----

----

----

----

----

----

INDEX

|                                 |    |                                                          |                                                                                                                                    | Page   |
|--------------------------------------|---------|---------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                 |    |                                                          |                                                                                                                                    | Number |
| PART I – FINANCIAL INFORMATION |    |
|                                 |    |                                                          |                                                                                                                                    |   |
|                                 | ITEM 1. |                                                          | FINANCIAL STATEMENTS                                                                                                                    |   |
|                                 |    |                                                          |                                                                                                                                    |   |
|                                 |    |                                                          | CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009                                                              | 3      |
|                                 |    |                                                          |                                                                                                                                    |   |
|                                 |    |                                                          | CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009                                   | 4      |
|                                 |    |                                                          |                                                                                                                                    |   |
|                                 |    |                                                          | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009                  | 5      |
|                                 |    |                                                          |                                                                                                                                    |   |
|                                 |    |                                                          | CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND THE YEAR ENDED DECEMBER 31, 2009 | 6      |
|                                 |    |                                                          |                                                                                                                                    |   |
|                                 |    |                                                          | CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009                                             | 7      |
|                                 |    |                                                          |                                                                                                                                    |   |
|                                 |    |                                                          | CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.                                                                                   | 8      |
|                                 |    |                                                          |                                                                                                                                    |   |
|                                 | ITEM 2. |                                                          | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                             | 23     |
|                                 |    |                                                          |                                                                                                                                    |   |
|                                 | ITEM 3. |                                                          | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                              | 40     |
|                                 |    |                                                          |                                                                                                                                    |   |
|                                 | ITEM 4. |                                                          | CONTROLS AND PROCEDURES                                                                                                                 | 43     |
|                                 |    |                                                          |                                                                                                                                    |   |
| PART II – OTHER INFORMATION    | 45      |
|                                 |    |                                                          |                                                                                                                                    |   |
| SIGNATURES                           | 47      |
|                                 |    |                                                          |                                                                                                                                    |   |
| 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                                    |                                                                                                                                    |

----

Index

HERITAGE FINANCIAL GROUP AND SUBSIDIARY

|                                                                                           |   | Unaudited     |        |   | Audited      |   |
|------------------------------------------------------------------------------------------------|--------|---------------|-------------|--------|--------------|--------|
|                                                                                           |   | September 30, |        |   | December 31, |   |
|                                                                                           |   | 2010          |        |   | 2009         |   |
| Assets                                                                                         |   |          |        |   |         |   |
| Cash and due from banks                                                                        |   | $             | 33,274,949  |   |         | $      | 14,921,517 |   |
| Interest-bearing deposits in banks                                                             |   |          | 10,579,402  |   |         |   | 43,236,287 |   |
| Federal funds sold                                                                             |   |          | 11,295,000  |   |         |   | 11,340,000 |   |
| Securities available for sale, at fair value                                                   |   |          | 161,798,416 |   |         |   | 120,526,900 |   |
| Federal Home Loan Bank stock, at cost                                                          |   |          | 3,020,200   |   |         |   | 3,253,400 |   |
| Other equity securities, at cost                                                               |   |          | 1,010,000   |   |         |   | 1,010,000 |   |
| Loans held for sale                                                                            |   |          | 699,500     |   |         |   | - |   |
|                                                                                           |   |          |        |   |         |   |   |   |
| Loans                                                                                          |   |          | 413,979,784 |   |         |   | 334,138,932 |   |
| Less allowance for loan losses                                                                 |   |          | 6,534,200   |   |         |   | 6,060,460 |   |
| Loans, net                                                                                     |   |          | 407,445,584 |   |         |   | 328,078,472 |   |
|                                                                                           |   |          |        |   |         |   |   |   |
| Premises and equipment, net                                                                    |   |          | 20,420,596  |   |         |   | 15,590,120 |   |
| Premises held for sale                                                                         |   |          | 1,080,000   |   |         |   | 1,080,000 |   |
| Accrued interest receivable                                                                    |   |          | 3,070,999   |   |         |   | 2,799,375 |   |
| Foreclosed assets                                                                              |   |          | 2,786,657   |   |         |   | 1,795,544 |   |
| Intangible assets                                                                              |   |          | 1,489,043   |   |         |   | 1,570,832 |   |
| Cash surrender value of bank owned life insurance                                              |   |          | 15,215,640  |   |         |   | 14,756,771 |   |
| Other assets                                                                                   |   |          | 10,137,752  |   |         |   | 11,988,301 |   |
|                                                                                           |   |          |        |   |         |   |   |   |
|                                                                                           |   | $             | 683,323,738 |   |         | $      | 571,947,519 |   |
| Liabilities and Stockholders' Equity                                                           |   |          |        |   |         |   |   |   |
| Deposits                                                                                       |   |          |        |   |         |   |   |   |
| Noninterest-bearing                                                                            |   | $             | 48,013,660  |   |         | $      | 28,881,905 |   |
| Interest-bearing                                                                               |   |          | 487,378,270 |   |         |   | 397,724,617 |   |
| Total deposits                                                                                 |   |          | 535,391,930 |   |         |   | 426,606,522 |   |
| Federal funds purchased and securities sold under repurchase agreements                        |   |          | 35,092,163  |   |         |   | 32,843,465 |   |
| Other borrowings                                                                               |   |          | 42,500,000  |   |         |   | 42,500,000 |   |
| Accrued interest payable                                                                       |   |          | 690,677     |   |         |   | 706,321 |   |
| Other liabilities                                                                              |   |          | 6,563,478   |   |         |   | 8,474,370 |   |
| Total liabilities                                                                              |   |          | 620,238,248 |   |         |   | 511,130,678 |   |
|                                                                                           |   |          |        |   |         |   |   |   |
| 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; 11,454,344 issued and outstanding |   |          | 114,543     |   |         |   | 114,543 |   |
| Capital surplus                                                                                |   |          | 41,245,482  |   |         |   | 40,609,551 |   |
| Retained earnings                                                                              |   |          | 38,754,134  |   |         |   | 38,984,165 |   |
| Accumulated other comprehensive loss, net tax of $562,741 and $1,591,489                       |   |          | (844,112    | )      |         |   | (2,387,234 | ) |
| Unearned employee stock ownership plan (ESOP) shares, 209,332 and 242,385 shares               |   |          | (2,093,325  | )      |         |   | (2,423,850 | ) |
|                                                                                           |   |          | 77,176,722  |   |         |   | 74,897,175 |   |
| Treasury stock, at cost, 1,056,062 and 1,055,084 shares                                        |   |          | (14,091,232 | )      |         |   | (14,080,334 | ) |
| Total stockholders' equity                                                                     |   |          | 63,085,490  |   |         |   | 60,816,841 |   |
|                                                                                           |   |          |        |   |         |   |   |   |
|                                                                                           |   | $             | 683,323,738 |   |         | $      | 571,947,519 |   |

----

Index

HERITAGE FINANCIAL GROUP AND SUBSIDIARY

|                                                |   | For the Three Months |       |   | For the Nine Months |   |
|-----------------------------------------------------|--------|----------------------|------------|--------|---------------------|--------|
|                                                |   | 2010                 |       |   | 2009                |   |   | 2010 |   |   | 2009 |   |
| Interest income                                     |   |                 |       |   |                |   |   |   |   |   |   |   |
| Interest and fees on loans                          |   | $                    | 6,135,980  |   |                | $      | 4,599,933 |   |   | $ | 17,218,926 |   |   | $ | 13,721,630 |   |
| Interest on loans held for sale                     |   |                 | 6,476      |   |                |   | - |   |   |   | 6,862 |   |   |   | - |   |
| Interest on taxable securities                      |   |                 | 1,006,253  |   |                |   | 780,996 |   |   |   | 2,571,814 |   |   |   | 2,921,284 |   |
| Interest on nontaxable securities                   |   |                 | 211,891    |   |                |   | 296,394 |   |   |   | 748,978 |   |   |   | 882,416 |   |
| Interest on federal funds sold                      |   |                 | 11,160     |   |                |   | 7,694 |   |   |   | 37,813 |   |   |   | 39,670 |   |
| Interest on deposits in other banks                 |   |                 | 24,824     |   |                |   | 748 |   |   |   | 114,730 |   |   |   | 1,182 |   |
|                                                |   |                 | 7,396,584  |   |                |   | 5,685,765 |   |   |   | 20,699,123 |   |   |   | 17,566,182 |   |
|                                                |   |                 |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                    |   |                 |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Interest on deposits                                |   |                 | 1,631,079  |   |                |   | 1,478,611 |   |   |   | 4,667,526 |   |   |   | 5,049,607 |   |
| Interest on other borrowings                        |   |                 | 658,987    |   |                |   | 500,715 |   |   |   | 1,819,800 |   |   |   | 1,829,653 |   |
|                                                |   |                 | 2,290,066  |   |                |   | 1,979,326 |   |   |   | 6,487,326 |   |   |   | 6,879,260 |   |
|                                                |   |                 |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                 |   |                 | 5,106,518  |   |                |   | 3,706,439 |   |   |   | 14,211,797 |   |   |   | 10,686,922 |   |
| Provision for loan losses                           |   |                 | 950,000    |   |                |   | 2,500,000 |   |   |   | 2,100,000 |   |   |   | 3,800,000 |   |
| Net interest income after provision for loan losses |   |                 | 4,156,518  |   |                |   | 1,206,439 |   |   |   | 12,111,797 |   |   |   | 6,886,922 |   |
|                                                |   |                 |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest income                                  |   |                 |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Service charges on deposit accounts                 |   |                 | 1,112,390  |   |                |   | 950,893 |   |   |   | 2,918,408 |   |   |   | 2,595,376 |   |
| Other service charges, commissions and fees         |   |                 | 642,817    |   |                |   | 338,490 |   |   |   | 1,511,282 |   |   |   | 1,060,600 |   |
| Brokerage fees                                      |   |                 | 253,572    |   |                |   | 251,854 |   |   |   | 732,626 |   |   |   | 662,177 |   |
| Mortgage origination fees                           |   |                 | 227,052    |   |                |   | 66,364 |   |   |   | 336,671 |   |   |   | 275,544 |   |
| Bank owned life insurance                           |   |                 | 152,888    |   |                |   | 155,285 |   |   |   | 458,879 |   |   |   | 464,767 |   |
| Gain on sales of securities                         |   |                 | 70,666     |   |                |   | 469,455 |   |   |   | 230,372 |   |   |   | 835,584 |   |
| Other                                               |   |                 | 18,834     |   |                |   | 11,575 |   |   |   | 56,856 |   |   |   | 33,870 |   |
|                                                |   |                 | 2,478,219  |   |                |   | 2,243,916 |   |   |   | 6,245,094 |   |   |   | 5,927,918 |   |
|                                                |   |                 |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest expense                                 |   |                 |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                      |   |                 | 3,445,912  |   |                |   | 2,295,513 |   |   |   | 8,984,760 |   |   |   | 6,719,869 |   |
| Equipment                                           |   |                 | 303,837    |   |                |   | 221,077 |   |   |   | 810,350 |   |   |   | 760,243 |   |
| Occupancy                                           |   |                 | 423,730    |   |                |   | 312,000 |   |   |   | 1,059,391 |   |   |   | 901,263 |   |
| Advertising and marketing                           |   |                 | 166,051    |   |                |   | 146,962 |   |   |   | 410,413 |   |   |   | 345,191 |   |
| Legal and accounting                                |   |                 | 112,077    |   |                |   | 117,868 |   |   |   | 439,720 |   |   |   | 390,526 |   |
| Consulting and other professional fees              |   |                 | 71,106     |   |                |   | 69,669 |   |   |   | 207,821 |   |   |   | 222,078 |   |
| Directors fees and retirement                       |   |                 | 141,711    |   |                |   | 154,608 |   |   |   | 419,133 |   |   |   | 460,824 |   |
| Telecommunications                                  |   |                 | 131,765    |   |                |   | 52,861 |   |   |   | 304,497 |   |   |   | 169,189 |   |
| Supplies                                            |   |                 | 97,787     |   |                |   | 46,384 |   |   |   | 250,993 |   |   |   | 130,687 |   |
| Data processing fees                                |   |                 | 604,495    |   |                |   | 431,608 |   |   |   | 1,596,089 |   |   |   | 1,144,789 |   |
| (Gain) loss on sales and write-downs of             |   |                 |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| other real estate owned                             |   |                 | (30        | )      |                |   | 80,000 |   |   |   | (343,464 | ) |   |   | 384,068 |   |
| Foreclosed asset expenses                           |   |                 | 181,295    |   |                |   | 78,561 |   |   |   | 779,002 |   |   |   | 171,789 |   |
| FDIC insurance and other regulatory fees            |   |                 | 283,262    |   |                |   | 136,192 |   |   |   | 681,932 |   |   |   | 501,078 |   |
| Impairment loss on intangible asset                 |   |                 | 1,000,000  |   |                |   | - |   |   |   | 1,000,000 |   |   |   | - |   |
| Other operating                                     |   |                 | 816,187    |   |                |   | 306,871 |   |   |   | 1,908,311 |   |   |   | 1,004,909 |   |
|                                                |   |                 | 7,779,185  |   |                |   | 4,450,174 |   |   |   | 18,508,948 |   |   |   | 13,306,503 |   |
|                                                |   |                 |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Loss before income taxes                            |   |                 | (1,144,448 | )      |                |   | (999,819 | ) |   |   | (152,057 | ) |   |   | (491,663 | ) |
|                                                |   |                 |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Applicable income tax benefits                      |   |                 | (701,849   | )      |                |   | (532,945 | ) |   |   | (635,766 | ) |   |   | (574,189 | ) |
|                                                |   |                 |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                   |   | $                    | (442,599   | )      |                | $      | (466,874 | ) |   | $ | 483,709 |   |   | $ | 82,526 |   |
|                                                |   |                 |       |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings (loss) per share                     |   | $                    | (0.04      | )      |                | $      | (0.05 | ) |   | $ | 0.05 |   |   | $ | 0.01 |   |
| Diluted earnings (loss) per share                   |   | $                    | (0.04      | )      |                | $      | (0.05 | ) |   | $ | 0.05 |   |   | $ | 0.01 |   |

----

Index

HERITAGE FINANCIAL GROUP AND SUBSIDIARY

|                                                                                                                                                                                     |   | For the Three Months |      |   | For the Nine Months |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------|-----------|--------|---------------------|--------|
|                                                                                                                                                                                     |   | 2010                 |      |   | 2009                |   |   | 2010 |   |   | 2009 |   |
|                                                                                                                                                                                     |   |                 |      |   |                |   |   |   |   |   |   |   |
| Net income (loss)                                                                                                                                                                        |   | $                    | (442,599  | )      |                | $      | (466,874 | ) |   | $ | 483,709 |   |   | $ | 85,526 |   |
|                                                                                                                                                                                     |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income:                                                                                                                                                              |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Accretion of realized gain on terminated cash flow hedge, net of tax of $35,187 and $35,187 for the quarter and $105,560 and $105,560 for the year to date                               |   |                 | (52,780   | )      |                |   | (52,780 | ) |   |   | (158,340 | ) |   |   | (158,340 | ) |
| Unrealized holding gains on investments arising during the period, net of tax of $776,480 and $909,531 for the quarter and $1,226,457 and $842,773 for the year to date                  |   |                 | 1,164,720 |   |                |   | 1,364,297 |   |   |   | 1,839,685 |   |   |   | 1,264,159 |   |
| Reclassification adjustment for investment gains included in net income, net of tax of  $28,266 and ($187,782) for the quarter and $92,149 and ($334,234) for the year to date |   |                 | (42,400   | )      |                |   | (281,673 | ) |   |   | (138,223 | ) |   |   | (501,350 | ) |
|                                                                                                                                                                                     |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Total other comprehensive income                                                                                                                                                         |   |                 | 1,069,540 |   |                |   | 1,029,844 |   |   |   | 1,543,122 |   |   |   | 604,469 |   |
|                                                                                                                                                                                     |   |                 |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income                                                                                                                                                                     |   | $                    | 626,941   |   |                | $      | 562,970 |   |   | $ | 2,026,831 |   |   | $ | 686,995 |   |

----

Index

HERITAGE FINANCIAL GROUP AND SUBSIDIARY

|                                                      |   | Common Stock |       |   | Capital   |   |    | Retained |   |   | UnearnedESOP |   |   | Treasury |       |   | Accumulated OtherComprehensive |   |       |                |   |
|-----------------------------------------------------------|--------|--------------|------------|--------|-----------|--------|---------|----------|--------|--------|--------------|--------|--------|----------|------------|--------|--------------------------------|--------|------------|---------------------|--------|
|                                                      |   | Shares       |       |   | Par Value |   |    | Surplus  |   |   | Earnings     |   |   | Shares   |       |   | Stock                          |   |       |  Income (Loss) |   |   | Total |   |
| 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 loss                                                  |   |         | -          |   |      |   | -       |     |   |   | -            |   |   |     | (1,652,319 | )      |                           |   | -          |                |   |   | - |   |   |   | - |   |   |   | (1,652,319 | ) |
| Cash dividend declared, $0.32 per share                   |   |         | -          |   |      |   | -       |     |   |   | -            |   |   |     | (720,725   | )      |                           |   | -          |                |   |   | - |   |   |   | - |   |   |   | (720,725 | ) |
| Stock-based compensation expense                          |   |         | -          |   |      |   | -       |     |   |   | 807,402      |   |   |     | -          |   |                           |   | -          |                |   |   | - |   |   |   | - |   |   |   | 807,402 |   |
| Repurchase of 62,026 shares of stock for the treasury     |   |         | -          |   |      |   | -       |     |   |   | -            |   |   |     | -          |   |                           |   | -          |                |   |   | (516,426 | ) |   |   | - |   |   |   | (516,426 | ) |
| Issuance of 440 shares of common stock from the treasury  |   |         | -          |   |      |   | -       |     |   |   | (2,602       | )      |   |     | -          |   |                           |   | -          |                |   |   | 5,905 |   |   |   | - |   |   |   | 3,303 |   |
| Issuance of restricted shares of common stock             |   |         | 2,000      |   |      |   | 20      |     |   |   | (20          | )      |   |     | -          |   |                           |   | -          |                |   |   | - |   |   |   | - |   |   |   | - |   |
| Other comprehensive income                                |   |         | -          |   |      |   | -       |     |   |   | -            |   |   |     | -          |   |                           |   | -          |                |   |   | - |   |   |   | 298,399 |   |   |   | 298,399 |   |
| Tax benefit shortfall from stock-based compensation plans |   |         | -          |   |      |   | -       |     |   |   | (58,494      | )      |   |     | -          |   |                           |   | -          |                |   |   | - |   |   |   | - |   |   |   | (58,494 | ) |
| ESOP shares earned, 44,070 shares                         |   |         | -          |   |      |   | -       |     |   |   | (73,946      | )      |   |     | -          |   |                           |   | 440,700    |                |   |   | - |   |   |   | - |   |   |   | 366,754 |   |
| Tax benefit on ESOP expense                               |   |         | -          |   |      |   | -       |     |   |   | 75,974       |   |   |     | -          |   |                           |   | -          |                |   |   | - |   |   |   | - |   |   |   | 75,974 |   |
| Balance, December 31, 2009                                |   |         | 11,454,344 |   |      | $      | 114,543 |     |   | $      | 40,609,551   |   |   | $        | 38,984,165 |   |                           | $      | (2,423,850 | )                   |   | $ | (14,080,334 | ) |   | $ | (2,387,234 | ) |   |   | 60,816,841 |   |
| Net income                                                |   |         | -          |   |      |   | -       |     |   |   | -            |   |   |     | 483,709    |   |                           |   | -          |                |   |   | - |   |   |   | - |   |   |   | 483,709 |   |
| Cash dividend declared, $0.27 per share                   |   |         | -          |   |      |   | -       |     |   |   | -            |   |   |     | (713,740   | )      |                           |   | -          |                |   |   | - |   |   |   | - |   |   |   | (713,740 | ) |
| Stock-based compensation expense                          |   |         | -          |   |      |   | -       |     |   |   | 605,389      |   |   |     | -          |   |                           |   | -          |                |   |   | - |   |   |   | - |   |   |   | 605,389 |   |
| Repurchase of 1,578 shares of stock for the treasury      |   |         | -          |   |      |   | -       |     |   |   | -            |   |   |     | -          |   |                           |   | -          |                |   |   | (18,904 | ) |   |   | - |   |   |   | (18,904 | ) |
| Issuance of 600 shares of common stock from the treasury  |   |         | -          |   |      |   | -       |     |   |   | (1,169       | )      |   |     | -          |   |                           |   | -          |                |   |   | 8,006 |   |   |   | - |   |   |   | 6,837 |   |
| Other comprehensive income                                |   |         | -          |   |      |   | -       |     |   |   | -            |   |   |     | -          |   |                           |   | -          |                |   |   | - |   |   |   | 1,543,122 |   |   |   | 1,543,122 |   |
| Excess tax expense from stock based compensation plans    |   |         | -          |   |      |   | -       |     |   |   | (11,352      | )      |   |     | -          |   |                           |   | -          |                |   |   | - |   |   |   | - |   |   |   | (11,352 | ) |
| ESOP shares earned, 33,053 shares                         |   |         | -          |   |      |   | -       |     |   |   | 14,164       |   |   |     | -          |   |                           |   | 330,525    |                |   |   | - |   |   |   | - |   |   |   | 344,689 |   |
| Tax benefit on ESOP expense                               |   |         | -          |   |      |   | -       |     |   |   | 28,899       |   |   |     | -          |   |                           |   | -          |                |   |   | - |   |   |   | - |   |   |   | 28,899 |   |
| Balance, September 30, 2010                               |   |         | 11,454,344 |   |      | $      | 114,543 |     |   | $      | 41,245,482   |   |   | $        | 38,754,134 |   |                           | $      | (2,093,325 | )                   |   | $ | (14,091,232 | ) |   | $ | (844,112 | ) |   |   | 63,085,490 |   |

----

Index

HERITAGE FINANCIAL GROUP AND SUBSIDIARY

|                                                                              |   | For the Nine Months |        |
|-----------------------------------------------------------------------------------|--------|---------------------|-------------|
|                                                                              |   | 2010                |        |   | 2009 |   |
| OPERATING ACTIVITIES                                                              |   |                |        |   |   |   |
| Net income                                                                        |   | $                   | 483,709     |   |   | $ | 82,526 |   |
| Adjustments to reconcile net income to net cash provided by operating activities: |   |                |        |   |   |   |   |   |
| Depreciation                                                                      |   |                | 685,379     |   |   |   | 679,419 |   |
| Deposit premium amortization                                                      |   |                | 221,498     |   |   |   | - |   |
| Provision for loan losses                                                         |   |                | 2,100,000   |   |   |   | 3,800,000 |   |
| ESOP compensation expense                                                         |   |                | 344,689     |   |   |   | 350,622 |   |
| Stock-based compensation expense                                                  |   |                | 605,389     |   |   |   | 605,389 |   |
| Net gain on sales of securities available for sale                                |   |                | (230,372    | ) |   |   | (835,584 | ) |
| Accretion of gain on termination of cash flow hedge                               |   |                | (263,900    | ) |   |   | (263,900 | ) |
| Increase in bank owned life insurance                                             |   |                | (458,869    | ) |   |   | (464,768 | ) |
| Excess tax shortfall related to stock-based compensation plans                    |   |                | 11,352      |   |   |   | - |   |
| Excess tax expense related to ESOP                                                |   |                | (28,899     | ) |   |   | - |   |
| (Increase) decrease in interest receivable                                        |   |                | (48,539     | ) |   |   | 26,693 |   |
| Decrease in interest payable                                                      |   |                | (54,952     | ) |   |   | (448,300 | ) |
| (Increase) decrease in taxes receivable                                           |   |                | 423,349     |   |   |   | (1,091,789 | ) |
| (Gain) loss on sales and write-downs of other real estate owned                   |   |                | (343,464    | ) |   |   | 384,068 |   |
| Impairment loss on intangible assets                                              |   |                | 1,000,000   |   |   |   | - |   |
| Net other operating activities                                                    |   |                | (1,472,876  | ) |   |   | 762,688 |   |
| Total adjustments                                                                 |   |                | 2,489,785   |   |   |   | 3,504,538 |   |
| Net cash provided by operating activities                                         |   |                | 2,973,494   |   |   |   | 3,587,064 |   |
|                                                                              |   |                |        |   |   |   |   |   |
| INVESTING ACTIVITIES                                                              |   |                |        |   |   |   |   |   |
| (Increase) decrease in interest-bearing deposits in banks                         |   |                | 32,656,885  |   |   |   | (4,329,134 | ) |
| Purchases of securities available for sale                                        |   |                | (96,839,224 | ) |   |   | (68,130,095 | ) |
| Proceeds from maturities of securities available for sale                         |   |                | 35,367,507  |   |   |   | 27,847,943 |   |
| Proceeds from sales of securities available for sale                              |   |                | 23,266,344  |   |   |   | 57,191,479 |   |
| Net change in Federal Home Loan Bank stock                                        |   |                | 233,200     |   |   |   | (67,600 | ) |
| Decrease in federal funds sold                                                    |   |                | 45,000      |   |   |   | 17,221,000 |   |
| (Increase) decrease in loans, net                                                 |   |                | (33,845,119 | ) |   |   | 2,228,405 |   |
| Purchase of premises and equipment                                                |   |                | (2,068,015  | ) |   |   | (552,280 | ) |
| Proceeds from acquisition activity                                                |   |                | 40,530,558  |   |   |   | - |   |
| Proceeds from sale of other real estate owned                                     |   |                | 2,560,117   |   |   |   | 1,078,430 |   |
| Net cash provided by investing activities                                         |   |                | 1,907,253   |   |   |   | 32,488,148 |   |
|                                                                              |   |                |        |   |   |   |   |   |
| FINANCING ACTIVITIES                                                              |   |                |        |   |   |   |   |   |
| Increase (decrease) in deposits                                                   |   |                | 11,932,246  |   |   |   | (16,234,681 | ) |
| Increase (decrease)  in federal funds purchased and securities sold     |   |                |        |   |   |   |   |   |
| under agreement to repurchase                                                     |   |                | 2,248,698   |   |   |   | (6,286,952 | ) |
| Excess tax benefit related to stock-based compensation plans                      |   |                | (11,352     | ) |   |   | - |   |
| Excess tax related to ESOP                                                        |   |                | 28,899      |   |   |   | - |   |
| Repayment of other borrowings                                                     |   |                | -           |   |   |   | (10,000,000 | ) |
| Purchase of treasury stock, net                                                   |   |                | (12,066     | ) |   |   | (422,037 | ) |
| Dividends paid to stockholders                                                    |   |                | (713,740    | ) |   |   | (611,304 | ) |
| Net cash provided by (used in) financing activities                               |   |                | 13,472,685  |   |   |   | (33,554,974 | ) |
|                                                                              |   |                |        |   |   |   |   |   |
| Net increase in cash and due from banks                                           |   |                | 18,353,432  |   |   |   | 2,520,238 |   |
| Cash and due from banks at beginning of period                                    |   |                | 14,921,517  |   |   |   | 10,159,602 |   |
| Cash and due from banks at end of period                                          |   | $                   | 33,274,949  |   |   | $ | 12,679,840 |   |
|                                                                              |   |                |        |   |   |   |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                 |   |                |        |   |   |   |   |   |
| Cash paid during the period for:                                                  |   |                |        |   |   |   |   |   |
| Interest                                                                          |   | $                   | 6,502,970   |   |   | $ | 7,327,559 |   |
| Taxes                                                                             |   |                | 9,000       |   |   |   | 517,600 |   |
|                                                                              |   |                |        |   |   |   |   |   |
| NONCASH TRANSACTIONS                                                              |   |                |        |   |   |   |   |   |
| Decrease in unrealized losses on securities available for sale                    |   | $                   | (1,701,462  | ) |   | $ | (1,271,348 | ) |
| Principal balances of loans transferred to other real estate owned                |   |                | 3,252,763   |   |   |   | 288,954 |   |

----

Index

HERITAGE FINANCIAL GROUP AND SUBSIDIARY

----

Index

|                                                  |   | Three Months |       |   | Nine Months |   |
|-------------------------------------------------------|--------|--------------|------------|--------|-------------|--------|
|                                                  |   | 2010         |       |   | 2009        |   |   | 2010 |   |   | 2009 |   |
| Basic earnings (loss) per share:                      |   |         |       |   |        |   |   |   |   |   |   |   |
| Net income (loss)                                     |   | $            | (442,599   | )      |        | $      | (466,874 | ) |   | $ | 483,709 |   |   | $ | 82,526 |   |
| Weighted average common shares outstanding            |   |         | 10,139,275 |   |        |   | 10,072,438 |   |   |   | 10,073,033 |   |   |   | 10,046,325 |   |
| Total basic earnings (loss) per common share          |   | $            | (0.04      | )      |        | $      | (0.05 | ) |   | $ | 0.05 |   |   | $ | 0.01 |   |
|                                                  |   |         |       |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings (loss) per share:                    |   |         |       |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                     |   | $            | (442,599   | )      |        | $      | (466,874 | ) |   | $ | 483,709 |   |   | $ | 82,526 |   |
| Weighted average common shares outstanding            |   |         | 10,139,275 |   |        |   | 10,072,438 |   |   |   | 10,073,033 |   |   |   | 10,046,325 |   |
| Effect of dilutive stock options and restricted stock |   |         | -          |   |        |   | - |   |   |   | 1,648 |   |   |   | - |   |
| Weighted average dilutive common shares outstanding   |   |         | 10,139,275 |   |        |   | 10,072,438 |   |   |   | 10,074,681 |   |   |   | 10,046,325 |   |
| Total diluted earnings (loss) per common share        |   | $            | (0.04      | )      |        | $      | (0.05 | ) |   | $ | 0.05 |   |   | $ | 0.01 |   |

----

Index

----

Index

|                                                        |   |      |        |   | Gross      |   |      | Gross      |   |   |       |   |
|-------------------------------------------------------------|--------|-----------|-------------|--------|------------|--------|-----------|------------|--------|--------|------------|--------|
|                                                        |   | Amortized |        |   | Unrealized |   |      | Unrealized |   |   | Fair       |   |
|                                                        |   | Cost      |        |   | Gains      |   |      | Losses     |   |   | Value      |   |
| September 30, 2010:                                         |   |      |        |   |       |   |      |       |   |   |       |   |
| U. S. Government sponsored agency securities (GSE’s)* |   | $         | 44,077,135  |   |       | $      | 643,969   |       |   | $      | (11,268    | )      |   | $ | 44,709,836 |   |
| State and municipal securities                              |   |      | 21,129,344  |   |       |   | 476,613   |       |   |   | (503,966   | )      |   |   | 21,101,991 |   |
| Corporate debt securities                                   |   |      | 2,172,057   |   |       |   | -         |       |   |   | (412,665   | )      |   |   | 1,759,392 |   |
| GSE residential mortgage-backed securities                  |   |      | 88,943,665  |   |       |   | 1,599,467 |       |   |   | (18,657    | )      |   |   | 90,524,475 |   |
| Private label residential mortgage-backed securities        |   |      | 3,274,033   |   |       |   | 76,141    |       |   |   | -          |   |   |   | 3,350,174 |   |
| Total debt securities                                       |   |      | 159,596,234 |   |       |   | 2,796,190 |       |   |   | (946,556   | )      |   |   | 161,445,868 |   |
| Equity securities                                           |   |      | 434,801     |   |       |   | 21,599    |       |   |   | (103,852   | )      |   |   | 352,548 |   |
| Total securities**                                          |   | $         | 160,031,035 |   |       | $      | 2,817,789 |       |   | $      | (1,050,408 | )      |   | $ | 161,798,416 |   |

| December 31, 2009:                                          |   |   |        |   |   |   |    |   |   |   |       |   |
|-------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|---------|--------|--------|--------|------------|--------|
| U. S. Government sponsored agency securities (GSE’s)* |   | $      | 30,571,605  |   |   | $      | 190,036 |   |   | $      | (299,664   | )      |   | $ | 30,461,977 |   |
| State and municipal securities                              |   |   | 30,142,545  |   |   |   | 196,013 |   |   |   | (1,215,694 | )      |   |   | 29,122,864 |   |
| Corporate debt securities                                   |   |   | 2,178,999   |   |   |   | 44,976  |   |   |   | (313,757   | )      |   |   | 1,910,218 |   |
| GSE residential mortgage-backed securities                  |   |   | 54,091,124  |   |   |   | 449,796 |   |   |   | (4,682     | )      |   |   | 54,536,238 |   |
| Private label residential mortgage-backed securities        |   |   | 3,859,494   |   |   |   | 15,015  |   |   |   | (30        | )      |   |   | 3,874,479 |   |
| Total debt securities                                       |   |   | 120,843,767 |   |   |   | 895,836 |   |   |   | (1,833,827 | )      |   |   | 119,905,776 |   |
| Equity securities                                           |   |   | 751,521     |   |   |   | 47,999  |   |   |   | (178,396   | )      |   |   | 621,124 |   |
| Total securities**                                          |   | $      | 121,595,288 |   |   | $      | 943,835 |   |   | $      | (2,012,223 | )      |   | $ | 120,526,900 |   |

| *      | Such as Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and Federal Home Loan Banks.                                                                                                      |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                     |
| **     | At September 30, 2010 and December 31, 2009, the Company held no securities of any single issuer (excluding the U.S. Government and federal agencies) with a book value that exceeded 10% of stockholders’ equity. |

----

Index

|                            |   | Amortized Cost |        |   | Fair Value |   |
|---------------------------------|--------|----------------|-------------|--------|------------|--------|
|                            |   |           |        |   |       |   |
| Due from one year to five years |   | $              | 7,622,057   |   |       | $      | 7,242,693 |   |
| Due from five to ten years      |   |           | 19,575,939  |   |       |   | 19,868,597 |   |
| Due after ten years             |   |           | 40,180,540  |   |       |   | 40,459,929 |   |
| Mortgage-backed securities      |   |           | 92,217,698  |   |       |   | 93,874,649 |   |
|                            |   | $              | 159,596,234 |   |       | $      | 161,445,868 |   |

|                                                         |   | September 30, 2010 |    |   | September 30, 2009 |   |
|--------------------------------------------------------------|--------|-------------------------|---------|--------|--------------------|--------|
| Gross gains on sales of securities                           |   | $                       | 246,410 |   |               | $      | 873,413 |   |
| Gross losses on sales of securities                          |   |                    | (16,038 | )      |               |   | (37,829 | ) |
| Net realized gains on sales of securities available for sale |   | $                       | 230,372 |   |               | $      | 855,584 |   |

----

Index

|                                                 |   | Less Than 12 Months |      |   | 12 Months or More |   |     | Total      |   |
|------------------------------------------------------|--------|---------------------|-----------|--------|-------------------|--------|----------|------------|--------|
| Description of Securities                            |   | Fair Value          |      |   | Unrealized Losses |   |     | Fair Value |   |   | Unrealized Losses |   |   | Fair Value |   |   | Unrealized Losses |   |
|                                                 |   |                |      |   |              |   |     |       |   |   |   |   |   |   |   |   |   |   |
| September 30, 2010:                                  |   |                |      |   |              |   |     |       |   |   |   |   |   |   |   |   |   |   |
| U.S. Government sponsored                            |   |                |      |   |              |   |     |       |   |   |   |   |   |   |   |   |   |   |
| agency securities (GSE’s)                      |   | $                   | 1,850,077 |   |              | $      | (11,268  | )          |   | $ | - |   |   | $ | - |   |   | $ | 1,850,077 |   |   | $ | (11,268 | ) |
| State and municipal securities                       |   |                | 149,325   |   |              |   | (675     | )          |   |   | 4,434,182 |   |   |   | (503,291 | ) |   |   | 4,583,507 |   |   |   | (503,966 | ) |
| Corporate securities                                 |   |                | 928,642   |   |              |   | (86,469  | )          |   |   | 830,750 |   |   |   | (326,196 | ) |   |   | 1,759,392 |   |   |   | (412,665 | ) |
| GSE residential mortgage- backed securities          |   |                | 4,552,463 |   |              |   | (18,657  | )          |   |   | - |   |   |   | - |   |   |   | 4,552,463 |   |   |   | (18,657 | ) |
| Private label residential mortgage-backed securities |   |                | -         |   |              |   | -        |       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Subtotal, debt securities                            |   |                | 7,480,507 |   |              |   | (117,069 | )          |   |   | 5,264,932 |   |   |   | (829,487 | ) |   |   | 12,745,439 |   |   |   | (946,556 | ) |
| Equity securities                                    |   |                | -         |   |              |   | -        |       |   |   | 330,949 |   |   |   | (103,852 | ) |   |   | 330,949 |   |   |   | (103,852 | ) |
| Total temporarily impaired securities                |   | $                   | 7,480,507 |   |              | $      | (117,069 | )          |   | $ | 5,595,881 |   |   | $ | (933,339 | ) |   | $ | 13,076,388 |   |   | $ | (1,050,408 | ) |

| December 31, 2009:                                   |   |   |       |   |   |   |     |   |   |   |       |   |   |   |       |   |   |   |
|------------------------------------------------------|--------|--------|------------|--------|--------|--------|----------|--------|--------|--------|------------|--------|--------|--------|------------|--------|--------|--------|
| U.S. Government sponsored                            |   |   |       |   |   |   |     |   |   |   |       |   |   |   |       |   |   |   |
| agency securities (GSE’s)                      |   | $      | 14,295,966 |   |   | $      | (299,664 | )      |   | $      | -          |   |   | $      | -          |   |   | $      | 14,295,966 |   |   | $ | (299,664 | ) |
| State and municipal securities                       |   |   | 8,125,696  |   |   |   | (311,298 | )      |   |   | 10,722,375 |   |   |   | (904,396   | )      |   |   | 18,848,071 |   |   |   | (1,215,694 | ) |
| Corporate debt securities                            |   |   | -          |   |   |   | -        |   |   |   | 845,308    |   |   |   | (313,757   | )      |   |   | 845,308 |   |   |   | (313,757 | ) |
| GSE residential mortgage- backed securities          |   |   | 2,883,976  |   |   |   | (4,682   | )      |   |   | -          |   |   |   | -          |   |   |   | 2,883,976 |   |   |   | (4,682 | ) |
| Private label residential Mortgage-backed securities |   |   | 24,344     |   |   |   | (30      | )      |   |   | -          |   |   |   | -          |   |   |   | 24,344 |   |   |   | (30 | ) |
| Subtotal, debt securities                            |   |   | 25,329,982 |   |   |   | (615,674 | )      |   |   | 11,567,683 |   |   |   | (1,218,153 | )      |   |   | 36,897,665 |   |   |   | (1,833,827 | ) |
| Equity securities                                    |   |   | -          |   |   |   | -        |   |   |   | 256,404    |   |   |   | (178,396   | )      |   |   | 256,404 |   |   |   | (178,396 | ) |
|                                                 |   |   |       |   |   |   |     |   |   |   |       |   |   |   |       |   |   |   |   |   |   |   |   |   |
| Total temporarily impaired securities                |   | $      | 25,329,982 |   |   | $      | (615,674 | )      |   | $      | 11,824,087 |   |   | $      | (1,396,549 | )      |   | $      | 37,154,069 |   |   | $ | (2,012,223 | ) |

----

Index

----

Index

| Assets                                   |   | Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1) |   |   | SignificantOtherObservableInputs(Level 2) |   |        | SignificantUnobservableInputs(Level 3) |   |   | Total  |   |
|------------------------------------------|--------|------------------------------------------------------------|--------|--------|-------------------------------------------|--------|-------------|----------------------------------------|--------|--------|--------|--------|
|                                     |   |                                                       |   |   |                                      |   |        |                                   |   |   |   |   |
| Available for sale investment securities |   | $                                                          | 21,600 |   |                                      | $      | 161,776,816 |                                   |   | $      | -      |   |   | $ | 161,798,416 |   |
| Total assets at fair value               |   | $                                                          | 21,600 |   |                                      | $      | 161,776,816 |                                   |   | $      | -      |   |   | $ | 161,798,416 |   |

----

Index

----

Index

----

Index

|                                                                    |   | September 30, 2010 |        |   | December 31, 2009 |   |
|-------------------------------------------------------------------------|--------|--------------------|-------------|--------|-------------------|--------|
|                                                                    |   | Carrying Amount    |        |   | Fair Value        |   |   | Carrying Amount |   |   | Fair Value |   |
| 1Financial assets:                                                      |   |               |        |   |              |   |   |   |   |   |   |   |
| Cash, due from banks and interest-bearing deposits in banks             |   | $                  | 43,854,351  |   |              | $      | 43,854,351 |   |   | $ | 58,157,804 |   |   | $ | 58,157,804 |   |
| Federal funds sold                                                      |   | $                  | 11,295,000  |   |              | $      | 11,295,000 |   |   | $ | 11,340,000 |   |   | $ | 11,340,000 |   |
| Securities available for sale                                           |   | $                  | 161,798,416 |   |              | $      | 161,798,416 |   |   | $ | 120,526,900 |   |   | $ | 120,526,900 |   |
| Federal home loan bank stock                                            |   | $                  | 3,020,200   |   |              | $      | 3,020,200 |   |   | $ | 3,253,400 |   |   | $ | 3,253,400 |   |
| Other equity securities                                                 |   | $                  | 1,010,000   |   |              | $      | 1,010,000 |   |   | $ | 1,010,000 |   |   | $ | 1,010,000 |   |
| 4                                                                       |   |               |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Loans held for sale                                                     |   | $                  | 699,500     |   |              | $      | 699,500 |   |   | $ | - |   |   | $ | - |   |
|                                                                    |   |               |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                                   |   | $                  | 413,979,784 |   |              | $      | 415,453,453 |   |   | $ | 334,138,932 |   |   | $ | 341,971,372 |   |
| Allowance for loan losses                                               |   |               | 6,534,200   |   |              |   | - |   |   |   | 6,060,460 |   |   |   | - |   |
| Loans, net                                                              |   | $                  | 407,445,584 |   |              | $      | 415,453,453 |   |   | $ | 328,078,472 |   |   | $ | 341,971,372 |   |
|                                                                    |   |               |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Accrued interest receivable                                             |   | $                  | 3,070,999   |   |              | $      | 3,070,999 |   |   | $ | 2,799,379 |   |   | $ | 2,799,379 |   |
|                                                                    |   |               |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                                                  |   |               |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                |   | $                  | 535,391,930 |   |              | $      | 533,453,344 |   |   | $ | 426,606,522 |   |   | $ | 424,097,453 |   |
|                                                                    |   |               |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds purchased and securities sold under repurchase agreements |   | $                  | 35,092,163  |   |              | $      | 37,976,377 |   |   | $ | 32,843,465 |   |   | $ | 35,285,910 |   |
|                                                                    |   |               |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Other borrowings                                                        |   | $                  | 42,500,000  |   |              | $      | 46,879,887 |   |   | $ | 42,500,000 |   |   | $ | 44,563,744 |   |
|                                                                    |   |               |        |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Accrued interest payable                                                |   | $                  | 690,677     |   |              | $      | 690,677 |   |   | $ | 706,321 |   |   | $ | 706,321 |   |

----

Index

| (dollars in thousands)       |   | Acquired from PAB |   |   | Fair Value and Other Adjustments |   |   |   | As Recordedby HeritageFinancial Group |   |
|------------------------------|--------|-------------------|--------|--------|----------------------------------|--------|--------|--------|---------------------------------------|--------|
| Assets                       |   |              |   |   |                             |   |   |   |                                  |   |
| Cash and cash equivalents    |   | $                 | 1,183  |   |                             | $      | 39,379 |   | (a)                                   |   | $ | 40,562 |   |
| Premises and equipment       |   |              | 3,448  |   |                             |   | -      |   |                                  |   |   | 3,448 |   |
| Loans                        |   |              | 51,941 |   |                             |   | (149   | )      | (b)                                   |   |   | 51,792 |   |
| Core deposit intangibles     |   |              | -      |   |                             |   | 1,130  |   | (c)                                   |   |   | 1,130 |   |
| Other assets                 |   |              | 245    |   |                             |   | -      |   |                                  |   |   | 245 |   |
| Total Assets                 |   | $                 | 56,817 |   |                             | $      | 40,360 |   |                                  |   | $ | 97,177 |   |
|                         |   |              |   |   |                             |   |   |   |                                  |   |   |   |   |
| Liabilities                  |   |              |   |   |                             |   |   |   |                                  |   |   |   |   |
| Noninterest-bearing deposits |   | $                 | 15,564 |   |                             | $      | -      |   |                                  |   | $ | 15,564 |   |
| Interest-bearing deposits    |   |              | 81,289 |   |                             |   | 268    |   | (d)                                   |   |   | 81,557 |   |
| Other liabilities            |   |              | 39     |   |                             |   | 17     |   | (e)                                   |   |   | 56 |   |
| Total Liabilities            |   | $                 | 96,892 |   |                             | $      | 285    |   |                                  |   | $ | 97,177 |   |

|   | (a) | The adjustment represents the cash received from PAB to reflect the acquisition of excess liabilities assumed over assets purchased. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | The adjustment represents the adjustment to fair market value of the loans assumed in the transaction. |
|--------|-----|--------------------------------------------------------------------------------------------------------|

|   | (c) | The adjustment represents the consideration paid for the value of the core deposit base assumed in the acquisition.  The core deposit asset was recorded as an identifiable intangible asset and will be amortized on an accelerated basis over the average life of the deposit base, estimated to be seven years. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | The adjustment is necessary because the weighted average interest rate of the CD's acquired exceeded the cost of similar funding at the time of acquisition.  The fair value adjustment will be amortized to reduce interest expense on a declining basis over the average life of the portfolio. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | The adjustment represents additional liabilities assumed in the transaction. |
|--------|-----|------------------------------------------------------------------------------|

----

Index

----

Index

| (dollars in thousands)                        |   | Acquired loans without deterioration in credit quality |   |   | Acquired loans with deterioration in credit quality |   |   | Total loans acquired |   |
|-----------------------------------------------|--------|--------------------------------------------------------|--------|--------|-----------------------------------------------------|--------|--------|----------------------|--------|
| Contractually required principal and interest |   | $                                                      | 10,156 |   |                                                | $      | 27,530 |                 |   | $ | 37,686 |   |
| Non-accretable difference                     |   |                                                   | (1,358 | )      |                                                |   | (9,994 | )                    |   |   | (11,352 | ) |
| Cash flows expected to be collected           |   |                                                   | 8,798  |   |                                                |   | 17,536 |                 |   |   | 26,334 |   |
| Accretable yield                              |   |                                                   | (1,090 | )      |                                                |   | (2,480 | )                    |   |   | (3,570 | ) |
| Basis in acquired loans                       |   | $                                                      | 7,708  |   |                                                | $      | 15,056 |                 |   | $ | 22,764 |   |

| (dollars in thousands)                                       |   | Acquired loans without deterioration in credit quality |   |   | Acquired loans with deterioration in credit quality |   |   | Total loans acquired |   |
|--------------------------------------------------------------|--------|--------------------------------------------------------|--------|--------|-----------------------------------------------------|--------|--------|----------------------|--------|
| Balance, December 31, 2009                                   |   | $                                                      | 1,025  |   |                                                | $      | 2,352  |                 |   | $ | 3,377 |   |
| Transfers from non-accretable difference to accretable yield |   |                                                   | 318    |   |                                                |   | 494    |                 |   |   | 812 |   |
| Accretion                                                    |   |                                                   | (771   | )      |                                                |   | (1,497 | )                    |   |   | (2,268 | ) |
| Balance, September 30, 2010                                  |   | $                                                      | 572    |   |                                                | $      | 1,349  |                 |   | $ | 1,921 |   |

----

Index

----

Index

ITEM 2

----

Index

----

Index

----

Index

|                                 |   | (In thousands) |   |
|--------------------------------------|--------|----------------|--------|
|                                 |   |           |   |
| Commitments to extend credit         |   | $              | 51,055 |   |
| Financial stand-by letters of credit |   |           | 794    |   |
|                                 |   | $              | 51,849 |   |

----

Index

----

Index

----

Index

|                                                        |   | Three Months Ended September 30, |
|-------------------------------------------------------------|--------|----------------------------------|
|                                                        |   | 2010                             |   |   | 2009 |
|                                                        |   | (Dollars in Thousands)           |
|                                                        |   | Average Outstanding Balance      |   | Interest Earned/ Paid |   |   | Yield/ Rate |   |   | Average OutstandingBalance |   |   | Interest Earned/ Paid |   |   | Yield/ Rate |
| Interest-Earning Assets:                                    |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                       |   | $                                | 397,421 |   |   | $ | 6,136 |   |   |   | 6.13 | % |   | $ | 296,800 |   |   | $ | 4,600 |   |   |   | 6.16 | % |
| Mortgage Loans held for sale                                |   |                             | 596 |   |   |   | 6 |   |   |   | 4.35 |   |   |   | - |   |   |   | - |   |   |   |   |   |
| Taxable investment securities                               |   |                             | 137,658 |   |   |   | 1,006 |   |   |   | 2.92 |   |   |   | 79,437 |   |   |   | 781 |   |   |   | 3.93 |   |
| Tax exempt investment securities                            |   |                             | 21,123 |   |   |   | 212 |   |   |   | 6.08 |   |   |   | 29,900 |   |   |   | 296 |   |   |   | 6.01 |   |
| Federal funds sold                                          |   |                             | 17,320 |   |   |   | 11 |   |   |   | 0.26 |   |   |   | 11,746 |   |   |   | 7 |   |   |   | 0.26 |   |
| Interest bearing deposits  with banks             |   |                             | 19,003 |   |   |   | 25 |   |   |   | 0.52 |   |   |   | 751 |   |   |   | 1 |   |   |   | 0.40 |   |
| Total interest-earning Assets                               |   |                             | 593,121 |   |   |   | 7,396 |   |   |   | 5.03 |   |   |   | 418,634 |   |   |   | 5,685 |   |   |   | 5.55 |   |
|                                                        |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-Bearing Liabilities:                               |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing demand                                     |   |                             | 104,872 |   |   |   | 248 |   |   |   | 0.94 |   |   |   | 49,071 |   |   |   | 125 |   |   |   | 1.01 |   |
| Savings and money market                                    |   |                             | 201,108 |   |   |   | 382 |   |   |   | 0.75 |   |   |   | 124,825 |   |   |   | 384 |   |   |   | 1.22 |   |
| Retail time deposits                                        |   |                             | 164,265 |   |   |   | 940 |   |   |   | 2.27 |   |   |   | 112,359 |   |   |   | 838 |   |   |   | 2.96 |   |
| Wholesale time deposits                                     |   |                             | 10,540 |   |   |   | 61 |   |   |   | 2.29 |   |   |   | 16,153 |   |   |   | 132 |   |   |   | 3.26 |   |
| Borrowings                                                  |   |                             | 77,107 |   |   |   | 659 |   |   |   | 3.39 |   |   |   | 78,403 |   |   |   | 500 |   |   |   | 2.53 |   |
| Total interest-bearing liabilities                          |   |                             | 557,892 |   |   |   | 2,290 |   |   |   | 1.63 |   |   |   | 380,811 |   |   |   | 1,979 |   |   |   | 2.06 |   |
|                                                        |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                         |   |                             |   |   |   | $ | 5,106 |   |   |   |   |   |   |   |   |   |   | $ | 3,706 |   |   |   |   |   |
| Net interest rate spread                                    |   |                             |   |   |   |   |   |   |   |   | 3.40 | % |   |   |   |   |   |   |   |   |   |   | 3.49 | % |
| Net earning assets                                          |   | $                                | 35,229 |   |   |   |   |   |   |   |   |   |   | $ | 37,823 |   |   |   |   |   |   |   |   |   |
| Net interest margin                                         |   |                             |   |   |   |   |   |   |   |   | 3.50 | % |   |   |   |   |   |   |   |   |   |   | 3.68 | % |
|                                                        |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average interest-earning assets to average interest-bearing |   |                             | 1.06 | X |   |   |   |   |   |   |   |   |   |   | 1.10 | X |   |   |   |   |   |   |   |   |

----

Index

|                                                        |   | Nine Months Ended September 30 |    |
|-------------------------------------------------------------|--------|--------------------------------|---------|
|                                                        |   | 2010                           |    |   | 2009 |   |
|                                                        |   | (Dollars in Thousands)         |    |
|                                                        |   | Average Outstanding Balance    |    |   | Interest Earned/ Paid |   |   | Yield/ Rate |   |   | Average Outstanding Balance |   |   | Interest Earned/ Paid |   |   | Yield/ Rate |   |
| Interest-Earning Assets:                                    |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                       |   | $                              | 366,091 |   |   | $ | 17,218 |   |   |   | 6.30 | % |   | $ | 297,289 |   |   | $ | 13,722 |   |   |   | 6.18 | % |
| Mortgage Loans held for sale                                |   |                           | 209     |   |   |   | 7 |   |   |   | 4.39 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Taxable investment securities                               |   |                           | 104,700 |   |   |   | 2,572 |   |   |   | 3.28 |   |   |   | 87,940 |   |   |   | 2,921 |   |   |   | 4.43 |   |
| Tax exempt investment securities                            |   |                           | 25,140  |   |   |   | 749 |   |   |   | 6.02 |   |   |   | 30,040 |   |   |   | 882 |   |   |   | 5.93 |   |
| Federal funds sold                                          |   |                           | 19,569  |   |   |   | 38 |   |   |   | 0.26 |   |   |   | 20,934 |   |   |   | 40 |   |   |   | 0.25 |   |
| Interest bearing deposits  with banks             |   |                           | 31,130  |   |   |   | 115 |   |   |   | 0.49 |   |   |   | 585 |   |   |   | 1 |   |   |   | 0.27 |   |
| Total interest-earning Assets                               |   |                           | 546,839 |   |   |   | 20,699 |   |   |   | 5.16 |   |   |   | 439,788 |   |   |   | 17,566 |   |   |   | 5.52 |   |
|                                                        |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-Bearing Liabilities:                               |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing demand                                     |   |                           | 86,558  |   |   |   | 654 |   |   |   | 1.01 |   |   |   | 49,291 |   |   |   | 385 |   |   |   | 1.04 |   |
| Savings and money market                                    |   |                           | 179,220 |   |   |   | 986 |   |   |   | 0.74 |   |   |   | 116,532 |   |   |   | 1,118 |   |   |   | 1.28 |   |
| Retail time deposits                                        |   |                           | 158,010 |   |   |   | 2,821 |   |   |   | 2.39 |   |   |   | 124,251 |   |   |   | 3,039 |   |   |   | 3.27 |   |
| Wholesale time deposits                                     |   |                           | 11,812  |   |   |   | 207 |   |   |   | 2.34 |   |   |   | 19,337 |   |   |   | 507 |   |   |   | 3.51 |   |
| Borrowings                                                  |   |                           | 76,218  |   |   |   | 1,820 |   |   |   | 2.51 |   |   |   | 91,041 |   |   |   | 1,830 |   |   |   | 2.69 |   |
| Total interest-bearing liabilities                          |   |                           | 511,818 |   |   |   | 6,488 |   |   |   | 1.70 |   |   |   | 400,452 |   |   |   | 6,879 |   |   |   | 2.30 |   |
|                                                        |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                         |   |                           |    |   |   | $ | 14,211 |   |   |   |   |   |   |   |   |   |   | $ | 10,687 |   |   |   |   |   |
| Net interest rate spread                                    |   |                           |    |   |   |   |   |   |   |   | 3.46 | % |   |   |   |   |   |   |   |   |   |   | 3.22 | % |
| Net earning assets                                          |   | $                              | 35,021  |   |   |   |   |   |   |   |   |   |   | $ | 39,336 |   |   |   |   |   |   |   |   |   |
| Net interest margin                                         |   |                           |    |   |   |   |   |   |   |   | 3.57 | % |   |   |   |   |   |   |   |   |   |   | 3.41 | % |
|                                                        |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average interest-earning assets to average interest-bearing |   |                           | 1.07    | X |   |   |   |   |   |   |   |   |   |   | 1.10 | X |   |   |   |   |   |   |   |   |

----

Index

|                                 |   | Three Months Ended September 30, |   |
|--------------------------------------|--------|----------------------------------|--------|
|                                 |   | 2010 vs. 2009                    |   |
|                                 |   | Increase (Decrease)              |   |   | Total |   |
|                                 |   | Due to                           |   |   | Increase |   |
|                                 |   | Volume                           |   |   | Rate |   |   | (Decrease) |   |
|                                 |   | (Dollars in Thousands)           |   |
| Interest-earning assets:             |   |                             |   |   |   |   |   |   |   |
| Loans                                |   | $                                | 1,446  |   |   | $ | 90 |   |   | $ | 1,536 |   |
| Loans held for sale                  |   |                             | 6      |   |   |   | - |   |   |   | 6 |   |
| Taxable investment securities        |   |                             | 386    |   |   |   | (161 | ) |   |   | 225 |   |
| Tax exempt investment securities     |   |                             | (91    | ) |   |   | 7 |   |   |   | (84 | ) |
| Federal funds sold                   |   |                             | 4      |   |   |   | - |   |   |   | 4 |   |
| Interest bearing deposits with banks |   |                             | 24     |   |   |   | - |   |   |   | 24 |   |
| Total interest-earning assets        |   | $                                | 1,775  |   |   | $ | (64 | ) |   |   | 1,711 |   |
|                                 |   |                             |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:        |   |                             |   |   |   |   |   |   |   |   |   |   |
| Interest bearing demand              |   | $                                | 132    |   |   | $ | (9 | ) |   |   | 123 |   |
| Savings and money market             |   |                             | 260    |   |   |   | (262 | ) |   |   | (2 | ) |
| Retail time deposits                 |   |                             | 331    |   |   |   | (229 | ) |   |   | 102 |   |
| Wholesale time deposits              |   |                             | (43    | ) |   |   | (28 | ) |   |   | (71 | ) |
| Borrowings                           |   |                             | 7      |   |   |   | 152 |   |   |   | 159 |   |
| Total interest-bearing liabilities   |   | $                                | 687    |   |   | $ | (376 | ) |   |   | 311 |   |
|                                 |   |                             |   |   |   |   |   |   |   |   |   |   |
| Net interest income                  |   |                             |   |   |   |   |   |   |   | $ | 1,400 |   |

|                                 |   | Nine Months Ended September 30, |   |
|--------------------------------------|--------|---------------------------------|--------|
|                                 |   | 2010 vs. 2009                   |   |
|                                 |   | Increase (Decrease)             |   |   | Total |   |
|                                 |   | Due to                          |   |   | Increase |   |
|                                 |   | Volume                          |   |   | Rate |   |   | (Decrease) |   |
|                                 |   | (Dollars in Thousands)          |   |
| Interest-earning assets:             |   |                            |   |   |   |   |   |   |   |
| Loans                                |   | $                               | 3,064  |   |   | $ | 432 |   |   | $ | 3,496 |   |
| Loans held for sale                  |   |                            | 7      |   |   |   | - |   |   |   | 7 |   |
| Taxable investment securities        |   |                            | 368    |   |   |   | (717 | ) |   |   | (349 | ) |
| Tax exempt investment securities     |   |                            | (159   | ) |   |   | 26 |   |   |   | (133 | ) |
| Federal funds sold                   |   |                            | (3     | ) |   |   | 1 |   |   |   | (2 | ) |
| Interest bearing deposits with banks |   |                            | 112    |   |   |   | 2 |   |   |   | 114 |   |
| Total interest-earning assets        |   | $                               | 3,389  |   |   | $ | (256 | ) |   |   | 3,133 |   |
|                                 |   |                            |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:        |   |                            |   |   |   |   |   |   |   |   |   |   |
| Interest bearing demand              |   | $                               | 280    |   |   | $ | (11 | ) |   |   | 269 |   |
| Savings and money market             |   |                            | 760    |   |   |   | (892 | ) |   |   | (132 | ) |
| Retail time deposits                 |   |                            | 716    |   |   |   | (934 | ) |   |   | (218 | ) |
| Wholesale time deposits              |   |                            | (164   | ) |   |   | (136 | ) |   |   | (300 | ) |
| Borrowings                           |   |                            | (176   | ) |   |   | 166 |   |   |   | (10 | ) |
| Total interest-bearing liabilities   |   | $                               | 1,416  |   |   | $ | (1,807 | ) |   |   | (391 | ) |
|                                 |   |                            |   |   |   |   |   |   |   |   |   |   |
| Net interest income                  |   |                            |   |   |   |   |   |   |   | $ | 3,524 |   |

----

Index

|                                                          | As of and for the quarter ended |   |
|---------------------------------------------------------------|---------------------------------|--------|
|                                                          | 9/30/10                         |   |   | 6/30/10 |   |   | 12/31/09 |   | 9/30/09 |   |
|                                                          | (Dollars in thousands)          |   |   |   |
| Total Portfolio                                               |                            |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses to total loans                      |                            |   | 1.58 | % |   |   | 1.55 | % |   |   | 1.81 | % |   |   | 2.68 | % |
| Allowance for loan losses to average loans                    |                            |   | 1.64 | % |   |   | 1.66 | % |   |   | 1.98 | % |   |   | 2.70 | % |
| Allowance for loan losses to non-performing loans             |                            |   | 53.56 | % |   |   | 80.21 | % |   |   | 71.61 | % |   |   | 61.80 | % |
| Loan – 30 – 89 days past due & still accruing |                            | $      | 899 |   |   | $ | 2,498 |   |   | $ | 3,247 |   |   | $ | 1,277 |   |
| Nonaccrual loans                                              |                            | $      | 12,199 |   |   | $ | 7,514 |   |   | $ | 8,463 |   |   | $ | 12,990 |   |
| Loans – 90 days past due & still accruing           |                            | $      | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Total non-performing loans                                    |                            | $      | 12,199 |   |   | $ | 7,514 |   |   | $ | 8,463 |   |   | $ | 12,990 |   |
| OREO and repossessed assets                                   |                            | $      | 2,787 |   |   | $ | 3,019 |   |   | $ | 1,795 |   |   | $ | 898 |   |
| Total non-performing assets                                   |                            | $      | 14,986 |   |   | $ | 10,533 |   |   | $ | 9,526 |   |   | $ | 13,888 |   |
| Non-performing loans to total  loans                |                            |   | 2.95 | % |   |   | 1.93 | % |   |   | 2.53 | % |   |   | 4.34 | % |
| Non-performing assets to total assets                         |                            |   | 2.20 | % |   |   | 1.59 | % |   |   | 1.79 | % |   |   | 2.97 | % |
| Net charge-offs to average loans (annualized)                 |                            |   | 0.45 | % |   |   | 0.48 | % |   |   | 7.42 | % |   |   | 0.29 | % |
| Net charge-offs                                               |                            | $      | 443 |   |   | $ | 439 |   |   | $ | 5,667 |   |   | $ | 219 |   |
|                                                          |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Portfolio excluding purchased loans                           |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses to total loans                      |                            |   | 1.98 | % |   |   | 1.98 | % |   |   | 2.03 | % |   |   | 2.68 | % |
| Allowance for loan losses to average loans                    |                            |   | 2.09 | % |   |   | 2.00 | % |   |   | 2.06 | % |   |   | 2.70 | % |
| Allowance for loan losses to non-performing loans             |                            |   | 60.20 | % |   |   | 80.90 | % |   |   | 83.74 | % |   |   | 61.80 | % |
| Loan – 30 – 89 days past due & still accruing |                            | $      | 641 |   |   | $ | 369 |   |   | $ | 1,826 |   |   | $ | 1,277 |   |
| Nonaccrual loans                                              |                            | $      | 10,854 |   |   | $ | 7,450 |   |   | $ | 7,237 |   |   | $ | 12,990 |   |
| Loans – 90 days past due & still accruing           |                            | $      | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Total non-performing loans                                    |                            | $      | 10,854 |   |   | $ | 7,450 |   |   | $ | 7,237 |   |   | $ | 12,990 |   |
| OREO and repossessed assets                                   |                            | $      | 2,551 |   |   | $ | 2,782 |   |   | $ | 1,190 |   |   | $ | 898 |   |
| Total non-performing assets                                   |                            | $      | 13,405 |   |   | $ | 10,232 |   |   | $ | 8,427 |   |   | $ | 13,888 |   |
| Non-performing loans to total loans                           |                            |   | 3.29 | % |   |   | 2.45 | % |   |   | 2.42 | % |   |   | 4.34 | % |
| Non-performing assets to total assets                         |                            |   | 1.97 | % |   |   | 1.54 | % |   |   | 1.47 | % |   |   | 2.97 | % |
| Net charge-offs to average loans (annualized)                 |                            |   | 0.57 | % |   |   | 0.58 | % |   |   | 7.70 | % |   |   | 0.29 | % |
| Net charge-offs                                               |                            | $      | 443 |   |   | $ | 439 |   |   | $ | 5,667 |   |   | $ | 219 |   |

----

Index

|                                                          |   | As of and for the nine months ended |    |
|---------------------------------------------------------------|--------|-------------------------------------|---------|
|                                                          |   | 9/30/10                             |    |   | 9/30/09 |   |
|                                                          |   | (Dollars in thousands)              |    |
| Total Portfolio                                               |   |                                |    |   |   |   |
| Allowance for loan losses to total loans                      |   |                                | 1.58    | % |   |   | 2.68 | % |
| Allowance for loan losses to average loans                    |   |                                | 1.78    | % |   |   | 2.70 | % |
| Allowance for loan losses to non-performing loans             |   |                                | 53.56   | % |   |   | 61.80 | % |
| Loan – 30 – 89 days past due & still accruing |   | $                                   | 899     |   |   | $ | 1,277 |   |
| Nonaccrual loans                                              |   | $                                   | 12,199  |   |   | $ | 12,990 |   |
| Loans – 90 days past due & still accruing           |   | $                                   | -       |   |   | $ | - |   |
| Total non-performing loans                                    |   | $                                   | 12,199  |   |   | $ | 12,990 |   |
| OREO and repossessed assets                                   |   | $                                   | 2,787   |   |   | $ | 898 |   |
| Total non-performing assets                                   |   | $                                   | 14,986  |   |   | $ | 13,888 |   |
| Non-performing loans to total loans                           |   |                                | 2.95    | % |   |   | 4.34 | % |
| Non-performing assets to total assets                         |   |                                | 2.20    | % |   |   | 2.97 | % |
| Net charge-offs to average loans (annualized)                 |   |                                | 0.59    | % |   |   | 0.32 | % |
| Net charge-offs                                               |   | $                                   | 1,626   |   |   | $ | 723 |   |
|                                                          |   |                                |    |   |   |   |   |   |
| Portfolio excluding purchased loans                           |   |                                |    |   |   |   |   |   |
| Allowance for loan losses to total loans                      |   |                                | 1.98    | % |   |   | 2.68 | % |
| Allowance for loan losses to average loans                    |   |                                | 2.09    | % |   |   | 2.70 | % |
| Allowance for loan losses to non-performing loans             |   |                                | 60.20   | % |   |   | 61.80 | % |
| Loan – 30 – 89 days past due & still accruing |   | $                                   | 641     |   |   | $ | 1,277 |   |
| Nonaccrual loans                                              |   | $                                   | 10,854  |   |   | $ | 12,990 |   |
| Loans – 90 days past due & still accruing           |   | $                                   | -       |   |   | $ | - |   |
| Total non-performing loans                                    |   | $                                   | $10,854 |   |   | $ | 12,990 |   |
| OREO and repossessed assets                                   |   | $                                   | 2,551   |   |   | $ | 898 |   |
| Total non-performing assets                                   |   | $                                   | 13,405  |   |   | $ | 13,888 |   |
| Non-performing loans to total loans                           |   |                                | 3.29    | % |   |   | 4.34 | % |
| Non-performing assets to total assets                         |   |                                | 1.97    | % |   |   | 2.97 | % |
| Net charge-offs to average loans (annualized)                 |   |                                | 0.72    | % |   |   | 0.32 | % |
| Net charge-offs                                               |   | $                                   | 1,626   |   |   | $ | 723 |   |

----

Index

|                                                              |   | Three Months Ended September 30, |      |
|-------------------------------------------------------------------|--------|----------------------------------|-----------|
|                                                              |   | 2010                             |      |   | 2009 |   |   | $ Chg |   |   | % Chg |   |
|                                                              |   |                             |      |   |   |   |   |   |   |   |   |   |
| Service charges on deposit accounts                               |   | $                                | 1,112,390 |   |   | $ | 950,893 |   |   | $ | 161,497 |   |   |   | 17.0 | % |
| Other service charges, commissions and fees                       |   |                             | 642,817   |   |   |   | 338,490 |   |   |   | 304,327 |   |   |   | 89.9 | % |
| Brokerage fees                                                    |   |                             | 253,572   |   |   |   | 251,854 |   |   |   | 1,718 |   |   |   | 0.7 | % |
| Mortgage origination fees                                         |   |                             | 227,052   |   |   |   | 66,364 |   |   |   | 160,688 |   |   |   | 242.1 | % |
| Bank owned life insurance                                         |   |                             | 152,888   |   |   |   | 155,285 |   |   |   | (2,397 | ) |   |   | -1.5 | % |
| Other                                                             |   |                             | 18,834    |   |   |   | 11,575 |   |   |   | 7,259 |   |   |   | 62.7 | % |
| Total noninterest income                                          |   | $                                | 2,407,553 |   |   | $ | 1,774,461 |   |   | $ | 633,092 |   |   |   | 35.7 | % |
| Noninterest income as a percentage of average assets (annualized) |   |                             | 1.42      | % |   |   | 1.50 | % |   |   |   |   |   |   |   |   |

----

Index

|                                                              |   | Nine Months Ended September 30, |      |
|-------------------------------------------------------------------|--------|---------------------------------|-----------|
|                                                              |   | 2010                            |      |   | 2009 |   |   | $ Chg |   |   | % Chg |   |
|                                                              |   |                            |      |   |   |   |   |   |   |   |   |   |
| Service charges on deposit accounts                               |   | $                               | 2,918,408 |   |   | $ | 2,595,376 |   |   | $ | 323,032 |   |   |   | 12.4 | % |
| Other service charges, commissions and fees                       |   |                            | 1,511,282 |   |   |   | 1,060,600 |   |   |   | 450,682 |   |   |   | 42.5 | % |
| Brokerage fees                                                    |   |                            | 732,626   |   |   |   | 662,177 |   |   |   | 70,449 |   |   |   | 10.6 | % |
| Mortgage origination fees                                         |   |                            | 336,671   |   |   |   | 275,544 |   |   |   | 61,127 |   |   |   | 22.2 | % |
| Bank owned life insurance                                         |   |                            | 458,879   |   |   |   | 464,767 |   |   |   | (5,888 | ) |   |   | -1.3 | % |
| Other                                                             |   |                            | 56,856    |   |   |   | 33,870 |   |   |   | 22,986 |   |   |   | 67.9 | % |
| Total noninterest income                                          |   | $                               | 6,014,722 |   |   | $ | 5,092,334 |   |   | $ | 922,388 |   |   |   | 18.1 | % |
| Noninterest income as a percentage of average assets (annualized) |   |                            | 1.29      | % |   |   | 1.39 | % |   |   |   |   |   |   |   |   |

----

Index

|                                                                |   | Three Months Ended September 30, |      |
|---------------------------------------------------------------------|--------|----------------------------------|-----------|
|                                                                |   | 2010                             |      |   | 2009 |   |   | $ Chg |   |   | % Chg |   |
|                                                                |   |                             |      |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                                      |   | $                                | 3,445,912 |   |   | $ | 2,295,513 |   |   | $ | 1,150,399 |   |   |   | 50.1 | % |
| Equipment                                                           |   |                             | 303,837   |   |   |   | 221,077 |   |   |   | 82,760 |   |   |   | 37.4 | % |
| Occupancy                                                           |   |                             | 423,730   |   |   |   | 312,000 |   |   |   | 111,730 |   |   |   | 35.8 | % |
| Advertising and marketing                                           |   |                             | 166,051   |   |   |   | 146,962 |   |   |   | 19,089 |   |   |   | 13.0 | % |
| Legal and accounting                                                |   |                             | 112,077   |   |   |   | 117,868 |   |   |   | (5,791 | ) |   |   | -4.9 | % |
| Consulting & other professional fees                            |   |                             | 71,106    |   |   |   | 69,669 |   |   |   | 1,437 |   |   |   | 2.1 | % |
| Directors fees and retirement                                       |   |                             | 141,711   |   |   |   | 154,608 |   |   |   | (12,897 | ) |   |   | -8.3 | % |
| Telecommunications                                                  |   |                             | 131,765   |   |   |   | 52,861 |   |   |   | 78,904 |   |   |   | 149.3 | % |
| Supplies                                                            |   |                             | 97,787    |   |   |   | 46,384 |   |   |   | 51,403 |   |   |   | 110.8 | % |
| Data processing fees                                                |   |                             | 604,495   |   |   |   | 431,608 |   |   |   | 172,887 |   |   |   | 40.1 | % |
| Loss on sale and write-downs of other real estate owned             |   |                             | (30       | ) |   |   | 80,000 |   |   |   | (80,030 | ) |   |   | -100.0 | % |
| Foreclosed asset and collection expenses                            |   |                             | 181,295   |   |   |   | 78,561 |   |   |   | 102,734 |   |   |   | 130.8 | % |
| FDIC insurance and other regulatory fees                            |   |                             | 283,262   |   |   |   | 136,192 |   |   |   | 147,070 |   |   |   | 108.0 | % |
| Impairment loss on intangible asset                                 |   |                             | 1,000,000 |   |   |   | - |   |   |   | 1,000,000 |   |   |   | 100.0 | % |
| Other operating                                                     |   |                             | 816,187   |   |   |   | 306,871 |   |   |   | 509,316 |   |   |   | 166.0 | % |
| Total noninterest expenses                                          |   | $                                | 7,779,185 |   |   | $ | 4,450,174 |   |   | $ | 3,329,011 |   |   |   | 74.8 | % |
| Noninterest expenses as a percentage of average assets (annualized) |   |                             | 4.01      | % |   |   | 3.78 | % |   |   |   |   |   |   |   |   |

|                                                                |   | Nine Months Ended September 30, |       |
|---------------------------------------------------------------------|--------|---------------------------------|------------|
|                                                                |   | 2010                            |       |   | 2009 |   |   | $ Chg |   |   | % Chg |   |
|                                                                |   |                            |       |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                                      |   | $                               | 8,984,760  |   |   | $ | 6,719,869 |   |   | $ | 2,264,891 |   |   |   | 33.7 | % |
| Equipment                                                           |   |                            | 810,350    |   |   |   | 760,243 |   |   |   | 50,107 |   |   |   | 6.6 | % |
| Occupancy                                                           |   |                            | 1,059,391  |   |   |   | 901,263 |   |   |   | 158,128 |   |   |   | 17.5 | % |
| Advertising and marketing                                           |   |                            | 410,413    |   |   |   | 345,191 |   |   |   | 65,222 |   |   |   | 18.9 | % |
| Legal and accounting                                                |   |                            | 439,720    |   |   |   | 390,526 |   |   |   | 49,194 |   |   |   | 12.6 | % |
| Consulting & other professional fees                            |   |                            | 207,821    |   |   |   | 220,078 |   |   |   | (14,257 | ) |   |   | -6.4 | % |
| Directors fees and retirement                                       |   |                            | 419,133    |   |   |   | 460,824 |   |   |   | (41,691 | ) |   |   | -9.0 | % |
| Telecommunications                                                  |   |                            | 304,497    |   |   |   | 169,189 |   |   |   | 135,308 |   |   |   | 80.0 | % |
| Supplies                                                            |   |                            | 250,993    |   |   |   | 130,687 |   |   |   | 120,306 |   |   |   | 92.1 | % |
| Data processing fees                                                |   |                            | 1,596,089  |   |   |   | 1,144,789 |   |   |   | 451,300 |   |   |   | 39.4 | % |
| (Gain) Loss on sale and write-downs of other real estate owned      |   |                            | (343,464   | ) |   |   | 384,068 |   |   |   | (727,532 | ) |   |   | -189.4 | % |
| Foreclosed asset and collection expenses                            |   |                            | 779,002    |   |   |   | 171,789 |   |   |   | 607,213 |   |   |   | 353.5 | % |
| FDIC insurance and other regulatory fees                            |   |                            | 681,932    |   |   |   | 501,078 |   |   |   | 180,854 |   |   |   | 36.1 | % |
| Impairment loss on intangible asset                                 |   |                            | 1,000,000  |   |   |   | - |   |   |   | 1,000,000 |   |   |   | 100.0 | % |
| Other operating                                                     |   |                            | 1,908,311  |   |   |   | 1,004,909 |   |   |   | 903,402 |   |   |   | 89.9 | % |
| Total noninterest expenses                                          |   | $                               | 18,508,948 |   |   | $ | 13,306,503 |   |   | $ | 5,202,445 |   |   |   | 39.1 | % |
| Noninterest expenses as a percentage of average assets (annualized) |   |                            | 3.97       | % |   |   | 3.62 | % |   |   |   |   |   |   |   |   |

----

Index

----

Index

----

Index

|                                   |   | Actual                 |   |   | For Capital Adequacy Purposes |   |   | Minimum Required to Be Well Capitalized Under Prompt Corrective Action Provisions |   |
|----------------------------------------|--------|------------------------|--------|--------|-------------------------------|--------|--------|-----------------------------------------------------------------------------------|--------|
|                                   |   | Amount                 |   |   | Ratio                         |   |   | Amount                                                                            |   |   | Ratio |   |   | Amount |   |   | Ratio |   |
|                                   |   | (Dollars in thousands) |   |   |                          |   |
|                                   |   |
| Total Capital to Risk Weighted Assets  |   |                   |   |   |                          |   |   |                                                                              |   |   |   |   |   |   |   |   |   |   |
| Heritage Financial Group Consolidated  |   | $                      | 64,572 |   |                          |   | 14.7   | %                                                                                 |   | $ | 35,204 |   |   |   | 8.0 | % |   |   | - |   |   |   | - |   |
| HeritageBank of the South              |   | $                      | 57,552 |   |                          |   | 13.3   | %                                                                                 |   | $ | 34,694 |   |   |   | 8.0 | % |   | $ | 43,368 |   |   |   | 10.0 | % |
|                                   |   |                   |   |   |                          |   |   |                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier I Capital to Risk Weighted Assets |   |                   |   |   |                          |   |   |                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Heritage Financial Group Consolidated  |   | $                      | 59,137 |   |                          |   | 13.4   | %                                                                                 |   | $ | 17,602 |   |   |   | 4.0 | % |   |   | - |   |   |   | - |   |
| HeritageBank of the South              |   | $                      | 52,107 |   |                          |   | 12.0   | %                                                                                 |   | $ | 17,347 |   |   |   | 4.0 | % |   | $ | 26,021 |   |   |   | 6.0 | % |
|                                   |   |                   |   |   |                          |   |   |                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tier I Capital to Average Total Assets |   |                   |   |   |                          |   |   |                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Heritage Financial Group Consolidated  |   | $                      | 59,137 |   |                          |   | 8.7    | %                                                                                 |   | $ | 27,058 |   |   |   | 4.0 | % |   |   | - |   |   |   | - |   |
| HeritageBank of the South              |   | $                      | 52,107 |   |                          |   | 7.8    | %                                                                                 |   | $ | 26,697 |   |   |   | 4.0 | % |   | $ | 33,371 |   |   |   | 5.0 | % |

----

Index

ITEM 3

|   | · | Limiting the percentage of long-term fixed-rate loans within our portfolio; |
|--------|--------|-----------------------------------------------------------------------------|

|   | · | Originating a mix of variable-rate and shorter term fixed-rate loans; |
|--------|--------|-----------------------------------------------------------------------|

|   | · | Originating prime-based home equity lines of credit; |
|--------|--------|------------------------------------------------------|

|   | · | Managing deposit relationships for stability and a lower cost of funds position; |
|--------|--------|----------------------------------------------------------------------------------|

|   | · | Using Federal Home Loan Bank advances and other funding sources to align maturities and repricing terms of funding sources with loans; and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Continuing the origination of consumer loans. |
|--------|--------|-----------------------------------------------|

----

Index

----

Index

|                                           |   | At September 30, 2010        |     |
|------------------------------------------------|--------|------------------------------|----------|
|                                           |   | Maturing or Repricing Within |     |
|                                           |   | (Dollars in thousands)       |     |
|                                           |   | Zero to Three Months         |     |   | Three Months to One Year |   |   | One to Five Years |   |   | Over Five Years |   |   | Total |   |
| Earning assets:                                |   |                         |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term assets                              |   | $                            | 21,874   |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 21,874 |   |
| Investment Securities                          |   |                         | 11,381   |   |   |   | 39,470 |   |   |   | 81,440 |   |   |   | 29,507 |   |   |   | 161,798 |   |
| Loans held for sale                            |   |                         | 700      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 700 |   |
| Loans                                          |   |                         | 126,796  |   |   |   | 78,797 |   |   |   | 164,647 |   |   |   | 43,740 |   |   |   | 413,980 |   |
|                                           |   |                         | 160,751  |   |   |   | 118,267 |   |   |   | 246,087 |   |   |   | 73,247 |   |   |   | 598,352 |   |
|                                           |   |                         |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |                         |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                  |   |                         |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits               |   |                         | (93,640  | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (93,640 | ) |
| Savings and money market                       |   |                         | (206,961 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | ( 206,961 | ) |
| Time Deposits                                  |   |                         | (35,505  | ) |   |   | (89,227 | ) |   |   | (51,388 | ) |   |   | (3,536 | ) |   |   | (179,656 | ) |
| Other Borrowings                               |   |                         | (35,092  | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (35,092 | ) |
| FHLB Advances                                  |   |                         | -        |   |   |   | (7,500 | ) |   |   | (10,000 | ) |   |   | (25,000 | ) |   |   | (42,500 | ) |
|                                           |   |                         | (371,198 | ) |   |   | (96,727 | ) |   |   | (61,388 | ) |   |   | (28,536 | ) |   |   | (557,849 | ) |
|                                           |   |                         |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |                         |     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate sensitivity gap                  |   | $                            | (210,447 | ) |   | $ | 21,540 |   |   | $ | 184,699 |   |   | $ | 44,711 |   |   | $ | 40,503 |   |
| Cumulative interest rate sensitivity gap       |   | $                            | (210,447 | ) |   | $ | (188,907 | ) |   | $ | (4,208 | ) |   | $ | 40,503 |   |   |   |   |   |
| Interest rate sensitivity gap ratio            |   |                         | 0.43     |   |   |   | 1.22 |   |   |   | 4.01 |   |   |   | 2.50 |   |   |   |   |   |
| Cumulative interest rate sensitivity gap ratio |   |                         | 0.43     |   |   |   | 0.60 |   |   |   | 0.99 |   |   |   | 1.07 |   |   |   |   |   |

----

Index

|                  |   | Effect                 |
|-----------------------|--------|------------------------|
| Market                |   | on Net                 |
| Rate                  |   | Interest               |
| Change                |   | Income                 |
|                  |   |                   |   |
| +400                  |   |   -12.0           | % |
| +300                  |   |   -12.4           | % |
| +200                  |   |   -12.8           | % |
| +100                  |   |   -6.3            | % |
|    -50 |   |     2.3 | % |

ITEM 4

----

Index

----

Index

PART II – OTHER INFORMATION

----

Index

| Exhibit Number |   | Document                                                                                                                                                                                                                                                                     |
|----------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1            |   | Plan of Conversion and Reorganization of Heritage MHC (Incorporated herein by reference to Exhibit 2.1 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-167670))                                                                  |
|           |   |                                                                                                                                                                                                                                                                         |
| 2.2            |   | Form of Agreement and Plan of Merger By and Among Heritage Financial Group, Heritage MHC and Heritage Financial Group, Inc. (Incorporated herein by reference to Exhibit 2.2 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-167670)) |
|           |   |                                                                                                                                                                                                                                                                         |
| 3.1            |   | Articles of Incorporation of Heritage Financial Group, Inc. (Incorporated herein by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-167670))                                                                 |
|           |   |                                                                                                                                                                                                                                                                         |
| 3.2            |   | Bylaws of Heritage Financial Group, Inc. (Incorporated herein by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-167670))                                                                                    |
|           |   |                                                                                                                                                                                                                                                                         |
| 4.0            |   | Form of Common Stock Certificate of Heritage Financial Group, Inc. (Incorporated herein by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-167670))                                                          |
|           |   |                                                                                                                                                                                                                                                                         |
| 10.1(a)(i)     |   | Employment Agreement between O. Leonard Dorminey and HeritageBank of the South (Incorporated herein by reference to Exhibit 10.1(a)(i) to Heritage Financial Group's Registration Statement on Form SB-2 (File No. 333-123581))                                              |
|           |   |                                                                                                                                                                                                                                                                         |
| 10.1(a)(ii)    |   | Employment Agreement between O. Leonard Dorminey and Heritage Financial Group (Incorporated herein by reference to Exhibit 10.1(a)(ii) to Heritage Financial Group's Registration Statement on Form SB-2 (File No. 333-123581))                                              |
|           |   |                                                                                                                                                                                                                                                                         |
| 10.1(c)        |   | Employment Agreement between Carol W. Slappey and HeritageBank of the South (Incorporated herein by reference to Exhibit 10.1(c) to Heritage Financial Group's Registration Statement on Form SB-2 (File No. 333-123581))                                                    |
|           |   |                                                                                                                                                                                                                                                                         |
| 10.2           |   | Deferred Compensation and Excess/Matching Contribution Plans (Incorporated herein by reference to Exhibit 10.2 to Heritage Financial Group's Registration Statement on Form SB-2 (File No. 333-123581))                                                                      |
|           |   |                                                                                                                                                                                                                                                                         |
| 10.3           |   | Supplemental Executive Retirement Plan (Incorporated herein by reference to Exhibit 10.3 to Heritage Financial Group's Registration Statement on Form SB-2 (File No. 333-123581))                                                                                            |
|           |   |                                                                                                                                                                                                                                                                         |
| 10.7           |   | Employment Agreement between T. Heath Fountain and HeritageBank of the South dated July 21, 2010 (Incorporated herein by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-167670))                           |
|           |   |                                                                                                                                                                                                                                                                         |
| 10.8           |   | Employment Agreement between O. Mitchell Smith and HeritageBank of the South dated July 21, 2010 (Incorporated herein by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-167670))                           |
|           |   |                                                                                                                                                                                                                                                                         |
| 11             |   | Statement re: computation of per share earnings (None)                                                                                                                                                                                                                       |
| 15             |   | Letter re: unaudited interim financial information (None)                                                                                                                                                                                                                    |
| 18             |   | Letter re: change in accounting principles (None)                                                                                                                                                                                                                            |
| 22             |   | Published report regarding matters submitted to vote of security holders (None)                                                                                                                                                                                              |
| 23             |   | Consent of Accountants (None)                                                                                                                                                                                                                                                |
| 24             |   | Power of Attorneys (None)                                                                                                                                                                                                                                                    |
| 31.1           |   | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                       |
| 31.2           |   | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                       |
| 32             |   | Section 1350 Certifications                                                                                                                                                                                                                                                  |

----

Index

SIGNATURES

|   |              |   | HERITAGE FINANCIAL GROUP, INC.        |
|--------|-------------------|--------|---------------------------------------|
|   |              |   |                                  |
|   |              |   |                                  |
| Date:  | November 15, 2010 | By:    | /s/ O. Leonard Dorminey               |
|   |              |   | O. Leonard Dorminey                   |
|   |              |   | President and Chief Executive Officer |
|   |              |   |                                  |
|   |              |   |                                  |
| Date:  | November 15, 2010 | By:    | /s/ T. Heath Fountain                 |
|   |              |   | T. Heath Fountain                     |
|   |              |   | Senior Vice President and             |
|   |              |   | Chief Financial Officer               |

----