Michigan Heritage Bancorp Inc. (MHBC.OB)
Interview with:
Anthony S. Albanese, President
Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
and Information on their
banking services, primarily for small to medium sized businesses and individuals.

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Michigan Heritage Bancorp is meeting the needs of customers as a community bank

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Community Bank

Michigan Heritage Bancorp Inc.

28300 Orchard Lake Road-Suite 200
Farmington Hills, MI 48334
Phone: 800-914-3524

Anthony S. Albanese

Interview conducted by:
Lynn Fosse
Senior Editor

February 2004

Mr. Albanese is the Chief Operating Officer of Michigan Heritage Bank and Michigan Heritage Bancorp.  He is also the acting Chief Financial Officer.  Prior to starting Michigan Heritage, he was employed by Sterling from 1990 to May 1996 where he attained the position of President and Chief Operating Officer and was a member of the Board of Directors.  Previous thereto he was employed by Whirlpool Leasing attaining the position of Vice President-Operations and was a member of the Board of Directors (1984-1989), and Michigan National Leasing Corporation, where he was a Group Vice President until the acquisition of the business by Whirlpool in 1984.  Mr. Albanese received an Associate in Science degree in General Business in 1973 and a Bachelor of Science degree in Accounting in 1977 from Detroit College of Business.  He served in the U.S. Army Security Agency (Military Intelligence) from 1965 to 1969 with service in Viet Nam during 1966-1967.  He is a resident of Northville, Michigan.

Company Profile:
Michigan Heritage Bank (MHB) (the Bank), a state-chartered commercial bank established in March of 1997. Michigan Heritage Bank provides a focused core of banking services, primarily for small to medium sized businesses and individuals. The Bank’s lending services are in commercial real estate, equipment leasing and mortgage lending. The mortgage department offers a wide range of products including variable and fixed rate mortgage loans, home equity lines of credit and other forms of consumer lending. For commercial customers who seek additional deposit services the Bank offers the convenience of our “Rapid Courier Service”. This service offers prearranged pickup for all your business banking transactions. The Bank’s commercial checking accounts also offer “Sweep” capabilities with low or no fees.

Michigan Heritage Bank’s primary goal is to provide personal service with an experienced staff using state of the art technology. In addition, the Bank offers convenient account access through an easy to use fastPHONE Telephone Banking System and through MHB Online Banking. Michigan Heritage Bank is dedicated to paying outstanding interest rates on commercial and personal money markets, certificates of deposits and personal interest bearing checking accounts. The Bank’s “Classic Checking Account” yields a better interest rate than most bank “limited access” money market accounts.

CEOCFOinterviews: Mr. Albanese, what was your vision when the bank started in 1997 and where are you today?

Mr. Albanese: “In 1997, we began as a community bank at a time when other banks were merging and becoming larger or were actually going away because the big banks were gobbling them up. We felt there was a need for a smaller community bank to fill the void the larger banks left. We have actually done that over the last six-and-a-half years that we have been in business. Our IPO along with a few other local banks that went public during that time period have created a good relationship with various customers who are not being serviced properly by the larger out-of-state banks. At this point, I think we have done a good job in providing that service.”

CEOCFOinterviews: Who is your typical customer and do you see that changing at all?

Mr. Albanese: “Our mix is primarily the small to medium size business customer.   When I say small businesses, I am usually talking about the small manufacturing firms or a computer service company; I am not talking about gas stations or retail, we are not retail oriented. We are primarily involved in manufacturing and service businesses. In terms of the larger end of the spectrum, we go up to about two-and-a-half million to three million dollars in total loans for a particular company, depending upon their credit worthiness. There is a group of business customers that seem to be under serviced by the larger banks;  Banks tend to move the bar up as they get larger, and in some cases, will not service or give the kind of service necessary for transactions that are below a million dollars depending on the bank. We do not do much in the consumer area on loans such as automobiles and RVs but we are involved in Residential mortgages, which include refinancing, home equities,   and new purchases.”

CEOCFOinterviews: What are the business customers getting from you that they are not getting from the other community banks?

Mr. Albanese: “I think that all the banks, whether large or small, say that they like to provide personal service, unfortunately the larger you get the more difficult it is to do that. The community banks tend to be all in the same category in that their biggest advantage is dealing with the customer on a personal basis. That means that when you go into a branch, and you are a business customer or a consumer, they tend to call you by your first name and recognize you as a customer as opposed to having to constantly show your ID. When you are looking at the other aspects of dealing with a larger bank, you rarely have the chance to deal with the decision makers. You are dealing with a loan officer or in some cases, a junior loan officer who has to go to a committee to get approval for any transaction size and in many cases, to locations that are not part of your local communities. There are a number of layers between you and the decision maker, but that is not true of the community banks. We have the ability to make decisions quickly; it could be a yes or a no, but it is usually done quickly. Often times the President or CEO of the bank is meeting with the customer if not at his or her own establishment, then here in our bank building. There is an element of the business man out there who is interested in getting to the decision makers and doesn’t want to work through a loan officer.”

CEOCFOinterviews: Is that the key to building relationships?

Mr. Albanese: “You bet it is! I think that as you grow, you obviously can’t always provide that kind of service. Many of the companies that work with you when you are a small community bank, and they themselves grow, will stick with you because they know what got them where they are and you were loyal to them and they tend to be loyal to you. Of course, along the way you have to provide the kind of service that they are looking for, you have to be astute in the kinds of things you provide to them and you have to be up on technology.”

CEOCFOinterviews: What will people find at your bank that they will not find elsewhere?

Mr. Albanese: “We have a company locally that does accounts receivable financing. They came to us and asked us if we could help them.  What we did was look at what they were doing to see if there was a better way to do it. We were able to provide them with a good solution. They were sending invoices out to thousands of customers, and with the insertion of a MICR Encoded account number, we were able to do a LOCK BOX arrangement for them. We take in the invoice along with the check in our LOCK BOX process, capture the account numbers of their customers on the invoice, build a file on a daily basis and upload it to them, which automatically updates their computer. That is something that a larger bank would not have done for them because they were not a large customer, but for a bank our size, they were a good customer and one with whom we thought we could grow. We looked at the problem and came up with a solution that fit all of our needs and that is something that a larger bank would not have done.”

CEOCFOinterviews: How have the ups and downs in the economy affected what you do?

Mr. Albanese: “We are still waiting for the “up” and that is the problem in Detroit, although in the last couple of years it has gone from a poor economy to a flat economy. In 2004, we expect there will be a positive economy and one that is growing. It has been a relatively difficult time around metropolitan Detroit. Although we are not tied solely to the auto industry, it is still an auto town.  It has been a time of extreme difficulty for many of the small manufacturing companies that supply the auto industry.  Over the years, they have built very good businesses by doing that. What the large auto companies have done over the last few years is squeeze the small supplier for more cost savings and in some cases, when they weren’t able to get more cost savings, they would outsource the work to Mexico or somewhere overseas. It has been difficult for the smaller customer in this area; it has been a flat economy in the longest recession that I have seen in a long time here, and I have been in this area for 35 years. However, the tide has turned here.  It began to turn in the fourth quarter of last year, and we are seeing signs in the first quarter of this year that are substantially different from prior years. We kept waiting for this to happen a year or two ago. Now, in 2004 we see things beginning to turn around. Our own activity is indicative of that.  We are going into the New Year with a backlog of commercial loans and we are seeing a lot of activity in all areas, not just commercial real estate, but on the manufacturing side as well.”

CEOCFOinterviews: How do you attract new business?

Mr. Albanese: “We attract new business by face-to-face contact. We deal with accountants and other referral sources in an attempt to get them to refer their clients to us. Some of our loan officers make cold calls but most of our business on the business side comes in through direct contact we set up.”

CEOCFOinterviews: You mentioned residential mortgages and refinancing. Everyone is providing mortgages; why are people going to Michigan Heritage for it?

Mr. Albanese: “People are going to Michigan Heritage because of referrals; we tend to have mortgage loan officers that deal with customers they have dealt with for years and they consider themselves to be advisors to these customers. When the customer that they dealt with in the past has a seven-and-a-half percent mortgage, and rates begin to decline, if it makes sense for that customer, they will call them back and attempt to give them a better rate. Most of our business comes in through word-of-mouth; we do some advertising in the local paper and we do some new purchase mortgages for people who are building homes in the area and trying to work with builders. The same kind of service that we talked about on the business side is also true on the consumer side. We have to be there when they need us; even going out to their homes to take applications. We have to make time in the schedule to accommodate their closing and to do whatever is necessary to get the job done.”

CEOCFOinterviews: Do you keep the mortgages?

Mr. Albanese: “We sell off most of the mortgages. In the past, we held more but most of the business recently has been in the fifteen and thirty-year paper area, and because we do not want the fifteen or thirty-year interest rate risk, we sell them in the secondary market. We also find that in the past we might hold a mortgage that was an almost-conforming mortgage. The agencies are now buying so deeply into those categories, that it is better to sell them off.”

CEOCFOinterviews: Are there any services that you are not currently offering, which you plan to offer, or that you feel are necessary to offer?

Mr. Albanese: “During 2003, we introduced Internet banking; we introduced telephone banking the prior year and felt we needed to do that to be of service to our commercial and consumer customers. What we do not currently offer but intend to offer this year, is some form of bill payment through the Internet.”

CEOCFOinterviews: How active is the bank with community involvement?

Mr. Albanese: “Because of the Community Investment Act, we must be involved in our communities.  We want to be involved in our communities. We are a member of the local Chambers of Commerce, and we attend a number of meetings. We were active in 2002-2003, in Oakland County, which is one of the two counties that we service, with a program called PATH, which deals with women who are battered wives and are trying to get back on their feet and find homes and jobs. We provide them with educational services, and we have a budget every year for contributions to the community in various forms such as sponsoring a team, getting donations to the local church organizations, etc.”

CEOCFOinterviews: How do you grow?

Mr. Albanese: “Obviously you have to capture market size, but the biggest thing is that you have to grow by deposits. During 2002 and 2003, when the stock market wasn’t doing very well, all of the deposits began to flow into banks again; it was flowing out of the banks in the late 90’s. We are finding the reverse situation now, the market has improved and we are seeing a decline in deposits.  It is a struggle to get new deposits and to capture the deposits from across the street. What we have done to counter that is hire a new business development officer who is out marketing on the street in locales around our branches, knocking on doors, trying to make them aware of the service that you and I have been talking about and attempting to get their deposits into our bank. At times, based on our needs, we will increase the amount of interest we are paying on various accounts such as a money market account or a particular CD, to use in our asset liability management to match funds. It is probably the biggest challenge that we have.”  

CEOCFOinterviews: What challenges do you foresee to the banking industry in general?

Mr. Albanese: “As a public corporation and as a bank, we are finding that the burden of the Sarbanes-Oxley Act has become oppressive. Anytime a large company such as Enron or WorldCom creates a problem in the marketplace, the closing of the door that allowed them to create the problem filters down to the small entities, whether it is a bank or a small publicly traded company. We find that we spend a lot of time and money making sure we have the proper disclosures in all of our public reporting elements and that we do all the things possible to meet the requirements of Sarbanes-Oxley. Those things are very difficult for a bank our size because as I am sitting here at my desk right now doing the 10k, trying to keep up with all this for the year end, and it becomes just one more thing we have to do and that is a definitely a challenge for a bank our size.

It is an interesting world these days; we find that we have to be much more sophisticated at every level than we did in the past. The regulation that we are all part of now is very stringent and the regulators are very diligent, so we have to be part economist, part regulator and part businessperson. We are all running small businesses even though we are banks and we have to do all the things that the other small businesses have to do, while trying to compete with much bigger banks in town, and that competition is getting more difficult everyday.”

CEOCFOinterviews: In closing, why should potential investors be interested?

Mr. Albanese: “If you go back into the history of banking, at least in this part of Detroit, where I am most familiar, you will see a series of medium and small banks, which provided services for the consumer and the marketplace that eventually decided they were going to merge with another small bank and those banks became larger banks. You tend to have this constant cycle of banks combining to make bigger banks, and then that market share becomes recognized by larger banks that then come in and instead of starting a new operation, buy that bank or that group of banks. There tends to be some appreciation every time a bank is bought.   I think if you have the stock of a well run bank, eventually, whether it is three, five or ten years, that bank will be acquired by someone or will acquire someone and it will improve the value of the stock.”


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