Market branches put small banks in express lane.

Community banks that may lack the resources to develop alternate delivery channels with the. latest technology are finding that supermarket branches can be a relatively low-cost way to reach more customers, enter new markets, and compete effectively with regionals.

At Mitchell Bank, a $75 million-asset institution based in Milwaukee, supermarket branches are being used to meet a variety of objectives. Primary goals there have been to build assets and provide convenient service to customers in and around the Milwaukee area, said bank president Timothy A. Janke.

Bank officials realized that opening in-store branches would allow them to have "alternate locations at low cost, and with high visibility," he said, adding that the bank's two supermarket branches have been "a great solution."

Since establishing its first instore location in 1991, and its second last year, the bank has experienced an 80% growth in its deposit base, said Mr. Janke.

The branches are "a low-cost way to reach a lot of people who are not your customers," he said, giving the bank an opportunity to increase its market share.

According to the bank's records, for the past four years, a significant amount of traffic and transactions have moved away from the main office to the full-service supermarket locations.

The main office, for example, which, in 1991, did an average of 9,000 monthly transactions, today does 8,000. The drive-through location at the main office has gone from 13,000 monthly transactions in 1991 to 11,000 today.

The supermarket branches, on the other hand, have taken off, said Mr. Janke. The first supermarket branch now does over 6,000 transactions a month. The second does 2,000 monthly transactions already. Mr. Janke expects the increase in transaction volume at the supermarket branches to continue.

The activity has "helped us achieve our growth objectives," he said. The bank increased its assets from $58 million in 1991, to $75 million today.

The use of supermarket locations to provide convenient service and attract potential new customers is also a strategy that's been employed at First National Bank of North Dakota, a $435 million-asset institution based in Grand-Forks. The bank took the idea a step further by using supermarket locations to move into a completely new market.

In 1992, the bank established its first branch in Fargo in a store. Today, the bank has four locations there.

Opening retail branches in the heart of one of the largest communities in eastern North Dakota was "a tremendous strategy for us," said Randy Newman, president of the bank. "Most people [entering the stores] are not our customers," he said, "giving us the opportunity to interact with them and capture more of the market."

Mr. Newman reported that there is a "much higher" number of account openings at the supermarket locations, and that the bank's loan-to-deposit ratio "exceeded expectations" of bank officials.

"The bank is making more loans out of supermarket locations than traditional branches," he said. "Our employees can get to know customers because they see them shopping. We're providing bank services in an environment the customer creates by going to the grocery store."

The bank will be opening an additional supermarket branch, its first in Grand Forks, by mid-November. The supermarket in which the bank will be located has 80% of the grocery market, said Mr. Newman, a location that will allow the bank not only to get new customers, but to serve its existing customers and retain market share there.

Both Mitchell Bank's Mr. Janke and First National's Mr. Newman agree that supermarket branches allow the banks to be more accessible to customers, without having to rely on expensive, traditional brick and mortar.

Supermarket branches can typically be built for $150,000 to $200,000, whereas traditional branches can cost four and five times that much, according to Memphis-based National Commerce Bank Services, an affiliate of National Commerce Bank Corp., a leading provider of supermarket banking services.

In-store branches also serve as an alternative to technology-based delivery channels, which often require resources smaller banks don't have, said Mr. Newman.

"Regional banks have more dollar resources than we do," he said. "We know the community and customers, but we need. to compete with the technology delivery systems. We need to outdo them on convenience and personal service, which supermarket banking meets."

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