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By Nathan Peck | MiBiz
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SCHOOLCRAFT — James MacPhee knows Kalamazoo County State Bank is not the biggest player in the banking world, and he is fine with that.

As president of KCSB, MacPhee views the Schoolcraft-based bank as well positioned in its niche: the small community bank market. Being small has its advantages as the bank can be nimble and work with the smallest companies in their region — companies that have been hardest hit by the credit crunch as they seek the capital to start and grow their companies.

With $84 million in assets on more than $73 million in deposits, the bank has grown throughout the economic downturn.

MacPhee, outgoing president of the Independent Community Bankers of America, sees great opportunities for community banks in Michigan and around the country. He recently spoke with MiBiz to explain why.

MiBiz: The bank has grown consistently over the last three years while some of the largest banks in the state have seen significant losses. To what do you attribute KCSB’s performance?

MacPhee: A lot of it is what the examiners called a flight to safety. People got very, very nervous. Not just us, but many community banks saw their deposits grow. I attribute that to people having trust, faith and confidence in community banks and their strong balance sheets. Look at the financial crisis: For the most part community banks were not a part of that. We don’t have a number of problem loans on our books.

Fortunately for us, in Southwest Michigan, we have been a fairly stable economy.

We hunkered down and said we weren’t trying to be the largest, or the fastest to the gate. We want to be solidly run. People want to know their principal is safe. We have to continue on the path of certainty. Don’t risk the customers’ money — it is the depositors’ money and not our own.

Many banks were getting to a business model where you move to a computer and let it make the decisions for you. You can cheat the computer and make the numbers work out for a loan. You can’t when you are talking face-to-face with a banker, when you are talking to a customer, versus looking at a screen.

MiBiz: Where do you see opportunities?

MacPhee: This next cycle will take us another four or five years to get us to where everything starts to feel like home again. As we slowly pull out of this cycle, the opportunities are great. There has not been new home building going on for some time. There is a lot of pent-up demand. The struggle right now is to get rid of the excess inventory.

The other area where I see a lot of opportunity is that many of these small businesses have needed to do equipment upgrades or changeup their business plans but have been reluctant to do so because they have not been sure of when this cycle would end. I have had a number of small business customers coming to us in last 30-45 days saying they want to build that building or buy equipment or revise their business plan. We’ll continue to work with them.

Agriculture is very exciting right now. Prices are very high and … we see opportunities there, too.

MiBiz: What is the role you see community banks playing in the recovery?

MacPhee: Talk to any chairman of any of the regulatory agencies, and they will tell you that community banks are the engine of economic development in their communities.

We are not investment bankers — we are bankers. We have to use good sound judgment.

Many of the larger banks have had to change their business model. Many had been too concentrated in commercial real estate loans. We’ve had a number of customers come in and said that they no longer meet their (previous bank’s) criteria.

As things progress, there will be a niche in the small- and medium-sized banks. Most are very liquid — right now we have lots of liquidity. We have to invest in a 40-mile radius. We don’t have the resources to send bankers all over the state.

I’m optimistic about our future in Michigan and the national level. I can look broadly at the state of Michigan, even looking at the areas around Detroit that had been hit hard. We’ve seen only six or seven failures if you start in 2000 through the subprime debacle — it speaks to the tenacity and the management of the bankers in our state. Community banks didn’t take TARP money, (and) we didn’t pay 80 percent out in dividends when this sort of economy hit.

We have to get people’s confidence up. The 24-7 talking heads do no good for the economy when all they preach is doom and gloom. It is counterproductive, it is doing more harm, and it is not productive to moving us forward. I’ve been an optimist my whole life. I believe in this state and this economy. It is going to be a rocky ride for some time, but we’re starting to get back to normal here.