UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
	THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2013
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For transition period from                 to                

Commission File Number 0 -10537

OLD SECOND BANCORP, INC.

(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 x               No o

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 x No o

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 o   Accelerated filer o   Non-accelerated filero  (do not check if a smaller reporting company)  Smaller reporting company x

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

Yes o               No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: As of May 13, 2013, the Registrant had outstanding 13,882,910 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	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	55
PART II
Item 1.	Legal Proceedings	57
Item 1.A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	58
	Signatures	59

2

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)

	(Unaudited)
	March 31,		December 31,
	2013		2012
Assets
Cash and due from banks	$	17,202	$	44,221
Interest bearing deposits with financial institutions	63,915		84,286
Cash and cash equivalents	81,117		128,507
Securities available-for-sale	575,746		579,886
Federal Home Loan Bank and Federal Reserve Bank stock	11,202		11,202
Loans held-for-sale	6,381		9,571
Loans	1,113,302		1,150,050
Less: allowance for loan losses	38,634		38,597
Net loans	1,074,668		1,111,453
Premises and equipment, net	47,356		47,002
Other real estate owned	65,663		72,423
Mortgage servicing rights, net	4,469		4,116
Core deposit, net	2,751		3,276
Bank-owned life insurance (BOLI)	54,610		54,203
Other assets	30,081		24,160
Total assets	$	1,954,044	$	2,045,799
Liabilities
Deposits:
Noninterest bearing demand	$	351,328	$	379,451
Interest bearing:
Savings, NOW, and money market	865,863		826,976
Time	501,065		510,792
Total deposits	1,718,256		1,717,219
Securities sold under repurchase agreements	20,802		17,875
Other short-term borrowings	-		100,000
Junior subordinated debentures	58,378		58,378
Subordinated debt	45,000		45,000
Notes payable and other borrowings	500		500
Other liabilities	35,254		34,275
Total liabilities	1,878,190		1,973,247
Stockholders’ Equity
Preferred stock	72,130		71,869
Common stock	18,780		18,729
Additional paid-in capital	66,109		66,189
Retained earnings	16,747		12,048
Accumulated other comprehensive loss	(2,202)		(1,327)
Treasury stock	(95,710)		(94,956)
Total stockholders’ equity	75,854		72,552
Total liabilities and stockholders’ equity	$	1,954,044	$	2,045,799

	March 31, 2013				December 31, 2012
	Preferred Stock		Common Stock		Preferred Stock		Common 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	73,000		18,779,734		73,000		18,729,134
Shares outstanding	73,000		13,882,910		73,000		14,084,328
Treasury shares	-		4,896,824		-		4,644,806

See accompanying notes to consolidated financial statements.

3

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except share data)

	(Unaudited)
	Three Months Ended
	March 31,
	2013		2012
Interest and dividend income
Loans, including fees	$	14,914	$	17,666
Loans held-for-sale	41		84
Securities:
Taxable	2,298		1,498
Tax-exempt	119		103
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock	76		74
Interest bearing deposits with financial institutions	42		25
Total interest and dividend income	17,490		19,450
Interest expense
Savings, NOW, and money market deposits	228		300
Time deposits	1,853		2,605
Securities sold under repurchase agreements	1		-
Other short-term borrowings	19		3
Junior subordinated debentures	1,287		1,197
Subordinated debt	196		237
Notes payable and other borrowings	4		4
Total interest expense	3,588		4,346
Net interest and dividend income	13,902		15,104
Provision for loan losses	(2,500)		6,084
Net interest and dividend income after provision for loan losses	16,402		9,020
Noninterest income
Trust income	1,491		1,651
Service charges on deposits	1,677		1,831
Secondary mortgage fees	230		296
Mortgage servicing income	244		187
Net gain on sales of mortgage loans	1,976		2,647
Securities gains, net	1,453		101
Increase in cash surrender value of bank-owned life insurance	407		495
Debit card interchange income	792		760
Lease revenue from other real estate owned	408		1,179
Net gain on sale of other real estate owned	181		23
Other income	1,737		1,294
Total noninterest income	10,596		10,464
Noninterest expense
Salaries and employee benefits	9,032		9,049
Occupancy expense, net	1,279		1,235
Furniture and equipment expense	1,144		1,155
FDIC insurance	1,035		1,000
General bank insurance	849		846
Amortization of core deposit asset	525		195
Advertising expense	166		318
Debit card interchange expense	344		342
Legal fees	323		685
Other real estate expense	3,686		4,654
Other expense	3,144		2,973
Total noninterest expense	21,527		22,452
Income (loss) before income taxes	5,471		(2,968)
Income tax expense	-		-
Net income (loss)	5,471		(2,968)
Preferred stock dividends and accretion of discount	1,289		1,223
Net income (loss) available to common shareholders	$	4,182	$	(4,191)
Share and per share information:
Ending number of shares	13,882,910		14,084,328
Average number of shares	14,076,114		14,043,545
Diluted average number of shares	14,157,523		14,196,143
Basic income (loss) per share	$	0.30	$	(0.30)
Diluted income (loss) per share	0.30		(0.30)
Dividends paid per share	-		-

See accompanying notes to consolidated financial statements.

4

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except share data)

	Three Months Ended
	March 31,
	2013		2012
Net Income (loss)	$	5,471	$	(2,968)
Total unrealized holding (losses) gains on available-for-sale securities arising during the period	(35)		1,004
Related tax benefit (expense)	17		(413)
Holding (losses) income after tax	(18)		591
Less: Reclassification adjustment for the net gains realized during the period
Net realized gains	1,453		101
Income tax expense on net realized gains	(596)		(41)
Net realized gains after tax	857		60
Total other comprehensive (loss) income	(875)		531
Comprehensive income (loss)	$	4,596	$	(2,437)

See accompanying notes to consolidated financial statements.

5

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

	(Unaudited)
	Three Months Ended
	March 31,
	2013			2012
Cash flows from operating activities
Net income (loss)	$	5,471		$	(2,968	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization of leasehold improvement	746			801
Change in market value on mortgage servicing rights	106			123
Provision for loan losses	(2,500		)	6,084
Gain on recapture of restricted stock	(612		)	-
Originations of loans held-for-sale	(53,138		)	(64,140		)
Proceeds from sales of loans held-for-sale	57,755			72,729
Net gain on sales of mortgage loans	(1,976		)	(2,647		)
Increase in cash surrender value of bank-owned life insurance	(407		)	(495		)
Change in accrued interest receivable and other assets	(5,215		)	(4,635		)
Change in accrued interest payable and other liabilities	634			3,420
Net premium amortization on securities	414			403
Securities gains, net	(1,453		)	(101		)
Amortization of core deposit intangible	525			195
Stock based compensation	14			87
Net gain on sale of other real estate owned	(181		)	(23		)
Provision for other real estate owned losses	1,987			2,500
Net gain on disposal of fixed assets	(5		)	-
Net cash provided by operating activities	2,165			11,333
Cash flows from investing activities
Proceeds from maturities and calls including pay down of securities available-for-sale	18,055			17,254
Proceeds from sales of securities available-for-sale	231,155			8,359
Purchases of securities available-for-sale	(240,190		)	(76,819		)
Proceeds from sales of Federal Home Loan Bank stock	-			1,467
Net change in loans	26,971			20,248
Improvements in other real estate owned	(50		)	(318		)
Proceeds from sales of other real estate owned	11,842			5,369
Proceeds from disposition of fixed assets	6			-
Net purchases of premises and equipment	(1,123		)	(154		)
Net cash provided by (used in) investing activities	46,666			(24,594		)
Cash flows from financing activities
Net change in deposits	1,037			23,089
Net change in securities sold under repurchase agreements	2,927			903
Net change in other short-term borrowings	(100,000		)	15,000
Purchase of treasury stock	(185		)	(63		)
Net cash (used in) provided by financing activities	(96,221		)	38,929
Net change in cash and cash equivalents	(47,390		)	25,668
Cash and cash equivalents at beginning of period	128,507			50,949
Cash and cash equivalents at end of period	$	81,117		$	76,617
Supplemental cash flow information
Interest paid for deposits	$	2,124		$	3,394
Interest paid for borrowings	225			243
Non-cash transfer of loans to other real estate	6,985			15,918
Non-cash transfer of loans to securities available-for-sale	5,329			-
Accretion on preferred stock warrants	261			245
Fair value difference on recapture of restricted stock	43			-

See accompanying notes to consolidated financial statements.

6

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in

Stockholders’ Equity

(In thousands, except share data)

									Accumulated
					Additional				Other				Total
	Common		Preferred		Paid-In		Retained		Comprehensive		Treasury		Stockholders’
	Stock		Stock		Capital		Earnings		Loss		Stock		Equity
Balance, December 31, 2011	$	18,628	$	70,863	$	65,999	$	17,107	$	(3,702)	$	(94,893)	$	74,002
Net loss							(2,968)						(2,968)
Change in net unrealized gain on securities available-for-sale net of $372 tax effect									531				531
Change in restricted stock	101				(101)								-
Stock based compensation					87								87
Purchase of treasury stock											(63)		(63)
Preferred stock accretion and declared dividends			245				(1,223)						(978)
Balance, March 31, 2012	$	18,729	$	71,108	$	65,985	$	12,916	$	(3,171)	$	(94,956)	$	70,611
Balance, December 31, 2012	$	18,729	$	71,869	$	66,189	$	12,048	$	(1,327)	$	(94,956)	$	72,552
Net income							5,471						5,471
Change in net unrealized loss on securities available-for-sale, net of $613 tax effect									(875)				(875)
Change in restricted stock	51				(51)								-
Recapture of restricted stock					(43)						(569)		(612)
Stock based compensation					14								14
Purchase of treasury stock											(185)		(185)
Preferred stock accretion and declared dividends			261				(772)						(511)
Balance, March 31, 2013	$	18,780	$	72,130	$	66,109	$	16,747	$	(2,202)	$	(95,710)	$	75,854

See accompanying notes to consolidated financial statements.

7

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 financial statements are consistent with those used in the preparation of the annual financial information.  The interim financial statements reflect all normal and recurring adjustments, which are necessary, in the opinion of management, for a fair statement of results for the interim period presented.  Results for the period ended March 31, 2013, are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.  These interim financial statements 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, 2012.  Unless otherwise indicated, amounts in the tables contained in the notes 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 accounting principles generally accepted in the United States 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 financial statements and accompanying notes.  These estimates, assumptions, and judgments are based on information available as of the date of the financial statements.  Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the 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, 2012.  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 financial statements and how those values are determined.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02 “Comprehensive Income (Topic 220) — Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under United States generally accepted accounting practices (“GAAP”) to be reclassified to net income in its entirety in the same reporting period.  The impact of ASU 2013-02 on the Company’s consolidated financial statements is reflected in the consolidated statement of comprehensive income (loss).

Note 2 – Securities

Investment Portfolio Management

Our investment portfolio serves the liquidity and income needs of 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 of the portfolio will reflect liquidity needs, loan demand and interest income objectives.

8

Portfolio size and composition may be adjusted from time to time.  While a significant portion of the portfolio will always consist 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.  All debt securities are classified as available-for-sale and may be sold under our management and asset/liability management strategies. Securities available-for-sale are carried at fair value.  Unrealized gains and losses on securities available-for-sale are reported as a separate component of equity.  This balance sheet component will change as interest rates and market conditions change.  Unrealized gains and losses are not included in the calculation of regulatory capital.

Non-marketable equity investments include Federal Home Loan Bank of Chicago (“FHLBC”) stock, Federal Reserve Bank of Chicago (“FRB”) stock and various other equity securities.  FHLBC stock was recorded at a value of $6.4 million at March 31, 2013, and December 31, 2012.  FRB stock was recorded at $4.8 million at March 31, 2013, and December 31, 2012.  Our FHLB stock is necessary to maintain our program of access to FHLB advances.

The following table summarizes the amortized cost and fair value of the available-for-sale securities at March 31, 2013, and December 31, 2012 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
March 31, 2013:
U.S. Treasury	$	1,500	$	2	$	-		$	1,502
U.S. government agencies	69,189		129		(53		)	69,265
U.S. government agency mortgage-backed	76,500		804		(952		)	76,352
States and political subdivisions	25,876		1,139		-			27,015
Corporate Bonds	38,090		650		(161		)	38,579
Collateralized mortgage obligations	131,181		964		(476		)	131,669
Asset-backed securities	219,234		2,174		(671		)	220,737
Collateralized debt obligations	17,919		-		(7,292		)	10,627
	$	579,489	$	5,862	$	(9,605	)	$	575,746
December 31, 2012:
U.S. Treasury	$	1,500	$	7	$	-		$	1,507
U.S. government agencies	49,848		122		(120		)	49,850
U.S. government agency mortgage-backed	127,716		1,605		(583		)	128,738
States and political subdivisions	14,639		1,216		-			15,855
Corporate Bonds	36,355		586		(55		)	36,886
Collateralized mortgage obligations	168,795		1,895		(1,090		)	169,600
Asset-backed securities	165,347		2,468		(322		)	167,493
Collateralized debt obligations	17,941		-		(7,984		)	9,957
	$	582,141	$	7,899	$	(10,154	)	$	579,886

The fair value, amortized cost and weighted average yield of debt securities at March 31, 2013, by contractual maturity, were as follows.  Securities not due at a single maturity date, primarily mortgage-backed securities, collateralized debt obligations and equity securities are shown separately.

9

			Weighted
	Amortized		Average	Fair
	Cost		Yield	Value
Due in one year or less	$	10,976	1.61%	$	10,984
Due after one year through five years	25,685		1.97%	26,456
Due after five years through ten years	37,930		3.03%	38,730
Due after ten years	60,064		2.93%	60,191
	134,655		2.67%	136,361
Mortgage-backed securities	207,681		2.02%	208,021
Asset-back securites	219,234		1.55%	220,737
Collateralized debt obligations	17,919		1.64%	10,627
	$	579,489	1.98%	$	575,746

Securities with unrealized losses at March 31, 2013, and December 31, 2012, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows (in thousands except for number of securities):

	Less than 12 months					Greater than 12 months
March 31, 2013	in an unrealized loss position					in an unrealized loss position					Total
	Number of	Unrealized		Fair		Number of	Unrealized		Fair		Number of	Unrealized		Fair
	Securities	Losses		Value		Securities	Losses		Value		Securities	Losses		Value
U.S. government agencies	3	$	53	$	12,225	-	$	-	$	-	3	$	53	12,225
U.S. government agency mortgage-backed	9	952		49,575		-	-		-		9	952		49,575
Corporate bonds	5	141		13,657		1	20		1,032		6	161		14,689
Collateralized mortgage obligations	7	476		57,201		-	-		-		7	476		57,201
Asset-backed securities	7	671		47,281		-	-		-		7	671		47,281
Collateralized debt obligations	-	-		-		2	7,292		10,627		2	7,292		10,627
	31	$	2,293	$	179,939	3	$	7,312	$	11,659	34	$	9,605	$	191,598
	Less than 12 months					Greater than 12 months
December 31, 2012	in an unrealized loss position					in an unrealized loss position					Total
	Number of	Unrealized		Fair		Number of	Unrealized		Fair		Number of	Unrealized		Fair
	Securities	Losses		Value		Securities	Losses		Value		Securities	Losses		Value
U.S. government agencies	4	$	120	$	17,039	-	$	-	$	-	4	$	120	$	17,039
U.S. government agency mortgage-backed	12	583		53,184		-	-		-		12	583		53,184
Corporate bonds	4	55		9,724		-	-		-		4	55		9,724
Collateralized mortgage obligations	6	1,060		37,778		1	30		2,343		7	1,090		40,121
Asset-backed securities	6	322		37,488		-	-		-		6	322		37,488
Collateralized debt obligations	-	-		-		2	7,984		9,957		2	7,984		9,957
	32	$	2,140	$	155,213	3	$	8,014	$	12,300	35	$	10,154	$	167,513

Recognition of other-than-temporary impairment was not necessary in the three months ended March 31, 2013, or the year ended December 31, 2012.  The changes in fair values related primarily to interest rate fluctuations and were generally not related to credit quality deterioration, although the amount of deferrals and defaults in the pooled collateralized debt obligations (“CDO”) decreased in the period from December 31, 2012 to March 31, 2013.

Continued uncertainty in the financial markets in the periods presented has resulted in sharply reduced liquidity for certain investments, particularly the CDO securities.  In the case of the CDO securities fair value measurement, management included a risk premium adjustment as of March 31, 2013, to reflect an estimated yield that a market participant would demand because of uncertainty in cash flows, based on incomplete and sporadic levels of market activity.  Accordingly, management continues to designate these securities as Level 3 securities as described in Note 12 of this quarterly report as of March 31, 2013.  Management does not have the intent to sell the above securities and it is more likely than not the Company will not sell the securities before recovery of its cost basis.

10

Below is additional information as it relates to the CDOs, Trapeza 2007-13A, which is secured by a pool of trust preferred securities issued by trusts sponsored by multiple financial institutions.

					Gross			S&P	Number of	Issuance			Issuance
	Amortized		Fair		Unrealized			Credit	Banks in	Deferrals & Defaults			Excess Subordination
	Cost		Value		Loss			Rating1	Issuance	Amount		Collateral%	Amount		Collateral%
March 31, 2013
Class A1	$	8,981	$	6,055	$	(2,926	)	BB+	63	$	207,000	27.6%	$	194,387	25.9%
Class A2A	8,938		4,572		(4,366		)	B+	63	207,000		27.6%	97,387		13.0%
	$	17,919	$	10,627	$	(7,292	)
December 31, 2012
Class A1	$	9,038	$	5,768	$	(3,270	)	BB+	63	$	208,000	27.7%	$	190,982	25.5%
Class A2A	8,903		4,189		(4,714		)	B+	63	208,000		27.7%	93,982		12.5%
	$	17,941	$	9,957	$	(7,984	)

1 Moody’s credit rating for class A1 and A2A were Baa2 and Ba2, respectively, as of March 31, 2013, and December 31, 2012.  The Fitch ratings for class A1 and A2A were BBB and B, respectively, as of March 31, 2013, and December 31, 2012.

Note 3 – Loans

Major classifications of loans were as follows:

	March 31, 2013		December 31, 2012
Commercial	$	84,332	$	86,941
Real estate - commercial	566,349		579,687
Real estate - construction	40,698		42,167
Real estate - residential	394,599		414,543
Consumer	2,908		3,101
Overdraft	584		994
Lease financing receivables	8,574		6,060
Other	15,022		16,451
	1,113,066		1,149,944
Net deferred loan cost (fees)	236		106
	$	1,113,302	$	1,150,050

It is the policy of the Company to review each prospective credit in order to determine 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 state 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 90.0% and 90.1% of the portfolio at March 31, 2013, and December 31, 2012, respectively.  The Company remains committed to overseeing and managing its loan portfolio to reduce its real estate credit concentrations in accordance with the requirements of the Consent Order the Bank entered into with the Office of the Controller of the Currency (the “OCC”) on May 16, 2011 (the “Consent Order”).  Regulatory and Capital matters including the Consent Order are discussed in more detail in Note 11 of the consolidated financial statements included in this report.

11

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

March 31, 2013	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Nonaccrual		Total Loans		Recorded Investment 90 days or Greater Past Due and Accruing
Commercial	$	58	$	-	$	-	$	58	$	92,638	$	210	$	92,906	$	-
Real estate - commercial
Owner occupied general purpose	2,535		-		-		2,535		114,871		4,990		122,396		-
Owner occupied special purpose	-		-		-		-		145,443		10,457		155,900		-
Non-owner occupied general purpose	310		-		165		475		127,904		10,082		138,461		165
Non-owner occupied special purpose	-		-		-		-		75,649		1,470		77,119		-
Retail properties	-		-		-		-		38,351		8,846		47,197		-
Farm	-		52		-		52		22,807		2,417		25,276		-
Real estate - construction
Homebuilder	-		-		-		-		5,827		168		5,995		-
Land	-		-		-		-		2,712		254		2,966		-
Commercial speculative	-		-		-		-		11,182		5,353		16,535		-
All other	47		-		-		47		14,549		606		15,202		-
Real estate - residential
Investor	3,905		-		-		3,905		127,536		8,524		139,965		-
Owner occupied	3,359		-		-		3,359		109,617		7,916		120,892		-
Revolving and junior liens	508		87		112		707		129,432		3,603		133,742		112
Consumer	5		-		-		5		2,903		-		2,908		-
All other	-		-		-		-		15,842		-		15,842		-
	$	10,727	$	139	$	277	$	11,143	$	1,037,263	$	64,896	$	1,113,302	$	277
December 31, 2012	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Nonaccrual		Total Loans		Recorded Investment 90 days or Greater Past Due and Accruing
Commercial	$	159	$	-	$	-	$	159	$	92,080	$	762	$	93,001	$	-
Real estate - commercial
Owner occupied general purpose	1,580		50		-		1,630		119,994		5,487		127,111		-
Owner occupied special purpose	172		-		-		172		149,439		11,433		161,044		-
Non-owner occupied general purpose	-		1,046		-		1,046		128,817		13,436		143,299		-
Non-owner occupied special purpose	-		4,304		-		4,304		69,299		477		74,080		-
Retail properties	-		-		-		-		37,732		10,532		48,264		-
Farm	-		-		-		-		23,372		2,517		25,889		-
Real estate - construction
Homebuilder	-		-		-		-		4,469		1,855		6,324		-
Land	-		-		-		-		2,747		254		3,001		-
Commercial speculative	-		-		-		-		10,755		6,587		17,342		-
All other	300		215		68		583		14,360		557		15,500		68
Real estate - residential
Investor	276		164		-		440		140,141		9,910		150,491		-
Owner occupied	3,151		375		21		3,547		110,735		9,918		124,200		21
Revolving and junior liens	888		203		-		1,091		134,990		3,771		139,852		-
Consumer	3		-		-		3		3,075		23		3,101		-
All other	-		-		-		-		17,551		-		17,551		-
	$	6,529	$	6,357	$	89	$	12,975	$	1,059,556	$	77,519	$	1,150,050	$	89

The Bank had no commitments to any borrower whose loans were classified as impaired at March 31, 2013.

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.  Each loan and loan relationship is examined.  This analysis includes loans with outstanding loans or commitments greater than $50,000 and excludes homogeneous loans such as home equity line 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:

12

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 as were as follows:

March 31, 2013	Pass			Special Mention			Substandard 1			Doubtful			Total
Commercial		$	80,608		$	11,551		$	747		$	-		$	92,906
Real estate - commercial
Owner occupied general purpose		100,321			11,250			10,825			-			122,396
Owner occupied special purpose		129,797			5,223			20,880			-			155,900
Non-owner occupied general purpose		107,492			14,152			16,817			-			138,461
Non-owner occupied special purpose		70,166			5,483			1,470			-			77,119
Retail Properties		34,098			1,649			11,450			-			47,197
Farm		21,349			1,510			2,417			-			25,276
Real estate - construction
Homebuilder		1,331			2,135			2,529			-			5,995
Land		2,712			-			254			-			2,966
Commercial speculative		7,567			-			8,968			-			16,535
All other		14,077			220			905			-			15,202
Real estate - residential
Investor		119,660			11,392			8,913			-			139,965
Owner occupied		109,105			1,324			10,463			-			120,892
Revolving and junior liens		127,820			200			5,722			-			133,742
Consumer		2,907			-			1			-			2,908
All other		15,842			-			-			-			15,842
Total		$	944,852		$	66,089		$	102,361		$	-		$	1,113,302
December 31, 2012		Pass		Special Mention			Substandard 1			Doubtful				Total
Commercial		$	88,071		$	3,867		$	1,063		$	-		$	93,001
Real estate - commercial