Raymond James Bullish On Old Second Bancorp's Growth, Profitability

Old Second Bancorp Inc. OSBC has completed its transformation phase and is well-positioned for strong growth and industry-leading profitability while maintaining a healthy core deposit base, according to Raymond James.

The Analyst

David Long initiated coverage of Old Second Bancorp with an Outperform rating and $15 price target.  

The Thesis

A focus on community banking has enabled Old Second Bancorp to build a stable and low-cost deposit base, Long said in the Monday initiation note. 

As of the fourth quarter, the bank’s deposit base was comprised of 49 percent savings, NOW and MMA; 29 percent noninterest bearing demand; and 22 percent time deposits, the analyst said.

"This mix has been very beneficial during the current tightening cycle," he said. 

Chicago is among the nation’s most fragmented banking markets, which gives Old Second Bancorp the opportunity to selectively acquire small community banks that are most aligned with its offerings, Long said. This allows the bank to add scale and increase its Chicago presence, he said. 

In turn, Old Second Bancorp is also an attractive acquisition target for larger banks in Chicago given its enhanced credit profile, strong return metrics and stable low-cost deposit base, the analyst said. 

The bank’s ability to accelerate the generation of excess capital lends upside to EPS estimates, which do not reflect any acquisitions or share buybacks, Long said. 

The stock is trading at a discount to peers and is positioned for outperformance ahead, according to Raymond James. 

Price Action 

Old Second Bancorp shares were up 0.45 percent at $13.29 at the time of publication Tuesday. 

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Photo by Dustin Blitchok.