Colorful F & M Bank Cited for Lack of Loans to the Poor : Banking: Although one of the soundest financial institutions in the country, the Long Beach bank was deemed to be in noncompliance with the federal Community Reinvestment Act.

Farmers & Merchants Bank of Long Beach, said to be one of the soundest financial institutions in the country, has failed to make sufficient loan money available to low-income and poor people as required by federal law, according to a recent survey by banking regulators.

Of 38 banks and thrifts rated in the nation by the Federal Reserve System between July and September, the Long Beach bank was the only one deemed to be in “substantial noncompliance” with the Community Reinvestment Act of 1977, which says a financial institution must meet the credit needs of its community, including the poor, officials said.

F & M Bank is considered one of the nation’s soundest, if not its most colorful. The 91-year-old chairman keeps a 12-gauge shotgun in his office, and his son makes loans from a roll-top desk at the historic main office on Pine Avenue.

The publication American Banker described it as an extraordinarily profitable privately held institution with $1.3 billion in assets. It advertises itself as the strongest bank in the nation.

But federal officials say Farmers & Merchants is neglecting the needs of the poor in Long Beach, where nine of the bank’s 16 branches are based. A request to open a 17th branch was denied Oct. 15 as a result of the low rating.

President Kenneth G. Walker, grandson of the bank’s founder, called the rating “completely wrong,” and said the bank has gone to great lengths to help meet the needs of the poor. Bank officials are preparing to contest the rating, he said.

“We’ve been very active in low-income housing and condominium housing and senior citizen homes, and we continue to do so. They (the regulators) just don’t have the ability to recognize it,” said Walker, who runs the bank founded in 1907.

Of the 38 banks examined by the Federal Reserve System nationwide, only Farmers & Merchants received the rating of substantial noncompliance, the lowest of four possible scores.

The bank is the first in the nation to receive a noncompliance rating since July 1, when financial institutions were required to make their performance grades public. Ratings of more banks will be forthcoming.

The examinations have been conducted for years, but only since July 1 has the law required that the grades be publicly disclosed. Federal regulators will not identify the banks they survey or their scores, but the law requires that the banks make that information public within 30 working days after they are rated.

The recent public disclosure requirement and heightened protests by community groups have trained a spotlight on the otherwise obscure law, which was enacted to help low-income people secure housing and to prevent lenders from discriminating against the poor.

California’s three largest banks this year announced major programs for low-income and minority communities: Bank of America promised to commit $50 million, Security Pacific Bank pledged $2.4 billion over the next decade, and Wells Fargo Bank committed $1 billion over the next seven years.

“Certainly banks that get their deposits from members in the community, including low-income members, have a responsibility to give something back in the way of affordable housing,” said Dennis Rockway, senior counsel with the Legal Aid Foundation of Long Beach. “I am certainly not aware of any significant contribution Farmers & Merchants Bank has made in that regard.”

The bank’s attitude toward lending money, in the words of a recent Forbes magazine article, “makes Scrooge seem like a spendthrift.” They lend only to reliable customers, require more collateral than most and treat their patrons like family, right down to the box of fruit that is sent to longtime depositors every quarter.

Walker, whose family’s fortune is estimated at $200 million, says the Federal Reserve System is making a scapegoat out of a conservative bank that is sound to the core in these days of savings and loan disasters.

If the performance rating survives F & M’s challenge, it could not only bruise the bank’s public image but impair its expansion. Under the law, regulators must consider the performance rating when reviewing an institution’s application to open new branches or merge, officials said.

Failure to meet the standards of the Community Reinvestment Act can result in legal action, although that is rare, said Ronald Supinski of the Federal Reserve Bank of San Francisco, which oversees 64 financial institutions in the western United States.

Generally, regulators issue a memo of understanding, the terms of which are “usually carried out” by the bank, he said.