10-Q

I  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
	THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For transition period fromto

Commission File Number 0 -10537

(Exact name of Registrant as specified in its charter)

Delaware	36-3143493
(State or other jurisdiction	(I.R.S. Employer Identification Number)
of incorporation or organization)

37 South River Street, Aurora, Illinois     60507

(Address of principal executive offices)  (Zip Code)

(630) 892-0202

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒        No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒ No ☐

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act).  (check one):

Large accelerated filer ☐   Accelerated filer ☒  Non-accelerated filer☐   (do not check if a smaller reporting company)  Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

Yes ☐        No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: As of August 6, 2015, the Registrant had outstanding 29,478,429 shares of common stock, $1.00 par value per share.

OLD SECOND BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents

	PART I
		Page Number
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4.	Controls and Procedures	46
	PART II
Item 1.	Legal Proceedings	47
Item 1.A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosure	47
Item 5.	Other Information	47
Item 6.	Exhibits	47
	Signatures	48

2

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)

	(Unaudited)
	June 30,		December 31,
	2015		2014
Assets
Cash and due from banks	$	29,164	$	30,101
Interest bearing deposits with financial institutions		9,352		14,096
Cash and cash equivalents		38,516		44,197
Securities available-for-sale, at fair value		399,836		385,486
Securities held-to-maturity, at amortized cost		253,419		259,670
Federal Home Loan Bank and Federal Reserve Bank stock		8,271		9,058
Loans held-for-sale		6,208		5,072
Loans		1,158,883		1,159,332
Less: allowance for loan losses		18,321		21,637
Net loans		1,140,562		1,137,695
Premises and equipment, net		41,696		42,335
Other real estate owned		31,964		31,982
Mortgage servicing rights, net		5,884		5,462
Bank-owned life insurance (BOLI)		57,444		56,807
Deferred tax assets, net		65,473		70,141
Other assets		15,780		13,882
Total assets	$	2,065,053	$	2,061,787
Liabilities
Deposits:
Noninterest bearing demand	$	432,773	$	400,447
Interest bearing:
Savings, NOW, and money market		877,587		865,103
Time		403,192		419,505
Total deposits		1,713,552		1,685,055
Securities sold under repurchase agreements		32,415		21,036
Other short-term borrowings		20,000		45,000
Junior subordinated debentures		58,378		58,378
Subordinated debt		45,000		45,000
Notes payable and other borrowings		500		500
Other liabilities		9,967		12,655
Total liabilities		1,879,812		1,867,624
Stockholders’ Equity
Preferred stock		31,553		47,331
Common stock		34,423		34,365
Additional paid-in capital		115,651		115,332
Retained earnings		106,791		100,697
Accumulated other comprehensive loss		(7,211)		(7,713)
Treasury stock		(95,966)		(95,849)
Total stockholders’ equity		185,241		194,163
Total liabilities and stockholders’ equity	$	2,065,053	$	2,061,787

	June 30, 2015				December 31, 2014
	Preferred		Common		Preferred		Common
	Stock		Stock		Stock		Stock
Par value	$	1	$	1	$	1	$	1
Liquidation value		1,000		n/a		1,000		n/a
Shares authorized		300,000		60,000,000		300,000		60,000,000
Shares issued		31,553		34,422,234		47,331		34,364,734
Shares outstanding		31,553		29,478,429		47,331		29,442,508
Treasury shares		-		4,943,805		-		4,922,226

See accompanying notes to consolidated financial statements.

3

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)

	(unaudited)				(unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Interest and dividend income
Loans, including fees	$	13,467	$	13,046	$	26,685	$	25,984
Loans held-for-sale		72		29		115		54
Securities:
Taxable		3,372		3,352		6,747		6,854
Tax exempt		163		118		304		266
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock		77		78		154		154
Interest bearing deposits with financial institutions		19		20		31		35
Total interest and dividend income		17,170		16,643		34,036		33,347
Interest expense
Savings, NOW, and money market deposits		183		188		362		387
Time deposits		771		1,210		1,578		2,531
Other short-term borrowings		7		3		16		5
Junior subordinated debentures		1,071		1,388		2,143		2,775
Subordinated debt		202		198		399		394
Notes payable and other borrowings		-		4		4		8
Total interest expense		2,234		2,991		4,502		6,100
Net interest and dividend income		14,936		13,652		29,534		27,247
Loan loss reserve release		(2,300)		(1,000)		(2,300)		(2,000)
Net interest and dividend income after provision for loan losses		17,236		14,652		31,834		29,247
Noninterest income
Trust income		1,596		1,677		3,082		3,136
Service charges on deposits		1,779		1,796		3,320		3,516
Secondary mortgage fees		281		155		525		267
Mortgage servicing gain, net of changes in fair value		500		64		292		17
Net gain on sales of mortgage loans		1,695		1,038		3,318		1,700
Securities (loss) gain, net		(12)		295		(121)		226
Increase in cash surrender value of bank-owned life insurance		283		366		637		724
Debit card interchange income		1,050		930		2,009		1,760
Other income		1,092		1,160		3,175		2,456
Total noninterest income		8,264		7,481		16,237		13,802
Noninterest expense
Salaries and employee benefits		9,149		9,183		18,404		18,284
Occupancy expense, net		1,094		1,185		2,365		2,666
Furniture and equipment expense		1,065		984		2,066		1,967
FDIC insurance		377		627		650		906
General bank insurance		310		343		667		832
Amortization of core deposit		-		511		-		1,023
Advertising expense		353		459		558		762
Debit card interchange expense		400		412		752		790
Legal fees		420		409		643		666
Other real estate expense, net		2,388		1,650		3,740		2,658
Other expense		3,371		3,289		6,235		6,014
Total noninterest expense		18,927		19,052		36,080		36,568
Income before income taxes		6,573		3,081		11,991		6,481
Provision for income taxes		2,444		1,060		4,363		2,258
Net income	$	4,129	$	2,021	$	7,628	$	4,223
Preferred stock dividends and accretion of discount		710		1,348		1,534		2,920
Dividends waived upon preferred stock redemption		-		(5,433)		-		(5,433)
Gain on preferred stock redemption		-		(1,348)		-		(1,348)
Net income available to common stockholders	$	3,419	$	7,454	$	6,094	$	8,084
Basic earnings per share	$	0.12	$	0.26	$	0.21	$	0.38
Diluted earnings per share		0.12		0.26		0.21		0.38

See accompanying notes to consolidated financial statements.

4

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

	(Unaudited)				(Unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Net Income	$	4,129	$	2,021	$	7,628	$	4,223
Unrealized holding (losses) gains on available-for-sale securities arising during the period		(575)		3,710		346		2,621
Related tax benefit (expense)		228		(1,527)		(210)		(1,079)
Holding (losses) gains after tax on available-for-sale securities		(347)		2,183		136		1,542
Less: Reclassification adjustment for the net (losses) gains realized during the period
Net realized (losses) gains		(12)		295		(121)		226
Income tax benefit (expense) on net realized (losses) gains		3		(121)		48		(93)
Net realized (losses) gains after tax		(9)		174		(73)		133
Other comprehensive (loss) income on available-for-sale securities		(338)		2,009		209		1,409
Accretion of net unrealized holding gains on held-to-maturity securities transferred from available-for-sale securities		254		247		497		494
Related tax expense		(104)		(102)		(204)		(204)
Other comprehensive income on held-to-maturity securities		150		145		293		290
Total other comprehensive (loss) income		(188)		2,154		502		1,699
Total comprehensive income	$	3,941	$	4,175	$	8,130	$	5,922

See accompanying notes to consolidated financial statements.

5

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

	(Unaudited)
	Six Months Ended
	June 30,
	2015		2014
Cash flows from operating activities
Net income	$	7,628	$	4,223
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of leasehold improvement		1,216		1,272
Change in fair value of mortgage servicing rights		513		630
Loan loss reserve release		(2,300)		(2,000)
Provision for deferred tax expense		4,206		2,335
Originations of loans held-for-sale		(114,718)		(52,057)
Proceeds from sales of loans held-for-sale		115,940		52,784
Net gain on sales of mortgage loans		(3,318)		(1,700)
Change in current income taxes receivable (payable)		27		(78)
Increase in cash surrender value of bank-owned life insurance		(637)		(724)
Change in accrued interest receivable and other assets		(1,899)		(4,399)
Change in accrued interest payable and other liabilities		(2,474)		(21,066)
Net premium amortization/discount (accretion) on securities		154		(950)
Securities losses (gains), net		121		(226)
Amortization of core deposit		-		1,023
Stock based compensation		344		82
Net gain on sale of other real estate owned		(337)		(409)
Provision for other real estate owned losses		2,697		1,261
Net cash provided by (used in) operating activities		7,163		(19,999)
Cash flows from investing activities
Proceeds from maturities and calls including pay down of securities available-for-sale		28,292		14,606
Proceeds from sales of securities available-for-sale		56,121		163,107
Purchases of securities available-for-sale		(98,806)		(132,073)
Proceeds from maturities and calls including pay down of securities held-to-maturity		6,983		3,902
Purchases of securities held-to-maturity		-		(11,212)
Proceeds from sales of Federal Home Loan Bank stock		787		-
Net change in loans		(7,582)		(42,259)
Improvements in other real estate owned		-		(131)
Proceeds from sales of other real estate owned		4,673		10,927
Net purchases of premises and equipment		(577)		(509)
Net cash (used in) provided by investing activities		(10,109)		6,358
Cash flows from financing activities
Net change in deposits		28,497		18,696
Net change in securities sold under repurchase agreements		11,379		15,573
Net change in other short-term borrowings		(25,000)		(5,000)
Redemption of preferred stock		(15,778)		(24,321)
Proceeds from the issuance of common stock		-		64,395
Dividends paid on preferred stock		(1,716)		(10,258)
Purchase of treasury stock		(117)		(46)
Net cash (used in) provided by financing activities		(2,735)		59,039
Net change in cash and cash equivalents		(5,681)		45,398
Cash and cash equivalents at beginning of period		44,197		47,660
Cash and cash equivalents at end of period	$	38,516	$	93,058

6

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows - Continued

(In thousands)

	(Unaudited)
	Six Months Ended
	June 30,
Supplemental cash flow information	2015		2014
Income taxes paid	$	130	$	-
Interest paid for deposits		1,993		3,027
Interest paid for borrowings		2,564		20,150
Non-cash transfer of loans to other real estate owned		7,015		9,343
Change in dividends accrued		(182)		(9,123)
Accretion on preferred stock discount		-		58

See accompanying notes to consolidated financial statements.

7

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in

Stockholders’ Equity

(In thousands)

									Accumulated
					Additional				Other				Total
	Common		Preferred		Paid-In		Retained		Comprehensive		Treasury		Stockholders’
	Stock		Stock		Capital		Earnings		Loss		Stock		Equity
Balance, December 31, 2013	$	18,830	$	72,942	$	66,212	$	92,549	$	(7,038)	$	(95,803)	$	147,692
Net income								4,223						4,223
Other comprehensive gain, net of tax										1,699				1,699
Change in restricted stock		10				(10)								-
Tax effect from vesting of restricted stock						29								29
Stock based compensation						82								82
Purchase of treasury stock												(46)		(46)
Redemption of preferred stock				(25,669)				1,348						(24,321)
Common stock offering		15,525				48,870								64,395
Preferred stock accretion and declared dividends				58				(1,193)						(1,135)
Balance, June 30, 2014	$	34,365	$	47,331	$	115,183	$	96,927	$	(5,339)	$	(95,849)	$	192,618
Balance, December 31, 2014	$	34,365	$	47,331	$	115,332	$	100,697	$	(7,713)	$	(95,849)	$	194,163
Net income								7,628						7,628
Other comprehensive gain, net of tax										502				502
Change in restricted stock		58				(58)								-
Tax effect from vesting of restricted stock						33								33
Stock based compensation						344								344
Purchase of treasury stock												(117)		(117)
Redemption of preferred stock				(15,778)										(15,778)
Preferred stock accretion and declared dividends								(1,534)						(1,534)
Balance, June 30, 2015	$	34,423	$	31,553	$	115,651	$	106,791	$	(7,211)	$	(95,966)	$	185,241

See accompanying notes to consolidated financial statements.

8

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Table amounts in thousands, except per share data, unaudited)

Note 1 – Summary of Significant Accounting Policies

The accounting policies followed in the preparation of the interim consolidated financial statements are consistent with those used in the preparation of the annual financial information.  The interim consolidated financial statements reflect all normal and recurring adjustments, that are necessary, in the opinion of management, for a fair statement of results for the interim period presented.  Results for the period ended June 30, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.  These interim consolidated financial statements are unaudited and should be read in conjunction with the audited financial statements and notes included in Old Second Bancorp, Inc.’s (the “Company”) annual report on Form 10-K for the year ended December 31, 2014.  Unless otherwise indicated, amounts in the tables contained in the notes to the consolidated financial statements are in thousands.  Certain items in prior periods have been reclassified to conform to the current presentation.

The Company’s consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry.  Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes.  These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements.  Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements.

All significant accounting policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.  These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09 "Revenue from Contracts with Customers (Topic 606)."  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  ASU 2014-09 was to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.  The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application.  Early application is not permitted.  The Company is assessing the impact of ASU 2014-09 on its accounting and disclosures.  On April 1, 2015, the FASB voted to propose a delay in the effective date of ASU 2014-09.  On April 29, 2015, FASB issued a proposed accounting standards update to defer the effective date of an additional year.  The deferral of the effective date was approved on July 9, 2015, and will be effective for annual reporting periods beginning after December 15, 2017.

Note 2 – Securities

Investment Portfolio Management

Our investment portfolio serves the liquidity needs and income objectivesof the Company.  While the portfolio serves as an important component of the overall liquidity management at the Bank, portions of the portfolio will also serve as income producing assets.  The size and composition of the portfolio reflects liquidity needs, loan demand and interest income objectives.

Portfolio size and composition will be adjusted from time to time.  While a significant portion of the portfolio consists of readily marketable securities to address liquidity, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk.

Investments are comprised of debt securities and non-marketable equity investments.  Securities available-for-sale are carried at fair value.  Unrealized gains and losses, net of tax, on securities available-for-sale are reported as a separate component of equity.  This balance sheet component changes as interest rates and market conditions change.  Unrealized gains and losses are not included in the calculation of regulatory capital.

9

Securities held-to-maturity are carried at amortized cost and the discount or premium created in the 2013 transfer from available-for-sale securities or at the time of purchase thereafter is accreted or amortized to the maturity or expected payoff date but not an earlier call.  In accordance with GAAP, the Company has the positive intent and ability to hold the securities to maturity.

Nonmarketable equity investments include Federal Home Loan Bank of Chicago (“FHLBC”) stock and Federal Reserve Bank of Chicago (“Reserve Bank”) stock.  FHLBC stock was recorded at $3.5 million at June 30, 2015, and$4.3 million atDecember 31, 2014.  Reserve Bank stock was recorded at $4.8 million at June 30, 2015, and December 31, 2014.  Our FHLBC stock is necessary to maintain access to FHLBC advances.

The following table summarizes the amortized cost and fair value of the securities portfolio at June 30, 2015,  and December 31, 2014, and the corresponding amounts of gross unrealized gains and losses (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
June 30, 2015:	Cost		Gains		Losses		Value
Securities Available-for-Sale
U.S. Treasury	$	1,519	$	1	$	-	$	1,520
U.S. government agencies		1,697		-		(102)		1,595
U.S. government agencies mortgage-backed		5,545		-		-		5,545
States and political subdivisions		13,053		368		(172)		13,249
Corporate bonds		31,376		-		(771)		30,605
Collateralized mortgage obligations		76,519		50		(1,575)		74,994
Asset-backed securities		181,625		220		(3,190)		178,655
Collateralized loan obligations		94,243		59		(629)		93,673
Total Securities Available-for-Sale	$	405,577	$	698	$	(6,439)	$	399,836
Securities Held-to-Maturity
U.S. government agency mortgage-backed	$	36,995	$	1,791	$	-	$	38,786
Collateralized mortgage obligations		216,424		3,391		(634)		219,181
Total Securities Held-to-Maturity	$	253,419	$	5,182	$	(634)	$	257,967

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2014:	Cost		Gains		Losses		Value
Securities Available-for-Sale
U.S. Treasury	$	1,529	$	-	$	(2)	$	1,527
U.S. government agencies		1,711		-		(87)		1,624
States and political subdivisions		21,682		432		(96)		22,018
Corporate bonds		31,243		309		(567)		30,985
Collateralized mortgage obligations		65,728		31		(2,132)		63,627
Asset-backed securities		175,565		199		(2,268)		173,496
Collateralized loan obligations		94,236		176		(2,203)		92,209
Total Securities Available-for-Sale	$	391,694	$	1,147	$	(7,355)	$	385,486
Securities Held-to-Maturity
U.S. government agency mortgage-backed	$	37,125	$	2,030	$	-	$	39,155
Collateralized mortgage obligations		222,545		3,005		(1,439)		224,111
Total Securities Held-to-Maturity	$	259,670	$	5,035	$	(1,439)	$	263,266

10

The fair value, amortized cost and weighted average yield of debt securities at June 30, 2015, by contractual maturity, were as follows in the table below.  Securities not due at a single maturity date are shown separately.

			Weighted
	Amortized		Average	Fair
Securities Available-for-Sale	Cost		Yield	Value
Due in one year or less	$	2,141	1.63%	$	2,159
Due after one year through five years		6,900	2.99%		7,073
Due after five years through ten years		33,501	2.43%		32,811
Due after ten years		5,103	3.28%		4,926
		47,645	2.56%		46,969
Mortgage-backed and collateralized mortgage obligations		82,064	1.44%		80,539
Asset-backed securities		181,625	1.22%		178,655
Collateralized loan obligations		94,243	2.87%		93,673
	$	405,577	1.81%	$	399,836
Securities Held-to-Maturity
Mortgage-backed and collateralized mortgage obligations	$	253,419	3.02%	$	257,967

Securities with unrealized losses at June 30, 2015, and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands except for number of securities):

	Less than 12 months					Greater than 12 months
June 30, 2015	in an unrealized loss position					in an unrealized loss position					Total
	Number of	Unrealized		Fair		Number of	Unrealized		Fair		Number of	Unrealized		Fair
Securities Available-for-Sale	Securities	Losses		Value		Securities	Losses		Value		Securities	Losses		Value
U.S. government agencies	-	$	-	$	-	1	$	102	$	1,595	1	$	102	$	1,595
States and political subdivisions	2		37		1,841	1		135		1,720	3		172		3,561
Corporate bonds	6		311		16,064	3		460		14,541	9		771		30,605
Collateralized mortgage obligations	6		335		44,131	4		1,240		19,400	10		1,575		63,531
Asset-backed securities	7		2,046		98,917	5		1,144		61,397	12		3,190		160,314
Collateralized loan obligations	8		387		44,231	4		242		24,488	12		629		68,719
	29	$	3,116	$	205,184	18	$	3,323	$	123,141	47	$	6,439	$	328,325
Securities Held-to-Maturity
Collateralized mortgage obligations	6	$	189	$	31,761	4	$	445	$	46,400	10	$	634	$	78,161
	6	$	189	$	31,761	4	$	445	$	46,400	10	$	634	$	78,161

	Less than 12 months					Greater than 12 months
December 31, 2014	in an unrealized loss position					in an unrealized loss position					Total
	Number of	Unrealized			Fair	Number of	Unrealized			Fair	Number of	Unrealized			Fair
Securities Available-for-Sale	Securities	Losses			Value	Securities	Losses			Value	Securities	Losses			Value
U.S. Treasury	1	$	2	$	1,527	-	$	-	$	-	1	$	2	$	1,527
U.S. government agencies	-		-		-	1		87		1,624	1		87		1,624
States and political subdivisions	4		96		4,896	-		-		-	4		96		4,896
Corporate bonds	4		486		15,246	1		81		1,921	5		567		17,167
Collateralized mortgage obligations	5		900		38,284	3		1,232		21,604	8		2,132		59,888
Asset-backed securities	9		1,077		99,286	3		1,191		43,662	12		2,268		142,948
Collateralized loan obligations	12		2,203		82,387	-		-		-	12		2,203		82,387
	35	$	4,764	$	241,626	8	$	2,591	$	68,811	43	$	7,355	$	310,437
Securities Held-to-Maturity
Collateralized mortgage obligations	7	$	457	$	49,302	4	$	982	$	46,283	11		1,439		95,585
	7	$	457	$	49,302	4	$	982	$	46,283	11	$	1,439	$	95,585

Recognition of other-than-temporary impairment was not necessary in the three and six months ending June 30, 2015, or the year ended December 31, 2014.  The changes in fair value related primarily to interest rate fluctuations.  Our review of other-than-temporary impairment determined that there wasno credit quality deterioration.

11

Note 3 – Loans

Major classifications of loans were as follows:

	June 30, 2015		December 31, 2014
Commercial	$	123,372	$	119,158
Real estate - commercial		612,379		600,629
Real estate - construction		32,157		44,795
Real estate - residential		365,989		370,191
Consumer		3,854		3,504
Overdraft		408		649
Lease financing receivables		8,571		8,038
Other		11,391		11,630
		1,158,121		1,158,594
Net deferred loan fees		762		738
	$	1,158,883	$	1,159,332

It is the policy of the Company to review each prospective credit in order to determine if an adequate level of security or collateral was obtained prior to making a loan.  The type of collateral, when required, will vary from liquid assets to real estate.  The Company’s access to collateral, in the event of borrower default, is assured through adherence to lending laws, the Company’s lending standards and credit monitoring procedures.  The Bank generally makes loans solely within its market area.  There are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector,although the real estate related categories listed above represent 87.2% and 87.6% of the portfolio at June 30, 2015, and December 31, 2014, respectively.

Aged analysis of past due loans by class of loans were as follows:

.															Recorded
															Investment
															90 days or
					90 Days or										Greater Past
	30-59 Days		60-89 Days		Greater Past		Total Past								Due and
June 30, 2015	Past Due		Past Due		Due		Due		Current		Nonaccrual		Total Loans		Accruing
Commercial	$	-	$	-	$	-	$	-	$	131,343	$	600	$	131,943	$	-
Real estate - commercial
Owner occupied general purpose		-		-		-		-		127,516		1,915		129,431		-
Owner occupied special purpose		-		-		-		-		173,200		790		173,990		-
Non-owner occupied general purpose		270		-		-		270		156,771		730		157,771		-
Non-owner occupied special purpose		4,021		-		-		4,021		92,865		-		96,886		-
Retail properties		-		-		-		-		41,016		-		41,016		-
Farm		-		-		-		-		12,013		1,272		13,285		-
Real estate - construction
Homebuilder		-		41		-		41		2,654		-		2,695		-
Land		-		-		-		-		2,573		-		2,573		-
Commercial speculative		-		-		-		-		2,286		3,472		5,758		-
All other		-		-		-		-		20,651		480		21,131		-
Real estate - residential
Investor		168		-		-		168		138,474		792		139,434		-
Owner occupied		31		297		-		328		110,140		6,273		116,741		-
Revolving and junior liens		418		-		-		418		106,744		2,652		109,814		-
Consumer		50		-		-		50		3,804		-		3,854		-
All other1		-		-		-		-		12,561		-		12,561		-
	$	4,958	$	338	$	-	$	5,296	$	1,134,611	$	18,976	$	1,158,883	$	-

12

															Recorded
															Investment
															90 days or
					90 Days or										Greater Past
	30-59 Days		60-89 Days		Greater Past		Total Past								Due and
December 31, 2014	Past Due		Past Due		Due		Due		Current		Nonaccrual		Total Loans		Accruing
Commercial	$	38	$	-	$	-	$	38	$	125,658	$	1,500	$	127,196	$	-
Real estate - commercial
Owner occupied general purpose		699		-		-		699		126,029		5,937		132,665		-
Owner occupied special purpose		-		-		-		-		167,874		1,441		169,315		-
Non-owner occupied general purpose		-		-		-		-		153,328		4,907		158,235		-
Non-owner occupied special purpose		-		-		-		-		87,054		1,423		88,477		-
Retail properties		-		-		-		-		37,780		-		37,780		-
Farm		-		-		-		-		14,157		-		14,157		-
Real estate - construction
Homebuilder		-		-		-		-		3,204		-		3,204		-
Land		-		-		-		-		1,658		-		1,658		-
Commercial speculative		-		-		-		-		13,431		-		13,431		-
All other		71		29		-		100		25,841		561		26,502		-
Real estate - residential
Investor		-		-		-		-		135,273		1,942		137,215		-
Owner occupied		1,076		914		-		1,990		107,727		6,711		116,428		-
Revolving and junior liens		94		44		-		138		113,906		2,504		116,548		-
Consumer		-		-		-		-		3,504		-		3,504		-
All other1		-		-		-		-		13,017		-		13,017		-
	$	1,978	$	987	$	-	$	2,965	$	1,129,441	$	26,926	$	1,159,332	$	-

1. The “All other” class includes overdrafts and net deferred costs.

Credit Quality Indicators:

The Company categorizes loans into credit risk categories based on current financial information, overall debt service coverage, comparison against industry averages, historical payment experience, and current economic trends.  This analysis includes loans with outstanding balances or commitments greater than $50,000 and excludes homogeneous loans such as home equity lines of credit and residential mortgages.  Loans with a classified risk rating are reviewed quarterly regardless of size or loan type.  The Company uses the following definitions for classified risk ratings:

Special Mention.  Loans classified as special mention have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Credits that are not covered by the definitions above are pass credits, which are not considered to be adversely rated.

13

Credit Quality Indicators by class of loans were as follows:

June 30, 2015			Special
	Pass		Mention		Substandard 1		Doubtful		Total
Commercial	$	124,831	$	6,414	$	698	$	-	$	131,943
Real estate - commercial
Owner occupied general purpose		124,737		2,779		1,915		-		129,431
Owner occupied special purpose		171,862		1,338		790		-		173,990
Non-owner occupied general purpose		150,971		5,800		1,000		-		157,771
Non-owner occupied special purpose		92,865		4,021		-		-		96,886
Retail Properties		39,506		1,510		-		-		41,016
Farm		11,484		529		1,272		-		13,285
Real estate - construction
Homebuilder		2,695		-		-		-		2,695
Land		2,573		-		-		-		2,573
Commercial speculative		2,286		-		3,472		-		5,758
All other		20,651		-		480		-		21,131
Real estate - residential
Investor		138,459		-		975		-		139,434
Owner occupied		109,690		-		7,051		-		116,741
Revolving and junior liens		106,334		188		3,292		-		109,814
Consumer		3,853		-		1		-		3,854
All other		12,561		-		-		-		12,561
Total	$	1,115,358	$	22,579	$	20,946	$	-	$	1,158,883

December 31, 2014			Special
	Pass		Mention		Substandard 1		Doubtful		Total
Commercial	$	118,845	$	3,948	$	4,403	$	-	$	127,196
Real estate - commercial
Owner occupied general purpose		124,936		253		7,476		-		132,665
Owner occupied special purpose		154,225		11,607		3,483		-		169,315
Non-owner occupied general purpose		148,212		3,235		6,788		-		158,235
Non-owner occupied special purpose		78,957		8,097		1,423		-		88,477
Retail Properties		36,779		1,001		-		-		37,780
Farm		14,157		-		-		-		14,157
Real estate - construction
Homebuilder		3,204		-		-		-		3,204
Land		1,658		-		-		-		1,658
Commercial speculative		9,947		-		3,484		-		13,431
All other		25,941		-		561		-		26,502
Real estate - residential
Investor		134,952		-		2,263		-		137,215
Owner occupied		109,085		-		7,343		-		116,428
Revolving and junior liens		112,647		188		3,713		-		116,548
Consumer		3,503		-		1		-		3,504
All other		13,017		-		-		-		13,017
Total	$	1,090,065	$	28,329	$	40,938	$	-	$	1,159,332

1The substandard credit quality indicator includes both potential problem loans that are currently performing and nonperforming loans

The Company did not have any repossessed assets reported in other assets as of June 30, 2015,  and December 31, 2014.  The Company had $3.2 million and $3.5 million residential assets in the process of foreclosure as of June 30, 2015,  and December 31, 2014, respectively.

14

Impaired loans by class of loans were as follows:

							Six Months Ended
	As of June 30, 2015						June 30, 2015
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial	$	600	$	776	$	-	$	1,050	$	-
Commercial real estate
Owner occupied general purpose		3,079		3,769		-		5,102		39
Owner occupied special purpose		1,141		1,236		-		1,470		12
Non-owner occupied general purpose		729		1,162		-		2,780		-
Non-owner occupied special purpose		-		-		-		711		-
Retail properties		-		-		-		-		-
Farm		1,272		1,338		-		636		-
Construction
Homebuilder		-		-		-		896		-
Land		-		-		-		-		-
Commercial speculative		3,472		3,472		-		1,736		-
All other		229		287		-		260		-
Residential
Investor		1,519		1,864		-		2,057		19
Owner occupied		11,435		12,894		-		11,427		90
Revolving and junior liens		2,437		3,671		-		2,337		2
Consumer		-		-		-		-		-
Total impaired loans with no recorded allowance		25,913		30,469		-		30,462		162
With an allowance recorded
Commercial		-		-		-		-		-
Commercial real estate
Owner occupied general purpose		-		-		-		-		-
Owner occupied special purpose		-		-		-		-		-
Non-owner occupied general purpose		-		-		-		38		-
Non-owner occupied special purpose		177		293		-		89		9
Retail properties		-		-		-		-		-
Farm		-		-		-		-		-
Construction
Homebuilder		-		-		-		-		-
Land		-		-		-		-		-
Commercial speculative		-		-		-		-		-
All other		251		294		27		260		-
Residential
Investor		-		-		-		68		-
Owner occupied		13		56		22		18		-
Revolving and junior liens		462		505		89		416		2
Consumer		-		-		-		-		-
Total impaired loans with a recorded allowance		903		1,148		138		889		11
Total impaired loans	$	26,816	$	31,617	$	138	$	31,351	$	173

15

Impaired loans by class of loans were as follows:

							Six Months Ended
	As of December 31, 2014						June 30, 2014
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial	$	1,500	$	2,114	$	-	$	24	$	-
Commercial real estate
Owner occupied general purpose		7,125		7,870		-		2,527		2
Owner occupied special purpose		1,798		1,941		-		3,151		-
Non-owner occupied general purpose		4,831		5,653		-		5,964		30
Non-owner occupied special purpose		1,423		1,930		-		600		-
Retail properties		-		-		-		3,078		-
Farm		-		-		-		-		-
Construction
Homebuilder		1,791		1,791		-		1,904		47
Land		-		-		-		209		-
Commercial speculative		-		-		-		369		-
All other		291		323		-		156		-
Residential
Investor		2,595		3,024		-		4,294		1
Owner occupied		11,419		12,816		-		9,483		88
Revolving and junior liens		2,238		3,541		-		1,851		3
Consumer		-		-		-		-		-
Total impaired loans with no recorded allowance		35,011		41,003		-		33,610		171
With an allowance recorded
Commercial		-		-		-		-		-
Commercial real estate
Owner occupied general purpose		-		-		-		609		-
Owner occupied special purpose		-		-		-		2,450		-
Non-owner occupied general purpose		76		76		21		745		-
Non-owner occupied special purpose		-		-		-		-		-
Retail properties		-		-		-		-		-
Farm		-		-		-		-		-
Construction
Homebuilder		-		-		-		84		-
Land		-		-		-		-		-
Commercial speculative		-		-		-		587		-
All other		270		306		98		363		-
Residential
Investor		135		145		24		960		-
Owner occupied		23		65		38		1,028		7
Revolving and junior liens		371		405		97		914		-
Consumer		-		-		-		-		-
Total impaired loans with a recorded allowance		875		997		278		7,740		7
Total impaired loans	$	35,886	$	42,000	$	278	$	41,350	$	178

Troubled debt restructurings (“TDRs”) are loans for which the contractual terms have been modified and both of these conditions exist: (1) there is a concession to the borrower and (2) the borrower is experiencing financial difficulties.  Loans are restructured on a case-by-case basis during the loan collection process with modifications generally initiated at the request of the borrower.  These modifications may include reduction in interest rates, extension of term, deferrals of principal, and other modifications.  The Bank participates in the U.S. Department of the Treasury’s (the “Treasury”) Home Affordable Modification Program (“HAMP”) which gives qualifying homeowners an opportunity to refinance into more affordable monthly payments.

The specific allocation of the allowance for loan losses on a TDR is determined by either discounting the modified cash flows at the original effective rate of the loan before modification or is based on the underlying collateral value less costs to sell, if repayment of the loan is collateral-dependent. If the resulting amount is less than the recorded book value, the Bank either establishes a valuation allowance (i.e. specific reserve) as a component of the allowance for loan losses or charges off the impaired balance if it determines

16

that such amount is a confirmed loss. This method is used consistently for all segments of the portfolio. The allowance for loan losses also includes an allowance based on a loss migration analysis for each loan category on loans that are not individually evaluated for specific impairment. All loans charged-off, including TDRs charged-off, are factored into this calculation by portfolio segment.

TDRs that were modified during the period are as follows:

	TDR Modifications					TDR Modifications
	Three Months Ended June 30, 2015					Six Months Ended June 30, 2015
	# of	Pre-modification		Post-modification		# of	Pre-modification		Post-modification
	contracts	recorded investment		recorded investment		contracts	recorded investment		recorded investment
Troubled debt restructurings
Real estate - commercial
Bifurcate1	-	$	-	$	-	1	$	300	$	177
Real estate - residential
Owner occupied
Other2	1		46		45	3		404		414
Revolving and junior liens
HAMP3	4		233		233	4		233		233
	5	$	279	$	278	8	$	937	$	824

	TDR Modifications					TDR Modifications
	Three Months Ended June 30, 2014					Six Months Ended June 30, 2014
	# of	Pre-modification		Post-modification		# of	Pre-modification		Post-modification
	contracts	recorded investment		recorded investment		contracts	recorded investment		recorded investment
Troubled debt restructurings
Real estate - commercial
Other2	-	$	-	$	-	2	$	1,320	$	1,159
Real estate - residential
Owner occupied
HAMP3	-		-		-	1		102		75
Deferral4	1		107		107	2		344		231
	1	$	107	$	107	5	$	1,766	$	1,465

1  Bifurcate: Refers to an “A/B” restructure separated into two notes, charging off the entire B portion of the note.

2 Other: Change of terms from bankruptcy court

3 HAMP: Home Affordable Modification Program

4  Deferral: Refers to the deferral of principal

TDRs are classified as being in default on a case-by-case basis when they fail to be in compliance with the modified terms. There was no TDR default activity for the three and six months endedJune 30, 2015, and June 30, 2014, that  was restructured within the 12 month period prior to default.

17

Note 4 – Allowance for Loan Losses

Changes in the allowance for loan losses by segment of loans based on method of impairment for three and six months ending June 30, 2015, were as follows:

Allowance for loan losses:			Real Estate		Real Estate		Real Estate
	Commercial		Commercial		Construction		Residential		Consumer		Unallocated		Total
Three months ended June 30, 2015
Beginning balance	$	1,512	$	14,033	$	1,272	$	1,917	$	1,417	$	1,030	$	21,181
Charge-offs		858		1,031		1		159		93		-		2,142
Recoveries		83		965		61		403		70		-		1,582
(Release) provision		895		(3,766)		(670)		(301)		(145)		1,687		(2,300)
Ending balance	$	1,632	$	10,201	$	662	$	1,860	$	1,249	$	2,717	$	18,321
Six months ended June 30, 2015
Beginning balance	$	1,644	$	12,577	$	1,475	$	1,981	$	1,454	$	2,506	$	21,637
Charge-offs		890		1,526		2		777		211		-		3,406
Recoveries		224		1,295		66		627		178		-		2,390
(Release) provision		654		(2,145)		(877)		29		(172)		211		(2,300)
Ending balance	$	1,632	$	10,201	$	662	$	1,860	$	1,249	$	2,717	$	18,321
Ending balance: Individually evaluated for impairment	$	-	$	-	$	27	$	111	$	-	$	-	$	138
Ending balance: Collectively evaluated for impairment	$	1,632	$	10,201	$	635	$	1,749	$	1,249	$	2,717	$	18,183
Loans:
Ending balance	$	131,943	$	612,379	$	32,157	$	365,989	$	3,854	$	12,561	$	1,158,883
Ending balance: Individually evaluated for impairment	$	600	$	6,398	$	3,952	$	15,866	$	-	$	-	$	26,816
Ending balance: Collectively evaluated for impairment	$	131,343	$	605,981	$	28,205	$	350,123	$	3,854	$	12,561	$	1,132,067

Changes in the allowance for loan losses by segment of loans based on method of impairment for three and six months ending June 30, 2014, were as follows:

Allowance for loan losses:			Real Estate		Real Estate		Real Estate
	Commercial		Commercial		Construction		Residential		Consumer		Unallocated		Total
Three months ended June 30, 2014
Beginning balance	$	2,326	$	14,066	$	1,998	$	2,268	$	1,495	$	3,323	$	25,476
Charge-offs		3		760		105		978		139		-		1,985
Recoveries		35		87		467		689		87		-		1,365
(Release) provision		(367)		(165)		(606)		394		21		(277)		(1,000)
Ending balance	$	1,991	$	13,228	$	1,754	$	2,373	$	1,464	$	3,046	$	23,856
Six months ended June 30, 2014
Beginning balance	$	2,250	$	16,763	$	1,980	$	2,837	$	1,439	$	2,012	$	27,281
Charge-offs		7		1,089		173		1,827		249		-		3,345
Recoveries		50		228		504		939		199		-		1,920
(Release) provision		(302)		(2,674)		(557)		424		75		1,034		(2,000)
Ending balance	$	1,991	$	13,228	$	1,754	$	2,373	$	1,464	$	3,046	$	23,856
Ending balance: Individually evaluated for impairment	$	-	$	803	$	135	$	502	$	-	$	-	$	1,440
Ending balance: Collectively evaluated for impairment	$	1,991	$	12,425	$	1,619	$	1,871	$	1,464	$	3,046	$	22,416
Loans:
Ending balance	$	115,474	$	599,796	$	32,265	$	368,592	$	3,064	$	13,556	$	1,132,747
Ending balance: Individually evaluated for impairment	$	21	$	17,131	$	2,598	$	16,379	$	-	$	-	$	36,129
Ending balance: Collectively evaluated for impairment	$	115,453	$	582,665	$	29,667	$	352,213	$	3,064	$	13,556	$	1,096,618

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Note 5 – Other Real Estate Owned

Details related to the activity in the other real estate owned (“OREO”) portfolio, net of valuation reserve, for the periods presented are itemized in the following table:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Other real estate owned	2015		2014		2015		2014
Balance at beginning of period	$	35,461	$	40,220	$	31,982	$	41,537
Property additions		907		4,655		7,015		9,343
Property improvements		-		131		-		131
Less:
Property disposals, net of gains/losses		2,316		4,949		4,336		10,518
Period valuation adjustments		2,088		825		2,697		1,261
Balance at end of period	$	31,964	$	39,232	$	31,964	$	39,232

Activity in the valuation allowance was as follows:

	2015		2014		2015		2014
Balance at beginning of period	$	19,456	$	19,484	$	19,229	$	22,284
Provision for unrealized losses		2,088		825		2,697		1,261
Reductions taken on sales		(1,568)		(2,436)		(1,950)		(5,083)
Other adjustments		93		-		93		(589)
Balance at end of period	$	20,069	$	17,873	$	20,069	$	17,873

Expenses related to OREO, net of lease revenue includes:

	2015		2014		2015		2014
Gain on sales, net	$	(242)	$	(23)	$	(337)	$	(409)
Provision for unrealized losses		2,088		825		2,697		1,261
Operating expenses		749		1,011		1,750		2,248
Less:
Lease revenue		207		163		370		442
	$	2,388	$	1,650	$	3,740	$	2,658

Note 6 – Deposits

Major classifications of deposits were as follows:

	June 30, 2015		December 31, 2014
Noninterest bearing demand	$	432,773	$	400,447
Savings		251,307		239,845
NOW accounts		330,897		328,641
Money market accounts		295,383		296,617
Certificates of deposit of less than $100,000		242,870		251,108
Certificates of deposit of $100,000 through $250,000		109,204		112,515
Certificates of deposit of more than $250,000		51,118		55,882
	$	1,713,552	$	1,685,055

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Note 7 – Borrowings

The following table is a summary of borrowings as of June 30, 2015, and December 31, 2014.  Junior subordinated debentures are discussed in detail in Note 8:

	June 30, 2015		December 31, 2014
Securities sold under repurchase agreements	$	32,415	$	21,036
FHLBC advances		20,000		45,000
Junior subordinated debentures		58,378		58,378
Subordinated debt		45,000		45,000
Notes payable and other borrowings		500		500
	$	156,293	$	169,914

The Company enters into deposit sweep transactions where the transaction amounts are secured by pledged securities.  These transactions consistently mature overnight from the transaction date and are governed by sweep repurchase agreements.  All sweep repurchase agreements are treated as financings secured by U.S. government agencies and collateralized mortgage-backed securities and have a carrying amount of $32.4 million at June 30, 2015, and $21.0 million at December 31, 2014. The fair value of the pledged collateral was $47.1 million at June 30, 2015 and$43.4 million atDecember 31, 2014.  At June 30, 2015, there were no customers with secured balances exceeding 10% of stockholders’ equity.

The Company’s borrowings at the FHLBC require the Bank to be a member and invest in the stock of the FHLBC.  Total borrowings are generally limited to the lower of 35% of total assets or 60% of the book value of certain mortgage loans.  As of June 30, 2015, the Bank had taken an advance of $20.0 million on the FHLBC stock valued at $3.5 million, collateralized by securities with a fair value of $74.3 million and loans with a principal balance of $46.8 million, which carry a FHLBC calculated combined collateral value of $121.5 million.  The Company has excess collateral of $100.2 million available to secure borrowings.  At December 31, 2014, the Bank had an advance of $45.0 million on FBLBC stock valued at $4.3 million.

One of the Company’s most significant borrowing relationships continued to be the $45.5 million credit facility with a correspondent bank. That credit began in January 2008 and was originally composed of a $30.5 million senior debt facility, which included $500,000 in term debt, and $45.0 million of subordinated debt.  The subordinated debt and the term debt portion of the senior debt facility mature on March 31, 2018.  The interest rate on the senior debt facility resets quarterly and at the Company’s option, is based on, either the lender’s prime rate or three-month LIBOR plus 90 basis points.  The interest rate on the subordinated debt resets quarterly, and is equal to three-month LIBOR plus 150 basis points.  The Company had no principal outstanding balance on the senior line of credit portion of the senior debt facility when it matured and was terminated.  The Company had $500,000 in principal outstanding in term debt and $45.0 million in principal outstanding in subordinated debt at the end of both June 30, 2015, and December 31, 2014.  The term debt is secured by all of the outstanding capital stock of the Bank.  The Company has made all required interest payments on the outstanding principal balance on a timely basis.

The credit facility agreement contains usual and customary provisions regarding acceleration of the senior debt upon the occurrence of an event of default by the Company under the senior debt agreement.  The senior debt agreement also contains certain customary representations and warranties, and financial covenants.  At June 30, 2015, and December 31, 2014, the Company was in compliance with all covenants contained within the credit agreement.

Note 8 – Junior Subordinated Debentures

The Company completed the sale of $27.5 million of cumulative trust preferred securities by its unconsolidated subsidiary, Old Second Capital Trust I in June 2003.  An additional $4.1 million of cumulative trust preferred securities were sold in July 2003.  The trust preferred securities may remain outstanding for a 30-year term but, subject to regulatory approval, can be called in whole or in part by the Company after June 30, 2008.  When not in deferral, distributions on the securities are payable quarterly at an annual rate of 7.80%.  The Company issued a new $32.6 million subordinated debenture to Old Second Capital Trust I in return for the aggregate net proceeds of this trust preferred offering.  The interest rate and payment frequency on the debenture are equivalent to the cash distribution basis on the trust preferred securities.

The Company issued an additional $25.0 million of cumulative trust preferred securities through a private placement completed by an additional, unconsolidated subsidiary, Old Second Capital Trust II, in April 2007. These trust preferred securities also mature in 30 years, but subject to the aforementioned regulatory approval, can be called in whole or in part on a quarterly basis commencing June 15, 2017.  The quarterly cash distributions on the securities are fixed at 6.77% through June 15, 2017, and float at 150 basis points over three-month LIBOR thereafter.  The Company issued a new $25.8 million subordinated debenture to Old Second Capital Trust II in return for the aggregate net proceeds of this trust preferred offering.  The interest rate and payment frequency on the debenture are equivalent to the cash distribution basis on the trust preferred securities.

20

Both of the debentures issued by the Company are disclosed on the Consolidated Balance Sheet as junior subordinated debentures and the related interest expense for each issuance is included in the Consolidated Statements of Income.  As of June 30, 2015, the Company is current on the payments due on these securities.

Note 9 – Equity Compensation Plans

There are stock-based awards outstanding under the Company’s 2008 Equity Incentive Plan (the “2008 Plan”) and the Company’s 2014 Equity Incentive Plan (the “2014 Plan,” and together with the 2008 Plan, the “Plans”).  The 2014 Plan was approved at the 2014 annual meeting of stockholders.  Following approval of the 2014 Plan, no further awards will be granted under the 2008 Plan or any other Company equity compensation plan. A maximum of 375,000 shares may be issued under the 2014 Plan.  The Plan authorizes the granting of qualified stock options, non-qualified stock options, restricted stock, restricted stock units, and stock appreciation rights.  Awards may be granted to selected directors and officers or employees under the 2014 Plan at the discretion of the Compensation Committee of the Company’s Board of Directors.  As of June 30, 2015, 125,000 shares remained available for issuance under the 2014 Plan.

Total compensation cost that has been charged for the Plans was $344,000 in the first half of 2015.

There were no stock options granted in the second quarter of 2015 and 2014 or for the first half of 2015 and 2014.  All stock options are granted for a term of ten years.  There were no stock options exercised during the second quarter of 2015 and 2014 or for the first half of 2015 and 2014.  There is no unrecognized compensation cost related to unvested stock options as all stock options of the Company’s common stock have vested.

A summary of stock option activity in the Plans for the six months ending June 30, 2015, is as follows:

				Weighted-
		Weighted		Average
		Average		Remaining
		Exercise		Contractual	Aggregate
	Shares	Price		Term (years)	Intrinsic Value
Beginning outstanding	229,000	$	28.28
Canceled	-		-
Expired	-		-
Ending outstanding	229,000	$	28.28	1.7	$	-
Exercisable at end of period	229,000	$	28.28	1.7	$	-

Generally, restricted stock and restricted stock units granted under the Plans vest three years from the grant date, but the Compensation Committee of the Company’s Board of Directors has discretionary authority to change some terms including the amount of time until the vest date.

Awards under the 2008 Plan will become fully vested upon a merger or change in control of the Company.  Under the 2014 Plan, upon a change in control of the Company, if (i) the 2014 Plan is not an obligation of the successor entity following the change in control, or (ii) the 2014 Plan is an obligation of the successor entity following the change in control and the participant incurs an involuntary termination, then the stock options, stock appreciation rights, stock awards and cash incentive awards under the 2014 Plan will become fully exercisable and vested.  Performance-based awards generally will vest based upon the level of achievement of the applicable performance measures through the change in control.

The Company granted restricted stock under its equity compensation plans beginning in 2005 and it began granting restricted stock units in February 2009.  Restricted stock awards under the Plans generally entitle holders to voting and dividend rights upon grant and are subject to forfeiture until certain restrictions have lapsed including employment for a specific period.  Restricted stock units under the Plans are also subject to forfeiture until certain restrictions have lapsed including employment for a specific period, and generally entitle holders to receive dividend equivalents during the restricted period but do not entitle holders to voting rights until the restricted period ends and shares are transferred in connection with the units.

There were 101,500 restricted awards issued under the Plans during the six months ending June 30, 2015.  There were 184,500 restricted awards issued during the six months ending June 30, 2014.  Compensation expense is recognized over the vesting period of the restricted award based on the market value of the award on the issue date.

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A summary of changes in the Company’s unvested restricted awards for the six months ending June 30, 2015, is as follows:

	June 30, 2015
		Weighted
	Restricted	Average
	Stock Shares	Grant Date
	and Units	Fair Value
Nonvested at January 1	325,000	$	4.15
Granted	101,500		5.38
Vested	(57,500)		4.04
Forfeited	(16,000)		4.43
Nonvested at June 30	353,000	$	4.51

Total unrecognized compensation cost of restricted awards was $989,000 as of June 30, 2015, which is expected to be recognized over a weighted-average period of 2.35 years.  Total unrecognized compensation cost of restricted awards was $1.1 million as of June 30, 2014, which was expected to be recognized over a weighted-average period of 2.71 years.

Note 10 – Earnings Per Share

The earnings per share – both basic and diluted – are included below as of June 30 (in thousands except for share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Basic earnings per share:
Weighted-average common shares outstanding		29,475,682		28,181,519		29,473,004		21,090,665
Weighted-average common shares less stock based awards		29,475,682		28,181,519		29,473,004		21,086,438
Weighted-average common shares stock based awards		-		179,874		-		174,522
Net income	$	4,129	$	2,021	$	7,628	$	4,223
Gain on preferred stock redemption		-		(1,348)		-		(1,348)
Preferred stock dividends and accretion, net of dividends waived		710		(4,085)		1,534		(2,513)
Net earnings available to common stockholders		3,419		7,454		6,094		8,084
Basic earnings per share common undistributed earnings		N/A		0.26		N/A		0.38
Basic earnings per share		0.12		0.26		0.21		0.38
Diluted earnings per share:
Weighted-average common shares outstanding		29,475,682		28,181,519		29,473,004		21,090,665
Dilutive effect of nonvested restricted awards1		271,571		179,874		239,948		170,295
Diluted average common shares outstanding		29,747,253		28,361,393		29,712,952		21,260,960
Net earnings available to common stockholders	$	3,419	$	7,454	$	6,094	$	8,084
Diluted earnings per share	$	0.12	$	0.26	$	0.21	$	0.38
Number of antidilutive options and warrants excluded from the diluted earnings per share calculation		1,044,339		1,140,839		1,044,339		1,140,839
1 Includes the common stock equivalents for restricted share rights that are dilutive.

The above earnings per share calculation did not include a warrant for 815,339 shares of common stock, at an exercise price of $13.43,that was outstanding as of June 30, 2015, and June 30, 2014 because the warrant was anti-dilutive.   Of note, the warrant was sold at auction by the Treasury in June 2013 to a third party investor.

The Company completed the redemption of 25,669 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the “Series B Stock”) in the second quarter of 2014.  As previously disclosed, the Company completed a public offering of 15,525,000 shares of common stock in April of 2014.  Net proceeds of over $64.0 million were used to pay the accrued but unpaid interest on the Company’s  trust preferred securities or junior subordinated debentures discussed in Note 8, the accumulated but unpaid dividends on the Series B Stock and to complete the 2014 redemption of the Series B Stock.  The amount remaining after the completion of these transactions was retained at the Company for use in addressing general corporate matters.  The redemption price for such Series B Stock was 94.75% of the liquidation value of the shares and the holders of the redeemed shares agreed to forebear payment of dividends due and waived any rights to such dividend upon redemption.  The Company redeemed all shares of Series B Stock held by directors of the Company on the same terms.

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On January 31, 2015, the Company redeemed 15,778 shares of its Series B Stock at a redemption price equal to the stated liquidation value of $1,000 per share, together with accrued and unpaid dividends accumulated to, but excluding, the redemption date.As of December 30, 2014, there were 47,331 shares of the Series B Stock outstanding, and redeeming one-third of the Series B Stock resulted in the redemption of 15,778 shares of Series B Stock.  The redemption was successfully completed in the first quarter.  As of June 30, 2015, 31,553 shares of the Series B Stock remained outstanding.

In July 2015, the Company announced that it would redeem the remaining 31,553 outstanding shares of Series B Stock on August 14, 2015 at the redemption price, equal to the stated liquidation value of $1,000 per share, together with any accrued and unpaid dividends accumulated to, but excluding, the redemption date.Please see the Capital section of Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations capital section for further information on this topic.

Note 11 – Regulatory & Capital Matters

The Bank is subject to the risk-based capital regulatory guidelines, which include the methodology for calculating the risk-weighted Bank assets, developed by the Office of the Comptroller of the Currency (the “OCC”) and the other bank regulatory agencies.  In connection with the current economic environment, the Bank’s current level of nonperforming assets and the risk-based capital guidelines, the Bank’s board of directors has determined that the Bank should maintain a Tier 1 leverage capital ratio at or above eight percent (8%) and a total risk-based capital ratio at or above twelve percent (12%).  At June 30, 2015, the Bank exceeded those thresholds.

At June 30, 2015, the Bank’s Tier 1 capital leverage ratio was 12.33%, up 31 basis points from December 31, 2014, and well above the 8.00% objective.  The Bank’s total capital ratio was 18.68%, down 5 basis points from December 31, 2014, and also well above the objective of 12.00%.

Bank holding companies are required to maintain minimum levels of capital in accordance with capital guidelines implemented by the Board of Governors of the Federal Reserve System.  The general bank and holding company capital adequacy guidelines are shown in the accompanying table, as are the capital ratios of the Company and the Bank, as of June 30, 2015, and December 31, 2014.

In July 2013, the U.S. federal banking authorities issued final rules (the “Basel III Rules”) establishing more stringent regulatory capital requirements for U.S. banking institutions, which went into effect on January 1, 2015.  A detailed discussion of the Basel III Rules is included in Part I, Item 1 of the Company’s Form 10-K for the year ended December 31, 2014, under the heading “Supervision and Regulation.”

At June 30, 2015, the Company, on a consolidated basis, exceeded the minimum thresholds to be considered “adequately capitalized” under current regulatory defined capital ratios.  For all periods prior to 2015, all capital ratios displayed were calculated without giving effect to the final Basel III capital rules.

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Capital levels and industry defined regulatory minimum required levels:

					Minimum Required				Minimum Required
					for Capital				to be Well
	Actual				Adequacy Purposes				Capitalized 1
	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2015
Common equity tier 1 capital to risk weighted assets
Consolidated	$	141,573	9.78	%	$	65,141	4.50	%		N/A	N/A
Old Second Bank		252,436	17.42			65,210	4.50		$	94,193	6.50	%
Total capital to risk weighted assets
Consolidated		246,680	17.04			115,812	8.00			N/A	N/A
Old Second Bank		270,662	18.68			115,915	8.00			144,894	10.00
Tier 1 capital to risk weighted assets
Consolidated		204,856	14.15			86,865	6.00			N/A	N/A
Old Second Bank		252,436	17.42			86,947	6.00			115,929	8.00
Tier 1 capital to average assets
Consolidated		204,856	10.02			81,779	4.00			N/A	N/A
Old Second Bank		252,436	12.33			81,893	4.00			102,367	5.00
December 31, 2014
Total capital to risk weighted assets
Consolidated	$	240,566	17.68	%	$	108,853	8.00	%		N/A	N/A
Old Second Bank		254,897	18.73			108,872	8.00		$	136,090	10.00	%
Tier 1 capital to risk weighted assets
Consolidated		196,499	14.44			54,432	4.00			N/A	N/A
Old Second Bank		237,828	17.47			54,454	4.00			81,681	6.00
Tier 1 capital to average assets
Consolidated		196,499	9.93			79,154	4.00			N/A	N/A
Old Second Bank		237,828	12.02			79,144	4.00			98,930	5.00

1 The Bank exceeded the general minimum regulatory requirements to be considered “well capitalized”.

The Company’s credit facility with a correspondent bank includes $45.0 million in subordinated debt.  That debt obligation qualifies at 40% and 60% of the original amount for Tier 2 regulatory capital at June 30, 2015 and December 31, 2014, respectively.  In addition, the trust preferred securities continue to qualify as Tier 1 regulatory capital, and the Company treats the maximum amount of this security type allowable under regulatory guidelines as Tier 1 capital.  At June 30, 2015$51.2 million and $5.4 million of the trust preferred proceeds qualified as Tier 1 regulatory capital and Tier 2 regulatory capital, respectively. All $56.6 million of the trust preferred proceeds qualified as Tier 1 regulatory capital as of December 31, 2014.  All of the Series B Stock qualified as Tier 1 regulatory capital as of June 30, 2015, and December 31, 2014.  

Dividend Restrictions

In addition to the above requirements, banking regulations and capital guidelines generally limit the amount of dividends that may be paid by a bank without prior regulatory approval.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s profits, combined with the retained profit of the previous two years, subject to the capital requirements described above.  Pursuant to the Basel III rules that came into effect January 1, 2015, the Bank must keep a buffer of 0.625% for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter of Common Equity Tier 1 minimum requirement in order to avoid additional limitations on capital distributions.  The Bank has the ability and the authority to pay dividends to the Company to pay debt and to meet preferred dividend requirements.

As discussed in Note 8, as of June 30, 2015, the Company had $58.4 million of junior subordinated debentures held by two statutory business trusts that it controls.  The Company has the right to defer interest payments on the debentures for a period of up to 20 consecutive quarters, and elected to begin such a deferral in August 2010.  However, all deferred interest must be paid before the Company may pay dividends on its common stock.  In the second quarter of 2014, the Company terminated the deferral period and paid all accumulated and unpaid interest on the junior subordinated debentures which totaled $19.7 million.  The Company is currently paying interest as it comes due.

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Note 12 – Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  The fair value hierarchy established by the Company also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  Three levels of inputs that may be used to measure fair value are:

Level 1:  Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

Level 2:  Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3:  Significant unobservable inputs that reflect a company’s own view about the assumptions that market participants would use in pricing an asset or liability.

Transfers between levels are deemed to have occurred at the end of the reporting period.  For the quartersendedJune 30, 2015 and 2014 there were no significant transfers between levels.

The majority of securities (available-for-sale and held-to-maturity) are valued by external pricing services or dealer market participants and are classified in Level 2 of the fair value hierarchy.  Both market and income valuation approaches are utilized.  The Company evaluates the methodologies used by the external pricing services or dealer market participants to develop the fair values to determine whether the results of the valuations are representative of an exit price in the Company’s principal markets and an appropriate representation of fair value.  The Company uses the following methods and significant assumptions to estimate fair value:

· Government-sponsored agency debt securities are primarily priced using available market information through processes such as benchmark curves, market valuations of like securities, sector groupings and matrix pricing.

· Other government-sponsored agency securities, MBS and some of the actively traded real estate mortgage investment conduits and collateralized mortgage obligations are priced using available market information including benchmark yields, prepayment speeds, spreads, volatility of similar securities and trade date.

· State and political subdivisions are largely grouped by characteristics (e.g., geographical data and source of revenue in trade dissemination systems).  Because some securities are not traded daily and due to other grouping limitations, active market quotes are often obtained using benchmarking for like securities.

· From December 31, 2013, to December 31, 2014, the Company utilized pricing data from a nationally recognized valuation firm providing specialized securities valuation services for auction rate asset-backed securities.  Beginning March 31, 2015, these securities are priced using market spreads, cash flows, prepayment speeds, and loss analytics.  Therefore, the valuations of auction rate asset-backed securities are considered Level 2 valuations.

· During the third quarter of 2014, asset-backed collateralized loan obligations were acquired and priced using data from a pricing matrix support by our bond accounting service provider and are therefore considered Level 2 valuations.

· Residential mortgage loans eligible for sale in the secondary market are carried at fair market value.  The fair value of loans held-for-sale is determined using quoted secondary market prices.

· Lending related commitments to fund certain residential mortgage loans, e.g. residential mortgage loans with locked interest rates to be sold in the secondary market and forward commitments for the future delivery of mortgage loans to third party investors as well as forward commitments for future delivery of MBS are considered derivatives.  Fair values are estimated based on observable changes in mortgage interest rates including prices for MBS from the date of the commitment and do not typically involve significant judgments by management.

· The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income to derive the resultant value.  The Company is able to compare the valuation model inputs, such as the discount rate, prepayment speeds, weighted average delinquency and foreclosure/bankruptcy rates  to widely available published industry data for reasonableness.

· Interest rate swap positions, both assets and liabilities, are based on valuation pricing models using an income approach reflecting readily observable market parameters such as interest rate yield curves.

· Both the credit valuation reserve on current interest rate swap positions and on receivables related to unwound customer interest rate swap positions were determined based upon management’s estimate of the amount of credit risk exposure, including by available collateral protection and/or by utilizing an estimate related to a probability of default as indicated in the Bank credit policy.  Such adjustments would result in a Level 3 classification.

· The fair value of impaired loans with specific allocations of the allowance for loan losses is essentially based on recent real estate appraisals.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are made in the appraisal process by the appraisers to reflect 25  

differences between the available comparable sales and income data.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

· Nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO are measured at the lower of carrying amount or fair value, less costs to sell.  Fair values are based on third party appraisals of the property, resulting in a Level 3 classification.  In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Assets and Liabilities Measured at Fair Value on a Recurring Basis:

The tables below present the balance of assets and liabilities at June 30, 2015, and December 31, 2014, respectively, measured by the Company at fair value on a recurring basis:

	June 30, 2015
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities available-for-sale
U.S. Treasury	$	1,520	$	-	$	-	$	1,520
U.S. government agencies		-		1,595		-		1,595
U.S. government agencies mortgage-backed		-		5,545		-		5,545
States and political subdivisions		-		13,131		118		13,249
Corporate Bonds		-		30,605		-		30,605
Collateralized mortgage obligations		-		74,994		-		74,994
Asset-backed securities		-		178,655		-		178,655
Collateralized loan obligations		-		93,673		-		93,673
Loans held-for-sale		-		6,208		-		6,208
Mortgage servicing rights		-		-		5,884		5,884
Other assets (Interest rate swap agreements)		-		28		-		28
Other assets (Mortgage banking derivatives)		-		257		-		257
Total	$	1,520	$	404,691	$	6,002	$	412,213
Liabilities:
Other liabilities (Interest rate swap agreements)	$	-	$	28	$	-	$	28
Total	$	-	$	28	$	-	$	28

	December 31, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities available-for-sale
U.S. Treasury	$	1,527	$	-	$	-	$	1,527
U.S. government agencies		-		1,624		-		1,624
States and political subdivisions		-		21,900		118		22,018
Corporate bonds		-		30,985		-		30,985
Collateralized mortgage obligations		-		63,627		-		63,627
Asset-backed securities		-		120,555		52,941		173,496
Collateralized loan obligations		-		92,209		-		92,209
Loans held-for-sale		-		5,072		-		5,072
Mortgage servicing rights		-		-		5,462		5,462
Other assets (Interest rate swap agreements net of swap credit valuation)		-		30		-		30
Other assets (Mortgage banking derivatives)		-		143		-		143
Total	$	1,527	$	336,145	$	58,521	$	396,193
Liabilities:
Other liabilities (Interest rate swap agreements)	$	-	$	30	$	-	$	30
Total	$	-	$	30	$	-	$	30

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The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are as follows:

	Six months ended June 30, 2015
	Securities available-for-sale
			States and		Mortgage
	Asset-		Political		Servicing
	backed		Subdivisions		Rights
Beginning balance January 1, 2015	$	52,941	$	118	$	5,462
Transfers out of Level 3		(24,917)		-		-
Total gains or losses
Included in earnings (or changes in net assets)		(28)		-		(137)
Included in other comprehensive income		(541)		-		-
Purchases, issuances, sales, and settlements
Issuances		-		-		935
Settlements		-		-		(376)
Sales		(27,455)		-		-
Ending balance June 30, 2015	$	-	$	118	$	5,884

	Six months ended June 30, 2014
	Securities available-for-sale
			States and		Mortgage		Interest Rate
	Asset-		Political		Servicing		Swap
	backed		Subdivisions		Rights		Valuation
Beginning balance January 1, 2014	$	154,137	$	125	$	5,807	$	(6)
Total gains or losses
Included in earnings (or changes in net assets)		1,671		-		(630)		6
Included in other comprehensive income		513		-		-		-
Purchases, issuances, sales, and settlements
Purchases		58,047		-		-		-
Issuances		-		-		324		-
Settlements		-		-		-		-
Sales		(77,282)		-		-		-
Ending balance June 30, 2014	$	137,086	$	125	$	5,501	$	-

The following table and commentary presents quantitative and qualitative information about Level 3 fair value measurements as of June 30, 2015:

						Weighted
Measured at fair value				Unobservable		Average
on a recurring basis:	Fair Value		Valuation Methodology	Inputs	Range of Input	of Inputs
Mortgage Servicing rights	$	5,884	Discounted Cash Flow	Discount Rate	10.0-15.5%	10.2	%
				Prepayment Speed	6.0-34.1%	9.7	%

The following table and commentary presents quantitative and qualitative information about Level 3 fair value measurements as of December 31, 2014:

						Weighted
Measured at fair value				Unobservable		Average
on a recurring basis:	Fair Value		Valuation Methodology	Inputs	Range of Input	of Inputs
Mortgage Servicing rights	$	5,462	Discounted Cash Flow	Discount Rate	9.7-108.2%	10.2	%
				Prepayment Speed	5.0-78.4%	10.9	%
Asset-backed securities		52,941	Discounted Cash Flow	Credit Risk Premium	0.9-0.9%	0.9	%
			with comparable transaction yields	Liquidity Discount	3.5-3.7%	3.6	%

The $118,000 on the state and political subdivisions line at June 30, 2015, under Level 3 represents a security from a small, local municipality.  Given the small dollar amount and size of the municipality involved, this is categorized as Level 3 based on the payment stream received by the Company from the municipality.  That payment stream is otherwise an unobservable input.

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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis:

The Company may be required, from time to time, to measure certain other assets at fair value on a nonrecurring basis in accordance with GAAP.  These assets consist of impaired loans and OREO.  For assets measured at fair value on a nonrecurring basis at June 30, 2015, and December 31, 2014, respectively, the following tables provide the level of valuation assumptions used to determine each valuation and the carrying value of the related assets:

	June 30, 2015
	Level 1		Level 2		Level 3		Total
Impaired loans1	$	-	$	-	$	451	$	451
Other real estate owned, net2		-		-		31,964		31,964
Total	$	-	$	-	$	32,415	$	32,415

1Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans, had a carrying amount of $589,000, with a valuation allowance of $138,000 resulting in an increase of specific allocations within the allowance for loan losses of $140,000 for the six months ending June 30, 2015.

2OREO is measured at the lower of carrying or fair value less costs to sell, and had a net carrying amount of $32.0 million, which is made up of the outstanding balance of $53.8 million, net of a valuation allowance of $20.1 million and participations of $1.7 million, at June 30, 2015.

	December 31, 2014
	Level 1		Level 2		Level 3		Total
Impaired loans1	$	-	$	-	$	564	$	564
Other real estate owned, net2		-		-		31,982		31,982
Total	$	-	$	-	$	32,546	$	32,546

1Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans, had a carrying amount of $842,000, with a valuation allowance of $278,000, resulting in a decrease of specific allocations within the provision for loan losses of $2.1 million for the year ending December 31, 2014.

2OREO is measured at the lower of carrying or fair value less costs to sell, and had a net carrying amount of $32.0 million, which is made up of the outstanding balance of $53.0 million, net of a valuation allowance of $19.2 million and participations of $1.8 million, at December 31, 2014.

The Company also has assets that under certain conditions are subject to measurement at fair value on a nonrecurring basis.  These assets include OREO and impaired loans.  The Company has estimated the fair values of these assets based primarily on Level 3 inputs.  OREO and impaired loans are generally valued using the fair value of collateral provided by third party appraisals.  These valuations include assumptions related to cash flow projections, discount rates, and recent comparable sales.  The numerical range of unobservable inputs for these valuation assumptions are not meaningful.

Note 13 – Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions

To meet the financing needs of its customers, the Bank, as a subsidiary of the Company, is a party to various financial instruments with off-balance-sheet risk in the normal course of business.  These off-balance-sheet financial instruments include commitments to originate and sell loans as well as financial standby, performance standby and commercial letters of credit.  The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet.  The Bank’s exposure to credit loss for loan commitments and letters of credit is represented by the dollar amount of those instruments.  Management generally uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Interest Rate Swaps

The Bank also has interest rate derivative positions to assist with risk management that are not designated as hedging instruments.  These derivative positions relate to transactions in which the Bank enters an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution.  Per contractual requirements with the correspondent financial institution, the Bank had $1.0million in investment securities pledged to support interest rate swap activity with one correspondent financial institution at June 30, 2015.  The Bank had $3.0 million in investment securities pledged to support interest rate swap activity with three correspondent financial institutions at December 31, 2014.

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In connection with each transaction, the Bank agreed to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate.  At the same time, the Bank agreed to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount.  The transaction allows the client to convert a variable rate loan to a fixed rate loan and is part of the Company’s interest rate risk management strategy.  Because the Bank acts as an intermediary for the client, changes in the fair value of the underlying derivative contracts offset each other and do not generally affect the results of operations.  Fair value measurements include an assessment of credit risk related to the client’s ability to perform on their contract position, however, and valuation estimates related to that exposure are discussed in Note12 above.  At June 30, 2015, the notional amount of non-hedging interest rate swaps was $9.8million with a weighted average maturity of 2.7years.  At December 31, 2014, the notional amount of non-hedging interest rate swaps was $16.3million with a weighted average maturity of 2.7years.  The Bank offsets derivative assets and liabilities that are subject to a master netting arrangement.

The Bank also grants mortgage loan interest rate lock commitments to borrowers, subject to normal loan underwriting standards.  The interest rate risk associated with these loan interest rate lock commitments is managed with contracts for future deliveries of loans as well as selling forward mortgage-backed securities contracts.  Loan interest rate lock commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  Commitments to originate residential mortgage loans held-for-sale and forward commitments to sell residential mortgage loans or forward MBS contracts are considered derivative instruments and changes in the fair value are recorded to mortgage banking revenue.  Fair values are estimated based on observable changes in mortgage interest rates including mortgage-backed securities prices from the date of the commitment.

The following table presents derivatives not designated as hedging instruments as of June 30, 2015, and periodic changes in the values of the interest rate swaps are reported in other noninterest income.  Periodic changes in the value of the forward contracts related to mortgage loan origination are reported in the net gain on sales of mortgage loans.

			Asset Derivatives			Liability Derivatives
	Notional or
	Contractual		Balance Sheet			Balance Sheet
	Amount		Location	Fair Value		Location	Fair Value
Interest rate swap contracts	$	9,765	Other Assets	$	28	Other Liabilities	$	28
Commitments1		211,192	Other Assets		257	N/A		-
Forward contracts2		20,500	N/A		-	Other Liabilities		-
Total				$	285		$	28

1Includes unused loan commitments and interest rate lock commitments.

2Includes forward MBS contracts and forward loan contracts.

The following table presents derivatives not designated as hedging instruments as of December 31, 2014.

			Asset Derivatives			Liability Derivatives
	Notional or
	Contractual		Balance Sheet			Balance Sheet
	Amount		Location	Fair Value		Location	Fair Value
Interest rate swap contracts net of credit valuation	$	16,334	Other Assets	$	30	Other Liabilities	$	30
Commitments1		201,946	Other Assets		143	N/A		-
Forward contracts2		14,000	N/A		-	Other Liabilities		-
Total				$	173		$	30

1Includes unused loan commitments and interest rate lock commitments.

2Includes forward MBS contracts.

The Bank also issues letters of credit, which are conditional commitments that guarantee the performance of a customer to a third party.  The credit risk involved and collateral obtained in issuing letters of credit are essentially the same as that involved in extending loan commitments to our customers.  In addition to customer related commitments, the Company is responsible for letters of credit commitments that relate to properties held in OREO.  The following table represents the Company’s contractual commitments due to letters of credit as of June 30, 2015, and December 31, 2014.

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The following table is a summary of letter of credit commitments (in thousands):

	June 30, 2015						December 31, 2014
	Fixed		Variable		Total		Fixed		Variable		Total
Letters of credit:
Borrower:
Financial standby	$	55	$	3,697	$	3,752	$	55	$	4,745	$	4,800
Commercial standby		-		47		47		-		49		49
Performance standby		404		6,603		7,007		416		5,690		6,106
		459		10,347		10,806		471		10,484		10,955
Non-borrower:
Performance standby		-		576		576		-		572		572
		-		576		576		-		572		572
Total letters of credit	$	459	$	10,923	$	11,382	$	471	$	11,056	$	11,527

Note 14 – Fair Values of Financial Instruments

The estimated fair values approximate carrying amount for all items except those described in the following table.  Investment security fair values are based upon market prices or dealer quotes, and if no such information is available, on the rate and term of the security.  The carrying value of FHLBC stock approximates fair value as the stock is nonmarketable and can only be sold to the FHLBC or another member institution at par. During the years ended December 31, 2014, and 2013, the Company participated in multiple redemptions with the FHLBC and, using the redemption values as the carrying value, FHLBC stock is carried at a Level 2 fair value since December 31, 2012.  The Company had redemptions of $1.2 million in the year 2014.  The Company redeemed $787,000 in April of 2015.  Fair values of loans were estimated for portfolios of loans with similar financial characteristics, such as type and fixed or variable interest rate terms.  Cash flows were discounted using current rates at which similar loans would be made to borrowers with similar ratings and for similar maturities.  The fair value of time deposits is estimated using discounted future cash flows at current rates offered for deposits of similar remaining maturities.  The fair values of borrowings were estimated based on interest rates available to the Company for debt with similar terms and remaining maturities.  The fair value of off balance sheet volume is not considered material.

The carrying amount and estimated fair values of financial instruments were as follows:

	June 30, 2015
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	29,164	$	29,164	$	29,164	$	-	$	-
Interest bearing deposits with financial institutions		9,352		9,352		9,352		-		-
Securities available-for-sale		399,836		399,836		1,520		398,198		118
Securities held-to-maturity		253,419		257,967		-		257,967		-
FHLBC and Reserve Bank Stock		8,271		8,271		-		8,271		-
Bank-owned life insurance		57,444		57,444		-		57,444		-
Loans held-for-sale		6,208		6,208		-		6,208		-
Loans, net		1,140,562		1,147,129		-		-		1,147,129
Accrued interest receivable		4,192		4,192		-		4,192		-
Financial liabilities:
Noninterest bearing deposits	$	432,773	$	432,773	$	432,773	$	-	$	-
Interest bearing deposits		1,280,779		1,282,979		-		1,282,979		-
Securities sold under repurchase agreements		32,415		32,415		-		32,415		-
Other short-term borrowings		20,000		20,000		-		20,000		-
Junior subordinated debentures		58,378		55,181		32,734		22,447		-
Subordinated debenture		45,000		40,143		-		40,143		-
Note payable and other borrowings		500		432		-		432		-
Borrowing interest payable		75		75		-		75		-
Deposit interest payable		413		413		-		413		-

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	December 31, 2014
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	30,101	$	30,101	$	30,101	$	-	$	-
Interest bearing deposits with financial institutions		14,096		14,096		14,096		-		-
Securities available-for-sale		385,486		385,486		1,527		330,900		53,059
Securities held-to-maturity		259,670		263,266		-		263,266		-
FHLBC and Reserve Bank Stock		9,058		9,058		-		9,058		-
Bank-owned life insurance		56,807		56,807		-		56,807		-
Loans held-for-sale		5,072		5,072		-		5,072		-
Loans, net		1,137,695		1,151,223		-		-		1,151,223
Accrued interest receivable		4,888		4,888		-		4,888		-
Financial liabilities:
Noninterest bearing deposits	$	400,447	$	400,447	$	400,447	$	-	$	-
Interest bearing deposits		1,284,608		1,284,887		-		1,284,887		-
Securities sold under repurchase agreements		21,036		21,036		-		21,036		-
Other short-term borrowings		45,000		45,000		-		45,000		-
Junior subordinated debentures		58,378		54,686		32,441		22,245		-
Subordinated debenture		45,000		39,366		-		39,366		-
Note payable and other borrowings		500		422		-		422		-
Borrowing interest payable		75		75		-		75		-
Deposit interest payable		467		467		-		467		-

Note 15 – Series B Preferred Stock (“Series B Stock”)

The Series B Stock was issued as part of the Treasury’s Troubled Asset Relief Program and Capital Purchase Program ( the “CPP”).  The Series B Stock qualifies as Tier 1 capital and pays cumulative dividends on the liquidation preference amount on a quarterly basis at a rate of 5% per annum for the first five years, and 9% per annum thereafter effective in February 2014.  Concurrent with issuing the Series B Stock, the Company issued to the Treasury a ten year warrant to purchase 815,339 shares of the Company’s common stock at an exercise price of $13.43 per share.

Subsequent to the Company’s receipt of the $73.0 million in proceeds from the Treasury in the first quarter of 2009, the Company allocated the proceeds between the Series B Stock and the warrant that was issued. The Company recorded the warrant as equity, and the allocation was based on their relative fair values in accordance with accounting guidance.  The fair value was determined for both the Series B Stock and the warrant as part of the allocation process in the amounts of $68.2 million and $4.8 million, respectively.

On August 31, 2010, the Company announced that it would begin deferring quarterly cash dividends on its outstanding Series B Stock.  Further, the Company also elected to defer interest payments on certain of its subordinated debentures. However, under the terms of the Series B Stock, if the Company failed to pay dividends for an aggregate of six quarters on the Series B Stock, whether or not consecutive, the holders would have the right to appoint representatives to the Company’s board of directors.  As the Company elected to defer dividends for more than six quarters, a new director was appointed by the Treasury to join the board during the fourth quarter of 2012.  The terms of the Series B Stock also prevented the Company from paying cash dividends or generally repurchasing its common stock while Series B Stock dividends were in arrears.

The Treasury sold all of the Series B Stock held to third parties, including certain of our directors, in auctions that were completed in the first quarter of 2013.  The Treasury also sold the warrant to a third party at a subsequent auction.  Upon completion by Treasury of the auction, the Company’s board affirmed the director appointed by Treasury to ongoing board membership, and the Series B director was elected by the holders of the Series B Stock at the Company’s 2013 annual meeting.

As a result of the completed 2013 auctions, the Company’s Board elected to stop accruing the dividend on the Series B Stock in the first quarter of 2013.  Previously, the Company had accrued the dividend on the Series B Stock quarterly throughout the deferral period.  Given the discount reflected in the results of the auction, the board believed that the Company would likely be able to redeem the Series B Stock at a price less than the face amount of the Series B Stock plus accrued and unpaid dividends.  While the Company did not fully accrue the dividend on the Series B Stock in the first quarter of 2013 and did not accrue for it in subsequent quarters, the Company continued to evaluate whether accruing dividends on the Series B Stock was appropriate.  In the second quarter of 2014, the Company completed redemption of 25,669 shares of its SeriesB Stock at a price equal to 94.75% of liquidation value, or an aggregate of $24.3 million, and the holders of shares agreed to forebear payment of dividends due and waived any rights to such dividends upon redemption.  Following the redemption, the Company resumed accrual in the second quarter of 2014.

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On December 30, 2014, the Company provided notice that it was redeeming approximately one-third of the issued and outstanding shares of the Company’s Series B Stock.  The effective date for the redemption was January 31, 2015, and the redemption price was the stated liquidation value of $1,000 per share, together with any accrued and unpaid dividends accumulated to, but excluding, the redemption date. As of December 30, 2014, there were 47,331 shares of the Series B Stock outstanding, and redeeming one-third of the Series B Stock resulted in the redemption of 15,778 shares of Series B Stock.  The redemption was successfully completed in the first quarter.  As of March 31, 2015, 31,553 shares of the Series B Stock remain outstanding.

At June 30, 2015, the Company carried $31.6 million of Series B Stock in total stockholders’ equity.  The Company carried $47.3 million and $72.9 million of Series B Stock in total stockholders’ equity at December 31, 2014, and December 31, 2013, respectively.  In July 2015, the Company announced that it would redeem the remaining 31,553 outstanding shares of Series B Stock on August 14, 2015 at the redemption price, equal to the stated liquidation value of $1,000 per share, together with any accrued and unpaid dividends accumulated to, but excluding, the redemption date.  Please see the Capital section of Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations capital section for further information on this topic.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company is a financial services company with its mainheadquarters located in Aurora, Illinois.  The Company is the holding company of Old Second National Bank (the “Bank”), a national banking organization headquartered in Aurora, Illinois that provides commercial and retail banking services, as well as a full complement of trust and wealth management services.  The Company has offices located in Cook, Kane, Kendall, DeKalb, DuPage, LaSalle and Will counties in Illinois.  The following management’s discussion and analysis presents information concerning our financial condition as of June 30, 2015, as compared to December 31, 2014, and the results of operations for the three and six months ended June 30, 2015 and 2014.   This discussion and analysis is best read in conjunction with our consolidated financial statements as well as the financial and statistical data appearing elsewhere in this report and our 2014 Form 10-K.  The results of operations for the quarter and six months ended June 30, 2015 are not necessarily indicative of future results.

Our exemplary community banking franchise has emerged from the difficult years following 2008 and is positioned for further success as an enduring entity.  We expect to work through difficult industry and regulatory developments which make it more challenging to attain the levels of profitability and growth we experienced prior to 2008.  However, as we look to provide value to our customers and the communities in which we operate, we still find steady but sluggish growth in our local markets similar to information discussed on the issues faced in the national economy.  While progress is being made, we see continued uncertainty and a widespread reluctance by individuals and businesses to invest for their growth.  As the Company’s residential mortgage business experienced strong performance in the first six months of 2015, our other services continued to encounter fierce competition in our chosen communities. 

Results of Operations

Management has remained vigilant in analyzing loan portfolio quality and making decisions to charge-off loans.  The second quarter review of the loan portfolio concluded that the reserve for loan and lease loss was adequate and appropriate for estimable losses at June 30, 2015.  A loan loss reserve release of $2.3 million was recorded in the second quarter of 2015.  This compared to a $1.3 million loan loss reserve release for the fourth quarter of 2014 and neither a provision nor a release in the first quarter of 2015.

Net income before taxes of $6.6 million in the second quarter of 2015 compares to $4.8 million for the fourth quarter of 2014 and $5.4 million in the first quarter of 2015.  When compared to the first quarter of 2015, the second quarter of 2015 reflected an improved level of net interest income, especially after the second quarter loan loss reserve release.  Noninterest income strengthened on higher residential mortgage revenue and several other smaller improvements.  Noninterest expense increased on a linked quarter basis largely on increased expenses related to OREO.

In the second quarter of 2015, earnings per share was $0.12 per diluted share on net income available to common stockholders of $3.4 million.  Earnings per share for the first quarter of 2015 was $0.09 per diluted share on $2.7 million of net income available to common stockholders.  All information reflects management actions to redeem outstanding Series B Stock (with resulting benefit in net income available to common stockholders) both in second quarter of last year and in the first quarter of 2015.

In June, the Bank announced that a branch in Batavia, Illinois would be closed as of September 30, 2015.  Management expects that closing this location will not have a material impact on future Bank performance.  Another existing branch, also in Batavia, is located near the branch that will be closed.

Net Interest Income

Net interest and dividend income increased $338,000 from $14.6 million for the quarter ended March 31, 2015, to $14.9 million for the quarter ended June 30, 2015.  Average earning assets for the second quarter of 2015 increased $28.3 million from the first quarter of 2015, or 1.6%, to a total of $1.86 billion,  reflecting increases in available-for-sale securities.  Average loans for the second quarter of 2015, including loans held-for-sale, increased $31.6 million when compared to the second quarter of 2014.

For the six month period, net interest income improved year over year by $2.3 million to a total of $29.5 million.  A modest $689,000 increase in interest income reflects higher interest and fees on loans somewhat offset by lower interest related revenue from the Company’s securities portfolio.  Interest expense reflects sharply lower interest on time deposits and lower interest expense on the Company’s junior subordinated debentures.

Management continues to develop loan pipelines and expects that pipeline volume will generate future loan growth.  As loan volume continues at a modest growth pace, management also increased available-for-sale securities during the six months ended June 30, 2015, by $14.4 million, or 3.7%.

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The net interest margin (tax-equivalent basis), expressed as a percentage of average earning assets, decreased slightly from 3.26% in the first quarter of 2015 to 3.25% in the second quarter of 2015.  The average tax-equivalent yield on earning assets decreased from 3.71% in the first quarter of 2015 to 3.69% in the second quarter of 2015.  For the same comparative period, the cost of funds on interest bearing liabilities decreased from 0.63% to 0.61% providing a marginal offset to the decrease in earning asset yield.

Period loan yields are reflective of competitive pressures on new loan yield.  Additionally, management continued to see competitive pressure to reduce interest rates on loans retained at renewal.

Management, in order to evaluate and measure performance, uses certain non-GAAP performance measures and ratios.  This includes tax-equivalent net interest income (including its individual components) and net interest margin (including its individual components) to total average interest earning assets.  Management believes that these measures and ratios provide users of the financial information with a more accurate view of the performance of the interest earning assets and interest bearing liabilities and of the Company’s operating efficiency for comparison purposes.  Other financial holding companies may define or calculate these measures and ratios differently.  See the tables and notes below for supplemental data and the corresponding reconciliations to GAAP financial measures for the three-month periods ended June 30, 2015,  March 31, 2015, and June 30, 2014.

The following tables set forth certain information relating to the Company’s average consolidated balance sheets and reflect the yield on average earning assets and cost of average liabilities for the periods indicated.  Dividing the related interest by the average balance of assets or liabilities derives the disclosed rates.  Average balances are derived from daily balances.  For purposes of discussion, net interest income and net interest income to total earning assets on the following tables have been adjusted to a non-GAAP tax equivalent (“TE”) basis using a marginal rate of 35% to more appropriately compare returns on tax-exempt loans and securities to other earning assets.

34

ANALYSIS OF AVERAGE BALANCES,

TAX EQUIVALENT INTEREST AND RATES

(In thousands - unaudited)

	QuartersEnded
	June 30, 2015						March 31, 2015						June 30, 2014
	Average					Rate	Average					Rate	Average					Rate
	Balance			Interest		%	Balance			Interest		%	Balance			Interest		%
Assets
Interest bearing deposits with financial institutions	$	29,880		$	19	0.25	$	18,022		$	12	0.27	$	30,333		$	20	0.26
Securities:
Taxable		635,469			3,372	2.12		615,299			3,375	2.19		628,766			3,352	2.13
Non-taxable (TE)		29,424			251	3.41		23,518			217	3.69		23,613			182	3.08
Total securities		664,893			3,623	2.18		638,817			3,592	2.25		652,379			3,534	2.17
Dividends from Reserve Bank and FHLBC stock		8,409			77	3.66		9,058			77	3.40		10,292			78	3.03
Loans and loans held-for-sale1		1,152,485			13,566	4.66		1,161,444			13,289	4.58		1,120,918			13,104	4.62
Total interest earning assets		1,855,667			17,285	3.69		1,827,341			16,970	3.71		1,813,922			16,736	3.66
Cash and due from banks		29,153			-	-		31,744			-	-		36,827			-	-
Allowance for loan losses		(20,546)			-	-		(21,605)			-	-		(25,146)			-	-
Other noninterest bearing assets		219,239			-	-		218,544			-	-		233,369			-	-
Total assets	$	2,083,513					$	2,056,024					$	2,058,972
Liabilities and Stockholders' Equity
NOW accounts	$	334,694		$	73	0.09	$	338,385		$	72	0.09	$	309,380		$	65	0.08
Money market accounts		296,872			71	0.10		298,324			70	0.10		309,843			83	0.11
Savings accounts		254,243			39	0.06		245,005			37	0.06		242,512			40	0.07
Time deposits		410,066			771	0.75		418,615			807	0.78		457,818			1,210	1.06
Interest bearing deposits		1,295,875			954	0.30		1,300,329			986	0.31		1,319,553			1,398	0.42
Securities sold under repurchase agreements		31,234			-	-		23,437			1	0.02		25,224			-	-
Other short-term borrowings		22,638			7	0.12		25,722			8	0.12		8,681			3	0.14
Junior subordinated debentures		58,378			1,071	7.34		58,378			1,072	7.35		58,378			1,388	9.51
Subordinated debt		45,000			202	1.78		45,000			197	1.75		45,000			198	1.74
Notes payable and other borrowings		500			-	-		500			4	3.20		500			4	3.16
Total interest bearing liabilities		1,453,625			2,234	0.61		1,453,366			2,268	0.63		1,457,336			2,991	0.82
Noninterest bearing deposits		435,093			-	-		405,933			-	-		389,926			-	-
Other liabilities		10,962			-	-		11,734			-	-		19,210			-	-
Stockholders' equity		183,833			-	-		184,991			-	-		192,500			-	-
Total liabilities and stockholders' equity	$	2,083,513					$	2,056,024					$	2,058,972
Net interest income (TE)				$	15,051					$	14,702					$	13,745
Net interest income (TE)
to total earning assets						3.25						3.26						3.04
Interest bearing liabilities to earning assets		78.33	%					79.53	%					80.34	%

(1).Interest income from loans is shown on a TE basis as discussed below and includes fees of $463,000,  $486,000 and $563,000 for the second quarter of 2015, the first quarter of 2015 and the second quarter of 2014, respectively.  Nonaccrual loans are included in the above-stated average balances.

As indicated previously, net interest income and net interest income to earning assets have been adjusted to a non-GAAP TE basis using a marginal rate of 35% to more appropriately compare returns on tax-exempt loans and securities to other earning assets.  The table below provides a reconciliation of each non-GAAP TE measure to the GAAP equivalent for the periods indicated:

	Three Months Ended
	June 30,			March 31,			June 30,
	2015			2015			2014
Net Interest Margin
Interest income (GAAP)	$	17,170		$	16,866		$	16,643
Taxable-equivalent adjustment:
Loans		27			28			29
Securities		88			76			64
Interest income - TE		17,285			16,970			16,736
Interest expense (GAAP)		2,234			2,268			2,991
Net interest income -TE	$	15,051		$	14,702		$	13,745
Net interest income  (GAAP)	$	14,936		$	14,598		$	13,652
Average interest earning assets	$	1,855,667		$	1,827,341		$	1,813,922
Net interest margin (GAAP)		3.23	%		3.24	%		3.02	%
Net interest margin - TE		3.25	%		3.26	%		3.04	%

35

Asset Quality

The Company recorded a loan loss reserve release of $2.3 million in the second quarter of 2015.  By comparison, the Company recognized neither a loan loss provision nor a loan loss reserve release in the first quarter of 2015.  The provision for loan loss creates a reserve for probable and estimable losses inherent in the loan portfolio.  On a quarterly basis, management estimates the amount required and records the appropriate provision or release to maintain an adequate reserve for all potential and estimated loan losses.

Nonperforming loans decreased to $19.3million at June 30, 2015 from $23.4million at March 31, 2015, and $28.9 million at June 30, 2015.  The sequential quarter decrease in 2015 is driven by a management decision to sell loans and a small number of properties that migrated to OREO.  Net charge-offs totaled $560,000 in the second quarter of 2015 while net charge-offs totaled $620,000 for the second quarter of 2014.  The distribution of the Company’s remaining nonperforming loans is included in the following table.

							June 30, 2015
	Nonperforming Loans as of						Percent Change From
(In thousands)	June 30,		March 31,		December 31,		March 31,	December 31,
	2015		2015		2014		2015	2014
Real estate-construction	$	3,952	$	501	$	561	688.8	604.5
Real estate-residential:
Investor		792		1,160		1,942	(31.7)	(59.2)
Owner occupied		6,534		7,007		6,818	(6.8)	(4.2)
Revolving and junior liens		2,699		2,638		2,551	2.3	5.8
Real estate-commercial, nonfarm		3,435		8,784		13,708	(60.9)	(74.9)
Real estate-commercial, farm		1,272		1,370		-	(7.2)	-
Commercial		600		1,897		1,500	(68.4)	(60.0)
Other		-		-		-	-	-
	$	19,284	$	23,357	$	27,080	(17.4)	(28.8)

Nonperforming loans consist of nonaccrual loans, nonperforming restructured accruing loans and loans 90 days or greater past due.  Remediation work continues in all segments.

Loan Charge-offs, net of recoveries	Three Months Ended
(In thousands)	June 30,		% of	March 31,		% of	December 31,		% of
	2015		Total	2015		Total	2014		Total
Real estate-construction
Homebuilder	$	(47)	(8.4)	$	-	-	$	(109)	(27.7)
Land		(2)	(0.4)		(3)	(0.7)		(14)	(3.6)
Commercial speculative		-	-		-	-		-	-
All other		(11)	(2.0)		(1)	(0.2)		(3)	(0.8)
Total real estate-construction		(60)	(10.8)		(4)	(0.9)		(126)	(32.1)
Real estate-residential
Investor		(104)	(18.6)		(11)	(2.4)		(23)	(5.9)
Owner occupied		(25)	(4.5)		67	14.7		(9)	(2.3)
Revolving and junior liens		(115)	(20.5)		338	74.1		416	105.9
Total real estate-residential		(244)	(43.6)		394	86.4		384	97.7
Real estate-commercial, nonfarm
Owner general purpose		709	126.6		495	108.6		14	3.6
Owner special purpose		109	19.5		(4)	(0.9)		111	28.2
Non-owner general purpose		(915)	(163.4)		(326)	(71.5)		(34)	(8.6)
Non-owner special purpose		163	29.1		-	-		10	2.5
Retail properties		-	-		-	-		(3)	(0.8)
Total real estate-commercial, nonfarm		66	11.8		165	36.2		98	24.9
Real estate-commercial, farm		-	-		-	-		-	-
Commercial		775	138.4		(109)	(23.9)		57	14.5
Other		23	4.20		10	2.2		(20)	(5.0)
Total	$	560	100.0	$	456	100.0	$	393	100.0

36

Charge-offs for the second quarter of 2015 were predominately from previously established specific reserves on nonaccrual loans deemed uncollectible.  Gross charge-offs for the second quarter of 2015 were $2.1 million compared to $2.0 million for the second quarter of 2014 reflecting our efforts to improve loan quality in improved but still challenging markets.  Recoveries were $1.6 million and $1.4 million for the same time periods, respectively.

							June 30, 2015
	Classified Loans as of						Percent Change From
(In thousands)	June 30,		March 31,		December 31,		March 31,	December 31,
	2015		2015		2014		2015	2014
Real estate-construction	$	3,952	$	3,973	$	4,045	(0.5)	(2.3)
Real estate-residential:
Investor		975		1,175		2,263	(17.0)	(56.9)
Owner occupied		7,051		7,529		7,343	(6.3)	(4.0)
Revolving and junior liens		3,292		3,234		3,713	1.8	(11.3)
Real estate-commercial, nonfarm		3,705		14,203		19,170	(73.9)	(80.7)
Real estate-commercial, farm		1,272		1,370		-	(7.2)	-
Commercial		698		4,936		4,403	(85.9)	(84.1)
Other		1		1		1	-	-
	$	20,946	$	36,421	$	40,938	(42.5)	(48.8)

Classified loans include nonaccrual, performing troubled debt restructurings and all other loans considered substandard.  Loans classified as substandard are inadequately protected by either the current net worth and paying capacity of the obligor or by the collateral pledged to secure the loan, if any.  These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and carry the distinct possibility that the Company will sustain some loss if deficiencies remain uncorrected.  Classified loans in the second quarter were reduced by a management directed loan sale and continued credit quality management work.

Classified assets include both classified loans and OREO.  Management monitors a ratio of classified assets to the sum of Bank Tier 1 capital and the allowance for loan and lease loss reserve as another measure of overall change in loan related asset quality.  Beginning in 2015, for the quarter end ratio calculation, management has applied the capital rules as announced effective January 1, 2015, also known as the Basel III regulations, to calculate the Bank Tier 1 capital portion of this ratio.  This ratio ended at 19.5% for the quarter ended June 30, 2015.

37

Allowance for Loan and Lease Losses

Below is a reconciliation of the activity for loan losses for the periods indicated (in thousands):

		Three Months Ended
	June 30,			March 31,			December 31,
	2015			2015			2014
Allowance at beginning of quarter	$	21,181		$	21,637		$	23,330
Charge-offs:
Commercial		858			32			59
Real estate - commercial		1,031			495			338
Real estate - construction		1			1			-
Real estate - residential		159			618			641
Consumer and other loans		93			118			103
Total charge-offs		2,142			1,264			1,141
Recoveries:
Commercial		83			141			2
Real estate - commercial		965			330			240
Real estate - construction		61			5			126
Real estate - residential		403			224			257
Consumer and other loans		70			108			123
Total recoveries		1,582			808			748
Net charge-offs (recoveries)		560			456			393
Loan loss reserve release		(2,300)			-			(1,300)
Allowance at end of period	$	18,321		$	21,181		$	21,637
Average total loans (exclusive of loans held-for-sale)		1,144,605			1,156,662			1,141,297
Net charge-offs to average loans		0.05	%		0.04	%		0.03	%
Allowance at period end to average loans		1.60	%		1.83	%		1.90	%
Ending balance: Individually evaluated for impairment	$	138		$	1,784		$	278
Ending balance: Collectively evaluated for impairment	$	18,183		$	19,397		$	21,359

The coverage ratio of the allowance for loan losses to nonperforming loans was 95.0% as of June 30, 2015, up from 90.7% as of March 31, 2015, and 79.9% as of December 31, 2014.   Management updated the estimated specific allocations in the second quarter of 2015 after receiving more recent appraisals of collateral or information on cash flow trends related to the impaired credits.  Management directed loan sales also reduced specific allocations at June 30, 2015.  These allocation updates and loan sales resulted in a slightly lower amount required in the reserve for estimable losses on these credits at the end of the second quarter of 2015 compared to year end 2014 and sharply lower when compared to period end March 31, 2015. The estimated general risk allocation was also sharply lower when compared to March 31, 2015, andDecember 31, 2014.  The third component of the Company’s loan loss reserve analysis reflects management factors applied to loans by type and showed lower required reserves when compared to December 31, 2014, and March 31, 2015.  After a review of the adequacy of the loan loss reserve at June 30, 2015, management concluded that, for the second quarter of 2015 a loan loss reserve release of $2.3 million was appropriate.  When measured as a percentage of loans outstanding, the total allowance for loan losses decreasedfrom 1.9% of total loans as of December 31, 2014, to 1.6% of total loans at June 30, 2015.  In management’s judgment, an adequate  allowance for estimated losses has been established for inherent losses at June 30, 2015. However, there can be no assurance that actual losses will not exceed the estimated amounts in the future.

38

Other Real Estate Owned

OREO at June 30, 2015,was essentially unchanged from $32.0 million at December 31, 2014.  New additions to the OREO portfolio in second quarter of 2015 were modest while valuation writedowns continued with an expense of $2.1 million in the quarter.  OREO at June 30, 2014 was $39.2 million.

							June 30, 2015
	Three Months Ended						Percent Change From
(in thousands)	June 30,		March 31,		December 31,		March 31,	December 31,
	2015		2015		2014		2015	2014
Beginning balance	$	35,461	$	31,982	$	40,877	10.9	(13.2)
Property additions		907		6,108		2,458	(85.2)	(63.1)
Property improvements		-		-		157	-	(100.0)
Less:							-	-
Property disposals		2,316		2,020		9,732	14.7	(76.2)
Period valuation adjustments		2,088		609		1,778	242.9	17.4
Other real estate owned	$	31,964	$	35,461	$	31,982	(9.9)	(0.1)

The OREO valuation reserve was $20.1 million, which was 38.6% of gross OREO at June 30, 2015.  The valuation reserve represented 31.3% and 37.5% of gross OREO at June 30, 2014, and December 31, 2014, respectively.  In management’s judgment, the property valuation allowance as established presents OREO at current estimates of fair value less estimated costs to sell; however, there can be no assurance that additional losses will not be incurred on disposal or upon update to valuation in the future.  Of note, properties valued in total at $2.5 million, or approximately 7.9%, of total OREO at June 30, 2015, have been in OREO for five years or more.

OREO Properties by Type

(in thousands)	June 30, 2015				March 31, 2015				December 31, 2014
		Amount	% of Total			Amount	% of Total			Amount	% of Total
Single family residence	$	2,381	7	%	$	3,113	9	%	$	2,621	8	%
Lots (single family and commercial)		12,629	39	%		13,407	38	%		13,235	41	%
Vacant land		2,437	8	%		2,725	8	%		2,725	9	%
Multi-family		2,526	8	%		2,337	6	%		1,549	5	%
Commercial property		11,991	38	%		13,879	39	%		11,852	37	%
Total OREO properties	$	31,964	100	%	$	35,461	100	%	$	31,982	100	%

Noninterest Income

							2nd Qtr 2015
	Three Months Ended						Percent Change From
(in thousands)	2nd Qtr		1st Qtr		2nd Qtr		1st Qtr	2nd Qtr
	2015		2015		2014		2015	2014
Trust income	$	1,596	$	1,486	$	1,677	7.4	(4.8)
Service charges on deposits		1,779		1,541		1,796	15.4	(0.9)
Residential mortgage banking revenue		2,476		1,659		1,257	49.2	97.0
Securities (loss) gains, net		(12)		(109)		295	89.0	(104.1)
Increase in cash surrender value of bank-owned life insurance		283		354		366	(20.1)	(22.7)
Debit card interchange income		1,050		959		930	9.5	12.9
Other income		1,092		2,083		1,160	(47.6)	(5.9)
Total noninterest income	$	8,264	$	7,973	$	7,481	3.6	10.5

As shown above, noninterest income experienced no significant linked quarter improvements in the second quarter of 2015 except for residential mortgage banking revenue.  The Company experienced strong mortgage loan origination results in the quarter.  Management operated effectively in a favorable market environment.  The first quarter of 2015 other noninterest income includes a nonrecurring incentive payment of $917,000 from a service provider in a long term mutually productive relationship with Old Second.  This category for first quarter also reflects the death benefit realized on a life insurance policy held by the Bank.  Year over year noninterest income increased approximately 10.5%.  For the six month period, total noninterest income improved to $16.2 million in 2015 from $13.8 million in 2014 on the nonrecurring incentive payment mentioned above and sharply improved residential mortgage banking revenues.

39

Noninterest Expense

										2nd Qtr 2015
	Three Months Ended									Percent  Change From
(in thousands)	2nd Qtr			1st Qtr			2nd Qtr			1st Qtr	2nd Qtr
	2015			2015			2014			2015	2014
Salaries	$	7,292		$	7,157		$	7,128		1.9	2.3
Bonus		454			417			592		8.9	(23.3)
Benefits and other		1,403			1,681			1,463		(16.5)	(4.1)
Total salaries and employee benefits		9,149			9,255			9,183		(1.1)	(0.4)
Occupancy expense, net		1,094			1,271			1,185		(13.9)	(7.7)
Furniture and equipment expense		1,065			1,001			984		6.4	8.2
FDIC insurance		377			273			627		38.1	(39.9)
General bank insurance		310			357			343		(13.2)	(9.6)
Amortization of core deposit intangible asset		-			-			511		N/A	(100.0)
Advertising expense		353			205			459		72.2	(23.1)
Debit card interchange expense		400			352			412		13.6	(2.9)
Legal fees		420			223			409		88.3	2.7
Other real estate owned expense, net		2,388			1,352			1,650		76.6	44.7
Other expense		3,371			2,864			3,289		17.7	2.5
Total noninterest expense	$	18,927		$	17,153		$	19,052		10.3	(0.7)
Efficiency ratio (defined below)		70.44	%		68.77	%		79.95	%

The efficiency ratio shown in the table above is calculated as noninterest expense excluding core deposit intangible amortization and OREO expenses divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains and losses on securities and with a tax equivalent adjustment on the increase in cash surrender value of bank-owned life insurance.

Noninterest expense increased on a linked quarter basis primarily on sharply higher OREO valuation expense.  Expenses were flat or down in second quarter 2015 compared to the same period in 2014 for most categories, excluding total OREO expense.  OREO expense in the second quarter of 2015 reflects an elevated level of valuation expense.  Year over year total noninterest expense was essentially unchanged with 2015 reflecting no expense from the now fully amortized core deposit intangible asset.  For the six month period, total noninterest expense of $36.1 million in 2015 compares to $36.6 million in 2014.  The 2014 total includes $1.0 million in amortization of the now fully amortized core deposit intangible where 2015 includes an increase of $1.1 million in OREO expenses, net.

Income Taxes

The Company recorded a tax expense of $2.4 million on $6.6 million pre-tax income for the second quarter of 2015.  For the six months endedJune 30, 2015, tax expense was composed of $157,000 in current income tax expense and $4.2million in deferred income tax expense.

There have been no significant changes in the Company’s ability to utilize the deferred tax assets through June 30, 2015. The Company has no valuation reserve on the deferred tax assets as of June 30, 2015.

On September 12, 2012, the Company and the Bank, as rights agent, entered into the Amended and Restated Rights Agreement and Tax Benefits Preservation Plan (the “Tax Benefits Plan”).  The Tax Benefits Plan amended and restated the Rights Agreement, dated September 17, 2002.  The purpose of the Tax Benefits Plan is to protect the Company’s deferred tax asset against an unsolicited ownership change, which could significantly limit the Company’s ability to utilize its deferred tax assets.  The Tax Benefits Plan was ratified by the Company’s stockholders at the Company’s 2013 annual meeting.  In connection with the public offeringthat closed in the second quarter of 2014, the Company amended the Tax Benefits Plan on April 3, 2014, to allow two identified investors who were purchasers in the offering to purchase more than 5% of the Company’s common stock.

Financial Condition

Total assets decreased $32.5 million from March 31, 2015, to $2.07 billion at June 30, 2015, primarily due to lower cash and cash equivalent balances.  Total assets at June 30, 2015,are essentially unchanged from $2.06 billion at December 31, 2014, and $2.05 billion at June 30, 2015.  Loans increased by $7.8 million, or 0.7% in three months ended June 30, 2015, and were unchanged from

40

$1.16 billion at December 31, 2014, as management continued to emphasize credit quality under an overarching relationship lending program.  Loans improved from $1.13 billion at June 30, 2014.  During the six months ended June 30, 2015, loan balances were reduced by net loan charge-off activity and the movement to OREO of collateral that previously secured loans.  OREO was essentially unchanged at $32.0 million at June 30, 2015, compared to December 31, 2014 and down from $39.2 million at June 30, 2014.  Available-for-sale securities increased by $14.4 million while held-to-maturity securities decreased $6.3 million in the six months ending June 30, 2015.  Notably, available-for-sale securities are up sharply from $329.8 million at June 30, 2014.

Loans

Total loans were $1.16 billion as of June 30, 2015, and December 31, 2014.  Total loans increased from $1.15 billion at March 31, 2015.  Loan portfolio activity in second quarter reflects growth in commercial lending offset by declines in other portfolio segments, notably real estate construction.  The second quarter of 2015 also reflects management directed loan sales.  Challenging economic circumstances, restricted demand and an intensely competitive environment served to temper overall loan growth.

							June 30, 2015
	Major Classification of Loans as of						Percent Change From
(in thousands)	June 30,		March 31,		December 31,		March 31,	December 31,
	2015		2015		2014		2015	2014
Commercial	$	123,372	$	114,241	$	119,158	8.0	3.5
Real estate - commercial		612,379		608,267		600,629	0.7	2.0
Real estate - construction		32,157		39,430		44,795	(18.4)	(28.2)
Real estate - residential		365,989		363,967		370,191	0.6	(1.1)
Consumer		3,854		3,495		3,504	10.3	10.0
Overdraft		408		368		649	10.9	(37.1)
Lease financing receivables		8,571		8,651		8,038	(0.9)	6.6
Other		11,391		11,945		11,630	(4.6)	(2.1)
		1,158,121		1,150,364		1,158,594	0.7	(0.0)
Net deferred loan costs		762		705		738	8.1	3.3
	$	1,158,883	$	1,151,069	$	1,159,332	0.7	(0.0)

The quality of the loan portfolio incorporates not only Company credit decisions but also the economic health of the communities in which the Company operates.  The local economies continue to experience the economic headwinds that have been subject of extensive discussion on state, national and international levels.  The uneven and occasionally adverse economic conditions continue to affect the Midwest region in particular and financial markets generally.  As the Company is located in a corridor with significant open space and undeveloped real estate, real estate lending (including commercial, residential, and construction) has been and continues to be a sizeable portion of the portfolio.  These categories comprised 87.2% of the portfolio as of June 30, 2015, compared to 87.6% of the portfolio as of December 31, 2014.  The Company continues to oversee and manage its loan portfolio in accordance with interagency guidance on risk management.

Securities

							June 30, 2015
(in thousands)	Securities Portfolio as of						Percent Change From
	June 30,		March 31,		December 31,		March 31,	December 31,
	2015		2015		2014		2015	2014
Securities available-for-sale, at fair value
U.S. Treasury	$	1,520	$	1,525	$	1,527	(0.3)	(0.5)
U.S. government agencies		1,595		1,611		1,624	(1.0)	(1.8)
U.S. government agency mortgage-backed		5,545		-		-	-	-
States and political subdivisions		13,249		33,746		22,018	(60.7)	(39.8)
Corporate bonds		30,605		33,004		30,985	(7.3)	(1.2)
Collateralized mortgage obligations		74,994		68,093		63,627	10.1	17.9
Asset-backed securities		178,655		168,256		173,496	6.2	3.0
Collateralized loan obligations		93,673		93,017		92,209	0.7	1.6
Total securities available-for-sale	$	399,836	$	399,252	$	385,486	0.1	3.7
Securities held-to-maturity, at amortized cost
U.S. government agency mortgage-backed	$	36,995	$	37,135	$	37,125	(0.4)	(0.4)
Collateralized mortgage obligations		216,424		220,197		222,545	(1.7)	(2.8)
Total securities held-to-maturity	$	253,419	$	257,332	$	259,670	(1.5)	(2.4)
Total securities	$	653,255	$	656,584	$	645,156	(0.5)	1.3

41

The total investment portfolio reached $653.3 million at June 30, 2015.  Except for maturities and calls, the available-for-sale (“AFS”) portfolio was essentially unchanged during the second quarter both in total and in composition to end at $399.8 million.  The Company had no purchase or sale activity in the held-to-maturity portfolio in the second quarter of 2015.

Net realized losses on securities sales totaled $12,000 for the second quarter of 2015 down from net realized losses of $109,000 in the first quarter of 2015.

Deposits and Borrowings

							June 30, 2015
	Deposit Detail as of						Percent Change From
(in thousands)	June 30,		March 31,		December 31,		March 31,	December 31,
	2015		2015		2014		2015	2014
Noninterest bearing	$	432,773	$	431,843	$	400,447	0.2	8.1
Savings		251,307		252,578		239,845	(0.5)	4.8
NOW accounts		330,897		344,737		328,641	(4.0)	0.7
Money market accounts		295,383		299,303		296,617	(1.3)	(0.4)
Certificates of deposit of less than $100,000		242,870		247,132		251,108	(1.7)	(3.3)
Certificates of deposit of $100,000 through $250,000		109,204		113,160		112,515	(3.5)	(2.9)
Certificates of deposit of more than $250,000		51,118		56,025		55,882	(8.8)	(8.5)
	$	1,713,552	$	1,744,778	$	1,685,055	(1.8)	1.7

Total deposits decreased $31.2 million during the quarter ended June 30, 2015, to $1.71 billion.  All categories except for noninterest bearing demand declined.  Demand deposits were essentially unchanged in the quarter.  All categories were essentially unchanged or higher at June 30, 2015, when compared to December 31, 2014, except certificates of deposit.  June 30, 2015 total deposits compares to $1.70 billion at June 30, 2014.

Management believes that reductions in average time deposits reflect maturities of deposits from past higher rate environments.  Further, management believes that the increase in transaction account balances at March 31, 2015, and the subsequent decreases at June 30, 2015, reflect customer choices at those dates based on long standing relationships with Old Second.

One of the Company’s most significant borrowing relationships continued to be the $45.5 million credit facility with a correspondent bank. The subordinated debt and the term debt portion of the senior debt facility mature on March 31, 2018.  The interest rate on the senior debt facility resets quarterly and at the Company’s option, is based oneither the lender’s prime rate or three-month LIBOR plus 90 basis points.  The interest rate on the subordinated debt resets quarterly, and is equal to three-month LIBOR plus 150 basis points.  The Company had $500,000 in principal outstanding in term debt and $45.0 million in principal outstanding in subordinated debt at both June 30, 2015, and December 31, 2014.  The Company has made all required interest payments on the outstanding principal amounts on a timely basis.

The credit facility agreement contains usual and customary provisions regarding acceleration of the senior debt upon the occurrence of an event of default by the Company under the senior debt agreement.  The senior debt agreement also contains certain customary representations and warranties, and financial covenants.  At June 30, 2015, the Company was in compliance with the financial covenants contained within the credit agreement.

The Company increased its securities sold under repurchase agreements to $32.4 million at June 30, 2015, from $21.0 million at December 31, 2014.  The Company had taken an advance from Federal Home Loan Bank of Chicago of $45.0 million at December 31, 2014, and an advance of $20.0 million at June 30, 2015.

The Company is also obligated on $58.4 million of junior subordinated debentures related to the trust preferred securities issued by its two statutory trust subsidiaries, Old Second Capital Trust I and Old Second Capital Trust II.  In April 2014, the Company concluded a successful capital raise and used some of the capital raise proceeds to pay interest accrued but previously unpaid on the trust preferred securities.  The Company is current on all payments due on these securities.

Capital

As of June 30, 2015, total stockholders’ equity was $185.2 million, which was a decrease of $8.9 million from $194.2 million as of December 31, 2014.  This decrease was directly attributable to the redemption of approximately one-third of the Company’s Series B Stock completed in first quarter of 2015 offset by current year earnings. 

As previously announced in the third quarter of 2010, the Company elected to defer regularly scheduled interest payments on $58.4 million of junior subordinated debentures related to the trust preferred securities issued by its two statutory trust subsidiaries, Old Second Capital Trust I and Old Second Capital Trust II.  Because of the deferral on the subordinated debentures, the trusts deferred

42

regularly scheduled dividends on their trust preferred securities.  On April 21, 2014, the Company paid the accumulated and unpaid interest on the trust preferred securities and terminated the deferral period.  In the second quarter of 2015, the Company paid $1.1 million for the regularly scheduled payments.

In the fourth quarter of 2012, the Treasury announced the continuation of auctions of the Series B Stock that was issued through the Capital Purchase Program and the Company was informed that the Series B Stock would be auctioned.  The auction of the Company’s Series B Stock was completed in the first quarter 2013 and all of the Series B Stock held by Treasury was sold to third parties, including certain of our directors.  The Company completed the redemption of 25,669 shares of its Series B Stock in the second quarter of 2014 using the proceeds of the 15,525,000 share common stock offering of April, 2014.  On December 30, 2014, the Company provided notice that it was redeeming approximately one-third of the remaining outstanding shares of the Company’s Series B Stock.  This redemption of 15,778 shares of Series B Stock was completed in the first quarter of 2015.  As of both March 31, 2015, and June 30, 2015, 31,553 shares of the Series B Stock were outstanding.

At December 31, 2013, and December 31, 2014, the Company carried $72.9 million and $47.3 million, respectively of Series B Stock in total stockholders’ equity.  Following the successful 2015 redemption of Series B Stock discussed above, the Company carried $31.6 million of Series B Stock at June 30, 2015.  Pursuant to the terms of the SeriesB Stock, the dividends paid on the SeriesB Stock increased from 5% to 9% in February2014.  The Company paid $710,000 on May 15, 2015 on the remaining shares outstanding at that date and is current with the Series B Stock dividends.

On July 14, 2015, the Company provided notice that it was redeeming the remaining 31,553 issued and outstanding shares of the Company’s Series B stock. The effective date for the redemption is August 14, 2015, and the redemption price will be the stated liquidation value of $1,000 per share, together with any accrued and unpaid dividends accumulated to, but excluding, the redemption date.  After this redemption, the Company’s total stockholders’ equity will continue to include $4.8 million to reflect the value of a ten year warrant to purchase shares of its common stock (exercise price of $13.43 per share) issued in January, 2009 as part of the original Series B issuance.  A discussion of the 2009 issuance, including this warrant, is included in Item 7. Management’s Discussion and Analysis of Financial Condition of the Company’s Form 10-K for the year ended December 31, 2014 under the heading “Capital”.

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The Company’s non-GAAP tangible common equity to tangible assets and the Tier 1 common equity to risk weighted assets increased to 7.44% and 9.78%, respectively, at June 30, 2015, compared to 7.12% and 6.80%, respectively, at December 31, 2014.  The issuance of 15,525,000 common shares net of repurchasing Series B Stock in 2014 and additional Series B stock repurchased in the first quarter of 2015 resulted in a positive impact on the regulatory ratios and the non-GAAP ratios noted above in the quarter ending June 30, 2015.  All capital ratios and regulatory capital information for 2015 give full effect to the Basel III capital regulations in effect as of January 1, 2015.  All other capital ratios and regulatory capital information for other periods reflects the regulatory regulations in effect for the relevant time period.

		(unaudited)			(unaudited)
		As of June 30,			As of December 31,
(In thousands)	2015		2014		2014
Tier 1 capital
Total equity	$	185,241	$	192,618	$	194,163
Tier 1 adjustments:
Trust preferred securities allowed		51,214		56,625		56,625
Cumulative other comprehensive loss		7,211		5,339		7,713
Disallowed intangible assets		-		(154)		-
Disallowed deferred tax assets		(38,810)		(64,302)		(61,456)
Other		-		(550)		(546)
Tier 1 capital	$	204,856	$	189,576	$	196,499
Total capital
Tier 1 capital	$	204,856	$	189,576	$	196,499
Tier 2 additions:
Allowable portion of allowance for loan losses		18,419		16,597		17,073
Additional trust preferred securities disallowed for tier 1 capital		5,411		-		-
Subordinated debt		18,000		27,000		27,000
Tier 2 additions subtotal		41,830		43,597		44,072
Allowable Tier 2		41,830		43,597		44,072
Other Tier 2 capital components		(6)		(6)		(6)
Total capital	$	246,680	$	233,167	$	240,566
Tangible common equity
Total equity	$	185,241	$	192,618	$	194,163
Less:  Preferred equity		31,553		47,331		47,331
Intangible assets		-		154		-
Tangible common equity	$	153,688	$	145,133	$	146,832
Tier 1 common equity
Tangible common equity	$	153,688	$	145,133	$	146,832
Tier 1 adjustments:
Cumulative other comprehensive loss		7,211		5,339		7,713
Other		(19,326)		(64,852)		(62,002)
Tier 1 common equity	$	141,573	$	85,620	$	92,543
Tangible assets
Total assets	$	2,065,053	$	2,046,864	$	2,061,787
Less:
Goodwill and intangible assets		-		154		-
Tangible assets	$	2,065,053	$	2,046,710	$	2,061,787
Total risk-weighted assets
On balance sheet	$	1,382,604	$	1,283,134	$	1,328,227
Off balance sheet		64,927		37,403		32,707
Total risk-weighted assets	$	1,447,531	$	1,320,537	$	1,360,934
Average assets
Total average assets for leverage	$	2,044,703	$	1,993,966	$	1,978,591

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Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Liquidity and Market Risk

Liquidity is the Company’s ability to fund operations, to meet depositor withdrawals, to provide for customers’ credit needs, and to meet maturing obligations and existing commitments.  The liquidity of the Company principally depends on cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and its ability to borrow funds.  The Company monitors the borrowing capacity at the FHLBC as part of its liquidity management process as supervised by the Asset and Liability Committee and reviewed by the board of directors.

Net cash inflows from operating activities were $7.2 million during the first half of 2015, compared with net cash outflows of $20.0 million in the same period in 2014.  Proceeds from sales of loans held-for-sale, net of funds used to originate loans held-for-sale, were a source of inflows for the first half of 2015 and 2014.  Interest paid, net of interest received, combined with changes in other assets and liabilities were a source of outflows for of the first half of 2015 and 2014.  Management of investing and financing activities, as well as market conditions, determines the level and the stability of net interest cash flows.  Management’s policy is to mitigate the impact of changes in market interest rates to the extent possible, as part of the balance sheet management process.

Net cash outflows from investing activities were $10.1 million in the first half of 2015, compared to net cash inflows of $6.4 million in the same period in 2014.  In the first half of 2015, securities transactions accounted for net outflows of $6.6 million, and net principal disbursed on loans accounted for net outflows of $7.6 million.  In the first half of 2014, securities transactions accounted for net inflows of $38.3 million, and net principal disbursed on loans accounted for net outflows of $42.3 million.  Proceeds from sales of OREO accounted for $4.7 million and $10.9 million in investing cash inflows for the first half of 2015 and 2014, respectively.

Net cash outflows from financing activities in the first half of 2015 were $2.7 million, compared with net cash inflows of $59.0 million in the first half of 2014.  Redemption of 15,778 shares of Series B Stock and dividends paid on Series B Stock accounted for net cash outflows of $17.5 million in the first half of 2015.  Net deposit inflows in the first half of 2015 were $28.5 million compared to net deposit inflows of $18.7 million in the first half of 2014.  Other short-term borrowings had net cash outflows of $25.0 million and $5.0 million related to FHLBC advance in the first half of 2015 and 2014, respectively.  Changes in securities sold under repurchase agreements accounted for $11.4 million and $15.6 million in net inflows in the first half of 2015 and 2014, respectively.

Interest Rate Risk

As part of its normal operations, the Company is subject to interest-rate risk on the assets it invests in (primarily loans and securities) and the liabilities it funds with (primarily customer deposits and borrowed funds), as well as its ability to manage such risk.  Fluctuations in interest rates may result in changes in the fair market values of the Company’s financial instruments, cash flows, and net interest income.  Like most financial institutions, the Company has an exposure to changes in both short-term and long-term interest rates.

Interest rates through the first half of 2015 have continued at historically low levels.  Market expectations about interest rate increases later in 2015 or 2016 are varied given uncertain domestic and international economic conditions.  The Company manages interest rate risk within guidelines established by policy which limits the amount of rate exposure.  In practice, interest rate risk exposure has been and ismaintained well within those guidelines and does not pose a material risk to the future earnings of the Company.

The Company manages various market risks in its normal course of operations, including credit, liquidity, and interest-rate risk.  Other types of market risk, such as foreign currency exchange risk and commodity price risk, do not arise in the normal course of the Company’s business activities and operations.  In addition, since the Company does not hold a trading portfolio, it is not exposed to significant market risk from trading activities.  The Company’s interest rate risk exposures from June 30, 2015, and December 31, 2014, are outlined in the table below.

The Company’s net income can be significantly influenced by a variety of external factors, including: overall economic conditions, policies and actions of regulatory authorities, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities other than those that are assumed, early withdrawal of deposits, exercise of call options on borrowings or securities, competition, a general rise or decline in interest rates, changes in the slope of the yield-curve, changes in historical relationships between indices (such as LIBOR and prime), and balance sheet growth or contraction.  The Company’s Asset and Liability Committee seeks to manage interest rate risk under a variety of rate environments by structuring the Company’s balance sheet and off-balance sheet positions, which includes interest rate swap derivatives as discussed in Note 13 of the financial statements included in this quarterly report.  The Company monitors and manages this risk within approved policy limits.

45

The Company utilizes simulation analysis to quantify the impact of various rate scenarios on net interest income.  Specific cash flows, repricing characteristics, and embedded options of the assets and liabilities held by the Company are incorporated into the simulation model.  Earnings at risk is calculated by comparing the net interest income of a stable interest rate environment to the net interest income of different interest rate environments to determine the percentage change.  Significant declines in interest rates that occurred during the first half of 2012 have made it impossible to calculate valid interest rate scenarios for rate declines of 1.0% or more, a situation that continues to date.  As of December 31, 2014, the Company had modest amounts of earnings gains (in both dollars and percentage) if interest rates should rise.  Primarily due to increases in low cost deposits through June 30, 2015, higher interest rates would result in a slight increase in the amount of earnings gains.  Management considers the current level of interest rate risk to be low, but intends to continue closely monitoring changes in that risk in case corrective actions might be needed in the future.  Federal Funds rates and the Bank's prime rate were stable at 0.25% and 3.25%, respectively.

The following table summarizes the effect on annual income before income taxes based upon an immediate increase or decrease in interest rates of 0.5%, 1%, and 2% assuming no change in the slope of the yield curve.  The -2% and -1% sections of the table do not show model changes for those magnitudes of decrease due to the low interest rate environment over the relevant time periods.

	Analysis of Net Interest Income Sensitivity
	Immediate Changes in Rates
	(2.0)	%	(1.0)	%		(0.5)	%		0.5	%		1.0	%		2.0	%
June 30, 2015
Dollar change	N/A		N/A		$	(896)		$	437		$	1,186		$	2,497
Percent change	N/A		N/A			(1.6)	%		0.8	%		2.1	%		4.4	%
December 31, 2014
Dollar change	N/A		N/A			(718)		$	264		$	1,086		$	2,243
Percent change	N/A		N/A			(1.2)	%		0.5	%		1.9	%		3.9	%

The amounts and assumptions used in the simulation model should not be viewed as indicative of expected actual results.  Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies.  The above results do not take into account any management action to mitigate potential risk.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended, as of June 30, 2015.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2015, the Company’s internal controls were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified.

There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2015, that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.

Forward-looking Statements

This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company.  Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions.  Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  The factors, which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries, are detailed in the “Risk Factors” section included under Item 1A. of Part I of the Company’s Form 10-K.  In addition to the risk factors described in that section, there are other factors that may impact any public company, including ours, which could have a material adverse effect on

46

the operations and future prospects of the Company and its subsidiaries.  These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

PART II - OTHER INFORMATION

Item 1.    Legal Proceedings

The Company and its subsidiaries, from time to time, are involved in collection suits in the ordinary course of business against its debtors and are defendants in legal actions arising from normal business activities.  Management, after consultation with legal counsel, believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Company.

Item 1.A.  Risk Factors

There have been no material changes from the risk factors set forth in Part I, Item 1.A. “Risk Factors,” of the Company’s Form 10-K for the year ended December 31, 2014.  Please refer to that section of the Company’s Form 10-K for disclosures regarding the risks and uncertainties related to the Company’s business.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Mine Safety Disclosures

N/A

Item 5.    Other Information

None

Item 6.  Exhibits

Exhibits:

31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets at June 30, 2015, and December 31, 2014; (ii) Consolidated Statements of Income for the three and six months ended June 30, 2015 and 2014; (iii) Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2015 and June 30, 2014; (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and June 30, 2014; and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail.*
	* As provided in Rule 406T of Regulation S-T, these interactive data files shall not be deemed “filed” for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 as amended, or otherwise subject to liability under those sections.

47

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	OLD SECOND BANCORP, INC.
		BY:	/s/ James L. Eccher
			James L. Eccher
			President and Chief Executive Officer
			(principal executive officer)
		BY:	/s/ J. Douglas Cheatham
			J. Douglas Cheatham
			Executive Vice-President and Chief Financial Officer, Director (principal financial and accounting officer)
DATE: August 7, 2015

48

EX-31.1

Exhibit 31.1

I, James L. Eccher, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Old Second Bancorp, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:August7, 2015	/s/ James L. Eccher
	James L. Eccher
	President and Chief Executive Officer

77

EX-31.2

Exhibit 31.2

I, J. Douglas Cheatham, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Old Second Bancorp, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:August 7, 2015	/s/ J. Douglas Cheatham
	J. Douglas Cheatham
	Chief Financial Officer

78

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Old Second Bancorp, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I,  James L. Eccher, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Ay 13
	/s/ James L. Eccher
	James L. Eccher
		President and Chief Executive Officer (principal executive officer)
August 7, 2015

79

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Old Second Bancorp, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J.Douglas Cheatham, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	/s/ J. Douglas Cheatham
	J. Douglas Cheatham
	Executive Vice-President and Chief Financial Officer, Director (principal financial officer)
August 7, 2015

80

XML

Securities - Unrealized Loss Positions (Details) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015 USD ($) security	Dec. 31, 2014 USD ($) security
Securities Available-for-Sale, Number of Securities
Less than 12 months in an unrealized loss position | security	29	35
Greater than 12 months in an unrealized loss position | security	18	8
Total | security	47	43
Securities Available-for-Sale, Unrealized Losses
Less than 12 months in an unrealized loss position	$ 3,116	$ 4,764
Greater than 12 months in an unrealized loss position	3,323	2,591
Total	6,439	7,355
Securities Available-for-Sale, Fair Value
Less than 12 months in an unrealized loss position	205,184	241,626
Greater than 12 months in an unrealized loss position	123,141	68,811
Total	$ 328,325	$ 310,437
Securities Held-to-Maturity, Number of Securities
Less than 12 months in an unrealized loss position | security	6	7
Greater than 12 months in an unrealized loss position | security	4	4
Total | security	10	11
Securities Held-to-Maturity, Unrealized Losses
Less than 12 months in an unrealized loss position	$ 189	$ 457
Greater than 12 months in an unrealized loss position	445	982
Total	634	1,439
Securities Held-to-Maturity, Fair Value
Less than 12 months in an unrealized loss position	31,761	49,302
Greater than 12 months in an unrealized loss position	46,400	46,283
Total	$ 78,161	$ 95,585
U.S. Treasury
Securities Available-for-Sale, Number of Securities
Less than 12 months in an unrealized loss position | security		1
Total | security		1
Securities Available-for-Sale, Unrealized Losses
Less than 12 months in an unrealized loss position		$ 2
Total		2
Securities Available-for-Sale, Fair Value
Less than 12 months in an unrealized loss position		1,527
Total		$ 1,527
U.S. government agencies
Securities Available-for-Sale, Number of Securities
Greater than 12 months in an unrealized loss position | security	1	1
Total | security	1	1
Securities Available-for-Sale, Unrealized Losses
Greater than 12 months in an unrealized loss position	$ 102	$ 87
Total	102	87
Securities Available-for-Sale, Fair Value
Greater than 12 months in an unrealized loss position	1,595	1,624
Total	$ 1,595	$ 1,624
States and political subdivisions
Securities Available-for-Sale, Number of Securities
Less than 12 months in an unrealized loss position | security	2	4
Greater than 12 months in an unrealized loss position | security	1
Total | security	3	4
Securities Available-for-Sale, Unrealized Losses
Less than 12 months in an unrealized loss position	$ 37	$ 96
Greater than 12 months in an unrealized loss position	135
Total	172	96
Securities Available-for-Sale, Fair Value
Less than 12 months in an unrealized loss position	1,841	4,896
Greater than 12 months in an unrealized loss position	1,720
Total	$ 3,561	$ 4,896
Corporate bonds
Securities Available-for-Sale, Number of Securities
Less than 12 months in an unrealized loss position | security	6	4
Greater than 12 months in an unrealized loss position | security	3	1
Total | security	9	5
Securities Available-for-Sale, Unrealized Losses
Less than 12 months in an unrealized loss position	$ 311	$ 486
Greater than 12 months in an unrealized loss position	460	81
Total	771	567
Securities Available-for-Sale, Fair Value
Less than 12 months in an unrealized loss position	16,064	15,246
Greater than 12 months in an unrealized loss position	14,541	1,921
Total	$ 30,605	$ 17,167
Collateralized mortgage obligations
Securities Available-for-Sale, Number of Securities
Less than 12 months in an unrealized loss position | security	6	5
Greater than 12 months in an unrealized loss position | security	4	3
Total | security	10	8
Securities Available-for-Sale, Unrealized Losses
Less than 12 months in an unrealized loss position	$ 335	$ 900
Greater than 12 months in an unrealized loss position	1,240	1,232
Total	1,575	2,132
Securities Available-for-Sale, Fair Value
Less than 12 months in an unrealized loss position	44,131	38,284
Greater than 12 months in an unrealized loss position	19,400	21,604
Total	$ 63,531	$ 59,888
Securities Held-to-Maturity, Number of Securities
Less than 12 months in an unrealized loss position | security	6	7
Greater than 12 months in an unrealized loss position | security	4	4
Total | security	10	11
Securities Held-to-Maturity, Unrealized Losses
Less than 12 months in an unrealized loss position	$ 189	$ 457
Greater than 12 months in an unrealized loss position	445	982
Total	634	1,439
Securities Held-to-Maturity, Fair Value
Less than 12 months in an unrealized loss position	31,761	49,302
Greater than 12 months in an unrealized loss position	46,400	46,283
Total	$ 78,161	$ 95,585
Asset-backed securities
Securities Available-for-Sale, Number of Securities
Less than 12 months in an unrealized loss position | security	7	9
Greater than 12 months in an unrealized loss position | security	5	3
Total | security	12	12
Securities Available-for-Sale, Unrealized Losses
Less than 12 months in an unrealized loss position	$ 2,046	$ 1,077
Greater than 12 months in an unrealized loss position	1,144	1,191
Total	3,190	2,268
Securities Available-for-Sale, Fair Value
Less than 12 months in an unrealized loss position	98,917	99,286
Greater than 12 months in an unrealized loss position	61,397	43,662
Total	$ 160,314	$ 142,948
Collateralized loan obligations
Securities Available-for-Sale, Number of Securities
Less than 12 months in an unrealized loss position | security	8	12
Greater than 12 months in an unrealized loss position | security	4
Total | security	12	12
Securities Available-for-Sale, Unrealized Losses
Less than 12 months in an unrealized loss position	$ 387	$ 2,203
Greater than 12 months in an unrealized loss position	242
Total	629	2,203
Securities Available-for-Sale, Fair Value
Less than 12 months in an unrealized loss position	44,231	82,387
Greater than 12 months in an unrealized loss position	24,488
Total	$ 68,719	$ 82,387

XML

Junior Subordinated Debentures - Issuance (Details) - USD ($) $ in Thousands	1 Months Ended			6 Months Ended
	Apr. 30, 2007	Jul. 31, 2003	Jun. 30, 2003	Jun. 30, 2015	Dec. 31, 2014
Junior subordinated debentures
Junior subordinated debentures				$ 58,378	$ 58,378
Old Second Capital Trust I
Junior subordinated debentures
Proceeds from sale of cumulative trust preferred securities		$ 4,100	$ 27,500
Maturity Period				30 years
Cash distribution rate of trust preferred securities (as a percent)				7.80%
Old Second Capital Trust II
Junior subordinated debentures
Proceeds from sale of cumulative trust preferred securities	$ 25,000
Maturity Period				30 years
Old Second Capital Trust II | Debt Instrument, Redemption, Period One [Member]
Junior subordinated debentures
Cash distribution fixed rate of trust preferred securities (as a percent)				6.77%
Old Second Capital Trust II | Debt Instrument, Redemption, Period Two [Member]
Junior subordinated debentures
Basis points added to cash distribution floating rate base (as a percent)				1.50%
Old Second Capital Trust II | Debt Instrument, Redemption, Period Two [Member] | LIBOR
Junior subordinated debentures
Cash distribution, floating rate base				three-month LIBOR
Junior subordinated debentures | Old Second Capital Trust I
Junior subordinated debentures
Junior subordinated debentures				$ 32,600
Junior subordinated debentures | Old Second Capital Trust II
Junior subordinated debentures
Junior subordinated debentures				$ 25,800

XML

Loans - TDR (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2015 USD ($) contract	Jun. 30, 2014 USD ($) contract	Jun. 30, 2015 USD ($) contract	Jun. 30, 2014 USD ($) contract
Troubled debt restructurings - modified during the period
# of contracts | contract	5	1	8	5
Pre-modification recorded investment	$ 279,000	$ 107,000	$ 937,000	$ 1,766,000
Post-modification recorded investment	$ 278,000	$ 107,000	$ 824,000	$ 1,465,000
TDR's defaulted
# of contracts | contract	0		0
Real estate - commercial | Other
Troubled debt restructurings - modified during the period
# of contracts | contract				2
Pre-modification recorded investment				$ 1,320,000
Post-modification recorded investment				$ 1,159,000
Real estate - commercial | Bifurcate
Troubled debt restructurings - modified during the period
# of contracts | contract			1
Pre-modification recorded investment			$ 300,000
Post-modification recorded investment			$ 177,000
Real estate - residential | Owner occupied | Other
Troubled debt restructurings - modified during the period
# of contracts | contract	1		3
Pre-modification recorded investment	$ 46,000.000		$ 404,000
Post-modification recorded investment	$ 45,000.000		$ 414,000
Real estate - residential | Owner occupied | HAMP
Troubled debt restructurings - modified during the period
# of contracts | contract				1
Pre-modification recorded investment				$ 102,000
Post-modification recorded investment				$ 75,000
Real estate - residential | Owner occupied | Deferral
Troubled debt restructurings - modified during the period
# of contracts | contract		1		2
Pre-modification recorded investment		$ 107,000		$ 344,000
Post-modification recorded investment		$ 107,000		$ 231,000
Real estate - residential | Revolving and junior liens | HAMP
Troubled debt restructurings - modified during the period
# of contracts | contract	4		4
Pre-modification recorded investment	$ 233,000.000		$ 233,000
Post-modification recorded investment	$ 233,000.000		$ 233,000

XML

Series B Preferred Stock (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended	6 Months Ended
	Mar. 31, 2009	Jun. 30, 2015
Preferred Stock
Proceeds from the Treasury	$ 73.0
Series B Stock
Preferred Stock
Period for payment of cumulative dividends using the initial cumulative dividend rate		5 years
Cumulative dividends, initial rate for the first five years (as a percent)		5.00%
Cumulative dividends rate (as a percent)		9.00%
Fair value	68.2
Warrants
Preferred Stock
Warrants, term		10 years
Warrants to purchase the Company's common stock, initially authorized (in shares)		815,339
Warrants, exercise price (in dollars per share)		$ 13.43
Fair value	$ 4.8

XML

Equity Compensation Plans - Options (Details) - USD ($)	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Equity Compensation Plans
Total compensation cost	$ 344,000
2014 Plan
Equity Compensation Plans
Number of shares authorized	375,000
Number of shares issuable	125,000
Stock options
Equity Compensation Plans
Granted (in shares)	0	0
Term of stock options granted	10 years
Exercised (in shares)	0	0
Total unrecognized compensation cost	$ 0
Shares
Beginning outstanding (in shares)	229,000
Ending outstanding (in shares)	229,000
Exercisable at end of period (in shares)	229,000
Weighted Average Exercise Price
Beginning outstanding (in dollars per share)	$ 28.28
Ending outstanding (in dollars per share)	28.28
Exercisable at end of period (in dollars per share)	$ 28.28
Weighted Average Remaining Contractual Term (years)
Ending outstanding (in years)	1 year 8 months 12 days
Exercisable at end of period	1 year 8 months 12 days

XML

Loans - Impaired Loans - Recorded Investment, Unpaid Principal Balance and Related Allowance (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Recorded Investment
With no related allowance recorded	$ 25,913	$ 35,011
With an allowance recorded	903	875
Total impaired loans	26,816	35,886
Unpaid Principal Balance
With no related allowance recorded	30,469	41,003
With an allowance recorded	1,148	997
Total impaired loans	31,617	42,000
Related Allowance
With an allowance recorded	138	278
Commercial
Recorded Investment
With no related allowance recorded	600	1,500
Unpaid Principal Balance
With no related allowance recorded	776	2,114
Real estate - commercial | Owner occupied general purpose
Recorded Investment
With no related allowance recorded	3,079	7,125
Unpaid Principal Balance
With no related allowance recorded	3,769	7,870
Real estate - commercial | Owner occupied special purpose
Recorded Investment
With no related allowance recorded	1,141	1,798
Unpaid Principal Balance
With no related allowance recorded	1,236	1,941
Real estate - commercial | Non-owner occupied general purpose
Recorded Investment
With no related allowance recorded	729	4,831
With an allowance recorded		76
Unpaid Principal Balance
With no related allowance recorded	1,162	5,653
With an allowance recorded		76
Related Allowance
With an allowance recorded		21
Real estate - commercial | Non-owner occupied special purpose
Recorded Investment
With no related allowance recorded		1,423
With an allowance recorded	177
Unpaid Principal Balance
With no related allowance recorded		1,930
With an allowance recorded	293
Real estate - commercial | Farm
Recorded Investment
With no related allowance recorded	1,272
Unpaid Principal Balance
With no related allowance recorded	1,338
Real estate - construction | Homebuilder
Recorded Investment
With no related allowance recorded		1,791
Unpaid Principal Balance
With no related allowance recorded		1,791
Real estate - construction | Commercial speculative
Recorded Investment
With no related allowance recorded	3,472
Unpaid Principal Balance
With no related allowance recorded	3,472
Real estate - construction | All other
Recorded Investment
With no related allowance recorded	229	291
With an allowance recorded	251	270
Unpaid Principal Balance
With no related allowance recorded	287	323
With an allowance recorded	294	306
Related Allowance
With an allowance recorded	27	98
Real estate - residential | Investor
Recorded Investment
With no related allowance recorded	1,519	2,595
With an allowance recorded		135
Unpaid Principal Balance
With no related allowance recorded	1,864	3,024
With an allowance recorded		145
Related Allowance
With an allowance recorded		24
Real estate - residential | Owner occupied
Recorded Investment
With no related allowance recorded	11,435	11,419
With an allowance recorded	13	23
Unpaid Principal Balance
With no related allowance recorded	12,894	12,816
With an allowance recorded	56	65
Related Allowance
With an allowance recorded	22	38
Real estate - residential | Revolving and junior liens
Recorded Investment
With no related allowance recorded	2,437	2,238
With an allowance recorded	462	371
Unpaid Principal Balance
With no related allowance recorded	3,671	3,541
With an allowance recorded	505	405
Related Allowance
With an allowance recorded	$ 89	$ 97

XML

Fair Value Option and Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2015

Fair Value Measurements

Schedule of balance of assets and liabilities which are measured at fair value on a recurring basis

	June 30, 2015
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities available-for-sale
U.S. Treasury	$	1,520	$	-	$	-	$	1,520
U.S. government agencies		-		1,595		-		1,595
U.S. government agencies mortgage-backed		-		5,545		-		5,545
States and political subdivisions		-		13,131		118		13,249
Corporate Bonds		-		30,605		-		30,605
Collateralized mortgage obligations		-		74,994		-		74,994
Asset-backed securities		-		178,655		-		178,655
Collateralized loan obligations		-		93,673		-		93,673
Loans held-for-sale		-		6,208		-		6,208
Mortgage servicing rights		-		-		5,884		5,884
Other assets (Interest rate swap agreements)		-		28		-		28
Other assets (Mortgage banking derivatives)		-		257		-		257
Total	$	1,520	$	404,691	$	6,002	$	412,213
Liabilities:
Other liabilities (Interest rate swap agreements)	$	-	$	28	$	-	$	28
Total	$	-	$	28	$	-	$	28

	December 31, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities available-for-sale
U.S. Treasury	$	1,527	$	-	$	-	$	1,527
U.S. government agencies		-		1,624		-		1,624
States and political subdivisions		-		21,900		118		22,018
Corporate bonds		-		30,985		-		30,985
Collateralized mortgage obligations		-		63,627		-		63,627
Asset-backed securities		-		120,555		52,941		173,496
Collateralized loan obligations		-		92,209		-		92,209
Loans held-for-sale		-		5,072		-		5,072
Mortgage servicing rights		-		-		5,462		5,462
Other assets (Interest rate swap agreements net of swap credit valuation)		-		30		-		30
Other assets (Mortgage banking derivatives)		-		143		-		143
Total	$	1,527	$	336,145	$	58,521	$	396,193
Liabilities:
Other liabilities (Interest rate swap agreements)	$	-	$	30	$	-	$	30
Total	$	-	$	30	$	-	$	30

Schedule of changes in Level 3 assets and liabilities measured at fair value on a recurring basis

	Six months ended June 30, 2015
	Securities available-for-sale
			States and		Mortgage
	Asset-		Political		Servicing
	backed		Subdivisions		Rights
Beginning balance January 1, 2015	$	52,941	$	118	$	5,462
Transfers out of Level 3		(24,917)		-		-
Total gains or losses
Included in earnings (or changes in net assets)		(28)		-		(137)
Included in other comprehensive income		(541)		-		-
Purchases, issuances, sales, and settlements
Issuances		-		-		935
Settlements		-		-		(376)
Sales		(27,455)		-		-
Ending balance June 30, 2015	$	-	$	118	$	5,884

	Six months ended June 30, 2014
	Securities available-for-sale
			States and		Mortgage		Interest Rate
	Asset-		Political		Servicing		Swap
	backed		Subdivisions		Rights		Valuation
Beginning balance January 1, 2014	$	154,137	$	125	$	5,807	$	(6)
Total gains or losses
Included in earnings (or changes in net assets)		1,671		-		(630)		6
Included in other comprehensive income		513		-		-		-
Purchases, issuances, sales, and settlements
Purchases		58,047		-		-		-
Issuances		-		-		324		-
Settlements		-		-		-		-
Sales		(77,282)		-		-		-
Ending balance June 30, 2014	$	137,086	$	125	$	5,501	$	-

Schedule of quantitative information about level 3 fair value measurements

The following table and commentary presents quantitative and qualitative information about Level 3 fair value measurements as of June 30, 2015:

						Weighted
Measured at fair value				Unobservable		Average
on a recurring basis:	Fair Value		Valuation Methodology	Inputs	Range of Input	of Inputs
Mortgage Servicing rights	$	5,884	Discounted Cash Flow	Discount Rate	10.0-15.5%	10.2	%
				Prepayment Speed	6.0-34.1%	9.7	%

The following table and commentary presents quantitative and qualitative information about Level 3 fair value measurements as of December 31, 2014:

						Weighted
Measured at fair value				Unobservable		Average
on a recurring basis:	Fair Value		Valuation Methodology	Inputs	Range of Input	of Inputs
Mortgage Servicing rights	$	5,462	Discounted Cash Flow	Discount Rate	9.7-108.2%	10.2	%
				Prepayment Speed	5.0-78.4%	10.9	%
Asset-backed securities		52,941	Discounted Cash Flow	Credit Risk Premium	0.9-0.9%	0.9	%
			with comparable transaction yields	Liquidity Discount	3.5-3.7%	3.6	%

Schedule of assets and liabilities measured at fair value on a nonrecurring basis

	June 30, 2015
	Level 1		Level 2		Level 3		Total
Impaired loans1	$	-	$	-	$	451	$	451
Other real estate owned, net2		-		-		31,964		31,964
Total	$	-	$	-	$	32,415	$	32,415

1Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans,had a carrying amount of $589,000, with a valuation allowance of $138,000 resulting in an increase of specific allocations within the allowance for loan losses of $140,000 for the six months ending June 30, 2015.

2OREO is measured at the lower of carrying or fair value less costs to sell, and had a net carrying amount of $32.0 million, which is made up of the outstanding balance of $53.8 million, net of a valuation allowance of $20.1 million and participations of $1.7 million, at June 30, 2015.

	December 31, 2014
	Level 1		Level 2		Level 3		Total
Impaired loans1	$	-	$	-	$	564	$	564
Other real estate owned, net2		-		-		31,982		31,982
Total	$	-	$	-	$	32,546	$	32,546

1Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans, had a carrying amount of $842,000, with a valuation allowance of $278,000, resulting in a decrease of specific allocations within the provision for loan losses of $2.1 million for the year ending December 31, 2014.

2OREO is measured at the lower of carrying or fair value less costs to sell, and had a net carrying amount of $32.0 million, which is made up of the outstanding balance of $53.0 million, net of a valuation allowance of $19.2 million and participations of $1.8 million, at December 31, 2014.

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Earnings Per Share - Reconciliation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Basic earnings per share:
Weighted-average common shares outstanding	29,475,682	28,181,519	29,473,004	21,090,665
Weighted-average common shares less stock based awards	29,475,682	28,181,519	29,473,004	21,086,438
Weighted-average common shares stock based awards		179,874		174,522
Net income	$ 4,129	$ 2,021	$ 7,628	$ 4,223
Gain on preferred stock redemption		(1,348)		(1,348)
Preferred stock dividends and accretion	710	(4,085)	1,534	(2,513)
Net income available to common stockholders	$ 3,419	$ 7,454	$ 6,094	$ 8,084
Basic earnings per share common undistributed earnings (loss) (in dollars per share)		$ 0.26		$ 0.38
Basic earnings per share (in dollars per share)	$ 0.12	$ 0.26	$ 0.21	$ 0.38
Diluted earnings per share:
Weighted-average common shares outstanding	29,475,682	28,181,519	29,473,004	21,090,665
Diluted average common shares outstanding	29,747,253	28,361,393	29,712,952	21,260,960
Net earnings available to common stockholders	$ 3,419	$ 7,454	$ 6,094	$ 8,084
Diluted earnings per share (in dollars per share)	$ 0.12	$ 0.26	$ 0.21	$ 0.38
Antidilutive options and warrants
Diluted earnings per share:
Number of antidilutive options and warrants excluded from the diluted earnings per share calculation (in shares)	1,044,339	1,140,839	1,044,339	1,140,839
Warrants
Diluted earnings per share:
Number of antidilutive options and warrants excluded from the diluted earnings per share calculation (in shares)			815,339	815,339
Warrants, exercise price (in dollars per share)	$ 13.43	$ 13.43	$ 13.43	$ 13.43
Restricted stock and restricted stock units
Diluted earnings per share:
Dilutive effect of nonvested restricted awards (in shares)	271,571	179,874	239,948	170,295

XML

Series B Preferred Stock - Dividends and Redemptions (Details) $ / shares in Units, $ in Thousands			3 Months Ended		6 Months Ended
	Jan. 31, 2015 shares	Dec. 30, 2014 $ / shares shares	Mar. 31, 2015 shares	Jun. 30, 2014 USD ($) shares	Jun. 30, 2015 USD ($) item shares	Aug. 14, 2015 $ / shares	Jul. 31, 2015 $ / shares shares	Dec. 31, 2014 USD ($) shares	Dec. 31, 2013 USD ($)
Preferred Stock
Preferred stock | $					$ 31,553			$ 47,331
Preferred Stock, Shares Outstanding					31,553			47,331
Series B Stock
Preferred Stock
Number of quarters in which if the Company did not pay dividends, will allow the holder the right to appoint representatives to the Company's board of directors | item					6
Repurchase price percentage of liquidation value (as a percent)				94.75%
Payments for repurchase of preferred stock | $				$ 24,300
Shares redeemed (in shares)	15,778		15,778	25,669
Preferred stock | $					$ 31,600			$ 47,300	$ 72,900
Shares to be redeemed, percent of issued and outstanding		33.33%
Preferred Stock, Shares Outstanding		47,331	31,553		31,553		31,553
Preferred Stock, Redemption Price Per Share | $ / shares		$ 1,000				$ 1,000	$ 1,000

XML

Loans (Tables)

6 Months Ended

Jun. 30, 2015

Loans

Schedule of major classifications of loans

	June 30, 2015		December 31, 2014
Commercial	$	123,372	$	119,158
Real estate - commercial		612,379		600,629
Real estate - construction		32,157		44,795
Real estate - residential		365,989		370,191
Consumer		3,854		3,504
Overdraft		408		649
Lease financing receivables		8,571		8,038
Other		11,391		11,630
		1,158,121		1,158,594
Net deferred loan fees		762		738
	$	1,158,883	$	1,159,332

Schedule of aged analysis of past due loans by class of loans

.															Recorded
															Investment
															90 days or
					90 Days or										Greater Past
	30-59 Days		60-89 Days		Greater Past		Total Past								Due and
June 30, 2015	Past Due		Past Due		Due		Due		Current		Nonaccrual		Total Loans		Accruing
Commercial	$	-	$	-	$	-	$	-	$	131,343	$	600	$	131,943	$	-
Real estate - commercial
Owner occupied general purpose		-		-		-		-		127,516		1,915		129,431		-
Owner occupied special purpose		-		-		-		-		173,200		790		173,990		-
Non-owner occupied general purpose		270		-		-		270		156,771		730		157,771		-
Non-owner occupied special purpose		4,021		-		-		4,021		92,865		-		96,886		-
Retail properties		-		-		-		-		41,016		-		41,016		-
Farm		-		-		-		-		12,013		1,272		13,285		-
Real estate - construction
Homebuilder		-		41		-		41		2,654		-		2,695		-
Land		-		-		-		-		2,573		-		2,573		-
Commercial speculative		-		-		-		-		2,286		3,472		5,758		-
All other		-		-		-		-		20,651		480		21,131		-
Real estate - residential
Investor		168		-		-		168		138,474		792		139,434		-
Owner occupied		31		297		-		328		110,140		6,273		116,741		-
Revolving and junior liens		418		-		-		418		106,744		2,652		109,814		-
Consumer		50		-		-		50		3,804		-		3,854		-
All other1		-		-		-		-		12,561		-		12,561		-
	$	4,958	$	338	$	-	$	5,296	$	1,134,611	$	18,976	$	1,158,883	$	-

															Recorded
															Investment
															90 days or
					90 Days or										Greater Past
	30-59 Days		60-89 Days		Greater Past		Total Past								Due and
December 31, 2014	Past Due		Past Due		Due		Due		Current		Nonaccrual		Total Loans		Accruing
Commercial	$	38	$	-	$	-	$	38	$	125,658	$	1,500	$	127,196	$	-
Real estate - commercial
Owner occupied general purpose		699		-		-		699		126,029		5,937		132,665		-
Owner occupied special purpose		-		-		-		-		167,874		1,441		169,315		-
Non-owner occupied general purpose		-		-		-		-		153,328		4,907		158,235		-
Non-owner occupied special purpose		-		-		-		-		87,054		1,423		88,477		-
Retail properties		-		-		-		-		37,780		-		37,780		-
Farm		-		-		-		-		14,157		-		14,157		-
Real estate - construction
Homebuilder		-		-		-		-		3,204		-		3,204		-
Land		-		-		-		-		1,658		-		1,658		-
Commercial speculative		-		-		-		-		13,431		-		13,431		-
All other		71		29		-		100		25,841		561		26,502		-
Real estate - residential
Investor		-		-		-		-		135,273		1,942		137,215		-
Owner occupied		1,076		914		-		1,990		107,727		6,711		116,428		-
Revolving and junior liens		94		44		-		138		113,906		2,504		116,548		-
Consumer		-		-		-		-		3,504		-		3,504		-
All other1		-		-		-		-		13,017		-		13,017		-
	$	1,978	$	987	$	-	$	2,965	$	1,129,441	$	26,926	$	1,159,332	$	-

1. The “All other” class includes overdrafts and net deferred costs.

Schedule of credit quality indicators by class of loans

June 30, 2015			Special
	Pass		Mention		Substandard 1		Doubtful		Total
Commercial	$	124,831	$	6,414	$	698	$	-	$	131,943
Real estate - commercial
Owner occupied general purpose		124,737		2,779		1,915		-		129,431
Owner occupied special purpose		171,862		1,338		790		-		173,990
Non-owner occupied general purpose		150,971		5,800		1,000		-		157,771
Non-owner occupied special purpose		92,865		4,021		-		-		96,886
Retail Properties		39,506		1,510		-		-		41,016
Farm		11,484		529		1,272		-		13,285
Real estate - construction
Homebuilder		2,695		-		-		-		2,695
Land		2,573		-		-		-		2,573
Commercial speculative		2,286		-		3,472		-		5,758
All other		20,651		-		480		-		21,131
Real estate - residential
Investor		138,459		-		975		-		139,434
Owner occupied		109,690		-		7,051		-		116,741
Revolving and junior liens		106,334		188		3,292		-		109,814
Consumer		3,853		-		1		-		3,854
All other		12,561		-		-		-		12,561
Total	$	1,115,358	$	22,579	$	20,946	$	-	$	1,158,883

December 31, 2014			Special
	Pass		Mention		Substandard 1		Doubtful		Total
Commercial	$	118,845	$	3,948	$	4,403	$	-	$	127,196
Real estate - commercial
Owner occupied general purpose		124,936		253		7,476		-		132,665
Owner occupied special purpose		154,225		11,607		3,483		-		169,315
Non-owner occupied general purpose		148,212		3,235		6,788		-		158,235
Non-owner occupied special purpose		78,957		8,097		1,423		-		88,477
Retail Properties		36,779		1,001		-		-		37,780
Farm		14,157		-		-		-		14,157
Real estate - construction
Homebuilder		3,204		-		-		-		3,204
Land		1,658		-		-		-		1,658
Commercial speculative		9,947		-		3,484		-		13,431
All other		25,941		-		561		-		26,502
Real estate - residential
Investor		134,952		-		2,263		-		137,215
Owner occupied		109,085		-		7,343		-		116,428
Revolving and junior liens		112,647		188		3,713		-		116,548
Consumer		3,503		-		1		-		3,504
All other		13,017		-		-		-		13,017
Total	$	1,090,065	$	28,329	$	40,938	$	-	$	1,159,332

1The substandard credit quality indicator includes both potential problem loans that are currently performing and nonperforming loans

Schedule of impaired loans by class of loan

							Six Months Ended
	As of June 30, 2015						June 30, 2015
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial	$	600	$	776	$	-	$	1,050	$	-
Commercial real estate
Owner occupied general purpose		3,079		3,769		-		5,102		39
Owner occupied special purpose		1,141		1,236		-		1,470		12
Non-owner occupied general purpose		729		1,162		-		2,780		-
Non-owner occupied special purpose		-		-		-		711		-
Retail properties		-		-		-		-		-
Farm		1,272		1,338		-		636		-
Construction
Homebuilder		-		-		-		896		-
Land		-		-		-		-		-
Commercial speculative		3,472		3,472		-		1,736		-
All other		229		287		-		260		-
Residential
Investor		1,519		1,864		-		2,057		19
Owner occupied		11,435		12,894		-		11,427		90
Revolving and junior liens		2,437		3,671		-		2,337		2
Consumer		-		-		-		-		-
Total impaired loans with no recorded allowance		25,913		30,469		-		30,462		162
With an allowance recorded
Commercial		-		-		-		-		-
Commercial real estate
Owner occupied general purpose		-		-		-		-		-
Owner occupied special purpose		-		-		-		-		-
Non-owner occupied general purpose		-		-		-		38		-
Non-owner occupied special purpose		177		293		-		89		9
Retail properties		-		-		-		-		-
Farm		-		-		-		-		-
Construction
Homebuilder		-		-		-		-		-
Land		-		-		-		-		-
Commercial speculative		-		-		-		-		-
All other		251		294		27		260		-
Residential
Investor		-		-		-		68		-
Owner occupied		13		56		22		18		-
Revolving and junior liens		462		505		89		416		2
Consumer		-		-		-		-		-
Total impaired loans with a recorded allowance		903		1,148		138		889		11
Total impaired loans	$	26,816	$	31,617	$	138	$	31,351	$	173

Impaired loans by class of loans were as follows:

							Six Months Ended
	As of December 31, 2014						June 30, 2014
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial	$	1,500	$	2,114	$	-	$	24	$	-
Commercial real estate
Owner occupied general purpose		7,125		7,870		-		2,527		2
Owner occupied special purpose		1,798		1,941		-		3,151		-
Non-owner occupied general purpose		4,831		5,653		-		5,964		30
Non-owner occupied special purpose		1,423		1,930		-		600		-
Retail properties		-		-		-		3,078		-
Farm		-		-		-		-		-
Construction
Homebuilder		1,791		1,791		-		1,904		47
Land		-		-		-		209		-
Commercial speculative		-		-		-		369		-
All other		291		323		-		156		-
Residential
Investor		2,595		3,024		-		4,294		1
Owner occupied		11,419		12,816		-		9,483		88
Revolving and junior liens		2,238		3,541		-		1,851		3
Consumer		-		-		-		-		-
Total impaired loans with no recorded allowance		35,011		41,003		-		33,610		171
With an allowance recorded
Commercial		-		-		-		-		-
Commercial real estate
Owner occupied general purpose		-		-		-		609		-
Owner occupied special purpose		-		-		-		2,450		-
Non-owner occupied general purpose		76		76		21		745		-
Non-owner occupied special purpose		-		-		-		-		-
Retail properties		-		-		-		-		-
Farm		-		-		-		-		-
Construction
Homebuilder		-		-		-		84		-
Land		-		-		-		-		-
Commercial speculative		-		-		-		587		-
All other		270		306		98		363		-
Residential
Investor		135		145		24		960		-
Owner occupied		23		65		38		1,028		7
Revolving and junior liens		371		405		97		914		-
Consumer		-		-		-		-		-
Total impaired loans with a recorded allowance		875		997		278		7,740		7
Total impaired loans	$	35,886	$	42,000	$	278	$	41,350	$	178

Schedule of TDRs modified during the period by type of modification

	TDR Modifications					TDR Modifications
	Three Months Ended June 30, 2015					Six Months Ended June 30, 2015
	# of	Pre-modification		Post-modification		# of	Pre-modification		Post-modification
	contracts	recorded investment		recorded investment		contracts	recorded investment		recorded investment
Troubled debt restructurings
Real estate - commercial
Bifurcate1	-	$	-	$	-	1	$	300	$	177
Real estate - residential
Owner occupied
Other2	1		46		45	3		404		414
Revolving and junior liens
HAMP3	4		233		233	4		233		233
	5	$	279	$	278	8	$	937	$	824

	TDR Modifications					TDR Modifications
	Three Months Ended June 30, 2014					Six Months Ended June 30, 2014
	# of	Pre-modification		Post-modification		# of	Pre-modification		Post-modification
	contracts	recorded investment		recorded investment		contracts	recorded investment		recorded investment
Troubled debt restructurings
Real estate - commercial
Other2	-	$	-	$	-	2	$	1,320	$	1,159
Real estate - residential
Owner occupied
HAMP3	-		-		-	1		102		75
Deferral4	1		107		107	2		344		231
	1	$	107	$	107	5	$	1,766	$	1,465

1  Bifurcate: Refers to an “A/B” restructure separated into two notes, charging off the entire B portion of the note.

2 Other: Change of terms from bankruptcy court

3 HAMP: Home Affordable Modification Program

4  Deferral: Refers to the deferral of principal

XML

Other Real Estate Owned (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Activity in the other real estate owned (OREO) portfolio, net of valuation reserve
Balance at beginning of period	$ 35,461	$ 40,220	$ 31,982	$ 41,537
Property additions	907	4,655	7,015	9,343
Property improvements		131		131
Less: Property disposals, net of gains/losses	2,316	4,949	4,336	10,518
Less: Period valuation adjustments	2,088	825	2,697	1,261
Balance at end of period	31,964	39,232	31,964	39,232
Activity in the valuation allowance
Balance at beginning of period	19,456	19,484	19,229	22,284
Provision for unrealized losses	2,088	825	2,697	1,261
Reductions taken on sales	(1,568)	(2,436)	(1,950)	(5,083)
Other adjustments	93		93	(589)
Balance at end of period	20,069	17,873	20,069	17,873
Expenses related to foreclosed assets, net of lease revenue
Gain on sales, net	(242)	(23)	(337)	(409)
Provision for unrealized losses	2,088	825	2,697	1,261
Operating expenses	749	1,011	1,750	2,248
Less: Lease revenue	207	163	370	442
Expenses related to OREO, net of lease revenue	$ 2,388	$ 1,650	$ 3,740	$ 2,658

XML

Loans - Aging Analysis (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014
Aged analysis of past due loans
30-59 Days Past Due	$ 4,958	$ 1,978
60-89 Days Past Due	338	987
Total Past Due	5,296	2,965
Current	1,134,611	1,129,441
Nonaccrual	18,976	26,926
Total Loans	1,158,883	1,159,332	$ 1,132,747
Commercial
Aged analysis of past due loans
30-59 Days Past Due		38
Total Past Due		38
Current	131,343	125,658
Nonaccrual	600	1,500
Total Loans	131,943	127,196	115,474
Real estate - commercial
Aged analysis of past due loans
Total Loans	612,379		599,796
Real estate - commercial | Owner occupied general purpose
Aged analysis of past due loans
30-59 Days Past Due		699
Total Past Due		699
Current	127,516	126,029
Nonaccrual	1,915	5,937
Total Loans	129,431	132,665
Real estate - commercial | Owner occupied special purpose
Aged analysis of past due loans
Current	173,200	167,874
Nonaccrual	790	1,441
Total Loans	173,990	169,315
Real estate - commercial | Non-owner occupied general purpose
Aged analysis of past due loans
30-59 Days Past Due	270
Total Past Due	270
Current	156,771	153,328
Nonaccrual	730	4,907
Total Loans	157,771	158,235
Real estate - commercial | Non-owner occupied special purpose
Aged analysis of past due loans
30-59 Days Past Due	4,021
Total Past Due	4,021
Current	92,865	87,054
Nonaccrual		1,423
Total Loans	96,886	88,477
Real estate - commercial | Retail properties
Aged analysis of past due loans
Current	41,016	37,780
Total Loans	41,016	37,780
Real estate - commercial | Farm
Aged analysis of past due loans
Current	12,013	14,157
Nonaccrual	1,272
Total Loans	13,285	14,157
Real estate - construction
Aged analysis of past due loans
Total Loans	32,157		32,265
Real estate - construction | Homebuilder
Aged analysis of past due loans
60-89 Days Past Due	41
Total Past Due	41
Current	2,654	3,204
Total Loans	2,695	3,204
Real estate - construction | Land
Aged analysis of past due loans
Current	2,573	1,658
Total Loans	2,573	1,658
Real estate - construction | Commercial speculative
Aged analysis of past due loans
Current	2,286	13,431
Nonaccrual	3,472
Total Loans	5,758	13,431
Real estate - construction | All other
Aged analysis of past due loans
30-59 Days Past Due		71
60-89 Days Past Due		29
Total Past Due		100
Current	20,651	25,841
Nonaccrual	480	561
Total Loans	21,131	26,502
Real estate - residential
Aged analysis of past due loans
Total Loans	365,989		368,592
Real estate - residential | Investor
Aged analysis of past due loans
30-59 Days Past Due	168
Total Past Due	168
Current	138,474	135,273
Nonaccrual	792	1,942
Total Loans	139,434	137,215
Real estate - residential | Owner occupied
Aged analysis of past due loans
30-59 Days Past Due	31	1,076
60-89 Days Past Due	297	914
Total Past Due	328	1,990
Current	110,140	107,727
Nonaccrual	6,273	6,711
Total Loans	116,741	116,428
Real estate - residential | Revolving and junior liens
Aged analysis of past due loans
30-59 Days Past Due	418	94
60-89 Days Past Due		44
Total Past Due	418	138
Current	106,744	113,906
Nonaccrual	2,652	2,504
Total Loans	109,814	116,548
Consumer
Aged analysis of past due loans
30-59 Days Past Due	50
Total Past Due	50
Current	3,804	3,504
Total Loans	3,854	3,504	3,064
All other
Aged analysis of past due loans
Current	12,561	13,017
Total Loans	$ 12,561	$ 13,017	$ 13,556

XML

Securities - Amortized Cost and Fair Value (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Securities Available-for-Sale
Amortized Cost	$ 405,577	$ 391,694
Gross Unrealized Gains	698	1,147
Gross Unrealized Losses	(6,439)	(7,355)
Fair Value	399,836	385,486
Securities Held-to-Maturity
Amortized Cost	253,419	259,670
Gross Unrealized Gains	5,182	5,035
Gross Unrealized Losses	(634)	(1,439)
Fair Value	257,967	263,266
U.S. Treasury
Securities Available-for-Sale
Amortized Cost	1,519	1,529
Gross Unrealized Gains	1
Gross Unrealized Losses		(2)
Fair Value	1,520	1,527
U.S. government agencies
Securities Available-for-Sale
Amortized Cost	1,697	1,711
Gross Unrealized Losses	(102)	(87)
Fair Value	1,595	1,624
States and political subdivisions
Securities Available-for-Sale
Amortized Cost	13,053	21,682
Gross Unrealized Gains	368	432
Gross Unrealized Losses	(172)	(96)
Fair Value	13,249	22,018
Corporate bonds
Securities Available-for-Sale
Amortized Cost	31,376	31,243
Gross Unrealized Gains		309
Gross Unrealized Losses	(771)	(567)
Fair Value	30,605	30,985
Collateralized mortgage obligations
Securities Available-for-Sale
Amortized Cost	76,519	65,728
Gross Unrealized Gains	50	31
Gross Unrealized Losses	(1,575)	(2,132)
Fair Value	74,994	63,627
Securities Held-to-Maturity
Amortized Cost	216,424	222,545
Gross Unrealized Gains	3,391	3,005
Gross Unrealized Losses	(634)	(1,439)
Fair Value	219,181	224,111
Asset-backed securities
Securities Available-for-Sale
Amortized Cost	181,625	175,565
Gross Unrealized Gains	220	199
Gross Unrealized Losses	(3,190)	(2,268)
Fair Value	178,655	173,496
Collateralized loan obligations
Securities Available-for-Sale
Amortized Cost	94,243	94,236
Gross Unrealized Gains	59	176
Gross Unrealized Losses	(629)	(2,203)
Fair Value	93,673	92,209
U.S. government agency mortgage-backed
Securities Available-for-Sale
Amortized Cost	5,545
Fair Value	5,545
Securities Held-to-Maturity
Amortized Cost	36,995	37,125
Gross Unrealized Gains	1,791	2,030
Fair Value	$ 38,786	$ 39,155

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Borrowings - Summary (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Borrowings
Total borrowings	$ 156,293	$ 169,914
Securities sold under repurchase agreements
Borrowings
Total borrowings	32,415	21,036
FHLBC advances
Borrowings
Total borrowings	20,000	45,000
Junior subordinated debentures
Borrowings
Total borrowings	58,378	58,378
Subordinated debt
Borrowings
Total borrowings	45,000	45,000
Notes payable and other borrowings
Borrowings
Total borrowings	$ 500	$ 500

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Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions - Interest Rate Derivatives (Details) - Not designated $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015 USD ($) item	Dec. 31, 2014 USD ($) item
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Asset Derivatives, Fair Value	$ 285	$ 173
Liability Derivatives, Fair Value	28	30
Interest rate swap agreements net of swap credit valuation
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Investment securities pledged with financial institutions, dollars	$ 1,000	$ 3,000
Number of correspondent financial institutions where investment securities are pledged | item	1	3
Weighted average maturity	2 years 8 months 12 days	2 years 8 months 12 days
Notional or Contractual Amount	$ 9,765	$ 16,334
Asset Derivatives, Fair Value	28	30
Liability Derivatives, Fair Value	28	30
Commitments
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Notional or Contractual Amount	211,192	201,946
Asset Derivatives, Fair Value	257	143
Forward MBS contracts and forward loan contracts
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Notional or Contractual Amount	$ 20,500	$ 14,000

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Regulatory & Capital Matters - Debt and Regulatory Capital (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Other regulatory capital information
Subordinated debt	$ 45,000	$ 45,000
Correspondent Bank
Other regulatory capital information
Subordinated debt	$ 45,000	$ 45,000
Debt obligation as a percent of Tier 2 regulatory capital	40.00%	60.00%
Junior subordinated debentures
Other regulatory capital information
Trust preferred proceeds qualified as Tier 1 regulatory capital	$ 51,200	$ 56,600
Trust preferred proceeds qualified as Tier 2 regulatory capital	$ 5,400

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Loans - Impaired Loans - Average Recorded Investment and Interest Income Recognized (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Average Recorded Investment
With no related allowance recorded	$ 30,462	$ 33,610
With an allowance recorded	889	7,740
Total impaired loans	31,351	41,350
Interest Income Recognized
With no related allowance recorded	162	171
With an allowance recorded	11	7
Total impaired loans	173	178
Commercial
Average Recorded Investment
With no related allowance recorded	1,050	24
Real estate - commercial | Owner occupied general purpose
Average Recorded Investment
With no related allowance recorded	5,102	2,527
With an allowance recorded		609
Interest Income Recognized
With no related allowance recorded	39	2
Real estate - commercial | Owner occupied special purpose
Average Recorded Investment
With no related allowance recorded	1,470	3,151
With an allowance recorded		2,450
Interest Income Recognized
With no related allowance recorded	12
Real estate - commercial | Non-owner occupied general purpose
Average Recorded Investment
With no related allowance recorded	2,780	5,964
With an allowance recorded	38	745
Interest Income Recognized
With no related allowance recorded		30
Real estate - commercial | Non-owner occupied special purpose
Average Recorded Investment
With no related allowance recorded	711	600
With an allowance recorded	89
Interest Income Recognized
With an allowance recorded	9
Real estate - commercial | Retail properties
Average Recorded Investment
With no related allowance recorded		3,078
Real estate - commercial | Farm
Average Recorded Investment
With no related allowance recorded	636
Real estate - construction | Homebuilder
Average Recorded Investment
With no related allowance recorded	896	1,904
With an allowance recorded		84
Interest Income Recognized
With no related allowance recorded		47
Real estate - construction | Land
Average Recorded Investment
With no related allowance recorded		209
Real estate - construction | Commercial speculative
Average Recorded Investment
With no related allowance recorded	1,736	369
With an allowance recorded		587
Real estate - construction | All other
Average Recorded Investment
With no related allowance recorded	260	156
With an allowance recorded	260	363
Real estate - residential | Investor
Average Recorded Investment
With no related allowance recorded	2,057	4,294
With an allowance recorded	68	960
Interest Income Recognized
With no related allowance recorded	19	1
Real estate - residential | Owner occupied
Average Recorded Investment
With no related allowance recorded	11,427	9,483
With an allowance recorded	18	1,028
Interest Income Recognized
With no related allowance recorded	90	88
With an allowance recorded		7
Real estate - residential | Revolving and junior liens
Average Recorded Investment
With no related allowance recorded	2,337	1,851
With an allowance recorded	416	914
Interest Income Recognized
With no related allowance recorded	2	$ 3
With an allowance recorded	$ 2

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Securities

6 Months Ended

Jun. 30, 2015

Securities

Securities

Note 2 – Securities

Investment Portfolio Management

Our investment portfolio serves the liquidity needs and income objectivesof the Company.  While the portfolio serves as an important component of the overall liquidity management at the Bank, portions of the portfolio will also serve as income producing assets.  The size and composition of the portfolio reflects liquidity needs, loan demand and interest income objectives.

Portfolio size and composition will be adjusted from time to time.  While a significant portion of the portfolio consists of readily marketable securities to address liquidity, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk.

Investments are comprised of debt securities and non-marketable equity investments.  Securities available-for-sale are carried at fair value.  Unrealized gains and losses, net of tax, on securities available-for-sale are reported as a separate component of equity.  This balance sheet component changes as interest rates and market conditions change.  Unrealized gains and losses are not included in the calculation of regulatory capital.

Securities held-to-maturity are carried at amortized cost and the discount or premium created in the 2013 transfer from available-for-sale securities or at the time of purchase thereafter is accreted or amortized to the maturity or expected payoff date but not an earlier call.  In accordance with GAAP, the Company has the positive intent and ability to hold the securities to maturity.

Nonmarketable equity investments include Federal Home Loan Bank of Chicago (“FHLBC”) stock and Federal Reserve Bank of Chicago (“Reserve Bank”) stock.  FHLBC stock was recorded at $3.5 million at June 30, 2015, and$4.3 million atDecember 31, 2014.  Reserve Bank stock was recorded at $4.8 million at June 30, 2015, and December 31, 2014.  Our FHLBC stock is necessary to maintain access to FHLBC advances.

The following table summarizes the amortized cost and fair value of the securities portfolio at June 30, 2015,  and December 31, 2014, and the corresponding amounts of gross unrealized gains and losses (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
June 30, 2015:	Cost		Gains		Losses		Value
Securities Available-for-Sale
U.S. Treasury	$	1,519	$	1	$	-	$	1,520
U.S. government agencies		1,697		-		(102)		1,595
U.S. government agencies mortgage-backed		5,545		-		-		5,545
States and political subdivisions		13,053		368		(172)		13,249
Corporate bonds		31,376		-		(771)		30,605
Collateralized mortgage obligations		76,519		50		(1,575)		74,994
Asset-backed securities		181,625		220		(3,190)		178,655
Collateralized loan obligations		94,243		59		(629)		93,673
Total Securities Available-for-Sale	$	405,577	$	698	$	(6,439)	$	399,836
Securities Held-to-Maturity
U.S. government agency mortgage-backed	$	36,995	$	1,791	$	-	$	38,786
Collateralized mortgage obligations		216,424		3,391		(634)		219,181
Total Securities Held-to-Maturity	$	253,419	$	5,182	$	(634)	$	257,967

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2014:	Cost		Gains		Losses		Value
Securities Available-for-Sale
U.S. Treasury	$	1,529	$	-	$	(2)	$	1,527
U.S. government agencies		1,711		-		(87)		1,624
States and political subdivisions		21,682		432		(96)		22,018
Corporate bonds		31,243		309		(567)		30,985
Collateralized mortgage obligations		65,728		31		(2,132)		63,627
Asset-backed securities		175,565		199		(2,268)		173,496
Collateralized loan obligations		94,236		176		(2,203)		92,209
Total Securities Available-for-Sale	$	391,694	$	1,147	$	(7,355)	$	385,486
Securities Held-to-Maturity
U.S. government agency mortgage-backed	$	37,125	$	2,030	$	-	$	39,155
Collateralized mortgage obligations		222,545		3,005		(1,439)		224,111
Total Securities Held-to-Maturity	$	259,670	$	5,035	$	(1,439)	$	263,266

The fair value, amortized cost and weighted average yield of debt securities at June 30, 2015, by contractual maturity, were as follows in the table below.  Securities not due at a single maturity date are shown separately.

			Weighted
	Amortized		Average	Fair
Securities Available-for-Sale	Cost		Yield	Value
Due in one year or less	$	2,141	1.63%	$	2,159
Due after one year through five years		6,900	2.99%		7,073
Due after five years through ten years		33,501	2.43%		32,811
Due after ten years		5,103	3.28%		4,926
		47,645	2.56%		46,969
Mortgage-backed and collateralized mortgage obligations		82,064	1.44%		80,539
Asset-backed securities		181,625	1.22%		178,655
Collateralized loan obligations		94,243	2.87%		93,673
	$	405,577	1.81%	$	399,836
Securities Held-to-Maturity
Mortgage-backed and collateralized mortgage obligations	$	253,419	3.02%	$	257,967

Securities with unrealized losses at June 30, 2015, and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands except for number of securities):

	Less than 12 months					Greater than 12 months
June 30, 2015	in an unrealized loss position					in an unrealized loss position					Total
	Number of	Unrealized		Fair		Number of	Unrealized		Fair		Number of	Unrealized		Fair
Securities Available-for-Sale	Securities	Losses		Value		Securities	Losses		Value		Securities	Losses		Value
U.S. government agencies	-	$	-	$	-	1	$	102	$	1,595	1	$	102	$	1,595
States and political subdivisions	2		37		1,841	1		135		1,720	3		172		3,561
Corporate bonds	6		311		16,064	3		460		14,541	9		771		30,605
Collateralized mortgage obligations	6		335		44,131	4		1,240		19,400	10		1,575		63,531
Asset-backed securities	7		2,046		98,917	5		1,144		61,397	12		3,190		160,314
Collateralized loan obligations	8		387		44,231	4		242		24,488	12		629		68,719
	29	$	3,116	$	205,184	18	$	3,323	$	123,141	47	$	6,439	$	328,325
Securities Held-to-Maturity
Collateralized mortgage obligations	6	$	189	$	31,761	4	$	445	$	46,400	10	$	634	$	78,161
	6	$	189	$	31,761	4	$	445	$	46,400	10	$	634	$	78,161

	Less than 12 months					Greater than 12 months
December 31, 2014	in an unrealized loss position					in an unrealized loss position					Total
	Number of	Unrealized			Fair	Number of	Unrealized			Fair	Number of	Unrealized			Fair
Securities Available-for-Sale	Securities	Losses			Value	Securities	Losses			Value	Securities	Losses			Value
U.S. Treasury	1	$	2	$	1,527	-	$	-	$	-	1	$	2	$	1,527
U.S. government agencies	-		-		-	1		87		1,624	1		87		1,624
States and political subdivisions	4		96		4,896	-		-		-	4		96		4,896
Corporate bonds	4		486		15,246	1		81		1,921	5		567		17,167
Collateralized mortgage obligations	5		900		38,284	3		1,232		21,604	8		2,132		59,888
Asset-backed securities	9		1,077		99,286	3		1,191		43,662	12		2,268		142,948
Collateralized loan obligations	12		2,203		82,387	-		-		-	12		2,203		82,387
	35	$	4,764	$	241,626	8	$	2,591	$	68,811	43	$	7,355	$	310,437
Securities Held-to-Maturity
Collateralized mortgage obligations	7	$	457	$	49,302	4	$	982	$	46,283	11		1,439		95,585
	7	$	457	$	49,302	4	$	982	$	46,283	11	$	1,439	$	95,585

Recognition of other-than-temporary impairment was not necessary in the three and six months ending June 30, 2015, or the year ended December 31, 2014.  The changes in fair value related primarily to interest rate fluctuations.  Our review of other-than-temporary impairment determined that there wasno credit quality deterioration.

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Regulatory & Capital Matters - Dividend Restrictions and Deferrals (Details) $ / shares in Units, $ in Thousands		3 Months Ended		6 Months Ended
	Jan. 31, 2015 shares	Mar. 31, 2015 shares	Jun. 30, 2014 USD ($) shares	Jun. 30, 2015 USD ($) item $ / shares shares	Jul. 31, 2015 shares	Dec. 31, 2014 USD ($) $ / shares shares	Dec. 30, 2014 shares
Dividend Restrictions and Deferrals
Number of previous years retained profit considered for dividend payment				2 years
Tier 1 Common Equity, minimum percentage required, 2016				0.625%
Tier 1 Common Equity, minimum percentage required, 2017				1.25%
Tier 1 Common Equity, minimum percentage required, 2018				1.875%
Tier 1 Common Equity, minimum percentage required, 2019 and thereafter				2.50%
Junior subordinated debenture				$ 58,378		$ 58,378
Payments to indentured trustees			$ 19,700
Preferred stock, Liquidation value (in dollars per share) | $ / shares				$ 1,000		$ 1,000
Preferred Stock, Liquidation Preference Per Share | $ / shares				$ 1,000		$ 1,000
Preferred stock, Shares outstanding | shares				31,553		47,331
Series B Stock
Dividend Restrictions and Deferrals
Shares redeemed (in shares) | shares	15,778	15,778	25,669
Repurchase price percentage of liquidation value (as a percent)			94.75%
Payments for repurchase of preferred stock			$ 24,300
Preferred stock, Shares outstanding | shares		31,553		31,553	31,553		47,331
Junior subordinated debentures
Dividend Restrictions and Deferrals
Junior subordinated debenture				$ 58,400
Number of statutory business trusts that hold junior subordinated debentures | item				2
Junior subordinated debentures | Maximum
Dividend Restrictions and Deferrals
Number of quarterly periods for deferral of interest | item				20

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Loans - Inclusion (Details)	6 Months Ended
	Jun. 30, 2015 USD ($)
Minimum
Loans by risk rating
Loan commitment for inclusion in credit quality analysis	$ 50,000

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Borrowings (Tables)

6 Months Ended

Jun. 30, 2015

Borrowings

Summary of borrowings and junior subordinated debentures

	June 30, 2015		December 31, 2014
Securities sold under repurchase agreements	$	32,415	$	21,036
FHLBC advances		20,000		45,000
Junior subordinated debentures		58,378		58,378
Subordinated debt		45,000		45,000
Notes payable and other borrowings		500		500
	$	156,293	$	169,914

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Deposits (Tables)

3 Months Ended

Jun. 30, 2015

Deposits

Schedule of major classifications of deposits

	June 30, 2015		December 31, 2014
Noninterest bearing demand	$	432,773	$	400,447
Savings		251,307		239,845
NOW accounts		330,897		328,641
Money market accounts		295,383		296,617
Certificates of deposit of less than $100,000		242,870		251,108
Certificates of deposit of $100,000 through $250,000		109,204		112,515
Certificates of deposit of more than $250,000		51,118		55,882
	$	1,713,552	$	1,685,055

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Equity Compensation Plans - Restricted Stock and RSUs (Details) - Restricted stock and restricted stock units - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Equity Compensation Plans
Vesting period	3 years
Changes in unvested awards
Nonvested at the beginning of the period (in shares)	325,000
Granted (in shares)	101,500	184,500
Vested (in shares)	(57,500)
Forfeited (in shares)	(16,000)
Nonvested at the end of the period (in shares)	353,000
Weighted Average Grant Date Fair Value
Nonvested at the beginning of the period (in dollars per share)	$ 4.15
Granted (in dollars per share)	5.38
Vested (in dollars per share)	4.04
Forfeited (in dollars per share)	4.43
Nonvested at the end of the period (in dollars per share)	$ 4.51
Additional information
Total unrecognized compensation cost of restricted awards	$ 989	$ 1,100
Expected weighted-average period for recognition of unrecognized compensation	2 years 4 months 6 days	2 years 8 months 16 days

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Loans - Credit Quality (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014
Loans by risk rating
Total Loans	$ 1,158,883	$ 1,159,332	$ 1,132,747
Commercial
Loans by risk rating
Total Loans	131,943	127,196	115,474
Real estate - commercial
Loans by risk rating
Total Loans	612,379		599,796
Real estate - commercial | Owner occupied general purpose
Loans by risk rating
Total Loans	129,431	132,665
Real estate - commercial | Owner occupied special purpose
Loans by risk rating
Total Loans	173,990	169,315
Real estate - commercial | Non-owner occupied general purpose
Loans by risk rating
Total Loans	157,771	158,235
Real estate - commercial | Non-owner occupied special purpose
Loans by risk rating
Total Loans	96,886	88,477
Real estate - commercial | Retail properties
Loans by risk rating
Total Loans	41,016	37,780
Real estate - commercial | Farm
Loans by risk rating
Total Loans	13,285	14,157
Real estate - construction
Loans by risk rating
Total Loans	32,157		32,265
Real estate - construction | Homebuilder
Loans by risk rating
Total Loans	2,695	3,204
Real estate - construction | Land
Loans by risk rating
Total Loans	2,573	1,658
Real estate - construction | Commercial speculative
Loans by risk rating
Total Loans	5,758	13,431
Real estate - construction | All other
Loans by risk rating
Total Loans	21,131	26,502
Real estate - residential
Loans by risk rating
Total Loans	365,989		368,592
Real estate - residential | Investor
Loans by risk rating
Total Loans	139,434	137,215
Real estate - residential | Owner occupied
Loans by risk rating
Total Loans	116,741	116,428
Real estate - residential | Revolving and junior liens
Loans by risk rating
Total Loans	109,814	116,548
Consumer
Loans by risk rating
Total Loans	3,854	3,504	3,064
All other
Loans by risk rating
Total Loans	12,561	13,017	$ 13,556
Pass
Loans by risk rating
Total Loans	1,115,358	1,090,065
Pass | Commercial
Loans by risk rating
Total Loans	124,831	118,845
Pass | Real estate - commercial | Owner occupied general purpose
Loans by risk rating
Total Loans	124,737	124,936
Pass | Real estate - commercial | Owner occupied special purpose
Loans by risk rating
Total Loans	171,862	154,225
Pass | Real estate - commercial | Non-owner occupied general purpose
Loans by risk rating
Total Loans	150,971	148,212
Pass | Real estate - commercial | Non-owner occupied special purpose
Loans by risk rating
Total Loans	92,865	78,957
Pass | Real estate - commercial | Retail properties
Loans by risk rating
Total Loans	39,506	36,779
Pass | Real estate - commercial | Farm
Loans by risk rating
Total Loans	11,484	14,157
Pass | Real estate - construction | Homebuilder
Loans by risk rating
Total Loans	2,695	3,204
Pass | Real estate - construction | Land
Loans by risk rating
Total Loans	2,573	1,658
Pass | Real estate - construction | Commercial speculative
Loans by risk rating
Total Loans	2,286	9,947
Pass | Real estate - construction | All other
Loans by risk rating
Total Loans	20,651	25,941
Pass | Real estate - residential | Investor
Loans by risk rating
Total Loans	138,459	134,952
Pass | Real estate - residential | Owner occupied
Loans by risk rating
Total Loans	109,690	109,085
Pass | Real estate - residential | Revolving and junior liens
Loans by risk rating
Total Loans	106,334	112,647
Pass | Consumer
Loans by risk rating
Total Loans	3,853	3,503
Pass | All other
Loans by risk rating
Total Loans	12,561	13,017
Special Mention
Loans by risk rating
Total Loans	22,579	28,329
Special Mention | Commercial
Loans by risk rating
Total Loans	6,414	3,948
Special Mention | Real estate - commercial | Owner occupied general purpose
Loans by risk rating
Total Loans	2,779	253
Special Mention | Real estate - commercial | Owner occupied special purpose
Loans by risk rating
Total Loans	1,338	11,607
Special Mention | Real estate - commercial | Non-owner occupied general purpose
Loans by risk rating
Total Loans	5,800	3,235
Special Mention | Real estate - commercial | Non-owner occupied special purpose
Loans by risk rating
Total Loans	4,021	8,097
Special Mention | Real estate - commercial | Retail properties
Loans by risk rating
Total Loans	1,510	1,001
Special Mention | Real estate - commercial | Farm
Loans by risk rating
Total Loans	529
Special Mention | Real estate - residential | Revolving and junior liens
Loans by risk rating
Total Loans	188	188
Substandard
Loans by risk rating
Total Loans	20,946	40,938
Substandard | Commercial
Loans by risk rating
Total Loans	698	4,403
Substandard | Real estate - commercial | Owner occupied general purpose
Loans by risk rating
Total Loans	1,915	7,476
Substandard | Real estate - commercial | Owner occupied special purpose
Loans by risk rating
Total Loans	790	3,483
Substandard | Real estate - commercial | Non-owner occupied general purpose
Loans by risk rating
Total Loans	1,000	6,788
Substandard | Real estate - commercial | Non-owner occupied special purpose
Loans by risk rating
Total Loans		1,423
Substandard | Real estate - commercial | Farm
Loans by risk rating
Total Loans	1,272
Substandard | Real estate - construction | Commercial speculative
Loans by risk rating
Total Loans	3,472	3,484
Substandard | Real estate - construction | All other
Loans by risk rating
Total Loans	480	561
Substandard | Real estate - residential | Investor
Loans by risk rating
Total Loans	975	2,263
Substandard | Real estate - residential | Owner occupied
Loans by risk rating
Total Loans	7,051	7,343
Substandard | Real estate - residential | Revolving and junior liens
Loans by risk rating
Total Loans	3,292	3,713
Substandard | Consumer
Loans by risk rating
Total Loans	$ 1	$ 1

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Equity Compensation Plans (Tables)

6 Months Ended

Jun. 30, 2015

Equity Compensation Plans

Summary of stock option activity in Incentive Plan

A summary of stock option activity in the Plans for the six months ending June 30, 2015, is as follows:

				Weighted-
		Weighted		Average
		Average		Remaining
		Exercise		Contractual	Aggregate
	Shares	Price		Term (years)	Intrinsic Value
Beginning outstanding	229,000	$	28.28
Canceled	-		-
Expired	-		-
Ending outstanding	229,000	$	28.28	1.7	$	-
Exercisable at end of period	229,000	$	28.28	1.7	$	-

Summary of changes in nonvested shares of restricted share rights

	June 30, 2015
		Weighted
	Restricted	Average
	Stock Shares	Grant Date
	and Units	Fair Value
Nonvested at January 1	325,000	$	4.15
Granted	101,500		5.38
Vested	(57,500)		4.04
Forfeited	(16,000)		4.43
Nonvested at June 30	353,000	$	4.51

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2015

Earnings Per Share

Schedule of Earnings Per Share

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Basic earnings per share:
Weighted-average common shares outstanding		29,475,682		28,181,519		29,473,004		21,090,665
Weighted-average common shares less stock based awards		29,475,682		28,181,519		29,473,004		21,086,438
Weighted-average common shares stock based awards		-		179,874		-		174,522
Net income	$	4,129	$	2,021	$	7,628	$	4,223
Gain on preferred stock redemption		-		(1,348)		-		(1,348)
Preferred stock dividends and accretion, net of dividends waived		710		(4,085)		1,534		(2,513)
Net earnings available to common stockholders		3,419		7,454		6,094		8,084
Basic earnings per share common undistributed earnings		N/A		0.26		N/A		0.38
Basic earnings per share		0.12		0.26		0.21		0.38
Diluted earnings per share:
Weighted-average common shares outstanding		29,475,682		28,181,519		29,473,004		21,090,665
Dilutive effect of nonvested restricted awards1		271,571		179,874		239,948		170,295
Diluted average common shares outstanding		29,747,253		28,361,393		29,712,952		21,260,960
Net earnings available to common stockholders	$	3,419	$	7,454	$	6,094	$	8,084
Diluted earnings per share	$	0.12	$	0.26	$	0.21	$	0.38
Number of antidilutive options and warrants excluded from the diluted earnings per share calculation		1,044,339		1,140,839		1,044,339		1,140,839
1 Includes the common stock equivalents for restricted share rights that are dilutive.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2015

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 1 – Summary of Significant Accounting Policies

The accounting policies followed in the preparation of the interim consolidated financial statements are consistent with those used in the preparation of the annual financial information.  The interim consolidated financial statements reflect all normal and recurring adjustments, that are necessary, in the opinion of management, for a fair statement of results for the interim period presented.  Results for the period ended June 30, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.  These interim consolidated financial statements are unaudited and should be read in conjunction with the audited financial statements and notes included in Old Second Bancorp, Inc.’s (the “Company”) annual reporton Form 10-K for the year ended December 31, 2014.  Unless otherwise indicated, amounts in the tables contained in the notes to the consolidated financial statements are in thousands.  Certain items in prior periods have been reclassified to conform to the current presentation.

The Company’s consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry.  Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes.  These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements.  Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements.

All significant accounting policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.  These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09 "Revenue from Contracts with Customers (Topic 606)."  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  ASU 2014-09 was to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.  The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application.  Early application is not permitted.  The Company is assessing the impact of ASU 2014-09 on its accounting and disclosures.  On April 1, 2015, the FASB voted to propose a delay in the effective date of ASU 2014-09.  On April 29, 2015, FASB issued a proposed accounting standards update to defer the effective date of an additional year.  The deferral of the effective date was approved on July 9, 2015, and will be effective for annual reporting periods beginning after December 15, 2017.

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Regulatory & Capital Matters (Tables)

6 Months Ended

Jun. 30, 2015

Regulatory & Capital Matters

Schedule of capital levels and industry defined regulatory minimum required levels

					Minimum Required				Minimum Required
					for Capital				to be Well
	Actual				Adequacy Purposes				Capitalized 1
	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2015
Common equity tier 1 capital to risk weighted assets
Consolidated	$	141,573	9.78	%	$	65,141	4.50	%		N/A	N/A
Old Second Bank		252,436	17.42			65,210	4.50		$	94,193	6.50	%
Total capital to risk weighted assets
Consolidated		246,680	17.04			115,812	8.00			N/A	N/A
Old Second Bank		270,662	18.68			115,915	8.00			144,894	10.00
Tier 1 capital to risk weighted assets
Consolidated		204,856	14.15			86,865	6.00			N/A	N/A
Old Second Bank		252,436	17.42			86,947	6.00			115,929	8.00
Tier 1 capital to average assets
Consolidated		204,856	10.02			81,779	4.00			N/A	N/A
Old Second Bank		252,436	12.33			81,893	4.00			102,367	5.00
December 31, 2014
Total capital to risk weighted assets
Consolidated	$	240,566	17.68	%	$	108,853	8.00	%		N/A	N/A
Old Second Bank		254,897	18.73			108,872	8.00		$	136,090	10.00	%
Tier 1 capital to risk weighted assets
Consolidated		196,499	14.44			54,432	4.00			N/A	N/A
Old Second Bank		237,828	17.47			54,454	4.00			81,681	6.00
Tier 1 capital to average assets
Consolidated		196,499	9.93			79,154	4.00			N/A	N/A
Old Second Bank		237,828	12.02			79,144	4.00			98,930	5.00

1 The Bank exceeded the general minimum regulatory requirements to be considered “well capitalized”.

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Loans - Major Classifications (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014
Loans
Total loans, gross	$ 1,158,121	$ 1,158,594
Net deferred loan fees	762	738
Total Loans	1,158,883	1,159,332	$ 1,132,747
Overdraft
Loans
Total loans, gross	408	649
Lease financing receivables
Loans
Total loans, gross	8,571	8,038
Other
Loans
Total loans, gross	11,391	11,630
Commercial
Loans
Total loans, gross	123,372	119,158
Total Loans	131,943	127,196	115,474
Real estate - commercial
Loans
Total loans, gross	612,379	600,629
Total Loans	612,379		599,796
Real estate - construction
Loans
Total loans, gross	32,157	44,795
Total Loans	32,157		32,265
Real estate - residential
Loans
Total loans, gross	365,989	370,191
Total Loans	365,989		368,592
Consumer
Loans
Total loans, gross	3,854	3,504
Total Loans	$ 3,854	$ 3,504	$ 3,064

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Borrowings - Additional information (Details)	6 Months Ended
	Jun. 30, 2015 USD ($) item	Dec. 31, 2014 USD ($)	Jan. 31, 2008 USD ($)
Borrowings
Bank owned FHLBC stock	$ 3,500,000	$ 4,300,000
Total borrowings	156,293,000	169,914,000
Securities sold under repurchase agreements
Borrowings
Carrying amount of securities secured	32,400,000	21,000,000
Fair value of the pledged collateral	$ 47,100,000	43,400,000
Number of customers having secured balances exceeding specified percentage of stockholders equity | item	0
Total borrowings	$ 32,415,000	21,036,000
Securities sold under repurchase agreements | Minimum
Borrowings
Threshold percentage of stockholders' equity	10.00%
FHLBC advances
Borrowings
Borrowings at FHLBC as percentage of total assets	35.00%
Borrowings at FHLBC as percentage of book value of certain mortgage loans	60.00%
FHLBC advance amount	$ 20,000,000	45,000,000
Bank owned FHLBC stock	3,500,000	4,300,000
Fair value of securities collateralized	74,300,000
Principal balance of loans collateralized	46,800,000
Combined collateral value	121,500,000
Amount available for additional borrowings	100,200,000
Total borrowings	20,000,000	45,000,000
Subordinated debt
Borrowings
Face amount	45,000,000
Total borrowings	$ 45,000,000	45,000,000
Subordinated debt | LIBOR
Borrowings
Variable interest rate base	three-month LIBOR
Basis points added to reference rate (as a percent)	1.50%
Notes payable and other borrowings
Borrowings
Total borrowings	$ 500,000	500,000
Correspondent Bank
Borrowings
Maximum borrowing capacity	$ 45,500,000
Senior debt facility
Borrowings
Maximum borrowing capacity			$ 30,500,000
Senior debt facility | LIBOR
Borrowings
Variable interest rate base	three-month LIBOR
Basis points added to reference rate (as a percent)	0.90%
Senior debt facility | Prime rate
Borrowings
Variable interest rate base	prime
Term debt
Borrowings
Maximum borrowing capacity	$ 500,000
Total borrowings	500,000	500,000
Junior subordinated debentures
Borrowings
Total borrowings	$ 58,378,000	$ 58,378,000

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Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Assets
Cash and due from banks	$ 29,164	$ 30,101
Interest bearing deposits with financial institutions	9,352	14,096
Cash and cash equivalents	38,516	44,197
Securities available-for-sale, at fair value	399,836	385,486
Securities held-to-maturity, at amortized cost	253,419	259,670
Federal Home Loan Bank and Federal Reserve Bank stock	8,271	9,058
Loans held-for-sale	6,208	5,072
Loans	1,158,883	1,159,332
Less: allowance for loan losses	18,321	21,637
Net loans	1,140,562	1,137,695
Premises and equipment, net	41,696	42,335
Other real estate owned	31,964	31,982
Mortgage servicing rights, net	5,884	5,462
Bank-owned life insurance (BOLI)	57,444	56,807
Deferred tax assets, net	65,473	70,141
Other assets	15,780	13,882
Total assets	2,065,053	2,061,787
Deposits:
Noninterest bearing demand	432,773	400,447
Interest bearing:
Savings, NOW, and money market	877,587	865,103
Time	403,192	419,505
Total deposits	1,713,552	1,685,055
Securities sold under repurchase agreements	32,415	21,036
Other short-term borrowings	20,000	45,000
Junior subordinated debentures	58,378	58,378
Subordinated debt	45,000	45,000
Notes payable and other borrowings	500	500
Other liabilities	9,967	12,655
Total liabilities	1,879,812	1,867,624
Stockholders' Equity
Preferred stock	31,553	47,331
Common stock	34,423	34,365
Additional paid-in capital	115,651	115,332
Retained earnings	106,791	100,697
Accumulated other comprehensive loss	(7,211)	(7,713)
Treasury stock	(95,966)	(95,849)
Total stockholders' equity	185,241	194,163
Total liabilities and stockholders' equity	$ 2,065,053	$ 2,061,787

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Loans - Repossessed Assets (Details) - USD ($)	Jun. 30, 2015	Dec. 31, 2014
Real estate - residential
Repossessed and foreclosed assets
Real estate assets in process of foreclosure	$ 3,200,000	$ 3,500,000
Other Assets
Repossessed and foreclosed assets
Repossessed assets	$ 0	$ 0

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash flows from operating activities
Net income	$ 7,628	$ 4,223
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of leasehold improvement	1,216	1,272
Change in fair value of mortgage servicing rights	513	630
Loan loss reserve release	2,300	2,000
Provision for deferred tax expense	4,206	2,335
Originations of loans held-for-sale	(114,718)	(52,057)
Proceeds from sales of loans held-for-sale	115,940	52,784
Net gain on sales of mortgage loans	(3,318)	(1,700)
Change in current income taxes receivable (payable)	27	(78)
Increase in cash surrender value of bank-owned life insurance	(637)	(724)
Change in accrued interest receivable and other assets	(1,899)	(4,399)
Change in accrued interest payable and other liabilities	(2,474)	(21,066)
Net premium amortization/discount (accretion) on securities	154	(950)
Securities losses (gain), net	121	(226)
Amortization of core deposit		1,023
Stock based compensation	344	82
Net gain on sale of other real estate owned	(337)	(409)
Provision for other real estate owned losses	2,697	1,261
Net cash provided by (used in) operating activities	7,163	(19,999)
Cash flows from investing activities
Proceeds from maturities and calls including pay down of securities available-for-sale	28,292	14,606
Proceeds from sales of securities available-for-sale	56,121	163,107
Purchases of securities available-for-sale	(98,806)	(132,073)
Proceeds from maturities and calls including pay down of securities held-to-maturity	6,983	3,902
Purchases of securities held-to-maturity		(11,212)
Proceeds from sales of Federal Home Loan Bank stock	787
Net change in loans	(7,582)	(42,259)
Improvements in other real estate owned		(131)
Proceeds from sales of other real estate owned	4,673	10,927
Net purchases of premises and equipment	(577)	(509)
Net cash (used in) provided by investing activities	(10,109)	6,358
Cash flows from financing activities
Net change in deposits	28,497	18,696
Net change in securities sold under repurchase agreements	11,379	15,573
Net change in other short-term borrowings	(25,000)	(5,000)
Redemption of preferred stock	(15,778)	(24,321)
Proceeds from issuance of common stock		64,395
Dividends paid on preferred stock	(1,716)	(10,258)
Purchase of treasury stock	(117)	(46)
Net cash (used in) provided by financing activities	(2,735)	59,039
Net change in cash and cash equivalents	(5,681)	45,398
Cash and cash equivalents at beginning of period	44,197	47,660
Cash and cash equivalents at end of period	38,516	93,058
Supplemental cash flow information
Income taxes paid	130
Interest paid for deposits	1,993	3,027
Interest paid for borrowings	2,564	20,150
Non-cash transfer of loans to other real estate owned	7,015	9,343
Change in dividends accrued	$ (182)	(9,123)
Accretion on preferred stock discount		$ 58

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Regulatory & Capital Matters (Details)	Jun. 30, 2015	Dec. 31, 2014
Regulatory & Capital Matters
Tier 1 capital leverage ratio (as a percent)	10.02%	9.93%
Total capital ratio (as a percent)	17.04%	17.68%
Old Second National Bank
Regulatory & Capital Matters
Tier 1 capital leverage ratio (as a percent)	12.33%	12.02%
Tier One leverage ratio, basis point increase (as a percent)	0.31%
Total capital ratio (as a percent)	18.68%	18.73%
Risk-based capital ratio, basis point decrease (as a percent)	0.05%
Old Second National Bank | Minimum
Regulatory & Capital Matters
Tier 1 capital leverage ratio, board-designated threshold	8.00%
Total Capital Ratio, board-designated threshold (as a percent)	12.00%

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Fair Values of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2015

Fair Values of Financial Instruments

Schedule of carrying amount and estimated fair values of financial instruments

	June 30, 2015
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	29,164	$	29,164	$	29,164	$	-	$	-
Interest bearing deposits with financial institutions		9,352		9,352		9,352		-		-
Securities available-for-sale		399,836		399,836		1,520		398,198		118
Securities held-to-maturity		253,419		257,967		-		257,967		-
FHLBC and Reserve Bank Stock		8,271		8,271		-		8,271		-
Bank-owned life insurance		57,444		57,444		-		57,444		-
Loans held-for-sale		6,208		6,208		-		6,208		-
Loans, net		1,140,562		1,147,129		-		-		1,147,129
Accrued interest receivable		4,192		4,192		-		4,192		-
Financial liabilities:
Noninterest bearing deposits	$	432,773	$	432,773	$	432,773	$	-	$	-
Interest bearing deposits		1,280,779		1,282,979		-		1,282,979		-
Securities sold under repurchase agreements		32,415		32,415		-		32,415		-
Other short-term borrowings		20,000		20,000		-		20,000		-
Junior subordinated debentures		58,378		55,181		32,734		22,447		-
Subordinated debenture		45,000		40,143		-		40,143		-
Note payable and other borrowings		500		432		-		432		-
Borrowing interest payable		75		75		-		75		-
Deposit interest payable		413		413		-		413		-

	December 31, 2014
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	30,101	$	30,101	$	30,101	$	-	$	-
Interest bearing deposits with financial institutions		14,096		14,096		14,096		-		-
Securities available-for-sale		385,486		385,486		1,527		330,900		53,059
Securities held-to-maturity		259,670		263,266		-		263,266		-
FHLBC and Reserve Bank Stock		9,058		9,058		-		9,058		-
Bank-owned life insurance		56,807		56,807		-		56,807		-
Loans held-for-sale		5,072		5,072		-		5,072		-
Loans, net		1,137,695		1,151,223		-		-		1,151,223
Accrued interest receivable		4,888		4,888		-		4,888		-
Financial liabilities:
Noninterest bearing deposits	$	400,447	$	400,447	$	400,447	$	-	$	-
Interest bearing deposits		1,284,608		1,284,887		-		1,284,887		-
Securities sold under repurchase agreements		21,036		21,036		-		21,036		-
Other short-term borrowings		45,000		45,000		-		45,000		-
Junior subordinated debentures		58,378		54,686		32,441		22,245		-
Subordinated debenture		45,000		39,366		-		39,366		-
Note payable and other borrowings		500		422		-		422		-
Borrowing interest payable		75		75		-		75		-
Deposit interest payable		467		467		-		467		-

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Fair Value Measurements - Quantitative and Qualitative Information (Details) - Derivative Contract [Domain] - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Quantitative information about Level 3 fair value measurements
Mortgage servicing rights, fair value	$ 5,884	$ 5,462
Recurring | Level 3
Quantitative information about Level 3 fair value measurements
Mortgage servicing rights, fair value	5,884	5,462
Recurring | Mortgage servicing rights | Discounted Cash Flow | Level 3
Quantitative information about Level 3 fair value measurements
Mortgage servicing rights, fair value	$ 5,884	$ 5,462
Recurring | Mortgage servicing rights | Discounted Cash Flow | Level 3 | Minimum
Quantitative information about Level 3 fair value measurements
Discount rate (as a percent)	10.00%	9.70%
Prepayment speed (as a percent)	6.00%	5.00%
Recurring | Mortgage servicing rights | Discounted Cash Flow | Level 3 | Maximum
Quantitative information about Level 3 fair value measurements
Discount rate (as a percent)	15.50%	108.20%
Prepayment speed (as a percent)	34.10%	78.40%
Recurring | Mortgage servicing rights | Discounted Cash Flow | Level 3 | Weighted Average of Inputs
Quantitative information about Level 3 fair value measurements
Discount rate (as a percent)	10.20%	10.20%
Prepayment speed (as a percent)	9.70%	10.90%
Recurring | Asset-backed securities | Discounted Cash Flow | Level 3
Quantitative information about Level 3 fair value measurements
Asset-backed securities		$ 52,941
Recurring | Asset-backed securities | Discounted Cash Flow | Level 3 | Minimum
Quantitative information about Level 3 fair value measurements
Credit risk premium (as a percent)		0.90%
Liquidity Discount (as a percent)		3.50%
Recurring | Asset-backed securities | Discounted Cash Flow | Level 3 | Maximum
Quantitative information about Level 3 fair value measurements
Credit risk premium (as a percent)		0.90%
Liquidity Discount (as a percent)		3.70%
Recurring | Asset-backed securities | Discounted Cash Flow | Level 3 | Weighted Average of Inputs
Quantitative information about Level 3 fair value measurements
Credit risk premium (as a percent)		0.90%
Liquidity Discount (as a percent)		3.60%

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Series B Preferred Stock

6 Months Ended

Jun. 30, 2015

Series B Preferred Stock ("Series B Stock")

Series B Preferred Stock (“Series B Stock”)

Note 15 – Series B Preferred Stock (“Series B Stock”)

The Series B Stock was issued as part of the Treasury’s Troubled Asset Relief Program and Capital Purchase Program ( the “CPP”).  The Series B Stock qualifies as Tier 1 capital and pays cumulative dividends on the liquidation preference amount on a quarterly basis at a rate of 5% per annum for the first five years, and 9% per annum thereafter effective in February 2014.  Concurrent with issuing the Series B Stock, the Company issued to the Treasury a ten year warrant to purchase 815,339 shares of the Company’s common stock at an exercise price of $13.43 per share.

Subsequent to the Company’s receipt of the $73.0 million in proceeds from the Treasury in the first quarter of 2009, the Company allocated the proceeds between the Series B Stock and the warrant that was issued. The Company recorded the warrant as equity, and the allocation was based on their relative fair values in accordance with accounting guidance.  The fair value was determined for both the Series B Stock and the warrant as part of the allocation process in the amounts of $68.2 million and $4.8 million, respectively.

On August 31, 2010, the Company announced that it would begin deferring quarterly cash dividends on its outstanding Series B Stock.  Further, the Company also elected to defer interest payments on certain of its subordinated debentures. However, under the terms of the Series B Stock, if the Company failed to pay dividends for an aggregate of six quarters on the Series B Stock, whether or not consecutive, the holders would have the right to appoint representatives to the Company’s board of directors.  As the Company elected to defer dividends for more than six quarters, a new director was appointed by the Treasury to join the board during the fourth quarter of 2012.  The terms of the Series B Stock also prevented the Company from paying cash dividends or generally repurchasing its common stock while Series B Stock dividends were in arrears.

The Treasury sold all of the Series B Stock held to third parties, including certain of our directors, in auctions that were completed in the first quarter of 2013.  The Treasury also sold the warrant to a third party at a subsequent auction.  Upon completion by Treasury of the auction, the Company’s board affirmed the director appointed by Treasury to ongoing board membership, and the Series B director was elected by the holders of the Series B Stock at the Company’s 2013 annual meeting.

As a result of the completed 2013 auctions, the Company’s Board elected to stop accruing the dividend on the Series B Stock in the first quarter of 2013.  Previously, the Company had accrued the dividend on the Series B Stock quarterly throughout the deferral period.  Given the discount reflected in the results of the auction, the board believed that the Company would likely be able to redeem the Series B Stock at a price less than the face amount of the Series B Stock plus accrued and unpaid dividends.  While the Company did not fully accrue the dividend on the Series B Stock in the first quarter of 2013 and did not accrue for it in subsequent quarters, the Company continued to evaluate whether accruing dividends on the Series B Stock was appropriate.  In the second quarter of 2014, the Company completed redemption of 25,669 shares of its SeriesB Stock at a price equal to 94.75% of liquidation value, or an aggregate of $24.3 million, and the holders of shares agreed to forebear payment of dividends due and waived any rights to such dividends upon redemption.  Following the redemption, the Company resumed accrual in the second quarter of 2014.

On December 30, 2014, the Company provided notice that it was redeeming approximately one-third of the issued and outstanding shares of the Company’s Series B Stock.  The effective date for the redemption was January 31, 2015, and the redemption price was the stated liquidation value of $1,000 per share, together with any accrued and unpaid dividends accumulated to, but excluding, the redemption date. As of December 30, 2014, there were 47,331 shares of the Series B Stock outstanding, and redeeming one-third of the Series B Stock resulted in the redemption of 15,778 shares of Series B Stock.  The redemption was successfully completed in the first quarter.  As of March 31, 2015,  31,553 shares of the Series B Stock remain outstanding.

At June 30, 2015, the Company carried $31.6 million of Series B Stock in total stockholders’ equity.  The Company carried $47.3 million and $72.9 million of Series B Stock in total stockholders’ equity at December 31, 2014, and December 31, 2013, respectively.  In July 2015, the Company announced that it would redeem the remaining 31,553 outstanding shares of Series B Stock on August 14, 2015 at the redemption price, equal to the stated liquidation value of $1,000 per share, together with any accrued and unpaid dividends accumulated to, but excluding, the redemption date. Please see the Capital section of Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations capital section for further information on this topic.

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Securities - Investment Portfolio (Details) - USD ($) $ in Millions	Jun. 30, 2015	Dec. 31, 2014
FHLB and FRB Stock
FHLBC stock	$ 3.5	$ 4.3
FRB stock	$ 4.8	$ 4.8

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Securities (Tables)

6 Months Ended

Jun. 30, 2015

Securities

Schedule of amortized cost and fair value of the securities portfolio and corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
June 30, 2015:	Cost		Gains		Losses		Value
Securities Available-for-Sale
U.S. Treasury	$	1,519	$	1	$	-	$	1,520
U.S. government agencies		1,697		-		(102)		1,595
U.S. government agencies mortgage-backed		5,545		-		-		5,545
States and political subdivisions		13,053		368		(172)		13,249
Corporate bonds		31,376		-		(771)		30,605
Collateralized mortgage obligations		76,519		50		(1,575)		74,994
Asset-backed securities		181,625		220		(3,190)		178,655
Collateralized loan obligations		94,243		59		(629)		93,673
Total Securities Available-for-Sale	$	405,577	$	698	$	(6,439)	$	399,836
Securities Held-to-Maturity
U.S. government agency mortgage-backed	$	36,995	$	1,791	$	-	$	38,786
Collateralized mortgage obligations		216,424		3,391		(634)		219,181
Total Securities Held-to-Maturity	$	253,419	$	5,182	$	(634)	$	257,967

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2014:	Cost		Gains		Losses		Value
Securities Available-for-Sale
U.S. Treasury	$	1,529	$	-	$	(2)	$	1,527
U.S. government agencies		1,711		-		(87)		1,624
States and political subdivisions		21,682		432		(96)		22,018
Corporate bonds		31,243		309		(567)		30,985
Collateralized mortgage obligations		65,728		31		(2,132)		63,627
Asset-backed securities		175,565		199		(2,268)		173,496
Collateralized loan obligations		94,236		176		(2,203)		92,209
Total Securities Available-for-Sale	$	391,694	$	1,147	$	(7,355)	$	385,486
Securities Held-to-Maturity
U.S. government agency mortgage-backed	$	37,125	$	2,030	$	-	$	39,155
Collateralized mortgage obligations		222,545		3,005		(1,439)		224,111
Total Securities Held-to-Maturity	$	259,670	$	5,035	$	(1,439)	$	263,266

Schedule of fair value, amortized cost and weighted average yield of debt securities by contractual maturity along with securities not due at a single maturity date, primarily mortgage-backed securities (MBS), asset-backed securities, and collateralized loan obligations

			Weighted
	Amortized		Average	Fair
Securities Available-for-Sale	Cost		Yield	Value
Due in one year or less	$	2,141	1.63%	$	2,159
Due after one year through five years		6,900	2.99%		7,073
Due after five years through ten years		33,501	2.43%		32,811
Due after ten years		5,103	3.28%		4,926
		47,645	2.56%		46,969
Mortgage-backed and collateralized mortgage obligations		82,064	1.44%		80,539
Asset-backed securities		181,625	1.22%		178,655
Collateralized loan obligations		94,243	2.87%		93,673
	$	405,577	1.81%	$	399,836
Securities Held-to-Maturity
Mortgage-backed and collateralized mortgage obligations	$	253,419	3.02%	$	257,967

Schedule of securities with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position

	Less than 12 months					Greater than 12 months
June 30, 2015	in an unrealized loss position					in an unrealized loss position					Total
	Number of	Unrealized		Fair		Number of	Unrealized		Fair		Number of	Unrealized		Fair
Securities Available-for-Sale	Securities	Losses		Value		Securities	Losses		Value		Securities	Losses		Value
U.S. government agencies	-	$	-	$	-	1	$	102	$	1,595	1	$	102	$	1,595
States and political subdivisions	2		37		1,841	1		135		1,720	3		172		3,561
Corporate bonds	6		311		16,064	3		460		14,541	9		771		30,605
Collateralized mortgage obligations	6		335		44,131	4		1,240		19,400	10		1,575		63,531
Asset-backed securities	7		2,046		98,917	5		1,144		61,397	12		3,190		160,314
Collateralized loan obligations	8		387		44,231	4		242		24,488	12		629		68,719
	29	$	3,116	$	205,184	18	$	3,323	$	123,141	47	$	6,439	$	328,325
Securities Held-to-Maturity
Collateralized mortgage obligations	6	$	189	$	31,761	4	$	445	$	46,400	10	$	634	$	78,161
	6	$	189	$	31,761	4	$	445	$	46,400	10	$	634	$	78,161

	Less than 12 months					Greater than 12 months
December 31, 2014	in an unrealized loss position					in an unrealized loss position					Total
	Number of	Unrealized			Fair	Number of	Unrealized			Fair	Number of	Unrealized			Fair
Securities Available-for-Sale	Securities	Losses			Value	Securities	Losses			Value	Securities	Losses			Value
U.S. Treasury	1	$	2	$	1,527	-	$	-	$	-	1	$	2	$	1,527
U.S. government agencies	-		-		-	1		87		1,624	1		87		1,624
States and political subdivisions	4		96		4,896	-		-		-	4		96		4,896
Corporate bonds	4		486		15,246	1		81		1,921	5		567		17,167
Collateralized mortgage obligations	5		900		38,284	3		1,232		21,604	8		2,132		59,888
Asset-backed securities	9		1,077		99,286	3		1,191		43,662	12		2,268		142,948
Collateralized loan obligations	12		2,203		82,387	-		-		-	12		2,203		82,387
	35	$	4,764	$	241,626	8	$	2,591	$	68,811	43	$	7,355	$	310,437
Securities Held-to-Maturity
Collateralized mortgage obligations	7	$	457	$	49,302	4	$	982	$	46,283	11		1,439		95,585
	7	$	457	$	49,302	4	$	982	$	46,283	11	$	1,439	$	95,585

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Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions - Commitments (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Company's contractual commitments due to letters of credit
Total letters of credit	$ 11,382	$ 11,527
Fixed
Company's contractual commitments due to letters of credit
Total letters of credit	459	471
Variable
Company's contractual commitments due to letters of credit
Total letters of credit	10,923	11,056
Borrower
Company's contractual commitments due to letters of credit
Total letters of credit	10,806	10,955
Borrower | Fixed
Company's contractual commitments due to letters of credit
Total letters of credit	459	471
Borrower | Variable
Company's contractual commitments due to letters of credit
Total letters of credit	10,347	10,484
Borrower | Financial standby
Company's contractual commitments due to letters of credit
Total letters of credit	3,752	4,800
Borrower | Financial standby | Fixed
Company's contractual commitments due to letters of credit
Total letters of credit	55	55
Borrower | Financial standby | Variable
Company's contractual commitments due to letters of credit
Total letters of credit	3,697	4,745
Borrower | Commercial standby
Company's contractual commitments due to letters of credit
Total letters of credit	47	49
Borrower | Commercial standby | Variable
Company's contractual commitments due to letters of credit
Total letters of credit	47	49
Borrower | Performance standby
Company's contractual commitments due to letters of credit
Total letters of credit	7,007	6,106
Borrower | Performance standby | Fixed
Company's contractual commitments due to letters of credit
Total letters of credit	404	416
Borrower | Performance standby | Variable
Company's contractual commitments due to letters of credit
Total letters of credit	6,603	5,690
Nonborrower
Company's contractual commitments due to letters of credit
Total letters of credit	576	572
Nonborrower | Variable
Company's contractual commitments due to letters of credit
Total letters of credit	576	572
Nonborrower | Performance standby
Company's contractual commitments due to letters of credit
Total letters of credit	576	572
Nonborrower | Performance standby | Variable
Company's contractual commitments due to letters of credit
Total letters of credit	$ 576	$ 572

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Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Common Stock	Preferred Stock	Additional Paid In Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Treasury Stock	Total
Balance at Dec. 31, 2013	$ 18,830	$ 72,942	$ 66,212	$ 92,549	$ (7,038)	$ (95,803)	$ 147,692
Increase (Decrease) in Stockholders' Equity
Net income				4,223			4,223
Other comprehensive gain, net of tax					1,699		1,699
Change in restricted stock	10		(10)
Recapture of restricted stock			29				29
Stock based compensation			82				82
Purchase of treasury stock						(46)	(46)
Redemption of preferred stock		(25,669)		1,348			(24,321)
Common stock offering	15,525		48,870				64,395
Preferred stock accretion and declared dividends		58		(1,193)			(1,135)
Balance at Jun. 30, 2014	34,365	47,331	115,183	96,927	(5,339)	(95,849)	192,618
Balance at Dec. 31, 2014	34,365	47,331	115,332	100,697	(7,713)	(95,849)	194,163
Increase (Decrease) in Stockholders' Equity
Net income				7,628			7,628
Other comprehensive gain, net of tax					502		502
Change in restricted stock	58		(58)
Tax effect from vesting of restricted stock			33				33
Stock based compensation			344				344
Purchase of treasury stock						(117)	(117)
Redemption of preferred stock		(15,778)					(15,778)
Preferred stock accretion and declared dividends				(1,534)			(1,534)
Balance at Jun. 30, 2015	$ 34,423	$ 31,553	$ 115,651	$ 106,791	$ (7,211)	$ (95,966)	$ 185,241

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2015	Dec. 31, 2014
Consolidated Balance Sheets
Preferred stock, Par value (in dollars per share)	$ 1	$ 1
Preferred stock, Liquidation value (in dollars per share)	$ 1,000	$ 1,000
Preferred stock, Shares authorized	300,000	300,000
Preferred stock, Shares issued	31,553	47,331
Preferred stock, Shares outstanding	31,553	47,331
Common stock, Par value (in dollars per share)	$ 1	$ 1
Common Stock, Shares authorized	60,000,000	60,000,000
Common stock, Shares issued	34,422,234	34,364,734
Common stock, Shares outstanding	29,478,429	29,442,508
Treasury stock, Shares	4,943,805	4,922,226

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Earnings Per Share

6 Months Ended

Jun. 30, 2015

Earnings Per Share

Earnings (loss) Per Share

Note 10 – Earnings Per Share

The earnings per share – both basic and diluted – are included below as of June 30 (in thousands except for share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Basic earnings per share:
Weighted-average common shares outstanding		29,475,682		28,181,519		29,473,004		21,090,665
Weighted-average common shares less stock based awards		29,475,682		28,181,519		29,473,004		21,086,438
Weighted-average common shares stock based awards		-		179,874		-		174,522
Net income	$	4,129	$	2,021	$	7,628	$	4,223
Gain on preferred stock redemption		-		(1,348)		-		(1,348)
Preferred stock dividends and accretion, net of dividends waived		710		(4,085)		1,534		(2,513)
Net earnings available to common stockholders		3,419		7,454		6,094		8,084
Basic earnings per share common undistributed earnings		N/A		0.26		N/A		0.38
Basic earnings per share		0.12		0.26		0.21		0.38
Diluted earnings per share:
Weighted-average common shares outstanding		29,475,682		28,181,519		29,473,004		21,090,665
Dilutive effect of nonvested restricted awards1		271,571		179,874		239,948		170,295
Diluted average common shares outstanding		29,747,253		28,361,393		29,712,952		21,260,960
Net earnings available to common stockholders	$	3,419	$	7,454	$	6,094	$	8,084
Diluted earnings per share	$	0.12	$	0.26	$	0.21	$	0.38
Number of antidilutive options and warrants excluded from the diluted earnings per share calculation		1,044,339		1,140,839		1,044,339		1,140,839
1 Includes the common stock equivalents for restricted share rights that are dilutive.

The above earnings per share calculation did not include a warrant for 815,339 shares of common stock, at an exercise price of $13.43,that was outstanding as of June 30, 2015, and June 30, 2014 because the warrant was anti-dilutive.   Of note, the warrant was sold at auction by the Treasury in June 2013 to a third party investor.

The Company completed the redemption of 25,669 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the “Series B Stock”) in the second quarter of 2014.  As previously disclosed, the Company completed a public offering of 15,525,000 shares of common stock in April of 2014.  Net proceeds of over $64.0 million were used to pay the accrued but unpaid interest on the Company’s  trust preferred securities or junior subordinated debentures discussed in Note 8, the accumulated but unpaid dividends on the Series B Stock and to complete the 2014 redemption of the Series B Stock.  The amount remaining after the completion of these transactions was retained at the Company for use in addressing general corporate matters.  The redemption price for such Series B Stock was 94.75% of the liquidation value of the shares and the holders of the redeemed shares agreed to forebear payment of dividends due and waived any rights to such dividend upon redemption.  The Company redeemed all shares of Series B Stock held by directors of the Company on the same terms.

On January 31, 2015, the Company redeemed 15,778 shares of its Series B Stock at a redemption price equal to the stated liquidation value of $1,000 per share, together with accrued and unpaid dividends accumulated to, but excluding, the redemption date.As of December 30, 2014, there were 47,331 shares of the Series B Stock outstanding, and redeeming one-third of the Series B Stock resulted in the redemption of 15,778 shares of Series B Stock.  The redemption was successfully completed in the first quarter.  As of June 30, 2015,  31,553 shares of the Series B Stock remained outstanding.

In July 2015, the Company announced that it would redeem the remaining 31,553 outstanding shares of Series B Stock on August 14, 2015 at the redemption price, equal to the stated liquidation value of $1,000 per share, together with any accrued and unpaid dividends accumulated to, but excluding, the redemption date.Please see the Capital section of Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations capital section for further information on this topic.

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Aug. 06, 2015
Document and Entity Information
Entity Registrant Name	OLD SECOND BANCORP INC
Entity Central Index Key	0000357173
Document Type	10-Q
Document Period End Date	Jun. 30, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		29,478,429
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2

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Regulatory & Capital Matters

6 Months Ended

Jun. 30, 2015

Regulatory & Capital Matters

Regulatory & Capital Matters

Note 11 – Regulatory & Capital Matters

The Bank is subject to the risk-based capital regulatory guidelines, which include the methodology for calculating the risk-weighted Bank assets, developed by the Office of the Comptroller of the Currency (the “OCC”) and the other bank regulatory agencies.  In connection with the current economic environment, the Bank’s current level of nonperforming assets and the risk-based capital guidelines, the Bank’s board of directors has determined that the Bank should maintain a Tier 1 leverage capital ratio at or above eight percent (8%) and a total risk-based capital ratio at or above twelve percent (12%).  At June 30, 2015, the Bank exceeded those thresholds.

At June 30, 2015, the Bank’s Tier 1 capital leverage ratio was 12.33%, up 31 basis points from December 31, 2014, and well above the 8.00%objective.  The Bank’s total capital ratio was 18.68%, down 5 basis points from December 31, 2014, and also well above the objective of 12.00%.

Bank holding companies are required to maintain minimum levels of capital in accordance with capital guidelines implemented by the Board of Governors of the Federal Reserve System.  The general bank and holding company capital adequacy guidelines are shown in the accompanying table, as are the capital ratios of the Company and the Bank, as of June 30, 2015, and December 31, 2014.

In July 2013, the U.S. federal banking authorities issued final rules (the “Basel III Rules”) establishing more stringent regulatory capital requirements for U.S. banking institutions, which went into effect on January 1, 2015.  A detailed discussion of the Basel III Rules is included in Part I, Item 1 of the Company’s Form 10-K for the year ended December 31, 2014, under the heading “Supervision and Regulation.”

At June 30, 2015, the Company, on a consolidated basis, exceeded the minimum thresholds to be considered “adequately capitalized” under current regulatory defined capital ratios.  For all periods prior to 2015, all capital ratios displayed were calculated without giving effect to the final Basel III capital rules.

Capital levels and industry defined regulatory minimum required levels:

					Minimum Required				Minimum Required
					for Capital				to be Well
	Actual				Adequacy Purposes				Capitalized 1
	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2015
Common equity tier 1 capital to risk weighted assets
Consolidated	$	141,573	9.78	%	$	65,141	4.50	%		N/A	N/A
Old Second Bank		252,436	17.42			65,210	4.50		$	94,193	6.50	%
Total capital to risk weighted assets
Consolidated		246,680	17.04			115,812	8.00			N/A	N/A
Old Second Bank		270,662	18.68			115,915	8.00			144,894	10.00
Tier 1 capital to risk weighted assets
Consolidated		204,856	14.15			86,865	6.00			N/A	N/A
Old Second Bank		252,436	17.42			86,947	6.00			115,929	8.00
Tier 1 capital to average assets
Consolidated		204,856	10.02			81,779	4.00			N/A	N/A
Old Second Bank		252,436	12.33			81,893	4.00			102,367	5.00
December 31, 2014
Total capital to risk weighted assets
Consolidated	$	240,566	17.68	%	$	108,853	8.00	%		N/A	N/A
Old Second Bank		254,897	18.73			108,872	8.00		$	136,090	10.00	%
Tier 1 capital to risk weighted assets
Consolidated		196,499	14.44			54,432	4.00			N/A	N/A
Old Second Bank		237,828	17.47			54,454	4.00			81,681	6.00
Tier 1 capital to average assets
Consolidated		196,499	9.93			79,154	4.00			N/A	N/A
Old Second Bank		237,828	12.02			79,144	4.00			98,930	5.00

1 The Bank exceeded the general minimum regulatory requirements to be considered “well capitalized”.

The Company’s credit facility with a correspondent bank includes $45.0 million in subordinated debt.  That debt obligation qualifies at40% and 60% of the original amount for Tier 2 regulatory capital at June 30, 2015 and December 31, 2014, respectively.  In addition, the trust preferred securities continue to qualify as Tier 1 regulatory capital, and the Company treats the maximum amount of this security type allowable under regulatory guidelines as Tier 1 capital.  At June 30, 2015$51.2 million and $5.4 million of the trust preferred proceeds qualified as Tier 1 regulatory capital and Tier 2 regulatory capital, respectively. All $56.6 million of the trust preferred proceeds qualified as Tier 1 regulatory capital as of December 31, 2014.  All of the Series B Stock qualified as Tier 1 regulatory capital as of June 30, 2015, and December 31, 2014.  

Dividend Restrictions

In addition to the above requirements, banking regulations and capital guidelines generally limit the amount of dividends that may be paid by a bank without prior regulatory approval.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s profits, combined with the retained profit of the previous two years, subject to the capital requirements described above.  Pursuant to the Basel III rules that came into effect January 1, 2015, the Bank must keep a buffer of 0.625% for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter of Common Equity Tier 1 minimum requirement in order to avoid additional limitations on capital distributions.  The Bank has the ability and the authority to pay dividends to the Company to pay debt and to meet preferred dividend requirements.

As discussed in Note 8, as of June 30, 2015, the Company had $58.4 million of junior subordinated debentures held by two statutory business trusts that it controls.  The Company has the right to defer interest payments on the debentures for a period of up to 20 consecutive quarters, and elected to begin such a deferral in August 2010.  However, all deferred interest must be paid before the Company may pay dividends on its common stock.  In the second quarter of 2014, the Company terminated the deferral period and paid all accumulated and unpaid interest on the junior subordinated debentures which totaled $19.7 million.  The Company is currently paying interest as it comes due.

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Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Interest and Dividend Income
Loans, including fees	$ 13,467	$ 13,046	$ 26,685	$ 25,984
Loans held-for-sale	72	29	115	54
Securities:
Taxable	3,372	3,352	6,747	6,854
Tax exempt	163	118	304	266
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock	77	78	154	154
Interest bearing deposits with financial institutions	19	20	31	35
Total interest and dividend income	17,170	16,643	34,036	33,347
Interest Expense
Savings, NOW, and money market deposits	183	188	362	387
Time deposits	771	1,210	1,578	2,531
Other short-term borrowings	7	3	16	5
Junior subordinated debentures	1,071	1,388	2,143	2,775
Subordinated debt	202	198	399	394
Notes payable and other borrowings		4	4	8
Total interest expense	2,234	2,991	4,502	6,100
Net interest and dividend income	14,936	13,652	29,534	27,247
Loan loss reserve release	(2,300)	(1,000)	(2,300)	(2,000)
Net interest and dividend income after provision for loan losses	17,236	14,652	31,834	29,247
Noninterest Income
Trust income	1,596	1,677	3,082	3,136
Service charges on deposits	1,779	1,796	3,320	3,516
Secondary mortgage fees	281	155	525	267
Mortgage servicing loss, net of changes in fair value	500	64	292	17
Net gain on sales of mortgage loans	1,695	1,038	3,318	1,700
Securities (loss) gain, net	(12)	295	(121)	226
Increase in cash surrender value of bank-owned life insurance	283	366	637	724
Debit card interchange income	1,050	930	2,009	1,760
Other income	1,092	1,160	3,175	2,456
Total noninterest income	8,264	7,481	16,237	13,802
Noninterest Expense
Salaries and employee benefits	9,149	9,183	18,404	18,284
Occupancy expense, net	1,094	1,185	2,365	2,666
Furniture and equipment expense	1,065	984	2,066	1,967
FDIC insurance	377	627	650	906
General bank insurance	310	343	667	832
Amortization of core deposit		511		1,023
Advertising expense	353	459	558	762
Debit card interchange expense	400	412	752	790
Legal fees	420	409	643	666
Other real estate expense, net	2,388	1,650	3,740	2,658
Other expense	3,371	3,289	6,235	6,014
Total noninterest expense	18,927	19,052	36,080	36,568
Income before income taxes	6,573	3,081	11,991	6,481
Provision for income taxes	2,444	1,060	4,363	2,258
Net income	4,129	2,021	7,628	4,223
Preferred stock dividends and accretion of discount	710	1,348	1,534	2,920
Dividends waived upon preferred stock redemption		(5,433)		(5,433)
Gain on preferred stock redemption		(1,348)		(1,348)
Net income available to common stockholders	$ 3,419	$ 7,454	$ 6,094	$ 8,084
Basic earnings per share (in dollars per share)	$ 0.12	$ 0.26	$ 0.21	$ 0.38
Diluted earnings per share (in dollars per share)	$ 0.12	$ 0.26	$ 0.21	$ 0.38

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Other Real Estate Owned

6 Months Ended

Jun. 30, 2015

Other Real Estate Owned

Other Real Estate Owned

Note 5 – Other Real Estate Owned

Details related to the activity in the other real estate owned (“OREO”) portfolio, net of valuation reserve, for the periods presented are itemized in the following table:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Other real estate owned	2015		2014		2015		2014
Balance at beginning of period	$	35,461	$	40,220	$	31,982	$	41,537
Property additions		907		4,655		7,015		9,343
Property improvements		-		131		-		131
Less:
Property disposals, net of gains/losses		2,316		4,949		4,336		10,518
Period valuation adjustments		2,088		825		2,697		1,261
Balance at end of period	$	31,964	$	39,232	$	31,964	$	39,232

Activity in the valuation allowance was as follows:

	2015		2014		2015		2014
Balance at beginning of period	$	19,456	$	19,484	$	19,229	$	22,284
Provision for unrealized losses		2,088		825		2,697		1,261
Reductions taken on sales		(1,568)		(2,436)		(1,950)		(5,083)
Other adjustments		93		-		93		(589)
Balance at end of period	$	20,069	$	17,873	$	20,069	$	17,873

Expenses related to OREO, net of lease revenue includes:

	2015		2014		2015		2014
Gain on sales, net	$	(242)	$	(23)	$	(337)	$	(409)
Provision for unrealized losses		2,088		825		2,697		1,261
Operating expenses		749		1,011		1,750		2,248
Less:
Lease revenue		207		163		370		442
	$	2,388	$	1,650	$	3,740	$	2,658

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Allowance for Loan Losses

6 Months Ended

Jun. 30, 2015

Allowance for Loan Losses

Allowance for Loan Losses

Note 4 – Allowance for Loan Losses

Changes in the allowance for loan losses by segment of loans based on method of impairment for three and six months ending June 30, 2015, were as follows:

Allowance for loan losses:			Real Estate		Real Estate		Real Estate
	Commercial		Commercial		Construction		Residential		Consumer		Unallocated		Total
Three months ended June 30, 2015
Beginning balance	$	1,512	$	14,033	$	1,272	$	1,917	$	1,417	$	1,030	$	21,181
Charge-offs		858		1,031		1		159		93		-		2,142
Recoveries		83		965		61		403		70		-		1,582
(Release) provision		895		(3,766)		(670)		(301)		(145)		1,687		(2,300)
Ending balance	$	1,632	$	10,201	$	662	$	1,860	$	1,249	$	2,717	$	18,321
Six months ended June 30, 2015
Beginning balance	$	1,644	$	12,577	$	1,475	$	1,981	$	1,454	$	2,506	$	21,637
Charge-offs		890		1,526		2		777		211		-		3,406
Recoveries		224		1,295		66		627		178		-		2,390
(Release) provision		654		(2,145)		(877)		29		(172)		211		(2,300)
Ending balance	$	1,632	$	10,201	$	662	$	1,860	$	1,249	$	2,717	$	18,321
Ending balance: Individually evaluated for impairment	$	-	$	-	$	27	$	111	$	-	$	-	$	138
Ending balance: Collectively evaluated for impairment	$	1,632	$	10,201	$	635	$	1,749	$	1,249	$	2,717	$	18,183
Loans:
Ending balance	$	131,943	$	612,379	$	32,157	$	365,989	$	3,854	$	12,561	$	1,158,883
Ending balance: Individually evaluated for impairment	$	600	$	6,398	$	3,952	$	15,866	$	-	$	-	$	26,816
Ending balance: Collectively evaluated for impairment	$	131,343	$	605,981	$	28,205	$	350,123	$	3,854	$	12,561	$	1,132,067

Changes in the allowance for loan losses by segment of loans based on method of impairment for three and six months ending June 30, 2014, were as follows:

Allowance for loan losses:			Real Estate		Real Estate		Real Estate
	Commercial		Commercial		Construction		Residential		Consumer		Unallocated		Total
Three months ended June 30, 2014
Beginning balance	$	2,326	$	14,066	$	1,998	$	2,268	$	1,495	$	3,323	$	25,476
Charge-offs		3		760		105		978		139		-		1,985
Recoveries		35		87		467		689		87		-		1,365
(Release) provision		(367)		(165)		(606)		394		21		(277)		(1,000)
Ending balance	$	1,991	$	13,228	$	1,754	$	2,373	$	1,464	$	3,046	$	23,856
Six months ended June 30, 2014
Beginning balance	$	2,250	$	16,763	$	1,980	$	2,837	$	1,439	$	2,012	$	27,281
Charge-offs		7		1,089		173		1,827		249		-		3,345
Recoveries		50		228		504		939		199		-		1,920
(Release) provision		(302)		(2,674)		(557)		424		75		1,034		(2,000)
Ending balance	$	1,991	$	13,228	$	1,754	$	2,373	$	1,464	$	3,046	$	23,856
Ending balance: Individually evaluated for impairment	$	-	$	803	$	135	$	502	$	-	$	-	$	1,440
Ending balance: Collectively evaluated for impairment	$	1,991	$	12,425	$	1,619	$	1,871	$	1,464	$	3,046	$	22,416
Loans:
Ending balance	$	115,474	$	599,796	$	32,265	$	368,592	$	3,064	$	13,556	$	1,132,747
Ending balance: Individually evaluated for impairment	$	21	$	17,131	$	2,598	$	16,379	$	-	$	-	$	36,129
Ending balance: Collectively evaluated for impairment	$	115,453	$	582,665	$	29,667	$	352,213	$	3,064	$	13,556	$	1,096,618

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2015

Summary of Significant Accounting Policies

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09 "Revenue from Contracts with Customers (Topic 606)."  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  ASU 2014-09 was to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.  The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application.  Early application is not permitted.  The Company is assessing the impact of ASU 2014-09 on its accounting and disclosures.  On April 1, 2015, the FASB voted to propose a delay in the effective date of ASU 2014-09.  On April 29, 2015, FASB issued a proposed accounting standards update to defer the effective date of an additional year.  The deferral of the effective date was approved on July 9, 2015, and will be effective for annual reporting periods beginning after December 15, 2017.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2015

Fair Value Measurements

Fair Value Measurements

Note 12 – Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  The fair value hierarchy established by the Company also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  Three levels of inputs that may be used to measure fair value are:

Level 1:  Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

Level 2:  Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3:  Significant unobservable inputs that reflect a company’s own view about the assumptions that market participants would use in pricing an asset or liability.

Transfers between levels are deemed to have occurred at the end of the reporting period.  For the quartersendedJune 30, 2015 and 2014 there were no significant transfers between levels.

The majority of securities (available-for-sale and held-to-maturity) are valued by external pricing services or dealer market participants and are classified in Level 2 of the fair value hierarchy.  Both market and income valuation approaches are utilized.  The Company evaluates the methodologies used by the external pricing services or dealer market participants to develop the fair values to determine whether the results of the valuations are representative of an exit price in the Company’s principal markets and an appropriate representation of fair value.  The Company uses the following methods and significant assumptions to estimate fair value:

· Government-sponsored agency debt securities are primarily priced using available market information through processes such as benchmark curves, market valuations of like securities, sector groupings and matrix pricing.

· Other government-sponsored agency securities, MBS and some of the actively traded real estate mortgage investment conduits and collateralized mortgage obligations are priced using available market information including benchmark yields, prepayment speeds, spreads, volatility of similar securities and trade date.

· State and political subdivisions are largely grouped by characteristics (e.g., geographical data and source of revenue in trade dissemination systems).  Because some securities are not traded daily and due to other grouping limitations, active market quotes are often obtained using benchmarking for like securities.

· From December 31, 2013, to December 31, 2014, the Company utilized pricing data from a nationally recognized valuation firm providing specialized securities valuation services for auction rate asset-backed securities.  Beginning March 31, 2015, these securities are priced using market spreads, cash flows, prepayment speeds, and loss analytics.  Therefore, the valuations of auction rate asset-backed securities are considered Level 2 valuations.

· During the third quarter of 2014, asset-backed collateralized loan obligations were acquired and priced using data from a pricing matrix support by our bond accounting service provider and are therefore considered Level 2 valuations.

· Residential mortgage loans eligible for sale in the secondary market are carried at fair market value.  The fair value of loans held-for-sale is determined using quoted secondary market prices.

· Lending related commitments to fund certain residential mortgage loans, e.g. residential mortgage loans with locked interest rates to be sold in the secondary market and forward commitments for the future delivery of mortgage loans to third party investors as well as forward commitments for future delivery of MBS are considered derivatives.  Fair values are estimated based on observable changes in mortgage interest rates including prices for MBS from the date of the commitment and do not typically involve significant judgments by management.

· The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income to derive the resultant value.  The Company is able to compare the valuation model inputs, such as the discount rate, prepayment speeds, weighted average delinquency and foreclosure/bankruptcy rates  to widely available published industry data for reasonableness.

· Interest rate swap positions, both assets and liabilities, are based on valuation pricing models using an income approach reflecting readily observable market parameters such as interest rate yield curves.

· Both the credit valuation reserve on current interest rate swap positions and on receivables related to unwound customer interest rate swap positions were determined based upon management’s estimate of the amount of credit risk exposure, including by available collateral protection and/or by utilizing an estimate related to a probability of default as indicated in the Bank credit policy.  Such adjustments would result in a Level 3 classification.

· The fair value of impaired loans with specific allocations of the allowance for loan losses is essentially based on recent real estate appraisals.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are made in the appraisal process by the appraisers to reflect differences between the available comparable sales and income data.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

· Nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO are measured at the lower of carrying amount or fair value, less costs to sell.  Fair values are based on third party appraisals of the property, resulting in a Level 3 classification.  In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Assets and Liabilities Measured at Fair Value on a Recurring Basis:

The tables below present the balance of assets and liabilities at June 30, 2015, and December 31, 2014, respectively, measured by the Company at fair value on a recurring basis:

	June 30, 2015
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities available-for-sale
U.S. Treasury	$	1,520	$	-	$	-	$	1,520
U.S. government agencies		-		1,595		-		1,595
U.S. government agencies mortgage-backed		-		5,545		-		5,545
States and political subdivisions		-		13,131		118		13,249
Corporate Bonds		-		30,605		-		30,605
Collateralized mortgage obligations		-		74,994		-		74,994
Asset-backed securities		-		178,655		-		178,655
Collateralized loan obligations		-		93,673		-		93,673
Loans held-for-sale		-		6,208		-		6,208
Mortgage servicing rights		-		-		5,884		5,884
Other assets (Interest rate swap agreements)		-		28		-		28
Other assets (Mortgage banking derivatives)		-		257		-		257
Total	$	1,520	$	404,691	$	6,002	$	412,213
Liabilities:
Other liabilities (Interest rate swap agreements)	$	-	$	28	$	-	$	28
Total	$	-	$	28	$	-	$	28

	December 31, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities available-for-sale
U.S. Treasury	$	1,527	$	-	$	-	$	1,527
U.S. government agencies		-		1,624		-		1,624
States and political subdivisions		-		21,900		118		22,018
Corporate bonds		-		30,985		-		30,985
Collateralized mortgage obligations		-		63,627		-		63,627
Asset-backed securities		-		120,555		52,941		173,496
Collateralized loan obligations		-		92,209		-		92,209
Loans held-for-sale		-		5,072		-		5,072
Mortgage servicing rights		-		-		5,462		5,462
Other assets (Interest rate swap agreements net of swap credit valuation)		-		30		-		30
Other assets (Mortgage banking derivatives)		-		143		-		143
Total	$	1,527	$	336,145	$	58,521	$	396,193
Liabilities:
Other liabilities (Interest rate swap agreements)	$	-	$	30	$	-	$	30
Total	$	-	$	30	$	-	$	30

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are as follows:

	Six months ended June 30, 2015
	Securities available-for-sale
			States and		Mortgage
	Asset-		Political		Servicing
	backed		Subdivisions		Rights
Beginning balance January 1, 2015	$	52,941	$	118	$	5,462
Transfers out of Level 3		(24,917)		-		-
Total gains or losses
Included in earnings (or changes in net assets)		(28)		-		(137)
Included in other comprehensive income		(541)		-		-
Purchases, issuances, sales, and settlements
Issuances		-		-		935
Settlements		-		-		(376)
Sales		(27,455)		-		-
Ending balance June 30, 2015	$	-	$	118	$	5,884

	Six months ended June 30, 2014
	Securities available-for-sale
			States and		Mortgage		Interest Rate
	Asset-		Political		Servicing		Swap
	backed		Subdivisions		Rights		Valuation
Beginning balance January 1, 2014	$	154,137	$	125	$	5,807	$	(6)
Total gains or losses
Included in earnings (or changes in net assets)		1,671		-		(630)		6
Included in other comprehensive income		513		-		-		-
Purchases, issuances, sales, and settlements
Purchases		58,047		-		-		-
Issuances		-		-		324		-
Settlements		-		-		-		-
Sales		(77,282)		-		-		-
Ending balance June 30, 2014	$	137,086	$	125	$	5,501	$	-

The following table and commentary presents quantitative and qualitative information about Level 3 fair value measurements as of June 30, 2015:

						Weighted
Measured at fair value				Unobservable		Average
on a recurring basis:	Fair Value		Valuation Methodology	Inputs	Range of Input	of Inputs
Mortgage Servicing rights	$	5,884	Discounted Cash Flow	Discount Rate	10.0-15.5%	10.2	%
				Prepayment Speed	6.0-34.1%	9.7	%

The following table and commentary presents quantitative and qualitative information about Level 3 fair value measurements as of December 31, 2014:

						Weighted
Measured at fair value				Unobservable		Average
on a recurring basis:	Fair Value		Valuation Methodology	Inputs	Range of Input	of Inputs
Mortgage Servicing rights	$	5,462	Discounted Cash Flow	Discount Rate	9.7-108.2%	10.2	%
				Prepayment Speed	5.0-78.4%	10.9	%
Asset-backed securities		52,941	Discounted Cash Flow	Credit Risk Premium	0.9-0.9%	0.9	%
			with comparable transaction yields	Liquidity Discount	3.5-3.7%	3.6	%

The $118,000 on the state and political subdivisions line at June 30, 2015, under Level 3 represents a security from a small, local municipality.  Given the small dollar amount and size of the municipality involved, this is categorized as Level 3 based on the payment stream received by the Company from the municipality.  That payment stream is otherwise an unobservable input.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis:

The Company may be required, from time to time, to measure certain other assets at fair value on a nonrecurring basis in accordance with GAAP.  These assets consist of impaired loans and OREO.  For assets measured at fair value on a nonrecurring basis at June 30, 2015, and December 31, 2014, respectively, the following tables provide the level of valuation assumptions used to determine each valuation and the carrying value of the related assets:

	June 30, 2015
	Level 1		Level 2		Level 3		Total
Impaired loans1	$	-	$	-	$	451	$	451
Other real estate owned, net2		-		-		31,964		31,964
Total	$	-	$	-	$	32,415	$	32,415

1Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans,had a carrying amount of $589,000, with a valuation allowance of $138,000 resulting in an increase of specific allocations within the allowance for loan losses of $140,000 for the six months ending June 30, 2015.

2OREO is measured at the lower of carrying or fair value less costs to sell, and had a net carrying amount of $32.0 million, which is made up of the outstanding balance of $53.8 million, net of a valuation allowance of $20.1 million and participations of $1.7 million, at June 30, 2015.

	December 31, 2014
	Level 1		Level 2		Level 3		Total
Impaired loans1	$	-	$	-	$	564	$	564
Other real estate owned, net2		-		-		31,982		31,982
Total	$	-	$	-	$	32,546	$	32,546

1Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans, had a carrying amount of $842,000, with a valuation allowance of $278,000, resulting in a decrease of specific allocations within the provision for loan losses of $2.1 million for the year ending December 31, 2014.

2OREO is measured at the lower of carrying or fair value less costs to sell, and had a net carrying amount of $32.0 million, which is made up of the outstanding balance of $53.0 million, net of a valuation allowance of $19.2 million and participations of $1.8 million, at December 31, 2014.

The Company also has assets that under certain conditions are subject to measurement at fair value on a nonrecurring basis.  These assets include OREO and impaired loans.  The Company has estimated the fair values of these assets based primarily on Level 3 inputs.  OREO and impaired loans are generally valued using the fair value of collateral provided by third party appraisals.  These valuations include assumptions related to cash flow projections, discount rates, and recent comparable sales.  The numerical range of unobservable inputs for these valuation assumptions are not meaningful.

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Junior Subordinated Debentures

6 Months Ended

Jun. 30, 2015

Junior Subordinated Debentures.

Junior Subordinated Debentures

Note 8 – Junior Subordinated Debentures

The Company completed the sale of $27.5 million of cumulative trust preferred securities by its unconsolidated subsidiary, Old Second Capital Trust I in June 2003.  An additional $4.1 million of cumulative trust preferred securities were sold in July 2003.  The trust preferred securities may remain outstanding for a 30-year term but, subject to regulatory approval, can be called in whole or in part by the Company after June 30, 2008.  When not in deferral, distributions on the securities are payable quarterly at an annual rate of 7.80%.  The Company issued a new$32.6 million subordinated debenture to Old Second Capital Trust I in return for the aggregate net proceeds of this trust preferred offering.  The interest rate and payment frequency on the debenture are equivalent to the cash distribution basis on the trust preferred securities.

The Company issued an additional $25.0 million of cumulative trust preferred securities through a private placement completed by an additional, unconsolidated subsidiary, Old Second Capital Trust II, in April 2007. These trust preferred securities also mature in 30 years, but subject to the aforementioned regulatory approval, can be called in whole or in part on a quarterly basis commencing June 15, 2017.  The quarterly cash distributions on the securities are fixed at 6.77% through June 15, 2017, and float at 150 basis points over three-month LIBOR thereafter.  The Company issued a new $25.8 million subordinated debenture to Old Second Capital Trust II in return for the aggregate net proceeds of this trust preferred offering.  The interest rate and payment frequency on the debenture are equivalent to the cash distribution basis on the trust preferred securities.

Both of the debentures issued by the Company are disclosed on the Consolidated Balance Sheet as junior subordinated debentures and the related interest expense for each issuance is included in the Consolidated Statements of Income.  As of June 30, 2015, the Company is current on the payments due on these securities.

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Regulatory & Capital Matters - Capital Levels and Industry Defined Regulatory Minimums (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Common equity tier 1 capital to risk weighted assets
Actual	$ 141,573
Minimum Required for Capital Adequacy Purposes	$ 65,141
Common equity tier 1 capital to risk weighted assets, Ratio
Actual (as a percent)	9.78%
Minimum Required for Capital Adequacy Purposes (as a percent)	4.50%
Total capital to risk weighted assets, Amount
Actual at period end	$ 246,680	$ 240,566
Minimum Required for Capital Adequacy Purposes	$ 115,812	$ 108,853
Total capital to risk weighted assets, Ratio
Risk-based capital ratio (as a percent)	17.04%	17.68%
Minimum Required for Capital Adequacy Purposes (as a percent)	8.00%	8.00%
Tier 1 capital to risk weighted assets, Amount
Actual	$ 204,856	$ 196,499
Minimum Required for Capital Adequacy Purposes	$ 86,865	$ 54,432
Tier 1 capital to risk weighted assets, Ratio
Actual (as a percent)	14.15%	14.44%
Minimum Required for Capital Adequacy Purposes (as a percent)	6.00%	4.00%
Tier 1 capital to average assets, Amount
Actual	$ 204,856	$ 196,499
Minimum Required for Capital Adequacy Purposes	$ 81,779	$ 79,154
Tier 1 capital to average assets, Ratio
Tier 1 capital leverage ratio (as a percent)	10.02%	9.93%
Minimum Required for Capital Adequacy Purposes (as a percent)	4.00%	4.00%
Old Second National Bank
Common equity tier 1 capital to risk weighted assets
Actual	$ 252,436
Minimum Required for Capital Adequacy Purposes	65,210
Minimum Required to Be Well Capitalized	$ 94,193
Common equity tier 1 capital to risk weighted assets, Ratio
Actual (as a percent)	17.42%
Minimum Required for Capital Adequacy Purposes (as a percent)	4.50%
Minimum Required to Be Well Capitalized (as a percent)	6.50%
Total capital to risk weighted assets, Amount
Actual at period end	$ 270,662	$ 254,897
Minimum Required for Capital Adequacy Purposes	115,915	108,872
Minimum Required to Be Well Capitalized	$ 144,894	$ 136,090
Total capital to risk weighted assets, Ratio
Risk-based capital ratio (as a percent)	18.68%	18.73%
Minimum Required for Capital Adequacy Purposes (as a percent)	8.00%	8.00%
Minimum Required to Be Well Capitalized (as a percent)	10.00%	10.00%
Tier 1 capital to risk weighted assets, Amount
Actual	$ 252,436	$ 237,828
Minimum Required for Capital Adequacy Purposes	86,947	54,454
Minimum Required to Be Well Capitalized	$ 115,929	$ 81,681
Tier 1 capital to risk weighted assets, Ratio
Actual (as a percent)	17.42%	17.47%
Minimum Required for Capital Adequacy Purposes (as a percent)	6.00%	4.00%
Minimum Required to Be Well Capitalized (as a percent)	8.00%	6.00%
Tier 1 capital to average assets, Amount
Actual	$ 252,436	$ 237,828
Minimum Required for Capital Adequacy Purposes	81,893	79,144
Minimum Required to Be Well Capitalized	$ 102,367	$ 98,930
Tier 1 capital to average assets, Ratio
Tier 1 capital leverage ratio (as a percent)	12.33%	12.02%
Minimum Required for Capital Adequacy Purposes (as a percent)	4.00%	4.00%
Minimum Required to Be Well Capitalized (as a percent)	5.00%	5.00%

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Deposits

6 Months Ended

Jun. 30, 2015

Deposits

Deposits

Note 6 – Deposits

Major classifications of deposits were as follows:

	June 30, 2015		December 31, 2014
Noninterest bearing demand	$	432,773	$	400,447
Savings		251,307		239,845
NOW accounts		330,897		328,641
Money market accounts		295,383		296,617
Certificates of deposit of less than $100,000		242,870		251,108
Certificates of deposit of $100,000 through $250,000		109,204		112,515
Certificates of deposit of more than $250,000		51,118		55,882
	$	1,713,552	$	1,685,055

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Borrowings

6 Months Ended

Jun. 30, 2015

Borrowings

Borrowings

Note 7 – Borrowings

The following table is a summary of borrowings as of June 30, 2015, and December 31, 2014.  Junior subordinated debentures are discussed in detail in Note 8:

	June 30, 2015		December 31, 2014
Securities sold under repurchase agreements	$	32,415	$	21,036
FHLBC advances		20,000		45,000
Junior subordinated debentures		58,378		58,378
Subordinated debt		45,000		45,000
Notes payable and other borrowings		500		500
	$	156,293	$	169,914

The Company enters into deposit sweep transactions where the transaction amounts are secured by pledged securities.  These transactions consistently mature overnight from the transaction date and are governed by sweep repurchase agreements.  All sweep repurchase agreements are treated as financings secured by U.S. government agencies and collateralized mortgage-backed securities and have a carrying amount of $32.4 million at June 30, 2015, and $21.0 million at December 31, 2014. The fair value of the pledged collateral was $47.1 million at June 30, 2015 and$43.4 million atDecember 31, 2014.  At June 30, 2015, there were no customers with secured balances exceeding 10% of stockholders’ equity.

The Company’s borrowings at the FHLBC require the Bank to be a member and invest in the stock of the FHLBC.  Total borrowings are generally limited to the lower of 35% of total assets or 60% of the book value of certain mortgage loans.  As of June 30, 2015, the Bank had taken an advance of $20.0 million on the FHLBC stock valued at $3.5 million, collateralized by securities with a fair value of $74.3 million and loans with a principal balance of $46.8 million, which carry a FHLBC calculated combined collateral value of $121.5 million.  The Company has excess collateral of $100.2 million available to secure borrowings.  At December 31, 2014, the Bank had an advance of $45.0 million on FBLBC stock valued at $4.3 million.

One of the Company’s most significant borrowing relationships continued to be the $45.5 million credit facility with a correspondent bank. That credit began in January 2008 and was originally composed of a $30.5 million senior debt facility, which included $500,000 in term debt, and $45.0 million of subordinated debt.  The subordinated debt and the term debt portion of the senior debt facility mature on March 31, 2018.  The interest rate on the senior debt facility resets quarterly and at the Company’s option, is based on, either the lender’s prime rate or three-month LIBOR plus 90 basis points.  The interest rate on the subordinated debt resets quarterly, and is equal to three-month LIBOR plus 150 basis points.  The Company had no principal outstanding balance on the senior line of credit portion of the senior debt facility when it matured and was terminated.  The Company had $500,000 in principal outstanding in term debt and $45.0 million in principal outstanding in subordinated debt at the end of both June 30, 2015, and December 31, 2014.  The term debt is secured by all of the outstanding capital stock of the Bank.  The Company has made all required interest payments on the outstanding principal balance on a timely basis.

The credit facility agreement contains usual and customary provisions regarding acceleration of the senior debt upon the occurrence of an event of default by the Company under the senior debt agreement.  The senior debt agreement also contains certain customary representations and warranties, and financial covenants.  At June 30, 2015, and December 31, 2014, the Company was in compliance with all covenants contained within the credit agreement.

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Equity Compensation Plans

6 Months Ended

Jun. 30, 2015

Equity Compensation Plans

Equity Compensation Plans

Note 9 – Equity Compensation Plans

There are stock-based awards outstanding under the Company’s 2008 Equity Incentive Plan (the “2008 Plan”) and the Company’s 2014 Equity Incentive Plan (the “2014 Plan,” and together with the 2008 Plan, the “Plans”).  The 2014 Plan was approved at the 2014 annual meeting of stockholders.  Following approval of the 2014 Plan, no further awards will be granted under the 2008 Plan or any other Company equity compensation plan. A maximum of 375,000 shares may be issued under the 2014 Plan.  The Plan authorizes the granting of qualified stock options, non-qualified stock options, restricted stock, restricted stock units, and stock appreciation rights.  Awards may be granted to selected directors and officers or employees under the 2014 Plan at the discretion of the Compensation Committee of the Company’s Board of Directors.  As of June 30, 2015,  125,000 shares remained available for issuance under the 2014 Plan.

Total compensation cost that has been charged for the Planswas $344,000 in the first half of 2015.

There were no stock options granted in the second quarter of 2015 and 2014 or for the first half of 2015 and 2014.  All stock options are granted for a term of ten years.  There were no stock options exercised during the second quarter of 2015and 2014 or for the first half of 2015 and 2014.  There is no unrecognized compensation cost related to unvested stock options as all stock options of the Company’s common stock have vested.

A summary of stock option activity in the Plans for the six months ending June 30, 2015, is as follows:

				Weighted-
		Weighted		Average
		Average		Remaining
		Exercise		Contractual	Aggregate
	Shares	Price		Term (years)	Intrinsic Value
Beginning outstanding	229,000	$	28.28
Canceled	-		-
Expired	-		-
Ending outstanding	229,000	$	28.28	1.7	$	-
Exercisable at end of period	229,000	$	28.28	1.7	$	-

Generally, restricted stock and restricted stock units granted under the Plans vest three years from the grant date, but the Compensation Committee of the Company’s Board of Directors has discretionary authority to change some terms including the amount of time until the vest date.

Awards under the 2008 Plan will become fully vested upon a merger or change in control of the Company.  Under the 2014 Plan, upon a change in control of the Company, if (i) the 2014 Plan is not an obligation of the successor entity following the change in control, or (ii) the 2014 Plan is an obligation of the successor entity following the change in control and the participant incurs an involuntary termination, then the stock options, stock appreciation rights, stock awards and cash incentive awards under the 2014 Plan will become fully exercisable and vested.  Performance-based awards generally will vest based upon the level of achievement of the applicable performance measures through the change in control.

The Company granted restricted stock under its equity compensation plans beginning in 2005 and it began granting restricted stock units in February 2009.  Restricted stock awards under the Plans generally entitle holders to voting and dividend rights upon grant and are subject to forfeiture until certain restrictions have lapsed including employment for a specific period.  Restricted stock units under the Plans are also subject to forfeiture until certain restrictions have lapsed including employment for a specific period, and generally entitle holders to receive dividend equivalents during the restricted period but do not entitle holders to voting rights until the restricted period ends and shares are transferred in connection with the units.

There were 101,500 restricted awards issued under the Plans during the six months ending June 30, 2015.  There were 184,500 restricted awards issued during the six months ending June 30, 2014.  Compensation expense is recognized over the vesting period of the restricted award based on the market value of the award on the issue date.

A summary of changes in the Company’s unvested restricted awards for the six months ending June 30, 2015, is as follows:

	June 30, 2015
		Weighted
	Restricted	Average
	Stock Shares	Grant Date
	and Units	Fair Value
Nonvested at January 1	325,000	$	4.15
Granted	101,500		5.38
Vested	(57,500)		4.04
Forfeited	(16,000)		4.43
Nonvested at June 30	353,000	$	4.51

Total unrecognized compensation cost of restricted awards was $989,000 as of June 30, 2015, which is expected to be recognized over a weighted-average period of 2.35 years.  Total unrecognized compensation cost of restricted awards was $1.1 million as of June 30, 2014, which was expected to be recognized over a weighted-average period of 2.71 years.

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Fair Value Measurements - Changes in Level 3 (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Interest rate swap agreements net of swap credit valuation
Changes in Level 3 (liabilities)
Beginning balance		$ (6)
Included in earnings (or changes in net assets)		6
Asset-backed securities
Changes in Level 3
Beginning balance	$ 52,941	154,137
Total gains or losses
Included in earnings (or changes in net assets)	(28)	1,671
Included in other comprehensive income	(541)	513
Purchases, issuances, sales, and settlements
Purchases		58,047
Sales	(27,455)	(77,282)
Ending balance		137,086
Transfers out of Level 3	(24,917)
States and political subdivisions
Changes in Level 3
Beginning balance	118	125
Purchases, issuances, sales, and settlements
Ending balance	118	125
Mortgage servicing rights
Changes in Level 3
Beginning balance	5,462	5,807
Total gains or losses
Included in earnings (or changes in net assets)	(137)	(630)
Purchases, issuances, sales, and settlements
Issuances	935	324
Settlements	(376)
Ending balance	$ 5,884	$ 5,501

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Fair Value Measurements - Nonrecurring (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014	Mar. 31, 2015	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013
Assets and liabilities measured at fair value
Valuation allowance	$ 138	$ 278
Carrying value of other real estate owned	31,964	31,982	$ 35,461	$ 39,232	$ 40,220	$ 41,537
OREO Valuation allowance	20,069	19,229	$ 19,456	$ 17,873	$ 19,484	$ 22,284
Nonrecurring | Impaired loans
Assets and liabilities measured at fair value
Valuation allowance	138	278
Decrease of specific allocations within the provision for loan losses	140	2,100
Nonrecurring | Impaired loans | Carrying Amount
Assets and liabilities measured at fair value
Total	589	842
Nonrecurring | Other real estate owned
Assets and liabilities measured at fair value
Carrying value of other real estate owned	32,000	32,000
Outstanding balance	53,800	53,000
OREO Valuation allowance	20,100	19,200
OREO participations	1,700	1,800
Nonrecurring | Level 3
Assets and liabilities measured at fair value
Total	32,415	32,546
Nonrecurring | Level 3 | Impaired loans
Assets and liabilities measured at fair value
Total	451	564
Nonrecurring | Level 3 | Other real estate owned
Assets and liabilities measured at fair value
Total	31,964	31,982
Nonrecurring | Total Fair Value
Assets and liabilities measured at fair value
Total	32,415	32,546
Nonrecurring | Total Fair Value | Impaired loans
Assets and liabilities measured at fair value
Total	451	564
Nonrecurring | Total Fair Value | Other real estate owned
Assets and liabilities measured at fair value
Total	$ 31,964	$ 31,982

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Fair Value Measurements - Recurring (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Assets:
Securities available-for-sale	$ 399,836	$ 385,486
Mortgage servicing rights	5,884	5,462
U.S. Treasury
Assets:
Securities available-for-sale	1,520	1,527
U.S. government agencies
Assets:
Securities available-for-sale	1,595	1,624
U.S. government agency mortgage-backed
Assets:
Securities available-for-sale	5,545
States and political subdivisions
Assets:
Securities available-for-sale	13,249	22,018
Corporate bonds
Assets:
Securities available-for-sale	30,605	30,985
Collateralized mortgage obligations
Assets:
Securities available-for-sale	74,994	63,627
Asset-backed securities
Assets:
Securities available-for-sale	178,655	173,496
Collateralized loan obligations
Assets:
Securities available-for-sale	93,673	92,209
Level 1
Assets:
Securities available-for-sale	1,520	1,527
Level 2
Assets:
Securities available-for-sale	398,198	330,900
Loans held-for-sale	6,208	5,072
Level 3
Assets:
Securities available-for-sale	118	53,059
Recurring | Level 1
Assets:
Total financial assets	1,520	1,527
Recurring | Level 1 | U.S. Treasury
Assets:
Securities available-for-sale	1,520	1,527
Recurring | Level 2
Assets:
Loans held-for-sale	6,208	5,072
Total financial assets	404,691	336,145
Liabilities:
Total	28	30
Recurring | Level 2 | Interest rate swap agreements net of swap credit valuation
Assets:
Other assets	28	30
Liabilities:
Other liabilities	28	30
Recurring | Level 2 | Forward MBS contracts and forward loan contracts
Assets:
Other assets	257	143
Recurring | Level 2 | U.S. government agencies
Assets:
Securities available-for-sale	1,595	1,624
Recurring | Level 2 | U.S. government agency mortgage-backed
Assets:
Securities available-for-sale	5,545
Recurring | Level 2 | States and political subdivisions
Assets:
Securities available-for-sale	13,131	21,900
Recurring | Level 2 | Corporate bonds
Assets:
Securities available-for-sale	30,605	30,985
Recurring | Level 2 | Collateralized mortgage obligations
Assets:
Securities available-for-sale	74,994	63,627
Recurring | Level 2 | Asset-backed securities
Assets:
Securities available-for-sale	178,655	120,555
Recurring | Level 2 | Collateralized loan obligations
Assets:
Securities available-for-sale	93,673	92,209
Recurring | Level 3
Assets:
Mortgage servicing rights	5,884	5,462
Total financial assets	6,002	58,521
Recurring | Level 3 | States and political subdivisions
Assets:
Securities available-for-sale	118	118
Recurring | Level 3 | Asset-backed securities
Assets:
Securities available-for-sale		52,941
Recurring | Total Fair Value
Assets:
Loans held-for-sale	6,208	5,072
Mortgage servicing rights	5,884	5,462
Total financial assets	412,213	396,193
Liabilities:
Total	28	30
Recurring | Total Fair Value | Interest rate swap agreements net of swap credit valuation
Assets:
Other assets	28	30
Liabilities:
Other liabilities	28	30
Recurring | Total Fair Value | Forward MBS contracts and forward loan contracts
Assets:
Other assets	257	143
Recurring | Total Fair Value | U.S. Treasury
Assets:
Securities available-for-sale	1,520	1,527
Recurring | Total Fair Value | U.S. government agencies
Assets:
Securities available-for-sale	1,595	1,624
Recurring | Total Fair Value | U.S. government agency mortgage-backed
Assets:
Securities available-for-sale	5,545
Recurring | Total Fair Value | States and political subdivisions
Assets:
Securities available-for-sale	13,249	22,018
Recurring | Total Fair Value | Corporate bonds
Assets:
Securities available-for-sale	30,605	30,985
Recurring | Total Fair Value | Collateralized mortgage obligations
Assets:
Securities available-for-sale	74,994	63,627
Recurring | Total Fair Value | Asset-backed securities
Assets:
Securities available-for-sale	178,655	173,496
Recurring | Total Fair Value | Collateralized loan obligations
Assets:
Securities available-for-sale	$ 93,673	$ 92,209

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Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions (Tables)

6 Months Ended

Jun. 30, 2015

Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions

Schedule of derivatives not designated as hedging instruments

			Asset Derivatives			Liability Derivatives
	Notional or
	Contractual		Balance Sheet			Balance Sheet
	Amount		Location	Fair Value		Location	Fair Value
Interest rate swap contracts	$	9,765	Other Assets	$	28	Other Liabilities	$	28
Commitments1		211,192	Other Assets		257	N/A		-
Forward contracts2		20,500	N/A		-	Other Liabilities		-
Total				$	285		$	28

1Includes unused loan commitments and interest rate lock commitments.

2Includes forward MBS contracts and forward loan contracts.

The following table presents derivatives not designated as hedging instruments as of December 31, 2014.

			Asset Derivatives			Liability Derivatives
	Notional or
	Contractual		Balance Sheet			Balance Sheet
	Amount		Location	Fair Value		Location	Fair Value
Interest rate swap contracts net of credit valuation	$	16,334	Other Assets	$	30	Other Liabilities	$	30
Commitments1		201,946	Other Assets		143	N/A		-
Forward contracts2		14,000	N/A		-	Other Liabilities		-
Total				$	173		$	30

1Includes unused loan commitments and interest rate lock commitments.

2Includes forward MBS contracts.

Schedule of financial instrument commitments

	June 30, 2015						December 31, 2014
	Fixed		Variable		Total		Fixed		Variable		Total
Letters of credit:
Borrower:
Financial standby	$	55	$	3,697	$	3,752	$	55	$	4,745	$	4,800
Commercial standby		-		47		47		-		49		49
Performance standby		404		6,603		7,007		416		5,690		6,106
		459		10,347		10,806		471		10,484		10,955
Non-borrower:
Performance standby		-		576		576		-		572		572
		-		576		576		-		572		572
Total letters of credit	$	459	$	10,923	$	11,382	$	471	$	11,056	$	11,527

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Deposits - Components and Maturities (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Deposits
Noninterest bearing demand	$ 432,773	$ 400,447
Savings	251,307	239,845
NOW accounts	330,897	328,641
Money market accounts	295,383	296,617
Certificates of deposit of less than $100,000	242,870	251,108
Certificates of deposit of $100,000 up to $250,000	109,204	112,515
Certificates of deposit of $250,000 or more	51,118	55,882
Total deposits	$ 1,713,552	$ 1,685,055

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Fair Values of Financial Instruments

6 Months Ended

Jun. 30, 2015

Fair Values of Financial Instruments

Fair Values of Financial Instruments

Note 14 – Fair Values of Financial Instruments

The estimated fair values approximate carrying amount for all items except those described in the following table.  Investment security fair values are based upon market prices or dealer quotes, and if no such information is available, on the rate and term of the security.  The carrying value of FHLBC stock approximates fair value as the stock is nonmarketable and can only be sold to the FHLBC or another member institution at par. During the years ended December 31, 2014, and 2013, the Company participated in multiple redemptions with the FHLBC and, using the redemption values as the carrying value, FHLBC stock is carried at a Level 2 fair value since December 31, 2012.  The Company had redemptions of $1.2 million in the year 2014.  The Company redeemed $787,000 in April of 2015.  Fair values of loans were estimated for portfolios of loans with similar financial characteristics, such as type and fixed or variable interest rate terms.  Cash flows were discounted using current rates at which similar loans would be made to borrowers with similar ratings and for similar maturities.  The fair value of time deposits is estimated using discounted future cash flows at current rates offered for deposits of similar remaining maturities.  The fair values of borrowings were estimated based on interest rates available to the Company for debt with similar terms and remaining maturities.  The fair value of off balance sheet volume is not considered material.

The carrying amount and estimated fair values of financial instruments were as follows:

	June 30, 2015
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	29,164	$	29,164	$	29,164	$	-	$	-
Interest bearing deposits with financial institutions		9,352		9,352		9,352		-		-
Securities available-for-sale		399,836		399,836		1,520		398,198		118
Securities held-to-maturity		253,419		257,967		-		257,967		-
FHLBC and Reserve Bank Stock		8,271		8,271		-		8,271		-
Bank-owned life insurance		57,444		57,444		-		57,444		-
Loans held-for-sale		6,208		6,208		-		6,208		-
Loans, net		1,140,562		1,147,129		-		-		1,147,129
Accrued interest receivable		4,192		4,192		-		4,192		-
Financial liabilities:
Noninterest bearing deposits	$	432,773	$	432,773	$	432,773	$	-	$	-
Interest bearing deposits		1,280,779		1,282,979		-		1,282,979		-
Securities sold under repurchase agreements		32,415		32,415		-		32,415		-
Other short-term borrowings		20,000		20,000		-		20,000		-
Junior subordinated debentures		58,378		55,181		32,734		22,447		-
Subordinated debenture		45,000		40,143		-		40,143		-
Note payable and other borrowings		500		432		-		432		-
Borrowing interest payable		75		75		-		75		-
Deposit interest payable		413		413		-		413		-

	December 31, 2014
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	30,101	$	30,101	$	30,101	$	-	$	-
Interest bearing deposits with financial institutions		14,096		14,096		14,096		-		-
Securities available-for-sale		385,486		385,486		1,527		330,900		53,059
Securities held-to-maturity		259,670		263,266		-		263,266		-
FHLBC and Reserve Bank Stock		9,058		9,058		-		9,058		-
Bank-owned life insurance		56,807		56,807		-		56,807		-
Loans held-for-sale		5,072		5,072		-		5,072		-
Loans, net		1,137,695		1,151,223		-		-		1,151,223
Accrued interest receivable		4,888		4,888		-		4,888		-
Financial liabilities:
Noninterest bearing deposits	$	400,447	$	400,447	$	400,447	$	-	$	-
Interest bearing deposits		1,284,608		1,284,887		-		1,284,887		-
Securities sold under repurchase agreements		21,036		21,036		-		21,036		-
Other short-term borrowings		45,000		45,000		-		45,000		-
Junior subordinated debentures		58,378		54,686		32,441		22,245		-
Subordinated debenture		45,000		39,366		-		39,366		-
Note payable and other borrowings		500		422		-		422		-
Borrowing interest payable		75		75		-		75		-
Deposit interest payable		467		467		-		467		-

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Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2015

Allowance for Loan Losses

Schedule of changes in the allowance for loan losses by segment of loans based on method of impairment

Changes in the allowance for loan losses by segment of loans based on method of impairment for three and six months ending June 30, 2015, were as follows:

Allowance for loan losses:			Real Estate		Real Estate		Real Estate
	Commercial		Commercial		Construction		Residential		Consumer		Unallocated		Total
Three months ended June 30, 2015
Beginning balance	$	1,512	$	14,033	$	1,272	$	1,917	$	1,417	$	1,030	$	21,181
Charge-offs		858		1,031		1		159		93		-		2,142
Recoveries		83		965		61		403		70		-		1,582
(Release) provision		895		(3,766)		(670)		(301)		(145)		1,687		(2,300)
Ending balance	$	1,632	$	10,201	$	662	$	1,860	$	1,249	$	2,717	$	18,321
Six months ended June 30, 2015
Beginning balance	$	1,644	$	12,577	$	1,475	$	1,981	$	1,454	$	2,506	$	21,637
Charge-offs		890		1,526		2		777		211		-		3,406
Recoveries		224		1,295		66		627		178		-		2,390
(Release) provision		654		(2,145)		(877)		29		(172)		211		(2,300)
Ending balance	$	1,632	$	10,201	$	662	$	1,860	$	1,249	$	2,717	$	18,321
Ending balance: Individually evaluated for impairment	$	-	$	-	$	27	$	111	$	-	$	-	$	138
Ending balance: Collectively evaluated for impairment	$	1,632	$	10,201	$	635	$	1,749	$	1,249	$	2,717	$	18,183
Loans:
Ending balance	$	131,943	$	612,379	$	32,157	$	365,989	$	3,854	$	12,561	$	1,158,883
Ending balance: Individually evaluated for impairment	$	600	$	6,398	$	3,952	$	15,866	$	-	$	-	$	26,816
Ending balance: Collectively evaluated for impairment	$	131,343	$	605,981	$	28,205	$	350,123	$	3,854	$	12,561	$	1,132,067

Changes in the allowance for loan losses by segment of loans based on method of impairment for three and six months ending June 30, 2014, were as follows:

Allowance for loan losses:			Real Estate		Real Estate		Real Estate
	Commercial		Commercial		Construction		Residential		Consumer		Unallocated		Total
Three months ended June 30, 2014
Beginning balance	$	2,326	$	14,066	$	1,998	$	2,268	$	1,495	$	3,323	$	25,476
Charge-offs		3		760		105		978		139		-		1,985
Recoveries		35		87		467		689		87		-		1,365
(Release) provision		(367)		(165)		(606)		394		21		(277)		(1,000)
Ending balance	$	1,991	$	13,228	$	1,754	$	2,373	$	1,464	$	3,046	$	23,856
Six months ended June 30, 2014
Beginning balance	$	2,250	$	16,763	$	1,980	$	2,837	$	1,439	$	2,012	$	27,281
Charge-offs		7		1,089		173		1,827		249		-		3,345
Recoveries		50		228		504		939		199		-		1,920
(Release) provision		(302)		(2,674)		(557)		424		75		1,034		(2,000)
Ending balance	$	1,991	$	13,228	$	1,754	$	2,373	$	1,464	$	3,046	$	23,856
Ending balance: Individually evaluated for impairment	$	-	$	803	$	135	$	502	$	-	$	-	$	1,440
Ending balance: Collectively evaluated for impairment	$	1,991	$	12,425	$	1,619	$	1,871	$	1,464	$	3,046	$	22,416
Loans:
Ending balance	$	115,474	$	599,796	$	32,265	$	368,592	$	3,064	$	13,556	$	1,132,747
Ending balance: Individually evaluated for impairment	$	21	$	17,131	$	2,598	$	16,379	$	-	$	-	$	36,129
Ending balance: Collectively evaluated for impairment	$	115,453	$	582,665	$	29,667	$	352,213	$	3,064	$	13,556	$	1,096,618

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Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Allowance for loan losses:
Beginning Balance	$ 21,181	$ 25,476	$ 21,637	$ 27,281
Charge-offs	2,142	1,985	3,406	3,345
Recoveries	1,582	1,365	2,390	1,920
(Release) provision	(2,300)	(1,000)	(2,300)	(2,000)
Ending Balance	18,321	23,856	18,321	23,856
Ending balance: Individually evaluated for impairment	138	1,440	138	1,440
Ending balance: Collectively evaluated for impairment	18,183	22,416	18,183	22,416
Loans:
Ending balance	1,158,883	1,132,747	1,158,883	1,132,747	$ 1,159,332
Ending balance: Individually evaluated for impairment	26,816	36,129	26,816	36,129
Ending balance: Collectively evaluated for impairment	1,132,067	1,096,618	1,132,067	1,096,618
Commercial
Allowance for loan losses:
Beginning Balance	1,512	2,326	1,644	2,250
Charge-offs	858	3	890	7
Recoveries	83	35	224	50
(Release) provision	895	(367)	654	(302)
Ending Balance	1,632	1,991	1,632	1,991
Ending balance: Collectively evaluated for impairment	1,632	1,991	1,632	1,991
Loans:
Ending balance	131,943	115,474	131,943	115,474	127,196
Ending balance: Individually evaluated for impairment	600	21	600	21
Ending balance: Collectively evaluated for impairment	131,343	115,453	131,343	115,453
Real estate - commercial
Allowance for loan losses:
Beginning Balance	14,033	14,066	12,577	16,763
Charge-offs	1,031	760	1,526	1,089
Recoveries	965	87	1,295	228
(Release) provision	(3,766)	(165)	(2,145)	(2,674)
Ending Balance	10,201	13,228	10,201	13,228
Ending balance: Individually evaluated for impairment		803		803
Ending balance: Collectively evaluated for impairment	10,201	12,425	10,201	12,425
Loans:
Ending balance	612,379	599,796	612,379	599,796
Ending balance: Individually evaluated for impairment	6,398	17,131	6,398	17,131
Ending balance: Collectively evaluated for impairment	605,981	582,665	605,981	582,665
Real estate - construction
Allowance for loan losses:
Beginning Balance	1,272	1,998	1,475	1,980
Charge-offs	1	105	2	173
Recoveries	61	467	66	504
(Release) provision	(670)	(606)	(877)	(557)
Ending Balance	662	1,754	662	1,754
Ending balance: Individually evaluated for impairment	27	135	27	135
Ending balance: Collectively evaluated for impairment	635	1,619	635	1,619
Loans:
Ending balance	32,157	32,265	32,157	32,265
Ending balance: Individually evaluated for impairment	3,952	2,598	3,952	2,598
Ending balance: Collectively evaluated for impairment	28,205	29,667	28,205	29,667
Real estate - residential
Allowance for loan losses:
Beginning Balance	1,917	2,268	1,981	2,837
Charge-offs	159	978	777	1,827
Recoveries	403	689	627	939
(Release) provision	(301)	394	29	424
Ending Balance	1,860	2,373	1,860	2,373
Ending balance: Individually evaluated for impairment	111	502	111	502
Ending balance: Collectively evaluated for impairment	1,749	1,871	1,749	1,871
Loans:
Ending balance	365,989	368,592	365,989	368,592
Ending balance: Individually evaluated for impairment	15,866	16,379	15,866	16,379
Ending balance: Collectively evaluated for impairment	350,123	352,213	350,123	352,213
Consumer
Allowance for loan losses:
Beginning Balance	1,417	1,495	1,454	1,439
Charge-offs	93	139	211	249
Recoveries	70	87	178	199
(Release) provision	(145)	21	(172)	75
Ending Balance	1,249	1,464	1,249	1,464
Ending balance: Collectively evaluated for impairment	1,249	1,464	1,249	1,464
Loans:
Ending balance	3,854	3,064	3,854	3,064	3,504
Ending balance: Collectively evaluated for impairment	3,854	3,064	3,854	3,064
All other
Allowance for loan losses:
Beginning Balance	1,030	3,323	2,506	2,012
(Release) provision	1,687	(277)	211	1,034
Ending Balance	2,717	3,046	2,717	3,046
Ending balance: Collectively evaluated for impairment	2,717	3,046	2,717	3,046
Loans:
Ending balance	12,561	13,556	12,561	13,556	$ 13,017
Ending balance: Collectively evaluated for impairment	$ 12,561	$ 13,556	$ 12,561	$ 13,556

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Loans - Major Classifications - Loan Concentrations (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Total real estate | Loan receivables | Customer concentration risk
Loans
Loans receivable as a percentage of total portfolio	87.20%	87.60%

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Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Consolidated Statements of Comprehensive Income
Net income	$ 4,129	$ 2,021	$ 7,628	$ 4,223
Unrealized holding (losses) gains on available-for-sale securities arising during the period	(575)	3,710	346	2,621
Related tax benefit (expense)	228	(1,527)	(210)	(1,079)
Holding (losses) gains after tax on available-for-sale securities	(347)	2,183	136	1,542
Less: Reclassification adjustment for the net (losses) gains realized during the period
Net realized (losses) gains	(12)	295	(121)	226
Income tax benefit (expense) on net realized gains	3	(121)	48	(93)
Net realized (losses) gains after tax	9	(174)	73	(133)
Other comprehensive (loss) income on available-for-sale securities	(338)	2,009	209	1,409
Accretion of net unrealized holding gains on held-to-maturity transferred from available-for-sale securities	254	247	497	494
Related tax expense	(104)	(102)	(204)	(204)
Other comprehensive income on held-to-maturity securities	150	145	293	290
Total other comprehensive income (loss) income	(188)	2,154	502	1,699
Total comprehensive income	$ 3,941	$ 4,175	$ 8,130	$ 5,922

XML

Loans

6 Months Ended

Jun. 30, 2015

Loans

Loans

Note 3 – Loans

Major classifications of loans were as follows:

	June 30, 2015		December 31, 2014
Commercial	$	123,372	$	119,158
Real estate - commercial		612,379		600,629
Real estate - construction		32,157		44,795
Real estate - residential		365,989		370,191
Consumer		3,854		3,504
Overdraft		408		649
Lease financing receivables		8,571		8,038
Other		11,391		11,630
		1,158,121		1,158,594
Net deferred loan fees		762		738
	$	1,158,883	$	1,159,332

It is the policy of the Company to review each prospective credit in order to determine if an adequate level of security or collateral was obtained prior to making a loan.  The type of collateral, when required, will vary from liquid assets to real estate.  The Company’s access to collateral, in the event of borrower default, is assured through adherence to lending laws, the Company’s lending standards and credit monitoring procedures.  The Bank generally makes loans solely within its market area.  There are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector,although the real estate related categories listed above represent 87.2% and 87.6% of the portfolio at June 30, 2015, and December 31, 2014, respectively.

Aged analysis of past due loans by class of loans were as follows:

.															Recorded
															Investment
															90 days or
					90 Days or										Greater Past
	30-59 Days		60-89 Days		Greater Past		Total Past								Due and
June 30, 2015	Past Due		Past Due		Due		Due		Current		Nonaccrual		Total Loans		Accruing
Commercial	$	-	$	-	$	-	$	-	$	131,343	$	600	$	131,943	$	-
Real estate - commercial
Owner occupied general purpose		-		-		-		-		127,516		1,915		129,431		-
Owner occupied special purpose		-		-		-		-		173,200		790		173,990		-
Non-owner occupied general purpose		270		-		-		270		156,771		730		157,771		-
Non-owner occupied special purpose		4,021		-		-		4,021		92,865		-		96,886		-
Retail properties		-		-		-		-		41,016		-		41,016		-
Farm		-		-		-		-		12,013		1,272		13,285		-
Real estate - construction
Homebuilder		-		41		-		41		2,654		-		2,695		-
Land		-		-		-		-		2,573		-		2,573		-
Commercial speculative		-		-		-		-		2,286		3,472		5,758		-
All other		-		-		-		-		20,651		480		21,131		-
Real estate - residential
Investor		168		-		-		168		138,474		792		139,434		-
Owner occupied		31		297		-		328		110,140		6,273		116,741		-
Revolving and junior liens		418		-		-		418		106,744		2,652		109,814		-
Consumer		50		-		-		50		3,804		-		3,854		-
All other1		-		-		-		-		12,561		-		12,561		-
	$	4,958	$	338	$	-	$	5,296	$	1,134,611	$	18,976	$	1,158,883	$	-

															Recorded
															Investment
															90 days or
					90 Days or										Greater Past
	30-59 Days		60-89 Days		Greater Past		Total Past								Due and
December 31, 2014	Past Due		Past Due		Due		Due		Current		Nonaccrual		Total Loans		Accruing
Commercial	$	38	$	-	$	-	$	38	$	125,658	$	1,500	$	127,196	$	-
Real estate - commercial
Owner occupied general purpose		699		-		-		699		126,029		5,937		132,665		-
Owner occupied special purpose		-		-		-		-		167,874		1,441		169,315		-
Non-owner occupied general purpose		-		-		-		-		153,328		4,907		158,235		-
Non-owner occupied special purpose		-		-		-		-		87,054		1,423		88,477		-
Retail properties		-		-		-		-		37,780		-		37,780		-
Farm		-		-		-		-		14,157		-		14,157		-
Real estate - construction
Homebuilder		-		-		-		-		3,204		-		3,204		-
Land		-		-		-		-		1,658		-		1,658		-
Commercial speculative		-		-		-		-		13,431		-		13,431		-
All other		71		29		-		100		25,841		561		26,502		-
Real estate - residential
Investor		-		-		-		-		135,273		1,942		137,215		-
Owner occupied		1,076		914		-		1,990		107,727		6,711		116,428		-
Revolving and junior liens		94		44		-		138		113,906		2,504		116,548		-
Consumer		-		-		-		-		3,504		-		3,504		-
All other1		-		-		-		-		13,017		-		13,017		-
	$	1,978	$	987	$	-	$	2,965	$	1,129,441	$	26,926	$	1,159,332	$	-

1. The “All other” class includes overdrafts and net deferred costs.

Credit Quality Indicators:

The Company categorizes loans into credit risk categories based on current financial information, overall debt service coverage, comparison against industry averages, historical payment experience, and current economic trends.  This analysis includes loans with outstanding balances or commitments greater than $50,000 and excludes homogeneous loans such as home equity lines of credit and residential mortgages.  Loans with a classified risk rating are reviewed quarterly regardless of size or loan type.  The Company uses the following definitions for classified risk ratings:

Special Mention.  Loans classified as special mention have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Credits that are not covered by the definitions above are pass credits, which are not considered to be adversely rated.

Credit Quality Indicators by class of loans were as follows:

June 30, 2015			Special
	Pass		Mention		Substandard 1		Doubtful		Total
Commercial	$	124,831	$	6,414	$	698	$	-	$	131,943
Real estate - commercial
Owner occupied general purpose		124,737		2,779		1,915		-		129,431
Owner occupied special purpose		171,862		1,338		790		-		173,990
Non-owner occupied general purpose		150,971		5,800		1,000		-		157,771
Non-owner occupied special purpose		92,865		4,021		-		-		96,886
Retail Properties		39,506		1,510		-		-		41,016
Farm		11,484		529		1,272		-		13,285
Real estate - construction
Homebuilder		2,695		-		-		-		2,695
Land		2,573		-		-		-		2,573
Commercial speculative		2,286		-		3,472		-		5,758
All other		20,651		-		480		-		21,131
Real estate - residential
Investor		138,459		-		975		-		139,434
Owner occupied		109,690		-		7,051		-		116,741
Revolving and junior liens		106,334		188		3,292		-		109,814
Consumer		3,853		-		1		-		3,854
All other		12,561		-		-		-		12,561
Total	$	1,115,358	$	22,579	$	20,946	$	-	$	1,158,883

December 31, 2014			Special
	Pass		Mention		Substandard 1		Doubtful		Total
Commercial	$	118,845	$	3,948	$	4,403	$	-	$	127,196
Real estate - commercial
Owner occupied general purpose		124,936		253		7,476		-		132,665
Owner occupied special purpose		154,225		11,607		3,483		-		169,315
Non-owner occupied general purpose		148,212		3,235		6,788		-		158,235
Non-owner occupied special purpose		78,957		8,097		1,423		-		88,477
Retail Properties		36,779		1,001		-		-		37,780
Farm		14,157		-		-		-		14,157
Real estate - construction
Homebuilder		3,204		-		-		-		3,204
Land		1,658		-		-		-		1,658
Commercial speculative		9,947		-		3,484		-		13,431
All other		25,941		-		561		-		26,502
Real estate - residential
Investor		134,952		-		2,263		-		137,215
Owner occupied		109,085		-		7,343		-		116,428
Revolving and junior liens		112,647		188		3,713		-		116,548
Consumer		3,503		-		1		-		3,504
All other		13,017		-		-		-		13,017
Total	$	1,090,065	$	28,329	$	40,938	$	-	$	1,159,332

1The substandard credit quality indicator includes both potential problem loans that are currently performing and nonperforming loans

The Company did not have any repossessed assets reported in other assets as of June 30, 2015,  and December 31, 2014.  The Company had $3.2 million and $3.5 million residential assets in the process of foreclosure as of June 30, 2015,  and December 31, 2014, respectively.

Impaired loans by class of loans were as follows:

							Six Months Ended
	As of June 30, 2015						June 30, 2015
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial	$	600	$	776	$	-	$	1,050	$	-
Commercial real estate
Owner occupied general purpose		3,079		3,769		-		5,102		39
Owner occupied special purpose		1,141		1,236		-		1,470		12
Non-owner occupied general purpose		729		1,162		-		2,780		-
Non-owner occupied special purpose		-		-		-		711		-
Retail properties		-		-		-		-		-
Farm		1,272		1,338		-		636		-
Construction
Homebuilder		-		-		-		896		-
Land		-		-		-		-		-
Commercial speculative		3,472		3,472		-		1,736		-
All other		229		287		-		260		-
Residential
Investor		1,519		1,864		-		2,057		19
Owner occupied		11,435		12,894		-		11,427		90
Revolving and junior liens		2,437		3,671		-		2,337		2
Consumer		-		-		-		-		-
Total impaired loans with no recorded allowance		25,913		30,469		-		30,462		162
With an allowance recorded
Commercial		-		-		-		-		-
Commercial real estate
Owner occupied general purpose		-		-		-		-		-
Owner occupied special purpose		-		-		-		-		-
Non-owner occupied general purpose		-		-		-		38		-
Non-owner occupied special purpose		177		293		-		89		9
Retail properties		-		-		-		-		-
Farm		-		-		-		-		-
Construction
Homebuilder		-		-		-		-		-
Land		-		-		-		-		-
Commercial speculative		-		-		-		-		-
All other		251		294		27		260		-
Residential
Investor		-		-		-		68		-
Owner occupied		13		56		22		18		-
Revolving and junior liens		462		505		89		416		2
Consumer		-		-		-		-		-
Total impaired loans with a recorded allowance		903		1,148		138		889		11
Total impaired loans	$	26,816	$	31,617	$	138	$	31,351	$	173

Impaired loans by class of loans were as follows:

							Six Months Ended
	As of December 31, 2014						June 30, 2014
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial	$	1,500	$	2,114	$	-	$	24	$	-
Commercial real estate
Owner occupied general purpose		7,125		7,870		-		2,527		2
Owner occupied special purpose		1,798		1,941		-		3,151		-
Non-owner occupied general purpose		4,831		5,653		-		5,964		30
Non-owner occupied special purpose		1,423		1,930		-		600		-
Retail properties		-		-		-		3,078		-
Farm		-		-		-		-		-
Construction
Homebuilder		1,791		1,791		-		1,904		47
Land		-		-		-		209		-
Commercial speculative		-		-		-		369		-
All other		291		323		-		156		-
Residential
Investor		2,595		3,024		-		4,294		1
Owner occupied		11,419		12,816		-		9,483		88
Revolving and junior liens		2,238		3,541		-		1,851		3
Consumer		-		-		-		-		-
Total impaired loans with no recorded allowance		35,011		41,003		-		33,610		171
With an allowance recorded
Commercial		-		-		-		-		-
Commercial real estate
Owner occupied general purpose		-		-		-		609		-
Owner occupied special purpose		-		-		-		2,450		-
Non-owner occupied general purpose		76		76		21		745		-
Non-owner occupied special purpose		-		-		-		-		-
Retail properties		-		-		-		-		-
Farm		-		-		-		-		-
Construction
Homebuilder		-		-		-		84		-
Land		-		-		-		-		-
Commercial speculative		-		-		-		587		-
All other		270		306		98		363		-
Residential
Investor		135		145		24		960		-
Owner occupied		23		65		38		1,028		7
Revolving and junior liens		371		405		97		914		-
Consumer		-		-		-		-		-
Total impaired loans with a recorded allowance		875		997		278		7,740		7
Total impaired loans	$	35,886	$	42,000	$	278	$	41,350	$	178

Troubled debt restructurings (“TDRs”) are loans for which the contractual terms have been modified and both of these conditions exist: (1) there is a concession to the borrower and (2) the borrower is experiencing financial difficulties.  Loans are restructured on a case-by-case basis during the loan collection process with modifications generally initiated at the request of the borrower.  These modifications may include reduction in interest rates, extension of term, deferrals of principal, and other modifications.  The Bank participates in the U.S. Department of the Treasury’s (the “Treasury”) Home Affordable Modification Program (“HAMP”) which gives qualifying homeowners an opportunity to refinance into more affordable monthly payments.

The specific allocation of the allowance for loan losses on a TDR is determined by either discounting the modified cash flows at the original effective rate of the loan before modification or is based on the underlying collateral value less costs to sell, if repayment of the loan is collateral-dependent. If the resulting amount is less than the recorded book value, the Bank either establishes a valuation allowance (i.e. specific reserve) as a component of the allowance for loan losses or charges off the impaired balance if it determines that such amount is a confirmed loss. This method is used consistently for all segments of the portfolio. The allowance for loan losses also includes an allowance based on a loss migration analysis for each loan category on loans that are not individually evaluated for specific impairment. All loans charged-off, including TDRs charged-off, are factored into this calculation by portfolio segment.

TDRs that were modified during the period are as follows:

	TDR Modifications					TDR Modifications
	Three Months Ended June 30, 2015					Six Months Ended June 30, 2015
	# of	Pre-modification		Post-modification		# of	Pre-modification		Post-modification
	contracts	recorded investment		recorded investment		contracts	recorded investment		recorded investment
Troubled debt restructurings
Real estate - commercial
Bifurcate1	-	$	-	$	-	1	$	300	$	177
Real estate - residential
Owner occupied
Other2	1		46		45	3		404		414
Revolving and junior liens
HAMP3	4		233		233	4		233		233
	5	$	279	$	278	8	$	937	$	824

	TDR Modifications					TDR Modifications
	Three Months Ended June 30, 2014					Six Months Ended June 30, 2014
	# of	Pre-modification		Post-modification		# of	Pre-modification		Post-modification
	contracts	recorded investment		recorded investment		contracts	recorded investment		recorded investment
Troubled debt restructurings
Real estate - commercial
Other2	-	$	-	$	-	2	$	1,320	$	1,159
Real estate - residential
Owner occupied
HAMP3	-		-		-	1		102		75
Deferral4	1		107		107	2		344		231
	1	$	107	$	107	5	$	1,766	$	1,465

1  Bifurcate: Refers to an “A/B” restructure separated into two notes, charging off the entire B portion of the note.

2 Other: Change of terms from bankruptcy court

3 HAMP: Home Affordable Modification Program

4  Deferral: Refers to the deferral of principal

TDRs are classified as being in default on a case-by-case basis when they fail to be in compliance with the modified terms. There was no TDR default activity for the three and six months endedJune 30, 2015, and June 30, 2014, that  was restructured within the 12 month period prior to default.

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Earnings Per Share - Preferred Stock (Details) - USD ($) $ / shares in Units, $ in Thousands			1 Months Ended	3 Months Ended		6 Months Ended
	Jan. 31, 2015	Dec. 30, 2014	Apr. 30, 2014	Mar. 31, 2015	Jun. 30, 2014	Jun. 30, 2014	Aug. 14, 2015	Jul. 31, 2015	Jun. 30, 2015	Dec. 31, 2014
Redemption of stock
Net proceeds from sale of common stock						$ 64,395
Preferred stock, Shares outstanding									31,553	47,331
Series B Stock
Redemption of stock
Shares redeemed (in shares)	15,778			15,778	25,669
Repurchase price percentage of liquidation value (as a percent)					94.75%
Shares to be redeemed, percent of issued and outstanding		33.33%
Preferred Stock, Redemption Price Per Share		$ 1,000					$ 1,000	$ 1,000
Preferred stock, Shares outstanding		47,331		31,553				31,553	31,553
Common
Redemption of stock
Shares issued			15,525,000
Net proceeds from sale of common stock			$ 64,000

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Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands	1 Months Ended	12 Months Ended
	Apr. 30, 2015	Dec. 31, 2014	Jun. 30, 2015
Fair Values of Financial Instruments
FHLBC Redemptions	$ 787	$ 1,200
Financial assets:
Cash and due from banks		30,101	$ 29,164
Interest bearing deposits with financial institutions		14,096	9,352
Securities available-for-sale		385,486	399,836
Securities held-to-maturity		259,670	253,419
FHLBC and Reserve Bank Stock		9,058	8,271
Bank-owned life insurance		56,807	57,444
Financial liabilities:
Noninterest bearing deposits		400,447	432,773
Other short-term borrowings		45,000	20,000
Junior subordinated debentures		58,378	58,378
Level 1
Financial assets:
Cash and due from banks		30,101	29,164
Interest bearing deposits with financial institutions		14,096	9,352
Securities available-for-sale		1,527	1,520
Financial liabilities:
Noninterest bearing deposits		400,447	432,773
Junior subordinated debentures		32,441	32,734
Level 2
Financial assets:
Securities available-for-sale		330,900	398,198
Securities held-to-maturity		263,266	257,967
FHLBC and Reserve Bank Stock		9,058	8,271
Bank-owned life insurance		56,807	57,444
Loans held for sale		5,072	6,208
Accrued interest receivable		4,888	4,192
Financial liabilities:
Interest bearing deposits		1,284,887	1,282,979
Securities sold under repurchase agreements		21,036	32,415
Other short-term borrowings		45,000	20,000
Junior subordinated debentures		22,245	22,447
Subordinated debenture		39,366	40,143
Note payable and other borrowings		422	432
Borrowing interest payable		75	75
Deposit interest payable		467	413
Level 3
Financial assets:
Securities available-for-sale		53,059	118
Loans, net		1,151,223	1,147,129
Carrying Amount
Financial assets:
Cash and due from banks		30,101	29,164
Interest bearing deposits with financial institutions		14,096	9,352
Securities available-for-sale		385,486	399,836
Securities held-to-maturity		259,670	253,419
FHLBC and Reserve Bank Stock		9,058	8,271
Bank-owned life insurance		56,807	57,444
Loans held for sale		5,072	6,208
Loans, net		1,137,695	1,140,562
Accrued interest receivable		4,888	4,192
Financial liabilities:
Noninterest bearing deposits		400,447	432,773
Interest bearing deposits		1,284,608	1,280,779
Securities sold under repurchase agreements		21,036	32,415
Other short-term borrowings		45,000	20,000
Junior subordinated debentures		58,378	58,378
Subordinated debenture		45,000	45,000
Note payable and other borrowings		500	500
Borrowing interest payable		75	75
Deposit interest payable		467	413
Total Fair Value
Financial assets:
Cash and due from banks		30,101	29,164
Interest bearing deposits with financial institutions		14,096	9,352
Securities available-for-sale		385,486	399,836
Securities held-to-maturity		263,266	257,967
FHLBC and Reserve Bank Stock		9,058	8,271
Bank-owned life insurance		56,807	57,444
Loans held for sale		5,072	6,208
Loans, net		1,151,223	1,147,129
Accrued interest receivable		4,888	4,192
Financial liabilities:
Noninterest bearing deposits		400,447	432,773
Interest bearing deposits		1,284,887	1,282,979
Securities sold under repurchase agreements		21,036	32,415
Other short-term borrowings		45,000	20,000
Junior subordinated debentures		54,686	55,181
Subordinated debenture		39,366	40,143
Note payable and other borrowings		422	432
Borrowing interest payable		75	75
Deposit interest payable		$ 467	$ 413

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Other Real Estate Owned (Tables)

6 Months Ended

Jun. 30, 2015

Other Real Estate Owned

Schedule of activity in the other real estate owned (OREO) portfolio, net of valuation reserve

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Other real estate owned	2015		2014		2015		2014
Balance at beginning of period	$	35,461	$	40,220	$	31,982	$	41,537
Property additions		907		4,655		7,015		9,343
Property improvements		-		131		-		131
Less:
Property disposals, net of gains/losses		2,316		4,949		4,336		10,518
Period valuation adjustments		2,088		825		2,697		1,261
Balance at end of period	$	31,964	$	39,232	$	31,964	$	39,232

Schedule of activity in valuation allowance

	2015		2014		2015		2014
Balance at beginning of period	$	19,456	$	19,484	$	19,229	$	22,284
Provision for unrealized losses		2,088		825		2,697		1,261
Reductions taken on sales		(1,568)		(2,436)		(1,950)		(5,083)
Other adjustments		93		-		93		(589)
Balance at end of period	$	20,069	$	17,873	$	20,069	$	17,873

Schedule of expenses related to foreclosed assets, net of lease revenue

	2015		2014		2015		2014
Gain on sales, net	$	(242)	$	(23)	$	(337)	$	(409)
Provision for unrealized losses		2,088		825		2,697		1,261
Operating expenses		749		1,011		1,750		2,248
Less:
Lease revenue		207		163		370		442
	$	2,388	$	1,650	$	3,740	$	2,658

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Securities - Contractural Maturities (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Securities Available-for-Sale, Amortized Cost
Due in one year or less	$ 2,141
Due after one year through five years	6,900
Due after five years through ten years	33,501
Due after ten years	5,103
Debt securities excluding securities not due at a single maturity date	47,645
Total	$ 405,577	$ 391,694
Securities Available-for-Sale, Weighted Average Yield
Due in one year or less (as a percent)	1.63%
Due after one year through five years (as a percent)	2.99%
Due after five years through ten years (as a percent)	2.43%
Due after ten years (as a percent)	3.28%
Debt securities (as a percent)	2.56%
Total (as a percent)	1.81%
Securities Available-for-Sale, Fair Value
Due in one year or less	$ 2,159
Due after one year through five years	7,073
Due after five years through ten years	32,811
Due after ten years	4,926
Debt securities	46,969
Fair Value	399,836	385,486
Securities Held-to-Maturity, Amortized Cost
Amortized Cost	$ 253,419	259,670
Securities Held-to-Maturity, Weighted Average Yield
Weighted Average Yield (as a percent)	3.02%
Securities Held-to-Maturity, Fair Value
Fair Value	$ 257,967	263,266
Collateralized mortgage obligations
Securities Available-for-Sale, Amortized Cost
Total	76,519	65,728
Securities Available-for-Sale, Fair Value
Fair Value	74,994	63,627
Securities Held-to-Maturity, Amortized Cost
Amortized Cost	216,424	222,545
Securities Held-to-Maturity, Fair Value
Fair Value	219,181	224,111
Asset-backed securities
Securities Available-for-Sale, Amortized Cost
Securities not due at a single maturity date	181,625
Total	$ 181,625	175,565
Securities Available-for-Sale, Weighted Average Yield
Securities not due at a single maturity date, Weighted Average Yield (as a percent)	1.22%
Securities Available-for-Sale, Fair Value
Securities not due at a single maturity date	$ 178,655
Fair Value	178,655	173,496
Collateralized loan obligations
Securities Available-for-Sale, Amortized Cost
Securities not due at a single maturity date	94,243
Total	$ 94,243	94,236
Securities Available-for-Sale, Weighted Average Yield
Securities not due at a single maturity date, Weighted Average Yield (as a percent)	2.87%
Securities Available-for-Sale, Fair Value
Securities not due at a single maturity date	$ 93,673
Fair Value	93,673	$ 92,209
Mortgage-backed and collateralized mortgage obligations
Securities Available-for-Sale, Amortized Cost
Securities not due at a single maturity date	$ 82,064
Securities Available-for-Sale, Weighted Average Yield
Securities not due at a single maturity date, Weighted Average Yield (as a percent)	1.44%
Securities Available-for-Sale, Fair Value
Securities not due at a single maturity date	$ 80,539

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Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions

6 Months Ended

Jun. 30, 2015

Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions

Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions

Note 13 – Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions

To meet the financing needs of its customers, the Bank, as a subsidiary of the Company, is a party to various financial instruments with off-balance-sheet risk in the normal course of business.  These off-balance-sheet financial instruments include commitments to originate and sell loans as well as financial standby, performance standby and commercial letters of credit.  The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet.  The Bank’s exposure to credit loss for loan commitments and letters of credit is represented by the dollar amount of those instruments.  Management generally uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Interest Rate Swaps

The Bank also has interest rate derivative positions to assist with risk management that are not designated as hedging instruments.  These derivative positions relate to transactions in which the Bank enters an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution.  Per contractual requirements with the correspondent financial institution, the Bank had $1.0million in investment securities pledged to support interest rate swap activity with one correspondent financial institution at June 30, 2015.  The Bank had $3.0 million in investment securities pledged to support interest rate swap activity with three correspondent financial institutions at December 31, 2014.

In connection with each transaction, the Bank agreed to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate.  At the same time, the Bank agreed to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount.  The transaction allows the client to convert a variable rate loan to a fixed rate loan and is part of the Company’s interest rate risk management strategy.  Because the Bank acts as an intermediary for the client, changes in the fair value of the underlying derivative contracts offset each other and do not generally affect the results of operations.  Fair value measurements include an assessment of credit risk related to the client’s ability to perform on their contract position, however, and valuation estimates related to that exposure are discussed in Note12 above.  At June 30, 2015, the notional amount of non-hedging interest rate swaps was $9.8million with a weighted average maturity of 2.7years.  At December 31, 2014, the notional amount of non-hedging interest rate swaps was $16.3million with a weighted average maturity of 2.7years.  The Bank offsets derivative assets and liabilities that are subject to a master netting arrangement.

The Bank also grants mortgage loan interest rate lock commitments to borrowers, subject to normal loan underwriting standards.  The interest rate risk associated with these loan interest rate lock commitments is managed with contracts for future deliveries of loans as well as selling forward mortgage-backed securities contracts.  Loan interest rate lock commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  Commitments to originate residential mortgage loans held-for-sale and forward commitments to sell residential mortgage loans or forward MBS contracts are considered derivative instruments and changes in the fair value are recorded to mortgage banking revenue.  Fair values are estimated based on observable changes in mortgage interest rates including mortgage-backed securities prices from the date of the commitment.

The following table presents derivatives not designated as hedging instruments as of June 30, 2015, and periodic changes in the values of the interest rate swaps are reported in other noninterest income.  Periodic changes in the value of the forward contracts related to mortgage loan origination are reported in the net gain on sales of mortgage loans.

			Asset Derivatives			Liability Derivatives
	Notional or
	Contractual		Balance Sheet			Balance Sheet
	Amount		Location	Fair Value		Location	Fair Value
Interest rate swap contracts	$	9,765	Other Assets	$	28	Other Liabilities	$	28
Commitments1		211,192	Other Assets		257	N/A		-
Forward contracts2		20,500	N/A		-	Other Liabilities		-
Total				$	285		$	28

1Includes unused loan commitments and interest rate lock commitments.

2Includes forward MBS contracts and forward loan contracts.

The following table presents derivatives not designated as hedging instruments as of December 31, 2014.

			Asset Derivatives			Liability Derivatives
	Notional or
	Contractual		Balance Sheet			Balance Sheet
	Amount		Location	Fair Value		Location	Fair Value
Interest rate swap contracts net of credit valuation	$	16,334	Other Assets	$	30	Other Liabilities	$	30
Commitments1		201,946	Other Assets		143	N/A		-
Forward contracts2		14,000	N/A		-	Other Liabilities		-
Total				$	173		$	30

1Includes unused loan commitments and interest rate lock commitments.

2Includes forward MBS contracts.

The Bank also issues letters of credit, which are conditional commitments that guarantee the performance of a customer to a third party.  The credit risk involved and collateral obtained in issuing letters of credit are essentially the same as that involved in extending loan commitments to our customers.  In addition to customer related commitments, the Company is responsible for letters of credit commitments that relate to properties held in OREO.  The following table represents the Company’s contractual commitments due to letters of credit as of June 30, 2015, and December 31, 2014.

The following table is a summary of letter of credit commitments (in thousands):

	June 30, 2015						December 31, 2014
	Fixed		Variable		Total		Fixed		Variable		Total
Letters of credit:
Borrower:
Financial standby	$	55	$	3,697	$	3,752	$	55	$	4,745	$	4,800
Commercial standby		-		47		47		-		49		49
Performance standby		404		6,603		7,007		416		5,690		6,106
		459		10,347		10,806		471		10,484		10,955
Non-borrower:
Performance standby		-		576		576		-		572		572
		-		576		576		-		572		572
Total letters of credit	$	459	$	10,923	$	11,382	$	471	$	11,056	$	11,527