For more than a century, the Walker family has run Farmers & Merchants Bank of Long Beach with a conservative style that weathered the Great Depression and ensuing downturns.
Now the family is looking to its steady strategy to weather the worst financial crisis since the 1930s.
Long Beach-based Farmers & Merchants, whose family members live in Orange County, was honored with the longevity award at the annual Family Owned Business Award lunch hosted by the Business Journal and California State University, Fullerton’s Family Business Council on Nov. 19 at the Hyatt Regency Irvine.
C.J. Walker, the great grandfather of the two brothers who now run the bank, Daniel and Henry Walker, started it in 1907.
Neither of the brothers got to meet their great grandfather, Henry Walker said. But they feel like they know him through his philosophy and legacy that have been passed down, he said.
Honesty and integrity were the basics the bank was founded on, according to Daniel Walker.
Today there are six Walkers working at Farmers & Merchants, including Chief Executive Henry Walker and Daniel Walker, president and chairman.
“When you’re working with a family, you’re not paying much attention to title,” Henry Walker said. “You do what you need to get the job done.”
Ownership
The family owns the majority of Farmers & Merchants, which trades on the low-profile Bulletin Board exchange with a recent market value of $500 million.
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The bank, with $3.2 billion in assets, is one of the larger ones based in Southern California. Farmers & Merchant’s headquarters is a turn of the century landmark in downtown Long Beach. In recent years, OC has become a bigger part of its business. Sixteen of its 22 branches are here.
Daniel and Henry Walker live in OC. So does father Kenneth Walker, who preceded Henry Walker as chief executive and now is president of the downtown Long Beach branch.
The walkers are active in local charities including Big Brothers Big Sisters of Orange County and Pacific Symphony, among others.
In all, the bank gives more than $1 million each year to nonprofits, churches and synagogues throughout Southern California.
Daniel Walker’s first job with the bank was at 14 when he ran the elevator at the Long Beach headquarters building.
Henry Walker took his first job at the bank when he was 16, delivering gingerbread to the branches during the holidays, a family tradition.
Both moved up the ranks, working in just about every job at the bank.
Last year, Henry Walker took over as chief executive from dad Kenneth Walker, who had run the bank since 1979 when he took over from his deceased father, Gus Walker.
Kenneth Walker also is a director and recently marked 60 years as an employee.
Ruling Trio
The bank is primarily run by the Walker brothers, as well as Executive Vice President John Hinrichs, who isn’t part of the family but has been with the bank for 43 years.
The three work based on consensus, according to Daniel Walker.
“We only move forward when we’re all in agreement,” he said. “Each one of us has the power to veto something.”
The setup allows for the trio to remain consistent, helps communication and is the best way to resolve disagreements, according to Daniel Walker.
In 2004, the Walkers saw a feud not uncommon among family companies.
Marcus Walker, another great-grandson of the founder and cousin of Henry and Daniel Walker, waged a board battle over control of the company.
He also sought a big split in the bank’s shares (which then traded at about $5,000 a share and now trade at about $3,800 a share) and a move to Nasdaq, which would have allowed him and others to more easily cash out their shares.
At the time, Daniel and Henry Walker called the fight a family “grievance” dating back to the 1970s.
The family recently settled a lawsuit brought by Marcus Walker by buying all of his 5,827 shares, a nearly 4% stake, for $42.5 million.
The next succession round is up in the air, according to the brothers.
Daniel Walker has two children out of college and working at the bank.
“If they’re eager to succeed they’re welcome to come, but they have to earn it,” Daniel Walker said.
Henry Walker said he’s unsure if one of his three children might one day run it.
“They’re too young,” he said. “They have to have a passion for it.”
Long-Term Workers
Farmers & Merchants prides itself on long-term employees.
More than a fifth of them, or 100, have been with the bank for at least 15 years. Sixteen employees have been there for more than 30 years. Four have been at the bank for 40 years or longer.
An additional 65 employees have been with the bank for 20 to 30 years.
A conservative style instilled by C.J. Walker has kept Farmers & Merchants from many of the industry’s pitfalls, including subprime loans and a reliance on selling loans to Wall Street, according to the brothers.
“One thing that can get a bank into trouble is lending,” Henry Walker said. “There’s so much dishonesty in the business.”
Farmers & Merchants has held back on mortgages in general.
About 80% of its lending and 60% of its deposits are with businesses. The rest is with families and individuals.
But the bank isn’t immune to a weak market.
Its profits for the first nine months of this year are down about 30% to $26.8 million after it made less loans and had to set aside $29 million to cushion against potential losses.
A year earlier, the bank set aside $3.9 million for potential loan losses.
Construction loans make up 16% of the bank’s lending. They could be vulnerable as the industry has weakened.
So far, Farmers & Merchants has been more of a beneficiary than a victim of the financial crisis. Trouble at other banks and savings and loans has led to an increase in deposits as customers seek safety.
Farmers & Merchants added $340 million in deposits in the third quarter, according to the company. For the nine months through September, deposits are up 28% to $2.6 billion.
The bank’s deposits and history of stability makes it a coveted target for an acquirer. But the bank isn’t for sale, according to Henry Walker.
“We’re a relationship bank. You just can’t pass that off to a buyer,” he said.
