Community banks in the New York metropolitan area are hoping to win branches, customers and executive talent as Chase Manhattan Corp. and Chemical Banking Corp. carry out their megamerger.

"Hooray!" said John Adam Kanas, president and chief executive of North Fork Bancorp, Mattituck. "We're delighted. We'd like to see a lot more like this."

Instead of creating a much larger and tougher competitor, the bankers say, the $10 billion megamerger will confuse and frustrate many of the Chase and Chemical customers, particularly small and middle-market business owners, driving them straight into the waiting arms of community banks.

"The combination of these two very large institutions is going to cause a significant amount of change, and people don't like change, both inside the bank and outside the bank," said Louis J. Cappelli, chairman and chief executive of Sterling Bancorp in New York.

"Customers are going to feel uncertain and uncomfortable and would be more comfortable with a (smaller) bank ... that provides a broad base of banking services similar to the large banks."

In particular, Mr. Cappelli said, the changes at the new Chase means that small-business customers of both large banks could lose their established relationships, allowing them to "fall between the cracks."

The community bankers are also betting that there will be a bonanza of branches - sans deposits - available for sale after the merger is completed. The postmerger company is likely to hold on to its deposits because, even at its larger size, observers don't think it will run afoul of antitrust laws. And it's too soon to tell which branches will be sold, they agree.

"It'll be interesting to see how it shakes out," said Thomas M. O'Brien, president and chief executive of North Side Savings Bank, Floral Park.

And the bankers are hoping to draw in some large bank expertise by attracting Chase and Chemical employees who fear they will lose their jobs in the wake of the merger. Rather than wait for possible pink slips, many employees might leave voluntarily, creating a readily available applicant pool for the community banks, Mr. Kanas said.

But despite Chemical's dominance of the New York deposit market and its extensive franchise throughout the city, the community bankers aren't worried about an even stronger organization. That's because they're already accustomed to competing successfully with the money-centers, both in New York City and upstate, where Chase has its own extensive branch network.

"There's certainly enough room for all of us middle-market banks to play," said James G. Lawrence, president and chief executive of Merchants New York Bancorp. "The opportunities are just as good as they've always been, with or without the merger. Perhaps they've increased."

"I don't think it will have an adverse effect on us at all," agreed Sanford A. Belden, president and chief executive of Community Bank System Inc., DeWitt. "We've already been competing with money-center banks and we've been successful."

In fact, the money-centers have historically not done well in the rural and small-city markets of upstate New York. And now, they're in virtual retreat after deciding to refocus their attention on New York City, technological banking, and international banking.

Chemical sold off the upstate Manufacturers Hanover branches that it acquired in 1991, while Chase has been trying to shed its upstate branches in rural areas. Community Bank bought 15 Chase branches earlier this year.

"I think the future of community banks is very strong and is certainly not adversely affected by mergers of this sort," Mr. Belden said. "Community banks will now be clearly positioned as an alternative to larger megabanks."

In fact, Mr. Kanas said, the new bank will probably be more of a competitive threat to the larger New York-area banks, such as Bank of New York or Natwest, which compete on the same scale as Chase and Chemical.

But the merger may have other effects on community banks.

"It's so quickly changed the landscape, especially in New York, which has been kind of sleepy while the rest of the country has been heating up," Mr. O'Brien said. "It's going to make everybody sit up and take notice. The New York market is just too fragmented."

As a result, the deal is likely to spur other mergers in the Big Apple as midsize and community banks strive to be more competitive and efficient, he said.

"This will probably increase the pressure," he said. "It raises the threshold to be able to compete efficiently. I don't think you have to be $300 billion in assets to be competitive, but it makes it harder to be efficient when you have those kinds of competitors."

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