HERITAGE FINANCIAL CORP WA

The aggregate of the provision for (reversal of) credit losses on loans and on unfunded commitments is presented on the unaudited Condensed Consolidated Statements of Income as the provision for credit losses. The ACL on unfunded commitments is included on the unaudited Condensed Consolidated Statements of Financial Condition within accrued expenses and other liabilities.

The following table presents the provision for (reversal of) credit losses for the periods indicated:

The provision for credit losses on loans reflects the amount required to maintain the ACL on loans at an appropriate level based upon management’s evaluation of the adequacy of collective and individual loss reserves. The provision for credit losses on loans was $1.5 million during the three months ended June 30, 2024 and was primarily driven by loan growth during the quarter. Future assessments of the expected credit losses will be impacted not only by changes in the composition of and amount of loans and to the reasonable and supportable forecast, but also by an updated assessment of qualitative factors, as well as consideration of any changes in the reasonable and supportable forecast reversion period. The reversal of provision for credit losses on unfunded commitments recognized during the three months ended June 30, 2024 was due primarily to a decrease in the unfunded exposure on loans and an increase in loan utilization rates.

The provision for credit losses on loans recognized during the three months ended June 30, 2023 was due primarily to an increase in loans receivable as well as a change in mix of loans. The reversal of provision for credit losses on unfunded commitments recognized during the three months ended June 30, 2023 was due primarily to higher loan utilization rates.

Comparison of the six months ended June 30, 2024 to the comparable period in the prior year

The following table presents the provision for (reversal of) credit losses for the periods indicated:

The $3.2 million provision for credit losses on loans during thesix months ended June 30, 2024 was due primarilytoan increase in loans receivable as well as a change in mix of loans. The $514,000 reversal of provision for credit losses on unfunded commitments during the six months ended June 30, 2024 was due primarily to a $65.7 million decrease in the unfunded exposure on construction loans which reduced the unfunded exposure and secondarily due to an increase in loan utilization rates.

The provision for credit losses recognized during thesix months ended June 30, 2023 was due primarilytoan increase in loans receivable as well as a change in mix of loans. The provision for credit losses on unfunded commitments recognized during the six months ended June 30, 2023 was due primarily to an increase in unfunded loan commitments offset partially by higher loan utilization rates.