Competition in Close Quarters

"I can remember not too long ago thinking, 'Lord, we're paying $200,000 for that site, how are we ever going to make money?" said Dick Prosser, a vice president at BB&T who has the difficult job of finding locations for the North Carolina bank. "It just goes to show you, the old adage about location, location, location still applies."

For customers, the proliferation of branches may mean greater convenience and higher interest rates on deposits as the banks go beyond offers of free toasters and checking to attract business. Chevy Chase and BB&T, already dominant in most suburban counties, are also offering among the highest certificate-of-deposit interest rates in the region, according to Bankrate Inc. It is also putting pressure on fees, especially account-servicing fees, according to experts. Only ATM fees levied against non-customers appear immune to competition.

It also risks a backlash.

Prosser and other retail-location specialists say banks have embarked on what drugstore chains and coffee shops did 10 years ago, and gasoline stations did in the 1970s -- snapping up as many spots as possible in the best neighborhoods, if only to stave off competition. Along with overexpansion, consumers may get fed up by seeing delis and dry cleaners disappear: Rapid branch openings in the Chicago suburbs prompted more than a dozen counties and towns to ban new bank branches.

"I'm shocked where we are with the banks these days," said Dallon Cheney of Madison Retail Group, which represents retail landlords in the Washington area. "It's like nothing I've ever seen before. I guess they think the business is just so lucrative that they don't need to discriminate."

The rapid growth in branches also reflects changes in the banking business. From 1986 to 1999, a wave of bank mergers actually decreased the number of branches in some areas, as new owners shut down facilities in an effort to shave costs.

The strategy has shifted as banks realized they needed to court consumers with more convenience, not less. Branches may be expensive to run, but they are potent sales engines for a variety of high-margin loan and investment products, not to mention the best way to collect cheap deposits, particularly from businesses and wealthy customers with the biggest checking accounts.

One-upsmanship also plays a role. With several banks, especially Chevy Chase and newcomer Commerce Bank, promising to open hundreds of branches in the next decade, competitors can't afford to cede a neighborhood. One bank plants its flag and others feel compelled to match it.

"The demand is creating a feeding frenzy for some neighborhoods," said Chris Weilminster, senior vice president of leasing at Federal Realty Investment Trust, a Rockville company that owns 32 shopping centers in Maryland, Virginia and the District, many in the prime suburban locations coveted by banks.

Commerce and Chevy Chase, in particular, are going head-to-head for new locations, according to bankers and brokers familiar with their strategies. The fight matches up two sharply divergent men: Commerce's Vernon W. Hill II, whose first career was finding and developing sites for McDonald's restaurants in the Washington area, and Saul, who used his family real estate business as the foundation for Chevy Chase, now the dominant local bank with 250 branches.

Real estate sources and others familiar with the two banks, who spoke only on condition of anonymity because both companies are closely guarding their strategies, say both are deploying SWAT teams of site selection, development and leasing agents to find prized locations before the other one does.

"Frank is consumed with fighting off Commerce," said one friend of Saul, 73. "He's always been very competitive, but I've never seen him like this before."