2024, the Bank has $5.0 million in outstanding advances from FHLB Chicago with a term of 24 months at 4.78%, that is scheduled to mature in June 2025. No additional borrowings were made during the year ended December 31, 2024. Total Equity. Total equity decreased $1.0 million to $76.5 million at December 31, 2024. The decrease is primarily due to an increase in the unrealized loss position on the securities available-for-sale portfolio, a reduction in retained earnings due to a net loss during the year and an increase in treasury stock as a result of stock repurchases completed during the year ended December 31, 2024. 33 Table of Contents Average Balances, Net Interest Income, and Yields Earned and Rates Paid . The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances. The table also reflects the yields on North Shore Trust and Savings’ interest-earning assets and costs of interest-bearing liabilities for the periods shown. At or For the Year Ended December 31, 2024 2023 Average Outstanding Balance Interest Average Yield/ Rate Average Outstanding Balance Interest Average Yield/ Rate (Dollars in thousands) Interest-earning assets: Loans $ 133,176 $ 6,785 5.09 % $ 107,438 $ 4,360 4.06 % Interest-bearing bank deposits 35,554 1,613 4.54 % 9,805 348 3.55 % Time deposits with other financial institutions 1,647 85 5.16 % 2,736 94 3.44 % Securities available for sale 76,260 1,783 2.34 % 114,744 2,902 2.53 % Federal Home Loan Bank stock 576 38 6.60 % 550 24 4.36 % Total interest-earning assets $ 247,213 $ 10,304 4.17 % $ 235,273 $ 7,728 3.28 % Noninterest-earning assets 19,626 21,550 Total assets $ 266,839 $ 256,823 Interest-bearing liabilities: Interest-bearing demand $ 15,316 $ 8 0.05 % $ 16,714 $ 9 0.05 % Money market 30,617 196 0.64 % 36,875 226 0.61 % Savings 41,273 62 0.15 % 45,696 68 0.15 % Time deposits 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 % Other borrowings 5,000 243 4.86 % 3,461 172 4.97 % Total interest-bearing liabilities $ 172,691 $ 3,243 1.88 % $ 159,319 $ 1,508 0.95 % Noninterest-bearing liabilities 17,162 17,896 Total liabilities $ 189,853 $ 177,215 Equity 76,986 79,608 Total liabilities and equity $ 266,839 $ 256,823 Net interest income $ 7,061 $ 6,220 Interest rate spread (1) 2.29 % 2.33 % Net interest-earning assets (2) 74,522 75,954 Net interest margin (3) 2.86 % 2.64 % Average interest-earning assets to average-interest bearing liabilities 143.15 % 147.67 % (1) Equals the difference between the yield on average earning-assets and the cost of average interest-bearing liabilities. (2) Equals total interest-earning assets less total interest-bearing liabilities. (3) Equals net interest income divided by average interest-earning assets. 34 Table of Contents Rate/Volume Analysis . The following table shows the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in volume, which is the change in volume multiplied by prior year rate. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume. Years Ended December 31, 2024 vs. 2023 Total Increase (Decrease) Due to Increase Volume Rate (Decrease) (Dollars in thousands) Interest-earning assets: Loans $ 1,174 $ 1,251 $ 2,425 Federal funds sold and interest-bearing deposits in other banks 1,144 121 1,265 Time deposits in other banks (46 ) 37 (9 ) Investment securities (913 ) (206 ) (1,119 ) FHLB of Chicago stock 1 13 14 Total interest-earning assets $ 1,360 $ 1,216 $ 2,576 Interest-bearing liabilities: Interest-bearing demand $ (1 ) $ — $ (1 ) Money market (40 ) 10 (30 ) Savings (7 ) 1 (6 ) Time deposit 560 1,141 1,701 Total interest-bearing deposits $ 512 $ 1,152 $ 1,664 Other borrowings 75 (4 ) 71 Total interest-bearing liabilities $ 587 $ 1,148 $ 1,735 Change in net interest income $ 773 $ 68 $ 841 Comparison of Operating Results for the Years Ended December 31, 2024 and 2023 General. For the year ended December 31, 2024, we had a net loss of $789,000, compared to a net loss of $4.0 million for the year ended December 31, 2023. The decrease in net loss for the year-ended December 31, 2024 is primarily due to a loss on sale of securities and a valuation allowance on the deferred tax assets recognized in 2023 which did not occur in 2024. Additionally, net interest income after provision for credit losses increased $946,000, and the gain on sale of loans increased $1.2 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. However, the increase in noninterest expenses of $1.9 million during year ended December 31, 2024 compared to December 31, 2023 partially offsets the decrease in net loss. Net Interest Income. Net interest income increased $841,000, to $7.1 million for year ended December 31, 2024 compared to $6.2 million for the year ended December 31, 2023. Our interest rate spread decreased to 2.29% for the year ended December 31, 2024 from 2.33% for the year ended December 31, 2023. Our net interest margin increased to 2.86% for the year ended December 31, 2024 compared to 2.64% for the year ended December 31, 2023. The decrease in interest rate spread is driven by an increased average balance of higher earning interest-bearing liabilities, specifically interest-bearing deposits, as a percentage of total assets. The increase in the interest margin is driven by an increase in yields earned on loans and interest-bearing deposits in other banks. Average interest-earning assets of $247.2 million for the year ended December 31, 2024 increased $11.9 million compared to $235.3 million for the year ended December 31, 2023. The increase in average earning assets was driven by an increase in loans and interest-bearing deposits at other banks, funded by an increase in average deposit balances during the year and reduction in investment securities. The average outstanding balance of loans, net increased to $133.2 million for the year ended December 31, 2024, an increase of $25.8 million from $107.4 million for the year ended December 31, 2023. Additionally, the average yield earned on those loans outstanding increased 103 basis points to 5.09% for the year ended December 31, 2024. This increase is a result of an overall increase in market rates on mortgage loans originated during 2024, as well as increased loan demand for specialty portfolio products which are originated at higher interest rates and with additional origination fees. The cost of interest-bearing liabilities increased 93 basis points for the year ended December 31, 2024 compared to the year ended December 31, 2023. The net increase in our funding costs was primarily due to an increase in rates offered on time deposit accounts to remain competitive with the local market. Provision for Credit Losses. During the year ended December 31, 2024, we recorded a provision for credit losses of $71,000, comprised of $25,000 provision for credit losses on loans and $46,000 provision for credit losses related to unfunded commitments. We will continue to assess and evaluate the estimated future credit loss impact of current market conditions in subsequent reporting periods, which will be highly dependent on credit quality, macroeconomic forecasts and conditions, as well as the composition of our loan and available-for-sale securities portfolios. 35 Table of Contents Noninterest Income . The following table shows the components of noninterest income for the periods presented. For the Year Ended December 31, 2024 2023 (Dollars in thousands) Noninterest income: Gain on sale of mortgage loans $ 1,245 $ 32 Loss on sale of securities — (1,794 ) Rental income on office building 64 64 Service charges on deposits 256 270 Increase in cash surrender value of BOLI 220 192 Other 156 86 Total noninterest income $ 1,941 $ (1,150 ) For the year ended December 31, 2024 compared to the same period ended December 31, 2023, noninterest income increased $3.1 million to $1.9 million. The increase was driven by an increase in the gain on sale of mortgage loans and no loss on sale of securities during the year ended December 31, 2024. Gain on sale of mortgage loans increased $1.2 million, from $32,000 to $1.2 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase in gain on sale of mortgages was primarily the result of an overall increase in total mortgage loans originated during the period. During the year ended December 31, 2024, we sold 199 loans totaling $53.1 million for a gain on sale of $1.2 million. Included in the number and amount of loans sold during the period were loans sold that were originated as held for investment, but subsequently sold to local community banks, totaling $8.4 million, for a total gain on sale of $352,000. Management continues to look for opportunities and markets to sell loans as we continue to see increased loan production compared to prior years. Noninterest Expense . The following table shows the components of noninterest expense for the periods presented. For the year ended December 31, 2024 2023 (Dollars in thousands) Noninterest expense: Salaries and employee benefits $ 5,939 $ 4,554 Equipment and occupancy 782 739 Data processing 884 684 Professional services 513 601 Advertising 286 104 Supervisory fees and assessments 142 140 Loan expenses 212 117 Deposit expenses 239 217 Director fees 215 216 Other 508 480 Total noninterest expense $ 9,720 $ 7,852 Noninterest expenses increased $1.8 million for the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase in noninterest expenses was primarily driven by increases in salaries and employee benefits. The average number of employees increased to 50 for the year ended December 31, 2024 compared to 39 for the year ended December 31, 2023. The increase in headcount is based on the addition of the Oak Leaf Community Mortgage team brought on during the fourth quarter of 2023 as well as additional hires during 2024 to supplement the lending team as operations continue to expand. Additionally, the Company implemented the 2023 Equity Incentive Plan on June 15, 2023, and began recognizing expenses associated with this plan in June 2023, as such expenses were higher for the year ended 2024 compared to 2023. Marketing and advertising costs increased during 2024 as a result of an increased focus on lending operations and related marketing to our new lending area, Will County, Illinois. Data processing expenses increased as we have continued to invest in systems and processes to improve the lending experience for our customers as well as implement efficiencies within our internal processes. Additionally, certain data processing expenses are based on per employee costs, which increased due to an increase in headcount. Loan expenses increased as a result of an increase in loan originations during the year. Equipment and occupancy costs increased as a result of two additional loan production office rental agreements in place during 2024 that were not in place during the first nine months of 2023. Management intends to continue to invest in the people and processes in place to achieve efficiencies as loan production continues to grow. 36 Table of Contents Provision for Income Tax Expense. During the year ended December 31, 2024, the Bank recorded no income tax expense. The change in valuation allowance of $389,000 was offset by an equal deferred tax benefit. Federal net operating losses as of December 31, 2024 are $6.7 million, of which $1.3 million is subject to expire in 2027, the remainder does not expire. During the year ended December 31, 2024, management assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing net operating losses. A significant piece of objective negative evidence evaluated is the cumulative taxable loss incurred over the four-year period ended December 31, 2024. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 31, 2024, a full valuation allowance of $2.5 million, against the net deferred tax assets has been recorded. Additionally, due to the uncertainty that the Bank will be able to generate future state taxable income sufficient to utilize the net operating loss carryforwards, a full valuation allowance of $515,000 has been recorded on the related deferred tax asset. There were no uncertain tax positions outstanding as of December 31, 2024 and 2023 . As of December 31, 2024 , tax years remaining open for State of Illinois and Wisconsin were 2020 through 2023. Federal tax years that remained open were 2021 through 2023. As of December 31, 2024 , there were also no unrecognized tax benefits that are expected to significantly increase or decrease within the next twelve months. Exposure to Changes in Interest Rates Our ability to maintain net interest income depends upon our ability to earn a higher yield on interest-earning assets than the rates we pay on deposits and borrowings. Our interest-earning assets consist primarily of securities available-for-sale and long-term residential and commercial mortgage loans, which generally have fixed rates of interest. Consequently, our ability to maintain a positive spread between the interest earned on assets and the interest paid on deposits and borrowings will be adversely affected as market rates of interest continue to rise. Net Portfolio Value Analysis . Our interest rate sensitivity is monitored by management through the use of models which generate estimates of the change in its net portfolio value ("NPV") over a range of interest rate scenarios. NPV represents the market value of portfolio equity, which is different from book value, and is equal to the market value of assets minus the market value of liabilities (that is, the difference between incoming and outgoing discounted cash flows of assets and liabilities) with adjustments made for off-balance sheet items. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The OCC provides a quarterly report on the potential impact of interest rate changes upon the market value of portfolio equity. Management reviews the quarterly reports from the OCC, which show the impact of changing interest rates on net portfolio value. The following table sets forth our NPV as of December 31, 2024 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated. Change in Interest NPV as % of Rates In Basis Points Net Portfolio Value Portfolio Value of Assets (Rate Shock) Amount $ Change % Change NPV Ratio Change (Dollars in thousands) 300bp $ 58,410 $ (13,279 ) (18.5 )% 23.4 % (2.9 )% 200 62,836 (8,853 ) (12.3 )% 24.5 % (1.8 )% 100 67,257 (4,432 ) (6.2 )% 25.4 % (0.9 )% Static 71,689 — — 26.3 % — -100 74,513 2,824 3.9 % 26.6 % 0.3 % -200 77,262 5,573 7.8 % 26.7 % 0.4 % Net Interest Income Analysis . In addition to modeling changes in NPV, we also analyze potential changes to net interest income (“NII”) for a 12-month period under rising and falling interest rate scenarios. The following table shows our NII model as of December 31, 2024 . Change in Interest Rates in Basis Points Net Interest (Rate Shock) Income $ Change % Change (Dollars in thousands) 300bp $ 7,102 $ 173 2.5 % 200 7,186 257 3.7 % 100 7,127 198 2.9 % Static 6,929 — 0.0 % -100 6,585 (344 ) (5.0 )% -200 6,245 (684 ) (9.9 )% The table above indicates that as of December 31, 2024 , in the event of an immediate and sustained 300 basis point increase in interest rates, our net interest income for the twelve months ending December 31, 2025 would be expected to increase by $173,000, or 2.5% to $7.1 million. Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The above table assumes that the composition of our interest sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our NPV and will differ from actual results. 37 Table of Contents Liquidity and Capital Resources North Shore Trust and Savings maintains levels of liquid assets deemed adequate by management. We adjust our liquidity levels to fund deposit outflows, repay our borrowings, and to fund loan commitments. We also adjust liquidity, as appropriate, to meet asset and liability management objectives. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from the sale and maturities of securities. We also have the ability to borrow from the FHLB of Chicago and a $10.0 million unsecured Fed Funds facility with BMO Harris Bank. 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, we had no outstanding balance with BMO Harris Bank. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $9.4 million and $431,000 for the years ended December 31, 2024 and 2023 , respectively. Net cash (used in) or provided by investing activities, which consists primarily of net change in loans receivable and net change in investment securities, was $(8.2) million and $25.0 million for the years ended December 31, 2024 and 2023 , respectively. Net cash provided by (used in) financing activities, consisting primarily of the activity in deposit accounts and FHLB of Chicago advances, was $20.8 million and $(7.1) million for the years ended December 31, 2024 and 2023 , respectively. We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Time deposits that are scheduled to mature in less than one year from December 31, 2024 , totaled $63.6 million. While we historically have experienced strong deposit retention, many of the new time deposits were brought in with a growth pricing strategy. As such, we expect a decrease in the time deposits as these mature during 2025. However, if a substantial portion of these deposits is not retained, we may utilize FHLB of Chicago advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. As of December 31, 2024 , North Shore Trust and Savings was well capitalized under the regulatory framework for prompt corrective action. During the year ended December 31, 2020, North Shore Trust and Savings elected to begin using the CBLR. Under CBLR, if a qualifying depository institution or depository institution holding company elects to use such measure, such institution or holding company will be considered well capitalized if its ratio of Tier 1 capital to average total consolidated assets (i.e., leverage ratio) exceeds 9%, subject to a limited two quarter grace period, during which the leverage ratio cannot go 100 basis points below the then applicable threshold, and will not be required to calculate and report risk-based capital ratios. North Shore Trust and Savings’ Tier 1 capital to Average Assets was 23.53% and 24.72% at December 31, 2024 and 2023 , respectively. Commitments . At December 31, 2024 , we had $1.1 million of outstanding commitments to originate loans. Our total letters and lines of credit and unused lines of credit totaled $9.0 million at December 31, 2024 . The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans at December 31, 2024 . Total Amounts Committed at Amount of Commitment Expiration – Per Period December 31, 2024 To 1 Year 1-3 Years 4-5 Years After 5 Years (Dollars in thousands) Unused line of credit $ 8,950 $ 254 $ 1,360 $ 765 $ 6,571 Commitments to originate loans 1,109 1,109 — — — Total commitments $ 10,059 $ 1,363 $ 1,360 $ 765 $ 6,571 38 Table of Contents Cash Obligations . The following table summarizes our cash obligations at December 31, 2024 . Total at Payments Due By Period December 31, 2024 To 1 Year 1-3 Years 4-5 Years After 5 Years (Dollars in thousands) Time deposits $ 92,819 $ 63,630 $ 15,246 $ 13,943 $ — Other borrowings 5,000 5,000 — — — Total cash obligations $ 97,819 $ 68,630 $ 15,246 $ 13,943 $ — Impact of Inflation and Changing Prices The financial statements and related financial data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which generally require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of our assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on our performance than does the effect of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates. Current Accounting Developments In March 2024, the FASB issued ASU No. 2024-01, “Compensation—Stock Compensation (Topic 718): Scope Applications of Profits Interests and Similar Awards” (ASU 2024-01). ASU 2024-01 adds an example to Topic 718 which illustrates how to apply the scope guidance to determine whether profits interests and similar awards should be accounted for as share-based payment arrangements under Topic 718 or under other U.S. GAAP. ASU 2024-01 is effective for annual periods beginning after December 15, 2025, although early adoption is permitted. Upon adoption, ASU 2024-01 is not expected to have an impact on the Company’s consolidated balance sheets or consolidated statements of income. On November 27, 2023, the FASB issued ASU 2023-07, "Segment Reporting (ASC 280): Improvements to Reportable Segment Disclosures", intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. Provisions in the amendment include: (1) Requirement that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss (collectively referred to as the "significant expense principle"); (2) Requirement that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss; (3) Requirement that a public entity provide all annual disclosures about a reportable segment's profit or loss and assets currently required by ASC 280 in interim periods; (4) Clarification that if the CODM uses more than one measure of a segment's profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity's consolidated financial statements; (5) Requirement that a public entity disclose the title and position of the CODM and explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources; and (6) Requirement that a public entity that has a single reportable segment provide all the disclosures by the amendments in the update and all existing segment disclosures in ASC 280. The amendments in the update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. For public business entities, amendments in the update should be applied retrospectively to all periods presented in the financial statements, and upon transition the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company adopted this standard effective January 1, 2024, and did not have a material impact on the consolidated financial statements. On December 14, 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. The amendments require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation, and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). The amendments require that all entities disclose on an annual basis the following information about income taxes paid: (1) The amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes, and (2) The amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amendments also require that all entities disclose the following information: (1) Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign, and (2) Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. The ASU is effective for public business entities for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied on a prospective basis. Retrospective application is permitted. The Company will adopt this ASU for the reporting period beginning January 1, 2025, and does not expect the amendments to have a material impact to the financial statements of the Company. 39 Table of Contents Item 7A. Quantitative and Qualitative Disclosures About Market Risk For information regarding market risk, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Exposure to Changes in Interest Rates”. Item 8. Financial Statements and Supplementary Data The consolidated Financial Statements of NSTS Bancorp, Inc. and its consolidated subsidiaries begins on page 46 of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 40 Table of Contents