National Commerce Bancorp. said it would open a series of in-store branches in a joint ownership deal with a Virginia grocery chain.

Memphis-based National Commerce is forming First Market Bank FSB in conjunction with Ukrop's Super Markets Inc. of Richmond to launch at least two dozen supermarket branches in and around the Virginia city. The companies expect to receive final regulatory approval for the thrift charter this week, officials said.

This is the first such joint venture in a supermarket-banking initiative, National Commerce executives said. Though financial institutions have opened an estimated 4,000 in-store branches, the retailers typically act as landlords to the banks.

Through First Market Bank, Ukrop's and National Commerce would be dividing the estimated $10 million initial capitalization cost in half and would share equally in profits, said officials at both companies. The thrift's board of directors would have an equal number of Ukrop's and National Commerce representatives.

"It's essentially a fifty-fifty enterprise. This hasn't been done before," said Thomas M. Garrott, National Commerce's chairman and chief executive officer. "Maybe I'm engaged in wishful thinking, but I think this will be very successful. We think we can make a billion-dollar bank out of this." He projected hitting the $500 million-asset mark within four years.

The partners plan to open the first seven branches Nov. 4. Six will bein Richmond and one in Fredericksburg.

They expect to open three more before yearend and another seven in 1998- one of them in a new Ukrop's planned for Williamsburg. Eventually the partners plan to open branches in most, if not all, of Ukrop's 26 locations.

Each branch will provide a full line of consumer banking services. Investment banking and commercial banking services will be added within the next two years, said officials.

Mr. Garrott said the partnership with the grocery chain should provide a competitive advantage because it will enhance the cooperative nature of marketing and promotional efforts.

"There is not a spirit of partnership" in a landlord-lessee relationship, he said.

James E. Ukrop said his company had been approached by numerous Virginia-based banks about opening supermarket branches. He found National Commerce's joint-ownership proposition the most attractive because of the profit potential for Ukrop's and because of its ability to play a larger role than just landlord. The bank branch also fits in with the grocery company's efforts to enhance customer loyalty by serving a variety of needs, he said.

"We think this will add to our profits and allow us to lower prices," said Mr. Ukrop, chairman of the supermarket chain. "It can be a real win- win for our company and our customers."

As an owner of the thrift, Ukrop's would also be able to offer its 5,000 employees reduced rates on loans and preferential pricing on products and services, said Mr. Ukrop.

The $4.5 billion-asset National Commerce has been an active proponent of in-store branching for 10 years. Indeed, 95 of its 114 branches are in supermarkets or Wal-Mart supercenters in Tennessee, North Carolina, Mississippi, Georgia, and Virginia.

Moreover a company affiliate, National Commerce Bank Services Inc., has made a thriving business out of counseling other banking companies about how to start and run in-store branches.

Hope Willard, an analyst with J.C. Bradford & Co. in Nashville, said the joint venture seems good way for National Commerce to strengthen its presence in an attractive market.

"It's a neat way to build out the strength in Virginia," she said. "The Ukrop family is Richmond. They've got the preeminent hold on Richmond for a grocery."

Ms. Willard was dubious that the concept of shared ownership would catch on.

"These guys view supermarket banking as their business," she said. "Other banks view it as a delivery channel. I just don't see how it would fit with most banks."

Two of the largest banking companies, NationsBank Corp. and Wells Fargo, apparently support that view. Though both have several hundred in-store branches, neither is pursuing joint ownership.

"We looked into joint ownership, but we decided it's not the way we wanted to go," said Ellison Clary, a NationsBank spokesman. "We want everything we do to reinforce our NationsBank brand, and we think we're much more effective at that when we're in total control."

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