Shares of Minneapolis TCF Financial Corp. edged higher Wednesday after Merrill Lynch & Co. initiated coverage with a generally positive review.
Merrill analyst Edward R. Najarian started the $11.8 billion-asset bank holding company with a near-term accumulate rating and a long-term buy, saying its business model makes it a standout among regionals. 
TCF is positively differentiated from most other midcap banks, Mr. Najarian wrote. We regard TCF as a midcap growth bank positioned to deliver stronger-than-average earnings-per-share growth.
For this quarter Mr. Najarian expects the company to report profits of 64 cents per share, up 14.3% from last year and in line with consensus reported by First Call/Thomson Financial. For the full year he predicts $2.60, a penny above consensus and up 15.6% from a year earlier.
Mr. Najarian said TCF has enhanced its business mix by exploiting its focus on service and convenience to rapidly grow higher-yielding loans and leases, non-CD deposits, and fee-based revenues.
He added that some risk remains, however, because of a rapidly growing loan portfolio that could lead to increasing loan losses; a possible reduction in credit card interchange fees; and a cooling refinance boom.
Supermarket banking has been one of the companys successful business lines, he wrote. Since opening the first in-store branch in 1988, the company has grown through acquisition and new branches to 215 supermarket branches and plans to add another 23 this year, in addition to seven regular branches to be opened by yearend.
TCF also introduced a debit card in 1996 and is now the 16th largest issuer of Visa debit cards with 1.1 million cards in circulation, Mr. Najarian wrote. Last year, TCF increased its total debit cards outstanding by 14% and its average number of monthly transactions per card by 11%, he wrote, producing $28.7 million in revenue, up 47% from a year earlier.
Jason Goldberg of Lehman Brothers is even more bullish on the company and rates the stock strong buy.
Focusing on the working-class consumer, the company has a model that works and continues to grow it, he said. This is a liability driven story, he added, pointing out that low-cost deposits is an area of banking that was neglected by other banks for some time.
Mr. Goldberg agreed with Mr. Najarian that TCF stands out among regional banks in terms of its targeted business model. He compared it with Zions Bancorp and Commerce Bancorp, companies providing higher than average returns. In comparison with such peers, TCFs current multiple of 15.84 times earnings has still considerable upside potential. Zions trades at a multiple of 18.6 and Commerce at 26.54.
TCF was up 1.85% on another sluggish day for bank stocks. The American Banker index of 225 banks was down 0.43%, slightly outperforming the Standard & Poors 500 index, which fell 0.46%. The Nasdaq fell 1.95%.
Thrifts, however, did better. The thrift index was up 0.71% and the big names of the group were among the days biggest gainers. Golden West Financial rose 4.2%, and Washington Mutual 2%.
