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 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 provision for credit losses on loans was $863,000 during the three months ended June 30, 2025 and was due primarily to net charge-offs of $494,000 and secondarily to growth in balances of collectively evaluated loans 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 June 30, 2025 was due primarily to an increase in the unfunded exposure on construction loans.

The provision for credit losses on loans was $1.5 million during the three months ended June 30, 2024, and was driven primarily by loan growth during the quarter. 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 which resulted in a smaller unfunded capacity.

Comparison of the six months ended June 30, 2025 to the comparable period in the prior year

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

The $854,000 provision for credit losses on loans recognized during thesix months ended June 30, 2025 was due primarilyto $793,000 in net charge-offs. The $153,000 provision for credit losses on unfunded commitments recognized during the six months ended June 30, 2025 was due primarily to an increase in the unfunded exposure on construction loans.

The $3.2 million provision for credit losses recognized during thesix months ended June 30, 2024 was primarily driven by loan growth during the six month period. The $514,000 reversal of provision for credit losses on unfunded commitments recognized 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.