A Phoenix start-up bank is betting that local small businesses want an alternative to the out-of-state banks that dominate the Arizona market.

First Capital Bank, which opened in August with $5.7 million of capital, intends to focus on small manufacturers with credit needs of $1 million or less.

"The community still consists of a lot of small businesses that like the person-to-person contact that we can offer," said Lyle D. Frederickson, First Capital's senior vice president in charge of the small-business lending effort.

"The bigger banks - to their credit - are very closely examining product profitability and relationship profitability, and they are targeting their efforts to the more profitable relationships," he said.

Mr. Frederickson knows what he's talking about. He has 16 years of commercial banking experience, first with Valley National Bank and then with Banc One Corp., which acquired Valley National in 1993. He left Bank One Arizona, where he oversaw the government-guaranteed small-business lending, in July.

Some of the other members of the bank's 13-member staff have experience with Banc One and other superregionals in the state. By leveraging past relationships, Mr. Frederickson and the others have cranked out six small- business loans - with more than 20 in the pipeline - without advertising.

Located in the center of Phoenix, First Capital seeks to serve the entire state and generate $15 million of assets by 1997, Mr. Frederickson said. He has already traveled 136 miles north to Flagstaff to close deals.

Although the bank intends to open more branches, it also wants to reach remote customers with personal computer-based cash management systems and commercial automated teller machines that accept business deposits. Mr. Frederickson said Bank One's deployment of such machines is something he wants to emulate.

Mr. Frederickson and First Capital are not alone in seeing an opportunity to cater to small businesses that want to deal with a local bank in Arizona's heavily consolidated market. Ten out-of-state banks control 96% of the state's banking deposits.

Since 1995, four banks have sprouted up to cater to the niche, after a 10-year drought, said Gordon Murphy, executive vice president of the Arizona Bankers Association. Three or four new charters are in the works.

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