HERITAGE FINANCIAL CORP /WA/

Provision for Credit Losses

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 (reversal of) 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 and is impacted by quarterly charge-offs and recoveries. The reversal of provision for credit losses on loans was $9,000 during the three months ended March 31, 2025 and was primarily driven by a reduction in loan balances during the quarter.

Future assessments of 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 provision for credit losses on unfunded commitments recognized during the three months ended March 31, 2025 was due primarily to a decrease in loan utilization rates which resulted in larger unfunded capacity.

The provision for credit losses on loans was $1.7 million during the three months ended March 31, 2024, and was driven primarily by loan growth during the quarter.