Old Second Bancorp Inc. in Aurora, Ill., said its bank expects further regulatory scrutiny after it was unable to fully comply with a memorandum of understanding.

Old Second said Wednesday in its annual report filed with the Securities and Exchange Commission that its bank is expecting a formal regulatory enforcement action from the Office of the Comptroller of the Currency.

The informal memorandum of understanding, from October 2009, requires the bank to have an 8.75% leverage ratio and an 11.25% total risk-based ratio.

The bank complied at first, but continued losses have since eroded capital. At the end of 2010 the bank's total risk-based capital level still exceeded the threshold at 11.63%, but the leverage ratio was 8.1%.

The $2.4 billion-asset company reported a loss of $113 million in 2010. Nonperforming assets made up 14.5% of total assets at yearend.

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