UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
For the quarterly period ended
Or
Commission File Number
NSTS BANCORP, INC.
(Exact name of the registrant as specified in its charter)
| | | |
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification Number) | |
| | | |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☒ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of May 8, 2025, the Registrant had
Form 10Q
Index
| PART I. |
2 | |
| ITEM 1. |
2 | |
| 2 | ||
| 3 | ||
| 4 | ||
| 5 | ||
| 6 | ||
| 7 | ||
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
25 |
| ITEM 3. |
35 | |
| ITEM 4. |
36 | |
| PART II. |
36 | |
| ITEM 1. |
36 | |
| ITEM 1A. |
36 | |
| ITEM 2. |
36 | |
| ITEM 3. |
36 | |
| ITEM 4. |
36 | |
| ITEM 5. |
36 | |
| ITEM 6. |
37 | |
| 38 | ||
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
| March 31, 2025 | ||||||||
| (unaudited) | December 31, 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Assets: | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Interest-bearing bank deposits | ||||||||
| Cash and cash equivalents | ||||||||
| Time deposits with other financial institutions | ||||||||
| Securities available for sale | ||||||||
| Federal Home Loan Bank stock (FHLB) | ||||||||
| Loans held for sale | ||||||||
| Loans, net of unearned income | ||||||||
| Allowance for credit losses on loans | ( | ) | ( | ) | ||||
| Loans, net | ||||||||
| Premises and equipment, net | ||||||||
| Accrued interest receivable | ||||||||
| Bank-owned life insurance (BOLI) | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities: | ||||||||
| Deposits: | ||||||||
| Noninterest bearing | $ | $ | ||||||
| Interest-bearing | ||||||||
| Demand and NOW checking | ||||||||
| Money market | ||||||||
| Savings | ||||||||
| Time deposits over $250,000 | ||||||||
| Other time deposits | ||||||||
| Total deposits | ||||||||
| Escrow deposits | ||||||||
| Other borrowings | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| Stockholders' equity: | ||||||||
| Common Stock ($ par value; shares authorized; shares outstanding at March 31, 2025 and shares at December 31, 2024) | ||||||||
| Treasury Stock, at cost ( shares at March 31, 2025 and December 31, 2024) | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Unallocated common shares held by ESOP | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss, net | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
See accompanying notes to consolidated unaudited financial statements
Consolidated Statements of Operations (unaudited)
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Interest income: | ||||||||
| Loans, including fees | $ | $ | ||||||
| Securities | ||||||||
| Taxable | ||||||||
| Tax-exempt | ||||||||
| Federal funds sold and other | ||||||||
| Time deposits with other financial institutions | ||||||||
| FHLB Stock | ||||||||
| Total interest income | ||||||||
| Interest expense: | ||||||||
| Deposits | ||||||||
| Other borrowings | ||||||||
| Total interest expense | ||||||||
| Net interest income | ||||||||
| Reversal of provision for credit losses | ( | ) | ( | ) | ||||
| Net interest income after reversal of provision for credit losses | ||||||||
| Noninterest income: | ||||||||
| Gain on sale of mortgage loans | ||||||||
| Rental income on office building | ||||||||
| Service charges on deposits | ||||||||
| Increase in cash surrender value of BOLI | ||||||||
| Other non-interest income | ||||||||
| Total noninterest income | ||||||||
| Noninterest expense: | ||||||||
| Salaries and employee benefits | ||||||||
| Equipment and occupancy | ||||||||
| Data processing | ||||||||
| Professional services | ||||||||
| Advertising | ||||||||
| Supervisory fees and assessments | ||||||||
| Loan expenses | ||||||||
| Deposit expenses | ||||||||
| Director fees | ||||||||
| Other non-interest expense | ||||||||
| Total noninterest expense | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding | ||||||||
See accompanying notes to consolidated unaudited financial statements
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
| For the three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Unrealized net holding gain (loss) on securities | ||||||||
| Unrealized net holding gain (loss) on securities arising during period | ( | ) | ||||||
| Tax effect | ( | ) | ||||||
| Other comprehensive income (loss), net of taxes | ( | ) | ||||||
| Comprehensive income (loss) | $ | $ | ( | ) | ||||
See accompanying notes to consolidated unaudited financial statements
Consolidated Statements of Stockholders’ Equity (unaudited)
| Common Shares | Common Stock | Treasury Stock | Additional Paid-In Capital | Retained earnings | Accumulated other comprehensive loss | Unallocated Common Shares Held by ESOP | Total | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| Quarter ended March 31, 2024 | ||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| ESOP shares committed to be released | — | ( | ) | |||||||||||||||||||||||||||||
| Compensation cost for stock options and restricted stock | — | |||||||||||||||||||||||||||||||
| Change in net unrealized loss on securities available for sale, net | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Quarter ended March 31, 2025 | ||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| ESOP shares committed to be released | — | |||||||||||||||||||||||||||||||
| Forfeiture of restricted stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Compensation cost for stock options and restricted stock | — | |||||||||||||||||||||||||||||||
| Change in net unrealized loss on securities available for sale, net | — | |||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
See accompanying notes to consolidated unaudited financial statements
Consolidated Statements of Cash Flows (unaudited)
| For the three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Securities amortization and accretion, net | ||||||||
| Loans originated for sale | ( | ) | ( | ) | ||||
| Proceeds from sales of loans held for sale | ||||||||
| Gain on sale of mortgage loans | ( | ) | ( | ) | ||||
| Reversal of provision for credit losses | ( | ) | ( | ) | ||||
| Earnings on bank owned life insurance | ( | ) | ( | ) | ||||
| ESOP expense | ||||||||
| Stock based compensation | ||||||||
| Change in deferred income taxes | ( | ) | ||||||
| Net change in accrued interest receivable and other assets | ( | ) | ||||||
| Net change in accrued expenses and other liabilities | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Net change in portfolio loans | ( | ) | ||||||
| Principal repayments on mortgage-backed securities | ||||||||
| Maturities and calls of securities available for sale | ||||||||
| Purchases of premises and equipment, net | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Net change in deposits | ||||||||
| Net change in escrow deposits | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Loans transferred to held for sale from portfolio, net | ||||||||
See accompanying notes to consolidated unaudited financial statements
Notes to the Unaudited Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and conform to practices within the banking industry. The accounting policies followed in the preparation of the interim consolidated financial statements are consistent with those used in the preparation of the annual financial statements. The interim consolidated financial statements reflect all normal and recurring adjustments that are necessary, in the opinion of management, for fair statement of results for the interim periods presented. Results for the three month period ended March 31, 2025, are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.
Nature of Operations
NSTS Bancorp, Inc. (“NSTS” or the “Company”, “we” or “our”) was formed to serve as the stock holding company for North Shore Trust and Savings (the “Bank”) in connection with the conversion of North Shore Trust and Savings, NSTS Financial Corporation and North Shore MHC, into the stock form of organization, which was completed on January 18, 2022. Shares of NSTS Bancorp, Inc. stock began trading on January 19, 2022 on the Nasdaq Capital Market under the trading symbol "NSTS."
The Bank operates primarily out of three bank branch locations in the northern suburbs of Chicago, Illinois. In efforts to expand our loan originations within the Chicagoland area, the Bank also has three loan production offices, located in Chicago, Aurora and Plainfield, Illinois. The lending team operates as Oak Leaf Community Mortgage, powered by North Shore Trust and Savings. The Bank offers a variety of financial services to customers in our surrounding communities. Financial services consist primarily of 1-4 family mortgage loans, savings accounts, and certificate of deposit accounts. There are no significant concentrations of loans to any one industry or customer. The Bank’s exposure to credit risk is significantly affected by changes in the economy in the Bank’s market area.
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements were prepared in accordance with GAAP and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with NSTS Bancorp, Inc.’s Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. The unaudited Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may vary from those estimates. Material estimates that could significantly change in the near-term include the adequacy of the allowance for credit losses, determination of the valuation allowance on deferred tax assets and the valuation of investment securities and the related tax effect. The results of operations for the three months ended March 31, 2025, are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending December 31, 2025. Certain amounts in prior year financial statements have been reclassified to conform to the current presentation. Subsequent events have been evaluated through the date of issuance of the unaudited Consolidated Financial Statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.
All of the Company’s financial results are similar and considered by management to be aggregated into
Financial performance is reported to the CODM monthly, and the primary measure of performance is consolidated net income. The allocation of resources throughout the Company is determined annually based upon consolidated net income performance. The presentation of financial performance to the CODM is consistent with amounts and financial statement line items shown in the Company's consolidated balance sheets and consolidated statements of operations. Additionally, the Company's significant expenses are adequately segmented by category and amount in the consolidated statements of operations to include all significant items when considering both qualitative and quantitative factors. Significant expenses of the Company include salaries and employee benefits, equipment and occupancy expense, data processing, professional services and advertising.
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 operations.
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, and does not expect the amendments to have a material impact to the annual financial statements of the Company.
Note 2: Securities Available for Sale
The amortized cost and estimated fair value of debt securities at March 31, 2025 and December 31, 2024, by contractual maturity, are shown below. The accrued interest receivable for securities available for sale was $
| March 31, 2025 | U.S. government agency obligations | Municipal obligations | Mortgage-backed residential obligations | Collateralized mortgage obligations | Total available-for-sale | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| 1 year or less | $ | $ | $ | $ | $ | |||||||||||||||
| 1 to 5 years | ||||||||||||||||||||
| 5 to 10 years | ||||||||||||||||||||
| After 10 years | ||||||||||||||||||||
| Fair value | ||||||||||||||||||||
| Gross unrealized gains | ||||||||||||||||||||
| Gross unrealized losses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Amortized cost | $ | $ | $ | $ | $ | |||||||||||||||
| December 31, 2024 | U.S. government agency obligations | Municipal obligations | Mortgage-backed residential obligations | Collateralized mortgage obligations | Total available-for-sale | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| 1 year or less | $ | $ | $ | $ | $ | |||||||||||||||
| 1 to 5 years | ||||||||||||||||||||
| 5 to 10 years | ||||||||||||||||||||
| After 10 years | ||||||||||||||||||||
| Fair value | ||||||||||||||||||||
| Gross unrealized gains | ||||||||||||||||||||
| Gross unrealized losses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Amortized cost | $ | $ | $ | $ | $ | |||||||||||||||
As of March 31, 2025, and December 31, 2024, securities were pledged to secure public deposits or for other purposes as required or permitted by law.
Information pertaining to securities with gross unrealized losses at March 31, 2025 and December 31, 2024, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows:
| Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
| Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
| March 31, 2025 | ||||||||||||||||||||||||
| U.S. government agency obligations | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Municipal obligations | ||||||||||||||||||||||||
| Mortgage-backed residential obligations | ||||||||||||||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||
| U.S. government agency obligations | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Municipal obligations | ||||||||||||||||||||||||
| Mortgage-backed residential obligations | ||||||||||||||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
At March 31, 2025 and December 31, 2024, all investment securities were in unrealized loss positions. There were no securities with identified credit losses at March 31, 2025 and December 31, 2024, respectively. Unrealized losses have not been recognized into income because, based on management's evaluation, the decline in fair value is largely due to increased market rates, temporary market conditions and trading spreads, and, as such, are considered to be temporary by the Bank. In addition, management has the intent and ability to hold the securities until they mature or they recover their carrying values.
All U.S. government agency obligations, mortgage-based residential obligations and collateralized mortgage obligations are agency-issued or government-sponsored enterprise issued. Agency-issued securities are generally guaranteed by a U.S. government agency, such as the Government National Mortgage Association. Government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, or the Small Business Administration, have either a direct or implied guarantee by the U.S. government.
The Bank holds two classifications of municipal bonds, general obligation bonds and revenue bonds. General obligation bonds are backed by the general revenue of the issuing municipality, while revenue bonds are supported by a specific revenue source. All general obligation and revenue bonds have a bond rating of investment grade by Standard and Poor's or Moody's Investor Services or are not rated. There have been no declines in investment grades on bonds in a loss position and, as of March 31, 2025, all municipal bonds are paying as agreed.
There were sales of securities available-for-sale during the three months ended March 31, 2025 and 2024.
Note 3: Loans and allowance for credit losses
A summary of loans by major category as of March 31, 2025 and December 31, 2024 is as follows:
| March 31, 2025 | December 31, 2024 | |||||||
| (Dollars in thousands) | ||||||||
| First mortgage loans | ||||||||
| 1-4 family residential | $ | $ | ||||||
| Multi-family | ||||||||
| Commercial | ||||||||
| Construction | ||||||||
| Total first mortgage loans | ||||||||
| Consumer loans | ||||||||
| Total loans | ||||||||
| Net deferred loan costs | ||||||||
| Allowance for credit losses on loans | ( | ) | ( | ) | ||||
| Total loans, net | $ | $ | ||||||
First mortgage loans serviced for others are not included in the accompanying balance sheets. The unpaid principal balance of these loans totaled $
The accrued interest receivable for loans, net, was $
In the normal course of business, loans are made by the Bank to directors and officers of the Company and the Bank (related parties). The terms of these loans, including interest rate and collateral, are similar to those prevailing for comparable transactions with other customers and do not involve more than a normal risk of collectability. At March 31, 2025 and December 31, 2024, such borrowers were indebted to the Bank in the aggregate amount of $
The following tables present the activity in the allowance for credit losses ("ACL") for the three months ended March 31, 2025 and 2024:
| March 31, 2025 | ||||||||||||||||||||||||
| 1-4 family | ||||||||||||||||||||||||
| residential | Multi-family | Commercial | Construction | Consumer | Total | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Three months ended | ||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Net recoveries (charge-offs) | ||||||||||||||||||||||||
| Release of provision for credit losses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| March 31, 2024 | ||||||||||||||||||||||||
| 1-4 family | ||||||||||||||||||||||||
| residential | Multi-family | Commercial | Construction | Consumer | Total | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| Three months ended | ||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Net recoveries (charge-offs) | ||||||||||||||||||||||||
| (Release of) Provision for credit losses | ( | ) | ( | ) | ||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The ACL on loans excludes $
As of March 31, 2025, there was one collateral dependent loan totaling $
The Bank evaluates collectability based on payment activity and other factors. The Bank uses a graded loan rating system as a means of identifying potential problem loans, as follows:
Pass
Loans in these categories are performing as expected with low to average risk.
Special Mention
Loans in this category are internally designated by management as “watch loans.” These loans are starting to show signs of potential weakness and are closely monitored by management.
Substandard
Loans in this category are internally designated by management as “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the paying capacity of the obligors or the current net worth of the collateral pledged. Substandard loans present a distinct possibility that the Bank will sustain losses if such weaknesses are not corrected.
Doubtful
Loans classified as doubtful have all the weaknesses inherent in those designated as “substandard” with the added characteristic that the weaknesses may make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.
On an annual basis, or more often if needed, the Bank formally reviews the ratings on commercial loans. In addition, the Bank performs an independent review of a significant portion of the commercial loan portfolio. Management uses the results of the independent review as part of its annual review process.
The following tables present the credit risk profile of the Company's loan portfolio based on risk rating category and year of origination as of March 31, 2025 and December 31, 2024.
| As of March 31, 2025 | ||||||||||||||||||||||||||||||||||||
| Term loans amortized cost basis by origination year | ||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving loans amortized cost basis | Revolving loans converted to term loans amortized cost basis | Total | ||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
| 1-4 family residential | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total 1-4 family residential | ||||||||||||||||||||||||||||||||||||
| Current year-to-date gross write-offs | ||||||||||||||||||||||||||||||||||||
| Multi-family | ||||||||||||||||||||||||||||||||||||
| Pass | $ | |||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total multi-family | ||||||||||||||||||||||||||||||||||||
| Current year-to-date gross write-offs | ||||||||||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||||||
| Pass | $ | |||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total commercial | ||||||||||||||||||||||||||||||||||||
| Current year-to-date gross write-offs | ||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||
| Pass | $ | |||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total construction | ||||||||||||||||||||||||||||||||||||
| Current year-to-date gross write-offs | ||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||
| Pass | $ | |||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total consumer | ||||||||||||||||||||||||||||||||||||
| Current year-to-date gross write-offs | ||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||
| Current year-to-date gross write-offs | ||||||||||||||||||||||||||||||||||||
| As of December 31, 2024 | ||||||||||||||||||||||||||||||||
| Term loans amortized cost basis by origination year | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2021 | Prior | Revolving loans amortized cost basis | Revolving loans converted to term loans amortized cost basis | Total | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| 1-4 family residential | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total 1-4 family residential | ||||||||||||||||||||||||||||||||
| Current year-to-date gross write-offs | ||||||||||||||||||||||||||||||||
| Multi-family | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total multi-family | ||||||||||||||||||||||||||||||||
| Current year-to-date gross write-offs | ||||||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total commercial | ||||||||||||||||||||||||||||||||
| Current year-to-date gross write-offs | ||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total construction | ||||||||||||||||||||||||||||||||
| Current year-to-date gross write-offs | ||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total consumer | ||||||||||||||||||||||||||||||||
| Current year-to-date gross write-offs | ||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||
| Current year-to-date gross write-offs | ||||||||||||||||||||||||||||||||
The aging of the Bank’s loan portfolio as of March 31, 2025 and December 31, 2024, is as follows:
| 31-89 Days Past Due and Accruing | Greater than 90 Days Past Due and Accruing | Non-Accrual | Total Past Due and Non-Accrual | Current | Total Loan Balance | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| March 31, 2025 | ||||||||||||||||||||||||
| 1-4 family residential | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Multi-family | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||
| 1-4 family residential | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Multi-family | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following table presents the amortized cost basis of loans on nonaccrual status recorded at March 31, 2025, December 31, 2024 and January 1, 2024. There was
| March 31, 2025 | December 31, 2024 | January 1, 2024 | ||||||||||||||||||||||
| Nonaccrual with no Allowance for Credit Losses | Total Nonaccrual | Nonaccrual with no Allowance for Credit Losses | Total Nonaccrual | Nonaccrual with no Allowance for Credit Losses | Total Nonaccrual | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
| First mortgage loans | ||||||||||||||||||||||||
| 1-4 family residential | $ | 263 | $ | 263 | $ | — | $ | — | $ | 200 | $ | 200 | ||||||||||||
| Multi-family | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||
| Consumer loans | ||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The Bank may modify loans to borrowers experiencing financial difficulty by providing modifications to repayment terms; more specifically, modifications to loan interest rates. Management performs an analysis at the time of loan modification. Any reserve required is recorded through a provision to the allowance for credit losses on loans. There were
Note 4: Deposits
As of March 31, 2025 the scheduled maturities of time deposits are as follows:
| For the 12 months ended | ||||
| March 31, | Amount | |||
| (Dollars in thousands) | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 and beyond | ||||
| Total | $ | |||
In the normal course of business, deposit accounts are held by directors and executive officers of the Company and the Bank (related parties). The terms for these accounts, including interest rates, fees, and other attributes, are similar to those prevailing for comparable transactions with other customers and do not involve more than the normal level of risk associated with deposit accounts. At March 31, 2025 and December 31, 2024, total deposits held by directors and officers of the Company and the Bank were $
Note 5: Other Borrowings
There were no additional borrowings made during the three months ended March 31, 2025 and March 31, 2024. In June 2023, the Company borrowed $
The following table shows certain information regarding our borrowings at or for the dates indicated:
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| FHLB of Chicago advances and other borrowings: | ||||||||
| Average balance outstanding | $ | $ | ||||||
| Maximum amount outstanding at any month-end during the period | ||||||||
| Average interest rate during the period | % | % | ||||||
| March 31, 2025 | December 31, 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Balance outstanding at end of period | ||||||||
| Weighted average interest rate at end of period | % | % | ||||||
The eligible borrowings are collateralized by $
The following table shows the outstanding advances, additional borrowing capacity and total borrowing capacity from the FHLB Chicago at the dates presented.
| March 31, 2025 | December 31, 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Outstanding advances | $ | $ | ||||||
| Additional borrowing capacity | ||||||||
| Total borrowing capacity | $ | $ | ||||||
Additionally, at March 31, 2025 and December 31, 2024, we had a $
Note 6: Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:
| Level 1 | Quoted prices in active markets for identical assets or liabilities |
| Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities |
| Level 3 | Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities |
An asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at March 31, 2025 or December 31, 2024.
Securities available for sale (Recurring)
Where quoted market prices are available in an active market, securities such as U.S. Treasuries, would be classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities would be classified within Level 3 of the hierarchy.
Individually Evaluated (Nonrecurring)
Individually evaluated loans are recorded at fair value on a nonrecurring basis. The fair value of loans is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made
in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Individually evaluated loans are evaluated on a quarterly basis for additional credit losses and adjusted accordingly.
The following table presents the Bank’s assets that are measured at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of March 31, 2025 and December 31, 2024:
| Fair Value Measurements Using | ||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| March 31, 2025 | ||||||||||||||||
| Securities available-for-sale | ||||||||||||||||
| U.S. government agency obligations | $ | $ | $ | $ | ||||||||||||
| Municipal obligations | ||||||||||||||||
| Mortgage-backed residential obligations | ||||||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| December 31, 2024 | ||||||||||||||||
| Securities available-for-sale | ||||||||||||||||
| U.S. government agency obligations | $ | $ | $ | $ | ||||||||||||
| Municipal obligations | ||||||||||||||||
| Mortgage-backed residential obligations | ||||||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The Bank may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with accounting principles generally accepted in the United States of America. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. There were no assets measured at fair value on a nonrecurring basis as of March 31, 2025 and December 31, 2024.
Note 7: Fair Value of Financial Instruments
Financial instruments are classified within the fair value hierarchy using the methodologies described in Note 6 – Fair Value Measurements. The following disclosures include financial instruments that are not carried at fair value on the Consolidated Balance Sheets. The calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.
Certain financial instruments generally expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market. The carrying value of these financial instruments assumes to approximate the fair value of these instruments. These instruments include cash and cash equivalents, non-interest bearing deposit accounts, time deposits with other financial institutions, FHLB stock, escrow deposits and accrued interest receivable and payable.
| Carrying | Estimated | |||||||||||||||||||
| Amount | Level 1 | Level 2 | Level 3 | Fair Value | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| March 31, 2025 | ||||||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Loans, net | $ | $ | $ | $ | $ | |||||||||||||||
| Loans held for sale | ||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Interest-bearing deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Other Borrowings | ||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Loans, net | $ | $ | $ | $ | $ | |||||||||||||||
| Loans held for sale | ||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Interest-bearing deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Other Borrowings | ||||||||||||||||||||
Note 8: Capital Ratios
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under accounting principles generally accepted in the United States of America, regulatory reporting requirements and regulatory capital standards. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulatory reporting standards to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital to risk-weighted assets, common equity Tier 1 capital to total risk-weighted assets and of Tier I capital to average assets, as such individual components and calculations are defined by related standards.
As of March 31, 2025 the most recent notification from the regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification which management believes have changed the Bank’s category. On November 13, 2019, the federal regulators finalized and adopted a regulatory capital rule establishing a community bank leverage ratio (“CBLR”), which became effective on January 1, 2020. The intent of CBLR is to provide a simple alternative measure of capital adequacy for electing qualifying depository institutions and depository institution holding companies, as directed under the Economic Growth, Relief, and Consumer Protection Act. Under CBLR, if a qualifying depository institution or depository institution holding company elects to use such measure, such institution or holding company will be considered well capitalized if its ratio of Tier 1 capital to average total consolidated assets (i.e., leverage ratio) exceeds 9% subject to a limited two quarter grace period, during which the leverage ratio cannot drop 100 basis points below the then applicable threshold, and will not be required to calculate and report risk-based capital ratios. The Bank elected to begin using CBLR for the first quarter of 2020. Management believes, as of March 31, 2025, that the Bank met all capital adequacy requirements to which it was subject.
The Bank’s actual capital amounts and ratios as of March 31, 2025 and December 31, 2024, are presented below:
| Minimum Required to be | ||||||||||||||||
| Actual | Well-Capitalized (1) | |||||||||||||||
| Amount | Ratio | Amount | Ratio | |||||||||||||
| As of March 31, 2025 | (Dollars in thousands) | |||||||||||||||
| Tier 1 capital (to Average Assets) | $ | % | $ | |||||||||||||
| As of December 31, 2024 | ||||||||||||||||
| Tier 1 capital (to Average Assets) | $ | % | $ | |||||||||||||
(1) As defined by regulatory agencies. Failure to exceed the leverage ratio thresholds required under CBLR in the future, subject to any applicable grace period, would require the Bank to return to the risk-based capital ratio thresholds previously utilized under the fully phased-in Basel III Capital Rules to determine capital adequacy.
Note 9: Commitments and Contingencies
In the ordinary course of business, the Bank has various commitments and contingent liabilities that are not reflected in the accompanying financial statements. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the financial position of the Bank.
Financial Instruments
The Bank does not engage in the use of interest rate swaps or futures, forwards or option contracts.
At March 31, 2025 and December 31, 2024, unused lines of credit and outstanding commitments to originate loans were as follows:
| March 31, 2025 | December 31, 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Unused line of credit | $ | $ | ||||||
| Commitments to originate loans | ||||||||
| Total commitments | $ | $ | ||||||
Concentrations of Credit Risk
The Bank generally originates single-family residential loans within its primary lending area. These loans are secured by the underlying properties.
The Bank maintains its cash in deposit accounts at the Federal Reserve Bank or other institutions, the balances of which may exceed federally insured limits. The Bank has not experienced any losses in such accounts. The Bank believes it is not exposed to any significant credit risk on cash and cash equivalents.
Interest Rate Risk
The Bank assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, fair values of its financial instruments will change when interest rate levels change, and that change may be either favorable or unfavorable to the Bank. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the overall interest rate risk.
Litigation
Due to the nature of its business activities, the Bank is at times subject to legal action which arises in the normal course of business. In the opinion of management, the ultimate resolution of these matters is not expected to have a material effect on the financial position or results of operations of the Bank.
Basic EPS represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common shares (such as stock options) were exercised or converted into additional common shares that should then share in the earnings of the entity. Diluted EPS is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period, plus the effect of potential dilutive common share equivalents.
There were securities or other contracts that had a dilutive effect for the three months ended March 31, 2025 and 2024, and therefore the weighted average common shares outstanding used to calculate both basic and diluted EPS are the same. Shares held by the Employee Stock Ownership Plan ("ESOP") that have not been allocated to employees in accordance with the terms of the ESOP, referred to as "unallocated ESOP shares", are not deemed outstanding for EPS calculations.
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| (Income in thousands) | ||||||||
| Net loss applicable to common shares | $ | ( | ) | $ | ( | ) | ||
| Average number of common shares outstanding | ||||||||
| Less: Average unallocated ESOP shares | ||||||||
| Average number of common shares outstanding used to calculate basic loss per common share | ||||||||
| Loss per common share basic and diluted | $ | ( | ) | $ | ( | ) | ||
All unallocated ESOP shares have been excluded from the calculation of basic and diluted EPS. Due to the net loss position, all outstanding share option awards are anti-dilutive and excluded from the computation of diluted earnings per share.
Note 11: Stock Based Compensation
ESOP
Employees participate in an Employee Stock Ownership Plan ("ESOP"). The ESOP borrowed funds from the Company to purchase
There were
Shares held by the ESOP were as follows:
| As of March 31, | ||||||||
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Shares allocated | ||||||||
| Shares committed for allocation | ||||||||
| Shares distributed to plan participants | ( | ) | ||||||
| Unallocated | ||||||||
| Total ESOP shares | ||||||||
| Fair value of unearned shares as of March 31, 2025 and 2024, respectively | $ | $ | ||||||
Fair value of unearned shares is based on a stock price of $
Equity Incentive Plan
At the Company's annual meeting of stockholders held on May 24, 2023, stockholders approved the NSTS Bancorp, Inc. 2023 Equity Incentive Plan (“2023 Equity Plan”), which provides for the granting of up to
Stock options granted under the 2023 Equity Plan generally vest in equal annual installments over a service period of years beginning on the date of grant. The vesting of the options accelerates upon death, disability or following a change in control of the Company. Stock options are generally granted at an exercise price equal to the fair value of the Company’s common stock on the grant date based on the closing market price of the Company's common stock on the date of grant, and have an expiration period of years. As of March 31, 2025, the Company has
The Company recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards. Upon exercise of vested options, management expects to first draw on treasury stock as the source for shares.
The following is a summary of the Company's stock option activity and related information for the periods presented.
| Stock Option | Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value (1) | |||||||||
| Outstanding at December 31, 2023 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited | ||||||||||||
| Outstanding at March 31, 2024 | $ | $ | ||||||||||
| Exercisable - End of Period | ||||||||||||
| Outstanding at December 31, 2024 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited | ||||||||||||
| Outstanding at March 31, 2025 | $ | $ | ||||||||||
| Exercisable - End of Period | ||||||||||||
(1) Dollars in thousands. The aggregate intrinsic value of outstanding and exercisable options at March 31, 2025 and 2024 were calculated based on the closing market price of the Company's common stock of March 31, 2025 and 2024 of $
Expected future expense relating to the non-vested options outstanding as of March 31, 2025 is $
Restricted shares granted under the 2023 Equity Plan generally vest in equal annual installments over a service period of years beginning on the date of grant. The vesting of the awards accelerates upon death, disability or following a change in control of the Company. The product of the number of shares granted and the grant date closing market price of the Company’s common stock determines the fair value of restricted shares under the 2023 Equity Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period.
As of March 31, 2025, the Company has
The following is a summary of the status of the Company's restricted shares as of and for the periods presented.
| Restricted Stock | Shares | Weighted Average Grant Date Fair Value | ||||||
| Nonvested balance as of December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Nonvested balance as of March 31, 2024 | $ | |||||||
| Nonvested balance as of December 31, 2024 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Nonvested balance as of March 31, 2025 | $ | |||||||
Expected future expense related to the non-vested restricted shares outstanding as of period end is $
The following table presents the stock based compensation expense for the periods presented.
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Stock option expense | $ | $ | ||||||
| Restricted stock expense | ||||||||
| Total stock based compensation expense | $ | $ | ||||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section is intended to assist in the understanding of our financial performance through a discussion of our financial condition as of March 31, 2025 and as compared to our financial condition as of December 31, 2024, and our results of operations for the three months ended March 31, 2025 and 2024. This section should be read in conjunction with the unaudited interim consolidated financial statements and notes thereto appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Forward-Looking Statements
This filing contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:
| ● |
statements of our goals, intentions and expectations; |
| ● |
statements regarding our business plans, prospects, growth and operating strategies; |
| ● |
statements regarding the quality of our loan and investment portfolios; and |
| ● |
estimates of our risks and future costs and benefits. |
These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
| ● |
general economic conditions, either nationally or in our market areas, that are different than expected; |
| ● |
changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for credit losses; |
| ● |
fluctuations in real estate values and both residential and commercial real estate market conditions; |
|
|
● |
inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans; |
| ● |
our ability to manage our liquidity and to access cost-effective funding, including significant fluctuations in our deposit accounts; |
| ● |
major catastrophes such as tornadoes, floods or other natural disasters, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies; |
| ● |
further data processing and other technological changes that may be more difficult or expensive than expected; |
| ● |
success or consummation of new business initiatives may be more difficult or expensive than expected; |
| ● |
interruptions involving information technology and communications systems of service providers; |
| ● |
breaches or failures of information security controls or cyber-related incidents; |
| ● |
demand for loans and deposits in our market area; |
| ● |
our ability to continue to implement our business strategies; |
| ● |
competition among depository and other financial institutions; |
| ● |
adverse changes in the securities markets; |
| ● |
changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; |
| ● |
our ability to manage market risk, credit risk and operational risk in the current economic conditions; |
| ● |
our ability to enter new markets successfully and capitalize on growth opportunities; |
| ● |
our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; |
| ● |
changes in consumer spending, borrowing and savings habits; |
| ● |
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; |
| ● |
our ability to hire and retain key employees and our reliance on our executive officers; and |
| ● |
our compensation expense associated with equity allocated or awarded to our employees. |
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
General
On January 18, 2022, NSTS Bancorp, Inc. (“the Company”) became the holding company for North Shore Trust and Savings (“the Bank”) when North Shore MHC completed its conversion into the stock holding company form of organization. Shares of the Company's common stock began trading on January 19, 2022 on the Nasdaq Capital Market under the trading symbol “NSTS.”
NSTS Bancorp, Inc.
NSTS Bancorp, Inc. is a Delaware corporation which was incorporated in September 2021. As a savings and loan holding company, NSTS Bancorp, Inc. is regulated by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”). The Company’s primary business activities relate to owning all of the outstanding shares of capital stock of the Bank.
The unaudited financial statements and other financial information contained in this Quarterly Report on Form 10-Q should be read in conjunction with NSTS Bancorp, Inc.'s Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.
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 also 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 and two additional loan production offices in Aurora and Plainfield, Illinois in 2023, to originate loans outside of our branch network in a more densely populated metropolitan area, which we believe benefits us geographically. The lending team originates loans as Oak Leaf Community Mortgage, powered by North Shore Trust and Savings.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated unaudited interim financial statements for the three months ended March 31, 2025 and 2024, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results could differ from these estimates.
Of the significant accounting policies used in the preparation of our consolidated financial statements, we have identified certain items as critical accounting policies based on the associated estimates, assumptions, judgments and complexity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2024.
Overview
This discussion is intended to focus on certain financial information regarding our consolidated company and may not contain all the information that is important to the reader. The purpose of this discussion is to provide the reader with a more thorough understanding of our financial statements. As such, this discussion should be read carefully and in conjunction with the consolidated financial statements and accompanying notes contained elsewhere in this report.
Our results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on our loan and investment portfolios and interest expense on deposits and borrowings. Our net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. Results of operations are also affected by our provisions for credit losses, fee income and other noninterest income and noninterest expense. Noninterest expense principally consists of compensation, office occupancy and equipment expense, data processing, advertising and business promotion and other expenses. We expect that our noninterest expenses will increase as we grow and expand our operations. Our results of operations and financial condition are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, changes in accounting guidance, government policies and actions of regulatory authorities.
Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances. The table also reflects the yields on the Company’s interest-earning assets and costs of interest-bearing liabilities for the periods shown.
| For the Three Months Ended March 31, |
||||||||||||||||||||||||
| 2025 |
2024 |
|||||||||||||||||||||||
| Average |
Average |
|||||||||||||||||||||||
| Outstanding |
Average Yield/ |
Outstanding |
Average Yield/ |
|||||||||||||||||||||
| Balance |
Interest |
Rate |
Balance |
Interest |
Rate |
|||||||||||||||||||
| (Dollars in thousands) |
||||||||||||||||||||||||
| Interest-earning assets: |
||||||||||||||||||||||||
| Loans, net |
$ | 133,903 | $ | 1,800 | 5.38 | % | $ | 125,335 | $ | 1,475 | 4.71 | % | ||||||||||||
| Federal funds sold and interest-bearing deposits in other banks |
53,040 | 508 | 3.83 | % | 33,179 | 417 | 5.03 | % | ||||||||||||||||
| Time deposits with other financial institutions |
1,494 | 18 | 4.82 | % | 1,991 | 23 | 4.62 | % | ||||||||||||||||
| Securities available for sale |
70,897 | 415 | 2.34 | % | 80,685 | 481 | 2.38 | % | ||||||||||||||||
| FHLB stock |
585 | 9 | 6.15 | % | 550 | 9 | 6.55 | % | ||||||||||||||||
| Total interest-earning assets |
259,919 | $ | 2,750 | 4.23 | % | 241,740 | $ | 2,405 | 3.98 | % | ||||||||||||||
| Noninterest-earning assets |
20,191 | 19,638 | ||||||||||||||||||||||
| Total assets |
$ | 280,110 | $ | 261,378 | ||||||||||||||||||||
| Interest-bearing liabilities: |
||||||||||||||||||||||||
| Interest-bearing demand |
$ | 16,699 | $ | 2 | 0.05 | % | $ | 15,128 | $ | 2 | 0.05 | % | ||||||||||||
| Money market |
28,924 | 45 | 0.62 | % | 31,697 | 50 | 0.63 | % | ||||||||||||||||
| Savings |
41,903 | 15 | 0.14 | % | 41,614 | 16 | 0.15 | % | ||||||||||||||||
| Time deposits |
91,599 | 797 | 3.48 | % | 73,812 | 572 | 3.10 | % | ||||||||||||||||
| Total interest-bearing deposits |
$ | 179,125 | $ | 859 | 1.92 | % | $ | 162,251 | $ | 640 | 1.58 | % | ||||||||||||
| Other borrowings |
5,000 | 60 | 4.80 | % | 5,000 | 60 | 4.80 | % | ||||||||||||||||
| Total interest-bearing liabilities |
184,125 | $ | 919 | 2.00 | % | 167,251 | $ | 700 | 1.67 | % | ||||||||||||||
| Noninterest-bearing liabilities |
19,386 | 17,159 | ||||||||||||||||||||||
| Total liabilities |
$ | 203,511 | $ | 184,410 | ||||||||||||||||||||
| Equity |
76,599 | 76,968 | ||||||||||||||||||||||
| Total liabilities and equity |
$ | 280,110 | $ | 261,378 | ||||||||||||||||||||
| Net interest income |
$ | 1,831 | $ | 1,705 | ||||||||||||||||||||
| Interest rate spread(1) |
2.23 | % | 2.31 | % | ||||||||||||||||||||
| Net interest-earning assets(2) |
$ | 75,794 | $ | 74,489 | ||||||||||||||||||||
| Net interest margin(3) |
2.82 | % | 2.82 | % | ||||||||||||||||||||
| Average interest-earning assets to average-interest bearing liabilities |
141.16 | % | 144.54 | % | ||||||||||||||||||||
| (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. |
COMPARISON OF OPERATING RESULTS FOR THE three months ended March 31, 2025 and 2024
General. For the quarter ended March 31, 2025, we had a net loss of $328,000, compared to a net loss of $246,000 for the quarter ended March 31, 2024. The increase in net loss for the quarter ended March 31, 2025 is due an increase in noninterest expenses, partially offset by an increase in net interest income.
Net Interest Income. Net interest income increased $126,000, to $1.9 million for quarter ended March 31, 2025 compared to $1.7 million for the quarter ended March 31, 2024. Our interest rate spread decreased to 2.23% for the quarter ended March 31, 2025 from 2.31% for the quarter ended March 31, 2024. Our net interest margin remained at 2.82% for the quarters ended March 31, 2025 and 2024. 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.
Average interest-earning assets of $259.9 million for the quarter ended March 31, 2025 increased $18.2 million compared to $241.7 million for the quarter ended March 31, 2024. The increase in average earning assets was driven by an increase in loans and interest-bearing deposits at other banks, funded by an increase in average deposit balances during the period and reduction in investment securities. The average outstanding balance of loans, net increased to $133.9 million for the quarter ended March 31, 2025, an increase of $8.6 million from $125.3 million for the quarter ended March 31, 2024. Additionally, the average yield earned on those loans outstanding increased 67 basis points to 5.38% for the quarter ended March 31, 2025. This increase is a result of an overall increase in market rates on mortgage loans originated during 2024 and still in our portfolio, as well as an increased loan demand for specialty portfolio products which are originated at higher interest rates and with additional origination fees.
The cost of interest-bearing liabilities increased 33 basis points for the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024. The net increase in our funding costs was primarily due to an increase in rates earned on time deposit accounts to remain competitive with the local market. The average yield on time deposits for the quarter ended March 31, 2025 was 3.48%. Over the next 12 months $52.2 million of time deposits with rates greater than 3.0% are scheduled to mature.
Provision for Credit Losses. During the quarter ended March 31, 2025, we recorded a reversal of provision for credit losses of $37,000, comprised of $45,000 reversal of provision for credit losses on loans and $8,000 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.
Noninterest Income. The following table shows the components of noninterest income for the periods presented.
| Three months ended March 31, |
||||||||
| Noninterest income: |
2025 |
2024 |
||||||
| (Dollars in thousands) |
||||||||
| Gain on sale of mortgage loans |
$ | 189 | $ | 156 | ||||
| Rental income on office building |
16 | 16 | ||||||
| Service charges on deposits |
59 | 61 | ||||||
| Increase in cash surrender value of BOLI |
56 | 53 | ||||||
| Other non-interest income |
14 | 26 | ||||||
| Total noninterest income |
$ | 334 | $ | 312 | ||||
For the quarter ended March 31, 2025 compared to the same period ended March 31, 2024, noninterest income increased $22,000 to $334,000. The increase was driven by an increase in the gain on sale of mortgage loans during the quarter ended March 31, 2025. Gain on sale of mortgage loans increased $33,000, from $156,000 to $189,000 for the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024. 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 quarter ended March 31, 2025, we sold 31 loans totaling $9.9 million for a gain on sale of $189,000. During the quarter ended March 31, 2024, we sold 26 loans totaling $6.3 million for a gain on sale of $156,000. Management continues to look for opportunities and markets to sell loans as we continue to see increased loan production compared to prior years.
Noninterest Expense. The following table shows the components of noninterest expense for the periods presented.
| Three months ended March 31, |
||||||||
| Noninterest expense: |
2025 |
2024 |
||||||
| (Dollars in thousands) |
||||||||
| Salaries and employee benefits |
$ | 1,533 | $ | 1,374 | ||||
| Equipment and occupancy |
224 | 214 | ||||||
| Data processing |
222 | 195 | ||||||
| Professional services |
136 | 111 | ||||||
| Advertising |
42 | 84 | ||||||
| Supervisory fees and assessments |
38 | 36 | ||||||
| Loan expenses |
92 | 30 | ||||||
| Deposit expenses |
68 | 54 | ||||||
| Director Fees |
48 | 48 | ||||||
| Other non-interest expense |
127 | 118 | ||||||
| Total noninterest expense |
$ | 2,530 | $ | 2,264 | ||||
Noninterest expenses increased $266,000 for the quarter ended March 31, 2025, compared to the quarter ended March 31, 2024. The increase in noninterest expenses was primarily driven by increases in salaries and employee benefits and loan expenses. The average number of employees increased to 52 for the quarter ended March 31, 2025 compared to 46 for the quarter ended March 31, 2024. The increase in headcount is based on additional hires during 2024 to supplement the lending team as operations continue to expand. Loan expenses increased as a result of an increase in loan originations during the periods. Additionally, the Bank recorded a provision for recourse reserve related to the loans sold into the secondary market due to an increase in the volume of loans sold over the past 4 quarters.
Provision for Income Tax Expense (Benefit). There was no provision for income tax expense recorded during the three months ended March 31, 2025 and 2024. Management estimates a taxable net loss for the year ended December 31, 2025 due to non-taxable income, such as income on tax exempt municipal securities and BOLI.
During the quarter ended March 31, 2025, management assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing net operating losses. A significant piece of objective negative evidence evaluated is the cumulative taxable loss incurred over the three-year period ended March 31, 2025. 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 March 31, 2025, management maintained the full valuation allowance against the federal net operating losses and net deferred tax assets to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted.
COMPARISON OF FINANCIAL CONDITION AT March 31, 2025 and December 31, 2024
| At March 31, |
At December 31, |
|||||||
| 2025 |
2024 |
|||||||
| (Dollars in thousands) |
||||||||
| Selected Consolidated Financial Condition Data: |
||||||||
| Cash and cash equivalents |
$ | 57,454 | $ | 53,481 | ||||
| Securities available for sale |
70,319 | 71,249 | ||||||
| FHLB stock |
585 | 585 | ||||||
| Loans held for sale |
2,595 | 1,218 | ||||||
| Loans, net |
130,240 | 130,356 | ||||||
| Total assets |
282,700 | 278,688 | ||||||
| Total deposits |
193,684 | 190,156 | ||||||
| Total equity |
$ | 77,462 | $ | 76,490 | ||||
Total Assets. Total assets increased $4.0 million to $282.7 million as of March 31, 2025 compared to $278.7 million at December 31, 2024. The increase was driven by an increase in cash and cash equivalents, funded by an increase in demand and NOW checking accounts.
Cash and cash equivalents. Cash and cash equivalents increased $4.0 million to $57.5 million as of March 31, 2025, from $53.5 million at December 31, 2024. The increase in cash was driven by an increase in the demand and NOW checking accounts. During the quarter ended March 31, 2025, the Bank received a large deposit into a customer account that is expected to be partially withdrawn prior to 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 for increasing loan demand. Management continues to actively monitor our liquidity position on a daily basis and maintain levels of liquid assets deemed adequate.
Securities Available for Sale. Securities available-for-sale decreased to $70.3 million as of March 31, 2025, compared to $71.2 million at December 31, 2024. There were no purchases or sales of securities available-for-sale during the quarter ended March 31, 2025. During the quarter ended March 31, 2025, the Bank received principal payments of $1.3 million, had maturities of $1.0 million, had net premium amortization and discount accretion of $121,000 and had a decrease in the unrealized loss on the portfolio of $1.5 million.
As of March 31, 2025, the securities available for sale portfolio included an unrealized loss position of $10.5 million, or 13.0% 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 $1.4 million to $2.6 million at March 31, 2025 compared to $1.2 million at December 31, 2024. The increase was primarily due to timing of originations and sales. The Bank originated $1.2 million of loans held for sale on March 31, 2025, which were subsequently sold on April 8, 2025. During the quarter ended March 31, 2025, the Bank originated $11.3 million in loans held for sale.
Loans, net. Our loans, net, decreased by $116,000 to $130.2 million at March 31, 2025 compared to $130.4 million at December 31, 2024. The Bank originated $6.0 million in loans to be held in the portfolio during the quarter ended March 31, 2025 and had loan principal payments and payoffs of $6.0 million. In an effort to continue to grow loan originations, the Bank hired one additional mortgage loan originator during the quarter ended March 31, 2025 and has hired another mortgage loan originator that started in April 2025.
As of March 31, 2025, the allowance for credit losses on loans (“ACL”) totaled $1.2 million, a decrease of $45,000 compared to December 31, 2024. The decrease in the ACL is driven by a reduction in proxy rates and positive economic factors such as a lower inflation rate and stable unemployment rates. As of March 31, 2025, there were two loans individually assessed, of which neither had credit losses identified. As of March 31, 2025, the Bank had one non-accrual loan and three loans past due greater than 30 days. The Bank actively monitors the loan portfolio for signs of weakening credit quality, noting as of March 31, 2025 the portfolio remains of high quality with limited credit concerns.
Deposits. Total deposits increased $3.5 million to $193.7 million at March 31, 2025 compared to $190.2 million at December 31, 2024. As mentioned earlier, the increase in deposits was driven by one large deposit into a customer account, totaling $3.0 million. The Bank is actively working with the customer to retain the funds. Management continues to actively monitor the deposit balances and interest rates offered to maintain an adequate level of liquidity.
Total Equity. Total equity increased $1.0 million to $77.5 million at March 31, 2025. The increase is primarily due to a decrease in the unrealized loss position on the securities available-for-sale portfolio during the quarter ended March 31, 2025 and partially offset by the net loss.
Asset Quality
The following table sets forth certain information with respect to our nonperforming assets. The increase in non-accrual loans from December 31, 2024 to March 31, 2025 was the result of one loan moving to non-accrual during the period.
| At March 31, |
At December 31, |
|||||||
| 2025 |
2024 |
|||||||
| (Dollars in thousands) |
||||||||
| Nonaccrual loans |
$ | 263 | $ | — | ||||
| Loans 90+ days past due and accruing |
— | — | ||||||
| Total non-performing loans |
263 | — | ||||||
| Other real estate owned, net |
— | — | ||||||
| Total non-performing assets |
$ | 263 | $ | — | ||||
| Asset Quality Ratios: (1) |
||||||||
| Non-accrual loans as a percent of total loans outstanding |
0.20 | % | — | % | ||||
| Non-performing assets as a percent of total assets |
0.09 | % | — | % | ||||
| Allowance for credit losses on loans as a percent of total loans outstanding |
0.88 | % | 0.92 | % | ||||
| Allowance for credit losses on loans as a percent of non-performing loans(2) |
439.54 | % | — | % | ||||
| Net charge-offs (recoveries) to average loans receivable |
— | % | — | % | ||||
| (1) |
Asset quality ratios and capital ratios are end of period ratios, except for net charge-offs to average loans receivable. |
| (2) |
Non-performing loans consist of non-accrual loans and loans that are 90 or more days past due and still accruing. |
The allowance for credit losses on loans as a percentage of total loans was 0.88% and 0.92% as of March 31, 2025 and December 31, 2024, respectively.
Liquidity and Capital Resources
The Bank maintains levels of liquid assets deemed adequate by management. We adjust our liquidity levels to fund deposit outflows, repay our borrowings, and to fund loan commitments. We also adjust liquidity, as appropriate, to meet asset and liability management objectives.
Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We also have the ability to borrow from the FHLB of Chicago and a $10.0 million unsecured Fed Funds line of credit with BMO Harris Bank. At March 31, 2025, we had one outstanding advance from the FHLB of Chicago totaling $5.0 million and had the capacity to borrow approximately $74.1 million additional from the FHLB of Chicago. Additionally, we had no outstanding balance under our $10.0 million federal funds line of credit with BMO Harris Bank.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash (used in) provided by operating activities was $(2.7) million and $92,000 for the three months ended March 31, 2025 and 2024, respectively. Net cash provided by (used in) investing activities, which consists primarily of net change in loans receivable and net change in investment securities, was $2.4 million and $(5.0) million for the three months ended March 31, 2025 and 2024, respectively, with the decrease in cash used in 2025 driven by a decrease in the the loan portfolio. Net cash provided by financing activities, consisting primarily of the activity in deposit accounts was $4.2 million and $9.9 million for the three months ended March 31, 2025 and 2024, 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 March 31, 2025, totaled $65.2 million. Based on our deposit retention experience and current pricing strategy we anticipate that a significant portion of maturing time deposits will be retained. However, if a substantial portion of these deposits is not retained, we may utilize FHLB of Chicago advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.
As of March 31, 2025, the Bank was well capitalized under the regulatory framework for prompt corrective action. During the year ended December 31, 2020, the Bank elected to begin using the CBLR. Under CBLR, if a qualifying depository institution or depository institution holding company elects to use such measure, such institution or holding company will be considered well capitalized if its ratio of Tier 1 capital to average total consolidated assets (i.e., leverage ratio) exceeds 9%, subject to a limited two quarter grace period, during which the leverage ratio cannot go 100 basis points below the then applicable threshold, and will not be required to calculate and report risk-based capital ratios. North Shore Trust and Savings’ Tier 1 capital to Average Assets was 23.11% and 23.53% at March 31, 2025 and December 31, 2024, respectively.
Commitments. At March 31, 2025, we had $1.7 million of outstanding commitments to originate loans. Our total letters and lines of credit and unused lines of credit totaled $9.5 million at March 31, 2025. 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 March 31, 2025.
| Total Amounts Committed at |
Amount of Commitment Expiration – Per Period |
|||||||||||||||||||
| March 31, 2025 |
To 1 Year |
1-3 Years |
4-5 Years |
After 5 Years |
||||||||||||||||
| (Dollars in thousands) |
||||||||||||||||||||
| Unused line of credit |
$ | 9,464 | $ | 835 | $ | 369 | $ | 751 | $ | 7,509 | ||||||||||
| Commitments to originate loans |
1,658 | 1,658 | — | — | — | |||||||||||||||
| Total commitments |
$ | 11,122 | $ | 2,493 | $ | 369 | $ | 751 | $ | 7,509 | ||||||||||
Cash Obligations. The following table summarizes our cash obligations at March 31, 2025.
| Total at |
Payments Due By Period |
|||||||||||||||||||
| March 31, 2025 |
To 1 Year |
1-3 Years |
4-5 Years |
After 5 Years |
||||||||||||||||
| (Dollars in thousands) |
||||||||||||||||||||
| Time deposits |
$ | 91,693 | $ | 65,200 | $ | 16,509 | $ | 9,984 | $ | — | ||||||||||
| FHLB advances |
5,000 | 5,000 | — | — | — | |||||||||||||||
| Total contractual obligations |
$ | 96,693 | $ | 70,200 | $ | 16,509 | $ | 9,984 | $ | — | ||||||||||
Impact of Inflation and Changing Prices
The consolidated financial statements and the accompanying notes presented elsewhere in this document have been prepared in accordance with U.S. GAAP, which generally requires the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. Unlike most industrial companies, virtually all of our assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on our performance than inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
Changes in Accounting Principles
In March 2024, the FASB issued ASU No. 2024-01, “Compensation—Stock Compensation (Topic 718): Scope Applications of Profits Interests and Similar Awards” (ASU 2024-01). ASU 2024-01 adds an example to Topic 718 which illustrates how to apply the scope guidance to determine whether profits interests and similar awards should be accounted for as share-based payment arrangements under Topic 718 or under other U.S. GAAP. ASU 2024-01 is effective for annual periods beginning after December 15, 2025, although early adoption is permitted. Upon adoption, ASU 2024-01 is not expected to have an impact on the Company’s consolidated balance sheets or consolidated statements of income.
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, and does not expect the amendments to have a material impact to the annual financial statements of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to provide assurance that the information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that, as of March 31, 2025, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to the Company's management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are not presently involved in any legal proceedings of a material nature. From time to time, we are subject to various legal actions arising in the normal course of our business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on our financial condition, results of operations or cash flows.
Not required for smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
There were no repurchases made during the quarter ended March 31, 2025.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
.
| 31.1 |
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| 31.2 |
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| 32.1 |
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| 101.INS |
Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
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| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
*The certification attached as Exhibit 32.1 to this quarterly report on Form 10-Q is “furnished” to the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| NSTS BANCORP, INC. |
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| Dated: May 14, 2025 |
By: |
/s/ Stephen G. Lear |
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| Stephen G. Lear |
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| President and Chief Executive Officer |
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| (Principal Executive Officer) |
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| Dated: May 14, 2025 |
By: |
/s/ Carissa H. Schoolcraft |
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| Carissa H. Schoolcraft |
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| Chief Financial Officer |
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| (Principal Financial and Accounting Officer) |
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