##### Table of Contents



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 March 31, 2009  Commission File Number 000-51305
 
 
 HERITAGE FINANCIAL GROUP
 
 721 N. Westover Blvd., Albany, GA 31707
229-420-0000
 þ o
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ
 APPLICABLE ONLY TO CORPORATE ISSUERS




---



##### 



HERITAGE FINANCIAL GROUP
 INDEX
 PageNumberPART I  FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2009 AND DECEMBER 31, 2008
    
    
    3CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTSH ENDED MARCH 31, 2009 AND 2008
    
    
    4CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTSH ENDED MARCH 31, 2009 AND 2008
    
    
    5CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY FOR THE THREE MONTSH ENDED MARCH 31, 2009 AND THE YEAR ENDED DECEMBER 31, 2008
    
    
    6CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTSH ENDED MARCH 31, 2009 AND 2008
    
    
    7CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    8ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS
    
    
    12ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    21ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    22PART II  OTHER INFORMATION
    
    
    23SIGNATURES
    
    
    
    
    24EXHIBITS31.1
    
    Rule 13a14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a14(a) Certification of Chief Financial Officer32
    
    Section 1350 CertificationEX-31EX-32




---



##### Table of Contents



HERITAGE FINANCIAL GROUP AND SUBSIDIARY
 Consolidated Balance Sheets
March 31, 2009 and December 31, 2008
 Unaudited
    
    
    AuditedMarch 31,
    
    
    December 31,2009
    
    
    2008AssetsCash and due from banks
    
    $
    12,562,907
    
    
    $
    10,159,602Interest-bearing deposits in banks
    
    
    651,464
    
    
    
    745,758Federal funds sold
    
    
    9,713,000
    
    
    
    30,254,000Securities available for sale, at fair value
    
    
    128,712,137
    
    
    
    116,140,525Federal home loan bank stock, at cost
    
    
    3,253,400
    
    
    
    3,185,800Other equity securities, at cost
    
    
    1,010,000
    
    
    
    1,010,000Loans
    
    
    298,150,665
    
    
    
    302,487,892Less allowance for loan losses
    
    
    5,435,360
    
    
    
    4,950,722Loans, net
    
    
    292,715,305
    
    
    
    297,537,170Premises and equipment, net
    
    
    16,770,949
    
    
    
    16,801,183Accrued interest receivable
    
    
    2,244,515
    
    
    
    2,155,327Intangible assets
    
    
    1,000,000
    
    
    
    1,000,000Foreclosed assets
    
    
    1,402,751
    
    
    
    2,119,818Cash surrender value of bank owned life insurance
    
    
    14,286,260
    
    
    
    14,136,119Other assets
    
    
    6,669,739
    
    
    
    6,812,425$
    490,992,427
    
    
    $
    502,057,727Liabilities and Stockholders EquityDepositsNoninterest-bearing
    
    $
    18,720,891
    
    
    $
    19,100,197Interest-bearing
    
    
    302,771,282
    
    
    
    319,445,797Total deposits
    
    
    321,492,173
    
    
    
    338,545,994Federal funds purchased and securities sold under repurchase agreements
    
    
    47,113,419
    
    
    
    41,497,491Other borrowings
    
    
    52,500,000
    
    
    
    52,500,000Accrued interest payable
    
    
    821,309
    
    
    
    1,045,042Other liabilities
    
    
    6,644,655
    
    
    
    6,256,227Total liabilities
    
    
    428,571,556
    
    
    
    439,844,754Commitments and contingenciesStockholders equityPreferred 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
    
    
    
    114,523Capital surplus
    
    
    40,037,908
    
    
    
    39,861,237Retained earnings
    
    
    41,547,235
    
    
    
    41,357,209Accumulated other comprehensive loss
    
    
    (2,545,121
    )
    
    
    (2,685,633
    )Unearned employee stock ownership plan (ESOP) shares,
275,438 and 286,455 shares
    
    
    (2,754,375
    )
    
    
    (2,864,550
    )76,400,170
    
    
    
    75,782,786Treasury stock, at cost, 1,040,848 and 993,498 shares
    
    
    (13,979,299
    )
    
    
    (13,569,813
    )Total stockholders equity
    
    
    62,420,871
    
    
    
    62,212,973$
    490,992,427
    
    
    $
    502,057,727
 See Notes to Consolidated Financial Statements.
 3




---



##### Table of Contents



HERITAGE FINANCIAL GROUP AND SUBSIDIARY
 
 Consolidated Statements of Operations (Unaudited)
For the Three Months Ended March 31, 2009 and 2008
 For the Three Months2009
    
    
    2008Interest incomeInterest and fees on loans
    
    $
    4,593,289
    
    
    $
    5,476,706Interest on taxable securities
    
    
    1,225,709
    
    
    
    1,149,889Interest on nontaxable securities
    
    
    292,643
    
    
    
    326,549Interest on federal funds sold
    
    
    16,552
    
    
    
    71,754Interest on deposits in other banks
    
    
    262
    
    
    
    8,1486,128,455
    
    
    
    7,033,046Interest expenseInterest on deposits
    
    
    1,887,761
    
    
    
    2,524,605Interest on other borrowings
    
    
    684,632
    
    
    
    818,8432,572,393
    
    
    
    3,343,448Net interest income
    
    
    3,556,062
    
    
    
    3,689,598Provision for loan losses
    
    
    800,000
    
    
    
    400,000Net interest income after provision
for loan losses
    
    
    2,756,062
    
    
    
    3,289,598Noninterest incomeService charges on deposit accounts
    
    
    807,835
    
    
    
    927,278Other service charges, commissions
and fees
    
    
    359,846
    
    
    
    327,069Brokerage fees
    
    
    194,358
    
    
    
    244,035Mortgage origination fees
    
    
    105,684
    
    
    
    88,794Bank owned life insurance
    
    
    150,140
    
    
    
    93,455Gain on sale of securities
    
    
    21,398
    
    
    
    12,359Other
    
    
    6,205
    
    
    
    72,1371,645,466
    
    
    
    1,765,127Noninterest expenseSalaries and employee benefits
    
    
    2,197,689
    
    
    
    2,300,957Equipment
    
    
    273,388
    
    
    
    321,160Occupancy
    
    
    292,347
    
    
    
    291,631Advertising and marketing
    
    
    87,524
    
    
    
    145,331Legal and accounting
    
    
    117,880
    
    
    
    126,831Consulting & other professional fees
    
    
    61,572
    
    
    
    93,592Directors fees and retirement
    
    
    153,108
    
    
    
    152,934Telecommunications
    
    
    61,956
    
    
    
    71,919Supplies
    
    
    38,112
    
    
    
    57,844Data processing fees
    
    
    329,960
    
    
    
    304,213(Gain) loss on sale and write-downs of
other real estate owned
    
    
    49,064
    
    
    
    (805
    )Foreclosed asset expenses
    
    
    44,990
    
    
    
    49,710FDIC insurance and other regulatory fees
    
    
    80,956
    
    
    
    59,234Other operating
    
    
    326,133
    
    
    
    380,9634,114,679
    
    
    
    4,355,514Income before income taxes
    
    
    286,849
    
    
    
    699,211Applicable income tax (benefits)
    
    
    (107,774
    )
    
    
    119,672Net income
    
    $
    394,623
    
    
    $
    579,539Basic earnings per share
    
    $
    0.04
    
    
    $
    0.06Diluted earnings per share
    
    $
    0.04
    
    
    $
    0.06
 See Notes to Consolidated Financial Statements.
 4




---



##### Table of Contents



HERITAGE FINANCIAL GROUP AND SUBSIDIARY
 
 Consolidated Statements of Comprehensive Income (Unaudited)
For the Three Months Ended March 31, 2009 and 2008
 For the Three Months2009
    
    
    2008Net income
    
    $
    394,623
    
    
    $
    579,539Other comprehensive income (loss):Net realized gain on termination of cash
flow hedge during the period, net of tax of $359,490

    
    
    
    
    
    
    539,235Elimination 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
    
    
    (52,780
    )
    
    
    Unrealized holding gains on investments
arising during the period, net of tax of
$137,421 and $413,813
    
    
    206,131
    
    
    
    629,578Reclassification adjustment for investment
gains included in net income, net of tax of
$8,559 and $4,902
    
    
    (12,839
    )
    
    
    (7,457
    )Total other comprehensive income
    
    
    140,512
    
    
    
    926,518Comprehensive income
    
    $
    535,135
    
    
    $
    1,506,057
 See Notes to Consolidated Financial Statements.
 5




---



##### Table of Contents



HERITAGE FINANCIAL GROUP AND SUBSIDIARY
 
 Consolidated Statements of Stockholders Equity (Unaudited)
For the Three Months Ended March 31, 2009 and
The Year Ended December 31, 2008
 AccumulatedOtherCommon Stock
    
    
    Capital
    
    
    Retained
    
    
    Unearned
    
    
    Treasury
    
    
    ComprehensiveShares
    
    
    Par Value
    
    
    Surplus
    
    Earnings
    
    ESOP Shares
    
    Stock
    
    Income (Loss)
    
    TotalBalance, December 31, 2007
    
    
    11,443,723
    
    
    $
    114,437
    
    
    $
    39,009,323
    
    
    $
    42,406,483
    
    
    $
    (3,305,250
    )
    
    $
    (9,329,501
    )
    
    $
    (3,303,342
    )
    
    $
    65,592,150Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (262,360
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (262,360
    )Cash dividend declared, $0.28
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (786,914
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (786,914
    )Stock-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    809,086
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    809,086Repurchase 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
    
    
    
    
    
    
    
    3,567Issuance of restricted stock
    
    
    9,505
    
    
    
    95
    
    
    
    (95
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeiture of restricted stock
    
    
    (884
    )
    
    
    (9
    )
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    617,709
    
    
    
    617,709Excess tax expense from stock
based compensation plans
    
    
    
    
    
    
    
    
    
    
    (3,432
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,432
    )ESOP shares earned, 44,070
shares
    
    
    
    
    
    
    
    
    
    
    47,182
    
    
    
    
    
    
    
    440,700
    
    
    
    
    
    
    
    
    
    
    
    487,882Balance, December 31, 2008
    
    
    11,452,344
    
    
    
    114,523
    
    
    
    39,861,237
    
    
    
    41,357,209
    
    
    
    (2,864,550
    )
    
    
    (13,569,813
    )
    
    
    (2,685,633
    )
    
    
    62,212,973Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    394,623
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    394,623Cash dividend declared, $0.08
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (204,597
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (204,597
    )Repurchase of 47,500 shares
of stock for the treasury
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (411,500
    )
    
    
    
    
    
    
    (411,500
    )Issuance of 150 shares of
common stock from the
treasury
    
    
    
    
    
    
    
    
    
    
    (1,253
    )
    
    
    
    
    
    
    
    
    
    
    2,014
    
    
    
    
    
    
    
    761Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140,512
    
    
    
    140,512Stock-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    201,797
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    201,797ESOP shares earned, 11,018
shares
    
    
    
    
    
    
    
    
    
    
    (23,873
    )
    
    
    
    
    
    
    110,175
    
    
    
    
    
    
    
    
    
    
    
    86,302Balance, March 31, 2009
    
    
    11,452,344
    
    
    $
    114,523
    
    
    $
    40,037,908
    
    
    $
    41,547,235
    
    
    $
    (2,754,375
    )
    
    $
    (13,979,299
    )
    
    $
    (2,545,121
    )
    
    $
    62,420,871
 See Notes to Consolidated Financial Statements.
 6




---



##### Table of Contents



HERITAGE FINANCIAL GROUP AND SUBSIDIARY
 
 Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2009 and 2008
 For the Three Months2009
    
    
    2008OPERATING ACTIVITIESNet income
    
    $
    394,623
    
    
    $
    579,539Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    227,484
    
    
    
    256,435Provision for loan losses
    
    
    800,000
    
    
    
    400,000ESOP compensation expense
    
    
    86,302
    
    
    
    136,112Stock-based compensation expense
    
    
    201,797
    
    
    
    202,936Net gain on sale of securities available for sale
    
    
    (21,398
    )
    
    
    (12,359
    )Proceeds on termination of cash flow hedge
    
    
    
    
    
    
    898,725Accretion of gain on termination of cash flow hedge
    
    
    (87,967
    )
    
    
    Increase in bank owned life insurance
    
    
    (150,141
    )
    
    
    (93,455
    )Increase in interest receivable
    
    
    (89,188
    )
    
    
    (85,516
    )Decrease in interest payable
    
    
    (223,733
    )
    
    
    (203,170
    )Increase (decrease) in taxes payable
    
    
    (107,775
    )
    
    
    119,672(Gain) loss on sale and write-downs of other real estate owned
    
    
    49,064
    
    
    
    (805
    )Net other operating activities
    
    
    545,214
    
    
    
    (582,331
    )Total adjustments
    
    
    1,229,659
    
    
    
    1,036,244Net cash provided by operating activities
    
    
    1,624,282
    
    
    
    1,615,783INVESTING ACTIVITIES(Increase) decrease in interest-bearing deposits in banks
    
    
    94,294
    
    
    
    (186,959
    )Purchases of securities available for sale
    
    
    (29,145,589
    )
    
    
    (27,196,720
    )Proceeds from maturities of securities available for sale
    
    
    7,859,291
    
    
    
    3,401,409Proceeds from sale of securities available for sale
    
    
    9,058,238
    
    
    
    3,887,984Net change in Federal home loan bank stock
    
    
    (67,600
    )
    
    
    (778,600
    )Decrease in federal funds sold
    
    
    20,541,000
    
    
    
    13,872,000(Increase) decrease in loans, net
    
    
    3,803,201
    
    
    
    (7,660,775
    )Purchase of premises and equipment
    
    
    (197,250
    )
    
    
    (1,629,513
    )Proceeds from sale of other real estate owned
    
    
    886,667
    
    
    
    286,226Net cash provided by (used in) investing activities
    
    
    12,832,252
    
    
    
    (16,004,948
    )FINANCING ACTIVITIESDecrease in deposits
    
    
    (17,053,821
    )
    
    
    (14,140,023
    )Increase in federal funds purchased and securities sold
under agreement to repurchase
    
    
    5,615,928
    
    
    
    15,818,460Proceeds from other borrowings
    
    
    
    
    
    
    15,000,000Purchase of treasury stock, net
    
    
    (410,739
    )
    
    
    (1,922,612
    )Dividends paid to stockholders
    
    
    (204,597
    )
    
    
    (207,265
    )Net cash provided by (used in) financing activities
    
    
    (12,053,229
    )
    
    
    14,548,560Net increase in cash and due from banks
    
    
    2,403,305
    
    
    
    159,395Cash and due from banks at beginning of period
    
    
    10,159,602
    
    
    
    8,953,836Cash and due from banks at end of period
    
    $
    12,562,907
    
    
    $
    9,113,231SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash paid during the period for:Interest
    
    $
    2,769,127
    
    
    $
    3,546,618Taxes
    
    
    
    
    
    
    NONCASH TRANSACTIONSDecrease in unrealized losses on securities available for sale
    
    $
    322,154
    
    
    $
    1,036,868Decrease in unrealized gain on termination of cash flow hedges
    
    
    
    
    
    
    391,396Principal balances of loans transferred to other real estate owned
    
    
    207,698
    
    
    
    
 See Notes to Consolidated Financial Statements.
 7




---



##### Table of Contents



HERITAGE FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 1   BASIS OF PRESENTATION AND ACCOUNTING ESTIMATES
     NOTE 2   EARNINGS PER SHARE
  Three Months2009
    
    
    2008Basic earnings per share:Net income
    
    $
    394,623
    
    
    $
    579,539Weighted average common shares outstanding
    
    
    10,026,182
    
    
    
    10,282,887Total basic earnings per common share
    
    $
    0.04
    
    
    $
    0.06Diluted earnings per share:Net income
    
    $
    394,623
    
    
    $
    579,539Weighted average common shares outstanding
    
    
    10,026,182
    
    
    
    10,282,887Effect of dilutive stock options and
restricted stock
    
    
    
    
    
    
    26,732Weighted average dilutive common shares
outstanding
    
    
    10,026,182
    
    
    
    10,309,619Total diluted earnings per common share
    
    $
    0.04
    
    
    $
    0.06
  8




---



##### Table of Contents



NOTE 3   SHARE BASED COMPENSATION
    9




---



##### Table of Contents



HERITAGE FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 4   FAIR VALUE MEASUREMENTS
     Quoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalAssetsAvailable for sale
investment securities
    
    $
    
    
    
    $
    128,712,137
    
    
    $
    
    
    
    $
    128,712,137Total assets at fair value
    
    $
    
    
    
    $
    128,712,137
    
    
    $
    
    
    
    $
    128,712,137
 10




---



##### Table of Contents



HERITAGE FINANCIAL GROUP AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  Impaired Loans
  11




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
 Forward-Looking Statements.
  General
   Evolution of Business Strategy
    12




---



##### Table of Contents



Critical Accounting Policies
  Off Balance Sheet Liabilities
  (In thousands)Commitments to extend credit
    
    $
    39,639Financial stand-by letters of credit
    
    
    5,239$
    44,878
 13




---



##### Table of Contents



Comparison of Financial Condition at March 31, 2009 and December 31, 2008
       14




---



##### Table of Contents



Comparison of Operating Results
 General
  Interest Income
  Interest Expense
  Net Interest Income
  General Comments on Interest Rates
   15




---



##### Table of Contents



Provision for Loan Losses
         16




---



##### Table of Contents



Noninterest Income
  Three Months Ended March 31,2009
    
    
    2008
    
    
    $ Chg
    
    
    % ChgService charges on deposit accounts
    
    $
    807,835
    
    
    $
    927,278
    
    
    $
    (119,443
    )
    
    
    -12.88
    %Other service charges, commissions and fees
    
    
    359,846
    
    
    
    327,069
    
    
    
    32,777
    
    
    
    10.02
    %Brokerage fees
    
    
    194,358
    
    
    
    244,035
    
    
    
    (49,677
    )
    
    
    -20.36
    %Mortgage origination fees
    
    
    105,684
    
    
    
    88,794
    
    
    
    16,890
    
    
    
    19.02
    %Bank owned life insurance
    
    
    150,140
    
    
    
    93,455
    
    
    
    56,685
    
    
    
    60.65
    %Other
    
    
    6,205
    
    
    
    72,137
    
    
    
    (65,932
    )
    
    
    -91.40
    %Total noninterest income
    
    $
    1,624,068
    
    
    $
    1,752,768
    
    
    $
    (128,700
    )
    
    
    -7.34
    %Noninterest income as a percentage of
average assets (annualized)
    
    
    1.29
    %
    
    
    1.49
    %
       17




---



##### Table of Contents



Noninterest Expense
  Three Months Ended March 31,2009
    
    
    2008
    
    
    $ Chg
    
    
    % ChgSalaries and employee benefits
    
    $
    2,197,689
    
    
    $
    2,300,957
    
    
    $
    (103,268
    )
    
    
    -4.49
    %Equipment
    
    
    273,388
    
    
    
    321,160
    
    
    
    (47,772
    )
    
    
    -14.87
    %Occupancy
    
    
    292,347
    
    
    
    291,631
    
    
    
    716
    
    
    
    0.25
    %Advertising and marketing
    
    
    87,524
    
    
    
    145,331
    
    
    
    (57,807
    )
    
    
    -39.78
    %Legal and accounting
    
    
    117,880
    
    
    
    126,831
    
    
    
    (8,951
    )
    
    
    -7.06
    %Consulting & other professional fees
    
    
    61,572
    
    
    
    93,592
    
    
    
    (32,020
    )
    
    
    -34.21
    %Directors fees and retirement
    
    
    153,108
    
    
    
    152,934
    
    
    
    174
    
    
    
    0.11
    %Telecommunications
    
    
    61,956
    
    
    
    71,919
    
    
    
    (9,963
    )
    
    
    -13.85
    %Supplies
    
    
    38,112
    
    
    
    57,844
    
    
    
    (19,732
    )
    
    
    -34.11
    %Data processing fees
    
    
    329,960
    
    
    
    304,213
    
    
    
    25,747
    
    
    
    8.46
    %(Gain) loss
on sale and write-downs of other real estate owned
    
    
    49,064
    
    
    
    (805
    )
    
    
    49,869
    
    
    NMForeclosed asset expenses
    
    
    44,990
    
    
    
    49,710
    
    
    
    (4,720
    )
    
    
    -9.50
    %FDIC insurance and other regulatory fees
    
    
    80,956
    
    
    
    59,234
    
    
    
    21,722
    
    
    
    36.67
    %Other operating
    
    
    326,133
    
    
    
    380,963
    
    
    
    (54,830
    )
    
    
    -14.39
    %Total noninterest expenses
    
    $
    4,114,679
    
    
    $
    4,355,514
    
    
    $
    (240,835
    )
    
    
    -5.53
    %Noninterest expenses as a percentage of
average assets (annualized)
    
    
    3.26
    %
    
    
    3.69
    %
           18




---



##### Table of Contents



Income Tax Expense
  Liquidity and Capital Resources
    19




---



##### Table of Contents



Regulatory Capital Ratios for the Company and HeritageBank of the South at March 31, 2009
  Minimum Required to BeFor Capital
    
    Well Capitalized UnderAdequacy
    
    Prompt Corrective ActionActual
    
    Purposes
    
    ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total Capital to Risk Weighted Assets
Consolidated
    
    $
    68,380
    
    
    
    19.0
    %
    
    $
    28,781
    
    
    
    8.0
    %
    
    
    
    
    
    
    HeritageBank of the South
    
    $
    61,453
    
    
    
    17.5
    %
    
    $
    28,167
    
    
    
    8.0
    %
    
    $
    35,209
    
    
    
    10.0
    %Tier I Capital to Risk Weighted Assets
Consolidated
    
    $
    63,966
    
    
    
    17.8
    %
    
    $
    14,390
    
    
    
    4.0
    %
    
    
    
    
    
    
    HeritageBank of the South
    
    $
    57,039
    
    
    
    16.2
    %
    
    $
    14,084
    
    
    
    4.0
    %
    
    $
    21,126
    
    
    
    6.0
    %Tier I Capital to Average Total Assets
Consolidated
    
    $
    63,966
    
    
    
    12.7
    %
    
    $
    20,153
    
    
    
    4.0
    %
    
    
    
    
    
    
    HeritageBank of the South
    
    $
    57,039
    
    
    
    11.5
    %
    
    $
    19,899
    
    
    
    4.0
    %
    
    $
    24,874
    
    
    
    5.0
    %
  20




---



##### Table of Contents



ITEM 3. QUANTITAVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
       Market Rate
    
    
    
    Effect on NetChange
    
    
    
    Interest Income+300
    
    
    
    
    -5.4
    %+200
    
    
    
    
    -5.6
    %+100
    
    
    
    
    -2.4
    %-100
    
    
    
    
    1.4
    %-200
    
    
    
    
    4.4
    %-300
    
    
    
    
    5.9
    %
  21




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
    22




---



##### Table of Contents



PART II  OTHER INFORMATION
 ITEM 1.
    
    LEGAL PROCEEDINGS
  ITEM 1A.
    
    RISK FACTORS
  ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS AND
ISSUER PURCHASES OF EQUITY SECURITIES
   Number of
    
    
    MaximumTotal
    
    
    
    
    
    
    Shares Purchased
    
    
    Number of SharesNumber
    
    
    
    
    
    
    as Part of
    
    
    that may yet beof Shares
    
    
    Average Price
    
    
    Publicly Announced
    
    
    Purchased Under thePurchased
    
    
    Paid Per Share
    
    
    Plans or Programs
    
    
    Plans or ProgramsJanuary
    
    
    25,000
    
    
    $
    9.05
    
    
    
    25,000
    
    
    
    211,000February
    
    
    7,500
    
    
    
    8.80
    
    
    
    7,500
    
    
    
    203,500March
    
    
    15,000
    
    
    
    7.95
    
    
    
    15,000
    
    
    
    188,500Total
    
    
    47,500
    
    
    $
    8.66
    
    
    
    47,500
    
    
    
    188,500
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  ITEM 5.
    
    OTHER INFORMATION
  ITEM 6.
    
    EXHIBITS
 Reference toPrior FilingRegulation S-K
    
    
    
    or Exhibit NumberExhibit Number
    
    Document
    
    Attached Hereto31
    
    Rule 13a-14(a)/15d-14(a) Certifications
    
    3132
    
    Section 1350 Certifications
    
    32
 23




---



##### Table of Contents



SIGNATURES
  HERITAGE FINANCIAL GROUPDate: May 14, 2009
    By:
    /s/ O. Leonard DormineyO. Leonard DormineyPresident and Chief Executive OfficerDate: May 14, 2009
    By:
    /s/ T. Heath FountainT. Heath FountainSenior Vice President and
Chief Financial Officer 24