When banks merge, closing overlapping branches to reap savings is a no-brainer. But what may appear on paper to be sensible, if not obvious, decisions to shutter branches can be tough to manage, bankers say. When their branch is closed, customers don't always go where the bank expects them to go. Surviving locations must be equipped to handle more consumers and small-business customers. And a host of other issues must be considered, ranging from the presence of competitors nearby to the profitability of the branch to whether a building is owned or leased.

"The physical facility issues are starting to catch up," said P. Sue Perroty, executive vice president of franchise design and delivery management at Philadelphia-based CoreStates Financial Corp., which is in the midst of closing 89 branches following its acquisition of Meridian Bancorp.

Eleven more branches are being divested to satisfy regulators. "I think that's where we're going to get smarter - and the whole industry has to get smarter - about how we make a more valuable equation to the customer to change their habits."

With mergers and acquisitions reshaping the industry, bankers face a challenging balancing act. They want to reduce the size of their expensive branch networks and simultaneously entice more customers to use electronic channels like automated teller machines, telephone banking, and personal computers. At the same time, banks are loath to alienate customers, especially profitable ones who prefer to bank in person at branches. So while many bankers foresee an era where electronic banking will be predominant, they must find ways to keep their present branch-dependent customers happy.

Ms. Perroty noted that both CoreStates and Meridian had made numerous acquisitions in recent years and some branches are "busting out at the seams."

One challenge for CoreStates and other acquisitive banks that are closing branches is accommodating the huge number of customers who pour in on days when Social Security checks and welfare checks arrive. The volume of customers could double at some branches.

To minimize lines at teller windows, CoreStates counts transaction volume at branches and tries to have more staff on hand for peak times. "We know right down to the half-hour increment, in many cases, how much volume we do at any time," said Ms. Perroty.

But Ms. Perroty concedes that while customers might be expected to take their business from a closed branch to the next nearest location, it doesn't always work out that way. One priority of the systems integration is to track the behavior of individual customers.

"We expect to be able to, over a normal course of business, begin to track where customers actually went to do their business," said Ms. Perroty. "And make sure that we are doing either expansions at the right branches, adding the people to the right branches, or managing the customers at the right branches."

Meanwhile, CoreStates is relying on its existing system to track capacity and predict how many customers will visit surviving offices. About 80% of the closed branches are located within three miles of the nearest remaining branch.

In some cases, handling increased volumes is relatively easy and inexpensive. CoreStates, for example, is adding ATMs, opening new drive- through windows, or reopening teller windows that had been vacant.

But some changes are more costly, and require a closer analysis. Ms. Perroty said one problem is a receiving branch that doesn't have enough safe deposit boxes. Customers who rarely use their safe deposit boxes might be given a new one at a more distant branch. And to encourage customers to stay with the bank, Ms. Perroty has toyed with the idea of offering the less convenient boxes free for a year.

One big fear is that closing a branch will drive away profitable customers. Ms. Perroty cited a 1995 First Manhattan Consulting Group study showing that many of the most profitable bank customers continue to be branch-dependent. Other studies have confirmed that it is much cheaper to retain existing customers than to acquire new ones.

So when CoreStates made decisions to close branches, it looked closely at the customer base and household profitability. In some affluent markets, two branches virtually on top of each other remained open. At the King of Prussia Mall in suburban Philadelphia, for example, there is a branch inside and another outside. "Neither facility can handle the volume of business that they both do," said Ms. Perroty.

CoreStates also kept an eye on the competition in deciding whether to close overlapping offices. "That makes a big difference," she said. "If between the two branches there is no competition, you have a pretty good shot at keeping all the customers. If you can stop at one of our competitors along the way, you may be more at risk."

More mundane factors also were weighed, such as whether the facility was owned or leased, and on what terms.

Ms. Perroty said CoreStates is now developing ideas to retain customers and encourage greater use of automated channels, but she declined to elaborate.

Thus far, CoreStates said it has been moving somewhat cautiously to avoid market disruptions. Last month, the bank said that 15 branches originally scheduled to be closed would remain open.

But Ms. Perroty also hinted that the reprieve may only be temporary. "It's either we get more business coming through the branch or we have to make a few tougher calls in the future," she said. "You can't build a church for Easter Sunday."

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