Keefe, Bruyette & Woods Inc. lowered its 2000 per-share earnings estimate for United National Bancorp by 10 cents Tuesday, to $1.60, and reiterated its "market perform" rating for the Bridgewater, N.J., banking company.
Analyst Kevin T. Szocik noted a "drastic decline" in its net interest margin. 
Most small banks' margins have suffered from the Federal Reserve's rate hikes since June 1999, Mr. Szocik said, but $2 billion-asset United National may have been hit harder than most, because it started with lower-cost funds. "Six months ago United National was one of the better ones in the group," he said.
Its per-share earnings rose 77.2% from a year earlier in the second quarter, to 39 cents. United National shares rose to $17.875 on August 25, after plunging to $16.062 on July 18 from $21.375 on March 31.
But last week the stock began to slide again. It fell 43.75 cents, or 2.5% to close at $17.0625 Tuesday.
Mr. Szocik, whose target price for the stock is $20, said it is thinly traded and therefore subject to fluctuations, even in the absence of major events. The stock, which is trading at just under 11 times this year's expected per-share earnings, is cheap in comparison to its peers, he said.
In a statement released with the second-quarter earnings report on July 19, Thomas C. Gregor, chairman and chief executive officer of United National, said that the management is "developing strategies designed to further improve earnings and reduce our sensitivity to interest rates." The bank will focus on developing a high-quality loan portfolio, controlling costs, and building core deposits as well as fee-based revenues, he said.
United National also promised to eliminate some high-priced certificate-of-deposit products and to concentrate on commercial real estate, commercial and industrial loans, and Small Business Administration loans.
"Given the strategy going forward, we look for solid growth" in these areas, Mr. Szocik wrote in a research note. He expects "little overall balance sheet growth for the next few quarters" and "modest margin erosion in the third quarter."
The bank needs "time to implement these changes," Mr. Szocik said, "but United National has been very pro-active in the measures they have taken."
He said he is impressed by the company's "thorough analysis" of its problems and feels particularly confident about their credit outlook, a major concern for other banks. United National's ratio of nonperforming assets to total loans and assets acquired in foreclosure is 0.51%.
Meanwhile, analyst John B. Wimsatt at Friedman Billings Ramsey & Co. reinstated his "buy" rating for Chase Manhattan Corp. Shares of Chase fell 81.25 cents, or 1.54% to close at $51.875 Tuesday.
Elsewhere in the market, investors reversed Monday's upswing and sent banking stocks down, on news of unexpectedly strong home sales. The American Banker index of 50 top banks lost 1.16%, while the index of 225 banks fell 1.23%. The Standard & Poor's 500 index fell 0.28%.
