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Takeaway: $TCB remains one of our favorite longs. It looks like Chicago is poised to make significant gains and TCB should benefit.

Thesis Continuing to Play Out

One of our primary bullish thesis points on TCB has been the recovery in housing, reflating its distressed collateral. The company has approximately 30% of its residential loan book in Illinois. To date, Chicago has been a laggard among major markets on a home price basis. We think that is likely to change in the coming 12 months. Consider the chart below.

We're showing inventory (x-axis) and volume (y-axis) changes on a YoY basis by market as of either January or February, depending on the market. Our work has shown that prices lag both demand (sales volume) and supply (inventory) in housing by 11-18 months. Currently, Chicago is one of, if not the strongest looking market on a prospective basis. The change in inventory over the past year is -41.6%, while the change in demand is +32.3%. Putting those two factors together creates a very powerful tailwind for the coming year. Given how much exposure TCB has to this market, we think they will be a primary beneficiary of Chicago's coming property recovery. For reference, the bubble size corresponds to the LTM change in home prices for that market. The best long plays are small bubbles in the top left quadrant, and vice versa.

Interestingly, we also ran across this article (hat tip bankstocks) that profiles the nascent Chicago recovery: Chicago Tribune

TCB: CHICAGO TAILWIND - bubble chart


Joshua Steiner, CFA