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By Nathan Peck | MiBiz
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KALAMAZOO — The last two years have been anything but easy on the banking industry. However for Kalamazoo-based First National Bank of Michigan, the last two years have given the bank’s leadership reasons to be bullish.

The bank is in growth mode, expanding its footprint to the west side of Kalamazoo, adding a branch along West Main in July. Founded in 2006, FNB of Michigan has been able to avoid many of the bad loans that have plagued other banks in Michigan and has led to a nonperforming asset ratio near zero. With assets of $160 million on $136 million in deposits, the bank’s return on equity has increased to 7.11 percent, up from 4.6 a year ago.

John Schreuder, CEO of First National Bank of Michigan, spoke with MiBiz about the bank’s performance and the opportunities that exist in Southwest Michigan.

MiBiz: What has contributed to FNB of Michigan’s growth?
Schreuder: When we were forming the bank, talking to commercial lenders and bank personnel, they looked at joining us as being part of the bank — that was attractive to them. They were talented and well-known in the Kalamazoo business community. They were able to generate business based on their relationships. It is a people-to-people business, (and) small-business people wanted to know who the decision makers were.

Another reason is we don’t have the problem loans that were put on other banks’ books seven to 10 years ago. It is good fortune that we started when we did. We have very seasoned personnel. Our board of directors members were the founding group of our bank — they are well connected in the community, and that has helped us grow as well.

The technology has changed the business. Banks don’t need a lot of brick and mortar around the community; commercial lending doesn’t requiring having offices. But people want to see their bank in their community, and this helps generate deposits. Our deposits are generated in Kalamazoo and are put to use in Kalamazoo so that businesses can grow.

Our deposits are redeployed in the community. Community banks have a strong track record of reinvesting in the community and supporting local causes.

We have increased our loan portfolio in commercial real estate. We are seeing increased activity in individual and commercial lending — it’s a good indicator that the economy is starting to improve.

MiBiz: Much has been made of the declining value of real property, the basis for collateral for many loans, for keeping business lending slow. How are you dealing with it?
Schreuder: We have seen some decrease in collateral value, but we do not depend on collateral for repayment. We look at the strength of the borrower, their cash flow, and whether they can weather…. We don’t evaluate collateral as much as the management and their ability to repay. Collateral is important, but individual management experience and cash flow are more important.

I am very optimistic about Southwest Michigan and the entire state of Michigan. We have seen the worst; we will see better days ahead of us. There are a number of businesses doing well in Kalamazoo and continuing to grow. I hope that those that are experiencing challenges will address that and start to grow. There are a number of small businesses and large businesses that are doing well in Kalamazoo.

The state has to become more competitive — we’re not there yet. I am seeing signs that the leadership in Lansing is realizing that government and the state must be more competitive.

MiBiz: Are you concerned about the regulations being written around financial reform?
Schreuder: The legislation coming out of Washington won’t impact community banks all that much, as community banks are exempt from major portions of the legislation. It could increase the cost of borrowing over time. I don’t see it hurting us. Over the last couple of years, more individuals and businesses are seeing the value of banking locally.

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