HERITAGE FINANCIAL CORP WA
For the period ended Dec 31, 2023. Filed Feb 27, 2024.
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FY2023 · Filed Feb 27, 2024
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ALLOWANCE FOR CREDIT LOSSES ON LOANS
(4)Allowance for Credit Losses on Loans
During the year ended December 31, 2023, the ACL on loans increased $5.0 million, or 11.7%, due primarily to a provision for credit losses on loans of $4.7 million. The provision for credit losses on loans recognized during the year ended December 31, 2023 was due primarily to growth in balances of collectively evaluated loans. The ACL on loans to Loans receivable increased to 1.11% as December 31, 2023, compared to 1.06% at December 31, 2022 due to changes in the loan mix as loan growth occurred in segments requiring a higher calculated reserve as a percentage of loans including real estate construction and land development loans.
The following tables detail the activity in the ACL on loans by segment and class for the periods indicated:
| Year Ended December 31, 2023 | |||||
|---|---|---|---|---|---|
| Beginning Balance | Charge-offs | Recoveries | Provision for (Reversal of) Credit Losses | Ending Balance | |
| (Dollars in thousands) | |||||
| Commercial business: | |||||
| Commercial and industrial | $13,962 | $(719) | $1,372 | $(3,487) | $11,128 |
| Owner-occupied CRE | 7,480 | — | — | 1,519 | 8,999 |
| Non-owner occupied CRE | 9,276 | — | — | 1,900 | 11,176 |
| Total commercial business | 30,718 | (719) | 1,372 | (68) | 31,303 |
| Residential real estate | 2,872 | — | — | 601 | 3,473 |
| Real estate construction and land development: | |||||
| Residential | 1,654 | — | — | (11) | 1,643 |
| Commercial and multifamily | 5,409 | — | — | 3,824 | 9,233 |
| Total real estate construction and land development | 7,063 | — | — | 3,813 | 10,876 |
| Consumer | 2,333 | (586) | 210 | 390 | 2,347 |
| Total | $42,986 | $(1,305) | $1,582 | $4,736 | $47,999 |
| Year Ended December 31, 2022 | |||||
|---|---|---|---|---|---|
| Beginning Balance | Charge-offs | Recoveries | (Reversal of) Provision for Credit Losses | Ending Balance | |
| (Dollars in thousands) | |||||
| Commercial business: | |||||
| Commercial and industrial | $17,777 | $(280) | $929 | $(4,464) | $13,962 |
| Owner-occupied CRE | 6,411 | (36) | — | 1,105 | 7,480 |
| Non-owner occupied CRE | 8,861 | — | — | 415 | 9,276 |
| Total commercial business | 33,049 | (316) | 929 | (2,944) | 30,718 |
| Residential real estate | 1,409 | (30) | 3 | 1,490 | 2,872 |
| Real estate construction and land development: | |||||
| Residential | 1,304 | — | 229 | 121 | 1,654 |
| Commercial and multifamily | 3,972 | — | 155 | 1,282 | 5,409 |
| Total real estate construction and land development | 5,276 | — | 384 | 1,403 | 7,063 |
| Consumer | 2,627 | (547) | 765 | (512) | 2,333 |
| Total | $42,361 | $(893) | $2,081 | $(563) | $42,986 |
| Year Ended December 31, 2021 | |||||
|---|---|---|---|---|---|
| Beginning Balance | Charge-offs | Recoveries | (Reversal of) Provision for Credit Losses | Ending Balance | |
| (Dollars in thousands) | |||||
| Commercial business: | |||||
| Commercial and industrial | $30,010 | $(917) | $791 | $(12,107) | $17,777 |
| Owner-occupied CRE | 9,486 | (359) | 25 | (2,741) | 6,411 |
| Non-owner occupied CRE | 10,112 | — | — | (1,251) | 8,861 |
| Total commercial business | 49,608 | (1,276) | 816 | (16,099) | 33,049 |
| Residential real estate | 1,591 | — | — | (182) | 1,409 |
| Real estate construction and land development: | |||||
| Residential | 1,951 | — | 32 | (679) | 1,304 |
| Commercial and multifamily | 11,141 | (1) | — | (7,168) | 3,972 |
| Total real estate construction and land development | 13,092 | (1) | 32 | (7,847) | 5,276 |
| Consumer | 5,894 | (669) | 572 | (3,170) | 2,627 |
| Total | $70,185 | $(1,946) | $1,420 | $(27,298) | $42,361 |
The following table details the activity in the ACL on unfunded commitments during the periods indicated:
| Year Ended December 31, | |||
|---|---|---|---|
| 2023 | 2022 | 2021 | |
| (Dollars in thousands) | |||
| Balance, beginning of period | $1,744 | $2,607 | $4,681 |
| Reversal of credit losses on unfunded commitments | (456) | (863) | (2,074) |
| Balance, end of period | $1,288 | $1,744 | $2,607 |
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