HERITAGE FINANCIAL CORP WA

Changes by loan type

The Company originates a wide variety of loans with a focus on commercial business loans. In addition to originating loans, the Company may also acquire loans through pool purchases, participation purchases and syndicated loan purchases. The following table provides information about our loan portfolio by type of loan at the dates indicated:

Loans receivable increased $197.0 million, or 4.5%, to $4.53 billion at June 30, 2024 from $4.34 billion at December 31, 2023. New loans funded in the six months ended June 30, 2024 totaled $268.4 million and loan prepayments were $87.6 million.

Non-owner occupied CRE loans increased $62.0 million, or 3.7%, due primarily to new loan production of $53.9 million during the six months ended June 30, 2024 and advances on outstanding commitments. Commercial and industrial loans increased $61.2 million, or 8.5%, due primarily to new loan production of $100.2 million during the six months ended June 30, 2024 and advances on outstanding commitments. Commercial and multifamily construction loans increased $42.9 million, or 12.8%, due primarily to advances on outstanding commitments. Residential real estate loans increased $38.0 million, or 10.1%, due primarily to loan purchases during the six months ended June 30, 2024.

The following table provides information about owner occupied CRE and non-owner occupied CRE loans by collateral type at the dates indicated:

Office loans represented the largest segment of owner-occupied and non-owner occupied CRE loans, totaling $552.2 million, or 20.4% of total CRE loans, at June 30, 2024. Of this total, $279.0 million, or 50.5%, were owner-occupied CRE loans. Owner-occupied CRE loans have a lower risk profile than non-owner occupied CRE loans as there is less tenant rollover risk and they generally have guarantees from the company occupying the space as well as the owners of the company. The average loan balance of CRE loans was $1.3 million at June 30, 2024.

Loans classified as nonaccrual and performing modified loans and nonperforming assets

The following table provides information about our nonaccrual loans, performing modified loans and nonperforming assets for the dates indicated:

(1) At June 30, 2024 and December 31, 2023, $3.1 million and $3.2 million, respectively, of nonaccrual loans, were guaranteed by government agencies.

The following table provides the changes in nonaccrual loans during the six months ended June 30, 2024: