Standing Strong: Farmers & Merchants CEO Dan Walker next to the vault at the bank’s main branch in Long Beach.

Standing Strong: Farmers & Merchants CEO Dan Walker next to the vault at the bank’s main branch in Long Beach. Photo by Ringo Chiu.

Farmers & Merchants Bank of Long Beach could be among the last community banks to survive the rise of commercial financial institutions and the transition from Main Street to Wall Street.

Stepping into the bank’s main branch, which opened on Long Beach’s Pine Avenue in 1922, feels like a bit of a time-warp with the original brass doors and teller cages still in place.

Run by the Walker family – now a fifth-generation operation – the bank has nearly tripled its assets over the last two decades under the stewardship of Daniel Walker, the bank’s 64-year-old fourth-generation chairman and chief executive. The bank was No. 7 on the Business Journal’s 2018 list of largest banks headquartered in Los Angeles County with $7.3 billion in assets, up from $2.3 billion when Walker took the reigns from his father, Kenneth Walker.

Walker said in an interview that there’s no great secret to the bank’s longevity, just a commitment to customer service and a conservative growth plan that has put a premium on return on assets and dividend payouts to shareholders.

Farmers & Merchants, unlike many other banking institutions, has also avoided growing through acquisitive moves – its last purchase of a competitor came in 1985 when it bought out insolvent Capistrano National Bank and took over Town & Country Bank in Seal Beach; the bank’s only other acquisition happened in 1936.

“It just hasn’t been our strategy,” Walker said.

Alfred Osborne Jr., interim dean and professor at UCLA’s Anderson School of Management, said of Farmers & Merchants’ ability to survive 112 years through five generations of ownership speaks volumes.

“If the family is happy with organic growth, there’s no need to expose the bank to investors outside of the bank,” Osborne said. “Steady as she goes is what a lot of people prefer, and stay below the radar. To sell is unconscionable. It would violate a sacred trust that they have developed over generations in the communities it serves.”

Strong performance

Founded in 1907, Farmers & Merchants is mainly a commercial real estate lender. It is publicly – if thinly – traded with 130,928 shares owned by roughly 1,500 shareholders. The stock was trading at about $8,000 in early February, and the extended Walker family still owns a majority stake.

In December, the bank paid its 500th consecutive quarterly and special dividends, a streak that dates back to 1916. For each share, the bank paid $27 in December, plus a special one-time dividend of $25.

“That’s our largest dividend ever paid by the bank,” Walker said.

Farmers & Merchants owns the property under 19 of its 25 branches and boasts a presence in rich coastal communities from San Juan Capistrano and Newport Beach in Orange County, to its most recent addition in November in Santa Barbara where Farmers & Merchants has eyed expansion for decades, according to Walker. Ten of the bank’s branches opened during his tenure.

The bank’s return on assets stood at about 1.19 percent in 2018, down significantly from its peak in 1990 when its 2.1 percent return rate was higher than any other independent bank in the nation with assets over $1 billion. Walker said the lower return rate was mostly a product of increased operational costs, salaries for 750 employees, compliance costs and an entire department designed to guard against potential money laundering schemes.

Walker worth

Walker estimated the inner ring of the family – which includes his brother and several other extended members of the Walker tribe – was worth approximately $150 million.

That family worth once stood at $200 million nearly three decades ago, but Marcus Walker, the great grandson of founder C.J. Walker, challenged the management of the bank to split the stock, increase dividend payouts and purchase his shares.

In 2008 – right as the Great Recession began – the bank settled a lawsuit with Marcus Walker in Orange County Superior Court by purchasing his 5,827 shares at $7,300 each. The payout was part of a larger settlement for $42.5 million with the Donald P. Walker family. Other investors who piggybacked in the suit and owned 14,720 shares, were paid $107.5 million for their shares, Dan Walker explained.

Marcus Walker was Dan Walker’s first cousin and son of his uncle, Donald Walker, who was his father’s brother.

“It is sort of comical that the whole thing took place,” said Dan Walker. “They got their distribution, paid capital gains and taxes, and put it into the market, which then collapsed. I don’t know if they were better off or not.”

Family ties

The last time the Walkers dealt with dissension came with a discussion over the possible sale of the bank in 1937, in the midst of the Great Depression. But the dispute was quickly settled as economic prosperity took hold on the eve of World War II.

Putting the bank on the auction block hasn’t been a serious option since, according to Dan Walker.

“There’s no interest in selling,” he said. “Truthfully, I’ve never been approached to buy the bank.”

Keeping the bank under family control has preserved many of its idiosyncrasies.

The bank’s boardroom is found at the bottom of a dimly lit stairwell at the Pine Avenue headquarters, and a main floor vault still holds gold, silver and valuable documents in a dark side room with boxes piled up everywhere.

A second vault once held a few million dollars. Only $500,000 is there today, thanks, in part, to the cashless society and debit machines customers use to pull cash out.

On a balcony perch overlooking the cavernous two-story high atrium of the headquarters’ main floor, stands a stuffed cougar that Gus Walker, the bank’s second chairman and chief executive, shot in the Grand Canyon in 1929. He hunted the cougar for three days, utilizing trackers and dogs.

Against a concrete wall in the basement, bullet divots can still be seen where Gus, who passed away at 94 years old in 1994, fired his pistol in what was then his makeshift indoor range. He stacked phone books to collect the bullets, but the cement wall took the force of some shots.

Until the early 1990s, Gus Walker’s jerry-rigged security system included a sawed-off 12-gauge shotgun that he kept hidden behind teller windows in case of a robbery.

Someone accidentally discharged the weapon while reaching into its sleeve covering, pulling the trigger. No one knows for sure when this incident happened or who pulled the trigger. Bank President Henry Walker, who is Dan’s brother, took the shotgun home afterward.

“I’m sure it alarmed everyone on the main floor,” recounted Dan Walker.

The flamboyant Gus Walker took over in 1937 from his father, C.J. Walker. Gus Walker retired in 1979, and his son, Kenneth Walker, took the position. Daniel Walker took up the mantle in 2002.

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