PARKE BANCORP, INC. 10-Q

Item 1. Financial Statements Parke Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets (unaudited) (Dollars in thousands except per share data) March 31, 2024 December 31, 2023 Assets Cash and due from banks $ 7,624 $ 12,716 Interest bearing deposits with banks 163,469 167,660 Cash and cash equivalents 171,093 180,376 Investment securities available for sale, at fair value 6,640 7,095 Investment securities held to maturity, net of allowance for credit losses of $ 0 at March 31, 2024 and December 31, 2023 (fair value of $ 7,685 at March 31, 2024 and $ 7,892 at December 31, 2023) 9,271 9,292 Total investment securities 15,911 16,387 Loans, net of unearned income 1,785,542 1,787,340 Less: Allowance for credit losses ( 31,918 ) ( 32,131 ) Net loans 1,753,624 1,755,209 Accrued interest receivable 8,865 8,555 Premises and equipment, net 5,501 5,579 Restricted stock 6,298 7,636 Bank owned life insurance (BOLI) 28,575 28,415 Deferred tax asset 9,271 9,262 Other real estate owned (OREO) 1,550 1,550 Other 8,385 10,531 Total assets $ 2,009,073 $ 2,023,500 Liabilities and Shareholders' Equity Liabilities Deposits Noninterest-bearing deposits $ 196,388 $ 232,189 Interest-bearing deposits 1,367,316 1,320,638 Total deposits 1,563,704 1,552,827 FHLBNY borrowings 95,000 125,000 Subordinated debentures 43,158 43,111 Accrued interest payable 4,398 4,146 Other 14,427 14,099 Total liabilities 1,720,687 1,739,183 Shareholders' Equity Preferred stock, 1,000,000 shares authorized, $ 1,000 liquidation value Series B non-cumulative convertible; 375 shares outstanding at March 31, 2024 and December 31, 2023 375 375 Common stock, $ 0.10 par value; authorized 15,000,000 shares; Issued: 12,247,343 shares and 12,240,821 shares at March 31, 2024 and December 31, 2023, respectively 1,225 1,224 Additional paid-in capital 136,801 136,700 Retained earnings 153,430 149,437 Accumulated other comprehensive loss ( 430 ) ( 404 ) Treasury stock, 284,522 shares at March 31, 2024 and December 31, 2023, at cost ( 3,015 ) ( 3,015 ) Total shareholders’ equity 288,386 284,317 Total liabilities and shareholders' equity $ 2,009,073 $ 2,023,500 See accompanying notes to the unaudited consolidated financial statements 1 Parke Bancorp Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (unaudited) (Dollars in thousands except per share data) For the Three Months Ended March 31, 2024 2023 Interest income: Interest and fees on loans $ 28,083 $ 24,545 Interest and dividends on investments 249 210 Interest on deposits with banks 1,145 1,269 Total interest income 29,477 26,024 Interest expense: Interest on deposits 13,457 7,582 Interest on borrowings 1,966 1,293 Total interest expense 15,423 8,875 Net interest income 14,054 17,149 Provision for (recovery of) credit losses 204 ( 2,400 ) Net interest income after provision for (recovery of) credit losses 13,850 19,549 Non-interest income Service fees on deposit accounts 379 1,215 Other loan fees 238 178 Bank owned life insurance income 160 143 Other 285 246 Total non-interest income 1,062 1,782 Non-interest expense Compensation and benefits 3,218 3,641 Professional services 445 593 Occupancy and equipment 641 644 Data processing 366 301 FDIC insurance and other assessments 331 225 OREO expense 353 172 Other operating expense 1,181 1,185 Total non-interest expense 6,535 6,761 Income before income tax expense 8,377 14,570 Income tax expense 2,226 3,440 Net income attributable to Company 6,151 11,130 Less: Preferred stock dividend ( 6 ) ( 7 ) Net income available to common shareholders $ 6,145 $ 11,123 Earnings per common share Basic $ 0.51 $ 0.93 Diluted $ 0.51 $ 0.92 Weighted average common shares outstanding Basic 11,958,776 11,944,163 Diluted 12,138,613 12,160,793 See accompanying notes to the unaudited consolidated financial statements 2 Parke Bancorp Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) (Dollars in thousands) For the Three Months Ended March 31, 2024 2023 Net income attributable to the Company $ 6,151 $ 11,130 Unrealized (loss) gain on investment securities ( 35 ) 82 Tax impact on unrealized loss (gain) 9 ( 21 ) Total unrealized (loss) gain on investment securities ( 26 ) 61 Comprehensive income attributable to the Company $ 6,125 $ 11,191 See accompanying notes to the unaudited consolidated financial statements 3 Parke Bancorp, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EQUITY (unaudited) (Dollars in thousands except share data) Three-months ended March 31, 2024 and 2023 Shares of Preferred Stock Outstanding Preferred Stock Shares of Common Stock issued Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Shareholders' Equity Three Months Ended Balance, December 31, 2022 445 $ 445 12,225,097 $ 1,223 $ 136,201 $ 131,706 $ ( 526 ) $ ( 3,015 ) $ 266,034 Cumulative effect of adoption of ASU 2016-13 — — — — — ( 2,102 ) — — ( 2,102 ) Net income — — — — — 11,130 — — 11,130 Common stock options exercised — — 6,096 — 33 — — — 33 Other comprehensive income — — — — — — 61 — 61 Stock compensation expense — — — — 107 — — — 107 Dividend on preferred stock ($ 15.00 per share) — — — — — ( 7 ) — — ( 7 ) Dividend on common stock ($ 0.18 per share) — — — — — ( 2,150 ) — — ( 2,150 ) Balance, March 31, 2023 445 $ 445 12,231,193 $ 1,223 $ 136,341 $ 138,577 $ ( 465 ) $ ( 3,015 ) $ 273,106 Three Months Ended Balance, December 31, 2023 375 $ 375 12,240,821 $ 1,224 $ 136,700 $ 149,437 $ ( 404 ) $ ( 3,015 ) $ 284,317 Net income — — — — — 6,151 — — 6,151 Common stock options exercised — — 6,522 1 55 — — — 56 Other comprehensive loss — — — — — — ( 26 ) — ( 26 ) Stock compensation expense — — — — 46 — — — 46 Dividend on preferred stock ($ 15.00 per share) — — — — — ( 6 ) — — ( 6 ) Dividend on common stock ($ 0.18 per share) — — — — — ( 2,152 ) — — ( 2,152 ) Balance, March 31, 2024 375 $ 375 12,247,343 $ 1,225 $ 136,801 $ 153,430 $ ( 430 ) $ ( 3,015 ) $ 288,386 See accompanying notes to the unaudited consolidated financial statements 4 Parke Bancorp Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Dollars in thousands) For the Three Months Ended March 31, 2024 2023 Cash Flows from Operating Activities: Net income $ 6,151 $ 11,130 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 143 31 Provision for (recovery of) credit losses 204 ( 2,400 ) Increase in value of bank owned life insurance ( 160 ) ( 143 ) Net accretion of purchase premiums and discounts on securities ( 11 ) ( 9 ) Stock based compensation 46 107 Net changes in: Decrease in accrued interest receivable and other assets 1,836 195 Increase in accrued interest payable and other accrued liabilities 141 1,638 Net cash provided by operating activities 8,350 10,549 Cash Flows from Investing Activities: Repayments and maturities of investment securities available for sale 415 465 Repayments and maturities of investment securities held to maturity 37 34 Net decrease (increase) in loans 1,820 ( 11,356 ) (Purchases) sales of bank premises and equipment ( 18 ) 133 Redemptions of restricted stock 3,600 — Purchases of restricted stock ( 2,262 ) ( 3,690 ) Net cash provided by (used in) investing activities 3,592 ( 14,414 ) Cash Flows from Financing Activities: Cash dividends ( 2,158 ) ( 2,157 ) Proceeds from exercise of stock options 56 33 Decrease in FHLBNY long-term borrowings ( 75,000 ) — Net increase in FHLBNY short-term borrowings 45,000 82,000 Net decrease in noninterest-bearing deposits ( 35,801 ) ( 75,418 ) Net increase (decrease) in interest-bearing deposits 46,678 ( 36,769 ) Net cash used in financing activities ( 21,225 ) ( 32,311 ) Net decrease in cash and cash equivalents ( 9,283 ) ( 36,176 ) Cash and Cash Equivalents, January 1, 180,376 182,150 Cash and Cash Equivalents, March 31, $ 171,093 $ 145,974 Supplemental Disclosure of Cash Flow Information: Interest paid $ 15,171 $ 8,396 Income taxes paid $ 237 $ 1,445 Non-cash Investing and Financing Items Loans transferred to OREO $ — $ 123 Accrued dividends payable $ 2,158 $ 2,157 See accompanying notes to the unaudited consolidated financial statements 5 Notes to Consolidated Financial Statements (Unaudited) NOTE 1. ORGANIZATION Parke Bancorp, Inc. (the “Company, we, us, our”) is a bank holding company headquartered in Sewell, New Jersey. Through subsidiaries, the Company provides individuals, corporations and other businesses and institutions with commercial and retail banking services, principally loans and deposits. The Company was incorporated in January 2005 under the laws of the State of New Jersey for the sole purpose of becoming the holding company of Parke Bank (the "Bank"). The Bank is a commercial bank, which was incorporated on August 25, 1998, and commenced operations on January 28, 1999 . The Bank is chartered by the New Jersey Department of Banking and Insurance and its deposits are insured by the Federal Deposit Insurance Corporation. The Bank maintains its principal office at 601 Delsea Drive, Sewell, New Jersey, and has six additional branch office locations; 501 Tilton Road, Northfield, New Jersey, 567 Egg Harbor Road, Washington Township, New Jersey, 67 East Jimmie Leeds Road, Galloway Township, New Jersey, 1150 Haddon Avenue, Collingswood, New Jersey, 1610 Spruce Street, Philadelphia, Pennsylvania, and 1032 Arch Street, Philadelphia, Pennsylvania. The Bank also has a loan office located at 1817 East Venango Street, Philadelphia, Pennsylvania. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Financial Statement Presentation: We prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Parke Bank (including certain partnership interests). Parke Capital Trust I, Parke Capital Trust II and Parke Capital Trust III are wholly-owned subsidiaries but are not consolidated as they do not meet the requirements for consolidation under applicable accounting guidance. We have eliminated inter-company balances and transactions. We have also reclassified certain prior year amounts to conform to the current year presentation, which did not have a material impact on our consolidated financial condition or results of operations. The accompanying interim financial statements should be read in conjunction with the annual financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The accompanying interim financial statements for the three months ended March 31, 2024 and 2023 are unaudited. The balance sheet as of December 31, 2023, was derived from the audited financial statements. In the opinion of management, these financial statements include all normal and recurring adjustments necessary for a fair statement of the results for such interim periods. Results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results for the full year or any other period. Use of Estimates: The preparation of financial statements in conformity with GAAP requires management 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the allowance for credit losses, the valuation of deferred income taxes, and the carrying value of other real estate owned ("OREO"). Recently Issued Accounting Pronouncements: In March 2020, the FASB issued ASU No. 2020.-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional guidance to entities for a limited period of time to ease the transition in accounting for and recognizing the effects of reference rate reform on financial reporting. Under the guidance, modifications of contracts due to reference rate reform will not require contract remeasurement or reassessment of a previous accounting determination. For hedge accounting, modification of critical terms of the hedge due to changes in reference rate reform will not affect hedge accounting or de-designate the hedging relationship. The guidance also provides specific expedients for fair value hedges, cash flow hedges, and excluded components. Further, the guidance provides a one-time election to sell or transfer held to maturity debt securities that are affected by the reference rate change. The guidance is effective upon issuance through December 31, 2022. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the sunset (or expiration) date of Accounting Standards Codification (ASC) Topic 848 to December 31, 2024. This gives reporting entities two additional years to apply the accounting relief provided under ASC Topic 848 for matters related to reference rate reform. ASU 2022-06 is effective for all reporting entities immediately upon issuance and must be applied on a prospective basis. The Company does not expect the application of this guidance to have a material impact on the Consolidated Financial Statements. 6 NOTE 3. INVESTMENT SECURITIES The following is a summary of the Company's investments in available for sale and held to maturity securities as of March 31, 2024 and December 31, 2023: As of March 31, 2024 Amortized cost Gross unrealized gains Gross unrealized losses Fair value (Dollars in thousands) Available for sale: Residential mortgage-backed securities $ 7,219 $ 1 $ 580 $ 6,640 Total available for sale $ 7,219 $ 1 $ 580 $ 6,640 Held to maturity: Residential mortgage-backed securities $ 5,368 $ — $ 1,169 $ 4,199 States and political subdivisions 3,903 22 439 3,486 Total held to maturity $ 9,271 $ 22 $ 1,608 $ 7,685 As of December 31, 2023 Amortized cost Gross unrealized gains Gross unrealized losses Fair value (Dollars in thousands) Available for sale: Residential mortgage-backed securities $ 7,639 $ 3 $ 547 $ 7,095 Total available for sale $ 7,639 $ 3 $ 547 $ 7,095 Held to maturity: Residential mortgage-backed securities $ 5,406 $ — $ 1,054 $ 4,352 States and political subdivisions 3,886 38 384 3,540 Total held to maturity $ 9,292 $ 38 $ 1,438 $ 7,892 7 The amortized cost and fair value of debt securities classified as available for sale and held to maturity, by contractual maturity as of March 31, 2024 are as follows: Amortized Cost Fair Value (Dollars in thousands) Available for sale: Due within one year $ — $ — Due after one year through five years 2,755 2,573 Due after five years through ten years 974 906 Due after ten years 3,490 3,161 Total available for sale $ 7,219 $ 6,640 Held to maturity: Due within one year $ — $ — Due after one year through five years 1,429 1,451 Due after five years through ten years — — Due after ten years 7,842 6,234 Total held to maturity $ 9,271 $ 7,685 Expected maturities may differ from contractual maturities because the issuers of certain debt securities do have the right to call or prepay their obligations without any penalty. The Company did not sell any securities during the three months ended March 31, 2024. The following tables show the gross unrealized losses and fair value of the Company's available for sale investments for which an allowance for credit losses has not been recorded, which are aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2024 and December 31, 2023: As of March 31, 2024 Less Than 12 Months 12 Months or Greater Total Description of Securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (Dollars in thousand) Available for sale: Residential mortgage-backed securities $ 80 $ — $ 6,439 $ 580 $ 6,519 $ 580 Total available for sale $ 80 $ — $ 6,439 $ 580 $ 6,519 $ 580 As of December 31, 2023 Less Than 12 Months 12 Months or Greater Total Description of Securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (Dollars in thousands) Available for sale: Residential mortgage-backed securities $ 25 $ — $ 6,870 $ 547 $ 6,895 $ 547 Total available for sale $ 25 $ — $ 6,870 $ 547 $ 6,895 $ 547 The Company’s unrealized loss for the debt securities is comprised of 8 securities in the less than 12 months loss position and 20 securities in the 12 months or greater loss position at March 31, 2024. The mortgage-backed securities that had unrealized losses were issued or guaranteed by the US government or US government sponsored entities. The unrealized losses associated with those mortgage-backed securities are generally driven by changes in interest rates and are not due to credit losses given the explicit or implicit guarantees provided by the U.S. government. The states and political subdivisions securities that had unrealized losses were issued by a school district, and the loss is attributed to changes in interest rates and not due to credit losses. Because the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis, the Company does not consider the unrealized loss in these securities to be credit losses at March 31, 2024. 8 NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES ON LOANS At March 31, 2024 and December 31, 2023, the Company had $ 1.79 billion and $ 1.79 billion, respectively, in loans receivable outstanding. Outstanding balances include $ 2.4 million and $ 2.7 million at March 31, 2024 and December 31, 2023, respectively, for net deferred loan costs, and unamortized discounts. The portfolio segments of loans receivable at March 31, 2024 and December 31, 2023, consist of the following: March 31, 2024 December 31, 2023 (Dollars in thousands) Commercial and Industrial $ 37,002 $ 35,451 Construction 142,178 157,556 Real Estate Mortgage: Commercial – Owner Occupied 140,021 141,742 Commercial – Non-owner Occupied 360,961 369,909 Residential – 1 to 4 Family 448,219 449,682 Residential – 1 to 4 Family Investment 523,029 524,167 Residential – Multifamily 128,855 103,324 Consumer 5,277 5,509 Total Loan receivable 1,785,542 1,787,340 Allowance for credit losses on loans ( 31,918 ) ( 32,131 ) Total loan receivable, net of allowance for credit losses on loans $ 1,753,624 $ 1,755,209 An age analysis of past due loans by class at March 31, 2024 and December 31, 2023 is as follows: March 31, 2024 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Total Past Due Current Total Loans (Dollars in Thousands) Commercial and Industrial $ — $ — $ 698 $ 698 $ 36,304 $ 37,002 Construction — — 1,091 1,091 141,087 142,178 Real Estate Mortgage: Commercial – Owner Occupied — — 1,117 1,117 138,904 140,021 Commercial – Non-owner Occupied — — 2,106 2,106 358,855 360,961 Residential – 1 to 4 Family 357 — 1,969 2,326 445,893 448,219 Residential – 1 to 4 Family Investment 438 287 — 725 522,304 523,029 Residential – Multifamily — — — — 128,855 128,855 Consumer 19 — — 19 5,258 5,277 Total Loans $ 814 $ 287 $ 6,981 $ 8,082 $ 1,777,460 $ 1,785,542 9 December 31, 2023 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Total Past Due Current Total Loans (Dollars in thousands) Commercial and Industrial $ — $ — $ 712 $ 712 $ 34,739 $ 35,451 Construction — — 1,091 1,091 156,465 157,556 Real Estate Mortgage: Commercial – Owner Occupied — — 1,117 1,117 140,625 141,742 Commercial – Non-owner Occupied — 1,549 3,107 4,656 365,253 369,909 Residential – 1 to 4 Family 58 1,793 1,211 3,062 446,620 449,682 Residential – 1 to 4 Family Investment — 440 — 440 523,727 524,167 Residential – Multifamily — — — — 103,324 103,324 Consumer 66 — — 66 5,443 5,509 Total Loans $ 124 $ 3,782 $ 7,238 $ 11,144 $ 1,776,196 $ 1,787,340 The following table provides the amortized cost of loans on nonaccrual status: March 31, 2024 (amounts in thousands) Nonaccrual with no ACL Nonaccrual with ACL Total Nonaccrual Loans Past Due Over 90 Days Still Accruing Total Nonperforming Commercial and Industrial $ 277 $ 421 $ 698 $ — $ 698 Construction 1,091 — 1,091 — 1,091 Commercial - Owner Occupied 717 400 1,117 — 1,117 Commercial - Non-owner Occupied 2,106 — 2,106 — 2,106 Residential - 1 to 4 Family 1,954 — 1,954 15 1,969 Residential - 1 to 4 Family Investment — — — — — Residential - Multifamily — — — — — Consumer — — — — — Total $ 6,145 $ 821 $ 6,966 $ 15 $ 6,981 10 December 31, 2023 (amounts in thousands) Nonaccrual with no ACL Nonaccrual with ACL Total Nonaccrual Loans Past Due Over 90 Days Still Accruing Total Nonperforming Commercial and Industrial $ 277 $ 435 $ 712 $ — $ 712 Construction 1,091 — 1,091 — 1,091 Commercial - Owner Occupied 717 400 1,117 — 1,117 Commercial - Non-owner Occupied 3,107 — 3,107 — 3,107 Residential - 1 to 4 Family 1,211 — 1,211 — 1,211 Residential - 1 to 4 Family Investment — — — — — Residential - Multifamily — — — — — Consumer — — — — — Total $ 6,403 $ 835 $ 7,238 $ — $ 7,238 Allowance For Credit Losses (ACL) We maintain the ACL at a level that we believe to be appropriate to absorb estimated credit losses in the loan portfolios as of the balance sheet date. We established our allowance in accordance with guidance provided in Accounting Standard Codification ("ASC") - Financial Instruments - Credit Losses ("ASC 326"). The allowance for credit losses represents management’s estimate of expected losses inherent in the Company’s lending activities excluding loans accounted for under fair value. The allowance for credit losses is maintained through charges to the provision for credit losses in the Consolidated Statements of Income as expected losses are estimated. Loans or portions thereof that are determined to be uncollectible are charged against the allowance, and subsequent recoveries, if any, are credited to the allowance. The Company performs periodic reviews of its loan and lease portfolios to identify credit risks and to assess the overall collectability of those portfolios. The Company's allowance for credit losses includes a general component and an asset-specific component for collateral-dependent loans. To determine the asset-specific component of the allowance, the loans are evaluated individually based on the fair value of the underlying collateral. The Company generally measures the asset-specific allowance as the difference between the net realizable value of loan collateral and the recorded investment of a loan. The general component of the allowance evaluates the impairments of pools of the loan portfolio collectively. It incorporates a historical valuation allowance and qualitative allowance. The historical valuation utilizes a vintage loss rate approach utilizing a third party software model. The vintage loss rate approach creates pools of loans based on the segments defined by management, and consists of commercial and industrial, construction, commercial - owner occupied, commercial - non-owner occupied, residential - 1 to 4 family, residential - 1 to 4 family investment, residential - multifamily, and consumer. The loan pools are aggregated by origination year. Charge-offs, net of recoveries, are allocated by the year of charge-off to each loan pool. An average life is prescribed to a pool of loans that were originated in a particular year. The actual charge-offs as a percent of total loans are calculated for each historical year, and projected for future years for each year within the average life time horizon. The sum of the actual charge-offs and projected charge-offs are divided by the average amortized origination amount for each respective year. Those charge-off percentages are added together to obtain an aggregated vintage loss percentage which is then multiplied by the outstanding loan balances to obtain a reserve requirement. The qualitative allowance component is based on general economic conditions and other qualitative risk factors both internal and external to the Company. It is generally determined by evaluating, among other things: (i) the experience, ability and effectiveness of the Bank's lending management and staff; (ii) the effectiveness of the Bank's lending policies, procedures and internal controls;(iii) volume and severity of loan credit quality; (iv) nature and volume of portfolio and term of loans (v) the composition and concentrations of credit; (vi) the effectiveness of the internal loan review system; and (vii) national and local economic trends and conditions, and industry conditions. Management evaluates the degree of risk that each one of these components has on the quality of the loan portfolio on a quarterly basis. Each component is determined to have either a high, high-moderate, moderate, low-moderate or low degree of risk. The results are then input into a "general allocation matrix" to determine an appropriate general valuation allowance. 11 The Company has elected to exclude accrued interest receivable from the measurement of the ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is generally reversed against interest income. The process of determining the level of the allowance for credit losses requires a high degree of estimate and judgment. It is reasonably possible that actual outcomes may differ from our estimates. Allowance for Credit Losses on Off-Balance Sheet Credit Exposures The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted through the provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. At March 31, 2024 and December 31, 2023, the allowance for credit losses on off-balance sheet credit exposures was $ 938.0 thousand and $ 499 thousand, respectively. The following tables present the information regarding the allowance for credit losses for the three months ended March 31, 2024 and 2023: Real Estate Mortgage Commercial and Industrial Construction Commercial Owner Occupied Commercial Non-owner Occupied Residential 1 to 4 Family Residential 1 to 4 Family Investment Residential Multifamily Consumer Total (Dollars in thousands) Three months ended March 31, 2024 December 31, 2023 $ 926 $ 3,347 $ 1,795 $ 7,108 $ 9,061 $ 8,783 $ 1,049 $ 62 $ 32,131 Charge-offs — — — — — — — — — Recoveries 22 — — — — — — — 22 Provisions (benefits) 112 ( 314 ) ( 104 ) ( 1,722 ) 274 813 698 8 ( 235 ) Ending Balance at March 31, 2024 $ 1,060 $ 3,033 $ 1,691 $ 5,386 $ 9,335 $ 9,596 $ 1,747 $ 70 $ 31,918 During the quarter, the increase to the Residential Multifamily portfolio was due to an increase in the portfolio balance that increased the loan exposure and also caused changes to the qualitative factors related to concentration levels within the portfolio segments. The increase to the Residential 1 to 4 Family Investment portfolio is driven by changes to the qualitative factors related to concentration levels within the portfolio segments. The provision benefit during the quarter to the Commercial Non-owner Occupied segment was mainly due to a decrease in the problem loan balance as well as a decrease in the portfolio balance. Real Estate Mortgage Commercial and Industrial Construction Commercial Owner Occupied Commercial Non-owner Occupied Residential 1 to 4 Family Residential 1 to 4 Family Investment Residential Multifamily Consumer Total (Dollars in thousands) Three months ended March 31, 2023 December 31, 2022 $ 390 $ 2,581 $ 2,298 $ 9,709 $ 6,076 $ 9,381 $ 1,347 $ 63 $ 31,845 Impact of adoption of ASC 326 168 1,899 ( 171 ) ( 951 ) 1,782 ( 795 ) ( 128 ) 53 $ 1,857 Charge-offs — — — — — — — — — Recoveries 3 — 2 — — — — — 5 Provisions (benefits) 177 ( 881 ) ( 253 ) ( 682 ) ( 52 ) ( 516 ) 19 ( 12 ) ( 2,200 ) Ending Balance at March 31, 2023 $ 738 $ 3,599 $ 1,876 $ 8,076 $ 7,806 $ 8,070 $ 1,238 $ 104 $ 31,507 12 During the quarter, the credit provisions to the Construction, Commercial Non-owner Occupied, and Residential 1-4 Family Investment segments were largely driven by declines or slowdowns to growth within the portfolio that lowered the loan exposure and also caused changes to the qualitative factors related to loan volume within the portfolio segments. The credit provision to the Commercial Owner Occupied segment was largely driven by a reduction in other assets especially mentioned ("OAEM") loans during the quarter, partially offset by an increase in loan volume. Collateral-Dependent Loans The following table presents the collateral-dependent loans by portfolio segment and collateral type at March 31, 2024: (amounts in thousands) Real Estate Business Assets Other Commercial and Industrial $ 698 $ — $ — Construction 1,091 — — Commercial - Owner Occupied 1,117 — — Commercial - Non-owner Occupied 2,106 — — Residential - 1 to 4 Family 1,954 — — Residential - 1 to 4 Family Investment — — — Residential - Multifamily — — — Consumer — — — Total $ 6,966 $ — $ — The following table presents the collateral-dependent loans by portfolio segment and collateral type at December 31, 2023: (amounts in thousands) Real Estate Business Assets Other Commercial and Industrial $ 712 $ — $ — Construction 1,091 — — Commercial - Owner Occupied 1,117 — — Commercial - Non-owner Occupied 3,107 — — Residential - 1 to 4 Family 1,211 — — Residential - 1 to 4 Family Investment — — — Residential - Multifamily — — — Consumer — — — Total $ 7,238 $ — $ — Credit Quality Indicators : As part of the on-going monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators including trends related to the risk grades of loans, the level of classified loans, net charge-offs, nonperforming loans (see details above) and the general economic conditions in the region. The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 7. Grades 1 through 4 are considered “Pass”. A description of the general characteristics of the seven risk grades is as follows: 1. Good : Borrower exhibits the strongest overall financial condition and represents the most creditworthy profile. 2. Satisfactory (A) : Borrower reflects a well-balanced financial condition, demonstrates a high level of creditworthiness and typically will have a strong banking relationship with the Bank. 3. Satisfactory (B) : Borrower exhibits a balanced financial condition and does not expose the Bank to more than a normal or average overall amount of risk. Loans are considered fully collectable. 4. Watch List : Borrower reflects a fair financial condition, but there exists an overall greater than average risk. Risk is deemed acceptable by virtue of increased monitoring and control over borrowings. Probability of timely repayment is present. 13 5. Other Assets Especially Mentioned (OAEM) : Financial condition is such that assets in this category have a potential weakness or pose unwarranted financial risk to the Bank even though the asset value is not currently individually evaluated. The asset does not currently warrant adverse classification but if not corrected could weaken and could create future increased risk exposure. Includes loans that require an increased degree of monitoring or servicing as a result of internal or external changes. 6. Substandard : This classification represents more severe cases of #5 (OAEM) characteristics that require increased monitoring. Assets are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral. Asset has a well-defined weakness or weaknesses that impairs the ability to repay debt and jeopardizes the timely liquidation or realization of the collateral at the asset’s net book value. 7. Doubtful : Assets which have all the weaknesses inherent in those assets classified #6 (Substandard) but the risks are more severe relative to financial deterioration in capital and/or asset value; accounting/evaluation techniques may be questionable and the overall possibility for collection in full is highly improbable. Borrowers in this category require constant monitoring, are considered work-out loans and present the potential for future loss to the Bank. The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to determine the allowance for credit losses, as of March 31, 2024. (Dollars in thousands) Term Loans Amortized Cost Basis by Origination Year Revolving Loans at Amortized Cost Basis As of March 31, 2024 2024 2023 2022 2021 2020 Prior Total Commercial and Industrial Pass $ 574 $ 4,584 $ 1,115 $ 56 $ 734 $ 7,459 $ 21,782 $ 36,304 OAEM — — — — — — — — Substandard — — 421 — — — 277 698 Doubtful — — — — — — — — $ 574 $ 4,584 $ 1,536 $ 56 $ 734 $ 7,459 $ 22,059 $ 37,002 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Construction Pass $ — $ 321 $ 3,337 $ 10 $ 207 $ — $ 137,212 $ 141,087 OAEM — — — — — — — — Substandard — — — — — 1,091 — 1,091 Doubtful — — — — — — — — $ — $ 321 $ 3,337 $ 10 $ 207 $ 1,091 $ 137,212 $ 142,178 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial – Owner Occupied Pass $ — $ 19,729 $ 35,746 $ 21,380 $ 6,976 $ 52,379 $ 2,694 $ 138,904 OAEM — — — — — — — — Substandard — — — — — 1,117 — 1,117 Doubtful — — — — — — — — $ — $ 19,729 $ 35,746 $ 21,380 $ 6,976 $ 53,496 $ 2,694 $ 140,021 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial – Non-owner Occupied 14 Pass $ 19,977 $ 15,908 $ 75,683 $ 33,292 $ 32,735 $ 164,639 $ 1,235 $ 343,469 OAEM — — — — — 15,386 — 15,386 Substandard — — — — 249 1,857 — 2,106 Doubtful — — — — — — — — $ 19,977 $ 15,908 $ 75,683 $ 33,292 $ 32,984 $ 181,882 $ 1,235 $ 360,961 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Residential – 1 to 4 Family Performing $ 22,696 $ 57,115 $ 115,529 $ 60,054 $ 32,883 $ 153,230 $ 4,758 $ 446,265 Nonperforming — — — — 758 1,196 — 1,954 $ 22,696 $ 57,115 $ 115,529 $ 60,054 $ 33,641 $ 154,426 $ 4,758 $ 448,219 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Residential – 1 to 4 Family Investment Performing $ 13,128 $ 85,537 $ 135,889 $ 113,834 $ 48,909 $ 125,732 $ — $ 523,029 Nonperforming — — — — — — — — $ 13,128 $ 85,537 $ 135,889 $ 113,834 $ 48,909 $ 125,732 $ — $ 523,029 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Residential – Multifamily Pass $ 999 $ 5,400 $ 45,934 $ 26,258 $ 12,088 $ 38,176 $ — $ 128,855 OAEM — — — — — — — $ — Substandard — — — — — — — $ — Doubtful — — — — — — — — $ 999 $ 5,400 $ 45,934 $ 26,258 $ 12,088 $ 38,176 $ — $ 128,855 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Consumer Performing $ — $ — $ — $ — $ — $ 5,277 $ — $ 5,277 Nonperforming — — — — — — — — $ — $ — $ — $ — $ — $ 5,277 $ — $ 5,277 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — As of March 31, 2024, the Company was in the process of foreclosing on $ 6.4 million in loans, consisting of 12 residential 1 to 4 family loans with a principal balance of $ 2.0 million, two commercial - owner occupied loans with a principal balance of $ 1.1 million, and three commercial - non-owner occupied loans with a principal balance of $ 3.3 million. 15 The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to determine the allowance for credit losses, as of December 31, 2023. (Dollars in thousands) Term Loans Amortized Cost Basis by Origination Year Revolving Loans at Amortized Cost Basis As of December 31, 2023 2023 2022 2021 2020 2019 Prior Total Commercial and Industrial Pass $ 4,724 $ 1,269 $ 87 $ 759 $ 598 $ 7,154 $ 20,148 $ 34,739 OAEM — — — — — — — — Substandard — 435 — — — — 277 712 Doubtful — — — — — — — — $ 4,724 $ 1,704 $ 87 $ 759 $ 598 $ 7,154 $ 20,425 $ 35,451 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Construction Pass $ 323 $ 3,335 $ 4,499 $ 195 $ — $ — $ 148,113 $ 156,465 OAEM — — — — — — — — Substandard — — — — — 1,091 — 1,091 Doubtful — — — — — — — — $ 323 $ 3,335 $ 4,499 $ 195 $ — $ 1,091 $ 148,113 $ 157,556 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial – Owner Occupied Pass $ 19,842 $ 36,030 $ 21,536 $ 7,104 $ 8,346 $ 45,249 $ 2,518 $ 140,625 OAEM — — — — — — — — Substandard — — — — — 1,117 — 1,117 Doubtful — — — — — — — — $ 19,842 $ 36,030 $ 21,536 $ 7,104 $ 8,346 $ 46,366 $ 2,518 $ 141,742 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial – Non-owner Occupied Pass $ 19,123 $ 93,805 $ 37,002 $ 33,316 $ 54,484 $ 112,471 $ 1,180 $ 351,381 OAEM — — — — — 15,421 — 15,421 Substandard — — — 250 2,586 271 — 3,107 Doubtful — — — — — — — — $ 19,123 $ 93,805 $ 37,002 $ 33,566 $ 57,070 $ 128,163 $ 1,180 $ 369,909 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Residential – 1 to 4 Family Performing $ 58,358 $ 117,044 $ 61,580 $ 33,037 $ 25,623 $ 148,124 $ 4,705 $ 448,471 Nonperforming 155 — — 285 771 — — 1,211 $ 58,513 $ 117,044 $ 61,580 $ 33,322 $ 26,394 $ 148,124 $ 4,705 $ 449,682 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Residential – 1 to 4 Family Investment 16 Performing $ 87,734 $ 138,884 $ 116,487 $ 50,119 $ 54,576 $ 76,367 $ — $ 524,167 Nonperforming — — — — — — — — $ 87,734 $ 138,884 $ 116,487 $ 50,119 $ 54,576 $ 76,367 $ — $ 524,167 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Residential – Multifamily Pass $ 2,292 $ 23,030 $ 27,006 $ 12,159 $ 9,989 $ 28,848 $ — $ 103,324 OAEM — — — — — — — $ — Substandard — — — — — — — $ — Doubtful — — — — — — — — $ 2,292 $ 23,030 $ 27,006 $ 12,159 $ 9,989 $ 28,848 $ — $ 103,324 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Consumer Performing $ — $ — $ — $ — $ — $ 5,493 $ 16 $ 5,509 Nonperforming — — — — — — — — $ — $ — $ — $ — $ — $ 5,493 $ 16 $ 5,509 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Modifications to Borrowers Experiencing Financial Difficulty At March 31, 2024, the Company did not make any modifications to borrowers experiencing financial difficulty. 17 NOTE 5. EARNINGS PER SHARE (“EPS”) The following tables set forth the calculation of basic and diluted EPS for the three-month periods ended March 31, 2024 and 2023. Three months ended March 31, 2024 2023 (Dollars in thousands except share and per share data) Basic earnings per common share Net income available to the Company $ 6,151 $ 11,130 Less: Dividend on series B preferred stock ( 6 ) ( 7 ) Net income available to common shareholders 6,145 11,123 Basic weighted-average common shares outstanding 11,958,776 11,944,163 Basic earnings per common share $ 0.51 $ 0.93 Diluted earnings per common share Net income available to common shares $ 6,145 $ 11,123 Add: Dividend on series B preferred stock 6 7 Net income available to diluted common shares 6,151 11,130 Basic weighted-average common shares outstanding 11,958,776 11,944,163 Dilutive potential common shares 179,837 216,630 Diluted weighted-average common shares outstanding 12,138,613 12,160,793 Diluted earnings per common share $ 0.51 $ 0.92 NOTE 6. FAIR VALUE Fair Value Measurements The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accordance with this guidance, the Company groups its assets and liabilities carried at fair value in three levels as follows: Level 1 Input: 1) Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 Inputs: 1) Quoted prices for similar assets or liabilities in active markets. 2) Quoted prices for identical or similar assets or liabilities in markets that are not active. 3) Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (e.g., interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.” Level 3 Inputs: 1) Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities. 18 2) These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. Fair Value on a Recurring Basis: The following is a description of the Company’s valuation methodologies for assets carried at fair value on a recurring basis. These methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes that its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting measurement date. Investments in Available for Sale Securities: Where quoted prices are available in an active market, securities or other assets are classified in Level 1 of the valuation hierarchy. If quoted market prices are not available for the specific security or available for sale loans, then fair values are provided by independent third-party valuation services. These valuation services estimate fair values using pricing models and other accepted valuation methodologies, such as quotes for similar securities and observable yield curves and spreads. As part of the Company’s overall valuation process, management evaluates these third-party methodologies to ensure that they are representative of exit prices in the Company’s principal markets. Securities in Level 2 include mortgage-backed securities, and corporate debt obligations. The table below presents the balances of assets and liabilities measured at fair value on a recurring basis. Financial Assets Level 1 Level 2 Level 3 Total (Dollars in thousands) Available for Sale Securities As of March 31, 2024 Residential mortgage-backed securities $ — $ 6,640 $ — $ 6,640 Total $ — $ 6,640 $ — $ 6,640 As of December 31, 2023 Residential mortgage-backed securities — 7,095 — 7,095 Total $ — $ 7,095 $ — $ 7,095 For the three months ended March 31, 2024, there were no transfers between the levels within the fair value hierarchy. There were no level 3 assets or liabilities held during the three months ended March 31, 2024 and 2023. Fair Value on a Non-recurring Basis: Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial Assets Level 1 Level 2 Level 3 Total (Dollars in thousands) As of March 31, 2024 Collateral-dependent loans $ — $ — $ 1,546 $ 1,546 OREO — — 1,550 1,550 As of December 31, 2023 Collateral-dependent loans $ — $ — $ 1,655 $ 1,655 OREO — — 1,550 1,550 Collateral-dependent loans are those loans that are accounted for under ASC 326, Financial Instruments - Credit Losses ("ASC 326"), in which the Bank has measured impairment generally based on the fair value of the loan’s collateral. Fair value is 19 generally determined based upon independent third-party appraisals of the properties that collateralize the loans. These assets are generally classified as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. OREO consists of real estate properties that are recorded at fair value based upon current appraised value, or agreements of sale, less estimated disposition costs using level 3 inputs. Properties are reappraised annually. Fair Value of Financial Instruments The Company discloses estimated fair values for its significant financial instruments in accordance with FASB ASC (Topic 825), “ Disclosures about Fair Value of Financial Instruments ”. The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These instruments include cash and cash equivalents, accrued interest receivable, bank owned life insurance, Federal Home Loan Bank of New York ("FHLBNY") restricted stock, demand and other non-maturity deposits and accrued interest payable, and they are considered to be level 1 measurements. The following table summarizes the carrying amounts and fair values for financial instruments that are not carried at fair value at March 31, 2024 and December 31, 2023: March 31, 2024 Carrying Amount Fair Value Total Level 1 Level 2 Level 3 (Dollars in thousands) Financial Assets: Investment securities HTM $ 9,271 $ 7,685 $ — $ 7,685 $ — Loans, net 1,753,624 1,732,954 — 1,722,324 10,630 Financial Liabilities: Time deposits $ 583,805 $ 581,844 $ — $ 581,844 $ — Borrowings 138,158 142,519 — 142,519 — December 31, 2023 Carrying Amount Fair Value Total Level 1 Level 2 Level 3 (Dollars in thousands) Financial Assets: Investment securities HTM $ 9,292 $ 7,892 $ — $ 7,892 $ — Loans, net 1,755,209 1,727,842 — 1,718,866 8,976 Financial Liabilities: Time deposits $ 607,070 $ 605,216 $ — $ 605,216 $ — Borrowings 168,111 172,985 — 172,985 — NOTE 7. COMMITMENTS AND CONTINGENCIES The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheet. The contract or notional amounts of these instruments reflect the extent of the Company’s involvement in these particular classes of financial instruments. The Company’s exposure to the maximum possible credit risk in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the 20 contractual or notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. The Company evaluates each customer’s credit-worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable; inventory; property, plant and equipment and income-producing commercial properties. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments to fund fixed-rate loans were immaterial at March 31, 2024. Variable-rate commitments are generally issued for less than one year and carry market rates of interest. Such instruments are not likely to be affected by annual rate caps triggered by rising interest rates. As of March 31, 2024 and December 31, 2023, unused commitments to extend credit amounted to approximately $ 112.8 million and $ 93.8 million, respectively. At March 31, 2024 and December 31, 2023, the allowance for credit losses on off-balance sheet credit exposures was $ 938.0 thousand and $ 499 thousand, respectively. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. As of March 31, 2024 and December 31, 2023, standby letters of credit with customers were $ 1.5 million and $ 1.5 million, respectively. On March 20, 2024, the Bank entered into an agreement with the FHLBNY for a Municipal Letter of Credit ("MLOC") of $ 60.0 million. The MLOC is used to pledge against public deposits and the MLOC expires on June 25, 2024. There were no outstanding borrowings on the letters of credit as of March 31, 2024. The Company also has entered into an employment contract with the President of the Company, which provides for continued payment of certain employment salary and benefits prior to the expiration date of the agreement and in the event of a change in control, as defined. The Company has also entered in Change-in-Control Severance Agreements with certain officers which provide for the payment of severance in certain circumstances following a change in control. We provide banking services to customers that are licensed by various States to do business in the cannabis industry as growers, processors and dispensaries. Cannabis businesses are legal in these States, although they are not legal at the federal level. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) published guidelines in 2014 for financial institutions servicing state legal cannabis businesses. A financial institution that provides services to cannabis-related businesses can comply with Bank Secrecy Act (“BSA”) disclosure standards by following the FinCEN guidelines. We maintain stringent written policies and procedures related to the acceptance of such businesses and to the monitoring and maintenance of such business accounts. We conduct a significant due diligence review of the cannabis business before the business is accepted, including confirmation that the business is properly licensed by the applicable state. Throughout the relationship, we continue monitoring the business, including site visits, to ensure that the business continues to meet our stringent requirements, including maintenance of required licenses and periodic financial reviews of the business. While we believe we are operating in compliance with the FinCEN guidelines, there can be no assurance that federal enforcement guidelines will not change. Federal prosecutors have significant discretion and there can be no assurance that the federal prosecutors will not choose to strictly enforce the federal laws governing cannabis. Any change in the Federal government’s enforcement position, could cause us to immediately cease providing banking services to the cannabis industry. At March 31, 2024 and December 31, 2023, deposit balances from cannabis customers were approximately $ 107.4 million and $ 96.7 million, or 6.9 % and 6.2 % of total deposits, respectively, with three customers accounting for 51.9 % and 60.6 % of the total at March 31, 2024 and December 31, 2023. At March 31, 2024 and December 31, 2023, there were cannabis-related loans in the amounts of $ 29.5 million and $ 27.1 million, respectively. 21