NSTS Bancorp, Inc. Quarterly report [Sections 13 or 15(d)]

Quarterly report [Sections 13 or 15(d)]

Note 3 - Loans and Allowance for Credit Losses

Note 3 - Loans and Allowance for Credit Losses

9 Months Ended

Sep. 30, 2025

Notes to Financial Statements

Allowance for Credit Losses [Text Block]

Note 3: Loans and allowance for credit losses

A summary of loans by major category as of September 30, 2025 and December 31, 2024 is as follows:

	*September 30, 2025*			*December 31, 2024*
	(Dollars in thousands)
First mortgage loans
1-4 family residential	$	121,443		$	119,409
Multi-family		3,272			3,368
Commercial		4,318			4,197
Construction		4,518			3,651
Total first mortgage loans		133,551			130,625
Consumer loans		284			282
Total loans		133,835			130,907
Net deferred loan costs		362			650
Allowance for credit losses on loans		(1,260	)		(1,201	)
Total loans, net	$	132,937		$	130,356

First mortgage loans serviced for others are not included in the accompanying balance sheets. The unpaid principal balance of these loans totaled $21.0 million and $13.9 million at September 30, 2025 and December 31, 2024, respectively. Custodial escrow balances maintained in connection with the loans serviced were $231,000 and $236,000 at September 30, 2025 and December 31, 2024, respectively.

The accrued interest receivable for loans, net, was $582,000 and $560,000 for September 30, 2025 and December 31, 2024, respectively

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 September 30, 2025 and December 31, 2024, such borrowers were indebted to the Bank in the aggregate amount of $570,000 and $587,000, respectively.

The following tables present the activity in the allowance for credit losses ("ACL") for the three and nine months ended September 30, 2025 and 2024:

	*September 30, 2025*
	*1-4 family*
	*residential*		*Multi-family*		*Commercial*		*Construction*		*Consumer*			*Total*
	(Dollars in thousands)
Three months ended
Beginning balance	$	1,056	$	37	$	44	$	61	$	2		$	1,200
Charge-offs		—		—		—		—		—			—
Recoveries		—		—		—		—		99			99
Net recoveries (charge-offs)		—		—		—		—		99			99
Provision for (release of) credit losses		47		2		—		10		(98	)		(39	)
Ending balance	$	1,103	$	39	$	44	$	71	$	3		$	1,260

	*September 30, 2025*
	*1-4 family*
	*residential*		*Multi-family*		*Commercial*		*Construction*		*Consumer*			*Total*
	(Dollars in thousands)
Nine months ended
Beginning balance	$	1,056	$	37	$	41	$	65	$	2		$	1,201
Charge-offs		—		—		—		—		—			—
Recoveries		—		—		—		—		99			99
Net recoveries (charge-offs)		—		—		—		—		99			99
Provision for (release of) credit losses		47		2		3		6		(98	)		(40	)
Ending balance	$	1,103	$	39	$	44	$	71	$	3		$	1,260

	*September 30, 2024*
	*1-4 family*
	*residential*			*Multi-family*		*Commercial*		*Construction*		*Consumer*		*Total*
	(Dollars in thousands)
Three months ended
Beginning balance	$	1,165		$	36	$	41	$	24	$	1	$	1,267
Charge-offs		—			—		—		—		—		—
Recoveries		—			—		—		—		—		—
Net recoveries (charge-offs)		—			—		—		—		—		—
(Release of) provision for credit losses		(1	)		3		1		—		1		4
Ending balance	$	1,164		$	39	$	42	$	24	$	2	$	1,271

	*September 30, 2024*
	*1-4 family*
	*residential*		*Multi-family*			*Commercial*		*Construction*		*Consumer*		*Total*
	(Dollars in thousands)
Nine months ended
Beginning balance	$	1,094	$	40		$	37	$	4	$	1	$	1,176
Charge-offs		—		—			—		—		—		—
Recoveries		—		—			—		—		—		—
Net recoveries (charge-offs)		—		—			—		—		—		—
Provision for (release of) credit losses		70		(1	)		5		20		1		95
Ending balance	$	1,164	$	39		$	42	$	24	$	2	$	1,271

The ACL on loans excludes $69,000 and $60,000 of allowance for off-balance sheet exposures as of September 30, 2025 and 2024, respectively, recorded within Other Liabilities on the Consolidated Balance Sheets. Off-balance sheet exposures consist of unused lines of credit, the unused portion of construction loans and commitments to originate loans. The net provision for credit losses for the three and nine months ended September 30, 2025 in the table above excludes a (reversal of) and a provision for credit losses of $(11,000) and $10,000, respectively, related to off balance sheet exposures. The net provision for credit losses for the three and nine months ended September 30, 2024 in the table above excludes a provision for credit losses of $16,000 and $47,000, respectively, related to off balance sheet exposures.

As of September 30, 2025, there were two collateral dependent loan totaling $285,000 in the one to four-family residential loan segment. These loans are collateralized by residential real estate and have no ACL as of September 30, 2025. There were no other collateral dependent loans as of September 30, 2025. There were no collateral dependent loans as of December 31, 2024.

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 September 30, 2025 and December 31, 2024.

	*As of September 30, 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	$	15,330	$	14,001	$	18,969	$	11,280	$	16,631	$	39,104	$	5,843	$	—	$	121,158
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		263		—		—		—		22		—		—		285
Total 1-4 family residential		15,330		14,264		18,969		11,280		16,631		39,126		5,843		—		121,443
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Multi-family
Pass		—		509		—		—		223		2,540		—		—	$	3,272
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total multi-family		—		509		—		—		223		2,540		—		—		3,272
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Commercial
Pass		—		—		169		—		93		2,898		1,158		—	$	4,318
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total commercial		—		—		169		—		93		2,898		1,158		—		4,318
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Construction
Pass		933		3,493		92		—		—		—		—		—	$	4,518
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total construction		933		3,493		92		—		—		—		—		—		4,518
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Consumer
Pass		125		54		54		44		5		2		—		—	$	284
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total consumer		125		54		54		44		5		2		—		—		284
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—		—
Total
Pass		16,388		18,057		19,284		11,324		16,952		44,544		7,001		—		133,550
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		263		—		—		—		22		—		—		285
Total		16,388		18,320		19,284		11,324		16,952		44,566		7,001		—		133,835
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	$	20,577	$	20,986	$	12,421	$	18,074	$	43,245	$	4,106	$	—	$	119,409
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total 1-4 family residential		20,577		20,986		12,421		18,074		43,245		4,106		—		119,409
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—
Multi-family
Pass		515		—		—		230		2,623		—		—		3,368
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total multi-family		515		—		—		230		2,623		—		—		3,368
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—
Commercial
Pass		148		301		—		96		3,158		494		—		4,197
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total commercial		148		301		—		96		3,158		494		—		4,197
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—
Construction
Pass		3,134		517		—		—		—		—		—		3,651
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total construction		3,134		517		—		—		—		—		—		3,651
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—
Consumer
Pass		127		77		58		18		2		—		—		282
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total consumer		127		77		58		18		2		—		—		282
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—
Total
Pass		24,501		21,881		12,479		18,418		49,028		4,600		—		130,907
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total		24,501		21,881		12,479		18,418		49,028		4,600		—		130,907
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—

The aging of the Bank’s loan portfolio as of September 30, 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)
September 30, 2025
1-4 family residential	$	179	$	—	$	285	$	464	$	120,979	$	121,443
Multi-family		—		—		—		—		3,272		3,272
Commercial		—		—		—		—		4,318		4,318
Construction		—		—		—		—		4,518		4,518
Consumer		—		—		—		—		284		284
Total	$	179	$	—	$	285	$	464	$	133,371	$	133,835

December 31, 2024
1-4 family residential	$	371	$	—	$	—	$	371	$	119,038	$	119,409
Multi-family		—		—		—		—		3,368		3,368
Commercial		—		—		—		—		4,197		4,197
Construction		—		—		—		—		3,651		3,651
Consumer		—		—		—		—		282		282
Total	$	371	$	—	$	—	$	371	$	130,536	$	130,907

The following table presents the amortized cost basis of loans on nonaccrual status recorded at September 30, 2025, December 31, 2024 and January 1, 2024. There was no interest recognized on non-accrual loans for the nine months ended September 30, 2025 and 2024.

	*September 30, 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	$	285	$	285	$	—	$	—	$	200	$	200
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Consumer loans		—		—		—		—		—		—
Total loans	$	285	$	285	$	—	$	—	$	200	$	200

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 no modifications on loans to borrowers experiencing financial difficulty during the nine months ended September 30, 2025 and 2024.