Michigan Heritage Bancorp Inc. (MHBC.OB)
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Michigan Heritage Bancorp is meeting
the needs of customers as a community bank
Albanese, what was your vision when the bank started in 1997 and where are you today?
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 doesnt 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 cant 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 werent 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 wasnt doing very well, all of the deposits began to flow into banks again; it was flowing out of the banks in the late 90s. 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.
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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