Small banks aren’t playing David to the Goliaths, but they are succeeding for customers where the big boys sometimes won’t even try.

Lynda Messick of Community Bank in Lewes speaks with bank client Rachel Hughes, co-owner of the Rehoboth Toy & Kite company. Photograph by Steven BillupsThere used to be a saying in the banking business,” says Lynda Messick. “‘Three-six-three: pay 3 percent interest on savings accounts, charge 6 percent on loans, and be on the first tee by 3 o’clock.”

It should be noted that Messick, president and CEO of Community Bank Delaware, is discussing the adage while sitting in her office at 5:30 p.m. on a Thursday. Oh, and her golf handicap is a hefty 26.

Terms like “three-six-three” and “banker’s hours” became anachronisms several decades ago. “There was an arrogance to banking until the early ’70s,” says Messick, who has been in the industry since 1973. “Then we were humbled by competition.”

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And the competition was legion. Instead of leaving their money in passbook savings accounts, consumers began moving it to institutions like savings and loans, credit unions, money market funds, government and private bonds, and stocks. More recently, online banking has become a major market force.

And though banking, thanks to the FDIC, may be the country’s most regulated industry, it has to contend with largely unfettered competitors such as payday lenders, check-cashing services, and buy-here-pay-here used-car dealers.

So banking is no longer a 9 to 3 job. But it can be a day at the beach—sort of. Case in point: Messick and her coworkers at Community Bank’s headquarters in Lewes and its Rehoboth Beach branch.

Community Bank Delaware was created two years ago by investors who saw a niche for a small, locally focused bank in Sussex. It thus joined a growing number of small Delaware banks that have sprouted among the forest of behemoths such as Chase, Wachovia, ING, Bank of America—even Wilmington Trust. And even in this foundering economy—perhaps because of it—the small banks are going strong.

In a state that historically has been favorable to the industry, two other small community banks have carved unique markets for themselves, MidCoast Community Bank in Wilmington and Christiana Bank & Trust in Greenville. Joining small banks such as County Bank, The Felton Bank and First National Bank of Wyoming, among others, they’ve found a winning combination in streamlined decision-making and personalized services, aided by such technology as remote check deposits.

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Of the three, Community Bank may be the most provincial, in the best sense of that word. Messick, who spent 26 years with Delaware National Bank before she was recruited by the founders of Community in 2005, explains.

“I worked for a statewide bank, and I thought we had a presence over here,” she says. “But what I found the day I came to work here is the locals do not look at anything outside of this area as being their community. They want something of their own. They look at northern Delaware as a different state. And they all support each other.”

Messick and most of the bank’s officers are either natives or longtime residents of the beach area, so they knew a well-run community bank would appeal to their neighbors. What’s more, “A lot of the big banks who are headquartered away from this area don’t like loaning money to hotels and restaurants here,” Messick says. “We know this market, and we know this resort area is not recession-proof, but it’s recession-resistant, and we know the local businesses who have been through the business cycles throughout the years, and we can make accommodations for them.”

During his 28 years in the business, William “Jack” Riddle, Community Bank’s chief lending officer, had been through two bank mergers before being recruited by Messick, a former competitor. “It’s one of the best decisions I’ve ever made,” he says.

Riddle says Community Bank management all came from big banks, and they had seen the trend toward centralization, resulting in fewer decisions made at the local level. “This was our opportunity to be captains of the ship,” he says. “All the decisions are made here—the rates, the terms, loan approval. Everything happens right in this building. That’s important to business people.”

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Community Bank is heavy on beach themes and its calendar highlights local events such as the Rehoboth Beach Film Festival and the ChickFest in Dewey. Even the headquarters was designed to be the quintessential Sussex County symbol, a cross between a lifesaving station and a barn.

In Northern Delaware, more aggressive expansion is in the works for MidCoast Community bank, which opened in March 2007. MidCoast emphasizes personal service in a market extending from Southern Chester County in Pennsylvania through Delaware and into Northern Maryland. The bank is building a branch in Dover, and, says president and CEO Jim Ladio, “We want to put a branch in Sussex County, Maryland and Pennsylvania. There’s a lot of opportunity in our market. We could be a billion dollars and still be just who we are.”

With an emphasis on small business loans, MidCoast’s current loan portfolio totals $74 million. (Community Bank of Delaware reported $28.6 million in 2007.) About 30 percent of the 235 individual loans are in New Castle County and 26 percent in Kent, with the remainder somewhat evenly divided among Southern Chester County, Sussex County and Maryland.

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Having directors in each part of the market has spurred the bank’s success, says Ladio, who was one of MidCoast’s organizers. “From the beginning, that was part of our strategy, and it has helped tremendously.”

So has the customer loyalty Ladio developed during his previous tenure at Artisans’ Bank. Like a top hairdresser, he seems to have taken several clients with his move.

Paul Mills, co-owner of Mills Brothers Markets in Milford, worked with Ladio to secure an Artisans’ commercial loan for more than $1 million about 10 years ago. “As soon as Jim left there, we were looking for every reason to try to do business with him,” says Mills. A slightly lower interest rate gave Mills the reason, and he refinanced the loan with MidCoast. He also bought stock in the new bank.

Frank Montisano, president of Excel Business Systems in Newark, had banked with Artisans’, where he worked with Mike Lumia, now a MidCoast vice president. Because of the relationship, he took out a $1 million loan with MidCoast.

“I’m a firm believer that the relationship is often with the people and not the institution,” says Montisano. “When you have people like Jim and Mike, who take the time to understand your business and what you’ve done in the past and what you’re trying to do, that insight is invaluable.”

While Community Bank Delaware targets Sussex County and MidCoast looks to expand into Pennsylvania and Maryland, their combined assets pale in comparison to Christiana Bank & Trust, which has established a national footprint with its trust business. Last year that business totaled a record $3.9 billion, more than double the 2006 figure. That made Christiana the 110th largest FDIC-regulated trust company (out of about 500) in the country.

Located in affluent Greenville, Christiana was founded in 1994, during the height of banking’s merger mania. “The belief was that with all of the mergers and changes in banking locally, there was an opportunity for a local bank that would focus on individual attention and personal service,” says president and CEO Zissimos Frangopoulos.

More than half of Christiana’s 57 employees are in the trust department. “Our trust business is built on quality service as opposed to volume-dependent business. We provide competitive value, and that doesn’t necessarily mean the highest interest.”

In June 2007 Christiana lost some of its local identity when it was purchased by National Penn Bancshares, Inc., headquartered in Boyertown, Pennsylvania. “The acquisition gives us the financial resources and product capabilities of a larger bank,” says Frangopoulos. “As a stand-alone bank, we were too small to provide the traditional mortgage product like 30-year fixed, or to offer credit cards. Now we can.”

Christiana’s management and staff have been retained by National Penn, and Frangopoulos says he and his officers continue to have full decision-making authority.  

The three banking institutions demonstrate that size does matter, but big isn’t necessarily the best. Too small to be affected by the subprime lending scandals, and just small enough to make quick decisions while providing personalized services, Community Bank, MidCoast and Christiana are cashing in on their advantages.

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