HERITAGE FINANCIAL CORP WA

(9)Income Taxes

The following table presents the reconciliation of income taxes computed at the Federal statutory income tax rate of 21% to the actual effective rate for the periods indicated:

LIHTC Investments

The CRA encourages banks to meet the credit needs of their communities, particularly low- and moderate-income individuals and neighborhoods. The Company invests in certain affordable housing projects in the form of ownership interests in limited partnerships or limited liability companies that qualify for CRA consideration and tax credits. These entities are formed to develop and operate apartment complexes designed as high-quality affordable housing for lower income tenants throughout the U.S. To fully utilize the available tax credits, each of these entities must meet the regulatory affordable housing requirements for a 15-year minimum compliance period. For the Company’s accounting policies on tax credit investments, see Note 1 - Description of Business, Basis of Presentation, Significant Accounting Policies and Recently Issued Accounting Pronouncements included in Item 8. Financial Statements And Supplementary Data in our 2023 Annual Form 10-K.

Tax credit investments are reported in "Prepaid expenses and other assets" and the unfunded contingent commitments related to these investments as "Accrued expenses and other liabilities" on the Company’s Condensed Consolidated Statements of Financial Condition. The Company accounts for LIHTC investments using the proportional amortization method. Under the proportional amortization method, such investment is amortized in proportion to the allocation of tax benefits received in each period, and the investment amortization and the tax benefits are presented on a net basis within “Income tax expense” on our Condensed Consolidated Statements of Income and as a component within "Other" cash flows from operating activities on the Condensed Consolidated Statements of Cash Flows.

The carrying values of LIHTC investments were $192.3 million and $207.3 million as of September 30, 2024 and December 31, 2023, respectively. The proportional amortization for LIHTC during the three months ended September 30, 2024 and 2023 was $4.9 million and $4.2 million, respectively, and during the nine months ended September 30, 2024 and 2023 was $14.9 million and $12.3 million, respectively.

There were no significant modifications or events that resulted in a change in the nature or change in the underlying project for LIHTC investments at September 30, 2024 or December 31, 2023.