National Commerce Bank is one of the leading companies in supermarket banking. This super community bank, headquartered in Memphis, has grown from $1 billion of assets to $2.5 billion in the past 10 years using supermarket banking as its branching strategy.

National Commerce had been a wholesale bank in Memphis for years. Until a decade or so ago, supermarket banking was the last thing anyone in Memphis would have expected of NCB.

The bank has a long history of handling the money of Memphis' upper-crust merchants and other leading business people. It still manages the estate of Elvis Presley.

But management realized that NCB had to broaden its horizons and become a banker to the full community, not only to the upper class.

Bruce Campbell, NCB's chairman at the time, figured that, "in a deregulated environment, we were going to need someone who hadn't been trained to think like a banker." In 1983, he found that man in Thomas Garrot, who became the bank's president. Tom had 17 years in the grocery business before joining NCB.

Tom felt that it was time, to build a retail network for National Commerce, and he tried to do so by opening de novo branches. From 1983 to 1985, the new branches did not meet expectations. The result. National Commerce sought a different strategy to build its retail base, pioneering supermarket branching in 1985.

Today, through relicensing agreements with financial institutions and supermarkets, National Commerce has established more than 300 supermarket branches nationwide. It has established 49 of its own branches in Kroger supermarkets across Tennessee and Virginia.

The company has only 16 traditional branches. No other bank in the country maintains such a mix. It is now the largest consumer lender in Tennessee, using supermarket branches for originations.

"We now make more loans in supermarkets than we do in traditional branches," Mr. Garrott said.

NCB's supermarket-branch loans totaled $225 million in 1992, up from $26.7 million in 1985, and deposits have grown from $1.2 million to $447 million during the period. Supermarket branches have more than 76,000 accounts.

The common wisdom on supermarket banking is that it is a transaction-oriented business and that customers typically just use the branch to cash checks, providing no profit. As a result, many banks that have experimented with supermarket branches have had mixed results.

NCB had a different approach. Mr. Garrott taught branch employees to market bank services as aggressively as groceries are sold.

Supermarket bankers are carefully chosen. They are bright, verbal, and attractive. The average age of the manager in a supermarket branch is 25. They are sales-oriented and get significant stock-option incentives for their work.

I visited a branch and was impressed by the energy level, creativity, interest, and commitment shown by its young staff. They develop their own "jingles" for transmission over the PA system. Such enthusiasm, positive attitude, and energy are priceless and catching.

Lending is pursued aggressively through supermarket branches, yet due to strict under-writing guidelines, nonperforming assets are extremely low.

Loan origination, processing, and credit quality are monitored weekly at a senior management meeting, which is more reminiscent of a retail store's sales meeting than a bank's management gathering, This, I believe, is part of NCB's recipe for success - weekly monitoring of performance at all levels.

Profitability at the supermarket branches developed by NCB is outstanding. Their break-even point is $4 million of deposits and $10 million of loans, versus the $10 million-plus for a stand-alone branch. In-store branches combine low overhead and inexpensive infrastructure (up to $250,000 to build).

The company's results - including an excellent efficiency ratio (down from 68.1% in 1984 to 54.1% in 1992) and profitability ratios (ROA up from 0.74% in 1984 to 1.62% in 1993 and ROE up from 13.84% to 18.11% during that period) - show that super community banking and supermarket banking could be a powerful combination.

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