NSTS Bancorp, Inc. Annual report [Section 13 and 15(d), not S-K Item 405]

Annual report [Section 13 and 15(d), not S-K Item 405]

Note 4 - Allowance for Loan Losses

Note 4 - Allowance for Loan Losses

12 Months Ended

Dec. 31, 2024

Allowance for Credit Losses [Text Block]

Note 4: Allowance for Credit Losses

The following tables present the activity in the allowance for credit losses for the years ended December 31, 2024 and 2023:

	*December 31, 2024*
	*1-4 family residential*			*Multi-family*			*Commercial*		*Construction*		*Consumer*		*Total*
	(Dollars in thousands)
Year ended:
Beginning balance	$	1,094		$	40		$	37	$	4	$	1	$	1,176
Charge-offs		—			—			—		—		—		—
Recoveries		—			—			—		—		—		—
Net recoveries (charge-offs)		—			—			—		—		—		—
(Release of) Provision for credit losses		(38	)		(3	)		4		61		1		25
Ending balance	$	1,056		$	37		$	41	$	65	$	2	$	1,201

	December 31, 2023
	1-4 family residential		Multi-family			Commercial			Construction		Consumer			Total
	(Dollars in thousands)
Year ended:
Beginning balance	$	581	$	19		$	19		$	—	$	5		$	624
Cumulative effect of change in accounting principle		335		23			29			—		(3	)		384
Charge-offs		—		—			—			—		—			—
Recoveries		—		—			—			—		—			—
Net recoveries (charge-offs)		—		—			—			—		—			—
Provision for (release of) credit losses		178		(2	)		(11	)		4		(1	)		168
Ending balance	$	1,094	$	40		$	37		$	4	$	1		$	1,176

The ACL on loans excludes $60,000 and $14,000 of allowance for off-balance sheet exposures as of December 31, 2024 and 2023, respectively, recorded within Other Liabilities on the Consolidated Balance Sheets.

There were no collateral dependent loans as of December 31, 2024. As of December 31, 2023, collateral dependent loans totaled $200,000 in the one to four-family residential loan segment. These loans are collateralized by residential real estate and have no ACL as of December 31, 2023. There were no other collateral dependent loans as of December 31, 2023.

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 December 31, 2024 and 2023.

	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		—		—		—		—		—		—		—		—

	As of December 31, 2023
	Term loans amortized cost basis by origination year
	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	$	23,395	$	18,950	$	19,605	$	47,517	$	1,414	$	—	$	110,881
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		200		—		—		200
Total 1-4 family residential		23,395		18,950		19,605		47,717		1,414		—		111,081
Current year-to-date gross write-offs		—		—		—		—		—		—		—
Multi-family
Pass		—		—		239		2,872		—		—		3,111
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total multi-family		—		—		239		2,872		—		—		3,111
Current year-to-date gross write-offs		—		—		—		—		—		—		—
Commercial
Pass		186		—		100		3,399		150		—		3,835
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total commercial		186		—		100		3,399		150		—		3,835
Current year-to-date gross write-offs		—		—		—		—		—		—		—
Construction
Pass		2,508		—		—		—		—		—		2,508
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total construction		2,508		—		—		—		—		—		2,508
Current year-to-date gross write-offs		—		—		—		—		—		—		—
Consumer
Pass		122		95		28		3		—		—		248
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total consumer		122		95		28		3		—		—		248
Current year-to-date gross write-offs		—		—		—		—		—		—		—
Total
Pass		26,211		19,045		19,972		53,791		1,564		—		120,583
Special Mention		—		—		—		—		—		—		—
Substandard		—		—		—		200		—		—		200
Total		26,211		19,045		19,972		53,991		1,564		—		120,783
Current year-to-date gross write-offs		—		—		—		—		—		—		—

The aging of the Bank’s loan portfolio as of December 31, 2024 and 2023, 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)
December 31, 2024
1-4 family residential	$	371	$	—	$	—	$	371	$	119,038	$	119,409
Multi-family		—		—		—		—		3,368		3,368
Commercial		—		—		—		—		4,197		4,197
Construction		—		—		—		—		3,651		3,651
Consumer		—		—		—		—		282		282
Total	$	371	$	—	$	—	$	371	$	130,536	$	130,907
December 31, 2023
1-4 family residential	$	131	$	—	$	200	$	331	$	110,750	$	111,081
Multi-family		—		—		—		—		3,111		3,111
Commercial		—		—		—		—		3,835		3,835
Construction		—		—		—		—		2,508		2,508
Consumer		—		—		—		—		248		248
Total	$	131	$	—	$	200	$	331	$	120,452	$	120,783

The following table presents the amortized cost basis of loans on nonaccrual status recorded at December 31, 2024 and 2023. As of January 1, 2023, the amortized cost basis of loans on nonaccrual status was $154,000.

	December 31, 2024				December 31, 2023
	Nonaccrual with no Allowance for Credit Losses		Nonaccrual		Nonaccrual with no Allowance for Credit Losses		Nonaccrual
	(Dollars in thousands)
First mortgage loans
1-4 family residential	$	—	$	—	$	200	$	200
Multi-family		—		—		—		—
Commercial		—		—		—		—
Construction		—		—		—		—
Consumer loans		—		—		—		—
Total loans	$	—	$	—	$	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.

As of January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructuring and Vintage Disclosures. There were no modifications on loans to borrowers experiencing financial difficulty during the year ended December 31, 2024 and 2023.

There were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process as of December 31, 2024. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process is $64,000 as of December 31, 2023.