Heath Fountain (left) and Len Dorminey stand outside NASDAQ offices in New York City after making a presentation at the Keefe, Bruyette & Woods’ Community Bank Investor Conference. The company’s stock trades on NASDAQ under the symbol HBOS. (Special Photo)
ALBANY — You could attribute it to a presentation to institutional investors on Wall Street a couple of weeks ago.
Another possible answer might be an earnings report for the second quarter that reflected net income of $2.7 million.
Another suspect is a 35 percent growth rate in the past year, not counting acquisitions.
Whatever the reason, Heritage Financial Corp. Inc., the holding company of HeritageBank of the South, has seen its stock climb from the $14 range to more than $19 in recent days.
Len Dorminey, CEO of Heritage Financial, believes it’s all those things and more.
“It’s really about a journey we started back in 2001, and we’re seeing the fruits of that labor,” said Dorminey. That’s when Dorminey joined HeritageBank of the South and directed it on the path from its credit union roots to becoming a commercial bank.
Dorminey said he immediately began assembling a management team and building the infrastructure needed to grow.
“We brought over commercial lenders and changed the mind set from a credit union to a commercial bank,” he said.
“We did our first public offering in June 2005 and raised $30 million,” Dorminey told the investors in New York. “Things were still pricey on the acquisition side from ’05 to ’09, but we did our first expansion outside Albany in 2006 in Ocala, Fla.”
Since 2009, HeritageBank has completed a mixture of branch purchases and FDIC assisted takeovers to increase its footprint in Georgia, Florida and Alabama. The latest FDIC purchase was Frontier Bank which enabled Heritage to add nine branches including a second location in Auburn, Ala., and to enter the high-growth Birmingham, Ala., market.
That move gave HeritageBank 29 branches, 12 mortgage offices and four investment offices.
Heritage also started a mortgage banking operation in metro Atlanta about a year ago.
With offices in the Buckhead area of Atlanta, the Heritage mortgage operation is on the verge of significant growth, Dorminey believes.
“We’ve been building out the platform and infrastructure there,” he said. “We had to convert to a paperless core system that will allow us to process quicker than the regional banks … The turnaround time has been under 30 days. We’re poised to bring on additional high-producing originators in the Atlanta market.”
Previously, Dorminey said Heritage did about $100 million a year in the mortgage area.
That number, he said, may move up to the $800 million range in 2014.
Dorminey said the numerous acquisitions have taken much of the management team’s attention in recent years.
However, he said a new focus is efficiency and bank culture.
Dorminey said employees of the purchased banks became Heritage employees quickly, but many of them arrived with different perspectives.
“As part of our cultural initiative, we’re coming up with our own culture on how we act and behave collectively as a team.” Dorminey said. “As we start going through this, some people are not used to it and it can be very uncomfortable, but we think it will pay dividends.”
Heath Fountain, Heritage Financial chief financial officer, also reported to prospective investors in New York that the bank’s credit quality is good.
“We’ve gone through converting these banks into our core system without hiccups,” Fountain said.
Dorminey said the FDIC takeovers are coming to a close, but he expects Heritage to continue adding more banks.
“The good news is we’ve built a fairly robust infrastructure personnel wise and otherwise, so we can absorb future acquisitions by adding very little staff,” he said. “We can acquire and not increase our fixed costs much at all. We will continue to actively manage our capital.”
Dorminey shared his growth expectations with the mutual fund investors on Wall Street.
“You’ve seen we’re an acquirer,” Dorminey said. “We are proven and think we have the expertise to continue being an acquirer in our market. We will continue to look at banks … when those opportunities make sense to us.”
Dorminey said the target area for acquisitions can be determined by drawing a line from Tampa, Fla. to Ocala, Fla., and moving north to metro Atlanta.
“Our sweet spot is $200 million to $500 million banks as far as size,” Dorminey said. “There are a number of banks we think at some point may come into play.”
Dorminey said some good banks may decide to become sellers as they face increased regulatory pressure.
“If you have a $300 or $400 million bank, it can be difficult to afford the compliance people that you need, and some banks may want to partner with Heritage,” he said.
Dorminey believes his team has proven itself, even in a slow economy.
“We grew organically, which is outside of any acquisition numbers, 35 percent last year, which is a phenomenal growth rate, even in good times.” Dorminey said.
When asked to predict future growth, Dorminey indicated that goal is a moving target.
“I hate to limit our ability,” he said. “When we were a $700 million bank, we said we wanted to grow to $1.5 billion (approaching $1.4 billion now). Today, with the opportunities that arise, I would not want to limit us to $1.5 billion. If you ask me now, and assume bank merger and acquisitions pick up and we continue to perform, that goal might be $3 billion now.
“I will say this. I think the opportunities in the next three to five years are better than the past five years.”