NSTS Bancorp Inc

Note1: 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 thethree andsix month periods ended* June 30, 2024*, arenot necessarily indicative of the results that* maybe expected for the year ending December**31,* 2024.

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 in the northern suburbs of Chicago, Illinois. During thethird quarter of2023, we establishedtwo additional loan production offices in Aurora and Plainfield, Illinois to expand our loan originations within the Chicagoland area. The lending teams operating in the Aurora and Plainfield, Illinois loan production offices originate as Oak Leaf Community Mortgage, a division of North Shore Trust and Savings, which complement the existing loan production office in Chicago. The Bank offers a variety of financial services to customers in our surrounding community. Financial services consist primarily of1-4 family mortgage loans, savings accounts, and certificate of deposit accounts. There areno significant concentrations of loans to anyone 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 Form10-Q and Rule10-01 of Regulation S-X. Accordingly, they donot 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 Form10-K for the year ended* December 31, 2023*. 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* mayvary 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 thethree* andsix months ended* June 30, 2024*, arenot necessarily indicative of results that* maybe expected for any other interim period or the entire fiscal year ending December 31, 2024.*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.

In* March 2024,the FASB issued ASUNo.* 2024-01, “Compensation—Stock Compensation (Topic718): Scope Applications of Profits Interests and Similar Awards” (ASU2024-01). ASU2024-01 adds an example to Topic718 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 Topic718 or under other U.S. GAAP. ASU2024-01 is effective for annual periods beginning after* December 15, 2025,although early adoption is permitted. Upon adoption, ASU2024*-01 isnot expected to have an impact on the Company’s consolidated balance sheets or consolidated statements of income.

8

Note2: Securities Available for Sale

The amortized cost and estimated fair value of debt securities at* June 30, 2024* and* December 31, 2023*, by contractual maturity, are shown below. The accrued interest receivable for securities available for sale was $323,000 and $351,000 on* June 30, 2024and December 31, 2023,respectively. Maturities maydiffer from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may*be called or repaid without any penalties, therefore, these securities have been included in the below table based on average remaining life.

As of* June 30, 2024*, and* December 31, 2023*, no 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* June 30, 2024* and* December 31, 2023*, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows:

9

At* June 30, 2024* and* December 31, 2023*, certain investment securities were in unrealized loss positions. There wereno securities with identified credit losses at* June 30, 2024* and* December 31, 2023*, respectively. Unrealized losses havenot 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. Treasuries, 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 holdstwo 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 arenot rated. There have beenno declines in investment grades on bonds in a loss position and as of* June 30, 2024*, all municipal bonds are paying as agreed.

There wereno sales of securities available-for-sale during thethree andsix months ended* June 30, 2024* and2023.

Note3: Loans and allowance for credit losses

A summary of loans by major category as of* June 30, 2024* and* December 31, 2023* is as follows:

First mortgage loans serviced for others arenot included in the accompanying balance sheets. The unpaid principal balance of these loans totaled $15.6 million and $13.2 million at* June 30, 2024* and* December 31, 2023*, respectively. Custodial escrow balances maintained in connection with the loans serviced were $267,000 and $231,000 at* June 30, 2024* and* December 31, 2023*, respectively.

The accrued interest receivable for loans, net, was $533,000 and $392,000 for* June 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 donot involve more than a normal risk of collectability. At* June 30, 2024* and* December 31, 2023*, such borrowers were indebted to the Bank in the aggregate amount of $532,000 and $550,000, respectively.

10

The following tables present the activity in the allowance for credit losses ("ACL") for thethree andsix months ended* June 30, 2024* and2023:

The ACL on loans excludes $45,000 of allowance for off-balance sheet exposures as of* June 30, 2024* recorded within Other Liabilities. The provision for credit losses excludes $33,000 and $31,000 for thethree andsix months ended* June 30, 2024,*respectively.

11

As of* June 30, 2024*, there wereno collateral dependent loans. As of* December 31, 2023,collateral dependent loans totaled $200,000 in theone* tofour-family residential loan segment. These loans are collateralized by residential real estate and haveno ACL as of* December 31, 2023.There wereno* 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 arenot 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.

12

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* June 30, 2024* and* December 31, 2023*.

13

14

The aging of the Bank’s loan portfolio as of* June 30, 2024* and* December 31, 2023*, is as follows:

The following table presents the amortized cost basis of loans on nonaccrual status recorded at* June 30, 2024* and* December 31, 2023*. There wasno interest recognized on non-accrual loans for thesix months ended* June 30, 2024.*

The Bank* maymodify 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 wereno modifications on loans to borrowers experiencing financial difficulty during thesix* months ended* June 30, 2024* and2023.

15

Note4: Deposits

As of* June 30, 2024* the scheduled maturities of time deposits are as follows:

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 donot involve more than the normal level of risk associated with deposit accounts. At* June 30, 2024* and* December 31, 2023*, total deposits held by directors and officers of the Company and the Bank were $827,000 and $739,000, respectively.

Note5: Other Borrowings

There wereno additional borrowings made during thesix months ended* June**30,* 2024. During thethree andsix months ended* June 30, 2023,the Company borrowed $5.0 million from the FHLB Chicago at a rate of 4.78% for24* months, payable on* June 20, 2025.*

The following table shows certain information regarding our borrowings at or for the dates indicated:

The eligible borrowings are collateralized by $111.5 million and $102.6 million offirst mortgage loans under a blanket lien arrangement at* June 30, 2024* and* December 31, 2023*, respectively.

The following table shows the outstanding advances, additional borrowing capacity and total borrowing capacity from the FHLB Chicago at the dates presented.

Additionally, at* June 30, 2024* and* December 31, 2023*, we had a $10.0 million federal funds line of credit with BMO Harris Bank, none of which was drawn at* June 30, 2024* and* December 31, 2023*.

17

Note6: 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 ofthree levels of inputs that* may*be used to measure fair value:

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 beenno changes in the methodologies used at* June 30, 2024* or* December 31, 2023*.

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 Level1 of the valuation hierarchy. If quoted market prices arenot 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, butnot limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level2 of the valuation hierarchy. In certain cases where Level1 or Level2 inputs arenot available, securities would be classified within Level3 of the hierarchy.

18

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* June 30, 2024* and* December 31, 2023*:

The Bank* maybe 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 wereno* assets measured at fair value on a nonrecurring basis as of* June 30, 2024* and* December 31, 2023.*

19

Note7: Fair Value of Financial Instruments

Financial instruments are classified within the fair value hierarchy using the methodologies described in Note6 – Fair Value Measurements. The following disclosures include financial instruments that arenot 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 haveno 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.

The carrying amounts and estimated fair values by fair value hierarchy of certain financial instruments are as follows:

Note8: 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 Tier1 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* June 30, 2024* the most recent notification from the regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There areno 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 Tier1* capital to average total consolidated assets (i.e., leverage ratio) exceeds9% subject to a limitedtwo quarter grace period, during which the leverage ratio cannot drop100 basis points below the then applicable threshold, and willnot be required to calculate and report risk-based capital ratios. The Bank elected to begin using CBLR for thefirst quarter of2020. Management believes, as of* June 30, 2024*, that the Bank met all capital adequacy requirements to which it was subject.

20

The Bank’s actual capital amounts and ratios as of* June 30, 2024* and* December 31, 2023*, are presented below:

(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.

Note9: Commitments and Contingencies

In the ordinary course of business, the Bank has various commitments and contingent liabilities that arenot reflected in the accompanying financial statements. In the opinion of management, the ultimate disposition of these matters isnot expected to have a material adverse effect on the financial position of the Bank.

Financial Instruments

The Bank doesnot engage in the use of interest rate swaps or futures, forwards or option contracts.

At* June 30, 2024* and* December 31, 2023*, unused lines of credit and outstanding commitments to originate loans were as follows:

Concentrations of Credit Risk

The Bank generally originates single-family residential loans within its primary lending area which is Waukegan, Illinois and the surrounding area. The Bank’s underwriting policies require such loans to be made at approximately 80% loan-to-value, based upon appraised values, unless private mortgage insurance is obtained, or the loan is guaranteed by the government. 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* mayexceed federally insured limits. The Bank hasnot* experienced any losses in such accounts. The Bank believes it isnot 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 isnot expected to have a material effect on the financial position or results of operations of the Bank.

21

Note10: Earnings Per Share

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 wereno securities or other contracts that had a dilutive effect for thethree andsix months ended* June 30, 2024and2023,* 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 havenot been allocated to employees in accordance with the terms of the ESOP, referred to as "unallocated ESOP shares", arenot deemed outstanding for EPS calculations.

All unallocated ESOP shares have been excluded from the calculation of basic and diluted EPS. The computation of diluted earnings per share excludes certain outstanding stock options that were outstanding and anti-dilutive, since the Company was in a loss position or since the exercise price of these outstanding stock options exceeded the average market price of the Company's common stock.

22

Note11: Stock Based Compensation

ESOP

Employees participate in an Employee Stock Ownership Plan ("ESOP"). The ESOP borrowed funds from the Company to purchase 431,836 shares of stock at $10 per share. The Bank makes discretionary contributions to the ESOP, as well as paying dividends on unallocated shares to the ESOP, and the ESOP uses funds it receives to repay the loan. When loan payments are made, ESOP shares are allocated to participants based on relative compensation. Participants receive the shares at the end of employment. Dividends on allocated shares increase participants accounts.

There wereno contributions to the ESOP during thefirst six months of2024, as the annual loan payment will be made during thefourth quarter. Expense recorded was $102,000 for thesix months ended* June 30, 2024* and2023, and $51,000 and $47,000 for thethree months ended* June 30, 2024and2023,* respectively, and is recognized over the service period.

Shares held by the ESOP were as follows:

Fair value of unearned shares is based on a stock price of $9.63 and $9.14 as of* June 30, 2024* and2023, respectively.

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 755,714 shares (215,918 shares of restricted stock and 539,796 shares available for future grants of stock options) of the Company’s common stock pursuant to equity awards made under the2023 Equity Plan.

Stock options granted under the2023 Equity Plan generally vest in equal annual installments over a service period offive years beginning on the date of grant. The vesting of the options accelerates upon death, disability or an involuntary termination at 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 often years. As of* June 30, 2024*, the Company has 74,296 shares available for future grants of stock options under the2023 Equity Plan.

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 tofirst draw on treasury stock as the source for shares.

23

The following is a summary of the Company's stock option activity and related information for the periods presented.

(1) Dollars in thousands. The aggregate intrinsic value of outstanding and exercisable options at* June 30, 2023and2024* were calculated based on the closing market price of the Company's common stock of* June 30, 2023and2024* of $9.14 and $9.63, respectively, per share less the exercise price.

Expected future expense relating to the non-vested options outstanding as of* June 30, 2024* is $1.2 million over a weighted average period of 4.0 years. As of* June 30, 2024,*the Company had 354,000 in nonvested stock options with a weighted average remaining life of 9.0 years outstanding.

24

Restricted shares granted under the2023 Equity Plan generally vest in equal annual installments over a service period offive years beginning on the date of grant. The vesting of the awards accelerates upon death, disability or an involuntary termination at 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 the2023 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* June 30, 2024*, the Company has 28,718 shares of restricted stock available for future grants under the2023 Equity Plan.

The following is a summary of the status of the Company's restricted shares as of* June 30, 2024* and changes thereto during the periods presented.

Expected future expense related to the non-vested restricted shares outstanding as of period end is $1.3 million over a weighted average period of 4.0 years.

The following table presents the stock based compensation expense for the periods presented.

25