DALLAS -- In the fight for small-business customers, First Interstate Bank of Texas may have found a secret weapon: grocery store branches.

At a time when bankers are using everything from seminars to telemarketing to find new customers, First Interstate executives admit they were pleasantly surprised to find that some in-store branches are a magnet to small businesses in shopping centers that dot its urban markets.

With 37 branches in Randall's Food Markets statewide, the subsidiary of Los Angeles-based First Interstate Bancorp had expected to use the in-store branches to improve its consumer reach. The bank is finding that businesses are attracted to the branches for the same reason as consumers -- convenience.

"The only thing our in-store branches can't do is have drive-in lanes," said Harold "Butch" Steeley, a senior vice president and area manager at First Interstate in Dallas. "We have all the other services our traditional branches have."

The company expects to target small business in promoting the in-store branches, which have generated $1.4 million in small-business loans statewide during the first nine months of this year.

In coming months, Mr. Steeley said, he expects to promote the bank's Small Business Administration lending capability once it completes the acquisition of Bank of North Texas, one of the nation's largest SBA lenders.

Though the experience of First Interstate is not common, experts say it's a growing phenomenon.

J. Alton Wingate, president and chief executive of Financial Supermarkets Inc., a Cornelia, Ga. consultancy, said that small-business owners use in-store branches because of their flexibility.

"We're finding throughout the Southeast that what's appealing to the small-business owner is the extended hours of the in-store branch," he said.

In fact, the 24-hour security provided at many new grocery stores is another plus for small retail businesses that often locate in shopping centers, as well as for outlets of large national chains, Mr. Wingate added.

First Interstate is getting both kinds of customers. Sue Butler, manager of the bank's in-store branch in tony North Dallas, said her location in a Tom Thumb grocery store is at one of the busiest intersections in the city.

Besides handling as many as two large deposits daily from the Tom Thumb store, Ms. Butler said, the branch has booked more than 100 business accounts since opening 11 months ago.

Her biggest challenge, she said, is letting businesses in the area know the branch offers the full range of services provided at a typical brick-and-mortar branch.

But with many business people already using the grocery store's delicatessen as a meeting place, Ms. Butler is confident she can get the word out.

"We've got a market that's easily accessible to us," Ms. Butler said. "We've got a 75,000-square-foot lobby out here."

Despite the enthusiasm displayed by First Interstate over its new marketing tool, other bankers remain skeptical.

NationsBank Corp. is one of the three banks and two thrifts competing with First Interstate at the same North Dallas intersection.

Rick Parsons, executive vice president at NationsBank in Texas, said First Interstate had succeeded for the same reason his branch is prospering at the edge of the shopping center.

"When you're in a good location where there are lots of small businesses, you are going to see good growth numbers," Mr. Parsons said. "They opened up a few weeks after we did. We've got the hard corner there, and we could not be more pleased with our location."

Mr. Parsons is unconvinced that the in-store branching concept will draw business customers outside an area, like the upscale North Dallas neighborhood.

"Do small-business owners think of going to the grocery store to get a commercial loan? I don't see the market yet," Mr. Parsons said. "It will take a while for businesses to see the grocery store as a place they can take care of their banking needs."

Other factors must be considered when using an in-store branch to market to small-business customers.

Stephen Miller, vice president and regional manager for in-store branches in Columbus, Ohio, for National City Corp., said his bank uses people with different talents to operate a retail-oriented grocery store branch than are used for a traditional branch.

"Generally, the people in the big grocery stores do not have the skills to make commercial loans," Mr. Miller said. He noted that serving commercial accounts would require more space and tellers to avoid delays for retail customers.

T9 meet the special needs of small-business customers, National City's in-store managers refer them to the bank's business services group. Mr. Miller said someone from that group typically works in a traditional branch within 1 1/2 miles of the grocery store.

First Interstate does the same. In fact, Ms. Butler said, she refers an average of two customers a week to the business banking group.

In some weeks, she added, she may make as many as 10 referrals to the bank's lending officers.

The business generated is not a giveaway either, said Mr. Steeley, the First Interstate senior vice president. The bank earns fee income from small-business deposits, typically demand deposits.

These deposits also tend to stay with the bank longer than do deposits from larger companies.

The in-store branch also puts the bank in a position to sell other products. Financial Supermarkets' Mr. Wingate said banks can market cash management services to small businesses with large overnight balances.

While Mr. Steeley agreed that location is a big factor in how well any branch sells its services, he said First Interstate's branches are well positioned as small companies continue to cluster in strip malls.

"There are some markets that are more geared to business than others," he said. "With that said, though, most of our store branches are in shopping centers, and most of the stores in those shopping centers are small businesses."

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