Some people talk about the "Wal-Mart-ization of banking," but Texan Joe Long wants to put a little banking into Wal-Mart.

Since 1994, the 67-year-old chief executive officer of First State Bank has opened 27 branches in Wal-Mart and Kmart superstores across the Lone Star State. In the process, he's busted common notions of what a community bank is and, he hopes, prepared his bank for the future.

"People are looking more for convenience and service than a name they know," Mr. Long said. "Branches have to go to where the customers are."

The bulk of First State's $499 million of assets are still tied to its network of 12 traditional branches. But Mr. Long is betting that in-store branches will be a big winner down the road.

"In five years they will all be $12 million to $15 million (each) in size and they'll have $10 million loan portfolios," Mr. Long said.

Mr. Long has launched this costly-and some say highly risky-experiment because he believes that small banks must exploit new delivery channels and respond to consumer behavior if they want to thrive. But traditionalists who pound on the importance of local ties question the strategy.

"It's a real tough call having these remote locations where he has no presence whatsoever," said one observer of the Texas banking scene.

Mr. Long's superstore experiment started in 1994 when he learned that Wal-Mart Stores Inc. wanted to put bank branches in its "supercenters." The retailing giant was looking for community banks because they fit with its folksy, homespun image, said Randy Lillard, leasing manager for Wal-Mart.

"It's part of the Wal-Mart culture," he said. "We felt it was better judgment to do that than linking up with a major bank."

The Texas banker had long been interested in in-store branches as a means of reaching more people. The supercenters were appealing because they combine everything from automotive supplies to appliances to groceries under one roof.

People "come to Wal-Mart for one-stop shopping," Mr. Long said, adding that the stores attract 15,000 to 40,000 people a week.

"There are a lot of towns in Texas with 15,000 people that have two banks," he said. The in-store branches offer such communities more banking options, he said.

Besides wanting to reach a captive audience, Mr. Long saw entering superstores as an inexpensive way of diversifying the bank's markets.

"I decided that if we did it, we should do it with more than one or two," he said.

Since 1994, First State has opened 24 branches in Wal-Marts and three in Super Kmarts. Mr. Long plans to open two additional Wal-Mart branches this year.

The branches typically cost $250,000 to open, a third of the cost of traditional stand-alone branches, Mr. Long said. They typically turn profitable in anywhere from six to 20 months, less time than for a brick- and-mortar branch to get into the black.

The branches are open seven days a week and staffed by six employees who have retail sales backgrounds, Mr. Long said. They spend a couple hours in the aisles trying to drum up business.

"The idea of going to where the customers are appealed to me," he said. "That doesn't mean all the customers appreciate being approached when they're shopping."

The in-store branches carry a full line of deposit and credit products and attract small-business as well as retail customers, Mr. Long said. To his surprise, they also attract certificate of deposit accounts as well as checking customers.

But some challenges are confronting Mr. Long's plan.

For one, people often aren't aware of the bank's presence. As many as eight out of 10 superstore customers are oblivious of the branches, Mr. Long conceded.

Waxahachie, in northeastern Texas, is one of the markets in which First State opened an in-store branch. George H. Singleton, chief executive officer of the town's only locally owned bank, doesn't consider the branch much of a threat.

"I think you need more than a Wal-Mart store to get the customers you're trying to attract," said Mr. Singleton, whose Citizens National has $120 million of assets.

But Mr. Long is confident that First State's name will get around. Referring to shoppers who don't notice the bank, he grinned and said, "I just look at them as untapped prospects."

More troubling is the expense issue. The costs of building new facilities, hiring up to 400 new employees, and installing new technology have been formidable.

From 1993 to 1996, noninterest expense at First State bank soared 62.2% to $22.9 million, according to figures from Sheshunoff Information Services.

The number of full-time employees doubled in the same period to 389, according to the Austin research firm. Salary and benefits grew from $5.8 million in 1993 to $11.7 million in 1996.

"It does concern me, and I am working on that problem," he said.

Mr. Long said he expects to see those ratios improve now that the in- store operations are maturing and gaining efficiencies. Moreover, he said the bank can now grow by $300 million of assets without needing to add new employees.

While Mr. Long's plans are radical, they grow out of his 30 years of banking experience.

The strategy of opening banks near shopping centers has appealed to him since 1968. At the time a banking attorney, he invested in a start-up that was going up near the first in-door mall in the Austin area.

Over the years he acquired a larger stake and the bank grew, eventually becoming First State. Then he took an active role, becoming chief executive officer in 1989, when the Texas economy was going down the tubes.

"The bank was my principal financial asset, and I felt like it was something I needed to do," he said

"Most bankers that you would talk to would probably say I am not a traditional banker," said Mr. Long, a gruff former military police officer who collects art. "I don't have a lot of preconceived ideas about how things work."

But there's one thing he says he's learned from banking: the need to be patient and not expect immediate results. He approached this venture from that point of view.

"You all have to come back in five years to see how it works out," he said.

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