Heritage Financial 10-Q 2009 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009 – Commission File Number 000-51305

HERITAGE FINANCIAL GROUP

(A United States Corporation)
IRS Employer Identification Number 45-0479535

721 N. Westover Blvd., Albany, GA 31707
229-420-0000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero	Accelerated filero	Non-accelerated filero	Smaller reporting companyþ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the exchange Act). Yeso Noþ

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each issuer’s classes of common equity, as of the latest practicable date:

At November 5, 2009 there were 10,410,220 shares of issuer’s common stock outstanding.

HERITAGE FINANCIAL GROUP

INDEX

	Page
	Number
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008		3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008		4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008		5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND THE YEAR ENDED DECEMBER 31, 2008		6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008		7
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS		17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		28
ITEM 4. CONTROLS AND PROCEDURES		29
PART II – OTHER INFORMATION		30
SIGNATURES		31
EXHIBITS
31.1 Rule 13a–14(a) Certification of Chief Executive Officer
31.2 Rule 13a–14(a) Certification of Chief Financial Officer
32    Section 1350 Certification
EX-31.1
EX-31.2
EX-32

HERITAGE FINANCIAL GROUP AND SUBSIDIARY

Consolidated Balance Sheets
September 30, 2009 and December 31, 2008

	Unaudited			Audited
	September 30,			December 31,
	2009			2008
Assets
Cash and due from banks	$	12,679,840		$	10,159,602
Interest-bearing deposits in banks		5,074,892			745,758
Federal funds sold		13,033,000			30,254,000
Securities available for sale, at fair value		101,338,131			116,140,525
Federal home loan bank stock, at cost		3,253,400			3,185,800
Other equity securities, at cost		1,010,000			1,010,000
Loans		299,295,709			302,487,892
Less allowance for loan losses		8,027,969			4,950,722
Loans, net		291,267,740			297,537,170
Premises and equipment, net		16,674,035			16,801,183
Accrued interest receivable		2,128,634			2,155,327
Intangible assets		1,000,000			1,000,000
Foreclosed assets		898,345			2,119,818
Cash surrender value of bank owned life insurance		14,600,887			14,136,119
Other assets		7,499,534			6,812,425
	$	470,458,438		$	502,057,727
Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing	$	18,811,403		$	19,100,197
Interest-bearing		303,499,910			319,445,797
Total deposits		322,311,313			338,545,994
Federal funds purchased and securities sold under repurchase agreements		35,210,539			41,497,491
Other borrowings		42,500,000			52,500,000
Accrued interest payable		596,742			1,045,042
Other liabilities		7,017,206			6,256,227
Total liabilities		407,635,800			439,844,754
Commitments and contingencies
Stockholders’ equity
Preferred stock, par value $0.01; 1,000,000 shares authorized; no shares issued		—			—
Common stock, par value $0.01; 25,000,000 shares authorized; 11,452,344 issued and outstanding		114,523			114,523
Capital surplus		40,484,351			39,861,237
Retained earnings		40,828,431			41,357,209
Accumulated other comprehensive loss		(2,081,164	)		(2,685,633	)
Unearned employee stock ownership plan (ESOP) shares, 253,403 and 286,455 shares		(2,534,025	)		(2,864,550	)
		76,812,116			75,782,786
Treasury stock, at cost, 1,042,124 and 993,498 shares		(13,989,478	)		(13,569,813	)
Total stockholders’ equity		62,822,638			62,212,973
	$	470,458,438		$	502,057,727

See Notes to Consolidated Financial Statements.

3

HERITAGE FINANCIAL GROUP AND SUBSIDIARY

Consolidated Statements of Operations (Unaudited)
For the Three and Nine Months Ended September 30, 2009 and 2008

	For the Three Months						For the Nine Months
	2009			2008			2009			2008
Interest income
Interest and fees on loans	$	4,599,933			5,179,786		$	13,721,630		$	15,945,925
Interest on taxable securities		780,996			1,268,420			2,921,284			3,623,502
Interest on nontaxable securities		296,394			277,951			882,416			902,814
Interest on federal funds sold		7,694			37,566			39,670			160,934
Interest on deposits in other banks		748			3,636			1,182			14,507
		5,685,765			6,767,359			17,566,182			20,647,682
Interest expense
Interest on deposits		1,478,611			2,099,516			5,049,607			6,753,882
Interest on other borrowings		500,715			875,147			1,829,653			2,608,850
		1,979,326			2,974,663			6,879,260			9,362,732
Net interest income		3,706,439			3,792,696			10,686,922			11,284,950
Provision for loan losses		2,500,000			1,218,000			3,800,000			2,400,000
Net interest income after provision for loan losses		1,206,439			2,574,696			6,886,922			8,884,950
Noninterest income
Service charges on deposit accounts		950,893			1,046,544			2,595,376			2,949,962
Other service charges, commissions and fees		338,490			314,847			1,060,600			973,650
Brokerage fees		251,854			264,662			662,177			770,493
Mortgage origination fees		66,364			108,894			275,544			314,602
Bank owned life insurance		155,285			151,360			464,767			344,199
Gain on sale of securities		469,455			—			835,584			19,745
Impairment loss on securities		—			(3,019,181	)		—			(3,019,181	)
Other		11,575			33,435			33,870			311,554
		2,243,916			(1,099,439	)		5,927,918			2,665,024
Noninterest expense
Salaries and employee benefits		2,295,513			2,353,230			6,719,869			6,878,605
Equipment		221,077			294,381			760,243			914,439
Occupancy		312,000			303,118			901,263			866,913
Advertising and marketing		146,962			86,800			345,191			343,476
Legal and accounting		117,868			129,632			390,526			398,435
Consulting & other professional fees		69,669			73,821			222,078			252,511
Directors fees and retirement		154,608			147,310			460,824			460,507
Telecommunications		52,861			63,003			169,189			198,180
Supplies		46,384			34,383			130,687			147,235
Data processing fees		431,608			333,276			1,144,789			974,736
Loss on sale and write-downs of other real estate owned		80,000			191,872			384,068			271,317
Foreclosed asset expenses		78,561			82,047			171,789			164,702
FDIC insurance and other regulatory fees		136,192			68,285			501,078			196,645
Other operating		306,871			528,377			1,004,909			1,154,294
		4,450,174			4,689,535			13,306,503			13,221,995
Loss before income taxes		(999,819	)		(3,214,278	)		(491,663	)		(1,672,021	)
Applicable income tax benefits		(532,945	)		(1,452,505	)		(574,189	)		(1,177,618	)
Net income (loss)	$	(466,874	)	$	(1,761,773	)	$	82,526		$	(494,403	)
Basic earnings (loss) per share	$	(0.05	)	$	(0.17	)	$	0.01		$	(0.05	)
Diluted earnings (loss) per share	$	(0.05	)	$	(0.17	)	$	0.01		$	(0.05	)

See Notes to Consolidated Financial Statements.

4

HERITAGE FINANCIAL GROUP AND SUBSIDIARY

Consolidated Statements of Comprehensive Income (Unaudited)
For the Three and Nine Months Ended September 30, 2009 and 2008

	For the Three Months						For the Nine Months
	2009			2008			2009			2008
Net income (loss)	$	(466,874	)	$	(1,761,773	)	$	82,526		$	(494,403	)
Other comprehensive income (loss):
Net unrealized gain (loss) on cash flow hedge arising during the period, net of tax (benefit) of $114,665 for the quarter and ($17,810) for the year to date		—			162,206			—			(26,713	)
Net realized gain on termination of cash flow hedge during the period, net of tax of $359,490		—			—			—			539,235
Elimination of unrealized gain on cash flow hedge terminated during the period, net of tax of $156,558		—			—			—			(234,838	)
Accretion of realized gain on terminated cash flow hedge, net of tax of $35,187 and $19,609 for the quarter and $105,560 and $39,217 for the year to date		(52,780	)		(29,413	)		(158,340	)		(58,826	)
Unrealized holding gains (losses) on investments arising during the period, net of tax (benefit) of $909,531 and ($1,016,806) for the quarter and $842,773 and ($2,058,604) for the year to date		1,364,297			(1,525,210	)		1,264,159			(3,087,907	)
Reclassification adjustment for investment (gains) losses included in net income, net of (tax) benefit of ($187,782) and $1,207,672 for the quarter and ($334,234) and $1,199,774 for the year to date		(281,673	)		1,811,509			(501,350	)		1,799,662
Total other comprehensive income (loss)		1,029,844			419,092			604,469			(1,069,387	)
Comprehensive income (loss)	$	562,970		$	(1,342,681	)	$	686,995		$	(1,563,790	)

See Notes to Consolidated Financial Statements.

5

HERITAGE FINANCIAL GROUP AND SUBSIDIARY

Consolidated Statements of Stockholders’ Equity (Unaudited)
For the Nine Months Ended September 30, 2009 and
The Year Ended December 31, 2008

																			Accumulated
													Unearned						Other
	Common Stock						Capital			Retained			ESOP			Treasury			Comprehensive
	Shares			Par Value			Surplus			Earnings			Shares			Stock			Income (Loss)			Total
Balance, December 31, 2007		11,443,723		$	114,437		$	39,009,323		$	42,406,483		$	(3,305,250	)	$	(9,329,501	)	$	(3,303,342	)	$	65,592,150
Net loss		—			—			—			(262,360	)		—			—			—			(262,360	)
Cash dividend declared, $0.28 per share		—			—			—			(786,914	)		—			—			—			(786,914	)
Stock-based compensation expense								809,086			—			—			—			—			809,086
Repurchase of 377,894 shares of stock for the treasury		—			—			—									(4,244,715	)					(4,244,715	)
Issuance of 330 shares of common stock from the treasury		—			—			(836	)		—			—			4,403			—			3,567
Issuance of restricted stock		9,505			95			(95	)		—			—			—			—			—
Forfeiture of restricted stock		(884	)		(9	)		9			—			—			—			—			—
Other comprehensive income		—			—			—			—			—			—			617,709			617,709
Excess tax expense from stock based compensation plans		—			—			(3,432	)		—			—			—			—			(3,432	)
ESOP shares earned, 44,070 shares		—			—			47,182			—			440,700			—			—			487,882
Balance, December 31, 2008		11,452,344			114,523			39,861,237			41,357,209			(2,864,550	)		(13,569,813	)		(2,685,633	)		62,212,973
Net income		—			—			—			82,526			—			—			—			82,526
Cash dividend declared, $0.24 per share		—			—			—			(611,304	)		—			—			—			(611,304	)
Repurchase of 49,026 shares of stock for the treasury		—			—			—			—			—			(425,036	)		—			(425,036	)
Issuance of 400 shares of common stock from the treasury		—			—			(2,372	)		—			—			5,371			—			2,999
Other comprehensive income		—			—			—			—			—			—			604,469			604,469
Stock-based compensation expense		—			—			605,389			—			—			—			—			605,389
ESOP shares earned, 33,053 shares		—			—			20,097			—			330,525			—			—			350,622
Balance, September 30, 2009		11,452,344		$	114,523		$	40,484,351		$	40,828,431		$	(2,534,025	)	$	(13,989,478	)	$	(2,081,164	)	$	62,822,638

See Notes to Consolidated Financial Statements.

6

HERITAGE FINANCIAL GROUP AND SUBSIDIARY

Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2009 and 2008

	For the Nine Months
	2009			2008
OPERATING ACTIVITIES
Net income (loss)	$	82,526		$	(494,403	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		679,419			733,986
Provision for loan losses		3,800,000			2,400,000
ESOP compensation expense		350,622			383,455
Stock-based compensation expense		605,389			608,808
Net gain on sale of securities available for sale		(835,584	)		(19,745	)
Impairment loss on securities available for sale		—			3,019,181
Proceeds on termination of cash flow hedge		—			898,725
Accretion of gain on termination of cash flow hedge		(263,900	)		(98,043	)
Increase in bank owned life insurance		(464,768	)		(344,179	)
(Increase) decrease in interest receivable		26,693			(230,598	)
Decrease in interest payable		(448,300	)		(57,138	)
Increase (decrease) in taxes payable		(1,091,789	)		1,067,296
Loss on sale and write-downs of other real estate owned		384,068			347,245
Net other operating activities		762,688			(1,990,986	)
Total adjustments		3,504,538			6,718,007
Net cash provided by operating activities		3,587,064			6,223,604
INVESTING ACTIVITIES
Increase in interest-bearing deposits in banks		(4,329,134	)		(203,379	)
Purchases of securities available for sale		(68,130,095	)		(44,536,347	)
Proceeds from maturities of securities available for sale		27,847,943			10,879,670
Proceeds from sale of securities available for sale		57,191,479			20,451,970
Purchase of bank owned life insurance		—			(5,000,000	)
Net change in Federal home loan bank stock		(67,600	)		(441,100	)
Purchase of other equity securities		—			(1,010,000	)
Decrease in federal funds sold		17,221,000			680,000
(Increase) decrease in loans, net		2,228,405			(12,752,165	)
Purchase of premises and equipment		(552,280	)		(2,754,281	)
Proceeds from sale of other real estate owned		1,078,430			844,911
Net cash provided by (used in) investing activities		32,488,148			(33,840,721	)
FINANCING ACTIVITIES
Increase (decrease) in deposits		(16,234,681	)		7,264,127
Increase (decrease) in federal funds purchased and securities sold under agreement to repurchase		(6,286,952	)		23,426,259
Proceeds from other borrowings		—			28,000,000
Repayment of other borrowings		(10,000,000	)		(20,500,000	)
Excess tax related to stock-based compensation plans		—			(1,780	)
Purchase of treasury stock, net		(422,037	)		(2,793,519	)
Dividends paid to stockholders		(611,304	)		(598,639	)
Net cash provided by (used in) financing activities		(33,554,974	)		34,796,448
Net increase in cash and due from banks		2,520,238			7,179,331
Cash and due from banks at beginning of period		10,159,602			8,953,836
Cash and due from banks at end of period	$	12,679,840		$	16,133,167
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	7,327,559		$	9,419,870
Taxes		517,600			6,300
NONCASH TRANSACTIONS
Increase (decrease) in unrealized losses on securities available for sale	$	(1,271,348	)	$	5,146,511
Decrease in unrealized gain on termination of cash flow hedges		—			391,396
Increase in unrealized losses on cash flow hedges		—			44,523
Principal balances of loans transferred to other real estate owned		288,954			3,099,526

See Notes to Consolidated Financial Statements.

7

HERITAGE FINANCIAL GROUP AND SUBSIDIARY

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 — BASIS OF PRESENTATION AND ACCOUNTING ESTIMATES

The accompanying consolidated financial information of the Company is unaudited; however, such information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations. The results of operations for the three and nine months ended September 30, 2009, are not necessarily indicative of the results that may be expected for the full year. These statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

The consolidated financial statements include the accounts of the Company and its subsidiary. Significant intercompany transactions and balances have been eliminated in consolidation.

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate, contingent assets and liabilities and deferred tax assets.

NOTE 2 — EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share represent income available to common shareholders divided by the weighted-average number of common shares outstanding during the period, excluding unallocated shares of the Employee Stock Ownership Plan. The table below sets forth our earnings (loss) per share for the three and nine months ended September 30, 2009 and 2008:

	Three Months						Nine Months
	2009			2008			2009		2008
Basic earnings (loss) per share:
Net income (loss)	$	(466,874	)	$	(1,761,773	)	$	82,526	$	(494,403	)
Weighted average common shares outstanding		10,072,438			10,215,179			10,046,325		10,236,257
Total basic earnings (loss) per common share	$	(0.05	)	$	(0.17	)	$	0.01	$	(0.05	)
Diluted earnings (loss) per share:
Net income (loss)	$	(466,874	)	$	(1,761,773	)	$	82,526	$	(494,403	)
Weighted average common shares outstanding		10,072,438			10,215,179			10,046,325		10,236,257
Effect of dilutive stock options and restricted stock		—			—			—		—
Weighted average dilutive common shares outstanding		10,072,438			10,215,179			10,046,325		10,236,257
Total diluted earnings (loss) per common share	$	(0.05	)	$	(0.17	)	$	0.01	$	(0.05	)

At September 30, 2009 and 2008, potential common shares of 575,166 and 614,768 were not included in the calculation of diluted earnings (loss) per share because the assumed exercise of such shares would be anti-dilutive.

8

HERITAGE FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3 — SHARE BASED COMPENSATION

On May 17, 2006, our stockholders approved the 2006 Equity Incentive Plan (the “Plan”). The purpose of the Plan is to promote the long-term growth and profitability of Heritage Financial Group, to provide directors, advisory directors, officers and employees of Heritage Financial Group and its affiliates with an incentive to achieve corporate objectives, to attract and retain individuals of outstanding competence and to provide such individuals with an equity interest in Heritage Financial Group. Under the Plan, the Compensation Committee of the Board of Directors has discretion to award up to 771,149 shares, of which 550,281 were available as stock options or stock appreciation rights and 220,328 shares were available as restricted stock awards. During 2006, the Compensation Committee of the Board of Directors granted stock options and tandem stock appreciation rights totaling 520,605 shares and granted restricted stock awards totaling 207,905 shares. During the first quarter of 2008, an additional 19,750 of tandem stock option and stock appreciation rights, and 9,505 of restricted stock awards were granted to employees. There were no grants of restricted stock, stock options, or stock appreciation rights during the three quarters ended September 30, 2009. All stock options, stock appreciation rights and restricted stock awards vest over a period of five years.

The Company granted restricted stock awards that may not be sold or otherwise transferred until certain restrictions have lapsed. The share based expense for these awards was determined based on the market price of our stock at the date of grant applied to the total number of shares that were anticipated to fully vest, amortized over the vesting period. As of September 30, 2009, there was approximately $851,000 of unrecognized compensation associated with these awards expected to be recognized over the next 2 years. For the three months ended September 30, 2009 and 2008, we recognized compensation expense associated with these awards of approximately $124,000 and $125,000, respectively. For the nine months ended September 30, 2009 and 2008, we recognized compensation expense associated with these awards of approximately $372,000 and $375,000 respectively.

We recognized compensation expense related to stock options of approximately $78,000 for the three months ended September 30, 2009, and 2008, respectively. For the nine months ended September 30, 2009 and 2008, we recognized compensation expense related to these options of $233,000 and $234,000 respectively. At September 30, 2009, there was approximately $523,000 of unrecognized compensation related to stock options expected to be recognized over the next two years.

9

HERITAGE FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4 — SECURITIES

The amortized cost and fair value of securities available for sale with gross unrealized gains and losses are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
September 30, 2009:
U. S. Government sponsored agency securities	$	21,033,474	$	189,492	$	(22,440	)	$	21,200,526
State and municipal securities		29,004,343		365,781		(770,301	)		28,599,823
Corporate debt securities		2,181,124		—		(318,736	)		1,862,388
Mortgage-backed securities		49,252,507		418,368		(375,396	)		49,295,479
Total debt securities		101,471,448		973,641		(1,486,873	)		100,958,216
Equity securities		434,801		118,799		(173,685	)		379,915
Total securities	$	101,906,249	$	1,092,440	$	(1,660,558	)	$	101,338,131
December 31, 2008:
U. S. Government sponsored agency securities	$	20,923,967	$	248,091	$	(7,077	)	$	21,164,981
State and municipal securities		30,052,558		60,677		(2,602,013	)		27,511,222
Corporate debt securities		2,187,686		—		(398,303	)		1,789,383
Mortgage-backed securities		64,380,979		1,469,043		(442,624	)		65,407,398
Total debt securities		117,545,190		1,777,811		(3,450,017	)		115,872,984
Equity securities		434,801		20,999		(188,259	)		267,541
Total securities	$	117,979,991	$	1,798,810	$	(3,638,276	)	$	116,140,525

The amortized cost and fair value of debt securities available for sale as of September 30, 2009 by contractual maturity are shown below. Actual maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without penalty. Therefore, these securities are not included in the maturity categories in the following maturity summary.

	Amortized		Fair
	Cost		Value
Due in one year or less	$	—	$	—
Due from one year to five years		3,703,270		3,446,144
Due from five to ten years		9,351,626		9,561,060
Due after ten years		39,598,846		39,035,448
Mortgage-backed securities		49,252,507		49,295,479
	$	101,906,249	$	101,338,131

Securities with a carrying value of $48,658,345 and $64,931,946 at September 30, 2009 and December 31, 2008, respectively, were pledged to secure public deposits, repurchase agreements and for other purposes required or permitted by law.

10

HERITAGE FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4 — SECURITIES (CONTINUED)

Gains and losses on sales of securities available for sale consist of the following:

	September 30,			December 31,
	2009			2008
Gross gains on sales of securities	$	873,413		$	361,701
Gross losses on sales of securities		(37,829	)		(127,025	)
Net realized gains on sales of securities available for sale	$	835,584		$	234,676

The following table shows the gross unrealized losses and fair value of securities aggregated by category and length of time that securities have been in a continuous unrealized loss position at September 30, 2009 and December 31, 2008.

	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Losses			Value		Losses			Value		Losses
September 30, 2009:
U.S. Government sponsored agency securities	$	2,975,110	$	(22,440	)	$	—	$	—		$	2,975,110	$	(22,440	)
State and municipal securities		424,366		(49,453	)		11,729,757		(720,848	)		12,154,123		(770,301	)
Corporate securities		—		—			141,000		(318,736	)		141,000		(318,736	)
Mortgage-backed securities		14,379,143		(97,244	)		3,714,360		(278,152	)		18,093,503		(375,396	)
Subtotal, debt securities		17,778,619		(169,137	)		15,585,117		(1,317,736	)		33,363,736		(1,486,873	)
Equity securities		—		—			961,115		(173,685	)		961,115		(173,685	)
Total temporarily impaired securities	$	17,778,619	$	(169,137	)	$	16,546,232	$	(1,491,421	)	$	34,324,851	$	(1,660,558	)
December 31, 2008:
U.S. Government sponsored agency securities	$	1,992,923	$	(7,077	)	$	—	$	—		$	1,992,923	$	(7,077	)
State and municipal securities		12,567,698		(889,679	)		10,383,740		(1,712,334	)		22,951,438		(2,602,013	)
Corporate debt securities		—		—			763,444		(398,303	)		763,444		(398,303	)
Mortgage-backed securities		4,366,655		(378,461	)		4,772,176		(64,163	)		9,138,831		(442,624	)
Subtotal, debt securities		18,927,276		(1,275,217	)		15,919,360		(2,174,800	)		34,846,636		(3,450,017	)
Equity securities		—		—			246,541		(188,259	)		246,541		(188,259	)
Total temporarily impaired securities	$	18,927,276	$	(1,275,217	)	$	16,165,901	$	(2,363,059	)	$	35,093,177	$	(3,638,276	)

11

HERITAGE FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4 — SECURITIES (CONTINUED)

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.

In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and industry analysts’ reports. As management has the intent and ability to hold the securities until maturity, or for the foreseeable future and due to the fact that the unrealized losses relate primarily to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer, no declines are deemed to be other than temporary.

The investment in the common stock of the Federal Home Loan Bank of Atlanta is accounted for by the cost method, which also represents par value, and is made for long-term business affiliation reasons. In addition, this investment is subject to restrictions relating to sale, transfer or other disposition. Dividends are recognized in income when declared. The carrying value of this investment at September 30, 2009 is $3,253,400. The estimated fair value of this investment is $3,253,400 as of September 30, 2009, and therefore is not considered impaired.

Other equity securities represent an investment in the common stock of the Chattahoochee Bank of Georgia (“Chattahoochee”), a de novo bank in Gainesville, Georgia. The Company accounts for this investment by the cost method. This investment represents approximately 4.9% of the outstanding shares of Chattahoochee. Since its initial capital raise, Chattahoochee has not had any stock transactions, and therefore, no fair market value is readily available. The carrying value of this investment at September 30, 2009, is $1,010,000. The Company plans to hold this investment for the foreseeable future, and does not consider it impaired as of September 30, 2009.

12

HERITAGE FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5 — FAIR VALUE MEASUREMENTS

The Fair Value Measurement and Disclosures Topic of the FASB Accounting Standards Codification establishes a fair value hierarchy that is based on valuation inputs used in the fair value measurements.

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the assets or liabilities, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2009, aggregated by the level in the fair value hierarchy within which those measurements fall.

	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Assets
Available for sale investment Securities	$	—	$	101,338,131	$	—	$	101,338,131
Total assets at fair value	$	—	$	101,338,131	$	—	$	101,338,131

13

HERITAGE FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5 — FAIR VALUE MEASUREMENTS (CONTINUED)

Following is a description of the valuation methodologies used for instruments measured at fair value on a non-recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Impaired Loans

Loan impairment is reported when full payment under the loan terms is not expected. Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate, or the fair value of collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to require an increase, such increase is reported as a component of the provision for loan losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan is confirmed. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan impairment as non-recurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan impairment as non-recurring Level 3. At September 30, 2009, there were no impaired loans reported at fair value utilizing Level 2 valuation inputs. Impaired loans with a carrying value of $12,989,813 were reduced by specific valuation allowance allocations totaling $4,053,297 for a total reported fair value of $8,936,516 on collateral valuations utilizing Level 3 valuation inputs at September 30, 2009.

Fair Value Option

The Fair Value Measurement and Disclosures Topic of the FASB Accounting Standards Codification allows companies to report selected financial assets and liabilities at fair value. The changes in fair value are recognized in earnings and the assets and liabilities measured under this methodology are required to be displayed separately on the balance sheet. While this became effective for the Company beginning January 1, 2008, the Company has not elected the fair value option that is offered.

Disclosures about Fair Value of Financial Instruments

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair value is based on discounted cash flows or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. In accordance with the Fair Value Measurement and Disclosures Topic of the FASB Accounting Standards Codification, the Company excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

14

HERITAGE FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5 — FAIR VALUE MEASUREMENTS (CONTINUED)

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash, Due From Banks, Interest-Bearing Deposits in Banks and Federal Funds Sold:The carrying amount of cash, due from banks, interest-bearing deposits at other financial institutions and federal funds sold approximates fair value.

Securities:Fair value of securities is based on available quoted market prices. The carrying amount of equity securities with no readily determinable fair value approximates fair value.

Loans:The carrying amount of variable-rate loans that reprice frequently and have no significant change in credit risk approximates fair value. The fair value of fixed-rate loans is estimated based on discounted contractual cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The fair value of impaired loans is estimated based on discounted contractual cash flows or underlying collateral values, where applicable.

Deposits:The carrying amount of demand deposits, savings deposits and variable-rate certificates of deposit approximates fair value. The fair value of fixed-rate certificates of deposit is estimated based on discounted contractual cash flows using interest rates currently being offered for certificates of similar maturities.

Federal Funds Purchased and Securities Sold Under Repurchase Agreements:The fair value of fixed rate federal funds purchased and securities sold under repurchase agreements is estimated based on discounted contractual cash flows using the current incremental borrowing rates for similar type borrowing arrangements.

Other Borrowings:The carrying amount of variable rate advances approximates fair value. The fair value of fixed rate advances is estimated based on discounted contractual cash flows using the current incremental borrowing rates for similar type borrowing arrangements.

Accrued Interest:The carrying amount of accrued interest approximates fair value.

Off-Balance-Sheet Instruments:The carrying amount of commitments to extend credit and standby letters of credit approximates fair value.

15

HERITAGE FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5 — FAIR VALUE MEASUREMENTS (CONTINUED)

The carrying amount and estimated fair value of the Company’s financial instruments were as follows:

	September 30, 2009				December 31, 2008
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash, due from banks and interest-bearing deposits in banks	$	17,754,732	$	17,754,732	$	10,905,360	$	10,905,360
Federal funds sold	$	13,033,000	$	13,033,000	$	30,254,000	$	30,254,000
Securities available for sale	$	101,338,131	$	101,338,131	$	116,140,525	$	116,140,525
Federal home loan bank stock	$	3,253,400	$	3,253,400	$	3,185,800	$	3,185,800
Other equity securities	$	1,010,000	$	1,010,000	$	1,010,000	$	1,010,000
Loans	$	299,295,709	$	298,059,866	$	302,487,892	$	309,635,072
Allowance for loan losses		8,027,969		—		4,950,722		—
Loans, net	$	291,267,740	$	298,059,866	$	297,537,170	$	309,635,072
Accrued interest receivable	$	2,128,634	$	2,128,634	$	2,155,327	$	2,155,327
Financial liabilities:
Deposits	$	322,311,313	$	306,947,548	$	338,545,994	$	336,904,274
Federal funds purchased and securities sold under repurchase agreements	$	35,210,539	$	35,210,539	$	41,497,491	$	41,497,491
Other borrowings	$	42,500,000	$	45,269,267	$	52,500,000	$	56,936,956
Accrued interest payable	$	596,742	$	596,742	$	1,045,042	$	1,045,042

NOTE 6 — SUBSEQUENT EVENTS

Subsequent events have been evaluated through November 16, 2009, which is the date financial statements were available to be issued.

16

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

Forward-Looking Statements.

This report contains certain ‘forward-looking statements’ that may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated” with respect to our financial condition. Results of operations and business are subject to various factors that could cause actual results to differ materially from these estimates and most other statements that are not historical in nature. These factors include, but are not limited to, general and local economic conditions, changes in interest rates, deposit flows, demand for mortgage, consumer and other loans, real estate values, competition, changes in accounting principles, policies or guidelines, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services.

General

Heritage Financial Group (“the Company”) is the parent holding company of HeritageBank of the South (“the Bank”). The Company is in a mutual holding company structure and 76% of its outstanding common stock is owned by Heritage, MHC (“MHC”), a federal mutual holding company.

The principal business of the Company is operating our wholly owned subsidiary, the Bank. Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans and investments, and the interest we pay on our interest-bearing liabilities, consisting of savings and checking accounts, money market accounts, time deposits, federal funds purchased and securities sold under agreements to repurchase and other borrowings. Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense. Noninterest income consists primarily of service charges on deposit accounts, mortgage origination fees, transaction fees, bank-owned life insurance, and commissions from investment services. Noninterest expense consists primarily of salaries and employee benefits, occupancy, equipment and data processing, advertising, professional fees and other costs. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Evolution of Business Strategy

We originally were chartered as a federal credit union in 1955. In 1998, we became a community chartered credit union. We accepted deposits and made loans to members who lived, worked or worshiped in the approved counties for the credit union charter. In 2001, we converted to a mutual thrift charter in order to better serve our customers and communities through a broader lending ability and an expanded customer base beyond the field of membership permitted for our credit union. The mutual holding company structure was established in 2002, and we converted from a thrift charter to a state savings bank charter in 2005. We feel this structure best suits our continued efforts to grow and expand our commercial business.

The Company completed an initial public stock offering on June 29, 2005. We sold 3,372,375 shares of common stock in that offering for $10.00 per share. The Company’s employee stock ownership plan (the “ESOP”) purchased 440,700 shares with the proceeds of a loan from the Company. The Company received net proceeds of $32.4 million in the public offering, 50% of which was contributed to the Bank and $4.4 million of which was loaned to the ESOP for its purchase of shares in the offering. The Company also issued an additional 7,867,875 shares of common stock to MHC, so that MHC would own 70% of the outstanding common stock at the close of the offering.

Our current business strategy is to operate a well-capitalized and profitable commercial and retail financial institution dedicated to serving the needs of our customers. We strive to be the primary financial institution in the market areas we serve. We offer a broad range of products and services, while stressing personalized and efficient customer service and convenient access to these products and services. We intend to continue to operate as a commercial and consumer lender. We have structured operations around a branch system that is staffed with knowledgeable and well-trained employees. Subject to capital requirements and our ability to grow in a reasonable and prudent manner, we may open additional branches as opportunities arise. In addition to our

17

branch system, we continue to expand electronic services for our customers. We attempt to differentiate ourselves from our competitors by providing a higher level of customer service.

We continue to implement our business strategy, as set forth in our Form 10-K, which was filed with the Securities and Exchange Commission on March 31, 2009. A critical component of this strategy includes increasing our commercial loan portfolio. During the first nine months of 2009, our commercial real estate, business and multifamily loans increased $7.1 million or 4.6% to $162.1 million, representing 54.2% of our total loan portfolio at September 30, 2009. During this time period, our total loan portfolio decreased $3.2 million, or 1.1%. Our ability to continue to grow our commercial loan portfolio is an important element of our long-term business strategy.

Another key component of our business strategy is the expansion of our operations outside of the Southwest Georgia market. As of September 30, 2009, we had total loans of $46.2 million and total deposits of $33.9 million at our Ocala, Florida branches. We are currently operating two branches in Ocala.

On September 1, 2009, we entered into a Purchase and Assumption Agreement with Atlantic Coast Federal Bank (“Atlantic”) providing for Heritage’s acquisition of the Lake City, Florida branch of Atlantic. In the transaction, Heritage will purchase approximately $12 million in loans, the real and personal property of the branch, and will assume approximately $45 million in deposits. This transaction, which is subject to regulatory approval, includes the payment of a 1% deposit premium. The acquisition of the Lake City office is expected to close in the fourth quarter of 2009. In addition to the Lake City branch purchase, we are also reviewing opportunities to acquire additional branches. We also may take advantage of opportunities to acquire branches through FDIC-assisted transactions.

Operating branches outside of the Southwest Georgia market subjects us to additional risk factors. These risk factors include, but are not limited to the following: management of employees from a distance, lack of knowledge of the local market, additional credit risks, logistical operational issues, and time constraints of management. These risk factors, as well as others we have not identified, may affect our ability to successfully operate outside of our current market area.

For more information on risk factors please see Item IA under Part II of this 10-Q.

Critical Accounting Policies

We have not changed any of our critical accounting policies since those disclosed in our Form 10-K, which was filed with the Securities and Exchange Commission on March 31, 2009. Those accounting policies relate to the judgments and estimates used in the preparation of our financial statements in the calculation of the allowance for loan losses, the accounting for impaired loans and the provision for income taxes.

Off Balance Sheet Liabilities

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. We use the same credit policies in making these commitments as we do for on-balance sheet instruments. A summary of the Company’s commitments as of September 30, 2009, is as follows:

	(In thousands)
Commitments to extend credit	$	35,898
Financial stand-by letters of credit		5,053
	$	40,951

18

Comparison of Financial Condition at September 30, 2009 and December 31, 2008

Total assets decreased $31.6 million or 6.3% to $470.5 million at September 30, 2009, from $502.1 million at December 31, 2008. Total interest earning assets decreased $30.9 million or 6.9% to $418.7 million at September 30, 2009, from $449.6 million at December 31, 2008. Total loans decreased $3.2 million or 1.1% to $299.3 million at September 30, 2009. The weakened economic environment throughout the country, including the Southeastern United States, and our markets in particular, is resulting in very limited loan demand. Therefore, we expect loan volume to be very limited for the remainder of 2009 unless economic trends improve significantly.

Securities decreased $14.8 million at September 30, 2009 as compared to December 31, 2008. This decrease was due primarily to principal payments on mortgage backed securities and the sale of certain longer term bonds. Other earning assets, consisting of interest bearing deposits in banks and federal funds sold, decreased significantly to $18.1 million from $31.0 million at December 31, 2008. This decrease occurred as we paid off brokered deposits during the first quarter of 2009 and paid off $10.0 million in FHLB borrowings during the second quarter. We expect deposits in banks and federal funds sold to increase during the remainder of the year as we expect to continue to see weak demand for new loans, increases in deposits, and pay-downs on our loan portfolio. In addition, we expect to receive approximately $33 million in cash in connection with our purchase of the Lake City branch. We expect these funds to remain invested in short term investments until they can be fully deployed.

Foreclosed assets decreased $1.2 million to $900,000. For the nine months ended September 30, 2009, we have added $290,000 in principal balances to other real estate owned. Offsetting those additions were sales of $1.1 million and write-downs and losses on sales of $384,000 in other real estate owned. During this time period, we had a net decrease of $48,000 in repossessed personal property. We expect foreclosed assets to increase significantly in the fourth quarter as we come to resolution on two large commercial credits totaling approximately $8.5 million. These loans are currently impaired, and we believe our reserve for losses on these loans is adequate. However, we could incur further losses and expenses on these loans if these loans are foreclosed. These losses and expenses could exceed our current reserves on these impaired loans.

Total liabilities decreased $32.2 million or 7.3% to $407.6 million at September 30, 2009 compared with $439.8 million at December 31, 2008. The decrease was due primarily to a decrease in brokered deposits of approximately $16.4 million and a $10.0 million FHLB advance which matured in the second quarter. We paid this advance off to further reduce our cost of funds. Certificates of deposit decreased $41.4 million in the first nine months of 2009, while other deposit accounts increased $41.6 million. This shift occurred as we lowered our rates on certificates of deposits and focused on generating and maintaining core deposit relationships.

The total amount of other borrowings declined $10.0 million to $42.5 million during the first nine months of 2009. Federal funds purchased and securities sold under repurchase agreements decreased to $35.2 million at September 30, 2009 from $41.5 million in December 31, 2008. This decrease is due primarily to a decrease in the amount of federal funds purchased from Chattahoochee Bank of Georgia (“Chattahoochee”) to $5.1 million at September 30, 2009 compared to $11.0 million at December 31, 2008. These purchases are done as an accommodation to Chattahoochee so that they can earn a competitive rate on federal funds without having to place concentrated amounts of federal funds with traditional correspondent banks. In return, these funds provide us with a stable, low cost source of funds.

Total equity increased $610,000 to $62.8 million at September 30, 2009, compared with $62.2 million at December 31, 2008. Net income of $83,000 for the first nine months of 2009, stock based compensation of $605,000, ESOP related transactions of $351,000, and other comprehensive income of $604,000 increased equity, while dividends of $611,000, and treasury stock transactions of $422,000, decreased equity.

19

Comparison of Operating Results

General

For the three months ended September 30, 2009 and 2008

During the quarter ended September 30, 2009, we recorded a net loss of $467,000 compared to a net loss of $1,762,000 for the quarter ended September 30, 2008. The decreased loss was due to an increase in noninterest income and a decrease in noninterest expenses. Offsetting the increase in income was an increase in loan loss provision expense.

For the nine months ended September 30, 2009 and 2008

For the nine months ended September 30, 2009, we recorded net income of $83,000 compared to a net loss of $494,000 for the same period in 2008. The increase in income was due to an increase in noninterest income. The increase was offset by a decrease in net interest income and an increase in loan loss provision expense.

Interest Income

For the three months ended September 30, 2009 and 2008

Total interest income for the three months ended September 30, 2009, decreased $1.1 million or 16.0% to $5.7 million, compared to $6.8 million during the third quarter of 2008. The decrease was the result of a 59 basis point decrease in yield on average earning assets to 5.55% during the third quarter of 2009 as compared to the yield of 6.14% earned during the same period in 2008. This decrease was due to an overall reduction in market interest rates. The investment portfolio yield decreased significantly due to efforts we made during the quarter to shorten the average life of our investment portfolio. We believe this will better position our balance sheet for a rising interest rate environment at some point in the future. In addition, our loan portfolio has continued to decrease as a result of weak loan demand. We expect the yield on our earning assets to continue to decrease slightly during the remainder of 2009 as we continue to see the effects of the Federal Reserve rate cuts from 2007 and 2008. Average interest earning assets decreased $29.3 million for the quarter ending September 30, 2009, compared with the same period in 2008, due primarily to a lack of loan demand.

For the nine months ended September 30, 2009 and 2008

Total interest income for the nine months ended September 30, 2009, decreased $3.0 million or 14.9% to $17.6 million, compared to $20.6 million during the same period in 2008. A 62 basis point decrease in loan yield to 6.18% in 2009 from 6.80% in 2008 was the primary cause of the decrease. A decrease in investment yield also contributed to the decrease, as previously mentioned. The total yield on earning assets decreased 85 basis points to 5.52% for the 2009 period compared to 6.37% for the 2008 period. We expect this yield to continue to decrease, although more moderately, for the remainder of 2009. Average interest earning assets increased $5.0 million to $436.8 million at September 30, 2009, from $441.8 million at September 30, 2008. We expect average interest earning assets to decrease or remain level for the remainder of 2009 due to a lack of loan demand.

Interest Expense

For the three months ended September 30, 2009 and 2008

Total interest expense decreased $1.0 million or 33.5% to $2.0 million for the quarter ended September 30, 2009, compared to $3.0 million during the same period in 2008. The cost of interest bearing liabilities decreased 83 basis points to 2.06% during the third quarter of 2009 compared with 2.89% during the same period in 2008. The average balance of interest bearing liabilities during the third quarter of 2009 was $380.8 million, a decrease of $26.8 million compared to $407.6 million during the third quarter of 2008 due to pay down of brokered deposits and maturing FHLB advances.

20

For the nine months ended September 30, 2009 and 2008

Total interest expense for the year to date period decreased $2.5 million to $6.9 million compared to $9.4 million during the 2008 period. The cost of interest bearing liabilities decreased 86 basis points during the 2009 period to 2.30% compared to 3.16% during the 2008 period. $1.7 million of the decrease came from lower rates on deposit accounts, while $779,000 of the decrease came from lower rates on borrowings. We expect the cost of funds to continue to decrease during the remainder of 2009, primarily from the decrease in costs of certificates of deposit.

Net Interest Income

For the three months ended September 30, 2009 and 2008

Net interest income of $3.7 million was an $86,000 decrease from the $3.8 million shown during the same period in 2008. The net interest spread increased 25 basis points for the third quarter of 2009 to 3.49% compared with 3.24% during the same period in 2008. The net interest margin improved 18 basis points to 3.68% for the three months ended September 30, 2009 compared to 3.50% during the same period in 2008.

For the nine months ended September 30, 2009 and 2008

Net interest income of $10.7 million was a $600,000 decrease from the $11.3 million shown during the same period in 2008. The net interest spread increased 1 basis point for the first nine months of 2009 to 3.22% compared with 3.21% during the same period in 2008. The net interest margin fell 13 basis points to 3.42% for the nine months ended September 30, 2009 compared to 3.55% during the same period in 2008.

General Comments on Interest Rates

During 2007 and 2008, we saw dramatic drops in interest rates as the Federal Reserve lowered the federal funds target rate a total of 325 basis points. These reductions in rates have put extreme downward pressure on our margins, as our loans tend to reprice more quickly than our deposit products. In addition, many of our competitors face extreme pressure on liquidity, and have therefore priced their deposit products, specifically certificates of deposit, aggressively. Most of this pressure has come from large regional and national banks that have been forced to seek deposit funding for their balance sheets when other sources of funding became more difficult to obtain. We are beginning to benefit from higher long term rates and from the repricing of our certificates of deposit. These improvements to the cost of funds are partially offsetting the declining yield. We expect our net interest margin to remain relatively stable for the remainder of 2009.

Our asset-liability management policy seeks to mitigate interest rate risk by making our balance sheet as neutral as possible to changes in interest rates. Although our goal is to be neutral to changes in rates, we will never achieve this without taking undue risk. Therefore, we remain exposed to further changes in interest rates. For more information on the effect of changes in interest rates, see Item 3 of this Form 10-Q.

Provision for Loan Losses

For the three months and nine months ended September 30, 2009 and 2008

During the quarter ended September 30, 2009, we recorded a $2.5 million provision expense for loan losses, which was an increase compared to the $1.2 million provision during the same period in 2008. For the year to date period, we recorded a $3.8 million provision compared to the $2.4 million provision in the prior year period. As general economic trends have continued to decline, we have experienced increases in internally criticized and classified loans, as well as increases in nonperforming and past due loans.

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Annualized net charge-offs to average outstanding loans increased to 0.29% for the three months ending September 30, 2009, compared to 0.15% during the same period of 2008. For the year to date period, annualized net charge-offs to average outstanding loans were 0.33% compared to 0.69% during the prior year period. Although net charge-offs decreased for the year to date period, we do not believe this is indicative of a trend, and we expect charge-offs to remain at elevated levels throughout 2009.

Nonperforming loans increased $5.6 million to $12.9 million at September 30, 2009 compared to $7.3 million at December 31, 2008. This increase was due primarily to the classification of one commercial relationship totaling approximately $4.0 million as nonperforming during the second quarter of 2009. We expect to repossess or the customer to dispose of the collateral securing this loan, which consists primarily of non-real estate assets. We believe we have properly assessed the value of this collateral, and have adequately reserved for it as of September 30, 2009. However, we may incur additional losses and carrying costs as we repossess and dispose of the collateral.

Nonperforming loans to total loans increased to 4.34% at September 30, 2009 from 2.41% at December 31, 2008. Nonperforming assets increased $4.5 million to $13.9 million at September 30, 2009 compared to $9.4 million at December 31, 2008. Nonperforming assets to total assets increased to 2.95% at September 30, 2009 as compared to 1.87% at December 31, 2008. The allowance for loan losses as a percentage of total loans increased to 2.68% at September 30, 2009 compared with 1.64% at December 31, 2008.

Loans past due 30 days and still accruing totaled $1.3 million, or 0.43% of total loans at September 30, 2009. This compares to $4.5 million at December 31, 2008, or 1.47% of loans. The decrease in past due loans occurred primarily as past due loans migrated to nonaccrual status.

Our internally criticized and classified assets totaled $33.8 million at September 30, 2009, compared to $27.0 million at December 31, 2008. These balances include the aforementioned nonperforming loans, other real estate, and repossessed assets. Our internal loan review processes strive to identify weaknesses in loans prior to performance issues. However, our processes do not always provide sufficient time to work out plans with borrowers that would avoid foreclosure and/or losses.

We continue to see weakness in our loan portfolio, and as economic conditions remain difficult, we expect this trend to continue until we see improvement in the overall economy. We have taken actions to prevent losses in our current portfolio, including a weekly meeting of members of management and lenders to discuss the status and action plan on each problem loan. We have also taken steps to better evaluate the capital and liquidity positions of our commercial loan guarantors, particularly those involved in commercial real estate construction and development.

We establish provisions for loan losses, which are charged to operations, at a level we believe will reflect probable credit losses based on historical loss trends and an evaluation of specific credits in the loan portfolio. In evaluating the level of the allowance for loan losses, we consider the types of loans and the amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions, and past due status and trends.

We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses as necessary in order to maintain the proper level of allowance. While we use available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require us to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses is maintained at a level that represents management’s best estimate of inherent losses in the loan portfolio, and such losses were both probable and reasonably estimable. The level of the allowance is based on estimates and the ultimate losses may vary from the estimates.

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Noninterest Income

A summary of noninterest income, excluding securities transactions, follows:

	Three Months Ended September 30,
	2009			2008			$ Chg			% Chg
Service charges on deposit accounts	$	950,893		$	1,046,544		$	(95,651	)		-9.14	%
Other service charges, commissions and fees		338,490			314,847			23,643			7.51	%
Brokerage fees		251,854			264,662			(12,808	)		-4.84	%
Mortgage origination fees		66,364			108,894			(42,530	)		-39.06	%
Bank owned life insurance		155,285			151,360			3,925			2.59	%
Other		11,575			33,435			(21,860	)		-65.38	%
Total noninterest income	$	1,774,461		$	1,919,742		$	(145,281	)		-7.57	%
Noninterest income as a percentage of average assets (annualized)		1.51	%		1.54	%

	Nine Months Ended September 30,
	2009			2008			$ Chg			% Chg
Service charges on deposit accounts	$	2,595,376		$	2,949,962		$	(354,586	)		-12.02	%
Other service charges, commissions and fees		1,060,600			973,650			86,950			8.93	%
Brokerage fees		662,177			770,493			(108,316	)		-14.06	%
Mortgage origination fees		275,544			314,602			(39,058	)		-12.42	%
Bank owned life insurance		464,767			344,199			120,568			35.03	%
Other		33,870			311,554			(277,684	)		-89.13	%
Total noninterest income	$	5,092,334		$	5,664,460		$	(572,126	)		-10-10	%
Noninterest income as a percentage of average assets (annualized)		1.39	%		1.52	%

The decrease in service charges on deposit accounts is due primarily to a decrease in overdraft fees. Due to the economic slowdown, we have seen our customers’ spending decrease, and therefore, overdrafts incurred have decreased. We expect these fees to continue trending downward until the economy improves and our customer spending increases. In addition, legislation introduced in the United States Congress could drastically diminish our overdraft fees. We are currently analyzing the effect of this legislation, and preparing a contingency plan to replace any fee decline from these legislative actions. While we are hopeful this plan will be able to replace the majority of the fees lost through legislative action, we are uncertain of the effect on fees at this time.

The increase in other service charges, commissions and fees is due to an increase in ATM and debit card income. This increase comes as our customers continue to shift to more electronic transactions rather than using paper checks. We expect to see this trend continue.

The decrease in brokerage fees was due to a decrease in assets under management, due to the decreases seen in the equity markets. We expect to see brokerage fees remain lower than the prior year levels due to the decrease in the equity markets.

Mortgage origination fees have decreased for the year and the quarter due to a general weakening in home purchases and refinancing activity. We expect mortgage origination fees to remain flat for the remainder of 2009.

The increase in earnings on bank owned life insurance is due to the purchase of $5.0 million in bank owned life insurance during the second quarter of 2008.

The impairment loss on securities during the quarter ended September 30, 2008 was a one-time charge on three issuers whose securities were deemed other than temporarily impaired. These issuers were Freddie Mac, General Motors, and Ford Motor Credit. There was no similar charge during the 2009 period.

The decrease in other noninterest income for the year to date is due primarily to a decrease in FHLB stock dividends. The FHLB suspended dividends for the first two quarters of 2009, but has reinstated their dividend during the third quarter. However, we expect dividends to be substantially lower than prior years.

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Noninterest Expense

A summary of noninterest expense follows:

	Three Months Ended September 30,
	2009			2008			$ Chg			% Chg
Salaries and employee benefits	$	2,295,513		$	2,353,230		$	(57,717	)		-2.45	%
Equipment		221,077			294,381			(73,304	)		-24.90	%
Occupancy		312,000			303,118			8,882			2.93	%
Advertising and marketing		146,962			86,800			60,162			69.31	%
Legal and accounting		117,868			129,632			(11,764	)		-9.07	%
Consulting & other professional fees		69,669			73,821			(4,152	)		-5.62	%
Directors fees and retirement		154,608			147,310			7,298			4.95	%
Telecommunications		52,861			63,003			(10,142	)		-16.10	%
Supplies		46,384			34,383			12,001			34.90	%
Data processing fees		431,608			333,276			98,332			29.50	%
Loss on sale and write-downs of other real estate owned		80,000			191,872			(111,872	)		-58.31	%
Foreclosed asset expenses		78,561			82,047			(3,486	)		-4.25	%
FDIC insurance and other regulatory fees		136,192			68,285			67,907			99.45	%
Other operating		306,871			528,377			(221,506	)		-41.92	%
Total noninterest expenses	$	4,450,174		$	4,689,535		$	(239,361	)		-5.10	%
Noninterest expenses as a percentage of average assets (annualized)		3.74	%		3.76	%

	Nine Months Ended September 30,
	2009			2008			$ Chg			% Chg
Salaries and employee benefits	$	6,719,869		$	6,878,605		$	(158,736	)		-2.31	%
Equipment		760,243			914,439			(154,196	)		-16.86	%
Occupancy		901,263			866,913			34,350			3.96	%
Advertising and marketing		345,191			343,476			1,715			0.50	%
Legal and accounting		390,526			398,435			(7,909	)		-1.99	%
Consulting & other professional fees		222,078			252,511			(30,433	)		-12.05	%
Directors fees and retirement		460,824			460,507			317			0.07	%
Telecommunications		169,189			198,180			(28,991	)		-14.63	%
Supplies		130,687			147,235			(16,548	)		-11.24	%
Data processing fees		1,144,789			974,736			170,053			17.45	%
Loss on sale and write-downs of other real estate owned		384,068			271,317			112,751			41.56	%
Foreclosed asset expenses		171,789			164,702			7,087			4.30	%
FDIC insurance and other regulatory fees		501,078			196,645			304,433			154.81	%
Other operating		1,004,909			1,154,294			(149,385	)		-12.94	%
Total noninterest expenses	$	13,306,503		$	13,221,995		$	84,508			0.64	%
Noninterest expenses as a percentage of average assets (annualized)		3.78	%		3.56	%

At the end of the third quarter, the number of full-time equivalent employees (“FTE’s”) decreased slightly to 117 from 118 at the end of the second quarter of 2009. At September 30, 2008, we had 125 FTE’s. We have reached an optimal level of employment and expect that our FTE count will remain level for the remainder of 2009.

Equipment expenses decreased for the quarter and year to date primarily due to a decrease in depreciation expense. We expect depreciation expense to increase later in 2009 as we replace computer equipment.

The increase in occupancy expenses for the year to date is due to the opening of our second branch in Ocala during the second half of 2008.

For the quarter, advertising expense increased due to increased advertising efforts in our Ocala market. Year to date, advertising expense remained consistent. We expect advertising expenses to remain level for the remainder of 2009.

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Legal and accounting expenses in 2009 were level compared to comparable time periods in 2008. We expect legal fees to increase during the remainder of 2009 due to the increased level of foreclosed assets and problem loans.

Consulting and other professional fees for the quarter and year to date decreased due to efforts to decrease outside services and nonessential expenses. We expect these fees to remain flat during the last quarter of 2009.

Directors fees and retirement remained level for the quarter and year to date and should remain level for the remainder of 2009.

The decrease in telecommunications expenses is related to the removal of certain redundant communication sources. We expect these expenses to remain level for the remainder of 2009.

Expenses for supplies decreased year to date as we have implemented better cost controls related to the purchase of supplies. A slight increase in the quarter to date can be attributed to additional supplies ordered in anticipation of our Lake City acquisition.

Data processing fees increased due to the increase in debit card and ATM card usage. These increased fees have been more than offset by the income we receive on these transactions. We expect this trend to continue.

The loss on sale and write-downs of other real estate owned is due to the elevated levels of other real estate owned. As we continue to experience elevated levels of problem loans, we expect to see losses on the disposition of other real estate, especially as real estate values remain depressed due to a lack of demand.

Foreclosed asset expenses increased for the year to date and decreased slightly for the quarter. We expect these expenses to remain high due to the high levels of problem loans and higher than normal levels of foreclosed assets.

FDIC insurance and other regulatory fees increased dramatically for the quarter and the year to date. This increase is due primarily to the FDIC special assessment imposed during the quarter of $201,000. We are also facing increased deposit assessment rates charged by the FDIC. This trend will continue for the foreseeable future as the FDIC continues to experience large losses on bank closures.

Other operating expenses decreased for the quarter and the year to date due to a concerted effort by management and employees to look for opportunities for expense reduction. We expect this trend to continue.

Income Tax Expense

During the quarter ended September 30, 2009, the Company recorded a tax benefit of $533,000. This compares to a tax benefit of $1,453,000 during the third quarter of 2008. The effective tax rate for the 2009 quarter was 53.3% compared to 45.2% for the 2008 quarter.

For the nine months ended 2009, we recorded a tax benefit of $574,000 compared to a tax benefit of $1,178,000 during the first nine months of 2008. Due to an increased level of provision expense and a lower net interest income, the Company’s nontaxable income exceeded the level of total net income for the first nine months of 2009. As the Company continues to experience lower than historical levels of net income, we expect to see this trend continue. The Company continually monitors its level of nontaxable income to total income, and may adjust its level of nontaxable income producing assets in order to produce the highest level of after tax yield. At the current time, the Company believes it will return to levels of net income sufficient to utilize its current level on nontaxable income in the near future.

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Liquidity and Capital Resources

Liquidity management involves the matching of cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs and the ability of the Company to manage those requirements. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest earning assets and interest bearing liabilities so that the balance it has in short-term investments at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, the Bank maintains relationships with correspondent banks, which could provide funds on short-term notice if needed.

The liquidity and capital resources of the Company are monitored continuously by the Company’s Board-authorized Asset Liability Management Committee and on a periodic basis by state and federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Company’s and the Bank’s liquidity ratios at September 30, 2009, were considered satisfactory. At that date, the Bank’s short-term investments were adequate to cover any reasonably immediate need for funds. The Company is aware of no events or trends likely to result in a material change in liquidity.

The consolidated statement of cash flows for the nine months ended September 30, 2009 and 2008, detail cash flows from operating, investing and financing activities. For the nine months ended September 30, 2009, net cash provided by operating activities was $3.6 million while investing activities provided $32.5 million, primarily from the sale and maturities of securities and a decrease in federal funds sold, and financing activities used $33.6 million primarily from a decrease in brokered deposits and other borrowings, resulting in a net increase in cash during the nine month period of $2.5 million.

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Regulatory Capital Ratios for the Company and HeritageBank of the South at September 30, 2009

The Company’s and the Bank’s regulatory capital levels exceed the minimums required by state and federal authorities. The following table reflects the Company and the Bank’s compliance at September 30, 2009, with regulatory capital requirements. These calculations are based on total risk weighted assets of $344.5 million on a consolidated basis and $338.0 million for HeritageBank of the South as of September 30, 2009, and average total assets of $471.2 million on a consolidated basis and $466.2 million for HeritageBank of the South for the three months ended September 30, 2009.

											Minimum Required
											to Be Well Capitalized
						For Capital					Under Prompt
						Adequacy					Corrective Action
	Actual					Purposes					Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Total Capital to Risk Weighted Assets Consolidated	$	66,417		19.3	%	$	27,558		8.0	%		—		—
HeritageBank of the South	$	59,848		17.7	%	$	27,039		8.0	%	$	33,799		10.0	%
Tier I Capital to Risk Weighted Assets Consolidated	$	62,145		18.0	%	$	13,779		4.0	%		—		—
HeritageBank of the South	$	55,522		16.4	%	$	13,519		4.0	%	$	20,279		6.0	%
Tier I Capital to Average Total Assets Consolidated	$	62,145		13.2	%	$	18,847		4.0	%		—		—
HeritageBank of the South	$	55,522		11.9	%	$	18,648		4.0	%	$	23,310		5.0	%

At September 30, 2009, Heritage Financial Group had total equity of $62.8 million or 13.4% of total assets as of that date. Under capital requirements for holding companies, Heritage Financial Group had Tier I leverage capital of $62.1 million or 13.2% of average assets, which was $43.3 million above the 4.0% requirement.

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ITEM 3. QUANTITAVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed only to U.S. dollar interest rate changes, and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company monitors its sensitivity to changes in interest rates and may use derivative instruments to hedge this risk. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. Finally, the Company has no exposure to foreign currency exchange rate risk and commodity price risk.

Interest rates play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as “interest rate risk”. The repricing of interest earning assets and interest bearing liabilities can influence the changes in net interest income.

The Company uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a twelve-month period is subjected to 100, 200 and 300 basis point increases and decreases in market rates on net interest income and is monitored on a quarterly basis.

The Company’s strategy is to mitigate interest risk to the greatest extent possible. Based on our analysis of the Company’s overall risk to changes in interest rates, we structure investment and funding transactions to reduce this risk. In addition, we may enter into off-balance sheet transactions to mitigate this risk. These strategies aim to achieve neutrality to interest rate risk. Although we strive to have our net interest income neutral to changes in rates, due to the inherent nature of our business, we will never be completely neutral to changes in rates.

The Company maintains a Risk Management Committee which monitors and analyzes interest rate risk. This Committee is comprised of members of senior management and outside directors. This Committee meets on a monthly basis and reviews the simulations listed above, as well as other interest rate risk reports.

The following table shows the results of our projections for net interest income expressed as a percentage change over net interest income in a flat rate scenario for an immediate change or “shock” in market interest rates over a twelve month period as of September 30, 2009:

Market Rate	Effect on Net
Change	Interest Income
+300		-9.8	%
+200		-10.7	%
+100		-5.9	%
-100		5.2	%
-200		10.7	%
-300		14.3	%

Additional information required by Item 305 of Regulation S-K is set forth under Item 2 of this report.

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ITEM 4. CONTROLS AND PROCEDURES

An evaluation of the Company’s disclosure controls and procedures as defined in Rule 13a -15(e) under the Securities Exchange Act of 1934 (the “Act”) as of September 30, 2009, was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and several other members of the Company’s senior management. The Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2009, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is: (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and the Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. There were no changes in our internal control over financial reporting (as defined in Rule 13a — 15(f) under the Act) that occurred during the quarter ended September 30, 2009, that has materially affected, or is likely to materially affect our internal control over financial reporting.

The Company does not expect that its disclosure controls and procedures will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

The Company intends to continually review and evaluate the design and effectiveness of its disclosure controls and procedures and to improve its controls and procedures over time and to correct any deficiencies that it may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Company’s business. While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure controls and procedures.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, the Company occasionally becomes involved in various legal proceedings. In our opinion, any liability from such proceedings would not have a material adverse effect on the business or financial condition of the Company.

ITEM 1A. RISK FACTORS

There has not been any material change in the risk factors disclosure from that contained in the Company’s 2008 Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

There were no unregistered sales of equity securities during the quarter ended September 30, 2009.

Below is a summary of issuer purchases of equity securities during the quarter ended September 30, 2009.

					Number of		Maximum
	Total				Shares Purchased		Number of Shares
	Number				as Part of		that may yet be
	of Shares		Average Price		Publicly Announced		Purchased Under the
	Purchased		Paid Per Share		Plans or Programs		Plans or Programs
July		—	$	—		—		186,974
August		—		—		—		186,974
September		—		—		—		186,974
Total		—	$	—		—		186,974

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5.OTHER INFORMATION

None.

ITEM 6.EXHIBITS

		Reference to
		Prior Filing
Regulation S-K		or Exhibit Number
Exhibit Number	Document	Attached Hereto
31	Rule 13a-14(a)/15d-14(a) Certifications	31
32	Section 1350 Certifications	32

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HERITAGE FINANCIAL GROUP
Date: November 16, 2009	By:	/s/ O. Leonard Dorminey
		O. Leonard Dorminey
		President and Chief Executive Officer
Date: November 16, 2009	By:	/s/ T. Heath Fountain
		T. Heath Fountain
		Senior Vice President and Chief Financial Officer

31