##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007  Commission File Number 000-51305
 
 
 HERITAGE FINANCIAL GROUP
   721 N. Westover Blvd., Albany, GA 31707
229-420-0000
 þ o
  o o þ
 o þ
 APPLICABLE ONLY TO CORPORATE ISSUERS




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##### 



HERITAGE FINANCIAL GROUP
 INDEX
 PageNumberPART I  FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2007 AND DECEMBER 31, 2006
    
    
    3CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
    
    
    4CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
    
    
    5CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
    
    
    6CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
    
    
    7CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    8ITEM 2.
    
    MANAGEMENT'S DISCUSSION AND ANALYSIS
    
    
    10ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    18ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    18PART II  OTHER INFORMATION
    
    
    20SIGNATURES
    
    
    26Ex-31.1 Section 302 Certification of the CEOEx-31.2 Section 302 Certification of the CFOEx-32 Section 906 Certification of the CEO & CFO
   31.1
    
    Rule 13a14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a14(a) Certification of Chief Financial Officer32
    
    Section 1350 Certification




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##### Table of Contents



HERITAGE FINANCIAL GROUP AND SUBSIDIARY
 CONSOLIDATED BALANCE SHEETS
MARCH 31, 2007 AND DECEMBER 31, 2006
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    8,886,530
    
    
    $
    9,781,232Interest-bearing deposits in banks
    
    
    283,105
    
    
    
    2,153,859Federal funds sold
    
    
    12,683,000
    
    
    
    12,677,000Securities available for sale, at fair value
    
    
    105,100,800
    
    
    
    84,571,767Federal home loan bank stock, at cost
    
    
    2,519,700
    
    
    
    2,499,400Loans
    
    
    286,621,676
    
    
    
    276,776,236Less allowance for loan losses
    
    
    4,183,973
    
    
    
    4,075,997Loans, net
    
    
    282,437,703
    
    
    
    272,700,239Premises and equipment, net
    
    
    12,817,626
    
    
    
    12,815,482Accrued interest receivable
    
    
    2,682,116
    
    
    
    2,288,827Foreclosed assets
    
    
    348,960
    
    
    
    322,449Intangible assets
    
    
    1,000,000
    
    
    
    1,000,000Cash surrender value of bank owned life insurance
    
    
    8,374,999
    
    
    
    8,293,202Other assets
    
    
    4,212,912
    
    
    
    4,226,365$
    441,347,451
    
    
    $
    413,329,822Liabilities and Stockholders EquityDepositsNoninterest-bearing
    
    $
    18,169,239
    
    
    $
    14,784,180Interest-bearing
    
    
    302,489,705
    
    
    
    284,404,324Total deposits
    
    
    320,658,944
    
    
    
    299,188,504Federal funds purchased and securities sold under
agreements to repurchase
    
    
    10,534,067
    
    
    
    5,531,394Other borrowings
    
    
    40,000,000
    
    
    
    40,000,000Other liabilities
    
    
    6,377,673
    
    
    
    5,801,146Total liabilities
    
    
    377,570,684
    
    
    
    350,521,044Commitments 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;
11,449,155 shares issued and outstanding
    
    
    114,492
    
    
    
    114,492Capital surplus
    
    
    38,091,847
    
    
    
    37,807,784Retained earnings
    
    
    40,785,781
    
    
    
    40,248,349Accumulated other comprehensive loss
    
    
    (2,982,982
    )
    
    
    (3,097,880
    )Unearned employee stock ownership (ESOP) shares,
363,577 and 374,595 shares
    
    
    (3,635,775
    )
    
    
    (3,745,950
    )72,373,363
    
    
    
    71,326,795Treasury stock, at cost 560,138 and 555,138 shares
    
    
    (8,596,596
    )
    
    
    (8,518,017
    )Total stockholders equity
    
    
    63,776,767
    
    
    $
    62,808,778$
    441,347,451
    
    
    $
    413,329,822
 See Notes to Consolidated Financial Statements.
 3




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##### Table of Contents



HERITAGE FINANCIAL GROUP AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED MARCH 31, 2007 AND 2006
(Unaudited)
 Three Months Ended March 31,2007
    
    
    2006Interest incomeInterest and fees on loans
    
    $
    5,235,636
    
    
    $
    4,343,114Interest on taxable securities
    
    
    931,336
    
    
    
    658,718Interest on nontaxable securities
    
    
    185,026
    
    
    
    61,456Interest on federal funds sold
    
    
    221,080
    
    
    
    112,102Interest on deposits in other banks
    
    
    10,586
    
    
    
    15,6816,583,664
    
    
    
    5,191,071Interest expenseInterest on deposits
    
    
    2,612,385
    
    
    
    1,158,570Interest on other borrowings
    
    
    484,485
    
    
    
    543,9703,096,870
    
    
    
    1,702,540Net interest income
    
    
    3,486,794
    
    
    
    3,488,531Provision for loan losses
    
    
    158,000
    
    
    
    90,000Net interest income after provision for
loan losses
    
    
    3,328,794
    
    
    
    3,398,531Noninterest incomeService charges on deposit accounts
    
    
    835,118
    
    
    
    599,590Other service charges, commissions and fees
    
    
    356,551
    
    
    
    219,147Brokerage fees
    
    
    177,226
    
    
    
    125,706Mortgage origination fees
    
    
    101,545
    
    
    
    100,880Bank owned life insurance
    
    
    81,796
    
    
    
    71,898Loss on sale of securities
    
    
    (28,682
    )
    
    
    Other
    
    
    64,569
    
    
    
    94,9671,588,123
    
    
    
    1,212,188Noninterest expenseSalaries and employee benefits
    
    
    2,282,821
    
    
    
    2,165,961Equipment
    
    
    277,254
    
    
    
    340,124Occupancy
    
    
    250,189
    
    
    
    267,576Advertising and marketing
    
    
    90,064
    
    
    
    79,221Legal and accounting
    
    
    97,808
    
    
    
    202,301Directors fees and retirement
    
    
    128,202
    
    
    
    89,109Telephone
    
    
    55,523
    
    
    
    63,139Supplies
    
    
    54,250
    
    
    
    64,899Data processing fees
    
    
    178,806
    
    
    
    165,670Other operating
    
    
    491,095
    
    
    
    434,2803,906,012
    
    
    
    3,872,280Income before income taxes
    
    
    1,010,905
    
    
    
    738,439Applicable income taxes
    
    
    291,964
    
    
    
    241,994Net income
    
    $
    718,941
    
    
    $
    496,445Basic earnings per share
    
    $
    0.07
    
    
    $
    0.05Diluted earnings per share
    
    $
    0.07
    
    
    $
    0.05
 See Notes to Consolidated Financial Statements.
 4




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HERITAGE FINANCIAL GROUP AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS
ENDED MARCH 31, 2007 AND 2006
(Unaudited)
 Three Months Ended March 31,2007
    
    
    2006Net income
    
    $
    718,941
    
    
    $
    496,445Other comprehensive income (loss):Reclassification adjustment for losses included in net income, net of tax
benefit of $11,375 and $-
    
    
    17,307
    
    
    
    Unrealized holding gains (losses) arising during period, net of tax
(benefit) of $64,145 and ($54,445)
    
    
    97,591
    
    
    
    (82,832
    )Total other comprehensive income (loss)
    
    
    114,898
    
    
    
    (82,832
    )Comprehensive income
    
    $
    833,839
    
    
    $
    413,613
 See Notes to Consolidated Financial Statements.
 5




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##### Table of Contents



HERITAGE FINANCIAL GROUP AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND
THE YEAR ENDED DECEMBER 31, 2006
(Unaudited)
 AccumulatedUnearned
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Capital
    
    
    Retained
    
    
    ESOP
    
    
    Treasury
    
    
    ComprehensiveShares
    
    
    Par Value
    
    
    Surplus
    
    
    Earnings
    
    
    Shares
    
    
    Stock
    
    
    (Loss)
    
    
    TotalBalance, December 31, 2005
    
    
    11,241,250
    
    
    $
    112,413
    
    
    $
    37,126,877
    
    
    
    38,717,576
    
    
    $
    (4,186,650
    )
    
    $
    
    
    
    $
    (2,786,569
    )
    
    $
    68,983,647Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,353,637
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,353,637Cash dividend declared, $.20 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (673,936
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (673,936
    )Adjustment related to initial adoption of SFAS 158, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (748,049
    )
    
    
    (748,049
    )Effects of changing pension plan measurement date
pursuant to SFAS 158:Service cost, internal cost and expected return on plan assets
for October 1 - December 31, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (147,561
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (147,561
    )Amortization of prior service cost for October 1 - December 31,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,367
    )
    
    
    
    
    
    
    
    
    
    
    1,367
    
    
    
    Issuance of restricted shares of common stock
    
    
    207,905
    
    
    
    2,079
    
    
    
    (2,079
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    521,715
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    521,715Repurchase of 555,328 shares of stock for the treasury
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,520,680
    )
    
    
    
    
    
    
    (8,520,680
    )Issuance of 190 shares of common stock from the treasury
    
    
    
    
    
    
    
    
    
    
    432
    
    
    
    
    
    
    
    
    
    
    
    2,663
    
    
    
    
    
    
    
    3,095Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    435,371
    
    
    
    435,371ESOP shares earned, 44,070 shares
    
    
    
    
    
    
    
    
    
    
    160,839
    
    
    
    
    
    
    
    440,700
    
    
    
    
    
    
    
    
    
    
    
    601,539Balance, December 31, 2006
    
    
    11,449,155
    
    
    
    114,492
    
    
    
    37,807,784
    
    
    
    40,248,349
    
    
    
    (3,745,950
    )
    
    
    (8,518,017
    )
    
    
    (3,097,880
    )
    
    
    62,808,778Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    718,941
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    718,941Cash dividend declared, $.06 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (181,509
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (181,509
    )Repurchase of 5,000 shares of stock for the treasury
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79,500
    )
    
    
    
    
    
    
    (79,500
    )Issuance of 60 shares of treasury stock
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    921
    
    
    
    
    
    
    
    984Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,898
    
    
    
    114,898Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    214,526
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    214,526ESOP shares earned, 11,018 shares
    
    
    
    
    
    
    
    
    
    
    69,474
    
    
    
    
    
    
    
    110,175
    
    
    
    
    
    
    
    
    
    
    
    179,649Balance, March 31, 2007
    
    
    11,449,155
    
    
    $
    114,492
    
    
    $
    38,091,847
    
    
    
    40,785,781
    
    
    $
    (3,635,775
    )
    
    $
    (8,596,596
    )
    
    $
    (2,982,982
    )
    
    $
    63,776,767
 See Notes to Consolidated Financial Statements.
 6




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##### Table of Contents



HERITAGE FINANCIAL GROUP AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS
ENDED MARCH 31, 2007 AND 2006
(Unaudited)
 Three Months Ended March 31,2007
    
    
    2006OPERATING ACTIVITIESNet income
    
    $
    718,941
    
    
    $
    496,445Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    241,508
    
    
    
    278,886Provision for loan losses
    
    
    158,000
    
    
    
    90,000ESOP compensation expense
    
    
    179,649
    
    
    
    126,613Stock-based compensation expense
    
    
    214,526
    
    
    
    Net loss on sale of securities available for sale
    
    
    28,682
    
    
    
    Net increase in foreclosed assets
    
    
    (26,511
    )
    
    
    (53,113
    )Increase in bank owned life insurance
    
    
    (81,797
    )
    
    
    (71,898
    )(Increase) decrease in interest receivable
    
    
    (393,289
    )
    
    
    115,605Increase in interest payable
    
    
    172,128
    
    
    
    26,187Increase in taxes payable
    
    
    249,964
    
    
    
    121,983Net other operating activities
    
    
    91,290
    
    
    
    (798,431
    )Total adjustments
    
    
    834,150
    
    
    
    (164,168
    )Net cash provided by operating activities
    
    
    1,553,091
    
    
    
    332,277INVESTING ACTIVITIES(Increase) decrease in interest-bearing deposits in banks
    
    
    1,870,754
    
    
    
    (209,138
    )Purchases of securities available for sale
    
    
    (25,835,338
    )
    
    
    (995,156
    )Proceeds from maturities of securities available for sale
    
    
    1,498,299
    
    
    
    1,195,996Proceeds from sale of securities available for sale
    
    
    3,970,820
    
    
    
    1,000,000Net change in Federal home loan bank stock
    
    
    (20,300
    )
    
    
    202,600Increase in federal funds sold
    
    
    (6,000
    )
    
    
    (904,000
    )Increase in loans, net
    
    
    (9,895,464
    )
    
    
    (2,666,964
    )Purchase of premises and equipment
    
    
    (243,652
    )
    
    
    (63,362
    )Net cash used in investing activities
    
    
    (28,660,881
    )
    
    
    (2,440,024
    )FINANCING ACTIVITIESIncrease in deposits
    
    
    21,470,440
    
    
    
    4,340,811Increase in federal funds purchased and securities sold
under agreements to repurchase
    
    
    5,002,673
    
    
    
    38,404Purchase of treasury stock, net
    
    
    (78,516
    )
    
    
    Repayment of other borrowings
    
    
    
    
    
    
    (5,000,000
    )Dividends paid to shareholders
    
    
    (181,509
    )
    
    
    (168,619
    )Net cash provided by (used in) financing activities
    
    
    26,213,088
    
    
    
    (789,404
    )Net decrease in cash and due from banks
    
    
    (894,702
    )
    
    
    (2,897,151
    )Cash and due from banks at beginning of year
    
    
    9,781,232
    
    
    
    10,499,084Cash and due from banks at end of year
    
    $
    8,886,530
    
    
    $
    7,601,933
 See Notes to Consolidated Financial Statements.
 7




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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 Months Ended March 31,2007
    
    
    2006Basic earnings per share:Net income
    
    $
    718,941
    
    
    $
    496,445Weighted average common shares outstanding
    
    
    10,317,919
    
    
    
    10,829,931Total basic earnings per common share
    
    $
    0.07
    
    
    $
    0.05Diluted earnings per share:Net income
    
    $
    718,941
    
    
    $
    496,445Weighted average common shares outstanding
    
    
    10,317,919
    
    
    
    10,829,931Effect of dilutive stock options and restricted stock
    
    
    65,990
    
    
    
    Weighted average dilutive common shares outstanding
    
    
    10,383,909
    
    
    
    10,829,931Total diluted earnings per common share
    
    $
    0.07
    
    
    $
    0.05
 8




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NOTE 3   SHARE-BASED COMPENSATION
    9




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
 Forward-Looking Statements.
  General
   Evolution of Business Strategy
   10




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Critical Accounting Policies.
  Off Balance Sheet Liabilities.
  (In thousands)Commitments to extend credit
    
    $
    42,167Financial stand-by letters of credit
    
    
    1,329$
    43,496
 11




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Comparison of Financial Condition at March 31, 2007 and December 31, 2006
    Comparison of Operating Results for the Three Months Ended March 31, 2007 and 2006
 General
 Interest Income
 Interest Expense
 12




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Net Interest Income
 Provision for Loan Losses
   13




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Noninterest Income
  Three Months EndedMarch 31,2007
    
    
    2006
    
    
    $ Chg
    
    
    % ChgService charges on deposit accounts
    
    $
    835,118
    
    
    $
    599,590
    
    
    $
    235,528
    
    
    
    39.28
    %Other service charges, commissions
and fees
    
    
    356,551
    
    
    
    219,147
    
    
    
    137,404
    
    
    
    62.70
    %Brokerage fees
    
    
    177,226
    
    
    
    125,706
    
    
    
    51,520
    
    
    
    40.98
    %Mortgage origination fees
    
    
    101,545
    
    
    
    100,880
    
    
    
    665
    
    
    
    0.66
    %Bank owned life insurance
    
    
    81,796
    
    
    
    71,898
    
    
    
    9,898
    
    
    
    13.77
    %Loss on sale of securities
    
    
    (28,682
    )
    
    
    
    
    
    
    (28,682
    )
    
    
    Other
    
    
    64,569
    
    
    
    94,967
    
    
    
    (30,398
    )
    
    
    (32.01
    )%Total noninterest income
    
    $
    1,588,123
    
    
    $
    1,212,188
    
    
    $
    375,935
    
    
    
    31.01
    %Noninterest income as a percentage of
average assets (annualized)
    
    
    1.49
    %
    
    
    1.33
    %
     14




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##### Table of Contents



Noninterest Expense
 Three Months EndedMarch 31,2007
    
    
    2006
    
    
    $ Chg
    
    
    % ChgSalaries and employee benefits
    
    $
    2,282,821
    
    
    $
    2,165,961
    
    
    $
    116,860
    
    
    
    5.40
    %Equipment
    
    
    277,254
    
    
    
    340,124
    
    
    
    (62,870
    )
    
    
    (18.48
    )%Occupancy
    
    
    250,189
    
    
    
    267,576
    
    
    
    (17,387
    )
    
    
    (6.50
    )%Advertising and marketing
    
    
    90,064
    
    
    
    79,221
    
    
    
    10,843
    
    
    
    13.69
    %Legal and accounting
    
    
    97,808
    
    
    
    202,301
    
    
    
    (104,493
    )
    
    
    (51.65
    )%Directors fees and retirement
    
    
    128,202
    
    
    
    89,109
    
    
    
    39,093
    
    
    
    43.87
    %Telephone
    
    
    55,523
    
    
    
    63,139
    
    
    
    (7,529
    )
    
    
    (11.94
    )%Supplies
    
    
    54,250
    
    
    
    64,899
    
    
    
    (10,649
    )
    
    
    (16.41
    )%Data processing fees
    
    
    178,806
    
    
    
    165,670
    
    
    
    13,136
    
    
    
    7.93
    %Other operating
    
    
    491,095
    
    
    
    434,280
    
    
    
    56,815
    
    
    
    13.08
    %Total noninterest expenses
    
    $
    3,906,012
    
    
    $
    3,872,280
    
    
    $
    33,732
    
    
    
    0.87
    %Noninterest expenses as a percentage of
average assets (annualized)
    
    
    3.68
    %
    
    
    4.25
    %
   15




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Income Tax Expense
   Liquidity and Capital Resources
    16




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Regulatory Capital Ratios for HeritageBank of the South at March 31, 2007
  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
    
    $
    58,877
    
    
    
    18.0
    %
    
    $
    26,178
    
    
    
    8.0
    %
    
    $
    32,722
    
    
    
    10.0
    %Tier I Capital to Risk Weighted Assets
    
    
    54,786
    
    
    
    16.7
    
    
    
    13,089
    
    
    
    4.0
    
    
    
    19,633
    
    
    
    6.0Tier I Capital to Average Assets
    
    
    54,786
    
    
    
    13.2
    
    
    
    16,549
    
    
    
    4.0
    
    
    
    20,686
    
    
    
    5.0
  17




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ITEM 3. QUANTITAVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
       
 ITEM 4. CONTROLS AND PROCEDURES
   18




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19




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PART II  OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
  ITEM 1A. RISK FACTORS
  Our loan portfolio possesses increased risk due to our substantial number of multi-family,
commercial real estate, commercial business and consumer loans.
  We plan to increase residential and commercial construction lending activities, which will increase
the risk in our loan portfolio.
  If economic conditions deteriorate, our results of operations and financial condition could be
adversely impacted as borrowers ability to repay loans declines and the value of the collateral
securing our loans decreases.
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If our allowance for loan losses is not sufficient to cover actual loan losses, or if credit
delinquencies increase, our earnings could decrease.
  Strong competition within our market area may limit our growth and profitability.
  We may face risks with respect to the future expansion of our business.
  
    
    entry into new markets where we lack experience;
    
    the introduction of new products or services into our business with which we lack experience;
    
    the time and cost associated with identifying and evaluating potential markets, products and
services, hiring experienced local management and opening new offices;
    
    potential time lags between preparatory activities and the generation of sufficient assets
and deposits to support the costs of expansion; and
    
    the estimates and judgments used to evaluate market risks with respect to new markets,
products and services may not be accurate.
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We operate in a highly regulated environment, and we may be adversely affected by changes in laws
and regulations.
  There is a limited market for our common stock.
  Our ability to pay dividends is limited and we may be unable to pay future dividends.
  MHC owns more than half of the common stock of the Company. As a result, MHC has enough votes to
control what happens on most matters submitted to a vote of stockholders.
 %
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The amount of common stock we will control, our charter and bylaws, and state and federal statutory
provisions could discourage hostile acquisitions of control
  
    
    staggered terms of the members of the board of directors;
    
    restrictions on the acquisition of our equity securities without regulatory approval; and
    
    the authorization of 1,000,000 shares of serial preferred stock that could be
issued without stockholder approval on terms or in circumstances that could deter a future
takeover attempt.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   Number of
    
    
    MaximumShares
    
    
    Number ofPurchased as
    
    
    Shares thatPart of
    
    
    may yet beTotal
    
    
    
    
    
    
    Publicly
    
    
    PurchasedNumber
    
    
    
    
    
    
    Announced
    
    
    Under theof Shares
    
    
    Average Price
    
    
    Plans or
    
    
    Plans orPurchased
    
    
    Paid Per Share
    
    
    Programs
    
    
    ProgramsJanuary
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    February
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000March
    
    
    5,000
    
    
    
    15.90
    
    
    
    5,000
    
    
    
    295,000Total
    
    
    5,000
    
    
    $
    15.90
    
    
    
    5,000
    
    
    
    295,000
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  ITEM 4 . SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  ITEM 5 . OTHER INFORMATION
  24




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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
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SIGNATURES
  HERITAGE FINANCIAL GROUPDate: May 14, 2007
    By:
    /s/ O. Leonard DormineyO. Leonard DormineyPresident and Chief Executive OfficerDate: May 14, 2007
    By:
    /s/ T. Heath FountainT. Heath FountainSenior Vice President and
Chief Financial Officer 26