Banking on Service: Heritage Builds on Customer-Based Business

Twenty-one years ago, towns and cities across Northern Kentucky saw their neighborhood banks being gobbled up by much larger competitors. Old-fashioned customer service from bankers who knew their customers’ names looked like it was going the way of a free toaster with every new account.

But a group of investors, led by Arnold Caddell, took a look at what appeared to be a dying business model and instead saw a market.

“There had not been a new bank charter in Northern Kentucky since 1945,” Caddell says. “But I just felt there was a great opportunity for a community bank.”

Caddell gathered a group of like-minded investors and raised $4.16 million to found Heritage Bank in Burlington, where he lives.

How did that initial investment do?

“The shareholders have had dividends in excess of what they paid plus (share price) appreciation of 1,000 percent,” says H. Lytle Thomas, president and CEO. I would say the shareholders are very, very happy.”

The Burlington branch, which opened in 1991, has been joined by nine more Heritage branches sprinkled throughout Northern Kentucky, the most recent addition in Dry Ridge. The bank has nearly $400 million in assets and employs about 90 people.

That size puts Heritage in a comfortable place, Thomas says. It is large enough to fund a compliance officer to address tighter regulations implemented by the Dodd Frank law and small enough to be unaffected by particular regulations aimed at the national giants.

This group of entrepreneurs entered what is probably the most mature industry in the country, but Heritage found a niche that had been neglected.

“I think our starting niche, which continues today, is we wanted to provide great services, quick response and to know our customers,” Caddell says.

“We have the same respect for a person who has $100 on deposit with us as a person who has $1 million.”

Thomas seconds Caddell’s assertion: “The direction from the board is to provide a great experience for customers, a great place for employees to work and a return on investment, third.”

It’s a model that drew Thomas away from Fifth Third Bank, where he worked for 19 years, most recently as senior vice president and head of commercial lending in Northern Kentucky.

“I wanted to be able to have more impact in the organization and more face time with the customer, to truly be able to talk at the table and shake on a deal,” Thomas says. At big banks, there is necessarily a hierarchy to make a decision, he says. But at a bank the size of Heritage, you can be both decision maker and meet the customer face to face.

Instead of a customer jetting through one of dozens or hundreds of branches anonymously, “When a customer comes into one of our offices, typically a teller will know their first name, their children’s names, where they work,” he said. “It’s really like an old friend coming into the office.”

Two of Heritage’s biggest challenges going forward are to maintain that hometown bank feel as it grows and to tailor services to younger clients who prefer less personal interaction and zippier technology.

Thomas says banking applications for smart phones and laptops have become a great equalizer for the little guy, with affordable technology that allows them to compete. A new app is scheduled to roll out in January. Caddell says he looks forward to steady growth to maintain the bank’s mission.

“We work continually with our staff that we don’t lose sight of what we’re all about,” he says.