HeritageBank of the South Thrives in Challenged Banking Industry

Barbara Kieker

Tuesday, December 3rd, 2013

Where other banks see challenges, Heritage Financial Group sees opportunities. As interest rates ticked up in 2013 and mortgage-refinancing volumes dropped, big banks such as Bank of America and Wells Fargo have cut hundreds of jobs in their mortgage units. HeritageBank of the South, a subsidiary of Heritage Financial Group, is hiring.

"Our focus is on the purchase borrower – people who need a mortgage to buy a house because they are moving for a job, divorcing, upsizing or downsizing, whatever the reason," said President and Chief Executive Officer of Heritage Financial Group Len Dorminey.

"We hired an experienced mortgage team in Atlanta in 2012 that is familiar with that market. We have 12 other mortgage offices across our system and are evaluating adding more."

According to Dorminey, the Atlanta team is responsible for setting up the infrastructure for Heritage's mortgage business. For example, they implemented a paperless core system that eliminates the need for the typical six-inch stack of paper associated with mortgages under current federal regulations. The team is also responsible for building relationships with realtors and brokers in Atlanta and across the state, in order to build a robust pipeline of mortgage business.

"Atlanta is a transient market with several large employers and people always moving in and out. Although it was hit hard by the real-estate bust, we believe it is coming back," Dorminey said. "We also expanded into the Birmingham market in 2013 with our FDIC acquisition of Frontier Bank."

HeritageBank remains a well-capitalized, healthy bank and it is actively seeking qualified lending opportunities. In fact, 35 percent of the bank's growth in 2012 was organic, meaning it was related to increased lending and other banking activity in existing markets.

"Contrary to what people may read in the headlines, we want to lend money and for qualified candidates, we have plenty to lend," Dorminey said.

Expanding its Branch Network
Frontier was the fourth acquisition that HeritageBank of the South completed with the FDIC. These types of acquisitions involve banks with capital levels that fell so low following the financial crisis that the FDIC took control over their operations. According to Dorminey, the majority of these FDIC transactions have been completed.

In early 2011, HeritageBank purchased Citizens Bank of Effingham with locations in Springfield, Port Wentworth and Rincon. In late 2011, it purchased First Southern National Bank, adding to its presence in the Statesboro market. In 2012, it purchased an Auburn bank branch, marking its expansion into Alabama. Frontier brings nine branches, eight of them in Alabama.

"The FDIC opportunities were good for us, but I think there will be even greater opportunities over the next four to five years in the open bank M&A market," Dorminey said.

The open bank market for mergers and acquisitions involves smaller banks that do not have the resources to manage the higher costs of compliance under the Dodd-Frank regulatory environment. Signed into federal law on July 21, 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act or Dodd-Frank made significant changes to the U.S. financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation's financial services industry.

"We've identified about 400 banks in three states that fit the profile of banks that might be unable to comply with Dodd-Frank on their own. We believe many of them will need to partner up with a bigger bank and there are a limited number of acquirers out there," Dorminey said.

While Dorminey expects HeritageBank will explore many of these open market M&A opportunities, he acknowledges the process will be very different from acquiring a bank in an FDIC transaction.

"Cultural fit will be a big issue and the role of the current management team and board of directors. We'll have a lot of conversation around that and I'm sure there will be many that don’t fit our culture. Having said that, I would hope we will be able to make some transactions work in 2014," Dorminey said.

Maintaining the Heritage Culture
Dorminey expects HeritageBank to continue to grow at a steady pace, as it has in the past. The bank's assets have grown from $300 million in 2001 to $1.3 billion today. Maintaining the bank's culture and mission – being a hometown bank serving hometown communities – will be essential to its successful growth.

"Our focus is on recruiting the very best bankers in every market we are in. It gives us instant credibility and helps attract other high-quality team members," Dorminey said.

"With all new team members, we immerse them in our culture. We explain that we have many stakeholders and our communities are one of them. We don't focus on just one but take a balanced approach."

More information on HeritageBank of the South is available at www.eheritagebank.com.




About Barbara Kieker

Barbara Kieker is a freelance writer who writes on business-related topics for a number of web-based properties. She also provides communications services to Fortune 500 corporations, small businesses and nonprofit organizations.