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Heritage is Employee Owned

The 150 employees of Heritage Bank will all be employee-owners. On Monday, Nov. 3, 2014, bank management announced that Heritage Bancshares Group, Inc., the parent company of Heritage Bank N.A., will become an employee-owned company through an Employee Stock Ownership Plan (ESOP).

“It is a win-win proposition for Heritage Bank, its employees and our local economy,” said Heritage Bank CEO Tom Geiger “By funding the ESOP, Heritage is investing in the employees who have helped make the company successful, and keeping that investment right here, helps support the local communities we serve.”

Heritage has been a family owned institution for over 45 years. Starting with a few tiny banks in Minnesota and Iowa farming communities, Earl Geiger and his two sons, Gary and Tom Geiger, have operated the banks with a strong commitment to the local communities. Over the years, Heritage Bank has grown to $400 million in assets and 12 offices.

Forming the ESOP allows ownership to transfer to the employees under a qualified retirement plan. Initially the ESOP will control about 6% of the company’s stock, a share that is expected to grow over time.

Nationwide, ESOPs have demonstrated general economic benefits and are a promising tool for retaining businesses in smaller communities. Employee-owners benefit from heightened job security and businesses last longer in the marketplace,

“We feel it is the right thing to do, and will continue the strong pattern of growth that Heritage has enjoyed” said Geiger. Heritage Bank has always maintained a mission of helping people in our communities achieve financial success.

HERITAGE BANK MANAGERS DISCUSS ESOP

Employee ownership viewed as long-term strategy

Q: There is a 45 year history of bank ownership within the Geiger family. Why this move to employee ownership?

Tom Geiger, Chairman & CEO: First of all, I want to be clear that the Geiger family isn’t going away. Our shareholder list includes four generations of the family. We are enthusiastic about the future of the organization and plan to stay invested in Heritage Bank for many years to come. At the same time, we recognize that the bank has potential far beyond my family’s capacity to support it. The family doesn’t want to hold Heritage back from reaching its full potential. The ESOP is a vehicle for us to invest earnings back into the company, in the name of our employees.

Darrel Posegate, Chief Operating Officer/Chief Financial Officer: Over time, the ESOP will accumulate capital to support further growth and satisfy rising regulatory capital requirements. It is a long-term strategy to sustain a strong and stable institution. It’s the right thing for Heritage Bank’s future.

Tom Geiger, Chairman & CEO: We also feel the ESOP is the right thing to do for the employees who helped make this company successful. The family invested money while our employees invested hard work into growing this company. I feel it is their success just as much as it is ours.

Bob Mathiasen, Chief Banking Officer/Chief Credit Officer: I’ve always used the phrase that we want team members who “act like they own the bank”. With the move to the ESOP we no longer need to “act”- it will be reality. This is an incredible opportunity for all team members to reap a piece of the financial benefits their hard work has made.

 

Q: Will this change have an impact on Heritage Bank’s community involvement?

Tom Geiger, Chairman & CEO: Heritage Bank has always made it a priority to give back to the communities we serve and our management team is committed to helping the local economy thrive. If anything the ESOP will just reinforce that commitment and the fact that we are proud to be locally owned and operated.

 

Q: Isn’t this a challenging time for banks?

Tom Geiger, Chairman & CEO: Our industry is going through a great deal of change. This regulatory environment and the pace of technological change are major challenges to the traditional community banking business model. Heritage Bank has evolved into something more nimble and responsive than we were before and now we’re seeing all kinds of opportunity. It’s an exciting time for us.

Bob Mathiasen, Chief Banking Officer/Chief Credit Officer: We believe we are well positioned in the industry for continued success. We are large enough to have the tools the consumer is demanding of their bank in today’s high-tech world, yet we are small enough to have personal relationships with our customers. These relationships allow us to understand each customer’s needs, which helps our bankers to become trusted advisors rather than just loan officers. People want to do business with someone they know and trust and we can provide that at Heritage Bank.

 

Q: There’s talk about consolidation in the banking industry. Did that factor into your decision to form an ESOP? Does this mean that Heritage Bank is not for sale?

Darrel Posegate, Chief Operating Officer/Chief Financial Officer: This industry has been consolidating for decades. Eighty five percent of the small banks that were here in 1985 are gone today. Small banks are selling and larger banks are consolidating. We expect the consolidation will continue and we intend for Heritage Bank to be one of the survivors. That definitely factored into the decision to create an ESOP.

Tom Geiger, Chairman & CEO: We should never say never, but I will say that the ESOP gives this franchise more staying power. Of course, nobody knows what course of events might happen. With the ESOP in place, if the bank were to ever be sold sometime in the future, the employees would share in the proceeds. They ought to take some comfort in that.

 

Q: How about Heritage acquiring other banks?

Bob Mathiasen, Chief Banking Officer/Chief Credit Officer: We’re having great success with organic growth. We’re finding business by word of mouth referrals. It’s like Tom said, we should never say never, but an acquisition would need to be a good strategic fit, and come at the right price.

Tom Geiger, Chairman & CEO: That’s right. We’ve considered at least a dozen candidates in recent years and will continue to do so, but we aren’t aggressively pursuing acquisitions. We’re more focused on organic growth.

 

Q: How much of the company will the employees own?

Darrel Posegate, Chief Operating Officer/Chief Financial Officer: That depends on the employees. Initially, the ESOP will own around 6% of the company, Employees will also have an opportunity to use money from their 401(k) plan to buy additional shares. The ESOP’s ownership will continue to grow from reinvestment of dividends and employer contributions. In a few years, it’s likely that the employees will own 15% to 25% of the company.