TCF Financial's push for supermarket branches, which has been a drag on earnings, should help boost its profitability by next year, an analyst said.

The Minneapolis banking company's results are poised to increase by 15% to 20% annually, said Ben Crabtree of Dain Rauscher Wessels. On Tuesday, TCF shares were up $1, to $25.

Supermarket banking is not the only reason better results are expected. TCF's home equity loan portfolio "will show noticeable net growth as early as the first quarter and quite vigorous expansion thereafter," the analyst said.

He attributed the expansion to a recent drop in prepayment rates together with strong new sales. The surge in refinancing applications is working its way through loan originations, Mr. Crabtree said, and prepayment rates on the existing home equity loan portfolio seem to be dropping quite noticeably.

"This, together with the strong new sales trend ... resulting from the company's new tiered pricing, suggests that the home equity portfolio will show noticeable net growth" in coming quarters, he said.

Mr. Crabtree acknowledged that his assessment "presumes an interest rate forecast, but we believe it would take a sharp drop in the (30-year Treasury) bond to push the refinance percentage back up significantly."

Meanwhile, the heavy cost of TCF's grocery store branch expansion "is in a long topping-out phase," Mr. Crabtree said.

About 40 offices will be opened in grocery stores this year, "with expenses approximately flat" from 1998 levels, he said. "As the new branches mature, checking account balances, related fee income, and even loan volume should be on an upward ramp."

The in-store branches will continue to lose several cents per share in the first half, but that loss should start shrinking in the second half, and the new branches as a whole should swing into the black in 2000, Mr. Crabtree said.

TCF's earnings comparisons are likely to go from modestly positive in the first quarter to sharply positive in the second half of the year and into 2000, he said.

And he said he sees TCF's earnings growth moving into the 15% to 20% zone. "This improving momentum by itself should create the potential for meaningful upside" in the share price, Mr. Crabtree said.

The assessment came as the Standard & Poor's bank index fell 1.18% and the Dow Jones industrial average 0.20%. The S&P 500 fell 0.17% and the Nasdaq bank index 0.52%.

Citigroup lost $2.25 a share, to $59; Chase Manhattan Corp. 43.75 cents, to $80.625; and J.P. Morgan & Co. 43.75 cents, to $112.0625.

Shares of Unionbancal rose 43.75 cents, to $32.9375, after banking analyst David Hilder of Morgan Stanley Dean Witter & Co. resumed coverage with a "strong buy" rating.

Company initiatives "will lead to significant improvements in the bank's return on equity and growth in earnings per share," Mr. Hilder said.

He said the stock price should reach $45 in the next 12 months, and he set earnings-per-share estimates of $2.75 for 1999, $3.15 for 2000, and $3.60 for 2001.

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