Heritage CEO: Merger with Renasant Bank a good match

ALBANY — In a business world forever changed by the nation’s recent financial crisis, it’s easy for some to assume that the purchase of one bank by another is indicative of some sort of trouble.

That, says O. Leonard Dorminey, CEO of Albany’s HeritageBank of the South, is far from the truth when pertaining to the coming merger of Heritage and Mississippi-based Renasant Bank. Instead, he said, it’s a marriage brought about by the success of both companies.

According to Dorminey, who will become president of Renasant’s Georgia region upon completion of the merger, points to the recent growth of both Heritage and Renasant.

Over the past few years, Heritage has successfully grown its footprint, moving into new markets throughout Georgia, Florida and Alabama thanks to acquisitions of its own.

“We’ve been growing and acquiring banks for the last number of years,” Dorminey said. “Really, we started in December of ‘09 with acquisitions. We’ve got a really strong bank, a healthy bank, good credit culture. We’ve been able to attract what I call ‘A player’ teams in the markets we’ve entered, so we’ve done extremely well.”

In addition to those acquisitions, Heritage has also seen internal growth, particularly in its loan portfolio, something Dorminey sees as indicative of how well the company has been doing as of late.

“We’ve had what I call organic growth numbers that are much, much better than the industry at large,” Dorminey said. “For example, we grew loans 35 percent in 2012, 17 percent in 13 and we’re on track for 15 to 20 percent this year. That’s outside of any acquisition activity. So our numbers have been really, really good.”

Dorminey believes that both forms of growth, which culminated in the bank reaching close to $2 billion in assets after its recent acquisition of Florida’s Alarion Bank, made Heritage attractive in the eyes of others looking to make acquisitions of their own.

“We’re in three states now,” said Dorminey. “So, what happens is, once you get to a certain size, even though you’re doing extremely well, you’re executing your growth strategy and your strategic plan, suddenly you are on somebody else’s radar.”

Renasant was not the only suitor. That interest led Dorminey and the rest of Heritage’s leadership to take a long look at how the future might play out and how that would affect Heritage.

“The thought process was, from my seat, we have a number of stakeholders that you have to try to balance,” said Dorminey. “You’ve got your shareholders, you’ve got your team members, you’ve got the communities that you serve. You have to really balance that equation and try to make the best decision that’s good for the entire group, not just the shareholders, not just what’s best for me individually and not just the community.”

“When (Renasant) called, we knew that wouldn’t be the last call that we ever got so my thought process kind of moved to, ‘If this is something that’s probably going to happen at some point in time, would we be better off with some of those stakeholders that I mentioned, to choose a partner versus having someone thrust upon us that may have a slash-and-burn mentality?’”

For Dorminey, the answer to that question seemed obvious and in Renasant he found a partner that had long been on his own radar, one that seemed to have the characteristics he found appealing in a potential suitor.

Since 2003, Dorminey has been a part of a professional peer affiliation program run by Sheshunoff Consulting and Solutions, which provides consulting and advisory services to the financial services industry.

“I’m in a program called Sheshunoff; it’s a peer group exchange,” said Dorminey. “We meet twice a year and it’s bankers from all over the nation; it’s not just local bankers. It’s an idea exchange and they also bring really pertinent issues to the table.

“As you sit around the table with 25, 30 bankers in New York, it doesn’t take you long to figure out who the really good banks, who are really operating much like you, are.”

Dorminey said he had learned during his time in Sheshunoff that the leadership of Renasant had grown and operated that company in a similar way to how Heritage was run, which Dorminey feels is critical for the merger to run smoothly and for the combined company to emerge ready for future challenges and opportunities.

“They have a very similar culture. Their operating philosophy is very similar to ours,” said Dorminey.”All of the pieces just fit together really well for us. It’s going to move our bank from $1.8 billion to $7.5 billion in combined assets. There’s probably just a very, very small handful of banks in the Southeast that are in that range.

“This is a good partnership, it’s a good combination.”

A large part of that similarity is that Renasant, like Heritage, believes in a decentralized management structure that allows for local decision making. Dorminey said both companies pride themselves on building experienced teams of long-term bankers capable of making sound decisions within a framework of striving for credit quality.

Also, since the combined company will now have offices in Mississippi, Alabama, Georgia, Florida and Tennessee, it will need areas throughout the footprint from which to manage day-to-day business. Locally, that means Albany will continue to have an important presence within the corporate structure, though some of the details have yet to be determined.

“There will be regional credit hubs,” said Dorminey. “Most of my executive team will remain in place. We will be a credit hub. We will have an operational hub here as well. Obviously you know we won’t keep everybody in operations, that’s part of the cost associated, but we will have an operational hub here.”

Dorminey said that another attractive part of the merger is that Renasant wants to continue Heritage’s investment group that is run locally by Robert Lee “Bucky” Leach.

“They’re very much in favor of keeping our brokerage arm that Bucky Leach runs here,” said Dorminey. “In fact, they clear through LPL (Financial), the same clearing house that we do, so there won’t be any disruption there.”

Dorminey said the two companies also have a shared vision about what the future should hold for the combined company, which is essentially the same vision both companies had before the merger decision.

A large part of that vision included expanding business in the major cities within the new company’s geography, an example being the continued acquisition by Heritage of The Private Bank offices in the Atlanta area, which was approved by regulators on Dec. 12.

Dorminey said despite the merger news, Heritage is moving forward with its acquisition of The Private Bank offices in the Atlanta area because the acquisition falls in line with the plans of Renasant Bank as well.

“That (acquisition) is about $120 (million) to $140 million in deposits,” said Dorminey. “When we started talking to Renasant we said, ‘We want to be sure you’ll let us build out what we’ve already started.’ So, they said, ‘Go ahead, absolutely, proceed on.’ So we’re going to close that branch purchase in January.”

“Renasant has a number of Atlanta locations, but all of those locations are north of 285, Roswell up to Jasper, Alpharetta and those branches are really not in Atlanta proper, the metro area. So that was a really nice fit. We really want to focus on some of our major metropolitan areas like Atlanta, Nashville, Tennessee, Birmingham, Alabama, we know that that’s the future of our combined company going forward. So, we were very much in sync with philosophical ideas about how we can take this company forward.”

With that focus in the larger markets Dorminey believes the combined company will be able to carve out a foothold in those areas by providing niche services.

Dorminey feels the combined company will be able to grow through other lines of business such as SBA (Small Business Administration) lending, commercial/small business lending, treasury management services and in mortgage, which has been one of Heritage’s fastest-growing areas in recent years, especially in Atlanta.

“I guess it started in August of 2012, thinking about ‘we’re doing a great job in our markets that we’re in, how do we attack the Atlanta market?’” said Dorminey. “That thought process started because of the growth there; Atlanta was recovering, but we also knew that you can’t go to Atlanta and be all things to all people there. We knew we couldn’t build 40 retail branches, but what we could do is go up there and have a very niche focused commercial business bank.”

“So we started building out our mortgage platform. We put together a very, very good mortgage team. We went from probably 10 to 15 people in mortgage and today we’ve got over 200. To give you an idea of the scale of that operation, we were probably doing about $100 million in mortgage production prior to bringing this team on, (now) we’re going to do a billion dollars this year. So, you can see the strategic initiative I’m talking about there. So a natural extension of that is ‘OK, we’ve got mortgage going, it’s covering all of our footprint, we’re doing a great job, we’re profitable now, it’s only going to get better on the mortgage side, how do we add a commercial banking side to that, again in a very laser, niche focused way?’”

While Dorminey feels the merger is good the two companies, he concedes there will be some challenges in the next few months as they move through federal approval and then move toward conversion of branches and operations offices. Geographically, the only real area of overlap from a branch standpoint is in Birmingham, and some tough decisions will need to be made there.

There will also be a considerable amount of time and resources spent on training employees on new systems and in new ways of doing things as mergers in general always bring about those types of challenges.

Dorminey steadfastly believes the merger is a good fit for all. The combined company will end up with 171 locations across five states and will have upward of $100 billion in assets, all of which should translate to the company being successful moving forward.

Dorminey also stressed that the merger should not impact the day to day interaction customers will have when dealing with the bank.