Delaware National Bankshares, Georgetown, has launched an ambitious program to double in size within three years, but an out-of-state suitor could spoil its plans.

The $91 million-asset bank is speaking with four "major financial institutions from out of state" about a possible takeover. Talks will cease by Dec. 23, and bank officials believe a deal will be announced in early January.

"This is sort of a bloody thing we're going through," said Delaware National president and chief executive Paul Mylander. "I don't like it, and our employees don't like it, but we don't have a choice. We're in play, as they say."

Negotiations began in early September when a large financial institution inquired about purchasing the 15-year-old bank. Fiduciary duty required Delaware National to determine whether the price offered was the best available.

It tested the market and found several interested buyers willing to pay a higher price than the original one, Mr. Mylander said. He declined to name the possible buyers.

Mellon Bank Corp., Pittsburgh, and Mercantile Bankshares, Baltimore, are likely suitors, said Alex Hart, an equity analyst with Ferris, Baker Watts Inc., a Baltimore-based investment firm. Both institutions already have a Delaware presence.

Mellon "just made a big foray into Delaware by buying some RTC branches," he noted.

Delaware National's stock was trading last week at $17.25, its highest price in four years. It had been trading at $14 at the beginning of the year. With a book value of about $10, the stock is trading at a premium that is about average in the bank's peer group, Mr. Mylander said.

The acquisition activity is heating up just as Delaware National is beginning to implement its growth strategy -- which includes offering the highest certificate of deposit rates in southern Delaware's Sussex County and cross-selling money market accounts and other accounts to customers, Mr. Mylander said.

The first phase of the plan has boosted Delaware National's assets from $85 million to nearly $92 million in just two months. The bank is offering a one-year CD at 6.2% and a five-year CD at 7.5%, rates that have created something of a CD war -- particularly with Mellon, which has a branch in the county.

"Whenever anyone raises their rates, we go 5 to 10 basis points above them," said Mr. Mylander. "Mellon has been the biggest pusher."

Delaware National's CD campaign will last about six to eight months, he said.

Despite the takeover talks, Delaware National will continue to push for expansion, Mr. Mylander said. But acquisition by a bank with an in-state presence probably would lead to streamlining and end the growth program, he added.

Mr. Mylander said that, contrary to rumor, the expansion was undertaken not to attract buyers, but to improve the bank's noninterest income. The bank's deposits per employee is at a low $1.2 million; Mr. Mylander's goal is $2 million deposits per employee.

The 68 full-time employees at Delaware National are enough to support a bank almost twice the size, Mr. Mylander believes. So instead of slimming down the staff, he wants to beef up the bank. One of the bank's seven branches, however, is up for sale.

The bank expects its returns on assets and equity will suffer from the program and will probably dip to a 0.80% ROA and a 10% ROE. In 1993 those numbers were 1.24% and 17%, respectively.

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