Folsom Lake Bank (CA) (FOLB-OTC: BB)

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May 22, 2009 Issue

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Folsom Lake Bank (CA) Is Returning Classic Community Banking To An Area That Hasn’t Had A Local Community Bank For 75 Years

Company Profile:

Folsom Lake Bank is the newest community bank in the Sacramento area. The Bank is a locally owned and locally operated full service commercial banking organization focused on small business owners, professionals and individuals in the communities surrounding Folsom Lake. By providing the personal attention that clients want and delivering banking services that they need, the bank continues to build strong banking relationships across all the communities that it serves. Folsom Lake Bank is publicly traded on the Over-the-Counter Bulletin Board.

Executive Bios:
Robert Flautt, President, Chief Executive Officer & Director

Mr. Flautt began his banking career in 1973 with Santa Barbara Saving and Loan in Santa Barbara. Mr. Flautt spent the majority of his banking career with First Interstate Bank, joining the bank in 1976. During his 19 years with First Interstate Bank, he held a variety of management positions and was a Senior Vice President and District Manager for the North Coastal District, the East Bay District and finally the Sacramento Valley District. Most recently, Mr. Flautt was the Senior Vice President and Business Banking Center Manager for the Bank of Sacramento, where he opened the Rancho Cordova Business Banking Center. From 2003 to 2005, Mr. Flautt was the Regional Vice President of the Sacramento region of Westamerica Bank, where he held executive oversight of six business branches and the team of commercial lending officers. From 2000 to 2003, Mr. Flautt was the Senior Vice President and Consumer Banking Manager for River City Bank, where he managed the 12-branch system. He was also a Senior Vice President and Senior Lending Officer for Roseville 1st National Bank. Mr. Flautt is President of the Placer SPCA, a former President of Rotary Club of Roseville Sunrise and a former director of the Boys and Girls Clubs of Greater

John R. “Jack” Olson, CPA, Executive Vice President & Chief Financial Officer
Mr. Olson is a 26 year banking veteran and a Certified Public Accountant. He was with Farmers & Merchants Bancorp in Lodi,
California for 17 years, where he served as Executive Vice President and Chief Financial Officer. Most recently he served as Executive Vice President and Chief Financial Officer for Pan Pacific Bank, a Fremont-based commercial bank that he helped start in 2005. Prior to accepting the CFO position at Pan Pacific, Mr. Olson was Senior Vice President and Chief Financial Officer of Pen-Cal, an employee benefit consulting firm based in Pleasanton, California. Prior to joining Farmers & Merchants Bancorp, Mr. Olson worked for both Arthur Andersen & Co. and Coopers & Lybrand prior to becoming a community banker. Mr. Olson obtained his B.S. in Business Administration with a major in Accounting from California State University, San Francisco. He attended University of Washington and Pacific Coast Graduate School of Banking. Mr. Olson is a member of the American Institute of Certified Public Accountants, California State Society of CPA’s and the California State Society of CPA’s Financial Institution Committee. He is a Director of Community Bankers of California and a past president of the Lodi Tokay Rotary Club.

Community Bank

Folsom Lake Bank (CA)
905 Sutter Street, Suite 100
Folsom, CA 95630
Phone: 916-985-8700

Interview conducted by: Lynn Fosse, Senior Editor,, Published – May 22, 2009

Mr. Flautt, Folsom Lake is a fairly new bank; what is the vision and why the new bank?

Mr. Flautt: “The vision is very simple. We see ourselves as a classic community bank in every sense of the word, supported by the community, involved in the community, owned by the community, locally operated with employees from the community providing full service banking to the community. We have no particular market niche, no bells and whistles, no special products leading the way, no high-tech vision that we are going to do things better. We do just plain vanilla banking for local clients and local communities and do it well. The reason for it, Folsom has not had a local community bank in 75 years and we think there is a need for the local touch; people that understand local banking needs much better than a lot of the big banks do.”


CEOCFO: What is the economy like in your area today, and how has it been affected by the global situation?

Mr. Flautt: “Sacramento is a capital city, so the state government offices are there and that has always been a two-edged sword. When times are good there is an awful lot of government money being spent here, when times are bad, and in California right now times are bad, spending gets curtailed. The communities we serve are all on the eastern side of Sacramento; a little more suburbia, a little bit more out-lying, so we only have a somewhat peripheral impact on all of this stuff. Economically our areas of Folsom, El Dorado Hills and Roseville are probably less impacted than some down in the center of Sacramento and California overall, but we are not untouched. Housing values are down, unemployment is up, construction is off, and commercial real estate values have declined, so it is a very challenging environment in which to operate a bank.”


CEOCFO: What do you and your group realize that maybe others haven’t that gave you the impetus to actually start the bank?
Mr. Flautt: “The interesting thing is not that other banks have not tried to be launched in this area over the years. We were told by the State banking commissioner that there were two previous attempts in the last twenty years to launch banks in our community and they failed for a variety of reasons. The thing that brought us together was a substantial and influential group of organizers, We have a former city councilman, and we have had two past presidents of the Folsom Economic Development Corporation. We have two past presidents of the local Chamber of Commerce, and five of us are past Rotary presidents. So we have a group of individuals that are very dedicated, and very involved in the community. We were able to aggregate together our 400 local shareholders a little bit easier than might be found in other communities. Folsom itself is a very homogenous community as is Roseville. There are some very influential and substantial people and if you can get them committed, you can in fact figure out a way to organize the bank. That is number one, and number two I think a bank typically doesn’t come together just because you have a group of organizers that are very enthusiastic. You also need a strong management team. The chairman of the board and I have known one another for eighteen years. When he started the organizing effort his first thought was to the group, I know someone who can help us out, give Bob a call. So all the sudden you have a management team coupled with a very dedicated group of organizers, which is half the battle from my standpoint.”


CEOCFO: Who is your typical customer?
Mr. Flautt: “Our typical customer is the small business person. On our board, I believe last count, eight of our twelve are small business people, so we tend to have that orientation. My background in retail banking has always had a focus on small businesses, I was First Interstate Bank officer for nineteen years and one of the primary focus points of our bank was the small business owner. Our typical client is a small-business owner who is going to carry $50 to $100 thousand in deposits, have a line of credit of $100 to $200 thousand and potentially own a building and we will make that building loan for them.”


CEOCFO: Do your customers tend to do all of their business banking through Folsom Lake Bank?

Mr. Flautt: “Our small business clients tend to have most of their business banking with us. However, they tend to have most of their personal banking with a large bank that has the convenience of having hundreds of branches available to them. In the real estate area our clients tend to have multiple relationships and we tend to give a statement of that, perhaps a building here or a development loan there.”

CEOCFO: How do you attract new business?

Mr. Flautt: “Attracting new business has been one of the strong points for Folsom Lake Bank. When we first started it was six original founding organizers who had the vision of the bank, we expanded that to twenty-five founding organizers. Each of our founding organizers brought with them dozens of very warm leads giving us a total of about 1200 names. That became our master list of Friends of Folsom Lake Bank. From the get-go for the last three years, we have been doing basically nothing but warm calls. Because we don’t do a lot of cold calls, most prospective customers already know about Folsom Lake Bank.  Most of our business is coming from people we know. Our list of Friends of Folsom Lake Bank is now about 3,000 names, because we have added my list, our chief credit officer, and Jack’s list to it. They are all warm leads within the community, people that we know, a lot of whom we have banked in the past. I think the key to building a brand-new bank is to go after people that you know who you can talk to about the advantages of banking with a community bank. It is a little easier than just being one in a big crowd of bankers all knocking on the door. Remember the commercial for, where bankers were lined up, about twenty or thirty of them and one banker will present the deal? Well the clients were saying, ‘Sorry that won’t work, next.’ That is really what banking is like these days, a big parade of bankers knocking on the door of the potential client and if you can’t differentiate yourself, you’ve got a tremendous challenge.”


Mr. Olson: “One of the things that makes us unique is our community focus. The community has recognized our efforts in the fact that we have received the Chamber of Commerce “Best New Business” award from two separate counties. We are very well recognized for our community activities throughout our entire service area.”


CEOCFO: Would you give us a few examples of what a client will find at your bank that they aren’t going to get elsewhere?
Mr. Flautt: “One of the first clients that we brought on board was a machine shop owner that I had banked previously at my big bank, but was bought by Wells Fargo. What happened to him was that with all the changes he had been lost in the shuffle and did not even have anybody to talk to let alone someone to get serious about expanding a bank relationship. Therefore, he came on board here and because we know the client so well, the business so well, the market area so well, we were able to put together a very nice little package of business banking services for him within one week. This included a line of credit, a business checking account, a checking account for an LLC, and the building loan in short order to bring him on board. Another is a business banking client that we had that is in an agriculturally related business and that is somewhat difficult to underwrite these days given the current state of the economy. However, my chief credit officer and I have both known this individual for the past twenty years and were aware of the credit arrangements that he had. Because of all the familiarity and some custom tailoring to the credit package itself, we were able to match what was being given to him at another bank that was about to be curtailed because the whole bank had been merged into a new bank.”


Mr. Olson: “As chief financial officer, I sit in the back-room area, but on occasion I will walk out of the bank with our customers after they have finished their banking business. As I stand in front of the bank, I have had at least six or seven instances where a customer will turn around and say, “You have the best little bank that I have ever seen.” They know I am with the bank, because I have my Folsom Lake Bank shirt on. We receive comments like that all the time.”


CEOCFO: Are there services that you would like to offer that you don’t currently offer?

Mr. Flautt: “There are some services that we would like to offer, but I don’t really see us ever offering. For instance, we do not offer Visa and MasterCard directly from the bank; we use a third-party vendor. There are some difficulties with that; obviously, we do not have any control over the underwriting process and only limited control over the customer service process. However, I think that credit cards represent a somewhat higher risk profile than most other bank products and we are not really willing to accept that risk profile even in view of that enhanced profitability that might be there because of higher interest rates. The same thing for SBA lending; we do the 504 program because it is through a CDC, but the 7A loans are done here at the bank. It would be nice to have an SBA department, but I do believe there is increased overhead and increased risk in that as well. We have two SBA loans currently, and will probably do one or two a year. Again, it involves added expense, added risk and it is a little bit of a gamble; so we probably won’t do that. We offer basically what I call plain vanilla banking, typical small business line of credit, a real estate loan for purchasing an office building, a term loan to purchase some equipment, but not a lot more than that. There is a return to basic commercial banking going on right now and that is going to continue for some time. I think a lot of banks are going to join us in going back to traditional commercial banking.”


CEOCFO: Do you find most of your customers actually come into the bank, or are they looking to do thing remotely, which seems to be a trend?
Mr. Flautt: “For us because a lot of our clients are small business, they take advantage of our courier service or a remote deposit capture product. With that product, they are able to process items at their remote location. For that reason, the banking traffic in general has gone down substantially. The thing that is interesting, especially for a small business client is that they really do like to come in and kick the tires, sit down with Bob for a cup of coffee, drop into Jack’s office and see how things are going. There are quite a few people that come in even though they don’t even need to come in. Whether it is to make a payment that they could have mailed, or drop off a deposit that they could have put through their little scanner machine, we find quite a few folks come in just to say, ‘hi’. One of the things that we do that is not really a banking product, but it is a service, is sit down and try to understand our clients businesses and give them banking advice. Quite a few people come in to talk about whether they should be buying their own building or that next piece of machinery for their company. They really like to talk to their close advisors and in a lot of cases that is their banker. So I have people come into my office that just want to talk about their business, or their future prospects and try to get advice on what they are doing. I think a good banker does that and that is a good, strong point of attracting a client.”


CEOCFO: Does that help you make better decisions about them down the road?

Mr. Flautt: “Absolutely! We know our clients a little bit better, so when it does come time to entertain a loan request, we will understand the components of that much more than we normally would.”


CEOCFO: How do you reassure your customers given the economy and current banking environment?

Mr. Flautt: “The key thing that we do is emphasize the notion of plain vanilla banking. When you look across the banking landscape at all the different crisis that are going on, a lot of them involve very complex banking products such as subprime mortgages, hedges and stuff like that. When we explain to folks that our business model is very simple, it is bringing deposits in from local clients and turning them around and lending them out to local clients as well, I think the transactions are understood a lot easier than reading in the newspapers about what is happening in some of the large banks. A lot of folks find that somewhat incomprehensible; they don’t really understand why it is that some of these banks are struggling, what is causing them to struggle, what is the difference between a credit crisis and a financial crisis and a lending crisis, because those terms are all used interchangeably. It is lost on most people and they are scared, and they know is that a bunch of banks are in a lot of trouble. With us it is very easy to come in and kick the tires, see their bank. In a lot of cases they know a lot of the board members, shareholder, and other clients, so we are a much more a known quantity than some of the larger regional banks, especially the huge money-centered banks. They see us as a safe alternative simply because we are a very easy to understand type of financial institution.”


CEOCFO: Will you be opening a new branch?

Mr. Flautt: “Yes, we are very excited about our prospects for our first branch location over in Roseville, so we will now have a second location. We have about 20% of our deposits already over in Roseville. I have about 23% of my shareholders over in the Roseville area as well. We have been waiting for some time for the right opportunity to come along. We have always had plans to branch out over in that area and we were just waiting for the right location.”


CEOCFO: What is the financial picture like for Folsom Lake Bank today?

Mr. Flautt: “The financial picture for us continues to be very bright and encouraging. Our business plan was to grow $2 or $3 million a month from day one. I can tell you from our shareholders meeting; we have in fact grown about $2.5 million a month from opening the bank 24 months ago. When we open up Roseville, our intent is to grow $4 and $5 million a month, because we will have two locations. The point is we are not trying to be what I call a jack rabbit bank to set the world on fire. Rapid growth comes with a certain higher risk profile, which we don’t want, especially in the lending area. Our ability to grow about $2 million a month with a limited staff is all we want to accomplish at this point in time and so far so good. We are bringing clients on board basically that we know from other banks and so far we have been very successful.”


CEOCFO: Have you found an increased interest over the last few months from people searching, or are people too scared to make a move?

Mr. Olson: “We are finding that some customers of the bigger banks are looking for a bank that they can understand, that is, no subprime lending, no derivatives, and a bank with a reputation for safety and soundness. We are actually becoming the beneficiary, in terms of deposit growth, from people who are moving their accounts from big banks into our bank. One of our biggest benefits is the reputation of our board of directors. They are very well known in the community and when people find out that they are associated with Folsom Lake Bank they often become customers within a short period of time.”


CEOCFO: Why should investors look at Folsom Lake Bank?

Mr. Flautt: “There are two or three key reasons for investors to be involved in our bank. First off, our business model is a very powerful one. We are not trying to sell the growth of the bank on any particular mechanism or product or high-tech service, it is just a very straightforward model. We want to bring local clients on board, give them local banking and provide local banking services. For our local investors they see who our potential clients are, including themselves and see it as a somewhat easy transaction to bring the deposits in one way and to get the loan back out the other way. From a risk standpoint, we are much more easy to understand than either a big regional bank or one of the four or five largest banks in the country. Secondly, it is very easy for the shareholders to come in and listen to the executive management team. We talk about our business model and they can garner a certain amount of confidence in what I said in our shareholders presentations and my annual president’s report for the shareholders. Third, if you look at our area and again the local shareholders probably see that it is more than people outside our area, the eastern side of Sacramento, the communities of El Dorado Hills, Roseville, Folsom, Rockland and Granite Bay, are in fact very attractive communities. Therefore, this is an extremely attractive place in which to grow a new financial institution simply from the standpoint of the amount of deposits. Deposits in our ten mile radius are $7 billion, and when we get 1%, that is $70 million. That is enough to make one branch profitable and we think we can garner that very easily over a period of time with our particular business model. If you look at it you are a shareholder, here is what they say they are going to do and they are doing it, here is what the area looks like and it looks pretty darn good. I can go in at any point in time and talk to the executive management team and hear how they are doing. It is a very easy to understand investment compared to most other investments out there.”


CEOCFO: Final thoughts, what should people remember most about Folsom Lake Bank?

Mr. Flautt: “The number-one thing we would want them to remember is the term classic community bank. This is straight out of Jimmy Stewart and It’s A Wonderful Life; the Baily Building and Loan. It is very simple, local, well-known, familiar bankers taking care of very familiar local well-known clients doing it in very traditional commercial banking format and doing it well.  If people understand all that they will see why we are going to continue to be a resounding success.”


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“The vision is very simple. We see ourselves as a classic community bank in every sense of the word, supported by the community, involved in the community, owned by the community, locally operated with employees from the community providing full service banking to the community. We have no particular market niche, no bells and whistles, no special products leading the way, no high-tech vision that we are going to do things better. We do just plain vanilla banking for local clients and local communities and do it well. The reason for it, Folsom has not had a local community bank in 75 years and we think there is a need for the local touch; people that understand local banking needs much better than a lot of the big banks do.” - Robert Flautt

“One of the things that makes us unique is our community focus. The community has recognized our efforts in the fact that we have received the Chamber of Commerce “Best New Business” award from two separate counties. We are very well recognized for our community activities throughout our entire service area.” - John R. “Jack” Olson, CPA does not purchase or make
recommendation on stocks based on the interviews published.