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 $343.9 million, or 7.9%, to $4.68 billion at September 30, 2024 from $4.34 billion at December 31, 2023. New loans funded in the nine months ended September 30, 2024 totaled $445.3 million and loan prepayments were $132.4 million.

Non-owner occupied CRE loans increased $138.0 million, or 8.1%, due primarily to new loan production of $98.1 million during the nine months ended September 30, 2024 and advances on outstanding commitments. Commercial and industrial loans increased $105.8 million, or 14.7%, due primarily to new loan production of $176.2 million during the nine months ended September 30, 2024, offset by pay downs on outstanding balances. Commercial and multifamily construction loans increased $42.5 million, or 12.7%, due primarily to advances on outstanding commitments. Residential real estate loans increased $33.6 million, or 9.0%, due primarily to loan purchases during the nine months ended September 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 $554.4 million, or 19.6% of total CRE loans, at September 30, 2024. Of this total, $282.4 million, or 50.9%, 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. Multi-family loans increased $106.7 million to $412.2 million or 14.6% of total CRE loans, due primarily to completion of $69.4 million in commercial constructions converting to term CRE loans. The average loan balance of CRE loans was $1.3 million at September 30, 2024.

Loans classified as nonaccrual and nonperforming assets

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

(1) At September 30, 2024 and December 31, 2023, $1.2 million and $3.2 million, respectively, of nonaccrual loans, were guaranteed by government agencies.

Nonaccrual loans decreased $167,000 to $4.3 million at September 30, 2024 as compared to $4.5 million at December 31, 2023 Additions during the nine months ended September 30, 2024 were due primarily to one $5.0 million owner occupied CRE loan of which $2.5 million was charged off. Payoffs during the nine months ended September 30, 2024 were due primarily to the payoff of one commercial and industrial loan relationship. The following table provides the changes in nonaccrual loans during the nine months ended September 30, 2024: