Note 14: Commitments

In the normal course of business, there are outstanding commitments that are not reflected in the financial statements. Commitments include financial instruments that involve, to varying degrees, elements of credit, interest rate, and liquidity risk. In management’s opinion, these do not represent unusual risks and management does not anticipate significant losses as a result of these transactions. The Company uses the same credit policies in making commitments and conditional obligations for borrowers as it does for on-balance sheet instruments.

The following table is a summary of financial instrument commitments (in thousands):

	December 31, 2012						December 31, 2011
	Fixed		Variable		Total		Fixed		Variable		Total
Letters of credit:
Borrower:
Financial standby	$	5	$	3,378	$	3,383	$	—	$	2,837	$	2,837
Commercial standby	—		51		51		—		375		375
Performance standby	1,630		4,217		5,847		1,527		7,027		8,554
	1,635		7,646		9,281		1,527		10,239		11,766

Non-borrower:
Financial standby	—		—		—		—		550		550
Commercial standby	—		—		—		—		—		—
Performance standby	240		1,125		1,365		240		2,084		2,324
	240		1,125		1,365		240		2,634		2,874
Total letters of credit	$	1,875	$	8,771	$	10,646	$	1,767	$	12,873	$	14,640

Unused loan commitments:	$	58,330	$	195,290	$	253,620	$	55,184	$	208,663	$	263,847

The Bank occupies facilities under long-term operating leases, some of which include provisions for future rent increases. In addition, the Company leases space at sites that house ATM’s. As of December 31, 2012, the estimated aggregate minimum annual rental commitments under these leases total $125,000 in 2013, $113,000 in 2014, $95,000 in 2015, and $58,000 in 2016. The Company also receives rental income on certain leased properties. As of December 31, 2012, aggregate future minimum rentals to be received under non-cancelable leases totaled $393,000. Total facility net operating lease revenue/expense recorded under all operating leases was $50,000 of revenue in 2012, and $69,000 of revenue in 2011. Total ATM lease expense, including the costs related to servicing those ATM’s, was $941,000 in 2012 and $903,000 in 2011.

Legal proceedings

On February 17, 2011, a former employee filed a purported class action complaint in the U.S. District Court for the Northern District of Illinois on behalf of participants and beneficiaries of the Old Second Bancorp, Inc. Employees’ 401(k) Savings Plan and Trust alleging that the Company, the Bank, the Employee Benefits Committee of Old Second Bancorp, Inc. and certain of the Company’s officers and employees violated certain disclosure requirements and fiduciary duties established under Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The complaint seeks equitable and as-of-yet unquantified monetary relief. Though the Company believes that it, its affiliates, and its officers and employees have acted, and continue to act, in compliance with ERISA law with respect to these matters, without conceding liability, the named defendants have negotiated a settlement in principle with the plaintiffs. On February 26, 2013, the plaintiffs requested the court’s preliminary approval of the parties’ settlement agreement. The Company and its legal counsel expect that the settlement agreement will be approved, and that the plaintiffs will therefore dismiss the litigation with a release of all claims. If approved, the settlement agreement will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Company because the entire settlement amount will be paid by the Company’s insurers.

In addition to the matter above, the Company and its subsidiaries, from time to time, pursue collection suits in the ordinary course of business against their 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 based on all known information at this time.