The failure of Washington Mutual Bank, along with 100's of other U.S. banks on the verge of failure, has caused consumers to question if a similar event could happen to their bank. However, consumers who bank with Farmers & Merchants Bank (F&MB) in Long Beach, California, don't have cause for alarm. Rating services, such as Weiss Rating, Highline Data, and others, consider F&MB to be the strongest bank in California and one of the strongest in the nation. The bank has assets of $3 billion and a capital ratio four times higher than the FDIC limit and sufficient liquidity to pay every depositor in full.

Financial strength has formed the underpinning of F&MB from the day it was founded in 1907 by C.J. Walker, great grandfather of Henry Walker, the current CEO. For example, F&MB didn't need any government assistance. When Gus Walker, Henry's grandfather became the bank's chairmen and president in 1938, he started the important tradition of transferring much of the bank's annual earnings into capital and reserve accounts. This wise practice enabled F&MB to flourish during the inflation-riddled 1970s, the fluctuations of the 1980s, the recession of the early 1990s, and even to grow despite today's problems.

Today, Henry Walker, along with his brother Daniel, who is chairman and president, continues to carry out his family's legacy, but with one difference - a heavy emphasis on capital investments in technology and facilities. The goal of these investments says Walker is to provide new services and to improve the bank's quality of customer service. Enterpriseleadership.org recently sat down with Henry Walker to talk about the business processes and the investments that've helped F&MB to earn its coveted reputation for financial soundness.

EL. What motivates you to follow in your great grandfather's  footsteps?

HW. The bank has three executives: my brother Daniel, who is chairman and president; a chief financial officer; and me. The bank is our life. My father and my grandfather mentored both my brother and I. The bank's safety and soundness come from our founder. Every day, we carry out the bank's long history of guiding principles. That's how our job differs from other people in banking.

EL. What decisions have  you made to avoid some of the problems other banks have encountered?

HW. Our decisions reflect the safety and the soundness of our balance sheet. We have the willingness to stick to our core principles, which others in banking aren't willing to do. For example, we have a very sound and very secure investment portfolio, which has minimal risk. We have no sub-prime loans in that investment portfolio. A number of investments and its loan portfolio typically comprise a bank's balance sheet. We have a very sound loan portfolio. We continue to run with those conservative principles we've always had. My grandfather guided our bond portfolio, and my father designed our lending standards. Those core principles from both of those generations have really flowed to my brother and I. We continue to run what is considered the safest bank in California.

EL. You've had some customers for many generations. How are you leveraging the right technology to provide service for multi-generational customers, especially young people?

HW. We're providing a stratified approach to customer-to-customer service. At times, it's a challenge. The younger people want technology, but they don't comprehend the idea of relationships. Business owners appreciate the value of relationships, especially with their lending partners. Meanwhile, the elderly are accustomed to banking in a certain fashion and value relationships. The nature of forming a relationship hasn't changed in consumer banking. As the demand for technology has come about, we've stayed up to date on everything. We have top of the line software vendors that provide our online banking, our online bill paying, and our remote deposit capture. We also have a voice response unit. We complement all of these things with the highest level of security available today in the banking industry. We consistently make sure we have all of the proper safeguards, the proper firewalls, and the proper audits and validated programs.

EL. What criteria do you use for  measuring the quality of customer service you provide?

HW. We continually monitor the customer experience both in our call centers and in our branches. As executive officers, my brother and I make sure we can deliver on this promise of service. This goal isn't that noticeable with customers we've had for years because they've become comfortable with our level of service. However, when people switch from other banks to ours, they say things like 'Why didn't I use you people years ago.' Comments like this provide us with the contrast we did to really notice our level of service. Without any contrasts, we'd wind up resting on our laurels and taking our service quality for granted. We have to keep improving on it.

EL. Can you describe some of the capital investments you've made  to improve the bank's technology?

HW. Technology is continuously changing. It may be hitting a bit of a plateau as the population absorbs how the changes have affected their lives during the past decade. Data is very accessible. The changes we've made include continuing to upgrade our internal hardware, especially our scanning systems within the branch system to process deposits more efficiently. We have consistently updated all of our online banking applications, all of our bill paying applications, wire transfer applications, and anything that has to do online to test the customer. This year we moved forward again with a substantial investment in our technology infrastructure. Our $20 million data center is a completely new facility for us. This facility will enable us to bring together the core departments that touch customers so we can continue to provide them the highest level of service possible.

EL. Can you describe your process for making capital  investments in technology, such as your data center?

HW. We did a cost benefit analysis in quantified dollars in our ability to manage and to provide customer service, and in our ability to make an investment like this. After we look at all of these benefits, we bring the investment to our board of directors. We have three committees: a technology committee, an executive committee, and a board committee. We have three levels of review for that kind of infrastructure investment.

EL. How do you look at the payoff for an investment like the  data center?

HW. We track all of our expenses around the clock. Because many businesses come to us for loans, we're quite familiar with how people run their businesses. We look at how they track expenses, how they use technology, and what kind of reporting they do. Most of the time, these people can't get a balance sheet out for 30 days or 60 days or until the close of the quarter or even at the end of the year. We produce a balance sheet every day.

EL. Do you have a dashboard that shows  you how much you're spending on technology?

HW. I get monthly reports on capital expenditures from all departments. I also get a profit and loss statement on all the monthly transactions. It would be too much data to absorb daily. On the other hand, if I wanted the data daily, I could have it.

EL. Do you use  technology to track marketing campaigns and to do lead generation?

HW. Yes. We have a system where we input data on customer sales, and on customer follow up by our people. For example, we can track how long it took us to handle a new customer referral. We have good reporting from this standpoint.

EL. What is your business  technology management strategy?

HW. We want to continue to update and to provide a high level of service. As technology changes, we have to address the cost and benefits of it as it changes. Many times technology comes about and there is no immediate benefit for a couple of reasons. The customers might not know how to use it. You can have the best technology in the world, but if the customers don't harness it, than it doesn't make sense to incur an unnecessary expenditure. If customers start asking for a specific technology, that's when we seriously have to look at making the investment. We analyze technology from that standpoint to see what benefits it would provide us and will our customers use it.

For example, we decided to offer remote deposit capture or the ability to enable customers to scan their deposits at their place of business and then to forward the deposits to us via the Internet. Some customers said that they liked the idea of not going to the bank every day. However, after trying the service, these same customers said that they didn't realize how much work it took to scan their deposits. They questioned whether or not the bank should be doing the scanning for them. These customers decided to go back to coming to the bank each day or doing a nightly deposit. On the other hand, many customers said they liked the service and had desire to visit the bank each day. Technology always has its plusses and minuses.

EL. Have you had any technology failures?

HW. Not really! We've had some issues with getting new  technology to work with our business processes and our current systems. 

EL. What kind of a technology team do you have?

HW. Our chief information officer (CIO) has been with us for about 10 years. The technology committee, one of our three executive governance committees, meets regularly with the CIO. My brother deals on a daily basis with the CIO. My brother and I take a balanced approach to running this company.

EL. What are you key responsibilities?

HW. I handle most of the business strategy. I also hire the bank's officers and oversee the strategies they put in place for their time. I make sure our credit portfolio is safe and sound from a policy standpoint. My brother and I both handle branch acquisitions.

EL. Do you have a  fifth generation who will be taking over the bank?

HW. My brother's two children work in the business. One manages our Laguna Hills office and the other one works as a compliance officer and risk officer in our trust company.

EL. How aggressive have  you been with acquisitions?

HW. Although we've reviewed some potential candidates, we haven't found an acquisition we want to make. Because of the economic climate, we're seeing an increase in our branch business. In fact, we totally rebuilt one of our branches and added several ones in Orange County.

EL. Do you provide personal investment  services to your customers?

HW. We don't offer brokerage services. However, for our high net worth, long-term customers, we make it possible for them to invest in the same securities we invest in. These securities include municipal bonds, treasuries, or mortgage-backed securities. We provide this service at no cost. All of our transactions go through our CFO who buys all of our bonds. These customers receive an account statement.

Author: Elizabeth M. Ferrarini - She is a technology writer  from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.