NSTS Bancorp, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 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, 2024

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, 2024 and December 31, 2023 is as follows:

	*September 30, 2024*			*December 31, 2023*
	(Dollars in thousands)
First mortgage loans
1-4 family residential	$	125,052		$	111,081
Multi-family		3,539			3,111
Commercial		4,152			3,835
Construction		1,380			2,508
Total first mortgage loans		134,123			120,535
Consumer loans		275			248
Total loans		134,398			120,783
Net deferred loan costs		684			1,016
Allowance for credit losses on loans		(1,271	)		(1,176	)
Total loans, net	$	133,811		$	120,623

First mortgage loans serviced for others are not included in the accompanying balance sheets. The unpaid principal balance of these loans totaled $15.2 million and $13.2 million at September 30, 2024 and December 31, 2023, respectively. Custodial escrow balances maintained in connection with the loans serviced were $116,000 and $231,000 at September 30, 2024 and December 31, 2023, respectively.

The accrued interest receivable for loans, net, was $566,000 and $392,000 for September 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, such borrowers were indebted to the Bank in the aggregate amount of $535,000 and $550,000, respectively.

The following tables present the activity in the allowance for credit losses ("ACL") for the three and nine months ended September 30, 2024 and 2023:

	*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

	*September 30, 2023*
	*1-4 family*
	*residential*		*Multi-family*			*Commercial*			*Construction*		*Consumer*		*Total*
	(Dollars in thousands)
Three months ended
Beginning balance	$	928	$	41		$	39		$	—	$	2	$	1,010
Charge-offs		—		—			—			—		—		—
Recoveries		—		—			—			—		—		—
Net recoveries (charge-offs)		—		—			—			—		—		—
Provision for (release of ) credit losses		56		(2	)		(3	)		—		—		51
Ending balance	$	984	$	39		$	36		$	—	$	2	$	1,061

	*September 30, 2023*
	*1-4 family*
	*residential*		*Multi-family*			*Commercial*			*Construction*		*Consumer*			*Total*
	(Dollars in thousands)
Nine months 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		68		(3	)		(12	)		—		—			53
Ending balance	$	984	$	39		$	36		$	—	$	2		$	1,061

The ACL on loans excludes $60,000 and $4,000 of allowance for off-balance sheet exposures as of September 30, 2024 and 2023, respectively, recorded within Other Liabilities. The provision for credit losses excludes $16,000 and $47,000 related to off-balance sheet exposures, for the three and nine months ended September 30, 2024, respectively.

As of September 30, 2024, there were no collateral dependent loans. 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 September 30, 2024 and December 31, 2023.

	*As of September 30, 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	$	19,220	$	22,310	$	17,575	$	18,295	$	44,242	$	3,410	$	—		125,052
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total 1-4 family residential		19,220		22,310		17,575		18,295		44,242		3,410		—		125,052
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—
Multi-family
Pass		517		—		—		232		2,790		—		—		3,539
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total multi-family		517		—		—		232		2,790		—		—		3,539
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—
Commercial
Pass		83		179		—		97		3,171		622		—		4,152
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total commercial		83		179		—		97		3,171		622		—		4,152
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—
Construction
Pass		999		381		—		—		—		—		—		1,380
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total construction		999		381		—		—		—		—		—		1,380
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—
Consumer
Pass		106		84		64		20		1		—		—		275
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total consumer		106		84		64		20		1		—		—		275
Current year-to-date gross write-offs		—		—		—		—		—		—		—		—
Total	$	20,925	$	22,954	$	17,639	$	18,644	$	50,204	$	4,032	$	—	$	134,398

	*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	$	26,211	$	19,045	$	19,972	$	53,991	$	1,564	$	—	$	120,783

The aging of the Bank’s loan portfolio as of September 30, 2024 and December 31, 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)
September 30, 2024
1-4 family residential	$	99	$	264	$	—	$	363	$	124,689	$	125,052
Multi-family		—		—		—		—		3,539		3,539
Commercial		—		—		—		—		4,152		4,152
Construction		—		—		—		—		1,380		1,380
Consumer		—		—		—		—		275		275
Total	$	99	$	264	$	—	$	363	$	134,035	$	134,398

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 September 30, 2024 and December 31, 2023. There was no interest recognized on non-accrual loans for the nine months ended September 30, 2024.

	*September 30, 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. There were no modifications on loans to borrowers experiencing financial difficulty during the nine months ended September 30, 2024 and 2023.