UKROP'S SET TO OPEN FIRST STAND-ALONE BANK BRANCH

RICHMOND, Va. -- First Market Bank, the recently formed in-store bank jointly owned by Ukrop's Super Markets here and National Commerce Bancorp., Memphis, Tenn., is revamping its business plan to include stand-alone branches outside the supermarket.The first branch will open March 9, located close to one of Ukrop's 25 stores. Another five stand-alone bank branches are planned by mid-year, all in the

RICHMOND, Va. -- First Market Bank, the recently formed in-store bank jointly owned by Ukrop's Super Markets here and National Commerce Bancorp., Memphis, Tenn., is revamping its business plan to include stand-alone branches outside the supermarket.

The first branch will open March 9, located close to one of Ukrop's 25 stores. Another five stand-alone bank branches are planned by mid-year, all in the Richmond area.

This strategy marks the first time a U.S. supermarket chain has engaged in banking outside the walls of its own stores, according to executives from both companies. It's also the latest twist in a bank/retail venture that is also the first in the nation in which a supermarket acts as an equity partner, rather than merely a landlord, for an in-store bank.

"We're moving a lot faster than we had anticipated because of this window of opportunity that's opened up," James Ukrop, vice chairman and chief executive officer of Ukrop's, told SN.

Recent bank mergers in Virginia have resulted in the planned closings of as many as 36 duplicative branches in the Richmond market. First Market plans to buy or lease brick-and-mortar branches from either Wachovia Corp., Winston-Salem, N.C., or First Union Corp., Charlotte, N.C., as those banking giants shut overlapping facilities.

After renovations, the branches, which include drive-through teller windows, will reopen under the First Market banner.

Even though National Commerce operates 95 of its 114 branches in supermarkets and other retail segments throughout the Southeast, First Market marks the first time the bank has taken on a retailer as a partner. National Commerce executives said the venture is attracting attention from numerous retailers around the country.

"Every major grocery store chain, public or private, is watching this venture," to reassess the typical landlord/lessee relationship between a bank and a retailer, said William Reed Jr., vice chairman of National Commerce. He did not identify specific retailers who have expressed interest.

An estimated 4,500 banks operate in supermarkets and retail outlets throughout the country. That number is expected to grow to 7,500 by the year 2000, according to National Commerce Bank Services, a subsidiary of National Commerce that provides consulting services on in-store banking.

First Market opened seven branches within Ukrop's stores in November, as the beginning of a 24-unit rollout expected to take three years. The current total of 10 in-store branches is taking in deposits at two to three times the projected rate, however.

Part of the bank's success is credited to Ukrop's fiercely loyal customer base.

"I don't think there's any question that the tremendous loyalty to Ukrop's gives First Market a leg up," said Anthony Davis, an analyst at SBC Warburg Dillon Read, New York. "With the amount of flux in the market, Ukrop's stands as a stable franchise for consumers to turn to."

Until the new strategy of pursuing freestanding branches was embraced at a board meeting earlier this month, First Market's expansion was limited by the number of Ukrop's stores it could set up shop in.

But now the partnership's potential for growth has expanded. Thomas Garrott, chairman and chief executive officer of National Commerce, had predicted that First Market would reach $500 million in assets within four years. That goal might be met in less than half that time, he noted.

First Market Bank could become more profitable than the supermarket side in terms of absolute dollars, Ukrop said. But, "that's a good number of years coming, I'm sure," he said.

Ukrop's equity position in First Market offers it the potential of an income stream that far surpasses the 1% margins typically generated by retailers. Such profitability could eventually give the chain an edge over competitors that merely lease space to banks or that don't offer banking at all, Ukrop said.

Opening stand-alone branches means Ukrop's and National Commerce will have to ante up another contribution to the venture's original $10 million capitalization, but neither partner would specify exactly how much more would be required.

First Market's success doesn't mean supermarkets will rush to renegotiate their in-store banking agreements for an equity position, said Hope Willard, a banking analyst at J.C. Bradford & Co., Nashville, Tenn.

"I don't know that they'll be able to find other banks as warm to the idea," she said.

Willard also noted that an equity position might not make as much sense for a supermarket that isn't the leader in its market. "Whatever the entity -- a retail store, a supermarket, whatever -- they'll need to bring an intangible to the relationship that's equally as important as Ukrop's customer loyalty" brought to First Market, she said.