National Commerce Bancorp. is at the top of the list of an analyst who views Tennessee as one of the top banking markets in the nation.

The Memphis banking company has "superior earnings visibility, management strength, and the potential of high-growth, high-return niche businesses," said Rosalind Looby, a banking analyst at Morgan Stanley Dean Witter & Co.

"In an environment where earnings quality is becoming more challenging to banks," Ms. Looby said, she expects National Commerce to generate 20% growth in earnings per share, 14% growth in revenue, and a return on equity exceeding 23%.

The stock price rose $1 Friday, to $25.

Ms. Looby said she thinks highly of the Tennessee market in general as one that is "very desirable in terms of growth and demographics. Further, the near-term earnings challenges faced by several local banks increase their vulnerability to takeover."

National Commerce's retail strategy centers on in-store branches; 80% of its 148 offices are in supermarkets or discount stores.

Influences on National Commerce's earnings include expertise in sales and sales training, facility design, product design, incentive compensation, credit risk management, and innovative branch-based marketing, Ms. Looby said.

The company's in-store business has grown at a 20% compound annual rate since it was begun in 1994 and now earns 5.7% of profits.

National Commerce "has significant opportunities to further enhance the growth and profitability of its in-store network," Ms. Looby said.

To increase earnings, National Commerce brokers the sale of in-store branch space to other banks, generating an annuity-like sublicense income. The company also is a consultant on facility design and employee recruitment and training.

The banking company has said it wants to use acquisitions to expand, which Ms. Looby sees as potentially posing risks.

"While we understand management's desire to leverage its business model and diversify its earnings mix, we are concerned that a large transaction could draw critical management attention away from the core strategy or taint the bank's unique entrepreneurial culture," Ms. Looby said.

Meanwhile, shares of Sovereign Bancorp of Wyomissing, Pa., rose sharply, $1.4375, to $13.875.

"You can make a case that this bank is growing more quickly than its peers and the momentum people are getting interested," said John Rezai, a banking analyst at Blaylock & Partners in Baltimore. "You've got the growth and the value investors in there today."

The activity came as bank stocks were giving back some of their gains from early last week.

The Standard & Poor's bank index was off 0.17%, and the Dow Jones industrial average shed 0.23%. The Nasdaq bank index rose 0.76% and the S&P 500 0.33%.

"We started out with a relatively strong bank market," said Nancy Bush, a banking analyst at Ryan, Beck & Co. "It died down because of some concerns about earnings and how the dispute in Kosovo will be resolved."

BankAmerica Corp. was off 50 cents, to $74.375; Chase Manhattan Corp. $2.3125, to $85.5625; and J.P. Morgan & Co. $1.25, to $128.75.

Some investors may be on the sidelines, awaiting the first-quarter earnings announcements due this week.

"The action we see in the stocks will be dominated by what is reported," said Thomas Theurkauf, a banking analyst at Keefe, Bruyette & Woods Inc. "In general, I think the figures will be comforting."

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