PALM BEACH, Fla. — One year ago, when big regional banking companies were forming coast-to-coast operations through mergers and alliances, raking in fees from capital markets and other businesses, and reporting record profits, it was easy to see the benefits of size.

Now, however, it seems that smaller, more traditional banks, are the ones gloating.

Knowing the customer and collecting deposits is what banking is all about, according to representatives of smaller banking companies who attended Sandler O’Neill & Partners’ two-day investor conference last week in Palm Beach.

Gerald H. Lipkin, chairman and chief executive officer of Valley National Bancorp, a $6.3 billion-asset company in Wayne, N.J., said he likes his customers to be close by, so he refuses to open a branch more than one hour away from his headquarters.

Mr. Lipkin said he likes to take responsibility into his own hands. So far this year the company has sponsored lunches with more than 500 customers. “I did not meet all of them one-to-one, but those I met were very impressed that they had direct access to the CEO,” and he is sure they tell that to their friends who bank elsewhere, he said.

When a purchase of Merchants New York Bancorp was proposed to him this year, he said he was skeptical. Only after he was assured that Merchants “is just like us” did he agree to the deal. Last Monday, Valley shareholders approved the acquisition, which is scheduled to close early next year. Merchants’ shareholders also approved the deal last week.

Luckily, Merchants is “a community bank in the middle of Manhattan, and only one hour away,” he said. (Well, not during rush hour.)

Unlike executives at bigger banks, Mr. Lipkin said that he is far less determined to get more income from fee-based businesses, and that he prefers the old-fashioned way of getting profits from lending. “We make most of our earnings with our spread income, and we stick to our niche.”

This focus will allow Valley to compete with even the biggest U.S. banking companies, Mr. Lipkin said.

For example, he said he is looking forward to FleetBoston Financial Corp.’s purchase of Summit Bancorp of Princeton, Valley’s “most formidable” competitor at the moment.

In a much larger organization, some corporate customers will inevitably get left behind, and Valley will get the chance to snap them up, Mr. Lipkin said. These companies are likely to be larger than Valley’s current corporate customers, he said.

Mack I. Whittle Jr., president and chief executive officer of South Financial Group, a $5.1 billion-asset company in Greenville, S.C., said his company takes a similar approach. “We take banking personally. We only lend to people we know.”

However, South Financial puts more emphasis on the leverage of its retail business, Mr. Whittle said. Insurance, mainly life, and mortgage origination contribute to profits, but deposits are the main focus, he said.

In an attempt to boost earnings momentum and stabilize a depressed stock price, “we look to increase deposits to find more low cost funding,” he said.

But deposits are not easy to come by in South Carolina, where the bank is fourth-largest in market share, Mr. Whittle said. That is why South Financial expanded into Florida last year with the acquisition of Citrus Bank, a $406 million-asset bank operating in Jacksonville and Orlando.

The purchase should help South Financial pick up some of the state’s rich deposit base.

In a decidedly modern attempt to boost deposits, South Financial is also planning to build on the Internet. It is modeling its Web presence after NetBank, a company of which Mr. Whittle is a director.

The idea is to go “after the new Internet user, not tech-people,” Mr. Whittle said. Internet banking is an inexpensive way to gather deposits outside the company’s branch territory, he said.

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