Something curious is happening at Old Second Bancorp. While they publicly preach patience and prudence when it comes to stock repurchases, their own words and financial data paint a picture of a company poised to pull the trigger on a buyback spree. Reading between the lines of their Q1 2024 earnings call transcript, and delving deeper into their financial performance, a compelling case emerges that a buyback could be imminent.

Old Second's CEO and CFO, Jim Eccher and Brad Adams respectively, walk a tightrope in their public pronouncements. They acknowledge the attractiveness of buying back their stock, especially given its current undervaluation. They even highlight the swift capital accumulation fueled by their robust earnings and a recovering securities portfolio. Yet, they stop short of committing to immediate action.

Instead, they dangle the prospect of a strategic M&A play. They repeatedly emphasize the potential for significant EPS accretion through a merger, particularly in a market where many banks struggle with impaired balance sheets. Capital, they argue, is king in such an environment.

However, this M&A narrative starts to unravel under closer scrutiny. Adams himself admits that "those deals don't grow on trees." He acknowledges the difficulty of finding a suitable acquisition target, especially at a price that makes financial sense for Old Second. It appears the M&A option is more of a theoretical exercise than a concrete plan.

Key Financial Indicators

Meanwhile, the numbers speak volumes. Old Second's tangible common equity ratio has skyrocketed by 221 basis points over the last 12 months, reaching a formidable 9.04%. This incredible capital build, coupled with strong profitability and a shrinking unrealized loss on their securities portfolio, points to a company drowning in excess capital. They even received Fed approval to resume stock buybacks in December 2023, signaling their readiness.

Furthermore, Adams lays out a clear buyback trigger: when their stock price dips below their projected 12-month forward tangible book value per share. He tantalizingly reveals that "we are very close to that threshold."

Hypothesis and Catalysts

The stage seems set. The stars are aligning. All signs point to Old Second fulfilling their own buyback prophecy. It's no longer a question of "if" but "when" they will unleash this pent-up capital to reward their shareholders.

"Old Second will initiate a substantial stock buyback program within the next two quarters."

Supporting Data:

- **TCE Ratio Growth:** 221 basis point increase over the last 12 months, reaching 9.04%.

- **Unrealized Loss on Securities Portfolio:** Declined significantly, indicating capital recovery.

- **Fed Approval for Stock Repurchases:** Received in December 2023.

- **CEO/CFO Comments:** Repeatedly acknowledge the attractiveness of buybacks and their proximity to a self-imposed trigger.

Potential Catalysts:

- **Q2 2024 Earnings Release:** Strong earnings and continued capital build could provide the impetus.

- **Further Stock Price Weakness:** A dip below the 12-month forward tangible book value threshold could force their hand.

- **Lack of M&A Activity:** The absence of suitable acquisition targets could shift their focus definitively towards buybacks.

This buyback potential, coupled with their conservative credit practices and robust earnings, could propel Old Second's stock price higher. Investors should closely monitor their upcoming earnings releases and any announcements regarding capital deployment. The company's actions could be more revealing than their cautious pronouncements.

"Fun Fact: Old Second Bancorp gets its name from the second state bank chartered in Illinois, back in 1851. This historical connection underscores their deep roots in the community banking space."