Heritage Financial Corporation MANAGEMENT INCENTIVE PLAN 2017 Management Incentive Plan

The 2017 Plan is limited to selected employees of the Company. The CEO will identify such employees for eligibility under the Plan.

New employees must be employed by October 31^st in a given Plan Year to be eligible for an award related to performance in that Plan Year.

Employees hired after October 31^st must wait until the next fiscal year to be eligible for an award.

Employees hired before October 31^st who works a partial year will receive pro-rated awards based on hours worked.

Plan participants must also receive a minimum annual performance review rating of “satisfactory” or equivalent for the Plan Year to be eligible for any payout. The company

A Plan participant must be an active employee as of the award payout date to receive an award.

Generally, participants are not eligible to participate in other annual or production incentive plan which may exist, such as, but not limited to:

Wealth Strategies Advisor Incentive Plans

Eligible employees who have earned an annual incentive award and terminate employment due to disability or death can receive a pro-rata award for the year, even if they are not employed as of the award payout date based upon target performance.

Minimum Performance: The minimum level of performance needed to begin to be eligible to receive an incentive award.

Target Performance: The budgeted, or expected, level of performance based upon both historical data and management's best judgment of expected performance during the performance period.

Maximum Performance: The level of performance which based upon historical performance and management’s judgment would be exceptional or significantly beyond the expected.

Company Performance - The Company’s performance will be based on the Company’s success as measured by criteria determined by the Committee with input from the CEO. The percentage of payout for overall Company performance will be allocated based on the specific weighting of the Company’s goal based on the participant’s tier, and the actual performance compared to the pre-determined Minimum, Target, and Maximum Performance levels.

Department or Individual Performance - Certain Plan participants may have a portion of their annual incentive award based on a combination of department and/or individual performance criteria. The number of performance criteria included, the specific type of performance criteria to use, and the weighting of each criteria for the overall incentive award will vary based on the position and role of each Plan participant.

Plan Trigger: The Committee may at its discretion establish a plan trigger applicable to any plan year. The Committee will set any such trigger at the beginning of the performance period. If established, in order for the Annual Incentive Plan to be funded and “activated”, the Company must achieve a threshold performance level to be determined by the Committee for each Plan Year/Performance Period. This performance level is not related to the Company Minimum, Target, or Maximum Performance goals. It is instead a threshold level of performance that needs to be attained for any incentive awards to be paid out. If this threshold level of performance is not met, the Plan will not be “turned on” for that given year and no payouts will be made, regardless of Company or individual performance. If a plan trigger is not established by the Committee at the beginning of the performance period, any payouts will be determined based upon Company, department and/or individual performance objectives as established and approved by the Committee, with input from the CEO, as described in Section VIII.

Payments will be declared no later than 2½ months following the end of the Plan Year that constitutes the Performance Period.

Payment will be made at the time provided for in Section III.

A Plan participant must be an active employee on the date of the award payout in order to receive a payout.

The result of the performance criteria is calculated as a percent of the base salary on January 1 of the plan year for participant during the current Plan Year.

Recommend the Plan participants to be included in the Plan for a Plan Year/Performance Period. This includes determining if additional employees should be added to the Plan and if any Plan participants should be removed from participating in the Plan.

Provide recommendations for the award opportunity amounts at target and maximum for all other Plan participants. The CEO will review the objectives and evaluations, adjust guideline awards for performance and recommend final awards to the Committee for its approval.

Provide other appropriate recommendations that may become necessary during the life of the Plan. This could include such items as changes to Plan provisions.

Initiation - Written Claim. The claimant initiates a claim by submitting to the Plan Administrator a written claim for the benefits.

Timing of Plan Administrator Response. The Plan Administrator shall respond to such claimant within 90 days after receiving the claim. If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional 90 days by notifying the claimant in writing.

Notice of Decision. If the Plan Administrator denies part or all of the claim, the Plan Administrator shall notify the claimant in writing of such denial.

Initiation - Written Request. To initiate the review, the claimant, within 60 days after receiving the Plan Administrator’s notice of denial, must file with the Plan Administrator a written request for review.

Additional Submissions - Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim.

Considerations on Review. In considering the review, the Plan Administrator shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

Timing of Plan Administrator Response. The Plan Administrator shall respond in writing to such claimant within 60 days after receiving the request for review. If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional 60 days by notifying the claimant in writing.

Notice of Decision. The Plan Administrator shall notify the claimant in writing of its decision on review. The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant.

An initial communication to Plan participants of the Plan details, including the performance targets set for the initial Plan Year. This will typically take place in the first few months of the Plan Year

Communication of new performance targets, Plan procedure changes, etc., at the beginning of each Plan Year.

Periodic reviews and/or performance updates throughout the Plan Year. These reviews should include a year-to-date performance update and discuss any changes that may be necessary to assure attainment of the Plan targets.

A year-end review of estimated Plan results, including an estimate of the Company's performance on each performance measure.

An evaluation discussion surrounding the Plan participants’ final annual incentive awards to be conducted by the appropriate manager upon final determination of year-end results.

Any bonus payment which is later determined to have been paid in error or based on inaccurate or incomplete information or financial reports will be subject to recoupment by the Bank.

At the sole discretion of Management or the Compensation Committee, loan or other bank charge-offs or losses may result in elimination or reduction in the originating, supervising or branch Officers future bonus payment.

Binding Effect. This Plan shall bind the Plan the participant, the Company, and their respective beneficiaries, survivors, executors, successors, administrators and transferees.

No Guarantee of Employment. This Plan is not an employment policy or contract. It does not give the Plan participant the right to remain an employee of the Company, nor does it interfere with the Company's right to discharge the Plan participant.

Non-Transferability. Benefits under this Plan cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.

Reorganization. If the Company shall (1) merge into or consolidate with another company, (2) reorganize, (3) sell substantially all of its assets to another company, firm, or person, or upon a change in control involving Heritage Financial Corporation stock, then the succeeding or continuing company, firm, or person shall succeed to, assume and discharge the obligations of the Company under this Plan. Upon the occurrence of such event, the term “Company” as used in this Plan shall be deemed to refer to the successor or survivor company.

Tax Withholding. The Company shall withhold any taxes that are required to be withheld from the benefits provided under this Plan.

Applicable Law. The Plan and all rights hereunder shall be governed by the laws of the State of Washington, except to the extent preempted by the laws of the United States of America.

Entire Plan. This Plan constitutes the entire Plan between the Company and the Plan participant as to the subject matter hereof. No rights are granted to the Plan participant by virtue of this Plan other than those specifically set forth herein.

Any amounts payable hereunder that would not be deductible on account of the limitations of Code Section 162(m) shall be paid in the next following year in which the Company reasonably anticipates that the deduction of such payment would not be barred by the application of Code Section 162(m).

In the event that the payments hereunder are intended by the Committee to be treated as “performance-based compensation” defined in Code Section 162(m), such amounts shall be payable pursuant to the Company’s 2014 Omnibus Equity Pan, or its successor plan (the “Omnibus Plan”), and may, at the Committee’s discretion, be reflected in an award agreement under the Omnibus plan.