NSTS Bancorp, Inc. (NASDAQ:NSTS) is a Delaware-based bank holding company that serves the northern suburbs of Chicago, Illinois through its wholly-owned subsidiary, North Shore Trust and Savings. The company has established a strong presence in the region, leveraging its over 100-year history to build deep community ties and develop long-standing customer relationships.
Business Overview
NSTS Bancorp's principal business activities revolve around originating loans, primarily for one- to four-family residential properties, multi-family and non-owner occupied commercial real estate, as well as home equity loans, construction loans, and other consumer loans. The company has also expanded its reach by establishing loan production offices in Chicago, Aurora, and Plainfield, Illinois to complement its branch network and capitalize on growth opportunities in the Chicagoland area.
In addition to its lending operations, NSTS Bancorp attracts retail deposits from the general public in its market area and invests in a portfolio of investment securities. The company's revenues are derived primarily from interest on loans, noninterest income from the sale of one- to four-family residential mortgage loans in the secondary market, and interest on investments.
Financials
For the fiscal year ended December 31, 2023, NSTS Bancorp reported annual net income of $-3,957,000, annual revenue of $6,578,000, annual operating cash flow of $811,000, and annual free cash flow of $295,000. The company's quarterly results for the first quarter of 2024 showed a net loss of $246,000, with net interest income increasing by $68,000 to $1,705,000 compared to the same period in 2023. The increase in net interest income was driven by higher yields on earning assets, particularly funds held at the Federal Reserve Bank and other interest-bearing deposits, which increased by 245 basis points. However, this was partially offset by a rise in the cost of interest-bearing deposits, which increased by 103 basis points to 1.58% for the first quarter of 2024.
The company's provision for credit losses during the first quarter of 2024 resulted in a reversal of $1,000, compared to a reversal of $28,000 in the same period of 2023. Management continues to closely monitor the credit quality of the loan portfolio and the overall economic environment to ensure the adequacy of the allowance for credit losses.
Noninterest income for the first quarter of 2024 increased by $165,000 to $312,000, primarily due to an increase in the gain on sale of mortgage loans. The company has been actively selling loan pools to local community banks, as well as individual loans to the secondary market, resulting in a net gain on sale of $156,000 for the quarter.
On the expense side, noninterest expense increased by $594,000 for the first quarter of 2024 compared to the same period in 2023. This increase was primarily driven by a $446,000 rise in salaries and employee benefits, which can be attributed to the additional staff brought on to support the Oak Leaf Community Mortgage division and the implementation of the 2023 Equity Incentive Plan.
NSTS Bancorp's total assets increased by $8.8 million to $265.6 million as of March 31, 2024, compared to $256.8 million at the end of 2023. This growth was primarily driven by an increase in time deposits, which resulted in higher cash and cash equivalents. The company's loan portfolio, net of the allowance for credit losses, also grew by $5.2 million to $125.8 million during the first quarter of 2024.
The bank's securities available-for-sale portfolio decreased slightly to $79.8 million as of March 31, 2024, from $82.1 million at the end of 2023, due to principal payments received and a decline in the fair value of the portfolio. Management continues to monitor the portfolio for any potential credit losses and remains committed to maintaining a strong liquidity position.
Total deposits increased by $9.2 million to $178.0 million at the end of the first quarter of 2024, primarily due to growth in time deposits as the bank offered competitive CD specials. The company's total equity decreased by $583,000 to $77.0 million, primarily due to an increase in the unrealized loss position on the securities available-for-sale portfolio, which was driven by changes in market interest rates.
NSTS Bancorp's asset quality metrics remained relatively stable, with non-accrual loans increasing slightly to $237,000, or 0.19% of total loans, as of March 31, 2024, compared to $200,000, or 0.17%, at the end of 2023. The allowance for credit losses on loans as a percentage of total loans outstanding was 0.93% at the end of the first quarter of 2024, down from 0.97% at the end of 2023.
The company's capital position remains strong, with the Bank's Tier 1 capital to average assets ratio at 24.25% as of March 31, 2024, well above the 9% regulatory threshold for well-capitalized institutions. This solid capital base provides NSTS Bancorp with the financial flexibility to navigate the current economic environment and pursue strategic growth opportunities.
Outlook
Looking ahead, NSTS Bancorp's management team remains focused on maintaining the company's strong liquidity position, prudently managing credit risk, and exploring ways to further expand its lending and deposit-gathering capabilities within its core market. The company's recent expansion into the Aurora and Plainfield markets, as well as its ongoing efforts to increase loan sales to the secondary market, are expected to contribute to its future growth and profitability.
Conclusion
Despite the challenges posed by the current economic landscape, NSTS Bancorp has demonstrated its resilience and commitment to serving the banking needs of its local community. The company's experienced management team, strong capital position, and diversified business model position it well to navigate the evolving market conditions and continue delivering value to its shareholders.