Folsom Lake Bank (CA) (FOLB-OTC: BB)
May 22, 2009 Issue
The Most Powerful Name In Corporate News and Information
Folsom Lake Bank (CA) Is Returning Classic Community Banking To An Area That Hasn’t Had A Local Community Bank For 75 Years
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.
“Jack” Olson, CPA, Executive Vice President & Chief Financial Officer
Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published – May 22, 2009
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.”
What do you and your group realize that maybe others haven’t that gave you
the impetus to actually start the bank?
is your typical customer?
CEOCFO: Do your customers tend to do all of their business banking through Folsom Lake Bank?
“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.”
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 LendingTree.com, 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.”
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. 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.”
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?
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?
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.”
“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
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