Exhibit 99.1

FOR IMMEDIATE RELEASE

DATE: January 27, 2011

CONTACT: Brian L. Vance

President and Chief Executive Officer

(360) 943-1500

HERITAGE FINANCIAL ANNOUNCES FOURTH

QUARTER AND FULL YEAR 2010 EARNINGS

Olympia, WA - HERITAGE FINANCIAL CORPORATION (NASDAQ GS: HFWA) Brian L. Vance, President and CEO of Heritage Financial Corporation (“Company” or “Heritage”), today reported net income for the quarter ended December 31, 2010 of $9.8 million compared to net income of $772,000 for the quarter ended December 31, 2009 and $2.0 million for the linked-quarter ended September 30, 2010. Including preferred stock dividends and discount accretion on preferred shares, the net income applicable to common shareholders for the quarter ended December 31, 2010 was $9.1 million, or $0.77 per diluted common share, compared to $441,000, or $0.04 per diluted common share for the quarter ended December 31, 2009 and $1.7 million, or $0.15 per diluted common share for the linked-quarter ended September 30, 2010. The increase in earnings from the prior year quarter ended December 31, 2009 and the linked-quarter ended September 30, 2010 was substantially attributable to the gain on bank acquisition from the acquisition of Pierce Commercial Bank.

Net income applicable to common shareholders for the year ended December 31, 2010 was $11.7 million, or $1.04 per diluted common share, compared to a net loss applicable to common shareholders of $739,000, or $0.10 per diluted common share, for the year ended December 31, 2009.

Mr. Vance commented, “This has been a significant year of accomplishments for Heritage. We acquired Cowlitz Bank and Pierce Commercial Bank through FDIC-assisted transactions expanding our footprint from Seattle to Portland. We opened a new branch office in Puyallup (Pierce County) which along with the acquisitions brings Heritage’s total branch network to 31. We also have announced an additional branch office for Pierce County in Gig Harbor which we expect to open in February 2011. Additionally, we completed a successful public offering of our common stock that raised net proceeds of approximately $54 million, part of which we used to redeem the $24

million in preferred shares we had issued to U.S. Treasury, thereby completing our participation in the Capital Purchase Program. The remaining proceeds will leave us in a strong capital position for further expansion and growth opportunities as they arise in the future.”

Mr. Vance added, “In addition to the lenders we acquired via the acquisitions, in the past 90 days we have hired six new seasoned commercial lenders in both the King County and Pierce County marketplaces. These new lenders will serve us well when our economy emerges from this prolonged recession. Finally, I am pleased with the $11.7 million we earned in 2010. However, it is important to note this income was primarily the result of the substantial gain we recorded on the acquisition of Pierce Commercial Bank. I will not be fully satisfied with our earnings until we are reporting strong and sustainable financial performance across all metrics.”

FDIC-Assisted Acquisition of Pierce Commercial Bank

In addition to the previously disclosed July 30, 2010 acquisition of Cowlitz Bank (the “Cowlitz Acquisition”), on November 5, 2010, Heritage Bank acquired certain assets and assumed certain liabilities of Pierce Commercial Bank from the FDIC in an FDIC-assisted transaction (the “Pierce Acquisition”). In connection with the Pierce Acquisition, Heritage Bank did not enter into loss-sharing agreements with the FDIC to cover expected losses on acquired loans or other real estate owned. However, as part of the bidding process, Heritage Bank’s offer contained a significant discount for the purchase of the assets, which was intended to offset the expected losses in the loan portfolio. This significant discount has a similar financial statement impact on Heritage Bank’s operations compared to that of a loss-sharing agreement.

Heritage Bank purchased certain assets of Pierce Commercial Bank from the FDIC including (at fair value) approximately $142.9 million in loans, $30.3 million of cash and cash equivalents, $13.7 million in investment securities, $1.1 million in FHLB stock and $0.4 million in other assets. Heritage Bank also assumed liabilities with fair value of approximately $181.5 million in deposits, $17.5 million in Federal Home Loan Bank advances and $300,000 of other liabilities of Pierce Commercial Bank from the FDIC. Pierce Commercial Bank was headquartered in Tacoma, Washington.

Under the terms of the Purchase and Assumption Agreement, Heritage Bank was permitted to re-price and repay deposits assumed, including time deposits, which it did promptly after the acquisition. Heritage Bank re-priced approximately $56.0 million of internet certificates of deposit. As a result, as of December 31, 2010, the accounts have decreased approximately $45.6 million. Heritage Bank also repaid the Federal Home Loan Bank advances resulting in a net charge to pre-tax income of $42,000 due to the prepayment penalty substantially offset by the premium recorded at acquisition.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting (formerly the purchase method). The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the November 5, 2010 acquisition date. The application of the acquisition method of accounting resulted in the recognition of a pre-tax gain on bank acquisition of $11.4 million and a core deposit intangible of $154,000.

The gain on bank acquisition represents the excess of the estimated fair value of the assets acquired over the estimated fair value of the liabilities assumed and is influenced significantly by the FDIC-assisted transaction process. Under the FDIC-assisted transaction process, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirer’s bid, the FDIC may be required to make a cash payment to the acquirer. In the Pierce Acquisition, we received a cash payment from the FDIC of $21.5 million.

Balance Sheet

The Company’s total assets increased $113.1 million to $1.37 billion at December 31, 2010 from $1.25 billion at September 30, 2010 and increased $352.8 million from $1.01 billion at December 31, 2009 due substantially to the Cowlitz and Pierce Acquisitions. Total originated loans (including loans held for sale) decreased $14.5 million to $742.8 million at December 31, 2010 from $757.3 million at September 30, 2010. This decrease was due primarily to charge-offs during the quarter as well as approximately $8.0 million in seasonal paydowns on agriculture-based lending. At December 31, 2010, real estate construction loan balances accounted for $58.0 million, or 7.8% of total originated loans, of which $29.5 million were single-family residential construction loans.

Deposits increased $68.3 million to $1.14 billion at December 31, 2010 from $1.07 billion at September 30, 2010 due to the assumption of Pierce Commercial Bank deposits. As a result of the Pierce Acquisition, non-interest demand deposits to total deposits increased to 17.1% at December 31, 2010 from 16.8% at September 30, 2010.

At December 31, 2010, the Company’s stockholders’ equity to total assets increased to 14.8% compared to 13.0% at September 30, 2010. The increase was a result of the December 2010 public offering of common stock partially offset from the assets acquired in the Pierce Acquisition. As a result of the public offering, a total of 4.4 million shares were sold at $13.00 per share and the net proceeds were approximately $54 million. This increase in stockholders’ equity was partially offset by the December 2010 redemption of $24 million in preferred stock that the Company has issued to the United States Department of Treasury under the Capital Purchase Program in November 2008.

The Company and its subsidiary banks continue to maintain capital levels significantly in excess of the requirements to be categorized as “well-capitalized” under applicable regulatory standards. The Company had Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios at December 31, 2010 of 13.9%, 20.2% and 21.4%, respectively, as compared to 12.2%, 18.4% and 19.7% at September 30, 2010, respectively.

Credit Quality

The allowance for loan losses at December 31, 2010 decreased by $3.1 million to $22.1 million from $25.2 million at September 30, 2010. Nonperforming originated assets were $26.7 million, or 2.4% of total originated assets, at December 31, 2010, a decrease from $28.3 million, or 2.5% of total originated assets, at September 30, 2010. Potential problem loans increased $4.2 million to $50.7 million at December 31, 2010 from $46.1 million at September 30, 2010. The increase in potential problem loans was primarily due to one credit relationship totaling $9.6 million consisting of multifamily and other commercial real estate loans that was downgraded during the quarter ended December 31, 2010. The Company believes that its allowance for loan losses is adequate to provide for probable losses based on an evaluation of known and inherent risk in the loan portfolio at December 31, 2010.

Nonperforming originated loans to total originated loans was 3.2% at December 31, 2010, a decrease from 3.5% and 4.3% at September 30, 2010 and December 31, 2009, respectively. The allowance for loan losses to nonperforming originated loans was 93.2% at December 31, 2010, slight decrease from 95.6% at September 30, 2010 and an increase from 79.3% at December 31, 2009. The decrease in nonperforming originated loans from September 30, 2010 was due substantially to net charge-offs of $6.0 million during the quarter ended December 31, 2010. Of these charge-offs, $3.6 million related to nonperforming commercial loans and $2.3 million related to nonperforming construction loans.

Mr. Vance added, “We are encouraged with the ongoing improvement of our non-performing loan levels as well as the continuation of our strong coverage ratio. While we believe we will continue to see overall improvement in non-performing loans, the Pacific Northwest economy has yet to show measurable and sustainable improvement.”

“Overall loan demand remains soft, but with the new lending teams from the Cowlitz Acquisition and the Pierce Acquisition as well as the addition of experienced commercial lenders in the Pierce and King County markets, we are confident we will see increased loan levels as we progress through 2011.”

Operating Results

Net interest income increased $6.1 million, or 57.2%, to $16.9 million for the quarter ended December 31, 2010 compared with $10.8 million during the same period in 2009 and increased $9.3 million, or 22.3%, to $51.0 million for the year ended December 31, 2010 compared with $41.7 million for the year ended December 31, 2009. These increases were primarily a result of the increased earning assets acquired in the Cowlitz and Pierce Acquisitions. Heritage’s net interest margin for the quarter ended December 31, 2010 increased to 5.39% from 4.45% for the same period in 2009 and from 4.42% for the prior quarter ended September 30, 2010. Heritage’s net interest margin for the year ended December 31, 2010 increased to 4.78% from $4.57% for the year ended December 31, 2009. The increases in net interest margin were due primarily to increased loan yields as a result of discount accretion on the acquired loan portfolios.

The provision for loan losses decreased $2.1 million, or 41.5% to $2.9 million for the quarter ended December 31, 2010 from $5.0 million for the quarter ended December 31, 2009 and decreased $7.4 million, or 38.2%, to $12.0 million for the year ended December 31, 2010 from $19.4 million for the year ended December 31, 2009. The decreases in the provision for loan losses were due to the improving trends in the ratios of nonperforming originated loans to total originated loans and of the allowance for loan losses to nonperforming originated loans. The provision for loan losses increased $700,000 to $2.9 million for the quarter ended December 31, 2010 from $2.2 million for the quarter ended September 30, 2010 as a result of increased charge-offs. The Company had net charge-offs of $6.0 million for the quarter ended December 31, 2010 compared to $3.3 million for the quarter ended September 30, 2010 and $3.8 million for the quarter ended December 31, 2009. The Company had net charge-offs of $16.1 million for the year ended December 31, 2010 compared to $8.6 million for the year ended December 31, 2009.

Non-interest income increased $12.0 million to $14.3 million for the quarter ended December 31, 2010 compared to $2.3 million for the same period in 2009 and increased $12.8 million to $21.5 million for the year ended December 31, 2010 compared to $8.7 million for the year ended December 31, 2009. The increases were due substantially to the pre-tax gains on the Pierce and Cowlitz Acquisitions. In addition, service charges on deposits for the quarter and year ended December 31, 2010 increased $249,000 and $462,000, respectively, from the same periods in the prior year.

Non-interest expense increased $6.4 million or 87.7% to $13.8 million during the quarter ended December 31, 2010 compared to $7.4 million for the quarter ended December 31, 2009 and increased $9.8 million, or 31.8%, to $40.7 million for the year ended December 31, 2010 compared to $30.9 million for the year ended December 31, 2009. The increase for the three months ended December 31, 2010 compared to the same period in the prior year was due to increased salaries and benefits expense in the amount of $3.4 million, increased occupancy and equipment expense of $1.1 million, increased professional services of $647,000, and increased data processing of $435,000. The increase for the year ended December 31, 2010 compared to the same period in the prior year was due to increased salaries and benefits expense in the amount of $5.7 million, increased occupancy and equipment expense of $1.4 million, increased professional services of $1.3 million, and increased data processing of $552,000. These increases were substantially due to the Cowlitz and Pierce Acquisitions.

Earnings Conference Call

The Company will hold a telephone conference call to discuss this earnings release on January 27, 2011, at 11:00 a.m. Pacific time. To access the call, please dial (800) 230-1074 a few minutes prior to 11:00 a.m. Pacific time. The call will be available for replay through February 10, 2011, by dialing (800) 475-6701 — access code 187417.

About Heritage Financial

Heritage Financial Corporation is a bank holding company headquartered in Olympia, Washington. The Company operates two community banks, Heritage Bank and Central Valley Bank. With the FDIC-assisted acquisitions of Cowlitz Bank and Pierce Commercial Bank, Heritage Bank now serves western Washington and the greater Portland, Oregon area through its twenty-five full-service banking offices and its Online Banking Website www.HeritageBankWA.com. Central Valley Bank serves Yakima and Kittitas counties in central Washington through its six full-service banking offices and its Online Banking Website www.CVBankWA.com. Additional information about Heritage Financial Corporation is available on its Internet Website www.HF-WA.com.

Non-GAAP Financial Measures

This news release contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (GAAP). These measures include average tangible common equity, tangible book value per share and tangible common equity to tangible assets. Tangible common equity (tangible book value) excludes preferred stock, goodwill and other intangible assets. Tangible assets exclude goodwill and other intangible assets. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in the Company’s capital reflected in the current quarter and year-to-date results. Where applicable, the Company has also presented comparable capital information using GAAP financial measures. Reconciliations of the GAAP and non-GAAP financial measures are presented below.

Forward-Looking Statements

“Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas; results of examinations of us by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and of our bank subsidiaries by the Federal Deposit Insurance Corporation (the “FDIC”), the Washington State Department of Financial Institutions, Division of Banks (the “Washington DFI”) or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, including the interpretation of regulatory capital or other rules; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; computer systems on which we depend could fail or experience a security breach; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to implement our expansion strategy; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to

regulatory actions; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and other risks detailed from time to time in our filings with the Securities and Exchange Commission.

The Company cautions readers not to place undue reliance on any forward-looking statements. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. The Company does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2011 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us, and could negatively affect the Company’s operating and stock price performance.

HERITAGE FINANCIAL CORPORATION

CONDENSED STATEMENTS OF FINANCIAL CONDITION

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HERITAGE FINANCIAL CORPORATION

CONDENSED STATEMENTS OF INCOME (LOSS)

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HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS

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HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS

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HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS

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HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS

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