NSTS Bancorp Stock Analysis

In my quest to find a cheap but decent quality community bank, this week I decided to look at NSTS Bancorp. This stock was mentioned on the Value After Hours podcast a few weeks ago as an example of a mutual thrift going public and thus being over-capitalized. This seemed like an interesting scenario so I figured I would take a look under the hood. NSTS is the holding company for North Shores Trust and Savings, a bank based a bit north of Chicago. The stock has a market capitalization of $61M and has only been public since 2022.

Asset Quality

A key aspect to bank investing is making sure the assets are not toxic. A good starting point is looking at the recent amount of non-performing loans. At the end of the latest quarter, NSTS had $239k of non-performing loans. Over the last four quarters, the NPL has been roughly around this figure, with the highest figure coming in $328k for Q2 2025. The latest total figure for total assets is $269.8M, which produces a NPL/asset ratio of 0.089%. The previous three quarters showed a ratio slightly above 0.1%, with the highest being 0.119%. These are all well below 3% which I would consider dangerous. During the latest quarter, NSTS had an allowance for credit loss of $1,260M, which is 0.94% of their total loans. This is close enough to my preferred value of 1% ACL to loans. The bank’s ACL coverage ratio, being the ACL divided by non-performing loans is 527%, meaning they can easily cover the losses if the non-performing loans became uncollectible.

Next is to get a handle on NSTS’s loan book. Residential real estate makes up 91.2% of NSTS’s loans. The remaining few percent is spread across commercial real estate, construction, and multifamily real estate. The fairly low level of construction loans is nice since that can be quite risky. I tend to prefer a bank that focuses on a single niche, so I like that NSTS is mostly concentrated in residential loans.

Around 67% of NSTS’s loans are fixed rate, meaning 33% are floating rate. This is probably a decent ratio, where the moderate amount of floating rate loans can help them out as rates increase, although it seems like that will be a hinderance if rates continue to fall. Currently NSTS’s residential loans yield about 4.2%, while the current market rate is around 6%. Their commercial real estate loans are also about 2% below market. The low yield on residential loans is hurting NSTS, and it doesn’t help these are long term loans that only re-rates when people sell their house or refinance, which is not happening much lately.

Zooming out to NSTS’s total assets, 49.5% of the assets are loans, 32.8% are securities held for sale, 12.6% is cash and equivalents, and 5.1% being other assets. This asset mix consists of a large portion of cash and investment securities where normally you would prefer a heavier emphasis on loans. It seems the explanation for this is that NSTS was a mutual thrift bank that converted to a publicly listed bank in 2022. During the IPO process the bank raised a decent amount of capital that has sat around as investment securities instead of being loaned out. About 75% of NSTS’s securities portfolio is made up of GSE mortgage backed securities, 15% Government and agency obligations, then 10% in municipal bonds. The emphasis on mortgage backed securities is probably a reach for yield for their large securities portfolio.

Deposit Mix

NSTS has a total deposit figure of $186M, where 51.1% of these deposits are made up of time deposits. Non-interest bearing deposits are only 6.2%, while interest bearing demand, money market accounts, and savings accounts make up the remaining 42.7%. The high ratio of expensive time deposits and a low ratio of cheap non-interest funding suggests NSTS does not have a great deposit franchise. The heavy use of time deposits is going to make the bank more sensitive to interest rate changes and could be “hot money” that easily flees to a better rate paying bank. Overall NSTS’s cost of deposits is 2.0%. A large chunk of the bank’s loan book are loans from 2020-21 with 3.5% rates. That means the net interest margin for that part of their loans is quite low, which partially explains NSTS’s struggle for profits. Total yield on assets is 4.3%, producing a net interest margin of 2.89%. Ideally the margin would be 3-3.5%, so NSTS is a bit mediocre in this department.

As far as capital ratios go, I stick to the basics by looking at equity divided by toal assets. NSTS has $78.9M in equity and $269.8M in assets, for a ratio of 24.2%. This is a very strong capitalization ratio, much higher than the reasonable level of 8-10%. On the plus side, this capital ratio means NSTS can weather heavy losses without going bust. However the cause of this overcapitalization is from the bank raising capital through their 2022 IPO, and this excess capital has not been converted to loans. I’m not sure what the limiting factor is for them not writing more loans, hopefully underwriting conservatism, but perhaps in the future they will be able to write loans with a good NIM and put the capital to good use.

Profitability

In the trailing twelve months NSTS has lost $789k. For 2024 the bank lost $1M and in 2023 they lost $4.1M. It appears the large loss in 2023 was largely due to costs from going public. These losses make looking at efficiency ratio and return on equity pointless. Perhaps if NSTS can smartly use their surplus of capital, then income can overcome the drag of non-interest expenses.

Valuation

Typically I would estimate a bank stock to return over a long period to correspond to their return on equity scaled by the multiple of book value being paid. Currently NSTS has a book value of $16.10 a share, which is quite the premium from their $12.50 stock price. However since the bank has not been profitable since it has gone public, my valuation model does not work since they have negative return on equity. That leaves us with a set of assets that can be purchased at a discount, and maybe some of these assets can be put to better use. However that requires more research into the management to see whether there is a reasonable chance they will be successful. NSTS is probably in the too hard pile for me, but it was interesting looking at an over-capitalized thrift conversion.

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