Heritage Financial Group (HBOS-NASDAQ)

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July 17, 2009 Issue

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With A Mix That Now Gives Them More Than 60% Commercial Business, Heritage Financial Group Has Been Successful In Converting From A 100% Consumer Model, While Not Abandoning Their Large Consumer Base

Company Profile:

Heritage Financial Group is the mid-tier holding company for HeritageBank of the South, a community-oriented bank serving primarily Southwest Georgia and North Central Florida through seven full-service banking offices. As of March 31, 2009, the Company reported total assets of approximately $491 million and total stockholders' equity of approximately $62 million.


Heritage, MHC, a mutual holding company formed in 2002, holds approximately 76% of the shares of Heritage Financial Group. Public stockholders hold the remaining 24% of Heritage Financial Group’s shares.

Leonard Dorminey, President & CEO

Mr. Dorminey is President and Chief Executive Officer of Heritage Financial Group, the mid-tier holding company for HeritageBank of the South. He has served as Chief Executive Officer of HeritageBank of the South since 2003. From 2001 to 2003, he served as Executive Vice President of HeritageBank of the South, responsible for the Commercial Lending Division. From 1999 to 2001, Mr. Dorminey was President and Chief Executive Officer of First National Bank of South Georgia. Prior to that, he was employed for nine years by SunTrust Bank of South Georgia as the Albany Division Manager responsible for retail, commercial and private banking functions in the Albany market.


Regional – Southeast Banks

Heritage Financial Group
721 North Westover Boulevard
Albany, GA 31721
Phone: 229-420-0000

Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published – July 17, 2009


CEOCFO: Mr. Dorminey, these are troubled times for the banking industry; what is the vision at Heritage Financial Group today and how has it changed over the last year or so?

Mr. Dorminey: “After raising approximately $31 million in the initial public offering, our strategy was to deploy those funds with a healthy mix of expansion into other vibrant markets, dividend payments and stock buybacks. We still think that strategy is sound and will prove beneficial in the long-term. However, with the current slowdown in the economy and with many banks experiencing problems, we feel rather than making acquisitions it may be more prudent to look for banks in desirable markets that are experiencing problems. We have a very experienced staff of respected commercial bankers in our markets. They have been able to move some of the more desirable credits from the regional banks as they have experienced capital issues and less willing to work with their customers. However, we remain cautious in our underwriting and analysis of credits because of the current uncertainty in the market.”


CEOCFO: How do you balance out between retail and commercial banking, and would you like to see the mix change?

Mr. Dorminey: “Currently our mix is about 65/35 commercial and retail. I joined the company in 2001 and we converted from a Credit Union to a mutual shortly thereafter. Having spent a large part of my career in commercial banking, I was able to attract a staff of seasoned local commercial bankers. These commercial relationship managers had large loan portfolios they were able to move Heritage. This allowed us to expand our commercial line of business.


We still have a large household base, which allows us to be strategic in our marketing. We will continue to cross sell and increase the number of products per household. While we are always looking for ways to attract new customers, we are making concentrated efforts to increase current customer utilization of our products. Small business will always be at the top of our list because not only can you bank the business but also the owners and employees in many cases. We focus on the entire relationship and not just the transaction.”


CEOCFO: Do you have a typical commercial customer?

Mr. Dorminey: “Our typical commercial customers are businesses headquartered and/or operated in the communities we serve. We have a large group of small business owners with five to twenty employees. In most cases, we know the customers we bank… We go to church, serve in civic clubs and other community organizations with them. Close ties to our customers allow us to serve and anticipate their needs.”


CEOCFO: Why should customers come to you and stay with you?

Mr. Dorminey: “Primarily, for two reasons: We are the decision makers and we also provide excellent customer service. Rather than hiring inexperienced junior lenders, we hired “A Players” in our markets. They have the technical, analytical skills and experience to deal with any commercial customer in a professional manner. When working with commercial customers, we take a consultative approach. Rather than being order takers, we listen to their concerns and make recommendations. Our customers value our advice as well as our customer service. Many banks talk about customer service. We really embrace the idea as a part of our culture. We have an in-house trainer who attended the Ritz Carlton training program. We have integrated this philosophy into our training process and all new retail hires complete the training. We are using this model to try to provide the absolute best customer service we can.”


CEOCFO: Are there services and products that you would like add?

Mr. Dorminey: “Actually our foundation is built on four fundamental areas: retail banking, mortgage lending, commercial banking, and investment services. We think these products and services cover all the areas that we need to be in at this time. Currently, we do not have any desire to move into the trust services, insurance or other lines of business. We just need to do a better job of attracting new customers and continuing striving for operational efficiencies in all areas of the bank.”


CEOCFO: What do you plan to do to reach your goals?

Mr. Dorminey: “It is essential for a company to have short term goals, which serve the long term mission of the company. One of our goals concentrates on recruiting A-players. We look for individuals who not only have a good following in the community, but also have the expertise to go out and do business. Another area we are considering making a change is in our mortgage area. In the past, we used third parties to close in their name and sell to Freddie Mac and Fannie Mae. We are considering becoming a direct seller to Freddie Mac and Fannie Mae. Another of area, we will remain focused is product cross selling. We have seen a large growth in household products and services. Our e-Onboarding campaign and the new incentive program we rolled out in February are serving us well.”


CEOCFO: How do you reassure your customers who are coming to you with many concerns about the current economy?

Mr. Dorminey: “It has been important for us to differentiate ourselves from the banks that caused the problems, mainly Wall Street Investment Banks and unregulated mortgage brokers. We have reassured our customers by explaining the difference between these megabanks and local community banks. In addition, by not taking bailout money from the federal government, we have proven that HeritageBank is indeed a safe and sound institution. We have been in contact with media outlets throughout this crisis and have been a source of information for them. This has given HeritageBank the opportunity to show our customer base about the safety of the bank and the community banking industry.”


CEOCFO: What is the financial picture like for Heritage Financial Group?

Mr. Dorminey: “Our biggest strength is our solid capital level, which has allowed us to continue to do business while many of our competitors have struggled. From an earning prospective, given the current economic environment, we have had to provide triple our normal levels for loan losses. This, along with the low interest rate environment, has put pressure on our earnings. We have worked hard to get our core noninterest expenses down, and we have been successful in that effort. We think that once the economy improves, our strong capital position will allow us to grow our balance sheet, and thus our income. The challenges we have faced during this downturn will help us to stay lean as we move into a better economy.”


CEOCFO: Would you tell us about the community involvement for Heritage?

Mr. Dorminey: “Our commitment to the community is 110%. From helping the local chambers grow small business to supporting the Red Cross, we believe there is true value in giving back time and resources to our community. Volunteerism at the bank is expected. HeritageBank employees are evaluated on their service.  We encourage them to serve where they are passionate. Their commitment serves the bank better than any ad campaign could. It’s easy for a business to write a check but true change comes from investing time in the community. Our employees are making a difference.”

CEOCFO: In closing, why should potential investors pay attention to Heritage Financial Group?

Mr. Dorminey: “There are many reasons an investor should consider Heritage. First and foremost, we have demonstrated through this tough economic cycle a foundation built on a strong credit culture. Second, our footprint and customer base is solid. We have a strong, historic business built in a very stable market in South Georgia. In addition, we have expanded our footprint into a growth market in Ocala, Florida, which will allow us to expand the franchise, while still reaping the earnings from our stable markets. With our strong levels of capital, we will be able to seize opportunities that come from weaker institution’s inability to do business in this economic environment.”


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“Small business will always be at the top of our list because not only can you bank the business but also the owners and employees in many cases. We focus on the entire relationship and not just the transaction.” - Leonard Dorminey

“When working with commercial customers, we take a consultative approach. Rather than being order takers, we listen to their concerns and make recommendations. Our customers value our advice as well as our customer service.” - Leonard Dorminey

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