NSTS Bancorp, Waukegan, IL (NSTS)

An Illinois Case of Self-Serving Bank Conversion

In my opinion, Illinois’ NSTS Bancorp is one of the Top 3 worst recent bank conversions along with 1895 Bancorp of Wisconsin (BCOW) and Ponce Financial Group of New York (PBLB).

Is there an NSTS shareholder who meets SEC Rule §240.14a-8 criteria for Who Can Submit a Shareholder Proposal willing to deliver the kick in the pants North Shore Trust and Savings apparently needs to do the right thing and sell the bank? 

North Shore can't legally sell before the three anniversary of their conversion comes up in January 2025, but its upcoming May 2024 annual meeting would be the perfect time to put your proposal up for a shareholder vote as needed to get Management in line sooner vs later. 

Per North Shore's latest Proxy, the deadline to submit a proposal is December 16, 2023.

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Disclosure: As of this posting, I own shares of NSTS and may subsequently either dispose of them or purchase more.

Prospective Buyers	I suspect any or all of these Illinois banks would be interested in submitting a bid to buy North Shore Trust and Savings when its three-year moratorium on a sale expires in 2025: First Mid Bancshares, Matoon, IL (FMBH) HBT Financial, Bloomington, IL (HBT) Tri-County Financial, Mendota, IL (TYFG)
Financial Snapshot †as of 06/30/2023	Total assets: $257M† Tangible book value per share:    $14.53† NPAs to assets: 0.3%† Price to book: 59% Market cap: $48M Dividend yield: 0% Trailing 12-month ROA: -0.06%† Trailing 12-month ROE: -0.27%†
Scoundrels	Stephen G. Lear, Chairman, President, and CEO Nathan E. Walker, CEO North Shore Trust Thomas Ivantic, Director (longest serving)
Red Flags	North Shore Trust and Savings is run by weak operators with a flawed operating model delivering a negative return on equity. Two years after taking NSTS public, Management has failed to successfully deploy the money they raised. They're buying back stock, but not anywhere near as aggressively as they should. Instead of cutting costs, NSTS hired a team of seven mortgage lenders, raised Management salaries by 14%, and paid CEO Stephen Lear average compensation of $340K per year. In contrast, the annual salary for the average bank CEO in the US is $184K,* and the average bank has been earning a 12.9% ROE.**
Sources	North Shore Trust and Savings website 2023 Proxy Statement SEC Rule §14a-8 Denver Law Review of SEC Rule §14a-8 Confidential interviews with other shareholders  * How much does a bank CEO make? (by Comparably) ** Return on Equity (ROE) of US Commercial Banking Industry (by Statista)

24 Underperforming Bank Stocks

Stuck Owning Stock in a Bank that Should be Sold?

Happily, if you’ve owned some of the bank’s stock for awhile,* there’s a legal process whereby you can strongly encourage management to sell the bank. 

Specifically, according to SEC Rule §240.14a-8, you can write a shareholder proposal that the bank’s board of directors must include in the next proxy statement they send to all shareholders.

Submitting individual shareholder proposals to bank management has gotten easier since 2010, but it appears that interest in supporting such proposals is just starting to be “a thing.” Personally, I’d like to see it become an even bigger thing, because there are a couple dozen community banks in the country that could use a public kick in the pants, ideally dealt from a shareholder in their own back yard.

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Disclosure: As of this posting, I own shares in all but one of the 25 banks mentioned in this post and may subsequently either dispose of them or purchase more.

How It Works	*WHO Can Submit a Proposal According to SEC rules, if you’ve owned the following dollar values of a given bank stock for the following durations, then you can submit a proposal to management that the bank must both include in its next proxy statement, and present to your fellow shareholders for a vote. $2K for three years $15K for two years $25K for one year HOW To Submit a Proposal  Basically, to deliver this sort of kick, you write a proposal outlining your reasons for believing it’s high time management sell the bank, submit your proposal to the bank with a letter that conforms both to SEC rules and the bank’s previous proxy statement, and follow up with bank management as needed to see it through to a proxy vote.  See https://www.sec.gov/divisions/corpfin/rule-14a-8.pdf  WHAT to Expect Management may ignore you (if you let them) in an attempt to run out the proxy deadline clock. They may try to talk you out of it, challenge your right to make the proposal, or claim your proposal is deficient in some way.  Note that even if your proposal is deficient, there’s a deadline for the bank to make this claim, and the bank is required by SEC rules to afford you time to cure the deficiency, for example, by amending your proposal or submitting documentation supporting your claims.
Good Example	Mid-Southern Bank Management Gets a Kick in the Pants Since the day it went public in July 2018, Indiana’s Mid-Southern Bancorp (MSVB) has been mismanaged and underperforming. Unsurprisingly, Mid-Southern’s performance invited pressure from shareholders losing money on the stock.  On August 3, 2021, Mid-Southern silenced its loudest shareholder critic by buying him out at a premium not afforded to other MSVB shareholders.  On December 22, 2023, another shareholder of Mid-Southern Bancorp submitted a formal proposal recommending the bank be sold. Apparently, Mid-Southern deemed this shareholder too small to be worthy of a premium buy-out offer, but as required by law, the bank did publish the shareholder’s proposal in the proxy for its annual meeting. The proposal won 56% of the shareholder vote, in spite of self-serving opposition by bank Management and proxy advisors.  Was the kick enough to make Mid-Southern respect shareholders' demands to sell the bank? Time will tell. But it was a well-deserved and well-delivered kick that should inspire confidence in shareholders seeking to protect their investments from being squandered.
24 Invitations	Banks Deserving a Kick in the Pants Here’s a shortlist of community banks I believe are worth far more in a sale than the market will accord them under current Management.  Managers of these banks are a walking invitation for a good kick in the pants. Were I to see a shareholder proposal recommending the sale of any of these banks in a proxy statement, I would very likely vote for it.  1895 Bancorp of WIS (BCOW) Ameriserv Financial (ASRV) BankFinancial (BFIN) Broadway Financial (BYFC) California Bancorp (CALB) Citizens Community Bancorp (CZWI) Community Bank of Santa Maria (CYSM) Community First Bancorporation (CFOK) First Commerce Bancorporation (CMRB) First US Bancshares (FUSB) FVCBankcorp (FVCB) Horizon Bancorp (HBNC) LCNB Corp (LCNB) Lewis & Clark Bancorp (LWCL) MainStreet Bancshares (MNSB) North Dallas Bank & Trust (NODB) NSTS Bancorp (NSTS) Oregon Pacific Bancorp (ORPB) Pathfinder Bancorp (PBHC) Ponce Financial (PDLB) Provident Financial Holdings (PROV)  Third Century Bancorp (TDCB)  Touchstone Bankshares (TSBA) Town Center Bank (TCNB)
Sources	SEC Rule §14a-8 Denver Law Review of SEC Rule §14a-8 Mid-Southern Bancorp April 2023 Proxy Statement Mid-Southern Bancorp Statement in Opposition to Shareholder Proposal May 2023 Mid-Southern Bancorp Form 8-K