10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

Form 10–K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the 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 of Incorporation)	(IRS Employer Identification Number)

37 South River Street, Aurora, Illinois 60506

(Address of principal executive offices, including Zip Code)

(630) 892-0202

(Registrant’s telephone number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Class	Name of each exchange on which registered
NONE	NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $1.00 par value

(Title of Class)

Preferred Securities of Old Second Capital Trust I

(Title of Class)

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  ý         NO  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by Reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes ý  No o

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, on June 30, 2004, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $354 million*.  The number of shares outstanding of the registrant’s common stock, par value $1.00 per share, was 13,444,724 at February 28, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s 2004 Annual Report are incorporated by reference into Parts I, II and IV.

Portions of the Company’s Proxy Statement for the 2004 Annual Meeting of Stockholders are incorporated by reference into Part III.

*Based on the last reported price of an actual transaction in registrant’s common stock on June 30, 2004 and reports of beneficial ownership filed by directors and executive officers of registrant and by beneficial owners of more than 5% of the outstanding shares of common stock of registrant; however, such determination of shares owned by affiliates does not constitute an admission of affiliate status or beneficial interest in shares of registrant’s common stock.

OLD SECOND BANCORP INC.

Form 10-K

INDEX

PART I
Item 1	Business
Item 2	Properties
Item 3	Legal Proceedings
Item 4	Submission of Matters to a Vote of Security Holders
PART II
Item 5	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6	Selected Financial Data
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A	Quantitative and Qualitative Disclosures about Market Risk
Item 8	Financial Statements and Supplementary Data
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A	Controls and Procedures
Item 9B	Other Information
PART III
Item 10	Directors and Executive Officers of the Registrant
Item 11	Executive Compensation
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13	Certain Relationships and Related Transactions
Item 14	Principal Accounting Fees and Services
PART IV
Item 15	Exhibits and Financial Statement Schedules
	Signatures

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PART I

Item 1.  Business

General

Old Second Bancorp Inc. (the “Company” or the “Registrant”) was organized under the laws of Delaware on September 8, 1981. It is a registered bank holding company under the Bank Holding Company Act of 1956 (the “Act”). The Company’s office is located at 37 South River Street, Aurora, Illinois 60506.

The Company conducts a full service community banking and trust business through its wholly-owned subsidiaries, The Old Second National Bank of Aurora (“Old Second Bank”), Old Second Bank-Yorkville, Old Second Bank-Kane County and Old Second Financial, Inc., and through Old Second Mortgage Company, which is a wholly-owned subsidiary of Old Second Bank.  The banking subsidiaries are referred to herein as the “Banks.”  In 2003, the Company formed Old Second Trust I, a Delaware business trust, for the exclusive purpose of issuing trust-preferred securities in a transaction completed in July 2003.  In 2004, the Company formed Old Second Affordable Housing Fund, L.L.C. for the purpose of providing down payment assistance for home ownership to qualified individuals.

The Company provides financial services through its twenty-five banking locations and four mortgage banking offices located in Kane, Kendall, DeKalb, DuPage, LaSalle and Will counties in Illinois.  Old Second Mortgage, which also conducts business as “Maple Park Mortgage,” provides mortgage-banking services and Old Second Bank also engages in trust operations.

Business of the Company and its Subsidiaries

The Banks’ full service banking businesses include the customary consumer and commercial products and services which banks provide. The following services are included: demand, savings, time deposit, individual retirement and Keogh deposit accounts; commercial, industrial, consumer and real estate lending, including installment loans, student loans, farm loans, lines of credit and overdraft checking; safe deposit operations; trust services; and an extensive variety of additional services tailored to the needs of individual customers, such as the acquisition of U.S. Treasury notes and bonds, the sale of traveler’s checks, money orders, cashier’s checks and foreign currency, direct deposit, discount brokerage, debit cards, credit cards, and other special services.  Commercial and consumer loans are made to corporations, partnerships and individuals, primarily on a secured basis. Commercial lending focuses on business, capital, construction, inventory and real estate lending. Installment lending includes direct and indirect loans to consumers and commercial customers.

Old Second Mortgage Company originates residential mortgages and handles the secondary marketing of those mortgages. Old Second Mortgage Company is a mortgage banking organization offering a wide range of products including conventional, government, jumbo and sub prime loans with operations centralized at its home office location in St. Charles, Illinois.  Old Second Mortgage Company has offices in Aurora, Sycamore, Wheaton and St. Charles, Illinois.  During 2002, Old Second Mortgage Company became a wholly-owned subsidiary of Old Second Bank.  As of December 31, 2004, Old Second Mortgage Company employed 24 operations employees and 30 loan origination employees.

Market Area

Old Second Bank’s primary market area is Aurora, Illinois, and its surrounding communities. The city of Aurora is located in northeastern Illinois, approximately 40 miles west of Chicago. Strategically situated on U.S. Interstate 88, Aurora is near the center of the four county area comprised of DuPage, Kane, Kendall and Will counties. Based upon the 2000 census, these counties together represent a market of more than 1.9 million people. The city of Aurora has a current reported population of approximately 157,000 residents.

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The Banks offer banking services for retail, commercial, industrial, and public entity customers in the Aurora, North Aurora, Batavia, Geneva, St. Charles, Burlington, Elburn, Elgin, Maple Park, Kaneville, Sugar Grove, Naperville, Lisle, Joliet, Yorkville, Plano, Sandwich, Wasco, DeKalb and Ottawa communities and surrounding areas. Old Second Bank also offers complete trust investment management and other fiduciary services and through a registered broker/dealer and member of NASD and SIPC, provide stocks, bonds, securities, annuities, and non-FDIC insured mutual funds.

Currently, the primary lending area for Old Second Mortgage Company is the state of Illinois.

Lending Activities

General.  The Banks provide a broad range of commercial and retail lending services to corporations, partnerships, individuals and government agencies.  The Banks actively market their services to qualified borrowers.  Lending officers actively solicit the business of new borrowers entering our market areas as well as long-standing members of the local business community.  The Banks have established lending policies that include a number of underwriting factors to be considered in making a loan, including location, amortization, loan to value ratio, cash flow, pricing, documentation and the credit history of the borrower.  The Banks’ loan portfolios are comprised primarily of loans in the areas of commercial real estate, residential real estate, construction, general commercial and consumer lending.  As of December 31, 2004, residential mortgages made up approximately 34.0% of its loan portfolio, commercial real estate loans comprised approximately 34.1%, construction lending comprised 17.8%, general commercial loans comprised 11.3% and consumer lending comprised 2.8%. It is also the Bank’s policy to comply at all times with the various consumer protection laws and regulations including, but not limited to, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Truth in Lending Act, and the Home Mortgage Disclosure Act.  The Banks do not discriminate in application procedures, loan availability, pricing, structure, or terms on the basis of race, color, religion, national origin, sex, marital status, familial status, handicap, age (providing the applicant has the legal capacity to enter into a binding contract), whether income is derived from public assistance, whether a borrower resides or his property is located in a low- or moderate-income area, or whether a right was exercised under the Consumer Credit Protection Act.  The Banks strive to offer all of their credit services throughout their primary market area, including low- and moderate-income areas.

Residential Real Estate Loans.   A majority of the residential mortgage loans that the Banks originate are in the form of fixed rate loans, which the Banks sell to outside investors.  Fixed and variable rate loans originated by Old Second Mortgage Company are sold; the mortgage company did not retain servicing rights until the 4th quarter of 2004, when it became a direct seller of fixed rate loans to FNMA.  The Banks also originate many variable rate residential mortgages.  The Banks retain the servicing of almost all variable rate residential mortgages that they originate.  Management believes that the retention of mortgage servicing provides the Company, on a consolidated basis, with a relatively steady source of fee income as compared to fees generated solely from mortgage origination operations.  Moreover, the retention of such servicing rights allows the Banks to continue to have regular contact with mortgage customers and solidifies our involvement with the community.

Commercial Real Estate Loans. A large portion of the loan portfolio is comprised of commercial real estate loans.  The primary repayment risk for a commercial real estate loan is interruption or discontinuance of cash flows, usually derived from rent, and caused by economic events, which may or may not be under the control of the borrower, or changes in governmental regulations that negatively impact the future cash flow and market values of the affected properties.  Repayment risk can also arise from systemic downward shifts in the valuations of classes of properties over a given geographic area, and caused by changes in demand and other economic factors.  The Banks mitigate these risks through staying apprised of market conditions and by maintaining underwriting practices that provide for adequate cashflow margins and multiple repayment sources.  In most cases, the Banks have collateralized these loans and/or taken personal guarantees to help assure repayment.  The commercial real estate loans are primarily made based on the identified cash flow of the borrower and secondarily on the underlying real estate acting as collateral.  Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation of the real estate and enforcement of a personal guarantee, if any exists.

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In 2004, a significant number of commercial real estate borrowers elected to refinance their fixed rates loans with the Banks, ahead of the scheduled maturity dates for those loans, for the purpose of taking advantage of interest rates that were at recent-historic lows.  Refinance penalties helped to mitigate the negative impact of this trend.  Also, with short-term rates remaining at very low levels, and a somewhat steep yield curve at times during the year, many other borrowers elected to select floating rate loan structures rather than fixed rate structures.  The impact of these events, in the short run, was to further an erosion of net interest margin that has been experienced over the course of the last three years.  Longer term, the increase in floating rate loans in the portfolio should better position the Banks once interest rates do begin to move up again.

Construction Loans.The Banks originate loans to finance the construction of residential and commercial properties located in the Company’s market area. The Banks use underwriting and construction loan guidelines for financing where reputable contractors are involved.  Construction loans are structured most often to be converted to permanent loans at the end of the construction phase or, infrequently, to be paid off upon receiving financing from another financial institution.  Construction loans are based on the appraised value of the property, as determined by an independent appraiser, and an analysis of the potential marketability and profitability of the project, and identification of a cashflow source to service the permanent loan, or verification of a refinancing source.  Construction loans generally have terms of up to 12 months, with extensions as needed.  The Banks disburse loan proceeds in increments as construction progresses and as inspections warrant.

Construction loans afford the Banks the opportunity to increase the interest rate sensitivity of their loan portfolio and to receive yields higher than those obtainable on ARM loans secured by existing residential properties.  These higher yields correspond to the higher risks associated with construction lending.

Construction development loans involve additional risks.  Development lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of the borrower or guarantor to repay principal and interest.  This involves more risk than other lending because it is based on future estimates of value and economic circumstances.  While appraisals are required prior to funding, and advances are limited to the value determined by the appraisal, there is the possibility of an unseen event affecting the value of the project.  Development loans are primarily used for single-family developments, where the sale of lots and houses are tied to the customer preferences and interest rates.  If the borrower defaults prior to completion of the project, the Bank may be required to fund additional amounts so that another developer can complete the project.  The Banks are located in an area where a large amount of development activity is taking place, as rural and semi-rural areas are being suburbanized.  This growth is both unprecedented and not likely to occur again once the area has been fully developed, and therefore extends a one-time opportunity as well as some economic risks should a sudden shift occur in the local demand for housing. The Banks have attempted to address these risks by closely monitoring local real estate activity, strong underwriting procedures, construction monitoring, and by limiting the amount of construction development lending.

Commercial Loans.As noted above, the Banks are active commercial lenders.  The areas of emphasis include: loans to wholesalers, manufacturers, building contractors, developers, business services companies and retailers.  The Banks provide a wide range of business loans, including lines of credit for working capital and operational purposes and term loans for the acquisition of equipment and other purposes.  Collateral for these loans generally includes accounts receivable, inventory, equipment and real estate.  In addition, the Banks may take personal guarantees to help assure repayment.  Loans may be made on an unsecured basis if warranted by the overall financial condition of the borrower.  Commercial lines of credit are generally for 1 year and have floating rates.  Commercial term loans range from 1 to 7 years with the majority falling in the 3 to 5 year range with rates fixed for the duration of the loan.  A recent trend has seen a decrease in the percentage of the portfolio attributed to commercial loans.  This trend reflects decreased demand for working capital and equipment financing over the course of the last two years, caused by the difficult economic environment faced by many companies since 2001.  Repayment of commercial loans is largely dependent upon the cash flows generated by the operations of the commercial enterprise.  The Banks’ underwriting procedures identify the sources of those cash flows and seek to match the repayment terms of the commercial loans to the sources.  Secondary repayment sources are typically found in collateralization and guarantor support.

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Consumer Loans. The Banks also provide many types of consumer loans including motor vehicle, home improvement, home equity, signature loans and small personal credit lines.  Consumer loans typically have shorter terms and lower balances with higher yields as compared to our other loans, but generally carry higher risks of default.  Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances.  Home equity lending is a rapidly growing segment of the Banks’ business and the largest share of consumer loans, having replaced indirect automobile financing over the course of the last few years.  The Banks have scaled back indirect auto financing in response to lower profit potential caused by low rates and continual incentive financing programs offered by dealers.

Competition

The Company’s market area is highly competitive. Many financial institutions based in Aurora’s surrounding communities and in Chicago, Illinois, operate banking offices in the greater Aurora area or actively compete for customers within the Company’s market area. The Company also faces competition from finance companies, insurance companies, mortgage companies, securities brokerage firms, money market funds, loan production offices and other providers of financial services.

The Company competes for loans principally through the range and quality of the services it provides, interest rates and loan fees. Management believes that its long-standing presence in the community and personal service philosophy enhances its ability to compete favorably in attracting and retaining individual and business customers. The Company actively solicits deposit-related clients and competes for deposits by offering customers personal attention, professional service and competitive interest rates.

The Banks are subject to vigorous competition from other banks and savings and loan associations, as well as credit unions and other financial institutions in the area.  Within the Aurora banking market, which geographically covers the southern two-thirds of Kane County and the northern one-third of Kendall County, there are in excess of 20 other financial institutions. Within the Old Second Bank-Yorkville market, which includes portions of Kane and LaSalle counties and all of Kendall County, there are approximately 10 other banks or banking facilities and several savings and loan associations.

Under the Gramm-Leach-Bliley Act, which was enacted in 2000, securities firms and insurance companies that elect to become financial holding companies may acquire banks and other financial institutions.  This may significantly change the competitive environment in which the Company and the Banks conduct business.  The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services.  These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties.

Old Second Mortgage Company faces vigorous competition in its retail operations. Competition for its retail products is principally based on location, convenience, service, quality, reputation and price. Within its retail mortgage banking market, there are approximately four large banks, two national mortgage bankers, and a number of small or mid-sized brokerage operations.

Employees

At December 31, 2004, the Company employed 550 full-time equivalent employees. The Company places a high priority on staff development, which involves extensive training, including customer service training. New employees are selected on the basis of both technical skills and customer service capabilities. None of the Company’s employees are covered by a collective bargaining agreement with the Company. The Company offers a variety of employee benefits and management considers its employee relations to be excellent.

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                The Company maintains a corporate web site at http://www.o2bancorp.com.  The Company makes available free of charge on or through its web site the annual report on Form 10K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after the Company electronically files such material with, or furnish it to, the Securities and Exchange Commission.  Many of the Company’s policies, committee charters and other investor information are available on the web site. The Company will also provide copies of its filings free of charge upon written request to: J. Douglas Cheatham, Senior Vice President and Chief Financial Officer, Old Second Bancorp Inc., 37 South River Street, Aurora, Illinois 60506-4172

SUPERVISION AND REGULATION

General

Financial institutions, their holding companies and their affiliates are extensively regulated under federal and state law.  As a result, the growth and earnings performance of the Company may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory authorities, including the Illinois Department of Financial and Professional Regulation (the ”DFPR”), the Office of the Comptroller of the Currency (the “OCC”), the Board of Governors of the Federal Reserve System (the ”Federal Reserve”) and the Federal Deposit Insurance Corporation (the “FDIC”).  Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities and securities laws administered by the Securities and Exchange Commission (the ”SEC”) and state securities authorities have an impact on the business of the Company. The effect of these statutes, regulations and regulatory policies may be significant, and cannot be predicted with a high degree of certainty.

Federal and state laws and regulations generally applicable to financial institutions regulate, among other things, the scope of business, the kinds and amounts of investments, reserve requirements, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers and consolidations and the payment of dividends. This system of supervision and regulation establishes a comprehensive framework for the respective operations of the Company and its subsidiaries and is intended primarily for the protection of the FDIC-insured deposits and depositors of the Banks, rather than shareholders.

The following is a summary of the material elements of the regulatory framework that applies to the Company and its subsidiaries.  It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described. As such, the following is qualified in its entirety by reference to applicable law.  Any change in statutes, regulations or regulatory policies may have a material effect on the business of the Company and its subsidiaries.

The Company

General.  The Company, as the sole shareholder of the Banks, is a bank holding company.  As a bank holding company, the Company is registered with, and is subject to regulation by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended (the “BHCA”).  In accordance with Federal Reserve policy, the Company is expected to act as a source of financial strength to the Banks and to commit resources to support the Bank in circumstances where the Company might not otherwise do so.  Under the BHCA, the Company is subject to periodic examination by the Federal Reserve.  The Company is also required to file with the Federal Reserve periodic reports of the Company’s operations and such additional information regarding the Company and its subsidiaries as the Federal Reserve may require.

Acquisitions, Activities and Change in Control.  The primary purpose of a bank holding company is to control and manage banks.  The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company.  Subject to certain conditions (including deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States. In approving interstate acquisitions, the Federal

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Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.

The BHCA generally prohibits a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries.  This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve to be “so closely related to banking ... as to be a proper incident thereto.”  This authority would permit the Company to engage in a variety of banking-related businesses, including the operation of a thrift, consumer finance, equipment leasing, the operation of a computer service bureau (including software development), and mortgage banking and brokerage. The BHCA generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank holding companies.

Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature, incidental to any such financial activity or complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.  The Company has elected (and the Federal Reserve has accepted the Company’s election) to operate as a financial holding company.

Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.  “Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances at 10% ownership.

Capital Requirements.  Bank holding companies are required to maintain minimum levels of capital in accordance with Federal Reserve capital adequacy guidelines.  If capital levels fall below the minimum required levels, a bank holding company, among other things, may be denied approval to acquire or establish additional banks or non-bank businesses.

The Federal Reserve’s capital guidelines establish the following minimum regulatory capital requirements for bank holding companies: (i) a risk-based requirement expressed as a percentage of total assets weighted according to risk; and (ii) a leverage requirement expressed as a percentage of total assets.  The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8% and a minimum ratio of Tier 1 capital to total risk-weighted assets of 4%.  The leverage requirement consists of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly rated companies, with a minimum requirement of 4% for all others.  For purposes of these capital standards, Tier 1 capital consists primarily of permanent stockholders’ equity less intangible assets (other than certain loan servicing rights and purchased credit card relationships). Total capital consists primarily of Tier 1 capital plus certain other debt and equity instruments that do not qualify as Tier 1 capital and a portion of the company’s allowance for loan and lease losses.

The risk-based and leverage standards described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities.  Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 capital less all intangible assets), well above the minimum levels.  As of December 31, 2004, the Company had regulatory capital in excess of the Federal Reserve’s minimum requirements.

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Dividend Payments.  The Company’s ability to pay dividends to its shareholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies.  As a Delaware corporation, the Company is subject to the limitations of the Delaware General Corporation Law (the ”DGCL”). The DGCL allows the Company to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Additionally, policies of the Federal Reserve caution that a bank holding company should not pay cash dividends that exceed its net income or that can only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing.  The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations.  Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.

Federal Securities Regulation.  The Company’s common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the ”Exchange Act”).  Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act.

The Banks

General.  Old Second Bank-Yorkville and Old Second Bank-Kane County  (the “State Banks”) are Illinois-chartered banks, the deposit accounts of which are insured by the FDIC’s Bank Insurance Fund (“BIF”).  The State Banks are also members of the Federal Reserve System (“member banks”).  As Illinois-chartered, FDIC-insured member banks, the State Banks are subject to the examination, supervision, reporting and enforcement requirements of the DFPR, as the chartering authority for Illinois banks, the Federal Reserve, as the primary federal regulator of member banks, and the FDIC, as administrator of the BIF.

The Old Second National Bank of Aurora (the “National Bank”) is a national bank chartered by the OCC under the National Bank Act. The deposit accounts of the National Bank are insured by the BIF, and the National Bank is a member of the Federal Reserve System. The National Bank is subject to the examination, supervision, reporting and enforcement requirements of the OCC, the chartering authority for national banks. The FDIC, as administrator of the BIF, also has regulatory authority over the National Bank.

Deposit Insurance.  As FDIC-insured institutions, the Banks are required to pay deposit insurance premium assessments to the FDIC.  The FDIC has adopted a risk-based assessment system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their respective levels of capital and results of supervisory evaluations.  Institutions classified as well-capitalized (as defined by the FDIC) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (as defined by the FDIC) and considered of substantial supervisory concern pay the highest premium.  Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period.   During the year ended December 31, 2004, BIF assessments ranged from 0% of deposits to 0.27% of deposits.  For the semi-annual assessment period beginning January 1, 2005, BIF assessment rates will continue to range from 0% of deposits to 0.27% of deposits.

FICO Assessments.  Since 1987, a portion of the deposit insurance assessments paid by members of the FDIC’s Savings Association Insurance Fund (“SAIF”) has been used to cover interest payments due on the outstanding obligations of the Financing Corporation (“FICO”). FICO was created in 1987 to finance the recapitalization of the Federal Savings and Loan Insurance Corporation, the SAIF’s predecessor insurance fund. As a result of federal legislation enacted in 1996, beginning as of January 1, 1997, both SAIF members and BIF members became subject to assessments to cover the interest payments on outstanding FICO obligations until the final maturity of such obligations in 2019.  These FICO assessments are in addition to amounts assessed by the FDIC for deposit insurance. During the year ended December 31, 2004, the FICO assessment rate for BIF and SAIF members was approximately 0.02% of deposits.

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Supervisory Assessments.  All Illinois banks and national banks are required to pay supervisory assessments to the DFPR and the OCC, respectively, to fund the operations of those agencies.  The amount of the assessment paid by an Illinois bank to the DFPR is calculated on the basis of the institution’s total assets, including consolidated subsidiaries, as reported to the DFPR. In the case of a national bank, the amount of the assessment paid to the OCC is calculated using a formula that takes into account the bank’s size and its supervisory condition (as determined by the composite rating assigned to the bank as a result of its most recent OCC examination).  During the year ended December 31, 2004, the State Banks paid supervisory assessments to the DFPR totaling $87,543 and the National Bank paid supervisory assessments to the OCC totaling $264,238.

Capital Requirements.  Banks are generally required to maintain capital levels in excess of other businesses.  The federal bank regulatory agencies have established the following minimum capital standards for insured state and national banks, such as the Banks: (i) a leverage requirement consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated banks with a minimum requirement of at least 4% for all others; and (ii) a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8% and a minimum ratio of Tier 1 capital to total risk-weighted assets of 4%. For purposes of these capital standards, the components of Tier 1 capital and total capital are the same as those for bank holding companies discussed above.

The capital requirements described above are minimum requirements.  Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual institutions.  For example, regulations of the Federal Reserve and the OCC provide that additional capital may be required to take adequate account of, among other things, interest rate risk or the risks posed by concentrations of credit, nontraditional activities or securities trading activities.  Further, federal law and regulations provide various incentives for financial institutions to maintain regulatory capital at levels in excess of minimum regulatory requirements. For example, a financial institution that is “well-capitalized” may qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities and may qualify for expedited processing of other required notices or applications. Additionally, one of the criteria that determines a bank holding company’s eligibility to operate as a financial holding company is a requirement that all of its financial institution subsidiaries be “well-capitalized.” Under the regulations of the Federal Reserve and the OCC, in order to be “well-capitalized” a financial institution must maintain a ratio of total capital to total risk-weighted assets of 10% or greater, a ratio of Tier 1 capital to total risk-weighted assets of 6% or greater and a ratio of Tier 1 capital to total assets of 5% or greater.

Federal law also provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions.  The extent of the regulators’ powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation.  Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.

As of December 31, 2004: (i) none of the Banks was subject to a directive from the Federal Reserve (in the case of the State Banks) or the OCC (in the case of the National Bank) to increase its capital to an amount in excess of the minimum regulatory capital requirements; (ii) each of the Banks exceeded its minimum regulatory capital requirements under applicable capital adequacy guidelines; and (iii) each of the Banks was “well-capitalized,” as defined by applicable regulations.

10

Liability of Commonly Controlled Institutions.  Under federal law, institutions insured by the FDIC may be liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with the default of commonly controlled FDIC-insured depository institutions or any assistance provided by the FDIC to commonly controlled FDIC-insured depository institutions in danger of default. Because the Company controls each of the Banks, the Banks are commonly controlled for purposes of these provisions of federal law.

Dividend Payments.  The primary source of funds for the Company is dividends from the Banks.  Under the Illinois Banking Act, the State Banks generally may not pay dividends in excess of their net profits. The Federal Reserve Act also imposes limitations on the amount of dividends that may be paid by state member banks, such as the State Banks.  Generally, member banks may pay dividends out of their undivided profits, in such amounts and at such times as each bank’s board of directors deems prudent.  Without prior Federal Reserve approval, however, state member banks may not pay dividends in any calendar year that, in the aggregate, exceed their calendar year-to-date net income plus their retained net income for the two preceding calendar years.

Under the National Bank Act, the National Bank may pay dividends out of its undivided profits in such amounts and at such times as its board of directors deems prudent.  Without prior OCC approval, however, the National Bank may not pay dividends in any calendar year that, in the aggregate, exceeds its year-to-date net income plus its retained net income for the two preceding years.

The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.  As described above, each of the Banks exceeded its minimum capital requirements under applicable guidelines as of December 31, 2004.  As of December 31, 2004, approximately $60.2 million was available to be paid as dividends by the Banks.  Notwithstanding the availability of funds for dividends, however, the Federal Reserve (in the case of the State Banks) and the OCC (in the case of the National Bank) may prohibit the payment of any dividends if the agency determines such payment would constitute an unsafe or unsound practice.

Insider Transactions.  The Banks are subject to certain restrictions imposed by federal law on extensions of credit to the Company and its subsidiaries, on investments in the stock or other securities of the Company and its subsidiaries and the acceptance of the stock or other securities of the Company or it subsidiaries as collateral for loans made by the Banks.  Certain limitations and reporting requirements are also placed on extensions of credit by the Banks to their directors and officers, to directors and officers of the Company and its subsidiaries, to principal shareholders of the Company and to “related interests” of such directors, officers and principal shareholders.  In addition, federal law and regulations may affect the terms upon which any person who is a director or officer of the Company or one of its subsidiaries or a principal shareholder of the Company may obtain credit from banks with which the Banks maintain correspondent relationships.

Safety and Soundness Standards.  The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions.  The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.

In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals.  If an institution fails to comply with any of the standards set forth in the guidelines, the institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the institution’s rate of growth, require the institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal banking regulators, including cease and desist orders and civil money penalty assessments.

11

Branching Authority.  Illinois banks, such as the State Banks, have the authority under Illinois law to establish branches anywhere in the State of Illinois, subject to receipt of all required regulatory approvals. National banks headquartered in Illinois, such as the National Bank, have the same branching rights in Illinois as banks chartered under Illinois law, subject to OCC approval.

Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger.  The establishment of new interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is permitted only in those states that authorize such expansion.

                State Bank Investments and Activities. The State Banks generally are permitted to make investments and engage in activities directly or through subsidiaries as authorized by Illinois law.  However, under federal law and FDIC regulations, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank.  Federal law and FDIC regulations also prohibit FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines the activity would not pose a significant risk to the deposit insurance fund of which the bank is a member.  These restrictions have not had, and are not currently expected to have, a material impact on the operations of the State Banks.

Financial Subsidiaries.  Under Federal law and OCC regulations, national banks are authorized to engage, through “financial subsidiaries,” in any activity that is permissible for a financial holding company and any activity that the Secretary of the Treasury, in consultation with the Federal Reserve, determines is financial in nature or incidental to any such financial activity, except (i) insurance underwriting, (ii) real estate development or real estate investment activities (unless otherwise permitted by law), (iii) insurance company portfolio investments and (iv) merchant banking.  The authority of a national bank to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank must be well-managed and well-capitalized (after deducting from capital the bank’s outstanding investments in financial subsidiaries). Federal law also provides that state banks may invest in financial subsidiaries (assuming they have the requisite investment authority under applicable state law), subject to substantially the same conditions that apply to national bank investments in financial subsidiaries. None of the Banks has applied for or received approval to establish any financial subsidiaries.

Federal Reserve System.  Federal Reserve regulations, as presently in effect, require depository institutions to maintain non-interest earning reserves against their transaction accounts (primarily NOW and regular checking accounts), as follows: for transaction accounts aggregating $47.6 million or less, the reserve requirement is 3% of total transaction accounts; and for transaction accounts aggregating in excess of $47.6 million, the reserve requirement is $1.218 million plus 10% of the aggregate amount of total transaction accounts in excess of $47.6 million.  The first $7.0 million of otherwise reservable balances are exempted from the reserve requirements.  These reserve requirements are subject to annual adjustment by the Federal Reserve.  The Banks are in compliance with the foregoing requirements.

The statistical data required by Guide 3 of the Guides for Preparation and Filing of Reports and Registration Statements under the Securities Exchange Act of 1934 is set forth in the following pages. This data should be read in conjunction with the consolidated financial statements, related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as set forth in the 2004 Annual Report incorporated herein by reference (attached hereto as Exhibit 13). All dollars in the tables are expressed in thousands.

12

The following table sets forth certain information relating to the Company’s average consolidated balance sheets and reflects the yield on average earning assets and cost of average liabilities for the years indicated. Dividing the related interest by the average balance of assets or liabilities derives rates. Average balances are derived from daily balances.

ANALYSIS OF AVERAGE BALANCES,

TAX EQUIVALENT INTEREST AND RATES

Years ended December 31, 2004, 2003, and 2002

	2004							2003								2002
	Average							Average								Average
	Balance			Interest		Rate		Balance				Interest		Rate		Balance				Interest		Rate
ASSETS
Interest bearing deposits	$	307		$	4	1.14	%	$		576		$	1	0.15	%	$		67		$	1	1.49	%
Federal funds sold	3,967			58		1.47		9,627				105		1.09		42,036				664		1.58
Securities:
Taxable	320,185			10,624		3.32		314,724				10,883		3.46		277,316				13,899		5.01
Non-taxable (tax equivalent)	97,221			5,023		5.17		64,997				3,825		5.88		58,873				3,980		6.76
Total securities	417,406			15,647		3.75		379,721				14,708		3.87		336,189				17,879		5.32
Loans and loans held for sale	1,437,030			83,653		5.82		1,227,924				74,562		6.07		1,001,224				68,566		6.85
Total interest earning assets	1,858,710			99,362		5.35		1,617,848				89,376		5.52		1,379,516				87,110		6.31
Cash and due from banks	52,228			—		—		45,993				—		—		41,603				—		—
Allowance for loan losses	(18,295		)	—		—		(17,017			)	—		—		(13,837			)	—		—
Other noninterest-bearing assets	70,892			—		—		52,781				—		—		43,849				—		—
Total assets	$	1,963,535						$		1,699,605						$		1,451,131
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing transaction accounts	$	244,806		1,018		0.42		$		216,859		836		0.39		$		182,166		1,450		0.80
Savings accounts	515,646			5,403		1.05		508,337				5,430		1.07		460,603				8,661		1.88
Time deposits	696,013			18,602		2.67		541,588				16,967		3.13		441,315				16,946		3.84
Interest bearing deposits	1,456,465			25,023		1.72		1,266,784				23,233		1.83		1,084,084				27,057		2.50
Repurchase agreements	37,006			450		1.22		46,990				511		1.09		42,455				662		1.56
Federal funds purchased and other borrowed funds	71,515			1,037		1.45		33,369				477		1.43		14,172				277		1.95
Trust preferred debentures	31,625			2,486		7.86		15,286				1,233		8.07
Notes payable	1,638			43		2.63		619				14		2.23		348				13		3.74
Total interest bearing liabilities	1,598,249			29,039		1.82		1,363,048				25,468		1.87		1,141,059				28,009		2.45
Noninterest bearing deposits	227,912			—		—		198,942				—		—		170,589				—		—
Accrued interest and other liabilities	11,376			—		—		12,362				—		—		12,328				—		—
Stockholders’ equity	125,998			—		—		125,253				—		—		127,155				—		—
Total liabilities and stockholders’ equity	$	1,963,535						$	1,699,605							$	1,451,131
Net interest income (tax equivalent)				$	70,323	3.53	%					$	63,908	3.66	%					$	59,101	3.86	%
Net interest income (tax equivalent) to total earning assets						3.78	%							3.95	%							4.28	%
Interest bearing liabilities to earnings assets	85.99		%					84.25			%					82.71			%

Notes:	Nonaccrual loans are included in the above stated average balances.
	Tax equivalent basis is calculated using a marginal tax rate of 35%.

13

The following table allocates the changes in net interest income to changes in either average balances or average rates for earnings assets and interest bearing liabilities. The changes in interest due to both volume and rate have been allocated proportionately to the change due to balance and due to rate.  Interest income is measured on a tax equivalent basis using a 35% rate.

ANALYSIS OF YEAR-TO-YEAR CHANGES IN NET INTEREST INCOME

	2004 Compared to 2003									2003 Compared to 2002
	Change Due to									Change Due to
	Average Balance			Average Rate			Total Change			Average Balance			Average Rate			Total Change
EARNING ASSETS/INTEREST INCOME
Interest bearing deposits	$	—		$	3		$	3		$	2		$	(2	)	$	—
Federal funds sold	(75		)	28			(47		)	(399		)	(160		)	(559		)
Securities:
Taxable	187			(446		)	(259		)	1,699			(4,715		)	(3,016		)
Tax-exempt	1,711			(513		)	1,198			390			(545		)	(155		)
Loans and loans held for sale	12,275			(3,184		)	9,091			14,353			(8,357		)	5,996
TOTAL EARNING ASSETS	14,098			(4,112		)	9,986			16,045			(13,779		)	2,266
INTEREST BEARING LIABILITIES/INTEREST EXPENSE
Interest bearing transaction accounts	113			69			182			238			(852		)	(614		)
Savings accounts	78			(105		)	(27		)	823			(4,054		)	(3,231		)
Time deposits	4,369			(2,734		)	1,635			3,458			(3,437		)	21
Repurchase agreements	(117		)	56			(61		)	65			(216		)	(151		)
Federal funds purchased and other borrowed funds	553			7			560			291			(91		)	200
Trust preferred debentures	1,285			(32		)	1,253			—			1,233			1,233
Notes payable	27			2			29			7			(6		)	1
INTEREST BEARING LIABILITIES	6,308			(2,737		)	3,571			4,882			(7,423		)	(2,541		)
NET INTEREST INCOME	$	7,790		$	(1,375	)	$	6,415		$	11,163		$	(6,356	)	$	4,807

The following table presents the composition of the securities portfolio by major category as of December 31, of each year indicated:

SECURITIES PORTFOLIO COMPOSITION

	2004				2003				2002
	Amount		% of Portfolio		Amount		% of Portfolio		Amount		% of Portfolio
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities	$	992	0.22	%	$	2,011	0.49	%	$	1,509	0.39	%
U.S. Government agencies	313,169		69.14	%	320,539		77.98	%	282,435		72.57	%
States and political subdivisions	131,590		29.05	%	82,296		20.02	%	59,672		15.33	%
Mortgage-backed securities	185		0.04	%	1,541		0.37	%	42,476		10.91	%
Other securities	7,006		1.55	%	4,648		1.13	%	3,124		0.80	%
	$	452,942	100.00	%	$	411,035	100.00	%	$	389,216	100.00	%

14

SECURITIES AVAILABLE FOR SALE-MATURITY AND YIELDS

The following table presents the expected maturities or call dates and weighted average yield of securities by major category as of December 31, 2004. Yields are calculated on a tax equivalent basis using a 35% rate.

	Within One Year					After One But Within Five Years					After Five But Within Ten Years					After Ten Years					Total
	Amount			Yield		Amount			Yield		Amount			Yield		Amount			Yield		Amount			Yield
U.S. Treasury securities	$	—		0.00	%	$	992		1.59	%	$	—		0.00	%	$	—		0.00	%	$	992		1.59	%
U.S. government agencies	58,907			2.09	%	220,812			2.07	%	24,175			2.16	%	9,275			3.43	%	313,169			2.12	%
States and political subdivisions	6,156			2.19	%	16,475			3.18	%	46,511			3.67	%	62,448			3.67	%	131,590			3.54	%
	65,063			2.10	%	238,279			2.14	%	70,686			3.15	%	71,723			3.64	%	445,751			2.54	%
Mortgage-backed obligations and equity securities																					7,191
	$		65,063	2.10	%	$		238,279	2.14	%	$		70,686	3.15	%	$		71,723	3.64	%	$		452,942	2.54	%

As of December 31, 2004, net unrealized gains of $538,000, offset by deferred income taxes of $214,000, resulted in an increase in equity capital of $324,000. As of December 31, 2003, net unrealized gains of $4,992,000, offset by deferred income taxes of $1,987,000, resulted in an increase in equity capital of $3,005,000.

LOAN PORTFOLIO

The following table presents the composition of the loan portfolio at December 31, for the years indicated:

	2004			2003			2002			2001			2000
Commercial and industrial	$	170,535		$	191,390		$	208,535		$	186,435		$	165,049
Real estate - commercial	512,661			456,391			411,122			310,297			214,837
Real estate - construction	269,537			218,519			120,899			112,206			84,096
Real estate - residential	514,020			408,789			262,304			214,740			190,603
Installment	42,323			44,449			59,007			71,780			75,169
Gross loans	1,509,076			1,319,538			1,061,867			895,458			729,754
Unearned discount	—			—			—			(3		)	(22		)
Total loans	1,509,076			1,319,538			1,061,867			895,455			729,732
Allowance for loan losses	(15,495		)	(18,301		)	(15,769		)	(12,313		)	(9,690		)
Loans, net	$	1,493,581		$	1,301,237		$	1,046,098		$	883,142		$	720,042

MATURITY AND RATE SENSITIVITY OF LOANS

The following table sets forth the remaining contractual maturities for certain loan categories at December 31, 2004:

			Over 1 Year Through 5 Years						Over 5 Years
	One Year or Less		Fixed Rate			Floating Rate			Fixed Rate			Floating Rate			Total
Commercial and industrial	$	92,112	$		43,161	$	24,813		$	7,368		$	3,081		$	170,535
Real estate	256,990		389,436			150,304			107,933			391,555			1,296,218
Installment	12,141		25,204			3,932			725			321			42,323
Total	$	361,243	$	457,801		$		179,049	$		116,026	$		394,957	$	1,509,076

15

NONPERFORMING ASSETS

The following table sets forth the amounts of nonperforming assets at December 31, of the years indicated:

	2004		2003		2002		2001		2000
Nonaccrual loans	$	5,129	$	2,265	$	4,803	$	2,560	$	1,582
Loans past due 90 days or more
and still accruing interest	116		381		641		771		532
Restructured loans	—		—		—		—		—
Total nonperforming loans	5,245		2,646		5,444		3,331		2,114
Other real estate	—		663		131		—		357
Total nonperforming assets	$	5,245	$	3,309	$	5,575	$	3,331	$	2,471

Accrual of interest is discontinued on a loan when principal or interest is ninety days or more past due, unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual status, interest previously accrued but not collected in the current period is reversed against current period interest income. Interest accrued in prior years but not collected is charged against the allowance for loan losses. Interest income of approximately $202,000, $183,000, and $6,000 was recorded during 2004, 2003, and 2002, respectively, on loans in nonaccrual status at year-end. Interest income, which would have been recognized during 2004, 2003, and 2002, had these loans been on an accrual basis throughout the year, was approximately $344,000, $165,000, and $287,000, respectively.

ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

The following table summarizes, for the years indicated, activity in the allowance for loan losses, including amounts charged off, amounts of recoveries, additions to the allowance charged to operating expense, and the ratio of net charge-offs to average loans outstanding:

	2004				2003			2002				2001				2000
Average total loans (exclusive of loans held for sale)	$	1,421,483			$	1,183,290		$	969,982			$	794,147			$	662,566
Allowance at beginning of year	$		18,301		$	15,769		$		12,313		$		9,690		$		8,444
Charge-offs:
Commercial and industrial	402				971			752				1,063				402
Real estate	18				42			25				145				37
Installment and other loans	337				463			383				294				263
Total charge-offs	757				1,476			1,160				1,502				702
Recoveries:
Commercial and industrial	688				489			462				142				369
Real estate	11				25			128				4				8
Installment and other loans	152				243			221				139				191
Total recoveries	851				757			811				285				568
Net charge-offs (recoveries)	(94			)	719			349				1,217				134
Provision for loan losses	(2,900			)	3,251			3,805				3,840				1,380
Allowance at end of period	$		15,495		$	18,301		$		15,769		$		12,313		$		9,690
Net charge-offs (recoveries) to average loans	-0.01			%	0.06		%	0.04			%	0.15			%	0.02			%
Allowance at year end to average loans	1.09			%	1.55		%	1.63			%	1.55			%	1.46			%

16

The provision for loan losses is based upon management’s estimate of losses inherent in the portfolio and its evaluation of the adequacy of the allowance for loan losses.  Factors which influence management’s judgement in estimating loan losses are the composition of the portfolio, past loss experience, loan delinquencies, nonperforming loans, and other factors that, in management’s judgment, deserve evaluation in estimating loan losses.

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

The following table shows the Company’s allocation of the allowance for loan losses by types of loans and the amount of unallocated allowance, at December 31, of the years indicated:

	2004				2003				2002					2001
			Loan Type				Loan Type					Loan Type				Loan Type
			to Total				to Total					to Total				to Total
	Amount		Loans		Amount		Loans		Amount			Loans		Amount		Loans
Commercial and industrial	$	5,221	11.3	%	$	3,728	14.5	%	$		6,016	19.5	%	$	5,574	20.8	%
Real estate - commercial	1,349		34.1	%	5,766		34.7	%	4,500			38.8	%	3,233		34.6	%
Real estate - construction	6,144		17.8	%	6,080		16.5	%	1,166			11.5	%	827		12.5	%
Real estate - residential	700		34.0	%	277		30.9	%	500			24.7	%	654		24.1	%
Installment and other loans	400		2.8	%	1,410		3.4	%	945			5.5	%	799		8.0	%
Unallocated	1,681		—		1,040		—		2,642			—		1,226		—
Total	$	15,495	100.0	%	$	18,301	100.0	%	$	15,769		100.0	%	$	12,313	100.0	%

CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES,

AND OFF-BALANCE SHEET ARRANGEMENTS

The Company has various financial obligations that may require future cash payments.  The following table presents, as of December 31, 2004, significant fixed and determinable contractual obligations to third parties by payment date.

	Within One Year		One to Three Years		Three to FiveYears		Over Five Years		Total
	Amount		Amount		Amount		Amount		Amount
Deposits without a stated maturity	$	1,013,965	$	—	$	—	$	—	$	1,013,965
Certificates of deposit	423,526		353,784		7,574		—		784,884
Federal funds borrowed, security repurchase agreements and FHLB advances	119,242		—		—		—		119,242
Borrowed funds	2,700		—		—		—		2,700
Trust preferred debentures	—		—		—		31,625		31,625
Purchase obligations	3,035		1,280		1,057		2,341		7,713
Operating leases	349		737		538		170		1,794
Other	1,786		—		—		—		1,786
Total	$	1,564,603	$	355,801	$	9,169	$	34,136	$	1,963,709

Purchase obligations represent obligations under agreements to purchase goods or services that are enforceable and legally binding on the Company and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The purchase obligation amounts presented above primarily relate to certain contractual payments for services provided for information technology, capital expenditures, and the outsourcing of certain operational activities.

17

Commitments:  The following table details the amounts and expected maturities of significant commitments as of December 31, 2004.

	Within One Year		One to Three Years		Three to Five Years		Over Five Years		Total
Commitment to extend credit:
Commercial secured by real estate	$	69,405	$	13,155	$	4,389	$	15,458	$	102,407
Revolving open end residential	3,631		7,735		11,298		92,041		114,705
Other	97,999		48,949		604		13,476		161,028
Financial standby letters of credit	14,007		220		—		—		14,227
Performance standby letters of credit	22,448		3,761		25		—		26,234
Commercial letters of credit	1,286		—		—		—		1,286
Total	$	208,776	$	73,820	$	16,316	$	12,975	$	419,887

Commitments to extend credit do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.

SELECTED RATIOS

The following table presents selected financial ratios as of or for the year ended December 31, for the years indicated:

	2004		2003		2002
Return on average total assets	1.34	%	1.30	%	1.39	%
Return on average equity	20.86	%	17.65	%	15.84	%
Average equity to average assets	6.42	%	7.37	%	8.76	%
Dividend payout ratio	23.47	%	25.48	%	27.66	%

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Item 2.    Properties

The Company’s corporate headquarters and the main office of Old Second National Bank are located at 37 South River Street, Aurora, Illinois. Old Second Bank has full-service branches located in Illinois at: 1991 West Wilson Street, Batavia; 4080 Fox Valley Center Drive, Aurora; 555 Redwood Drive, Aurora; 1200 Douglas Road, Oswego; 200 West John Street, North Aurora; 1350 North Farnsworth Avenue, Aurora; Cross Street at Illinois and Route 47, Sugar Grove; 815 E Ogden Avenue, Naperville; 23 South Fourth Street, Geneva; 801 South Kirk Road, St. Charles;  1230 North Orchard Road, Aurora;  888 N. LaFox, South Elgin; 2761 Black Rd., Joliet and 5024 Ace Ln., Naperville.  Old Second Bank has trust offices at 37 South River Street in Aurora.

Old Second Bank-Yorkville is located at 102 East Van Emmon Street, Yorkville, with branches at 408 East Countryside Parkway in Yorkville, 6800 West Route 34 in Plano, 323 East Norris Drive in Ottawa and 410 East Church Street in Sandwich. Old Second Bank-Kane County is located at 749 North Main Street in Elburn with branches at 40W422 Route 64 in Wasco, at 194 South Main Street in Burlington, 1100 South County Line Road, Maple Park, 2 S 101 Harter Road, Kaneville, 1810 Dekalb Avenue, Sycamore and 1000A South State St., Hampshire.

All Banks have onsite 24 hour Automatic Teller Machines (“ATMs”). Old Second National Bank also has twenty-four offsite ATMs, Yorkville has two offsite ATMs, and Kane has one offsite ATM.  Their customers can use certain other financial institutions’ offsite ATMs to complete deposit, withdrawal, transfer, and other banking transactions.

The Company or its subsidiaries own the land and buildings for all of the locations listed above except the following; 815 E Ogden Avenue, Naperville; 23 South Fourth Street, Geneva; 888 N LaFox, South Elgin, 2761 Black Rd., Joliet, 5024 Ace Lane, Suite 120, Naperville, 2S101 Harter Road, Kaneville and 410 East Church Street in Sandwich which are leased offices.  The office at 6800 West Route 34 in Plano is leased space in a Wal-Mart facility.

Old Second Mortgage Company operates a retail division from leased offices in St. Charles, Sycamore, Wheaton, and Aurora, Illinois. The main office is located at 2325 Dean Street in St. Charles.

Item 3.    Legal Proceedings

The Company and its subsidiaries have, from time to time, 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 Banks or on the consolidated financial position of the Company.

Item 4.    Submission of Matters to a Vote of Security Holders

There were no items submitted to a vote of security holders in 2004.

19

PART II

Item 5.    Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company incorporates by reference the information contained on page 38 of the 2004 Annual Report (attached hereto as Exhibit 13) under the caption “Corporate Information.” As of January 31, 2005 there were approximately 1,200 holders of record of the Company’s common stock.

The Company also incorporates by reference the information contained on pages 33 and 34 of the 2004 Annual Report (attached hereto as Exhibit 13) under the “Notes to Consolidated Financial Statements Note Q: Capital.”

                The Company paid dividends as set forth in the table incorporated by reference above. The Company’s ability to pay dividends to shareholders is largely dependent upon the dividends it receives from the Banks, and the Banks are subject to regulatory limitations on the amount of cash dividends it may pay. See “Business — Supervision and Regulation — The Company — Dividend Payments” and “Business — Supervision and Regulation — The Banks — Dividend Payments” for a more detailed description of these limitations. The Company has the right to, and may from time to time, enter into borrowing arrangements or issue other debt instruments, the provisions of which may contain restrictions on payment of dividends and other distributions on the Company’s common stock. The Company has issued $30.2 million in junior subordinated debentures to Old Second Capital Trust I in connection with its trust preferred offering.  Under the terms of the debentures, the Company may be prohibited, under certain circumstances, from paying dividends on shares of its common stock. None of these circumstances currently exist. As of the date hereof, the Company has not entered into any other arrangements that contain restrictions on the payment of dividends and the Company expects to be able to continue to pay dividends in the future.

                The Company did not repurchase any shares of it’s common stock in the fourth quarter, 2004.

Item 6.    Selected Financial Data

The Company incorporates by reference the information contained on page 4 of the 2004 Annual Report (attached hereto as Exhibit 13) under the caption “Old Second Bancorp Inc. and Subsidiaries Financial Highlights.”

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company incorporates by reference the information contained on pages 5 - 14 of the 2004 Annual Report (attached hereto as Exhibit 13) under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company incorporates by reference the information contained on pages 12 of the 2004 Annual Report (attached hereto as Exhibit 13) under the caption “Interest rate risk.”

20

Item 8.    Financial Statements and Supplementary Data

The Company incorporates by reference the following financial statements and related notes from the 2004 Annual Report (attached hereto as Exhibit 13):

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Cash Flows

Consolidated Statements of Changes in Stockholders’ Equity

Notes to Consolidated Financial Statements

Independent Registered Public Accounting Firm's Report

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

                None

Item 9A.  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 December 31, 2004. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's internal controls were effective.

                During 2004, management performed a comprehensive evaluation of the allowance for loan losses. As a result of this evaluation, changes were made that enhanced the methodology of determining the adequacy of the allowance for loan losses. Other than this change, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls.

Management’s Report on Internal Control Over Financial Reporting

                The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a - 15(f) under the Securities Exchange Act of 1934.  The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

                As of December 31, 2004, management assessed the effectiveness of the Company’s internal control over financial reporting based on the framework established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on this evaluation, management has determined that the Company’s internal control over financial reporting was effective as of December 31, 2004.

                Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued an attestation report on management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

        Old Second Bancorp, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Old Second Bancorp, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).  Old Second Bancorp, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

21

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Old Second Bancorp, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria.  Also, in our opinion, Old Second Bancorp, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based onthe COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2004 consolidated financial statements of Old Second Bancorp, Inc. and our report dated March 4, 2005 expressed anunqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Chicago, Illinois

March 4, 2005

Item 9B.  Other Information

                 None

22

PART III

Item 10. Directors and Executive Officers of the Registrant

The Company incorporates by reference the information contained in the Proxy Statement for the 2004 Annual Meeting of Stockholders under the caption “Election of Directors” and “Corporate Governance and the Board of Directors.”

Executive Officers of the Registrant and Subsidiary

Name, Age and Year
Became Executive Officer
of the Registrant	Positions with Registrant
William B. Skoglund	Chairman of the Board
Age 54 1992	President and CEO of the Company
J. Douglas Cheatham Age 48 1999	Senior Vice-President and Chief Financial Officer of the Company since May 1999.  Previously, Mr. Cheatham was Vice-President and Chief Financial Officer of Merchants Bancorp, Inc.
James L. Eccher	President and Chief Executive Officer of Old Second National Bank since 2003.
Age 39 2005

There are no arrangements or understandings between any of the executive officers or any other persons pursuant to which any of the executive officers have been selected for their respective positions.

Section 16(a) of the Securities Exchange Act of 1934 requires directors, executive officers and 10% stockholders of the Company file reports of ownership and changes in ownership with the Securities and Exchange Commission.  Such persons are also required to furnish the Company with copies of all Section 16 (a) forms they file.  Based solely upon a review of these forms, the Company is not aware that any of our directors, executive officers or 10% stockholders failed to comply with the filing requirements of Section 16(a) during 2004.

Item 11. Executive Compensation

The Company incorporates by reference the information contained in the Proxy Statement for the 2004 Annual Meeting of Stockholders under the caption “Election of Directors,” and under the caption “Executive Compensation.” The sections in the Proxy Statement marked “Compensation Committee Report on Executive Compensation” and “Stockholder Return Performance Presentation” is furnished for the information of the Commission and is not deemed “filed” as part of this Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and related Stockholder Matters

The Company incorporates by reference the information contained in the Proxy Statement for the 2004 Annual Meeting of Stockholders under the caption “Security Ownership of Certain Beneficial Owners and Management.”

23

The table below sets forth the following information as of December 31, 2004 for (i) all compensation plans previously approved by the Company’s stockholders and (ii) all compensation plans not previously approved by the Company’s stockholders:

(a) the number of securities to be issued upon the exercise of outstanding options, warrants and rights;

(b) the weighted-average exercise price of such outstanding options, warrants and rights;

(c) other than securities to be issued upon the exercise of such outstanding options, warrants and rights, the number of securities remaining available for future issuance under the plans.

EQUITY COMPENSATION PLAN INFORMATION
Plan category	Number of securities to be issued upon the exercise of outstanding options	Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance
Equity compensation plans approved by security holders	1,333,332	$	19.250	399,666
Equity compensation plans not approved by security holders	—	—		—
Total	1,333,332	$	19.250	399,666

Security holders approved 100,000 shares in 1994 and 250,000 shares in 2002 to be issued upon the exercise of options.  Subsequent stock splits are reflected in the table above.

Item 13. Certain Relationships and Related Transactions

The Company incorporates by reference the information contained in the Proxy Statement for the 2004 Annual Meeting of Stockholders under the caption “Transactions with Management.”

Item 14. Principal Accounting Fees and Services

The Company incorporates by reference the information contained in the Proxy Statement for the 2004 Annual Meeting of Stockholders under the caption “Ratification of our Independent Registered Public Accounting Firm.”

24

PART IV

Item 15. Exhibits and Financial Statement Schedules

     (1) Index to Financial Statements

The following consolidated financial statements and related notes are incorporated by reference from the 2004 Annual Report (attached hereto as Exhibit 13).

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Cash Flows

Consolidated Statements of Changes in Stockholders’ Equity

Notes to Consolidated Financial Statements

Independent Registered Public Accounting Firm’s Report

     (2)  Financial Statement Schedules

All financial statement schedules as required by Item 8 of Form 10-K have been omitted because the information requested is either not applicable or has been included in the consolidated financial statements or notes thereto.

     (3) Exhibits

The following exhibits required by Item 601 of Regulation S-K are included along with this 10-K filing:

Item 601
Table II. No
3.1	Articles of Incorporation of Old Second Bancorp Inc. (filed as an exhibit to of the Company’s S-14 filed on January 22, 1982).
3.2	By-laws of Old Second Bancorp Inc. (filed as an exhibit to of the Company’s S-14 filed on January 22, 1982).
10.1	Form of Compensation and Benefits Assurance Agreements for Mr. Skoglund and Mr. Cheatham (filed as an exhibit to of the Company’s 10 - K filed on March 27, 2000).
10.2	Old Second Bancorp Inc. Employees 401 (k) Savings Plan and Trust (filed as an exhibit to the Company’s Form S-8 filed on June 9, 2000).
10.3	Form of indenture relating to trust preferred securities
10.4	Promissory note to the benefit of Marshall & Ilsley Bank
10.5	Old Second Bancorp, Inc. 2002 Long Term Incentive Plan (filed as an exhibit to the Company’s DEF14A filed on March 12, 2002)
10.6	Compensation and Benefits Assurance Agreement for Mr. Eccher (filed as an exhibit to the Company’s Form 8-K filed on February 10, 2005)
10.7	Summary of fees for board of directors
13.1	The Company’s 2004 Annual Report to Stockholders
22.1	A list of all subsidiaries of the Company
23.1	Consent of Ernst & Young LLP

25

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 Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

26

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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/ William B. Skoglund
		William B. Skoglund
		Chairman of the Board, Director
		President and Chief Executive Officer
		(principal executive officer)
	BY:	/s/ J. Douglas Cheatham
		J. Douglas Cheatham
		Senior Vice-President and
		Chief Financial Officer, Director
		(principal financial officer)

DATE:    March 15, 2005

27

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
	Chairman of the Board, Director
/s/ William B. Skoglund	President and Chief Executive Officer	March 15, 2005
William B. Skoglund
	Senior Vice-President and
/s/ J. Douglas Cheatham	Chief Financial Officer, Director	March 15, 2005
J. Douglas Cheatham
/s/ Walter Alexander	Senior Director	March 15, 2005
Walter Alexander
/s/ Edward Bonifas	Director	March 15, 2005
Edward Bonifas
/s/ Marvin Fagel	Director	March 15, 2005
Marvin Fagel
/s/ Barry Finn	Director	March 15, 2005
Barry Finn
/s/ William Kane	Director	March 15, 2005
William Kane
/s/ Kenneth Lindgren	Director	March 15, 2005
Kenneth Lindgren
/s/ Jesse Maberry	Director	March 15, 2005
Jesse Maberry
/s/ William Meyer	Director	March 15, 2005
William Meyer
/s/ D. Chet McKee	Director	March 15, 2005
D. Chet McKee
/s/ Gerald Palmer	Director	March 15, 2005
Gerald Palmer
/s/ James Carl Schmitz	Director	March 15, 2005
James Carl Schmitz
/s/ Dr. Christine Sobek	Director	March 15, 2005
Dr. Christine Sobek

28

EXHIBIT NO.	DESCRIPTION OF EXHIBITS
3.1	Articles of Incorporation of Old Second Bancorp Inc. (filed as an exhibit to of the Company’s S-14 filed on January 22, 1982).
3.2	By-laws of Old Second Bancorp Inc. (filed as an exhibit to of the Company’s S-14 filed on January 22, 1982).
10.1	Form of Compensation and Benefits Assurance Agreements for Mr. Skoglund and Mr. Cheatham (filed as an exhibit to the Company’s 10-K filed on March 27, 2000).
10.2	Old Second Bancorp Inc. Employees 401 (k) Savings Plan and Trust (filed as an exhibit to the Company’s Form S-8 filed on June 9, 2000).
10.3	Form of indenture relating to trust preferred securities (filed as exhibit 4.1 to the Company’s Form S-3 filed on May 20, 2003).
10.4	Promissory note to the benefit of Marshall & Ilsley Bank (filed as Exhibit (b) (1) to the Company’s Schedule TO-I filed on May 20, 2003).
10.5	Old Second Bancorp, Inc. 2002 Long Term Incentive Plan (filed as an exhibit to the Company’s DEF14A filed on March 12, 2002)
10.6	Compensation and Benefits Assurance Agreement for Mr. Eccher (filed as an exhibit to the Company’s Form 8-K filed on February 10, 2005)
10.7	Summary of fees for board of directors
13.1	The Company’s 2004 Annual Report to Stockholders
22.1	A list of all subsidiaries of the Company
23.1	Consent of Ernst & Young LLP
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 Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

29

EX-10.7

Exhibit 10.7

SUMMARY OF FEES FOR BOARD OF DIRECTORS

Each director of Old Second Bancorp, Inc. also serves as a director of Old Second National Bank, and may serve on boards of its other subsidiaries.  In 2004, non-employee directors received $750 for every board meeting and $500 for every committee meeting attended if there were no other bank-level meetings held that day.  Non-employee directors of Old Second National Bank received a $10,000 annual retainer, $750 for every bank board meeting attended and $500 for each committee meeting attended.  Additionally, non-employee directors of Old Second Bank-Yorkville and Old Second Bank-Kane County receive $500 per meeting and non-employee directors of Old Second Mortgage receive $300 per meeting.

Non-employee directors of Old Second National Bank are also eligible to receive options pursuant to the Old Second Bancorp, Inc. 2002 Long Term Incentive Plan.  The Company maintains the Old Second Bancorp Directors Fee Deferral Plan, under which directors are permitted to defer receipt of their directors’ fees and earn a rate of return based upon the performance of the Old Second Bancorp Common Stock.  The plan is unqualified and the directors have no interest in the trust.  The deferred fees and any earnings thereon are unsecured obligations of Old Second.

EX-13.1

Exhibit 13.1

Old Second Bancorp Inc.

2004 Annual Report

Table of Contents

Report of Independent Auditors

Corporate Information

Bancorp and Subsidiaries Consolidated Balance Sheet

Bancorp Highlights:

Old Second National Bank

Bancorp Directors

Old Second Bank-Yorkville

Old Second Bank-Kane County

Old Second Mortgage

2004 YearEnd
Letter to Stockholders

For Old Second Bancorp, 2004 was an exceptional year. We ended the year with over $2 billion in assets and achieved records in earnings and growth.

The following represent some of the noteworthy achievements for the year:

•Net income for the year was $26.3 million versus $22.1 million a year ago. This is up 19% from record income in 2003.

•Basic earnings of $1.96 per share compared with $1.57 per share in 2003, a 25% increase.

•Dividends increased for the 38th consecutive year.

•Loans increased to $1.5 billion, a 14% increase.

•Deposits increased to $1.8 billion, an 18% increase.

•Return on equity was at 20.86%, versus 17.65% in 2003.

•Return on assets was at 1.34%, versus 1.30% in 2003.

•Total assets of the holding company grew 14% to approximately $2.1 billion.

In 2004, we were able to maintain a quality loan portfolio, with net recoveries for the year of $94,000 compared to $719,000 in net charge-offs in 2003. In the fourth quarter of last year management conducted a comprehensive review of our allowance for loan losses. Although nonperforming loans increased from $2.6 million at year-end 2003 to $5.3 million at year-end 2004, as a result of our detailed analysis we made a negative provision to the reserve of $2.9 million before taxes. This resulted in an increase in income. The reserve ended the year at $15.5 million, or 1.03% of loans.

In addition, earnings for the year were negatively impacted in the second quarter by a $1.75 million charge for the settlement of a damage award.

The markets in which our banks and branches are located continue to have very strong growth and contain some of the largest and fastest growing cities in Illinois and the nation. Aurora, our headquarters, is now the second largest city in Illinois with a population of over 150,000.

Our “right size” strategy and our de novo branching into new contiguous markets have allowed us to grow our market share and we continue to have the #1 deposit market share in both Kane and Kendall Counties. The “right size” strategy blends the best that large banks have to offer with the best of small banks and is a large contributor to our growth and success.

Our de novo branching strategy involves our opening of branches in contiguous fast growing areas like Elgin, Joliet, Hampshire, Plainfield, and Naperville/Lisle. We now have 27 locations with 4 more in process.

Our sales culture throughout the company continues to be strong and all employees are a part of this dedicated philosophy.

During 2004, we continued working through the various corporate governance issues presented in the Sarbanes-Oxley laws. We have long believed that many of the principles now being imposed

2

on public companies through rules and regulations are important. In addition, the banking industry has always been subject to a greater degree of scrutiny than non-public companies in unregulated industries. Strong corporate governance is an ongoing process and we are proud of our long-time achievements in this area. You are encouraged to visit our website at www.o2bancorp.com for the various corporate governance and investor relations sites located there.

During 2004, a two-for-one stock split, effected in the form of a stock dividend, took place. Our stock closed at $31.88 on December 31, 2004 and continued with our strong price appreciation of 28.8% for 2004.

We look forward to the challenges of 2005 and believe we are well positioned in great markets with solid strategies and an exceptional staff that will allow us to continue with strong results for many years to come.

We are grateful to all of our employees who are key to our success. I would also like to thank our Directors for their guidance and support and our stockholders for their confidence and loyalty as well as our customers for their business.

/s/ William B. Skoglund

William B. Skoglund

Chairman

3

Old Second Bancorp Inc. and Subsidiaries

Financial Highlights

(In thousands, except share data)

	2004			2003		2002		2001		2000
Balance sheet items at year-end
Total assets	$	2,102,266		$	1,838,844	$	1,608,087	$	1,333,348	$	1,149,442
Loans	1,509,076			1,319,538		1,061,867		895,455		729,732
Deposits	1,798,849			1,524,634		1,390,661		1,090,816		996,478
Notes payable	2,700			500		—		33,393		3,429
Junior subordinated debentures	31,625			31,625		—		—		—
Stockholders’ equity before other comprehensive income	134,664			113,989		127,700		120,220		111,491
Stockholders’ equity	134,988			116,994		133,076		124,946		112,962
Results of operations
Net interest income	$	68,359		$	62,376	$	57,482	$	49,501	$	41,325
Provision for loan losses	(2,900		)	3,251		3,805		3,840		1,380
Net income	26,287			22,108		20,146		17,223		13,471
Per share data
Basic earnings per share	$	1.96		$	1.57	$	1.36	$	1.12	$	0.86
Diluted earnings per share	1.94			1.56		1.35		1.11		0.86
Dividends declared	0.46			0.40		0.38		0.28		0.23
Stockholders’ equity before other comprehensive income	10.03			8.51		8.64		7.90		7.17
Stockholders’ equity	10.06			8.74		9.00		8.21		7.26
Weighted average shares outstanding	13,413,263			14,096,244		14,859,764		15,390,450		15,702,552
Shares outstanding at year-end	13,424,346			13,387,480		14,786,208		15,215,184		15,552,250

Note: The numbers of shares and per share amounts have been adjusted to reflect the May 21, 2002 four-for-three and the June 15, 2004 two-for-one stock splits, both effected in the form of a stock dividend.

4

Old Second Bancorp Inc. and Subsidiaries
Management’s Discussion and Analysis
of Financial Condition and Results of Operations

Overview

Old Second Bancorp is a financial services company with its main headquarters located in Aurora, Illinois. The consolidated financial statements include Old Second Bancorp Inc. and its wholly owned subsidiaries, which are together referred to as the “Company”:

•The Old Second National Bank of Aurora (“Old Second Bank”)

•Old Second Bank - Yorkville

•Old Second Bank - Kane County

•Old Second Financial, Inc., which provides insurance agency services.

•Old Second Mortgage Company, which provides mortgage-banking services. During 2002, Old Second Mortgage Company became a wholly owned subsidiary of Old Second Bank. Inter-company transactions and balances are eliminated in consolidation.

•Old Second Capital Trust I, which was formed for the exclusive purpose of issuing trust preferred securities in an offering that was completed in July 2003.

•Old Second Affordable Housing Fund, L.L.C., which was formed for the purpose of providing down payment assistance for home ownership to qualified individuals.

The banking subsidiaries are referred to as the “Banks.”

The Company provides financial services through its twenty-five banking locations and four mortgage banking offices located in Kane, Kendall, DeKalb, DuPage and LaSalle counties in Illinois. In addition, a branch in Joliet, Illinois, opened in January 2005, and a new branch in Lisle, Illinois, will open in the first quarter of 2005. Our primary deposit products are checking, savings, and certificates of deposit, and our primary lending products are residential and commercial mortgages, construction lending, commercial and installment loans. A major portion of our loans are secured by various forms of collateral including real estate, business assets, consumer property, and other items, although borrower cash flow may also be a primary source of repayment. Old Second Bank also engages in trust operations. Inter-company transactions and balances are eliminated in consolidation.

The Company recorded net income of $26.3 million or $1.94 diluted earnings per share in 2004, which compares with $22.1 million, or $1.56 per share in 2003, and $20.1 million, or $1.35 per share in 2002. Basic earnings per share were $1.96 in 2004, $1.57 in 2003, and $1.36 in 2002. Growth in net interest income was the primary cause of the increase in net income. Net interest income grew $6.0 million (9.6%) to $68.4 million in 2004, and grew $4.9 million (8.5%) to $62.4 million in 2003, due to an increase in earning assets in each year and a decrease in deposit rates. Year-end total assets were $2.10 billion as of December 31, 2004, an increase of $263.0 million from $1.84 billion as of December 31, 2003. Average assets were $1.96 billion, $1.70 billion, and $1.45 billion in 2004, 2003, and 2002, respectively.

Application of critical accounting policies

The Company’s consolidated financial statements are prepared in accordance with United States generally accepted accounting principles 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 A to the consolidated financial statements. 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 on how those values are determined.

Management has determined that our accounting policies with respect to the allowance for loan losses is the accounting area requiring subjective or complex

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judgments that is most important to the Company’s financial position and results of operations, and therefore, is our only critical accounting policy.  The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the consolidated statement of condition. The allowance for loan losses is a valuation allowance for credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using various risk factors including, but not limited to, past loan loss experience, known and inherent risks in the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for losses inherent in the loan portfolio. A loan is considered impaired when it is probable all contractual principal and interest due will not be received according to the terms of the loan agreement. The value of the loan is determined based on the present value of the future cash flows, discounted at the loan’s original effective interest rate, or the fair value of underlying collateral, if the loan is collateral dependent. There were no material impaired loans as of December 31, 2004 or December 31, 2003. In addition, a discussion of the factors driving changes in the amount of the allowance for loan losses is included in the Provision for Loan Losses section that follows.

Results of operations

Net interest income

Net interest income is the difference between interest income earned on earning assets and interest expense paid on interest bearing liabilities. As such, net interest income is affected by changes in the volume and yields on earning assets and the volume and rates paid on interest bearing liabilities. Net interest margin is the ratio of tax-equivalent net interest income to average earning assets. Increases in net interest income during this period were primarily the result of increases in average earning assets, which more than offset a decline in the net interest margin.

Net interest income was $68.4 million in 2004, $62.4 million in 2003, and $57.5 million in 2002. Average earning assets were $1.86 billion in 2004, an increase of $240.9 million (14.9%) from $1.62 billion in 2003. Average earning assets were $1.38 billion in 2002. Average loans increased $238.2 million (20.1%) from $1.183 billion in 2003 to $1.421 billion in 2004. During 2003, average loans increased $213.3 million (22.0%) from $970.0 million in 2002. Average interest bearing liabilities were $1.60 billion in 2004, an increase of $233.8 million (17.2%) from $1.36 billion in 2003. In 2003, average interest bearing liabilities increased $220.0 million (19.3%) from $1.14 billion in 2002. The net interest margin was 3.78%, 3.95%, and 4.28%, in 2004, 2003, and 2002, respectively.

Given the Company’s mix of interest bearing liabilities and interest earning assets on December 31, 2004, the net interest margin could be expected to increase in a rising rate environment and conversely, to decline in a falling interest rate environment. After being held stable at 1.00% for 12 straight months, 2004 Federal Funds saw a trend of general increases in interest rate levels starting in June. The Federal Open Market Committee (“FOMC”) has increased the target for the Federal Funds rate 25 basis points at each of its last 6 meetings, increasing the rate from 1.00% on May 4, 2004, to 2.5% by February 2, 2005. This resulted in a total increase of 125 basis points during 2004, the highest Federal Funds rate since October 2, 2001, when the rate was also 2.50%. These actions caused a corresponding increase in the Bank’s prime rate from 4.00% to 5.25% during this same time period in 2005. Costs associated with generating an 18% deposit growth in 2004 contributed to a decline in the net interest margin. This was partially offset by the positive impact of market rate increases and a slightly sensitive balance sheet. Since the Federal Reserve began increasing rates in May 2004, the decline in the net interest margin slowed. The net interest margin decreased from 3.91% in the first quarter to 3.81% in the second quarter, but remained relatively stable in the second half of 2004, at 3.72% in the third quarter and 3.71% in the fourth quarter.

Provision for loan losses

In 2004, the Company released $2.9 million of the allowance for loan losses. The provision for loan losses was $3.3 million for 2003 and $3.8 million for 2002. The determination by management to reduce the allowance for loan losses was based on a number of

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factors, including the quality of the loan portfolio and favorable loan loss experience. Provisions for loan losses are made to provide for probable and estimable losses inherent in the loan portfolio. In the fourth quarter of 2004, management conducted a comprehensive review of its allowance for loan losses. As a result of enhancements to the methodology and internal evaluations of probable and estimable losses, management determined that the adjustment was appropriate.

Net recoveries were $94,000 in 2004. Net charge-offs were $719,000 and $349,000 in 2003 and 2002, respectively. When compared with total loans, net charge-offs (recoveries) as a percent of total average loans were (0.01%), 0.06%, and 0.04%, in 2004, 2003, and 2002.

The allowance for loan losses was $15.5 million or 1.03% of loans and 295.4% of nonperforming loans as of December 31, 2004. This compares with an allowance for loan losses of $18.3 million or 1.39% of total loans as of December 31, 2003, which was 691.7% of nonperforming loans. Nonperforming loans are defined as nonaccrual loans, restructured loans, and loans past due ninety days or more and still accruing.

The allowance for loan losses consists of specific reserves, allocated general reserves, and unallocated reserves. The components of the allowance for loan losses represent estimations pursuant to SFAS 5, Accounting for Contingencies, and SFAS 114, Accounting by Creditors for Impairment of a Loan. The allocated component of the allowance for loan losses reflects expected losses resulting from analyses developed through specific credit allocations for individual loans and historical loss experience for each loan category.

Specific allocations

Management on a quarterly basis determines the specific allocations. This is done by reviewing, on an individual loan basis, all loans considered Impaired under SFAS 114 and 118, as well as all Problem and Watch loans.

SFAS 114 defines a loan as impaired when, based on current information and events, it is probable that a creditor may be unable to collect all amounts due according to the contractual terms of the loan agreement. Problem loans (Risk rate 6) are defined by the Company’s loan policy as “A credit that is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness that jeopardizes the liquidation of the debt. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified.”

Watch loans (Risk rate 5) are defined by the Company’s loan policy as “Credits or Other Assets Especially Mentioned, are in this category because they are currently protected, but exhibit potential weaknesses, which if not corrected could result in the credit becoming an unwarranted credit risk. No loss of principal or interest is currently anticipated. Specific conditions that apply to a 5 rated credit are further outlined in the OCC Handbook, under OAEM (Other Assets Especially Mentioned).”

In addition, nonaccrual loans, loans over 90 days past due, troubled debt restructurings or any loans considered doubtful or loss are reviewed. The individual loan officers analyze these loans on a quarterly basis with the results reported to the Loan Review Committee on a credit management report.

Specific allocations, if necessary, are determined at a quarterly meeting, which is chaired by the Vice President of Loan Review.  The committee consists of the Company President, the Bank Presidents, the Senior Lender, and other senior lenders who are members of the loan committee

Management allocations/general reserves

On a quarterly basis, management considers a variety of factors to determine the appropriate level of general reserves for inherent loan losses, including historical net loss experience, volume trends in delinquencies and nonaccruals, national and local economic conditions, and downturns in specific local industries. These factors are considered on a quarterly basis and are adjusted when appropriate. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to make additional provisions to the allowance based on their judgments about information available to them at the time of their examination.

The unallocated portion of the allowance for loan losses recognizes inherent but undetected losses in the

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loan portfolio. While management analyzes customer performance, ratings migration, economic conditions, and interest rate risk, all potential risks of making loans are not determinable. This is due to several factors including:

•     Timing delays in receiving information regarding a customer’s financial condition.

•      Changes in individual business climates.

•      The judgmental nature of individual loan evaluations and collateral assessments.

•      The open interpretation of economic trends.

The analysis of these factors involves a high degree of judgment by management. Because of the imprecision surrounding these factors, management estimates a range of inherent losses and maintains the “unallocated” allowance that is not allocated to a specific category.

While there can be no assurance that the allowance for loan losses will be adequate to cover all losses, management believes that the allowance for loan losses was adequate at December 31, 2004.

Noninterest income

Noninterest income declined from $29.2 million in 2003 to $25.9 million in 2004. The decline in noninterest income in 2004 was primarily the result of reduced mortgage banking activity. Mortgage banking income is largely volume-driven and mortgage activity is susceptible to changes in interest rates and general economic conditions. Noninterest income increased in 2003 from $25.3 million in 2002. The increase in noninterest income in 2003 was primarily related to the increase in mortgage banking income and service charges on deposits. Mortgage-related noninterest income, principally gains on sales of mortgage loans, totaled $6.4 million in 2004, $12.6 million in 2003, and $10.4 million in 2002. The decrease in loan originations in 2004 was primarily the result of rising mortgage rates during the second half of 2003, which led to decreased mortgage refinance activity and decreased demand for home mortgages, a trend that continued into 2004.

Trust income increased to $5.8 million in 2004, an increase of $400,000 from $5.4 million in 2003. Trust income increased $338,000 during 2003 from $5.1 million in 2002. Assets under management were $848.5 million in 2004, $785.2 million in 2003, and $678.9 million in 2002. Trust income increased in 2004 due to greater assets under management and higher estate fees. Assets under management increased as a result of improved equity markets and new business development.

Service charges on deposits increased to $7.6 million in 2004 from $7.0 million in 2003, and $5.9 million in 2002. Deposit service charges have increased as a result of deposit growth, which was fueled by successful sales promotional campaigns, and new cash management products.

Other noninterest income increased from $3.9 million in 2002, to $4.2 million in 2003, and $5.5 million in 2004. The $1.3 million, or 31.4%, increase in 2004 was attributable to the purchase of bank owned life insurance (BOLI) during the second quarter of 2004 as well as higher debit and ATM card usage as a result of higher fees and expansion of the ATM network.  The $309,000, or 7.9%, increase in 2003 was a result of higher debit and ATM card usage and fee income of Old Second Financial, Inc., our insurance agency subsidiary.

Loans sold were $292.5 million in 2004, $619.6 million in 2003, and $468.9 million in 2002. Old Second Mortgage Company sells mortgage loans on a servicing-released basis instead of retaining originated servicing rights.

Noninterest expenses

Noninterest expenses were $57.6 million in 2004, $54.2 million in 2003, and $48.1 million in 2002. Our efficiency ratio increased

slightly to 59.9% in 2004, from 58.2% in 2003, and 57.0% in 2002. The efficiency ratio measures noninterest expenses as a percentage of tax-equivalent gross revenues. Because a financial institution’s largest noninterest expense is the cost of staffing, management of this cost has a significant impact on efficiency. Salaries and employee benefits were $33.6 million in 2004, $34.1 million in 2003, and $29.4 million in 2002. The decrease during 2004 was due to centralization of operations, and a decrease in commissions related to the decreased volume in mortgage loan originations, offset by the increases in new branch openings. In addition, earnings for the year were negatively impacted in the second quarter by a $1.75 million charge for the settlement of a damage award. The primary cause of the increase in noninterest expenses during 2003 was an increase in the expenses of Old Second Mortgage Company.  Its business continued to increase during the first three quarters of 2003 as a result of decreased interest rates. Salaries and benefits at Old Second

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Mortgage Company increased $1.3 million during 2003, and decreased $2.1 million during 2004, as a result of the fluctuation in volume of mortgage loan originations.

Occupancy expenses were $3.8 million in 2004, $3.4 million in 2003, and $2.9 million in 2002. Furniture and equipment expenses were $4.6 million in 2004, $4.1 million in 2003, and $4.3 million in 2002. The increase in occupancy and furniture and equipment expense has been directly related to the opening of new branches and the remodeling of offices. 

Income taxes

The Company’s provisions for Federal and State of Illinois income taxes were $13.3 million, $12.1 million, and $10.8 million during the years ended December 31, 2004, 2003, and 2002. The effective income tax rate for these years was 33.6%, 35.3%, and 34.8%. The decrease in the 2004 effective tax rate was the result of tax-exempt income increasing from $2.8 million in 2003 to $3.6 million in 2004. The increase in the 2003 effective tax rate was the result of tax-exempt income decreasing from $3.0 million in 2002 to $2.8 million in 2003, while taxable income increased from $17.1 million in 2002 to $19.3 million in 2003.

Financial condition

Total assets were $2.10 billion as of December 31, 2004, an increase of $263.4 million from December 31, 2003. A significant portion of this 14.3% increase was associated with an increase in loans from $1.32 billion to $1.51 billion, and an increase in securities available for sale from $411.0 million to $452.9 million during 2004. Deposits were $1.80 billion as of December 31, 2004, an increase of $274.2 million from December 31, 2003.

Investments

Securities available for sale increased $41.9 million during 2004, from $411.0 million as of December 31, 2003, to $452.9 million as of December 31, 2004. Securities available for sale increased as funds were moved from federal funds sold to securities available for sale in order to attain higher yields and to manage interest rate risk. State and political subdivision securities were $131.6 million, an increase of $49.3 million from a year earlier. State and political subdivision securities comprised 29.1% of the portfolio as of December 31, 2004, and 20.0% of the portfolio as of December 31, 2003. U.S. government agency securities were $313.2 million, a decrease of $7.3 million from a year earlier. U.S. government agency securities comprised 69.1% of the portfolio as of December 31, 2004, and 78.0% of the portfolio as of December 31, 2003. These changes did not represent a change in investment policy.  The net unrealized gains in the portfolio decreased from $5.0 million as of December 31, 2003 to $537,000 as of December 31, 2004.

Loans

Total loans increased $188.3 million (14.3%) during 2004, from $1.32 billion as of year-end 2003 to $1.51 billion as of year-end 2004, with the most significant changes occurring in real estate loans. Residential mortgages increased $105.2 million (25.7%) from $408.8 million at December 31, 2003 to $514.0 million at December 31, 2004; construction loans increased $51.0 million (23.3%) from $218.5 million at December 31, 2003 to $269.5 million at December 31, 2004; and commercial real estate loans increased from $459.0 million at December 31, 2003 to $514.8 million at December 31, 2004, an increase of $55.8 million or 12.1%. At the same time, commercial and industrial loans decreased from $192.4 million at December 31, 2003 to $171.1 million at December 31, 2004, a decrease of $21.4 million or 11.1% and installment loans decreased $2.3 million (5.2%) from $44.5 million at December 31, 2003 to $42.2 million at December 31, 2004.

The Company experienced strong loan growth for a variety of reasons. Among these reasons were a marketing strategy emphasizing a unique combination of lending strength and personal service that is very appealing to small to mid-sized businesses; a stable, well-trained, and motivated sales staff; and locations in a rapidly developing area in the Chicago Suburbs. All of the loan growth was derived from within the Company’s market area, with no supplementation from purchased loans. Because the Company is located in growing areas, real estate lending (including commercial, residential, and construction), is a significant portion of the portfolio. These categories comprised 86.0% of the portfolio as of December 31, 2004, and 82.3% of the portfolio as of December 31, 2003. Within the real estate loan portfolio, the Company regularly monitors levels of diversification by type of real estate to optimize a risk/return balance.

In the fourth quarter of 2004, management conducted a comprehensive review of our allowance for loan losses. Although nonperforming loans increased from $2.6 million at year-end 2003 to $5.3 million at year-end 2004, as a result of our detailed analysis, we made

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a negative provision to the reserve of $2.9 million before taxes. This resulted in an increase in income. Nonperforming loans include loans in nonaccrual status, renegotiated loans, and loans past due ninety days or more and still accruing. As a result of enhancements to the methodology and internal evaluations of probable and estimable losses, management determined that this adjustment was appropriate. Net recoveries for 2004 were $94,000, compared to net charge offs of $719,000 in 2003.

A discussion of the factors driving changes in the amount of the allowance for loan losses is included in the Provision for Loan Losses section above. One measure of the adequacy of the allowance for loan losses is the ratio of the allowance to total loans. The allowance for loan losses as a percentage of total loans was 1.03% as of December 31, 2004, compared to 1.39% as of December 31, 2003. In management’s judgment, an adequate allowance for estimated losses has been established; however there can be no assurance that such losses will not exceed the estimated amounts in the future.

Although economic conditions have generally improved, and there are numerous indications of emerging strength, it is not certain that this strength is sustainable, or that it will extend to all areas of the economy.  Management, along with many other financial institutions, remains cautious about the economic outlook. Furthermore, a slowdown in the real estate market could adversely affect consumer confidence and collateral values. These events could still adversely affect cash flows for both commercial and individual borrowers, as a result of which, the Company could experience increases in problem assets, delinquencies, and losses on loans.

Sources of funds

The Company’s primary source of funds is customer deposits. Total deposits grew $274.2 million during 2004, to $1.80 billion as of December 31, 2004. Most of the growth was in certificate of deposit and money market accounts. Money market accounts grew $17.8 million (4.6%) during 2004. At the same time, certificates of deposit of less than $100,000 increased $119.9 million (30.7%), and certificates of deposit of $100,000 or more increased $92.7 million (50.9%). Pricing and sales strategies targeted growth in transactional deposit accounts, and customer reinvestment of maturing time deposit balances to longer-term maturities. Successful selling efforts in these areas resulted in an increase in new account relationships and core funding sources.

The Company also utilizes repurchase agreements as a source of funds. Repurchase agreements, which are typically of short-term duration, were $45.2 million as of December 31, 2004, a decrease of $2.6 million from $47.8 million as of December 31, 2003. Other short-term borrowings decreased from $106.0 million to $75.8 million, primarily due to the decrease in federal funds purchased. The note payable had an outstanding balance of $2.7 million as of December 31, 2004 compared to $500,000 as of December 31, 2003 due to changes in short term funding needs. The Company is currently maintaining liquid assets and delivering consistent growth in core funding to provide funding for loan growth.

During June 2003, the Company completed the sale of $31.6 million of junior subordinate debentures.

Capital

Total stockholders’ equity increased $18.0 million during 2004, from $117.0 million as of December 31, 2003, to $135.0 million as of December 31, 2004. Net income of $26.3 million, reduced by dividends of $6.2 million, contributed retained earnings of $20.1 million during 2004. During 2004, a $2.7 million decrease in net unrealized securities gains decreased stockholders’ equity.  In 2003, net income of $22.1 million, reduced by dividends of $5.5 million, contributed retained earnings of $16.6 million. During 2003, stockholders’ equity decreased $2.4 million relating to a change in net unrealized securities gains. The exercise of stock options and the related tax benefit contributed $562,000 to stockholders’ equity in 2004, and $1.12 million in 2003. On June 16, 2004, the Board of Directors of the Company declared a 2-for-1 stock split effected in the form of a stock dividend payable on July 28, 2004 to stockholders of record on July 16, 2004. On May 21, 2002, the Board declared a 4-for-3 stock split, effected in the form of a stock dividend payable on June 24, 2002 to stockholders of record on June 14, 2002. All historical share data and per share amounts have been restated to reflect these stock splits.

During June 2003, the Company completed its tender offer for shares of its common stock, in which 723,053 shares were repurchased at $42.50 per share. The total cash payment required to complete the tender offer was approximately $30.7 million, which was funded by the sale of trust preferred securities. The Company

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completed the sale of $27.5 million of cumulative trust preferred securities by its subsidiary, Old Second Capital Trust I (Nasdaq: OSBCP) in June 2003. An additional $4.1 million of cumulative trust preferred securities was sold in the first week of July 2003. The trust preferred securities are amortized over a 30 year period Dividends are payable quarterly at an annual rate of 7.80% and are included in interest expense in the consolidated financial statements.

Return on average equity rose to 20.86% in 2004, from 17.65% in 2003, and 15.84% in 2002. Two primary factors contributed to this increase. First, net income increased during this period of time, from $20.1 million in 2002 to $22.1 million in 2003, and $26.3 million in 2004. Second, an increase in dividends paid and the repurchase of Company shares, including the tender offer in 2003, reduced average equity, resulting in increasing returns on average equity.

The Company and its three subsidiary banks are subject to regulatory capital requirements administered by federal banking agencies Capital adequacy guidelines provide for five classifications, the highest of which is well capitalized.  The Company and the Banks were categorized as well capitalized as of December 31, 2004.

Bank regulatory bodies have adopted capital standards by which all banks and bank holding companies will be evaluated.  Capital levels and minimum required levels:

	Actual				Minimum Required for Capital Adequacy Purposes				Minimum Required to be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2004:
Total capital to risk weighted assets
Consolidated	$	177,554	11.06	%	$	128,430	8.00	%	$	160,537	10.00	%
Old Second	123,156		11.53		85,451		8.00		106,814		10.00
Tier 1 capital to risk weighted assets
Consolidated	162,059		10.09		64,245		4.00		96,368		6.00
Old Second	112,208		10.50		42,746		4.00		64,119		6.00
Tier 1 capital to average assets
Consolidated	162,059		7.85		82,578		4.00		103,222		5.00
Old Second	112,208		7.98		56,245		4.00		70,306		5.00
December 31, 2003:
Total capital to risk weighted assets
Consolidated	$	158,377	11.40	%	$	111,142	8.00	%	$	138,927	10.00	%
Old Second	110,872		11.79		75,231		8.00		94,039		10.00
Tier 1 capital to risk weighted assets
Consolidated	140,993		10.14		55,619		4.00		83,428		6.00
Old Second	99,105		10.54		37,611		4.00		56,417		6.00
Tier 1 capital to average assets
Consolidated	140,993		7.91		71,299		4.00		89,123		5.00
Old Second	99,105		7.98		49,677		4.00		62,096		5.00

Quantitative and qualitative disclosure about market risk

Liquidity and market risk

Liquidity is the Company’s ability to fund operations, to meet depositor withdrawals, to provide for customer’s 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.

Net cash inflows from operations were $10.1 million during 2004. Net cash outflows from investing activities were $244.6 million in 2004, as a result of $189.4 million in net principal disbursed on loans. Net cash outflows for the purchase of securities available for sale were $49.6 million as a result of cash inflows of $164.7 million for the sale of securities available for sale, offset by cash outflows of $214.3 million for the purchases of securities available for sale. Net cash inflows from financing activities were $238.0 million in 2004, which included a net increase in deposits of $274.2 million, offset by decreases in short-term borrowings of $30.3 million and a decrease in cash outflows for federal funds and repurchase agreements purchased of $2.6 million.

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The following tables disclose information on the maturity of the Company’s contractual long-term obligations and commitments.

	Payments Due by Period (in thousands)
	Total		One year or less		1-3 years		4-5 years		After 5 years
Long-term debt	$	—	$	—	$	—	$	—	$	—
Junior subordinated debentures	$	31,625	$	—	$	—	$	—	$	31,625
Total contractual long-term cash obligations	$	31,625	$	—	$	—	$	—	$	31,625

Management of investing and financing activities along with market conditions determine 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, so that balance sheet growth is the principle determinant of growth in net interest cash flows.

Net cash inflows from operations were $63.4 million during 2003. Net cash outflows from investing activities were $294.7 million in 2003, as a result of $258.4 million in net principal disbursed on loans. Net cash outflows for the purchase of securities available for sale were $29.9 million as a result of cash inflows of $244.3 million for the sale of securities available for sale, offset by cash outflows of $274.2 million for the purchases of securities available for sale. Net cash inflows from financing activities were $213.6 million in 2003, which included a net increase in deposits of $134.0 million, enhanced by increases in short-term borrowings of $98.2 million, offset by a decrease in cash outflows for federal funds and repurchase agreements purchased of $12.9 million. The increased cash inflows from financing activities provided by the issuance of trust preferred debentures of $30.2 million was directly offset by a cash outflow for treasury stock repurchases of $31.4 million.

Interest rate risk

The impact of movements in general market interest rates on a financial institution’s financial condition, including capital adequacy, earnings, and liquidity, is known as interest rate risk. Interest rate risk is the Company’s primary market risk. As a financial institution, accepting and managing this risk is an inherent aspect of the Company’s business. However, safe and sound management of interest rate risk requires that it be maintained at prudent levels.

The Company analyzes interest rate risk by examining the extent to which assets and liabilities are interest rate sensitive. The interest sensitivity gap is defined as the difference between the amount of interest earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest sensitive assets exceeds the amount of interest sensitive liabilities. A gap is considered negative when the amount of interest sensitive liabilities exceeds the amount of interest sensitive assets. During a period of rising interest rates, a negative gap would tend to result in a decrease in net interest income while a positive gap would tend to positively affect net interest income. The Company’s policy is to manage the balance sheet such that fluctuations in the net interest margin are minimized regardless of the level of interest rates.

The accompanying table does not necessarily indicate the future impact of general interest rate movements on the Company’s net interest income because the repricing of certain assets and liabilities is discretionary and is subject to competitive and other pressures. As a result, assets and liabilities indicated as repricing within the same period may in fact reprice at different times and at different rate levels. Assets and liabilities are reported in the earliest time frame in which maturity or repricing may occur. Although securities available for sale are reported in the earliest time frame in which maturity or repricing may occur, these securities may be sold in response to changes in interest rates or liquidity needs.

Effects of inflation

In management’s opinion, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not change at the same rate or in the same magnitude as the inflation rate. Rather, interest rate volatility is based on changes in the expected rate of inflation, as well as on changes in monetary and fiscal policies. A financial institution’s ability to be relatively unaffected by changes in interest rates is a good indicator of its capability to perform in today’s volatile economic environment. The Company seeks to insulate itself from interest rate volatility by ensuring that rate sensitive assets and rate sensitive liabilities respond to changes in interest rates in a similar time frame and to a similar degree.

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Expected Maturity of Interest-Earning Assets and Interest-Bearing Liabilities

	Expected Maturity Dates
	l Year			2 Years			3 Years			4 Years			5 Years			Thereafter			Total
2004
Interest-earning Assets
Interest-bearing deposit with banks	$	62		$	—		$	—		$	—		$	—		$	—		$	62
Average interest rate	2.02		%	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	2.02		%
Federal funds sold	$	—		$	—		$	—		$	—		$	—		$	—		$	—
Average interest rate	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%
Securities	$	65,063		$	82,373		$	66,260		$	65,329		$	24,454		$	149,463		$	452,942
Average interest rate	3.08		%	2.95		%	2.99		%	3.34		%	3.68		%	3.61		%	3.29		%
Fixed rate loans	$	88,809		$	96,381		$	78,857		$	213,957		$	92,795		$	94,440		$	665,239
Average interest rate	5.88		%	6.16		%	6.16		%	5.94		%	5.87		%	5.83		%	5.96		%
Adjustable rate loans	$	273,838		$	63,604		$	52,040		$	42,114		$	18,049		$	410,789		$	860,434
Average interest rate	5.75		%	5.46		%	5.46		%	5.29		%	5.29		%	5.28		%	5.46		%
Total	$	427,772		$	242,358		$	197,157		$	321,400		$	135,298		$	654,692		$	1,978,677
Interest-bearing Liabilities
Interest-bearing deposit with banks	$	898,952		$	178,692		$	170,475		$	20,676		$	7,102		$	272,624		$	1,548,521
Average interest rate	1.79		%	3.10		%	2.82		%	3.17		%	2.93		%	0.51		%	1.85		%
Short-term borrowings	$	121,028		$	—		$	—		$	—		$	—		$	—		$	121,028
Average interest rate	1.37		%	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	1.37		%
Notes payable	$	2,700		$	—		$	—		$	—		$	—		$	—		$	2,700
Average interest rate	2.22		%	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	2.22		%
Junior subordinated debentures	$	—		$	—		$	—		$	—		$	—		$	31,625		$	31,625
Average interest rate	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	7.80		%	7.80		%
Total	$	1,022,680		$	178,692		$	170,475		$	20,676		$	7,102		$	304,249		$	1,703,874
Period gap	$	(594,908	)	$	63,666		$	26,682		$	300,724		$	128,196		$	350,443		$	274,803
Cumulative gap	(594,908		)	(531,242		)	(504,560		)	(203,836		)	(75,640		)	274,803
2003
Interest-earning Assets
Interest-bearing deposit with banks	$	169		$	—		$	—		$	—		$	—		$	—		$	169
Average interest rate	0.15		%	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	0.15		%
Federal funds sold	$	—		$	—		$	—		$	—		$	—		$	—		$	—
Average interest rate	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%
Securities	$	44,241		$	69,518		$	68,580		$	57,451		$	57,793		$	113,452		$	411,035
Average interest rate	4.20		%	3.12		%	2.98		%	3.00		%	3.51		%	4.03		%	3.50		%
Fixed rate loans	$	75,001		$	71,321		$	58,354		$	206,848		$	89,441		$	86,783		$	587,748
Average interest rate	6.34		%	6.60		%	6.60		%	6.24		%	6.19		%	5.98		%	6.29		%
Adjustable rate loans	$	267,197		$	37,291		$	30,510		$	55,114		$	23,620		$	332,814		$	746,546
Average interest rate	4.65		%	4.54		%	4.54		%	4.76		%	4.76		%	5.05		%	4.83		%
Total	$	386,608		$	178,130		$	157,444		$	319,413		$	170,854		$	533,049		$	1,745,498
Interest-bearing Liabilities
Interest-bearing deposit with banks	$	806,907		$	145,126		$	42,395		$	28,279		$	21,061		$	266,427		$	1,310,195
Average interest rate	1.54		%	3.05		%	3.55		%	3.98		%	3.11		%	0.48		%	1.64		%
Short-term borrowings	$	153,894		$	—		$	—		$	—		$	—		$	—		$	153,894
Average interest rate	1.13		%	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	1.13		%
Notes payable	$	500		$	—		$	—		$	—		$	—		$	—		$	500
Average interest rate	2.23		%	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	2.23		%
Junior subordinated debentures	$	—		$	—		$	—		$	—		$	—		$	31,625		$	31,625
Average interest rate	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	7.80		%	7.80		%
Total	$	961,301		$	145,126		$	42,395		$	28,279		$	21,061		$	298,052		$	1,496,214
Period gap	$	(574,693	)	$	33,004		$	115,049		$	291,134		$	149,793		$	234,997		$	249,284
Cumulative gap	(574,693		)	(541,689		)	(426,640		)	(135,506		)	14,287			249,284

13

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 December 31, 2004. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s internal controls were effective.

During 2004, management performed a comprehensive evaluation of the allowance for loan losses. As a result of this evaluation, changes were made that enhanced the methodology of determining the adequacy of the allowance for loan losses. Other than this change, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls.

Special note concerning 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. Factors that could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries include, but are not limited to, the following:

•The strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of the Company’s assets.

•The economic impact of past and any future terrorists attacks, acts of war or threats thereof and the response of the United States to any such threats and attacks.

•The effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, insurance and monetary and financial matters.

•The effects of changes in interest rates (including the effects of changes in the rate of prepayments of the Company’s assets) and the policies of the Board of Governors of the Federal Reserve System.

•The ability of the Company to compete with other financial institutions as effectively as the Company currently intends due to increases in competitive pressures in the financial services sector.

•The inability of the Company to obtain new customers and to retain existing customers.

•The timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet.

•Technological changes implemented by the Company and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers.

•The ability of the Company to develop and maintain secure and reliable electronic systems.

•The ability of the Company to retain key executives and employees and the difficulty that the Company may experience in replacing key executives and employees in an effective manner.

•Consumer spending and saving habits which may change in a manner that affects the Company’s business adversely.

•Business combinations and the integration of acquired businesses which may be more difficult or expensive than expected.

•The costs, effects and outcomes of existing or future litigation.

•Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board.

•The ability of the Company to manage the risks associated with the foregoing as well as anticipated.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission.

14

Old Second Bancorp Inc. and Subsidiaries
Consolidated Balance Sheets

December 31, 2004 and 2003
(In thousands, except share data)

	2004			2003
Assets
Cash and due from banks	$	58,662		$	55,168
Federal funds sold	—			—
Cash and cash equivalents	58,662			55,168
Securities available for sale	452,942			411,035
Loans held for sale	16,597			14,756
Loans	1,509,076			1,319,538
Allowance for loan losses	15,495			18,301
Net loans	1,493,581			1,301,237
Premises and equipment, net	36,208			33,033
Other real estate owned	—			663
Goodwill, net	2,130			2,130
Core deposit intangible assets, net	711			1,066
Bank owned life insurance (BOLI)	20,670			—
Accrued interest and other assets	20,765			19,756
Total assets	$	2,102,266		$	1,838,844
Liabilities
Deposits:
Demand	$	250,328		$	214,439
Savings	763,637			737,838
Time	784,884			572,357
Total deposits	1,798,849			1,524,634
Securities sold under repurchase agreements	45,242			47,848
Other short-term borrowings	75,786			106,046
Junior subordinated debentures	31,625			31,625
Notes payable	2,700			500
Accrued interest and other liabilities	13,076			11,197
Total liabilities	1,967,278			1,721,850
Stockholders’ Equity
Preferred stock, $1.00 par value; authorized 300,000 shares; none issued	—			—
Common stock, $1.00 par value; authorized 20,000,000 shares; issued 16,496,574 in 2004 and 16,459,708 in 2003 outstanding 13,424,346 in 2004 and 13,387,480 in 2003	16,497			16,460
Additional paid-in capital	12,480			11,940
Retained earnings	156,025			135,927
Accumulated other comprehensive income	324			3,005
Treasury stock, at cost, 3,072,228 shares in 2004 and 2003	(50,338		)	(50,338		)
Total stockholders’ equity	134,988			116,994
Total liabilities and stockholders’ equity	$	2,102,266		$	1,838,844

See accompanying notes to consolidated financial statements.

15

Old Second Bancorp Inc. and Subsidiaries
Consolidated Statements of Income

Years Ended December 31, 2004, 2003, and 2002
(In thousands, except share data)

	2004			2003		2002
Interest income
Loans, including fees	$	82,665		$	72,176	$	66,429
Loans held for sale	782			2,193		1,911
Securities:
Taxable	10,624			10,883		13,899
Tax-exempt	3,265			2,486		2,587
Federal funds sold	58			105		664
Interest bearing deposits	4			1		1
Total interest income	97,398			87,844		85,491
Interest expense
Savings deposits	6,421			6,266		10,111
Time deposits	18,602			16,967		16,946
Repurchase agreements	450			511		662
Other short-term borrowings	1,037			477		277
Junior subordinated debentures	2,486			1,233		—
Notes payable	43			14		13
Total interest expense	29,039			25,468		28,009
Net interest income	68,359			62,376		57,482
Provision for loan losses	(2,900		)	3,251		3,805
Net interest income after provision for loan losses	71,259			59,125		53,677
Noninterest income
Trust income	5,807			5,398		5,060
Service charges on deposits	7,634			6,968		5,893
Secondary mortgage fees	866			1,686		1,265
Gain on sale of loans	5,579			10,836		9,079
Securities gains, net	512			140		89
Bank owned life insurance	670			—		—
Other income	4,846			4,199		3,890
Total noninterest income	25,914			29,227		25,276
Noninterest expense
Salaries and employee benefits	33,603			34,099		29,410
Occupancy expense, net	3,780			3,376		2,855
Furniture and equipment expense	4,586			4,055		4,326
Amortization of core deposit intangible assets	355			355		355
Litigation settlement	1,750			—		—
Advertising expense	1,060			777		771
Other expense	12,474			11,513		10,339
Total noninterest expense	57,608			54,175		48,056
Income before income taxes	39,565			34,177		30,897
Provision for income taxes	13,278			12,069			10,751
Net income	$	26,287		$	22,108	$	20,146
Basic earnings per share	$	1.96		$	1.57	$	1.36
Diluted earnings per share	1.94			1.56		1.35

See accompanying notes to consolidated financial statements.

16

Old Second Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flow

Years Ended December 31, 2004, 2003, and 2002
(In thousands)

	2004			2003			2002
Cash flows from operating activities
Net income	$	26,287		$	22,108		$	20,146
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	3,065			2,628			2,173
Amortization of mortgage servicing rights	11			37			38
Provision for loan losses	(2,900		)	3,251			3,805
Provision for deferred taxes	1,125			(1,025		)	(709		)
Origination of loans held for sale	(402,842		)	(812,326		)	(566,352		)
Proceeds from sale of loans held for sale	406,148			857,081			571,032
Gain on sale of loans held for sale	(5,312		)	(10,861		)	(9,114		)
Change in current income taxes payable	1,357			993			(1,845		)
Purchase of bank owned life insurance	(20,000		)	—			—
Change in accrued interest receivable and other assets	(2,234		)	(1,134		)	(4,537		)
Change in accrued interest payable and other liabilities	1,606			(2,384		)	(3,730		)
Premium amortization and discount accretion on securities	3,693			4,286			1,687
Securities gains, net	(512		)	(140		)	(89		)
Amortization of core deposit intangible assets	355			355			355
Tax benefit from stock options exercised	215			335			251
Net cash provided by operating activities	10,062			63,204			13,111
Cash flows from investing activities
Proceeds from maturity of available for sale securities	136,177			223,784			216,163
Proceeds from sales of available for sale securities	28,556			20,477			—
Purchases of securities available for sale	(214,275		)	(274,165		)	(281,348		)
Net change in loans	(189,444		)	(258,922		)	(166,892		)
Sales of other real estate owned	663			—			—
Net purchases of premises and equipment	(6,240		)	(5,918		)	(7,554		)
Net cash used in investing activities	(244,563		)	(294,744		)	(239,631		)
Cash flows from financing activities
Net change in deposits	274,215			133,973			299,845
Net change in repurchase agreements	(2,606		)	(12,926		)	28,709
Net change in other borrowings	(30,260		)	96,767			(23,744		)
Proceeds from the issuance of junior subordinated debentures	—			31,625			—
Proceeds from notes payable	2,200			500			—
Paydown of notes payable	—			—			(33,393		)
Proceeds from exercise of stock options	347			786			549
Dividends paid	(5,901		)	(5,639		)	(5,232		)
Purchase of treasury stock	—			(31,442		)	(7,897		)
Net cash provided by financing activities	237,995			213,644			258,837
Net change in cash and cash equivalents	3,494			(17,896		)	32,317
Cash and cash equivalents at beginning of year	55,168			73,064			40,747
Cash and cash equivalents at end of year	$	58,662		$	55,168		$	73,064
Supplemental cash flow information
Income taxes paid	$	11,903		$	12,357		$	12,082
Interest paid	28,024			25,732			26,175

See accompanying notes to consolidated financial statements.

17

Old Second Bancorp Inc. and Subsidiaries
Consolidated Statements of
Changes in Stockholders’ Equity

Years Ended December 31, 2004, 2003, and 2002
(In thousands, except share data)

	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity
Balance, December 31, 2001	$	16,314	$	10,092	$	104,813		$	4,726		$	(10,999	)	$	124,946
Net income	—		—		20,146			—			—			20,146
Change in net unrealized gain on securities available for sale, net of $430 tax benefit	—		—		—			650			—			650
Total comprehensive income														20,796
Dividend declared, $.38 per share	—		—		(5,551		)	—			—			(5,551		)
Cash dividend paid from 4 for 3 stock split	—		—		(18		)	—			—			(18		)
Stock options exercised	64		517		(32		)	—			—			549
Tax effect of stock options exercised	—		251		—			—			—			251
Purchase of treasury stock	—		—		—			—			(7,897		)	(7,897		)
Balance, December 31, 2002	$	16,378	$	10,860	$	119,358		$	5,376		$	(18,896	)	133,076
Net income	—		—		22,108			—			—			22,108
Change in net unrealized gain on securities available for sale, net of $1,567 tax benefit	—		—		—			(2,371		)	—			(2,371		)
Total comprehensive income														19,737
Dividend declared, $.40 per share	—		—		(5,498		)	—			—			(5,498		)
Stock options exercised	82		745		(41		)	—			—			786
Tax effect of stock options exercised	—		335		—			—			—			335
Purchase of treasury stock	—		—		—			—			(31,442		)	(31,442		)
Balance, December 31, 2003	$	16,460	$	11,940	$	135,927		$	3,005		$	(50,338	)	$	116,994
Net income	—		—		26,287			—			—			26,287
Change in net unrealized gain on securities available for sale, net of $1,773 tax benefit	—		—		—			(2,681		)	—			(2,681		)
Total comprehensive income														23,606
Dividend declared, $.46 per share	—		—		(6174		)	—			—			(6,174		)
Stock options exercised	37		325		(15		)	—			—			347
Tax effect of stock options exercised	—		215		—			—			—			215
Balance December 31, 2004	$	16,497	$	12,480	$	156,025		$	324		$	(50,338	)	$	134,988

See accompanying notes to consolidated financial statements.

18

Old Second Bancorp Inc. and Subsidiaries
Notes to Consolidated Financial Statements

December 31, 2004, 2003, and 2002
(Table amounts in thousands, except per share data)

Note A: Summary of Significant Accounting Policies

Nature of Operations and Principles of Consolidation: The consolidated financial statements include Old Second Bancorp Inc. and its wholly-owned subsidiaries; The Old Second National Bank of Aurora (“Old Second Bank”), Old Second Bank-Yorkville, Old Second Bank-Kane County, Old Second Financial, Inc. and Old Second Mortgage Company, together referred to as the “Company.”  Old Second Mortgage Company also does business as Maple Park Mortgage. During 2002, Old Second Mortgage Company became a wholly-owned subsidiary of Old Second Bank. The banking subsidiaries are referred to herein as the “Banks.” Inter-company transactions and balances are eliminated in consolidation. Certain items in prior periods have been reclassified to conform to the current presentation.

The Company provides financial services through its offices located in Kane, Kendall, DeKalb, DuPage, LaSalle and Will counties in Illinois. Its primary deposit products are checking, savings, and certificates of deposit, and its primary lending products are residential and commercial mortgages, construction lending, commercial and installment loans. A major portion of loans is secured by various forms of collateral including real estate, business assets, consumer property, and other items, although borrower cash flow may also be a primary source of repayment. Old Second Mortgage Company provides mortgage-banking services, Old Second Financial, Inc. provides insurance agency services and Old Second Bank also engages in trust operations.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ.

Statement of Cash Flows: For purposes of the statement of cash flows, the Company considers cash and due from banks and federal funds sold to be cash and cash equivalents. Generally, federal funds are intended to be sold for one-day periods.

Securities: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses, net of income taxes, reported in accumulated other comprehensive income. Interest income includes amortization of purchase premium or discount. Realized gains and losses are determined based on the amortized cost of the specific security sold. Declines in the fair value that are deemed other than temporary, if any, are reported in noninterest income.

Loans Held for Sale: Old Second Mortgage Company originates residential mortgage loans, which consist of fixed rate mortgage loans conforming to established guidelines and held for sale to the secondary market. Mortgage loans held for sale are carried at the lower of aggregate cost or fair value. Gains on the sale of these mortgage loans are recorded in the period in which the loans are sold.

Advertising Costs: All advertising costs incurred by the Company are expensed in the period in which they are incurred.

Loans: Loans are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. The accrual of interest income is discontinued when full loan repayment is in doubt or when a loan becomes contractually past due by more than 90 days with respect to interest or

19

principal. When a loan is placed in nonaccrual status, any accrued, unpaid interest is reversed to the related income account. Interest on nonaccrual loans is not recovered until such time as it is actually paid by the borrower.  Such payments can take the form of lump sums paid by the borrower, or more frequently, periodic installment payments. When a nonaccrual loan has improved to the point where its collection is no longer in question, payments are applied to recovery of the nonaccrual interest. As long as any question remains as to the collection of the loan, payments received on such loans are reported as principal reductions.

Allowance for Loan Losses: The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is inherently subjective, because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The allowance for loan losses is a valuation allowance for credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using various risk factors including, but not limited to past loan loss experience, known and inherent risks in the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.

The methodology for determining the appropriate level of the allowance for loan losses consists of three components: (i) specific reserves established for expected losses resulting from analysis developed through specific credit allocations on individual loans for which the recorded investment in the loan exceeds the measured value of the loan; (ii) reserves based on historical loan loss experience for each loan category; and (iii) reserves based on general, current economic conditions as well as specific economic factors believed to be relevant to the markets in which the Company operates.

Additions to the allowance for loan losses are expensed through the provision for loan losses and reductions in the allowance for loan losses are credited to the provision for loan losses. Loans believed by management to be uncollectible are charged against the allowance for loan losses and recoveries of previously charged-off loans are credited to the allowance for loan losses. Impaired loans are measured based on the present value of the future cash flows, discounted at the loan’s original effective interest rate, or the fair value of underlying collateral, if the loan is collateral dependent. There were no material impaired loans as of December 31, 2004 or December 31, 2003.

Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed over estimated useful lives of ten to forty years for premises and five to seven years for furniture and equipment principally by the use of straight-line depreciation methods for book purposes, while accelerated depreciation is used for income tax purposes. When property is retired or otherwise disposed of, the stated amount, net of sale proceeds in the event of a sale of assets, is recognized as a gain or loss at the time of disposal. Expenditures for maintenance and repairs are expensed as incurred, and expenditures for major renovations are capitalized.

Other Real Estate Owned: Real estate acquired in settlement of loans is recorded at fair value when acquired, less estimated costs to sell. The difference between the net book value and fair value at the foreclosure date is charged to the allowance for loan losses. If fair value declines after acquisition, the carrying amount is reduced to the lower of the initial amount or fair value less costs to sell. Such declines are included in noninterest expense.

Goodwill and Core Deposit Intangibles: Goodwill is the excess of purchase price of an acquisition over the fair value of identified net assets acquired in an acquisition. Goodwill (and intangible assets deemed to have indefinite lives) is not amortized but is subject to annual impairment tests. Other intangible assets, including core deposit intangibles, are amortized over their useful lives.

Long-term Assets: These assets, including intangibles, are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at discounted amounts.

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Trust Assets and Fees: Assets held in fiduciary or agency capacities are not included in the consolidated balance sheets because such amounts are not assets of the Company.  Income from trust fees is recorded on an accrual basis and is included as a component of noninterest income.

Retirement Plan Costs: The Company has a tax-qualified noncontributory defined benefit retirement plan covering substantially all full-time and regular part-time employees of the Company. Generally, benefits are based on years of service and compensation. Certain participants in the defined benefit plan are also covered by an unfunded supplemental retirement plan. The purpose of the supplemental retirement plan is to extend full retirement benefits to individuals without regard to statutory limitations under tax-qualified plans.

Bank Owned Life Insurance: The Company has purchased life insurance policies on certain employees. Bank owned life insurance is recorded at its cash surrender value, which is the amount that can be realized.

Long-term Incentive Plan: In accordance with SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company has elected to account for stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and all subsequent amendments and clarifications. Under this method, no compensation cost is reorganized for stock options granted at or above fair market value.

The following pro forma information presents net income and earnings per share had the fair value method of SFAS No. 123 been used to measure compensation cost for stock option plans.

	2004		2003		2002
Net income as reported	$	26,287	$	22,108	$	20,146
Pro forma net income	25,883		21,825		19,932
Basic earnings per share as reported	1.96		1.57		1.36
Pro forma basic earnings per share	1.93		1.55		1.34
Diluted earnings per share as reported	1.94		1.56		1.35
Pro forma diluted earnings per share	1.91		1.54		1.33

The pro forma effects were computed using option-pricing models with the following assumptions:

	2004		2003		2002
Risk free interest rate	4.00	%	4.00	%	4.05	%
Expected option life, in years	5		10		10
Expected stock price volatility	25.0	%	26.4	%	24.7	%
Dividend yield	1.50	%	2.00	%	2.00	%

Expected life was based on contractual expiration date in 2002 and 2003. In 2004, the expected life was based on historical average holding period.

Common Stock Splits: On June 15, 2004, the board of directors declared a 2-for-1 stock split effected in the form of a stock dividend payable on July 28, 2004 to stockholders of record on July 16, 2004. On May 21, 2002, the board of directors declared a 4-for-3 stock split effected in the form of a stock dividend payable on June 24, 2002 to stockholders of record on June 14, 2002. All references to the number of common shares and per share amounts in the consolidated financial statements and related footnotes have been restated as appropriate to reflect the effect of the stock splits for all periods presented.  Stock prices have been restated to reflect the changes for all periods presented.

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Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date of the change. A valuation allowance is provided for any deferred tax asset for which it is more likely than not that the asset will not be realized. Changes in valuation allowances are recorded as a component of income taxes.

Earnings Per Share: Basic earnings per share are net income divided by the weighted-average number of common shares outstanding during the year. Diluted earnings per share includes the dilutive effects of additional potential common shares issuable under stock options, computed based on the treasury stock method using the average market price for the period.  Earnings and dividends per share are restated for all stock splits and dividends through the date of issue of the consolidated financial statements.

Treasury Stock: Shares of Old Second Bancorp Inc. may be acquired for reissuance in connection with stock option plans, for future stock dividend declarations, and for general corporate purposes. Treasury shares acquired are recorded at cost.

Derivative Financial Instruments: Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS No. 133”), which was subsequently amended by SFAS No. 138, requires companies to record derivatives on the balance sheet as assets and liabilities measured at their fair value. The accounting for increases and decreases in the value of derivatives depends upon the use of derivatives and whether the derivatives qualify for hedge accounting.

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding, known as rate lock commitments. Rate lock commitments on mortgage loans to be held for sale are considered derivatives. The Company enters into hedging instruments, primarily fixed-rate sale obligations, in order to offset movement in the value of the rate lock commitments, creating a fair value hedge. Adjustments are made to reflect the fair value of both the hedging instruments and the rate lock commitments, with any difference immediately recognized as an adjustment to income.

Comprehensive Income: Comprehensive income is the total of net income and certain other items that are charged or credited to stockholders’ equity. The Company includes changes in unrealized gains or losses, net of tax, on securities available for sale in other comprehensive income. Comprehensive income is presented in the Consolidated Statement of Changes in Stockholders’ Equity and accumulated other comprehensive income is reported in the Consolidated Balance Sheets.

Variable Interest Entity: In December 2003, the FASB revised FIN No. 46, “Consolidation of Variable Interest Entities.” FIN 46, as revised in December 2003, changes the accounting model for consolidation from one based on consideration of control through voting interests. Whether to consolidate an entity will now also consider whether that entity has sufficient equity at risk to enable it to operate without additional financial support, whether the equity owners in that entity lack the obligation to absorb expected losses or the right to receive residual returns of the entity, or whether voting rights in the entity are not proportional to the equity interest and substantially all the entity’s activities are conducted for an investor with few voting rights. As of December 31, 2004, the Company applied the provisions of FIN 46 to Old Second Capital Trust I, a wholly-owned subsidiary trust that issued capital securities to third-party investors. As a result, Old Second Capital Trust I is an unconsolidated subsidiary of the Company. The issuance of trust preferred securities through this trust subsidiary is discussed further in Note I.

Segment Reporting: Operating segments are components of a business about which separate financial information is available and that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. Public companies are required to report certain financial information about operating segments. The Company’s chief operating decision maker evaluates the operations of the Company as one operating segment, Community Banking. As a result, disclosure of separate segment information is not required.

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The Company offers the following products and services to external customers: deposits, loans and trust services. Revenues for each of these products and services are disclosed separately in the consolidated statements of income.

Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Banks to the Company or by the Company to stockholders.

New Accounting Pronouncements: On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, “Accounting for Stock- Based Compensation.” Statement 123 (R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends FASB Statement No. 95, “Statement of Cash Flows.” Generally, the approach in Statement 123 (R) is similar to the approach described in Statement 123. However, Statement 123 (R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Statement 123 (R) is effective for periods beginning after June 15, 2005. The Company expects to adopt Statement 123 (R) on July 1, 2005.

As permitted by Statement 123, the Company accounts for share-based payments to employees using APB No. Opinion 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of Statement 123 (R)’s fair value method will have a significant impact on results of operations, although it will have no impact on the overall financial position. The impact of adoption of Statement 123 (R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted Statement 123 (R) in prior periods, the impact of that standard would have approximated the impact of statement 123 as described in the disclosure of pro forma net income and earnings per share in Note A to the consolidated financial statements.

In March 2004, the FASB Emerging Issues Task Force (“EITF”) released Issue 03-01, “The Meaning of Other Than Temporary Impairment and its Application to Certain Investments” (“EITF 03-1”). EIFT 03-1, effective for periods beginning after June 15, 2004, provides guidance for determining other-than-temporary impairment for certain debt and equity investments. In September 2004, the FASB staff issued FASB Staff Position (FSP) EITF 03-1-1, which delayed the effective date for certain measurement and recognition guidance contained in Issue 03-1. The disclosure requirements of EITF 03-1 remain in effect and are presented in Note C, Securities. Although the amount of other-than-temporary impairment that may need to be recognized in the future will be dependent on market conditions and other factors, management does not anticipate that the issuance of the final guidance will have a material effect on financial condition or results of operations.

In December 2003, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3 addressed accounting for loans and certain debt securities acquired in a business combination. Loans and certain debt securities are to be recorded at present value when it is probable that all contractual cash flows on a loan will not be collected. SOP 03-3 also requires the excess of all cash flows over the initial present value to be recognized as interest income on a level-yield basis over the life of the loan. Subsequent decreases are recognized as impairment. SOP 03-3 is effective for loans and debt securities acquired beginning after December 15, 2004, and is not expected to have a material impact on financial condition or results of operations.

Note B: Cash and Due from Banks

Old Second Bank is required to maintain reserve balances with the Federal Reserve Bank. In accordance with Federal Reserve Bank requirements, the average reserve balance was $14,212,000 during 2004.

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Note C: Securities

Securities available for sale at December 31 are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
2004
U.S. Treasury	$	998	$	—	$	6	$	992
U.S. Government agencies	313,768		850		1,449		313,169
States and political subdivisions	130,448		1,845		703		131,590
Mortgage-backed and equity securities	7,190		1		—		7,191
	$	452,404	$	2,696	$	2,158	$	452,942
2003
U.S. Treasury	$	2,004	$	7	$	—	$	2,011
U.S. Government agencies	317,353		3,726		540		320,539
States and political subdivisions	80,559		2,133		396		82,296
Mortgage-backed and equity securities	6,127		62		—		6,189
	$	406,043	$	5,928	$	936	$	411,035

	Amortized Cost		Weighted Average Yield		Fair Value
Due in one year or less	$	64,974	3.08	%	$	65,063
Due after one year through five years	238,956		3.14	%	238,279
Due after five years through ten years	69,709		3.58	%	70,686
Due after ten years	71,575		3.94	%	71,723
	$	445,214	3.33	%	$	445,751
Mortgage-backed and equity securities	7,190		5.93	%	7,191
	$	452,404	3.37	%	$	452,942

	Less than 12 months in an unrealized loss position
	Unrealized Losses Amount		Fair Market Value		Number of Securities
U.S. Treasury	$	6	$	992	1
U.S. Government agencies	810		182,685		45
States and political subdivisions	489		46,373		69
	$	1,305	$	230,050	115

	Greater than 12 months in an unrealized loss position
	Unrealized Losses Amount		Fair Market Value		Number of Securities	Unrealized Loss Total
U.S. Treasury	$	—	$	—	—	$	6
U.S. Government agencies	639		39,326		15	1,449
States and political subdivisions	214		17,194		36	703
	$	853	$	56,520	51	$	2,158

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The unrealized loss of the securities portfolio is attributable to the increase in interest rates, which has caused the amortized cost to be more than the current fair value. If interest rates would decrease, the individual securities would then increase in value. The securities affected are primarily issued by FNMA and FHLMC, and are not related to credit quality deterioration. The Company has the ability and intent to hold all securities in an unrealized loss position until maturity or such time that they are no longer in a loss position. Securities with a fair value of approximately $300.6 million and $269.5 million at December 31, 2004, and 2003, were pledged to secure public deposits and securities sold under repurchase agreements and for other purposes required or permitted by law.

Note D: Loans

Major classifications of loans at December 31 were as follows:

	2004			2003
Commercial and industrial	$	171,058		$	192,444
Real estate - commercial	514,782			459,014
Real estate - construction	269,537			218,519
Real estate - residential	514,020			408,789
Installment	42,155			44,449
	$	1,511,552		$	1,323,215
Unearned origination fees	(2,476		)	(3,677		)
	$	1,509,076		$	1,319,538

It is the policy of the Company to review each prospective credit in order to determine an adequate level of security or collateral to obtain prior to making a loan. The type of collateral, when required, will vary in ranges 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 and the Company’s lending standards and credit monitoring procedures. The Banks generally make loans within their market areas. There are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector.

Past due and nonaccrual loans at December 31 were as follows:

	2004		2003		2002
Nonaccrual loans	$	5,129	$	2,265	$	4,803
Interest income recorded on nonaccrual loans	202		183		6
Interest income which would have been accrued on nonaccrual loans	344		165		287
Loans 90 days or more past due and still accruing interest	116		381		641

Loans to principal officers, directors, and their affiliates, which were made in the ordinary course of business, in 2004 and 2003, were as follows at December 31:

	2004				2003
Beginning balance	$		26,856		$	26,339
New loans	67,574				65,598
Repayments	(71,735			)	(65,081		)
Ending balance	$	22,695			$	26,856

Note E: Allowance for Loan Losses

Changes in the allowance for loan losses were as follows:

	2004			2003			2002
Balance at beginning of year	$	18,301		$	15,769		$	12,313
Provision for loan losses	(2,900		)	3,251			3,805
Loans charged-off	(757		)	(1,476		)	(1,160		)
Recoveries	851			757			811
Balance at end of year	$	15,495		$	18,301		$	15,769

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Loans are considered impaired when it is probable that the Bank will be unable to collect the contractual amount of both principal and interest. Generally, a loan is impaired for purposes of FASB 114 if it exhibits the same level of weaknesses and probability of loss as loans classified doubtful or loss. Loan officers will identify impaired loans as part of the review process or by the Loan Review Officer during his/her review of the portfolio. It is the policy of the Bank to recognize a loss as a charge to the loss reserve on all impaired loans. Classification of a loan as impaired and the determination of the amount of the impairment are done in accordance with FASB 114.

Note F: Premises and Equipment

Premises and equipment at December 31 were as follows:

	2004						2003
	Cost		Accumulated Depreciation		Net Book Value		Cost		Accumulated Depreciation		Net Book Value
Land	$	8,309	$	—	$	8,309	$	7,122	$	—	$	7,122
Premises	30,312		12,828		17,484		29,734		12,262		17,472
Furniture and equipment	28,618		18,203		10,415		24,516		16,077		8,439
	$	67,239	$	31,031	$	36,208	$	61,372	$	28,339	$	33,033

Note G: Intangible Assets

	Cost		Accumulated Amortization		Net Book Value
December 31, 2004:
Amortizing intangible assets:
Core deposit	$	3,505	$	2,794	$	711
Non-amortizing intangible assets:
Goodwill	6,561		4,431		2,130
	$	10,066	$	7,225	$	2,841
December 31, 2003:
Amortizing intangible assets:
Core deposit	$	3,505	$	2,439	$	1,066
Non-amortizing intangible assets:
Goodwill	6,561		4,431		2,130
	$	10,066	$	6,870	$	3,196

Amortization expense for the year ended December 31, 2004 was $355,000. The estimated amortization expense for the next two years will be $355,000 per year.

Note H: Deposits

Major classifications of deposits at December 31 were as follows:

	2004		2003
Noninterest bearing	$	250,328	$	214,439
Savings	123,981		116,565
NOW accounts	234,757		234,184
Money market accounts	404,899		387,089
Certificates of deposit of less than $100,000	510,231		390,353
Certificates of deposit of $100,000 or more	274,653		182,004
	$	1,798,849	$	1,524,634

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At year-end 2004, scheduled maturities of time deposits were as follows:

2005	$	423,526
2006	185,557
2007	149,973
2008	18,254
2009 and thereafter	7,574
Total	$	784,884

The following table sets forth the amount and maturities of deposits of $100,000 or more at December 31, 2004:

3 months or less	$	42,952
Over 3 months through 6 months	60,745
Over 6 months through 12 months	62,589
Over 12 months	108,367
	$	274,653

Note I: Borrowings

The following table is a summary of borrowings as of December 31:

	2004		2003
Securities sold under agreement to repurchase	$	45,242	$	47,848
Federal funds purchased	49,000		102,700
FHLB advances	25,000		—
Treasury tax and loans	1,969		3,083
Junior subordinated debentures	31,625		31,625
Note payable and other	2,517		763
	$	155,353	$	186,019

The Company enters into sales of securities under agreements to repurchase (repurchase agreements). These repurchase agreements are treated as financings. The dollar amounts of securities underlying the agreements remain in the asset accounts. Securities sold under agreements to repurchase consisted of U.S. government agencies at December 31, 2004 and 2003, and are held in third party pledge accounts.

The Company borrowings at the FHLB are limited to the lesser of 35% of total assets or 60% of the book value of certain mortgage loans. In addition, these notes are collateralized by FHLB stock of $1.1 million and $1.0 million at December 31, 2004 and 2003, respectively. The maturity date of the December 31, 2004 outstanding FHLB advances is March 1, 2005.

At December 31, 2004 and 2003, respectively, short-term borrowings totaled $123.7 million at a weighted average rate of 1.4% and $154.4 million at a weighted average rate of 1.2%. The decrease in short-term borrowings was due to the decrease in federal funds purchased of $53.7 million offset by an increase in FHLB advances of $25.0 million. The decrease in short-term borrowings was primarily the result of deposit growth during 2004 that exceeded asset growth. During 2004, deposits grew $274.2 million while loans grew $187.1 million.

The Company is a Treasury Tax & Loan (TT&L) depository for the Federal Reserve Bank (FRB), and as such, they accept TT&L deposits. The Company is allowed to hold these deposits for the FRB until they are called. The interest rate is the federal funds rate less 25 basis points. Securities with a face value greater than or equal to the amount borrowed are pledged as a condition of borrowing TT&L deposits. As of December 31, 2004 and 2003, the TT&L deposits were $2.0 million and $3.1 million, respectively.

The Company completed the sale of $27.5 million of cumulative trust preferred securities by its subsidiary, Old Second Capital Trust I (Nasdaq: OSBCP) in June 2003. An additional $4.1 million of cumulative trust preferred securities was

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sold in the first week of July 2003. The trust preferred securities are amortized over a 30 year period. Dividends are payable quarterly at an annual rate of 7.80% and are included in interest expense in the consolidated financial statements. The debentures that were issued by Old Second Capital Trust I are recorded on the Consolidated Balance Sheets as Junior Subordinated Debentures. For additional information, see Note A: Summary of Significant Accounting Policies – Variable Interest Entity.

The Company had a $20 million line of credit available with Marshall & Ilsley under which there was a $2.7 million outstanding balance as of December 31, 2004 and a $500,000 outstanding balance as of December 31, 2003. A revolving business note dated April 30, 2004 secures the line of credit and is guaranteed by the Company. The note provides that any outstanding principal will bear interest at the Company’s option, at the rate of either 1% over the previous month average (Federal Reserve targeted rate) federal funds rate or 0.90% over the adjusted interbank rate with a minimum interest rate of 2.20%. This borrowing is for general corporate purposes, including funding loans held for sale at the Old Second Mortgage Company subsidiary.

At year-end 2004, scheduled borrowings were as follows:

	For year ended December 31,
	2004				2003
	Balance		Weighted Average Rate		Balance		Weighted Average Rate
2005	$	123,728	1.40	%	$	154,394	1.19	%
2006	—		—		—		—
2007	—		—		—		—
2008	—		—		—		—
2009 and thereafter	31,625		7.80	%	31,625		7.80	%
Total	$	155,353	2.85	%	$	186,019	2.21	%

The following table reflects categories of short-term borrowings having average balances during the year greater than 30% of stockholders’ equity of the Company at the end of the year. During 2004, federal funds sold and securities sold under repurchase agreements meet the criteria. For the years ended 2003 and 2002, securities sold under repurchase agreements met the criteria. Information presented is as of or for the year ended December 31, for the years indicated:

	2004			2003			2002
Balance at end of year	$	93,314		$	47,848		$	60,774
Weighted average interest rate	1.31		%	0.85		%	1.05		%
Maximum month-end amount outstanding during the year	$	151,839		$	63,681		$	60,774
Average amount outstanding during the year	$	92,892		$	46,990		$	42,455
Weighted average interest rate during the year	1.32		%	1.09		%	1.56		%

Note J: Income Taxes

Income tax expense (benefit) for the year ended December 31, was as follows:

	2004		2003			2002
Current federal	$	10,277	$	11,168		$	9,893
Current state	1,876		1,926			1,567
Deferred federal	997		(790		)	(517		)
Deferred state	128		(235		)	(192		)
	$	13,278	$	12,069		$	10,751

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The following were the components of the deferred tax assets and liabilities as of December 31:

	2004			2003
Allowance for loan losses	$	6,146		$	7,259
Accretion on securities	176			—
Other assets	2,039			1,676
Deferred tax assets	8,361			8,935
Accumulated depreciation	(2,565		)	(2,127		)
Accretion on securities	—			(59		)
Pension	(193		)	(37		)
Other liabilities	(688		)	(672		)
Deferred tax liabilities	(3,446		)	(2,895		)
	4,915			6,040
Tax effect of net unrealized gain on investments	(213		)	(1,980		)
Net deferred tax asset	$	4,702		$	4,060

The components of the provision for deferred income taxes were as follows:

	2004			2003			2002
Provision for loan losses	$	1,113		$	(1,004	)	$	(1,371	)
Depreciation	438			487			569
Pension expense	156			63			201
Net premiums and discounts on securities	(235		)	(45		)	86
Other, net	(347		)	(526		)	(194		)
	$	1,125		$	(1,025	)	$	(709	)

Effective tax rates differ from federal statutory rates applied to financial statement income due to the following:

	2004			2003			2002
Tax at statutory federal income tax rate	$	13,848		$	11,962		$	10,814
Nontaxable interest income, net of disallowed interest deduction	(1,176		)	(865		)	(928		)
BOLI Income	(235		)	—			—
State income taxes, net of federal benefit	1,302			1,099			894
Other, net	(461		)	(127		)	(29		)
Tax at effective tax rate	$	13,278		$	12,069		$	10,751

Note K: Retirement Plans

The Company has a tax-qualified noncontributory defined benefit retirement plan covering substantially all full-time and regular part-time employees of the Company. Generally, benefits are based on years of service and compensation. Certain participants in the defined benefit plan are also covered by an unfunded supplemental retirement plan. The purpose of the supplemental retirement plan is to extend full retirement benefits to individuals without regard to statutory limitations under tax-qualified plans.

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The following table sets forth the plans’ status and amounts recognized in the these financial statements:

	2004			2003			2002
Accumulated benefit obligation	$	12,552		$	10,820		$	8,737
Change in the projected benefit obligation
Projected benefit obligation at beginning of year	$	16,817		$	13,181		$	10,581
Service cost	1,496			1,149			783
Interest cost	961			809			696
Actuarial loss	800			2,153			1,664
Benefits paid	(994		)	(475		)	(543		)
Benefit obligation at end of year	$	19,080		$	16,817		$	13,181
Change in plan assets
Fair value of plan assets at beginning of year	$	10,396		$	8,035		$	7,482
Actual return on plan assets	619			1,150			(603		)
Employer contributions	2,146			1,686			1,699
Benefits paid	(994		)	(475		)	(543		)
Fair value of the asset at end of year	$	12,167		$	10,396		$	8,035
Accrued pension cost
Funded status	$	(6,913	)	$	(6,422	)	$	(5,145	)
Unrecognized net actuarial loss (gain)	6,772			6,127			4,641
Unrecognized prior service cost	104			127			149
Unrecognized net transition asset	—			—			(86		)
Accrued benefit cost cost	$	(37	)	$	(168	)	$	(441	)
Net periodic pension cost
Service cost	$	1,496		$	1,150		$	783
Interest cost	961			809			696
Expected return on assets	(763		)	(666		)	(618		)
Amortization of unrecognized:
Net loss (gain)	299			146			23
Prior service cost	22			22			22
Net asset	—			(86		)	(86		)
Net periodic pension cost	$	2,015		$	1,375		$	820
Amounts applicable to the supplemental retirement plan
Projected benefit obligation	$	1,676		$	1,554		$	1,161
Accumulated benefit obligation	934			733			528
Key assumptions:
Discount rate	5.50		%	5.80		%	6.25		%
Long-term rate of return on assets	7.50		%	7.50		%	7.50		%
Salary increases	5.00		%	5.00		%	5.00		%

The pension plan weighted-average asset allocation at December 31, 2004 and 2003, the measurement dates, by asset category were as follows:

	Plan Assets at December 31,
	2004		2003
Asset Category
Equity securities	62.0	%	44.0	%
Bonds	33.0	%	37.0	%
Money markets	5.0	%	19.0	%
Total net periodic benefit cost	100.0	%	100.0	%

30

The investment return objective for the pension plan is to maximize total return, with a targeted minimum of 8%. Asset allocation calls for 40 to 60% in equity securities, 40 to 60% in bonds, and 0 to 20% in money markets. In 2003, the Company made its contribution to the plan late in the month of December and the funds in money markets were not invested prior to close of business December 31, 2003. In December 2004, an increase in market value of equity securities and a significant retirement distribution resulted in asset allocations temporarily falling outside of the plan ranges as of December 31, 2004.

The following represent benefits that are expected to be paid over the next ten years:

Year ending	Present value of payments
12/31/05	$	613,000
12/31/06	253,000
12/31/07	265,000
12/31/08	327,000
12/31/09	371,000
5 years thereafter	2,204,000

The Company anticipates making contributions to the pension plan in year 2005 in the amount of $2,150,000.

Note L: Employee Benefit Plans

Old Second Bancorp Inc. Employees 401(k) Savings Plan and Trust

The Company sponsors a qualified, tax-exempt pension plan qualifying under section 401(k) of the Internal Revenue Code. Virtually all employees are eligible to participate after meeting certain age and service requirements. Eligible employees are permitted to contribute up to a dollar limit set by law of their compensation to the 401(k) plan. Pursuant to the plan, the Company matches up to 100% of a participant’s deferral into the 401(k) plan limited up to 4% of each participant’s salary. The profit sharing portion of the 401(k) plan arrangement provides an annual discretionary contribution to the retirement account of each employee based in part on the Company’s profitability in a given year, and on each participant’s annual compensation. Participants can choose between several different investment options under the 401(k) plan, including shares of the Company’s common stock.

The total matching and profit sharing contributions that the Company made under the 401(k) plan was $1,397,000 in 2004, $1,417,000 in 2003, and $1,299,000 in 2002.

Old Second Bancorp Inc. Voluntary Deferred Compensation Plan for Executives

The Company sponsors an executive deferred compensation plan, which is a means by which certain executives may voluntarily defer a portion of their salary or bonus. This plan is an unfunded, nonqualified deferred compensation arrangement. Company obligations under this arrangement as of December 31, 2004 and December 31, 2003 were $1,337,000 and $989,000.

Note M: Long-Term Incentive Plan

The Long-Term Incentive Plan (the “Incentive Plan”) authorizes the issuance of up to 1,333,000 shares of the Company’s common stock, including the granting of qualified stock options (“Incentive Stock Options”), nonqualified stock options, restricted stock and stock appreciation rights. Stock based awards may be granted to selected directors and officers or employees at the discretion of the board of directors. The Incentive Plan requires the exercise price of any incentive stock option issued to an employee to be at least equal to the fair market value of Company common stock on the date the option is granted. All stock options are granted for a maximum term of ten years, with vesting occurring over the first three years.

Nonqualified stock options may be granted to directors based upon a formula. These and other awards under the Incentive Plan may be granted subject to a vesting requirement and would become fully vested upon a merger or change in control of the Company. Since December 31, 1998, there have been no nonqualified stock options, stock appreciation rights, or restricted stock issued under the Incentive Plan.

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A summary of activity in the Incentive Plan and options outstanding as of year-end was as follows:

	2004				2003				2002
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Beginning outstanding	556,799		$	15.320	528,801		$	20.926	485,067		$	10.463
Granted	137,000		32.590		110,000		25.075		108,000		18.805
Exercised	(36,866	)	9.399		(82,002	)	9.581		(64,266	)	8.535
Expired	—		—		—		—		—		—
Ending outstanding	656,933		$	19.254	556,799		$	23.416	528,801		$	12.401
Weighted average fair value of options granted			$	8.14			$	7.98			$	5.74

Additional information regarding stock options outstanding as of December 31, 2004 is as follows:

	Options Outstanding				Vested Options
Range of Exercise Prices	Shares	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price
						Weighted- Average Exercise Price
					Shares
$5.85 - $10.00	118,598	4.8	$	8.648	118,598	$	8.648
$10.01 - $15.00	183,335	5.9	12.921		183,335	12.921
$15.01 - $20.00	108,000	8.0	18.805		72,000	18.805
$20.01 - $25.00	—	—	—		—	—
$25.01 - $30.00	110,000	9.0	25.075		36,672	25.075
$30.01 - $35.00	137,000	10.0	32.590		—	—
	656,933	7.4	$	19.254	410,605	$	13.804

Note N: Earnings per Share

	2004		2003		2002
Basic Earnings Per Share:
Weighted-average common shares outstanding	13,413,263		14,096,244		14,859,764
Net income available to common stockholders	$	26,287	$	22,108	$	20,146
Basic earnings per share	$	1.96	$	1.57	$	1.36
Diluted Earnings Per Share:
Weighted-average common shares outstanding	13,413,263		14,096,244		14,859,764
Dilutive effect of stock options	122,618		102,664		115,652
Diluted average common shares outstanding	13,535,881		14,198,908		14,975,416
Net income available to common stockholders	$	26,287	$	22,108	$	20,146
Diluted earnings per share	$	1.94	$	1.56	$	1.35
Number of antidilutive options excluded from diluted earnings per share calculation	137,000		—		—

32

Note O: Other Comprehensive Income

The following table summarizes the related income tax effect for the components of Other Comprehensive Income as of December 31:

	2004			2003			2002
Change in net holding gains on available for sale securities arising during the period.	$	(4,454	)	$	(3,938	)	$	1,080
Related tax expense	1,773			1,567			(430		)
Net unrealized gain (loss) after tax	$	(2,681	)	$	(2,371	)	$	650
Less: Reclassification adjustment for the net gains realized during the period
Realized gains	$	764		$	153		$	93
Realized losses	(252		)	(13		)	(4		)
Net realized gains	512			140			89
Income tax (benefit) on net realized gains	(204		)	(56		)	(35		)
Net realized gains after tax	$	308		$	84		$	54
Total other comprehensive (loss) income	$	(2,989	)	$	(2,455	)	$	596

Note P: 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 as it does for on-balance sheet instruments. Standby letters of credit outstanding at December 31, 2004 were approximately $42 million. As of December 31, 2004, firm commitments to fund loans in the future were approximately $378 million, of which $27 million were fixed rate and $351 million were variable rate. As of December 31, 2004, there were other commitments and contingent liabilities arising in the normal course of business that, in management’s opinion, will not have a material effect on future financial results.

Certain subsidiaries of the Company and branches of the Banks occupy certain facilities under long-term operating leases and, in addition, lease certain software and data processing and other equipment. The aggregate minimum annual rental commitments under these leases total approximately $349,000 in 2005, $366,000 in 2006, $371,000 in 2007, $378,000 in 2008, $160,000 in 2009 and $170,000 thereafter. The Company also receives rental income on certain leased properties. As of December 31, 2004, aggregate future minimum rentals to be received under noncancelable leases totaled $114,000. Total operating lease expense, net of rental income, recorded under all operating leases was $430,000 in 2004, $244,000 in 2003 and $189,000 in 2002.

Legal proceedings

The Company and its subsidiaries have, from time to time, 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 Banks or on the consolidated financial position of the Company.

Note Q: Capital

The Company and the Banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized,

33

undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required. Actual and required capital amounts (in thousands) and ratios are presented below at year-end.

As of the Company’s and the Banks’ most recent regulatory notification, the Company and the Banks were categorized as well capitalized. Management is not aware of any conditions or events since the most recent regulatory notification that would change the Company’s or the Banks’ categories.

Capital levels and minimum required levels at year-end:

	Actual at year-end				Minimum Required for Capital Adequacy Purposes				Minimum Required to be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
2004:
Total capital to risk weighted assets
Consolidated	$	177,554	11.06	%	$	128,430	8.00	%	$	160,537	10.00	%
Old Second Bank	123,156		11.53		85,451		8.00		106,814		10.00
Tier 1 capital to risk weighted assets
Consolidated	162,059		10.09		64,245		4.00		96,368		6.00
Old Second Bank	112,208		10.50		42,746		4.00		64,119		6.00
Tier 1 capital to average assets
Consolidated	162,059		7.85		82,578		4.00		103,222		5.00
Old Second Bank	112,208		7.98		56,245		4.00		70,306		5.00
2003:
Total capital to risk weighted assets
Consolidated	$	158,377	11.40	%	$	111,142	8.00	%	$	138,927	10.00	%
Old Second Bank	110,872		11.79		75,231		8.00		94,039		10.00
Tier 1 capital to risk weighted assets
Consolidated	140,993		10.14		55,619		4.00		83,428		6.00
Old Second Bank	99,105		10.54		37,611		4.00		56,417		6.00
Tier 1 capital to average assets
Consolidated	140,993		7.91		71,299		4.00		89,123		5.00
Old Second Bank	99,105		7.98		49,677		4.00		62,096		5.00

National and state bank regulations and capital guidelines limit the amount of dividends that may be paid by the Banks without prior regulatory approval. At December 31, 2004 approximately $60,232,000 was available for the payment of dividends by the Banks to the Company.

During June 2003, the Company completed its tender offer for shares of its common stock, in which 723,053 shares were repurchased at $42.50 per share. The total cash payment required to complete the tender offer was approximately $31.6 million, which was funded by the issuance of cumulative trust preferred securities by its subsidiary, Old Second Capital Trust I (Nasdaq:OSBCP). The cumulative trust preferred securities are amortized over 30 years using the straight-line method. Cash distributions on the securities are payable quarterly at an annual rate of 7.80% and are included in interest expense in the consolidated financial statements.

Note R: Fair Values of Financial Instruments

The estimated fair values approximate carrying amount for all items except those described in the following table. 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.

34

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

	2004				2003
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	58,662	$	58,662	$	55,168	$	55,168
Securities available for sale	452,942		452,942		411,035		411,035
Loans held for sale	16,597		16,597		14,756		14,756
Bank owned life insurance	20,670		20,670		—		—
Loans, net	1,493,581		1,533,482		1,301,237		1,363,665
	$	2,042,452	$	2,082,353	$	1,782,196	$	1,844,624
Financial liabilities:
Deposits	$	1,798,849	$	1,793,156	$	1,524,634	$	1,529,448
Securities sold under repurchase agreements	45,242		45,242		47,848		47,848
Other short-term borrowing	75,786		75,786		106,046		106,046
Junior subordinated debentures	31,625		29,768		31,625		30,296
Notes payable	2,700		2,700		500		500
	$	1,954,202	$	1,946,652	$	1,710,653	$	1,714,138

Note S: Parent Company Condensed Financial Information

Condensed Balance Sheets as of December 31 were as follows:

	2004		2003
Assets
Noninterest-bearing deposit with bank subsidiary	$	1,911	$	1,248
Investment in subsidiaries	167,382		147,571
Securities available for sale	145		150
Other assets	322		348
	$	169,760	$	149,317
Liabilities and Stockholders’ Equity
Trust preferred debentures	$	31,625	$	31,625
Other liabilities	3,147		698
Stockholders’ equity	134,988		116,994
	$	169,760	$	149,317

Condensed Statements of Income for the years ended December 31 were as follows:

	2004		2003			2002
Operating Income
Cash dividends received from subsidiaries	$	9,060	$	6,998		$	10,369
Interest income	8		9			8
Other income	18		14			—
	9,086		7,021			10,377
Operating Expenses
Trust preferred debenture expense	2,486		1,233			—
Interest expense	43		14			13
Other expenses	1,256		650			443
	3,785		1,897			456
Income before income taxes and equity in undistributed net income of subsidiaries	5,301		5,124			9,921
Income tax benefit	(1,494)		(754		)	(160		)
Income before equity in undistributed net income of subsidiaries	6,795		5,878			10,081
Equity in undistributed net income of subsidiaries	19,492		16,230			10,065
Net income	$	26,287	$	22,108		$	20,146

35

Condensed Statements of Cash Flows for the years ended December 31 were as follows:

	2004			2003			2002
Cash Flows from Operating Activities
Net income	$	26,287		$	22,108		$	20,146
Adjustments to reconcile net income to net cash from operating activities:
Equity in undistributed net income of subsidiaries	(19,492		)	(16,230		)	(10,065		)
Change in taxes payable	28			25			1
Change in other assets	165			(1,223		)	(224		)
Tax benefit from exercise of stock options	215			335			251
Other, net	(262		)	(193		)	(252		)
Net cash from operating activities	6,941			4,822			9,857
Cash Flows from Investing Activities
Investment in subsidiaries	(2,924		)	(3,851		)	36,197
Net cash from investing activities	(2,924		)	(3,851		)	36,197
Cash Flows from Financing Activities
Dividends paid	(5,901		)	(5,639		)	(5,232		)
Change in notes payable	2,200			500			(33,486		)
Treasury stock purchased	—			(31,442		)	(7,897		)
Proceeds from trust preferred debentures	—			31,625			—
Proceeds from exercise of stock options	347			1,121			800
Net cash from financing activities	(3,354		)	(3,835		)	(45,815		)
Net change in cash and cash equivalents	663			(2,864		)	239
Cash and cash equivalents at beginning of year	1,248			4,112			3,873
Cash and cash equivalents at end of year	$	1,911		$	1,248		$	4,112

Note T: Summary of Quarterly Financial Information (unaudited)

The following represents unaudited quarterly financial information for the periods indicated:

	2004										2003
	4th			3rd		2nd			1st		4th		3rd		2nd		1st
Interest income	$	25,988		$	24,554	$	23,602		$	23,254	$	22,717	$	22,194	$	21,874	$	21,059
Interest expense	8,428			7,499		6,700			6,412		6,362		6,432		6,239		6,435
Net interest income	17,560			17,055		16,902			16,842		16,355		15,762		15,635		14,624
Provision for loan losses	(2,900		)	—		—			—		705		828		863		855
Securities gains	35			88		(251		)	640		5		96		5		34
Income before taxes	12,814			9,384		8,083			9,284		8,475		8,833		8,846		8,023
Net income	8,408			6,288		5,521			6,070		5,490		5,772		5,639		5,207
Basic earnings per share	0.63			0.47		0.41			0.45		0.41		0.43		0.38		0.35
Diluted earnings per share	0.62			0.46		0.41			0.45		0.41		0.43		0.38		0.35
Dividends paid per share	0.12			0.12		0.12			0.10		0.10		0.10		0.10		0.10

Note U: Stockholders’ Rights Plan

On September 17, 2002, the Company’s Board of Directors adopted a Stockholders’ Rights Plan. The Plan provided for the distribution of one right on October 10, 2002, for each share of the Company’s outstanding common stock as of September 27, 2002. The rights have no immediate economic value to stockholders because they cannot be exercised unless and until a person, group or entity acquires 15% or more of the Company’s common stock or announces a tender offer. The Plan also permits the Company’s Board of Directors to redeem each right for one cent under various circumstances. In general, the Plan provides that if a person, group or entity acquires a 15% or larger stake in the Company or announces a tender offer, and the Company’s Board chooses not to redeem the rights, all holders of rights, other than the 15% stockholder, will be able to purchase a certain amount of the Company’s common stock for half of its market price.

36

Report of Independent Auditors

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

Old Second Bancorp, Inc.

We have audited the accompanying Consolidated Balance Sheets of Old Second Bancorp, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the related Consolidated Statements of Income, Cash Flows and Changes in Shareholders’ Equity for the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Old Second Bancorp, Inc. and Subsidiaries at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Old Second Bancorp, Inc.’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 4, 2005 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Chicago, Illinois

March 4, 2005

37

Old Second Bancorp Inc. and Subsidiaries
Corporate Information

Corporate Office

37 River Street

Aurora, Illinois 60506-4172

(630) 892-0202

www.o2bancorp.com

Market for the Company’s Common Stock

The Company’s common stock trades on The Nasdaq Stock Market under the symbol “OSBC.” As of December 31, 2004, the Company had approximately 1,200 stockholders of record of its common stock. The following table sets forth the range of prices during each quarter for 2004 and 2003. Stock prices have been restated to reflect stock splits.

	2004						2003
	High		Low		Dividend		High		Low		Dividend
First quarter	$	26.01	$	24.00	$	0.10	$	19.70	$	18.17	$	0.10
Second quarter	27.05		23.06		0.12		21.63		18.91		0.10
Third quarter	28.75		24.88		0.12		22.20		19.68		0.10
Fourth quarter	34.96		27.58		0.12		25.99		21.49		0.10

Form 10-K and Other Information

We maintain a website at http://www.o2bancorp.com. We make available free of charge on or through our website, our annual report on Form 10K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our code of conduct and charters of our various committees of the Board of Directors are also available on the website. We will also provide copies of our filings free of charge upon written request to: J. Douglas Cheatham, Senior Vice President and Chief Financial Officer, Old Second Bancorp Inc., 37 South River Street, Aurora, Illinois 60506-4172.

Transfer Agent/Stockholder Services

Inquires related to stockholders records, stock transfers, changes of ownership, change of address and dividend payments should be sent to the transfer agent at the following address:

Old Second Bancorp Inc.

c/o Robin Hodgson, VP Administration

37 River Street

Aurora, Illinois 60506-4172

(630) 906-5480

rhodgson@o2bancorp.com

38

Old Second Bancorp Inc. and Subsidiaries

Consolidated Balance Sheet

December 31, 2004

(In thousands)

	The Old Second National Bank		Old Second Mortgage Company		Old Second Bank Yorkville			Old Second Bank Kane		Old Second Financial, Inc.		Old Second Bancorp Inc. Parent Only			Consolidating Adjustments			Old Second Bancorp Inc. Consolidated
Assets
Cash and due from banks	$	37,765	$	100	$	11,295		$	9,225	$	75	$	1,911		$	(1,709	)	$	58,662
Federal funds sold	32,720		—		—			4,185		—		—			(36,905		)	—
Cash and cash equivalents	70,485		100		11,295			13,410		75		1,911			(38,614		)	58,662
Securities available for sale	315,597		—		60,647			76,553		—		145			—			452,942
Loans held for sale	217		15,978		402			—		—		—			—			16,597
Loans	1,003,670		1,099		272,026			245,874		—		—			(13,593		)	1,509,076
Allowance for loan losses	10,896		52		2,688			1,859		—		—			—			15,495
Net loans	992,774		1,047		269,338			244,015		—		—			(13,593		)	1,493,581
Premises and equipment, net	23,773		483		5,269			6,683		—		—			—			36,208
Other real estate owned	—		—		—			—		—		—			—			—
Mortgage servicing rights, net	—		317		—			—		—		—			—			317
Goodwill, net	—		—		—			2,130		—		—			—			2,130
Core deposit intangible assets, net	—		—		711			—		—		—			—			711
Bank owned life insurance	15,501		—		2,584			2,585		—		—			—			20,670
Investment in subsidiaries	2,726		—		15			15		—		167,382			(169,187		)	951
Accrued interest and other assets	14,031		517		3,475			3,287		15		322			(2,150		)	19,497
Total assets	$	1,435,104	$	18,442	$	353,736		$	348,678	$	90	$	169,760		$	(223,544	)	$	2,102,266
Liabilities
Deposits:
Demand	$	187,187	$	—	$	33,192		$	31,658	$	—	$	—		$	(1,709	)	$	250,328
Interest bearing	1,002,094		108		258,565			287,754		—		—			—			1,548,521
Total deposits	1,189,281		108		291,757			319,412		—		—			(1,709		)	1,798,849
Securities sold under repurchase agreements	45,042		—		200			—		—		—			—			45,242
Other short-term borrowings	79,262		—		32,952			477		—		—			(36,905		)	75,786
Notes payable	—		13,593		—			—		—		2,700			(13,593		)	2,700
Junior subordinated debentures	—		—		—			—		—		31,625						31,625
Accrued interest and other liabilities	9,061		2,085		1,747			1,866		20		447			(2,150		)	13,076
Total liabilities	1,322,646		15,786		326,656			321,755		20		34,772			(54,357		)	1,967,278
Stockholders’ Equity
Common stock	2,160		10		525			1,000		25		16,497			(3,720		)	16,497
Surplus	14,068		457		5,525			14,533		—		12,480			(34,583		)	12,480
Retained earnings	96,012		2,189		21,043			11,271		45		156,025			(130,560		)	156,025
Accumulated other comprehensive income	218		—		(13		)	119		—		324			(324		)	324
Treasury stock	—		—		—			—		—		(50,338		)	—			(50,338		)
Total stockholders’ equity	112,458		2,656		27,080			26,923		70		134,988			(169,187		)	134,988
Total liabilities and stockholders’ equity	$	1,435,104	$	18,442	$	353,736		$	348,678	$	90	$	169,760		$	(223,544	)	$	2,102,266

39

Old Second National Bank

Aurora • 37 South River Street

Aurora-Redwood • 555 Redwood Drive

Aurora-Farnsworth • 1350 North Farnsworth Avenue

Aurora-Orchard • 1230 North Orchard Road

Aurora-Fox Valley Center • 4080 Fox Valley Center Drive

North Aurora • 200 West John Street

Batavia • 1991 West Wilson Street

Geneva • 23 South Fourth Street

St. Charles • 801 South Kirk Road

South Elgin • 888 North La Fox Road

Oswego • 1200 Douglas Road

Sugar Grove • Route 47 at Cross Street

Naperville • 815 East Ogden Avenue

Naperville • 5024 Ace Lane

Joliet • 2761 Black Road

Old Second National Bank opened one new branch in 2004 and two new branches in the first quarter 2005.

In October, Old Second opened a branch on La Fox Road in South Elgin.

Recently, Old Second expanded southeast and opened a branch on Black Road in Joliet, and opened another bank on Rt. 59 in Naperville.

Each branch grand opening featured a “Grab-the-Green” cash sweepstakes giveaway and featured bonus CD opportunities.

In 2005, Old Second National Bank looks to expand further east with a branch in Lisle. A branch is also planned for Batavia’s east side.

In May, the opening of the Chicago Premium Outlet Mall provided Old Second an opportunity to develop our “Direct Banking” program for mall merchants and offer ATM convenience to shoppers.

Old Second’s downtown Aurora facility will be reconfigured with new offices and teller line.

	Old Second’s Investment Management & Trust Group year-end assets grew from $831 million to $914 million, an increase of 10%. Existing client relationships generated 25% of this growth. Old Second received an “Outstanding” rating on its recent 2004 CRA (Community Reinvestment Act) examination. This is the highest rating a bank can receive in recognition of its community lending activity. Only 10% of all banks in the nation receive the rating of “Outstanding.” This is the second consecutive CRA exam that Old Second has received the “Outstanding” rating.
James Eccher
President & CEO

Old Second–Joliet opened in January 2005.

Member FDIC

40

Directors -Old Second Bancorp Inc.

and Old Second National Bank

Walter Alexander President, Alexander Lumber Company, Senior Director	Edward Bonifas Vice President, Alarm Detection Systems, Inc.	J. Douglas CheathamSenior Vice President and Chief Financial Officer, Old Second Bancorp Inc.	Marvin Fagel President, Aurora Packing Company & Chairman of the Board & CEO, New City Packing Company	Barry Finn President & CEO, Rush-Copley Medical Center
William Kane General Partner, The Label Printers, Inc.	Kenneth Lindgren President, Daco Incorporated	Jesse Maberry Vice President, Aurora Bearing Company	D. Chet McKee VP Special Projects, Rush-Copley Medical Center	William Meyer President, William F. Meyer Company
Gerald Palmer Vice President & General Manager, Caterpillar, Inc.	James Schmitz Tax Consultant	William Skoglund Chairman, President & CEO, Old Second Bancorp Inc. and Chairman, Old Second National Bank	Dr. Christine Sobek President, Waubonsee Community College	James Eccher President & CEO, Old Second National Bank and Director, Old Second National Bank

Directors Emeriti
James Benson	Daniel Ruddy
Retired Chairman of the Board,	President, Construction Advisory Services, Inc.
Old Second Bancorp Inc. and
Old Second National Bank	Ralph Schleifer
	President, Fox Valley Dry Wall, Inc.
John Dunham
Aurora Equipment Company	Edward Schmitt
	Retired, Schmitt McDonalds
Urban Hipp
Retired, Barber-Greene Company	Townsend Way, Jr.
	Retired, Richards - Wilcox Mfg. Co.
Gary McCarter
Retired, Farmers Group, Inc.	Richard Westphal
	Retired, Farmer
Dorothy McEnroe
Retired, McEnroe Real Estate, LTD

41

Old Second Bank–Yorkville
Yorkville • 102 East Van Emmon Street
Countryside • 26 West Countryside Parkway
Piano • 6800 West Route 34
Sandwich • 410 East Church Street Ottawa • 323 East Norris Drive
	Tom Thomas
	Chairman, President
	& CEO

Directors

		Jim Liggett, Chairman of the Board with Old Second–Yorkville, retired at year-end from daily operations at the bank. Liggett has been with the bank for 18 years and was the previous president. He will continue as a director. Early in 2004, the city of Utica was struck by a devastating tornado. A special account was opened by our nearby Ottawa branch to help the reconstruction efforts. The summer of 2004 was quite busy for Old Second–Yorkville. The bank participated in a variety of popular local events including Piano’s Sesquicentennial Celebration, the Kendall County Fair, and Ottawa’s Riverfest. These events provide great opportunity for the bank to expand community involvement.
Matthew G. Blocker Manager, G.A. Blocker Grading Contractor, Inc.	Lucien Caruso President/Owner, Ottawa Dental Labs
Frank Coffman Owner, Coffman Truck Sales, Senior Director	Richard Dickson Retired Insurance Broker, Zeiter Dickson Insurance Agency
Harold Feltz Retired Engineer, Caterpillar, Inc., and Senior Director	James Liggett Retired Chairman & CEO, Old Second Bank-Yorkville	William Skoglund Chairman, President & CEO, Old Second Bancorp Inc. and Chairman, Old Second National Bank
Rodney Sloan Senior Vice President and Senior Loan Officer, Old Second Bancorp Inc.	David Stewart Agricultural Engineer	Thomas E. Thomas President, Chairman & CEO, Old Second Bank- Yorkville

Directors Emeriti

James Benson

Laurence Henning

Lawrence Langland

Member FDIC

42

David Ott President	Old Second Bank – Kane County
	Elburn • 749 North Main Street
	Wasco • 40W422 Route 64
	Maple Park • 1100 South County Line Road
	Kaneville • 2S101 Harter Road
	Burlington •194 South Main Street
	Sycamore • 1810 DeKalb Avenue
	Hampshire • 1000A South State Street

Directors
		In June, Old Second–Kane County opened its seventh branch on Route 72 in Hampshire. This retail branch is well positioned for the upcoming growth and development of this community. The staff has received numerous positive comments from community leaders and customers about the Hampshire branch opening. In April, Old Second–Kane County surpassed $300 million in total assets, essentially doubling the size of the bank since the bancorp consolidated to three banks four years ago.
Dean Capes Vice Chairman/Branch Manager, Old Second Bank– Kane County, Wasco	James Gillett Retired, Manager, Elbum Co-Op.
Raymond Larson Farmer	James O’Connell Farmer
		Directors Emeriti James Benson Willard Lenschow Eldon Hatch
David Ott President, Old Second Bank-Kane County	William Skoglund Chairman, President & CEO, Old Second Bancorp Inc. and Chairman, Old Second National Bank
Rodney Sloan Senior Vice President and Senior Loan Officer, Old Second Bancorp Inc.	David Vaughan President/Owner, Vaughan Construction

I

Old Second Bank–Kane County employees promoted the

Hampshire branch which opened in June.

43

Old Second Mortgage
St. Charles • 2325 Dean Street
DeKalb • 3260 Sycamore Road
Wheaton • 1745 South Naperville Road
Aurora • 1159 North Farnsworth Avenue
	Al Scionti
	President

Directors
Walter Alexander President, Alexander Lumber Company, Senior Director	William Meyer President, William F. Meyer Company
Kenneth Lindgren President, Daco Incorporated	Al Scionti President, Old Second Mortgage
William Skoglund Chairman, President & CEO, Old Second Bancorp Inc. and Chairman, Old Second National Bank

In June, the mortgage company implemented new software to track closed loans called MORvision. This program has been embraced favorably by the staff as it helps them conduct business more efficiently.

Old Second Mortgage will go forward in 2005 offering our own mortgage loan servicing in most loan instances. Mortgage loan customers will have the added convenience of face-to-face visits while we service the loan. We can personally address questions about tax payments or any loan concern.

In late 2004, a “residential call center” was established within Old Second National Bank’s support center. Now there is one number with all the answers: toll free (877) 966-0202.

Al Scionti (center) congratulates 2004’s top loan officers for loans closed:
Michelle Watzlawick for Old Second Banks
and Greg Kuda for Old Second Mortgage

44

EX-22.1

Exhibit 22.1

LIST OF SUBSIDIARIES

Subsidiaries of the Company	Incorporated Under Laws of	Percent Owned by the Company
Old Second Bank	United States	100%
Old Second Bank - Yorkville	State of Illinois	100%
Old Second Bank - Kane County	State of Illinois	100%
Old Second Financial, Inc.	State of Illinois	100%
Old Second Mortgage, Inc.	State of Illinois	Owned by Old Second Bank
Old Second Capital Trust I	State of Delaware	100% of the common stock
Old Second Affordable Housing Fund, L.L.C.	State of Illinois	70% Owned by Old Second Bank
		15% Owned by Old Second Yorkville Bank
		15% Owned by Old Second Kane County Bank

1

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in this Annual Report (Form 10-K) of Old Second Bancorp, Inc. of our report dated March 4, 2005, with respect to the consolidated financial statements of Old Second Bancorp, Inc., included in the 2004 Annual Report to Shareholders of Old Second Bancorp, Inc.

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-38914) pertaining to the Old Second Bancorp, Inc. Employees 401(k) Savings Plan and Trust, of our report dated March 4, 2005, with respect to the consolidated financial statements of Old Second Bancorp, Inc. incorporated herein by reference, and our report dated March 4, 2005, with respect to Old Second Bancorp, Inc. management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting of Old Second Bancorp, Inc., included herein.

/s/ ERNST & YOUNG LLP

Chicago, Illinois

March 14, 2005

1

EX-31.1

Exhibit 31.1

I, William B. Skoglund, certify that:

1.             I have reviewed this annual report on Form 10-K 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-14 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 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 function):

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:	March 15, 2005	/s/ William B. Skoglund
		William B. Skoglund
		President and Chief Executive Officer

1

EX-31.2

Exhibit 31.2

I, J. Douglas Cheatham, certify that:

1.I have reviewed this annual report on Form 10-K 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-14 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 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 function):

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:	March 15, 2005	/s/ J. Douglas Cheatham
		J. Douglas Cheatham
		Chief Financial Officer

1

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 Annual Report of Old Second Bancorp Inc. (the “Company”) on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report), I, William B Skoglund, 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.

/s/ William B. Skoglund

William B. Skoglund

President and Chief Executive Officer

March 15, 2005

1

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 Annual Report of Old Second Bancorp Inc. (the “Company”) on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report), I, J. Douglas Cheatham,Chief Financial Officer, 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

Senior Vice-President and Chief Financial Officer

March 15, 2005

1