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Correspondence

 May 21, 2009

 Via Edgar,
Telecopy and Overnight Mail

 Mr. Mark Webb

 Legal Branch
Chief

 Securities and Exchange Commission

 Division of
Corporation Finance

 Mail Stop 4561

 100 F Street N.E.

 Washington, D.C. 20549

Re:
Heritage Financial Corporation

Form 10-K for the Fiscal Year Ended December 31, 2008

Filed February 27, 2009

Form 8-K filed April 30, 2009

File No. 000-29480

 Dear Mr. Webb:

 This letter sets forth the responses of Heritage Financial Corporation (the “Company” or “Heritage”) to the additional comments received from the
staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated May 7, 2009 in connection with the Staff’s review of the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2008 and Form 8-K filed on April 30, 2009.

 The relevant text of the Staff’s comments has been included in this letter.
The numbering of the Company’s responses corresponds to the numbering in the Staff’s letter.

 Form 10-K for the Fiscal Year Ended
December 31, 2008

Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

 Critical Accounting Policies

 Goodwill, page 29

 1. We have reviewed your response to prior comment three from our letter dated April 6, 2009. In your response, you indicate that you are using a
“shortcut” method to try to approximate the fair value of your reporting unit. Specifically, your test assumes that since the book value of your Heritage Bank reporting unit represents 90% of the Company’s total book value, that 90%
of the

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market capitalization of the Company (plus a 20% control premium) approximates the fair value of your Heritage Bank reporting unit. Your response indicates
that you do try to determine whether any specific facts would indicate that the fair value of your Heritage Bank reporting unit would differ substantially from the relative percentage of the Company’s fair value, but your response does not
elaborate on what these considerations were and the specific factors evaluated. The staff acknowledges that there may be certain circumstances where a less robust determination of fair value may be reasonable, such as circumstances where it is
clearly evident that the reporting unit is not impaired and there are no triggers for interim impairment testing (for example, see paragraph 27 of SFAS 142), but this does not appear to be the case in the Company’s fact pattern. In this regard,
the staff notes that the Company’s market capitalization is below book and has been for a significant period of time, the market capitalization of the Company continues to decrease and the Company has reduced income due to higher provisions and
impairment charges. Therefore, the staff believes that a more robust fair value determination is required in order to comply with the impairment testing and fair value measurement guidance in SFAS 142. Specifically, please address the following:

•

 Tell us all of the factors evaluated and considerations made in reaching the conclusion that it was reasonable to assume that because the Heritage Bank reporting
unit represented 90% of the book value of the Company that it also represented 90% of the fair value of the Company;

•

 Provide us with any analyst reports supporting your conclusion, particularly any reports that may indicate growth rate assumptions at your different reporting
units;

•

 Discuss the nature of the assets and liabilities in your other reporting units;

•

 Tell us whether you have ever tried to sell your other reporting unit(s) separately; and

•

 Tell us whether you perform cash flow projections for the different reporting units for management purposes.

 Management Response:

 Heritage Financial Corporation has two
bank subsidiaries, Heritage Bank and Central Valley Bank. Each of the banks is considered a reporting unit. The parent company conducts no business outside of the subsidiaries. Both subsidiaries are Washington state-chartered commercial banks. The
nature of their assets and liabilities are very similar. The assets of both banks consist substantially of loans (mostly commercial loans) and the liabilities of both banks consist primarily of customer deposits. The main differences between the two
banks are size and market areas. Heritage Bank is the significantly larger institution. As of December 31, 2008, Heritage Bank’s total assets were $808 million compared to total assets of $137 million for Central Valley Bank.

As for market areas, Heritage Bank is located in the south Puget Sound region of the state. This portion of the state is relatively highly populated and has many
types of industries. It also includes two large military bases, two shipping ports and as well as numerous state government offices. Central Valley Bank is located in the central portion of the state. This portion of the state is lower populated and
much of the economy focuses on agriculture. The area within Heritage Bank’s market area (primarily Thurston and Pierce Counties) has been and is forecasted (per the Washington State Office of Financial Management) to be a faster growing area
than the Central Valley Bank market area (primarily Yakima County).

 2

 Core deposits growth is an indicator of economic growth of a region as well as being a factor in the valuation of a bank
(as calculated through core deposit premiums). From December 31, 2004 to December 31, 2008, Heritage Banks grew its core deposits (total deposits less time deposits over $100,000) at a cumulative annual growth rate of 8.5%. Over the same
period, Central Valley Bank grew its core deposits at a cumulative annual growth rate of 3.6%.

 For the goodwill impairment analysis as of
December 31, 2008, the Company did not engage any consultants or analysts regarding growth rate assumptions. In addition, the Company did not perform cash flow projections for the different reporting units nor have we attempted to sell either
of the reporting units.

 Heritage Bank’s total common equity was 86.19% of the Company’s common equity (“approximately 90%” was stated
in the previous response to the Commission, however, 86.19% was used for the actual analysis as of December 31, 2008). This approach was considered reasonable considering the similarities between the Company and Heritage Bank. Heritage Bank is
the most significant asset of the Company.

 Management believes that the approach used at December 31, 2008 was reasonable. Management used what we
believed to be conservative measures such as a 20% control premium when an analysis prepared by a market analyst of purchase premiums paid from 2004 to 2006 for peer banks up to $400 million market capitalization showed this was low (mean average
one-day purchase premium was 27.29% and median average was 23.64%). Furthermore, we did not give Heritage Bank an additional premium for being the reporting unit with the higher growth potential. This approach still resulted in an analysis showing a
9% excess of fair value over book value of Heritage Bank at December 31, 2008.

 2. It appears that your market capitalization remains significantly
below the book value of your equity. Please advise us whether you performed an interim impairment test as of March 31, 2009. If not, explain how you analyzed the difference to conclude that an interim impairment test is not necessary. If you
have performed an interim impairment test, provide us with a summary of your results in Step 1 and Step 2, if applicable.

 Management Response:

 Due to the fact that the market value of our stock remained below our book value, we performed an interim impairment test for the quarter ended
March 31, 2009. We began by performing Step 1. Step 2 would be performed only if impairment was noted as a result of Step 1. Management engaged a valuation consultant to assist in the analysis.

 In examining the fair value of Heritage Bank, the consultant considered the indicated valuation results utilizing the following three approaches:

1.
The Comparable Transactions Approach was based on Level 2 inputs pursuant to SFAS No. 157. In the application of this approach, the consultant reviewed the acquisition
multiples or ratios relative to reported earnings, book value, tangible book value, assets and core deposits paid for other bank franchises in recent periods. They then applied such multiples to the Heritage Bank’s financial data to determine a
range of value. In the derivation of such pricing multiples or ratios which were applied to Heritage Bank, they made various qualitative valuation adjustments pertaining to Heritage Bank to take into account the various similarities and differences
between Heritage Bank and the companies included among the comparable transactions groups selected.

 3

2.
The Control Premium Approach was based on a combination of Level 1 inputs (the quoted price for the Company’s stock as a proxy for Heritage Bank’s value) and Level 2
inputs (an estimated control premium based on comparable transactions as applied to Heritage Bank’s estimated public equivalent value). Since Heritage Bank’s assets, equity and earnings comprise the substantial majority of the
Company’s consolidated financial results; the consultant used the trading price of the Company’s stock and its implied market value as a basis for this approach.

3.
The Discounted Cash Flow Approach was based on Level 3 inputs including future projections based on assumptions derived from Heritage Bank’s budget and estimates by the
consultant.

 All approaches were considered in the determination of fair value. The results indicated the fair value of Heritage Bank
exceeded the carrying value of Heritage Bank by approximately $14 million or 17%. Management reviewed the consultant’s valuation analysis and concurred with the results. Since the fair value of the reporting unit exceeded the carrying amount,
there was no goodwill impairment noted in Step 1. Therefore, Step 2 was not performed.

Item 8.
Financial Statements

 Notes to Consolidated Financial
Statements

 Note 4 - Investment Securities, page F-17

 3. We have reviewed your proposed disclosures in response to prior comment four from our letter dated April 6, 2009. You state that based upon your assessment of expected credit losses of your collateralized
mortgage obligations, given the performance of the underlying collateral compared to your credit enhancement, you concluded these securities were not other-than-temporarily impaired as of December 31, 2008. To help us better understand your
assessment of OTTI for these collateralized mortgage obligations, please provide us with the following additional information:

•

 Tell us the amount and number of securities under each of your impairment models (i.e., those assessed under SFAS 115, EITF 99-20, etc.);

•

 Tell us the amount of unrealized losses less than twelve months and greater than twelve months at December 31, 2008;

•

 Tell us how you concluded that some of the securities were impaired as of December 31, 2008, while others were not;

•

 Tell us the credit ratings for the securities deemed other than temporarily impaired and for the securities deemed not other than temporarily impaired as of
December 31, 2008;

•

 Tell us whether any of these securities were downgraded subsequent to December 31, 2008 and explain how that impacted your other that temporary impairment
analysis at year end; and

•

 Tell us whether you recorded any other than temporary impairment charges on these securities as of March 31, 2009.

 4

 Management Response:

 We obtained all of the private collateralized mortgage obligations in the July 2008 redemption-in-kind of the AMF Ultra Short Mortgage Fund. All of these securities were marked to market at that time. Therefore, as of December 31,
2008, all of the unrealized losses were less than twelve months.

 Our conclusion as to impairment of some securities and not others was based on analysis
performed by management. Management reviewed all of the securities for potential other-than-temporary impairment. Since the unrealized losses were less than six months in duration and management had the intent and ability to retain its investment in
the securities for a period of time sufficient to allow for any anticipated recovery in market value, management focused on the financial condition and future cash flows of the security. The following steps were performed:

1.
The current Moodys and S&P ratings for all private collateral mortgage obligations (“CMOs”) were reviewed. Any securities rated below investment grade were selected
for specific analysis. In addition, any securities with unrealized losses greater than $25,000 and 25% of book value were also selected for specific analysis. This resulted in 23 securities with $1.49 million of unrealized losses being evaluated out
of a total of 66 securities with $1.83 million of unrealized losses for the entire private CMO portfolio. Management evaluated nineteen of these securities under EITF 99-20 and four under SFAS 115. Due to a lack of materiality, no further analysis
was performed on the remaining 43 securities with aggregate unrealized losses of $340,000 as of December 31, 2008.

2.
Losses factored into the book value were calculated for each selected security. This is the percentage the book value is less than the par value. Management views this as the
percentage of losses in par value the security can realize without the Company experiencing losses in its investment. The Company recognized an impairment of these securities previously in the form of a June 2008 OTTI charge of the AMF Ultra Short
Mortgage Fund and an additional charge at the time of the July 2008 redemption-in-kind. As a result, for many securities, the book value subsequent to the redemption-in-kind was much less than the par value. The Company considers the book value
obtained in the redemption-in-kind as its carrying value. For example, if a security had a market price that was 70% of par value at the time of the redemption, a 30% loss could be realized by this tranche before the Company would realize a loss to
the carrying value of the security.

3.
A loss probability analysis was performed on each security to calculate whether the estimated losses of the security were greater than the losses factored into the book value of the
security. The analysis compared market loss projections (a projection issued by third-party publications of the amount of loss the CMO issuance projected to incur) to a breakeven loss analysis (the amount of loss our tranche within the CMO issuance
could sustain before impacting our carrying value). From this comparison, if the projected losses were less than the breakeven loss threshold for the Company’s investment in the security, then the security impairment was considered temporary
since the ultimate credit loss was less than our carrying value and was going to be recovered as the Company had the intent and ability to hold to recovery. However, if it appeared the losses were going to be greater than the breakeven loss
threshold for the Company’s investment in the security, then the security impairment was considered other-than-temporary.

 5

 Following are the credit ratings for the private collateralized mortgage obligations (percentages based on pre-OTTI
amortized cost):

Credit Rating as of December 31, 2008

AAA

AA

A

BB

B

CCC

 Securities deemed other than temporarily impaired

0
%

55
%

5
%

0
%

12
%

28
%

 Securities not deemed other than temporarily impaired

30
%

20
%

31
%

4
%

15
%

0
%

 We performed our year-end 2008 OTTI analysis in January 2009. As part of our analysis, we reviewed the securities
for any changes in credit ratings during the month of January. In connection with our review, there were no securities downgraded during the month of January 2009.

 Based on our methodology, in the first quarter ended March 31, 2009