UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
   
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 2006
   
o 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 1-15817
 
OLD NATIONAL BANCORP
(Exact name of Registrant as specified in its charter)
   
INDIANA
35-1539838
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization) 35-1539838
(I.R.S. Employer
Identification No.)
   
1 Main Street
47708
Evansville, Indiana
(Zip Code)
(Address of principal executive offices) 47708
(Zip Code)
 

(812) 464-1294
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for at least the past 90 days. Yes þ  No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act.
Large accelerated filer þAccelerated filer oLarge accelerated filer þ     Accelerated filer oNon-accelerated filer o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o   No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock. The Registrant has one class of common stock (no par value) with 67,113,00066,443,000 shares outstanding at April 30,July 31, 2006.
 
 

 

 

OLD NATIONAL BANCORP
FORM 10-Q
INDEX
     
  Page No.
PART I. FINANCIAL INFORMATION
    
     
Item 1. Financial Statements    
     
Consolidated Balance Sheet MarchJune 30, 2006 (unaudited), December 31, 2006 and 2005 and December 31,June 30, 2005 (unaudited)
  3 
     
Consolidated Statement of Income Three and six months ended March 31,June 30, 2006 and 2005 (unaudited)
  4 
     
Consolidated Statement of Changes in Shareholders’ Equity ThreeSix months ended March 31,June 30, 2006 and 2005 (unaudited)
  5 
     
Consolidated Statement of Cash Flows ThreeSix months ended March 31,June 30, 2006 and 2005 (unaudited)
  6 
     
Notes to Consolidated Financial Statements (unaudited)
  7 
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
  1920 
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk
  2830 
     
Item 4. Controls and Procedures
  3133 
     
PART II OTHER INFORMATION
  3234 
     
SIGNATURES
  3538 
Release and Separation Agreement
 302 Certification of Principal Executive Officer
 302 Certification of Principal Financial Officer
 906 Certification of Principal Executive Officer
 906 Certification of Principal Financial Officer

2

OLD NATIONAL BANCORP
CONSOLIDATED BALANCE SHEET
            
 March 31,               
 (unaudited) December 31,  June 30, December 31, June 30, 
(dollars and shares in thousands) 2006 2005 2005  2006 2005 2005 
 (unaudited) (unaudited) 
Assets
  
Cash and due from banks $164,993 $159,516 $245,364  $186,496 $245,364 $216,891 
Federal funds sold 3,146 10,000 123,943  5,556 123,943 2,424 
Money market investments 27,189 29,854 33,109  4,874 33,109 15,835 
Total cash and cash equivalents 195,328 199,370 402,416  196,926 402,416 235,150 
Investment securities — available-for-sale, at fair value  
U.S. Treasury — 33,247 — 
U.S. Government-sponsored agencies 581,504 637,601 509,744  652,203 509,744 511,020 
Mortgage-backed securities 1,100,752 1,248,491 1,105,257  1,073,435 1,105,257 1,157,605 
States and political subdivisions 486,588 583,051 488,369  459,559 488,369 515,384 
Other securities 195,670 215,526 196,696  193,530 196,696 217,647 
Investment securities — available-for-sale 2,364,514 2,717,916 2,300,066  2,378,727 2,300,066 2,401,656 
Investment securities — held-to-maturity, at amortized cost (fair value $153,102, $165,198 and $161,252 respectively) 159,522 170,194 166,799 
Investment securities — held-to-maturity, at amortized cost (fair value $142,924, $161,252 and $184,897 respectively) 151,864 166,799 187,032 
Federal Home Loan Bank stock, at cost 49,628 49,556 49,608  49,051 49,608 49,572 
Residential loans held for sale 21,965 31,685 43,804  24,083 43,804 46,809 
Loans:  
Commercial 1,549,950 1,522,497 1,553,742  1,634,471 1,553,742 1,643,640 
Commercial real estate 1,500,134 1,639,968 1,534,385  1,468,478 1,534,385 1,599,091 
Residential real estate 512,342 558,219 543,903  500,002 543,903 551,059 
Consumer credit, net of unearned income 1,247,077 1,219,655 1,261,797  1,248,898 1,261,797 1,231,170 
Total loans 4,809,503 4,940,339 4,893,827  4,851,849 4,893,827 5,024,960 
Allowance for loan losses  (76,809)  (86,307)  (78,847)  (76,357)  (78,847)  (80,645)
Net loans 4,732,694 4,854,032 4,814,980  4,775,492 4,814,980 4,944,315 
Premises and equipment, net 195,148 209,655 199,878  193,301 199,878 211,356 
Accrued interest receivable 55,787 55,819 55,658  52,979 55,658 55,030 
Goodwill 113,350 100,965 113,275  113,350 113,275 113,135 
Other intangible assets 22,449 16,526 23,060  21,838 23,060 24,335 
Mortgage servicing rights — 15,129 —  — — 14,565 
Assets held for sale — 57,241 —  — — 60,230 
Other assets 334,536 314,959 322,478  348,886 322,478 305,323 
Total assets $8,244,921 $8,793,047 $8,492,022  $8,306,497 $8,492,022 $8,648,508 
Liabilities
  
Deposits:  
Noninterest-bearing demand $820,107 $850,571 $891,541  $833,222 $891,541 $857,051 
Interest-bearing:  
NOW 1,458,384 1,826,861 1,640,750  1,440,662 1,640,750 1,749,073 
Savings 486,527 495,430 480,358  427,656 480,358 481,064 
Money market 901,639 619,975 869,039  884,258 869,039 662,622 
Time 2,551,431 2,577,084 2,583,948  2,619,641 2,583,948 2,574,289 
Total deposits 6,218,088 6,369,921 6,465,636  6,205,439 6,465,636 6,324,099 
Short-term borrowings 359,331 493,312 302,765  591,375 302,765 468,046 
Other borrowings 895,776 1,152,263 954,925  765,868 954,925 1,047,316 
Liabilities held for sale — 11,238 —  — — 14,333 
Accrued expenses and other liabilities 129,353 98,724 118,798  129,151 118,798 93,124 
Total liabilities 7,602,548 8,125,458 7,842,124  7,691,833 7,842,124 7,946,918 
Shareholders’ Equity
  
Preferred stock, 2,000 shares authorized, no shares issued or outstanding — — —  — — — 
Common stock, $1 stated value, 150,000 shares authorized, 67,409, 68,717 and 67,649 shares issued and outstanding, respectively 67,409 68,717 67,649 
Common stock, $1 stated value, 150,000 shares authorized, 66,535, 67,649 and 68,950 shares issued and outstanding, respectively 66,535 67,649 68,950 
Capital surplus 583,938 614,741 591,930  567,902 591,930 619,350 
Retained earnings 18,674 1,585 12,074  24,995 12,074 13,780 
Accumulated other comprehensive loss, net of tax  (27,648)  (17,454)  (21,755)  (44,768)  (21,755)  (490)
Total shareholders’ equity 642,373 667,589 649,898  614,664 649,898 701,590 
Total liabilities and shareholders’ equity $8,244,921 $8,793,047 $8,492,022  $8,306,497 $8,492,022 $8,648,508 
The accompanying notes to consolidated financial statements are an integral part of this statement.

3

OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF INCOME (unaudited)
                        
 Three Months Ended  Three Months Ended Six Months Ended 
 March 31,  June 30, June 30, 
(dollars in thousands, except per share data) (unaudited) 2006 2005 
(dollars in thousands, except per share data) 2006 2005 2006 2005 
Interest Income
  
Loans including fees:  
Taxable $75,603 $68,580  $78,446 $71,645 $154,049 $140,225 
Nontaxable 4,593 4,062  4,852 4,308 9,445 8,370 
Investment securities, available-for-sale:  
Taxable 21,249 21,538  22,989 20,559 44,238 42,097 
Nontaxable 5,461 6,673  5,385 6,404 10,846 13,077 
Investment securities, held-to-maturity, taxable 1,787 1,786  1,702 1,837 3,489 3,623 
Money market investments 906 129  337 253 1,243 382 
Total interest income 109,599 102,768  113,711 105,006 223,310 207,774 
Interest Expense
  
Deposits 39,950 30,849  41,104 33,247 81,054 64,096 
Short-term borrowings 2,393 2,017  5,532 2,666 7,925 4,683 
Other borrowings 12,917 14,705  12,677 14,412 25,594 29,117 
Total interest expense 55,260 47,571  59,313 50,325 114,573 97,896 
Net interest income 54,339 55,197  54,398 54,681 108,737 109,878 
Provision for loan losses 3,500 5,100  3,500 6,000 7,000 11,100 
Net interest income after provision for loan losses 50,839 50,097  50,898 48,681 101,737 98,778 
Noninterest Income
  
Wealth management fees 5,179 4,875  4,970 5,635 10,149 10,510 
Service charges on deposit accounts 9,903 11,098  10,689 12,065 20,592 23,163 
ATM fees 2,846 2,640  3,017 2,817 5,863 5,457 
Mortgage banking revenue 1,208 1,377  582 1,267 1,790 2,644 
Insurance premiums and commissions 10,964 9,051  9,480 9,094 20,444 18,145 
Investment product fees 2,257 2,583  2,025 2,316 4,282 4,899 
Bank-owned life insurance 2,101 1,754  2,135 1,741 4,236 3,495 
Net securities losses  (147)  (520)
Gain (loss) on derivatives 1,615  (2,872)
Net securities gains (losses) 55 1,043  (92) 523 
Gain on derivatives 405 8,149 2,020 5,277 
Gain on branch divestiture 3,036 —  — — 3,036 — 
Other income 3,907 3,272  3,449 2,391 7,356 5,663 
Total noninterest income 42,869 33,258  36,807 46,518 79,676 79,776 
Noninterest Expense
  
Salaries and employee benefits 41,322 39,038  37,706 38,733 79,028 77,771 
Occupancy 5,214 5,031  4,898 5,124 10,112 10,155 
Equipment 3,378 3,512  3,246 3,882 6,624 7,394 
Marketing 2,297 1,912  2,537 2,226 4,834 4,138 
Outside processing 4,605 5,395 
Data processing 4,511 5,342 9,116 10,737 
Communication 2,317 2,521  2,382 2,542 4,699 5,063 
Professional fees 1,967 2,114  1,869 2,035 3,836 4,149 
Loan expense 1,350 899  1,534 1,420 2,884 2,319 
Supplies 842 875  856 1,071 1,698 1,946 
Other expense 5,195 5,059  4,151 1,526 9,346 6,585 
Total noninterest expense 68,487 66,356  63,690 63,901 132,177 130,257 
Income before income taxes and discontinued operations 25,221 16,999  24,015 31,298 49,236 48,297 
Income tax expense 4,552 1,443  3,828 6,601 8,380 8,044 
Income from continuing operations 20,669 15,556  20,187 24,697 40,856 40,253 
Loss from discontinued operations, net of tax benefit of $68 —  (984)
Income (loss) from discontinued operations, net of tax expense of $368 and $301, respectively — 542 —  (442)
Net income $20,669 $14,572  $20,187 $25,239 $40,856 $39,811 
Basic net income per share from continuing operations $0.31 $0.22  $0.30 $0.37 $0.61 $0.59 
Basic net loss per share from discontinued operations —  (0.01) — — —  (0.01)
Basic net income per share 0.31 0.21  0.30 0.37 0.61 0.58 
Diluted net income per share from continuing operations $0.31 $0.22  $0.30 $0.37 $0.61 $0.59 
Diluted net loss per share from discontinued operations —  (0.01) — — —  (0.01)
Diluted net income per share 0.31 0.21  0.30 0.37 0.61 0.58 
Dividends per common share $0.21 $0.19  $0.21 $0.19 $0.42 $0.38 
The accompanying notes to consolidated financial statements are an integral part of this statement.

4

OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)
                                                
 Accumulated    Accumulated   
 Other Total  Other Total 
 Common Stock Capital Retained Comprehensive Shareholders’ 
(dollars and shares in thousands) (unaudited) Shares Amount Surplus Earnings Income (Loss) Equity 
(dollars and shares Common Stock Capital Retained Comprehensive Shareholders’ 
in thousands) Shares Amount Surplus Earnings Income (Loss) Equity 
Balance, December 31, 2004
 69,287 $69,287 $630,461 $— $4,344 $704,092  69,287 $69,287 $630,461 $— $4,344 $704,092 
Net income — — — 14,572 — 14,572  — — — 39,811 — 39,811 
Unrealized net securities losses, net of $(16,026) tax — — — —  (23,799)  (23,799)
Reclassification adjustment for losses included in net income, net of $209 tax — — — — 311 311 
Net unrealized derivative gains on cash flow hedges, net of $1,135 tax — — — — 1,756 1,756 
Reclassification adjustment on cash flow hedges, net of $(42) tax — — — —  (66)  (66)
Unrealized net securities losses, net of $(2,860) tax — — — —  (5,010)  (5,010)
Reclassification adjustment for securities gains included in net income, net of $(190) tax — — — —  (333)  (333)
Net unrealized derivative gains on cash flow hedges, net of $377 tax — — — — 585 585 
Reclassification adjustment on cash flow hedges, net of $(48) tax — — — —  (76)  (76)
Stock issued for acquisition 971 971 17,569 — — 18,540 
Cash dividends — — —  (12,987) —  (12,987) — — —  (26,031) —  (26,031)
Stock repurchased  (850)  (850)  (17,542) — —  (18,392)  (1,584)  (1,584)  (31,373) — —  (32,957)
Stock issued under stock option, restricted stock and stock purchase plans 280 280 1,822 — — 2,102  276 276 2,693 — — 2,969 
Balance, March 31, 2005
 68,717 $68,717 $614,741 $1,585 $(17,454) $667,589 
Balance, June 30, 2005
 68,950 $68,950 $619,350 $13,780 $(490) $701,590 
  
Balance, December 31, 2005
 67,649 $67,649 $591,930 $12,074 $(21,755) $649,898  67,649 $67,649 $591,930 $12,074 $(21,755) $649,898 
Net income — �� — — 20,669 — 20,669  — — — 40,856 — 40,856 
Unrealized net securities losses, net of $(4,420) tax — — — —  (6,075)  (6,075)
Reclassification adjustment for securities losses included in net income, net of $62 tax — — — — 85 85 
Reclassification adjustment on cash flow hedges, net of $63 tax — — — — 97 97 
Unrealized net securities losses, net of $(15,704) tax — — — —  (23,259)  (23,259)
Reclassification adjustment for securities losses included in net income, net of $40 tax — — — — 52 52 
Reclassification adjustment on cash flow hedges, net of $125 tax — — — — 194 194 
Adjustment to stock issued for prior acquisitions  (1)  (1)  (15) — —  (16)
Cash dividends — — —  (14,069) —  (14,069) — — —  (27,935) —  (27,935)
Stock repurchased  (449)  (449)  (9,044) — —  (9,493)  (1,318)  (1,318)  (25,665) — —  (26,983)
Stock issued under stock option, restricted stock and stock purchase plans 209 209 1,052 — — 1,261  205 205 1,652 — — 1,857 
Balance, March 31, 2006
 67,409 $67,409 $583,938 $18,674 $(27,648) $642,373 
Balance, June 30, 2006
 66,535 $66,535 $567,902 $24,995 $(44,768) $614,664 
The accompanying notes to consolidated financial statements are an integral part of this statement.

5

OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
                
 Three Months Ended  Six Months Ended 
 March 31,  June 30, 
(dollars in thousands) (unaudited) 2006 2005 
(dollars in thousands) 2006 2005 
Cash Flows From Operating Activities
  
Net income $20,669 $14,572  $40,856 $39,811 
Adjustments to reconcile net income to cash provided by operating activities:  
Depreciation 3,483 3,872  6,843 7,641 
Amortization of other intangible assets and goodwill impairment 611 3,561  1,222 4,137 
Net premium (discount) amortization on investment securities  (305) 905   (973) 1,677 
Amortization of unearned stock compensation 616 492 
Restricted stock expense 500 1,441 
Stock option expense 21 —  647 — 
Provision for loan losses 3,500 5,100  7,000 11,100 
Net securities losses 147 520 
Net securities (gains) losses 92  (523)
Gain on branch divestiture  (3,036) —   (3,036) — 
(Gain) loss on derivatives  (1,615) 2,872 
(Gain) on derivatives  (2,020)  (5,277)
Net gains on sales and write-downs of loans and other assets  (124)  (1,167)  (684)  (797)
Residential real estate loans originated for sale  (45,911)  (78,115)  (114,891)  (187,739)
Proceeds from sale of residential real estate loans 68,554 69,299  136,086 157,628 
Increase in accrued interest and other assets  (23,754)  (20,156)  (43,408)  (584)
Increase in accrued expenses and other liabilities 15,210 6,805 
Increase (decrease) in accrued expenses and other liabilities 26,253  (8,737)
Total adjustments 17,397  (6,012) 13,631  (20,033)
Net cash flows provided by operating activities 38,066 8,560  54,487 19,778 
Cash Flows From Investing Activities
  
Cash and cash equivalents of subsidiaries acquired, net — 2,699 
Purchases of investment securities available-for-sale  (148,671)  (80,753)  (305,552)  (258,172)
Purchases of investment securities held-to-maturity —  (25,000)
Proceeds from maturities, prepayments and calls of investment securities available-for-sale 70,154 73,798  164,808 188,155 
Proceeds from sales of investment securities available-for-sale 3,960 33,881  24,842 444,670 
Proceeds from maturities, prepayments and calls of investment securities held-to-maturity 7,056 7,418  14,529 15,414 
Proceeds from branch divestiture 10,511 —  10,511 — 
Net principal collected from customers 50,875 19,961 
Proceeds from sale of loans — 21,355 
Net principal collected from (loans made to) customers 4,577  (91,207)
Proceeds from sale of premises and equipment and other assets 515 924  1,166 830 
Purchase of premises and equipment  (1,787)  (1,716)  (3,968)  (6,698)
Net cash flows provided by (used in) investing activities  (7,387) 53,513   (89,087) 292,046 
Cash Flows From Financing Activities
  
Net increase (decrease) in deposits and short-term borrowings:  
Noninterest-bearing demand deposits  (70,831)  (647)  (57,717) 5,833 
Savings, NOW and money market deposits  (128,913)  (31,961)  (222,887)  (81,468)
Time deposits  (20,414)  (16,180) 51,716  (18,975)
Short-term borrowings 56,566 145,959  288,610 120,693 
Payments for maturities on other borrowings  (51,237)  (147,103)  (176,404)  (312,295)
Proceeds from issuance of other borrowings — 50,000 
Cash dividends paid  (14,069)  (12,987)  (27,935)  (26,031)
Common stock repurchased  (9,493)  (18,392)  (26,983)  (32,957)
Common stock issued under stock option, restricted stock and stock purchase plans 624 1,610  710 1,528 
Net cash flows used in financing activities  (237,767)  (79,701)  (170,890)  (293,672)
Net decrease in cash and cash equivalents  (207,088)  (17,628)
Net increase (decrease) in cash and cash equivalents  (205,490) 18,152 
Cash and cash equivalents at beginning of period 402,416 216,998  402,416 216,998 
Cash and cash equivalents at end of period
 $195,328 $199,370  $196,926 $235,150 
Total interest paid $52,247 $41,916  $113,821 $92,378 
Total taxes paid $5 $400  $7,642 $2,985 
The accompanying notes to consolidated financial statements are an integral part of this statement.

6

OLD NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 — BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the accounts of Old National Bancorp and its wholly-owned affiliates (“Old National”) and have been prepared in conformity with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. Such principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. All significant intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform with the 2006 presentation. Such reclassifications had no effect on net income. In the opinion of management, the consolidated financial statements contain all the normal and recurring adjustments necessary for a fair statement of the financial position of Old National as of March 31,June 30, 2006 and 2005, and December 31, 2005, and the results of its operations for the three and six months ended March 31,June 30, 2006 and 2005. Interim results do not necessarily represent annual results. These financial statements should be read in conjunction with Old National’s Annual Report for the year ended December 31, 2005.
NOTE 2 –— RECENT ACCOUNTING PRONOUNCEMENTS
SFASFASB Interpretation No. 156 -48– In MarchJune 2006, the Financial Accounting Standards Board (FASB) issued StatementFASB Interpretation No. 156,Accounting48, “Accounting for Servicing of Financial Assets-an amendmentUncertainty in Income Taxes – an interpretation of FASB Statement No. 140.This Statement requires that an entity recognize109” (“FIN 48”), which prescribes a servicing assetrecognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or servicing liability each time it undertakes an obligationexpected to servicebe taken in a financial asset by entering into a service contract under certain situations. The new standardtax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after SeptemberDecember 15, 2006. Management doesThe Company has not expectcompleted its evaluation of the impact of the adoption of this statement to have a material impact on its consolidated financial position or results of operations.
SFAS No. 155 -In February 2006, the Financial Accounting Standards Board issued Statement No. 155,Accounting for Certain Hybrid Financial Instruments-an amendment to FASB Statements No. 133 and 140.This Statement permits fair value remeasurement for any hybrid financial instrument, clarifies which instruments are subject to the requirements, establishes a requirement to evaluate interest in securitized financial assets and other items. The new standard is effective for financial assets acquired or issued after the beginning of the entity’s first fiscal year that begins after September 15, 2006. Management does not expect the adoption of this statement to have a material impact on its consolidated financial position or results of operations.FIN 48.
NOTE 3 — ACQUISITION
On May 1, 2005, Old National acquired J. W. F. Insurance Companies, an Indianapolis, Indiana-based insurance agency that did business as J.W. Flynn Company and J.W.F. Specialty Company, Inc., for $19.0 million, including acquisition costs. Common shares of 970,912 were issued as part of the transaction with a stock value of $18.5 million. Goodwill of $12.0 million was recorded of which $3.5 million is expected to be deductible for tax purposes. In addition, intangible assets totaling $8.4 million related to customer business relationships were recorded and are being amortized over 12 to 22 years. These acquisitions are included in the “other” column of Note 19 – Segment Information. In accordance with the purchase agreement, future contingent payments may be paid in relation to this acquisition. These payments, which are not expected to be material, would result in a change to the purchase price and goodwill when paid. On the date of acquisition, unaudited financial statements of the companies showed assets of $5.0 million with year-to-date revenues of $4.7 million and net loss of $0.2 million.
NOTE 4 — DIVESTITURES
During the first quarter of 2006, Old National sold its financial center located in O’Fallon, Illinois, selling approximately $27.9 million in loans and assigning $22.2 million in deposits. The financial center was in a market no longer considered consistent with the Company’s strategy. The sale resulted in a pre-tax gain of $3.0 million which was included in income from continuing operations during the first quarter.

At June 30, 2005, Old National had committed to a plan to sell J.W. Terrill Insurance Agency in St. Louis, Missouri, and the Fund Evaluation Group in Cincinnati, Ohio, to better align its operations with its market and product focus. Assets of $60.2 million and liabilities of $14.3 million from these companies were reported as held for sale at the lower of cost or market at June 30, 2005. These assets consisted primarily of goodwill and other intangible assets. The operating activities of these companies were reclassified to discontinued operations for all periods in the consolidated statement of income. During the quarter ended June 30, 2005, Old National recorded an impairment charge of $1.1 million, net of tax, related to J.W. Terrill Insurance Agency. This impairment charge was included in income (loss) from discontinued operations.

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NOTE 45 — NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during each period, adjusted to reflect all stock dividends. Diluted net income per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued. Restricted stock shares were excluded from the denominator in the computation of diluted net income per share for the three and six months ended March 31,June 30, 2005 because their inclusion would have been anti-dilutive. The following table reconciles basic and diluted net income per share for the three and six months ended March 31:June 30:
                                                
      Three Months Ended Three Months Ended   
 Three Months Ended Three Months Ended 
 March 31, 2006 March 31, 2005
(dollars and shares in thousands, except per share data) Income Shares Amount Income Shares Amount 
(dollars and shares June 30, 2006 June 30, 2005 
in thousands,             
except per share data) Income Shares Amount Income Shares Amount 
Basic Net Income Per Share
  
Income from continuing operations $20,669 67,016 $0.31 $15,556 68,589 $0.22  $20,187 66,283 $0.30 $24,697 68,471 $0.37 
Loss from discontinued operations — 67,016 —  (984) 68,589  (0.01)
Income from discontinued operations — 66,283 — 542 68,471 — 
                  
Net income $20,669 $0.31 $14,572 $0.21  $20,187 $0.30 $25,239 $0.37 
                  
Effect of dilutive securities:
  
Restricted stock 172 —  64 — 
Stock options 129 198  6 17 
          
 
Diluted Net Income Per Share
  
Income from continuing operations and assumed conversions $20,669 67,317 $0.31 $15,556 68,787 $0.22  $20,187 66,353 $0.30 $24,697 68,488 $0.37 
Loss from discontinued operations — 67,317 —  (984) 68,787  (0.01)
Income from discontinued operations — 66,353 — 542 68,488 — 
                    
Net income and assumed conversions $20,669 $0.31 $14,572 $0.21  $20,187 $0.30 $25,239 $0.37 
                         
  Six Months Ended  Six Months Ended 
(dollars and shares June 30, 2006  June 30, 2005 
in thousands,                  
except per share data) Income  Shares  Amount  Income  Shares  Amount 
 
Basic Net Income Per Share
                        
Income from continuing operations $40,856   66,648  $0.61  $40,253   68,530  $0.59 
Loss from discontinued operations  —   66,648   —   (442)  68,530   (0.01)
                     
Net income $40,856      $0.61  $39,811      $0.58 
                     
                         
Effect of dilutive securities:
                        
Restricted stock      60           —     
Stock options      11           42     
                       
Diluted Net Income Per Share
                        
Income from continuing operations and assumed conversions $40,856   66,719  $0.61  $40,253   68,572  $0.59 
Loss from discontinued operations  —   66,719   —   (442)  68,572   (0.01)
                     
Net income and assumed conversions $40,856      $0.61  $39,811      $0.58 
 

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NOTE 56 — INVESTMENT SECURITIES
The following table summarizes the amortized cost and fair value of the available-for-sale and held-to-maturity investment securities portfolio at MarchJune 30, 2006 and December 31, 2005 and the corresponding amounts of unrealized gains and losses therein:
                                
 Amortized Unrealized Unrealized Fair  Amortized Unrealized Unrealized Fair 
(dollars in thousands) Cost Gains Losses Value  Cost Gains Losses Value 
2006
 
June 30, 2006
 
Available-for-sale $2,409,869 $17,931 $(63,286) $2,364,514  $2,452,605 $12,536 $(86,414) $2,378,727 
Held-to-maturity 159,522 —  (6,420) 153,102  151,864 —  (8,940) 142,924 
2005
 
December 31, 2005
 
Available-for-sale $2,747,947 $31,310 $(61,341) $2,717,916  $2,335,073 $20,125 $(55,132) $2,300,066 
Held-to-maturity 170,194 —  (4,996) 165,198  166,799 —  (5,547) 161,252 
At March 31,June 30, 2006, Old National does not believe any individual unrealized loss represents other-than-temporary impairment. The unrealized losses are primarily attributable to changes in interest rates. Factors considered in evaluating the securities included whether the securities were backed by U.S. Government-sponsored agencies and credit quality concerns surrounding the recovery of the full principal balance. Old National has both the intent and ability to hold securities with any individual unrealized loss for a time necessary to recover the amortized cost.
NOTE 67 — LOANS HELD FOR SALE
Residential loans held for sale are recorded at lower of cost or market value determined as of the balance sheet date. A portion of Old National’s residential loans held for sale have been hedged using fair value hedge accounting in accordance with SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, as amended. The loans’ carrying basis reflects the effects of the SFAS No. 133 adjustments. At March 31,June 30, 2006 and December 31, 2005, Old

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National had residential loans held for sale of $22.0$24.1 million and $31.7$43.8 million, respectively. As of March 31,June 30, 2006 and December 31, 2005, ineffectiveness related to the hedge of a portion of the residential loans held for sale was immaterial.
During the second quarter of 2005, commercial loans held for investment of $26.7 million were reclassified to loans held for sale and sold for $21.4 million resulting in a write-down on loans transferred to held for sale of $5.3 million, which was recorded as a reduction to the allowance for loan losses.
NOTE 78 — ALLOWANCE FOR LOAN LOSSES
ActivityThe following summarizes the changes in the allowance for loan losses was as follows:losses:
        
 Six months ended 
         June 30, 
(dollars in thousands) 2006 2005  2006 2005 
Balance, January 1 $78,847 $85,749  $78,847 $85,749 
Additions:  
Provision charged to expense 3,500 5,100  7,000 11,100 
Deductions:  
Write-downs from loans transferred to held for sale — 5,348 
Loans charged-off 7,395 6,364  13,796 15,090 
Recoveries  (1,857)  (1,822)  (4,306)  (4,234)
Net charge-offs 5,538 4,542  9,490 16,204 
Balance, March 31 $76,809 $86,307 
Balance, June 30 $76,357 $80,645 

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The following is a summarypresents information regarding the period-end balances of information pertaining to impaired loans at March 31:loans:
        
         June 30, December 31, 
(dollars in thousands) 2006 2005  2006 2005 
Impaired loans without a valuation allowance $9,568 $10,793  $17,199 $13,780 
Impaired loans with a valuation allowance 28,745 34,915  24,229 25,681 
Total impaired loans $38,313 $45,708  $41,428 $39,461 
 
Valuation allowance related to impaired loans $12,106 $14,495  $12,953 $12,472 
For the threesix months ended March 31,June 30, 2006 the average balance of impaired loans was $38.9 million for which no interest was recorded. For the three months ended March 31,and 2005, the average balance of impaired loans was $44.7$39.7 million and $42.4 million, respectively, for which no interest was recorded. No additional funds are committed to be advanced in connection with impaired loans. Loans deemed impaired are evaluated primarily using the fair value of the underlying collateral.
NOTE 89 — GOODWILL AND OTHER INTANGIBLE ASSETS
At March 31, 2006SFAS No. 142,Goodwill and 2005,Other Intangible Assets,issued in June 2001, discontinued the practice of amortizing goodwill and initiated an annual review for impairment. Impairment is to be examined more frequently if certain indicators are encountered. Old National had goodwill in the amount of $113.4 million and $101.0 million, respectively. During the first quarter of 2005, Old National reclassified the assets and liabilities of specific non-strategic companies as held for sale, including $26.1 million of goodwill. Concurrent with this classification, these discontinued operations were evaluated for impairment using estimated fair values in the current market, resulting incompleted its most recent annual goodwill impairment test required by this Statement as of $2.9 million. In the third quarterAugust 31, 2005 and determined that no impairment existed as of 2005, Old National sold these assets classified as held for sale.this date.
The changechanges in the carrying amount of goodwill by segment for the threesix months ended March 31 was as follows:
             
  Community       
(dollars in thousands) Banking  Other  Total 
 
Balance, January 1, 2006  $73,477  $39,798  $113,275 
Adjustments to goodwill acquired in prior year  —   75   75 
 
Balance, March 31, 2006  $73,477  $39,873  $113,350 
 
             
Balance, January 1, 2005  $70,944  $59,003  $129,947 
Goodwill transferred to held for sale  —   (26,082)  (26,082)
Goodwill impairment  —   (2,900)  (2,900)
 
Balance, March 31, 2005  $70,944  $30,021  $100,965 
 
At March 31,June 30, 2006 and 2005, were as follows:
             
  Community       
(dollars in thousands) Banking  Other  Total 
 
Balance, January 1, 2006 $73,477  $39,798  $113,275 
Adjustments to goodwill acquired in prior year  —   75   75 
 
Balance, June 30, 2006 $73,477  $39,873  $113,350 
 
             
Balance, January 1, 2005 $70,944  $59,003  $129,947 
Goodwill acquired during the year  —   12,020   12,020 
Adjustments to goodwill acquired in prior year  —   150   150 
Goodwill transferred to held for sale  —   (26,082)  (26,082)
Goodwill impairment  —   (2,900)  (2,900)
 
Balance, June 30, 2005 $70,944  $42,191  $113,135 
 
Intangibles, including core deposits and customer business relationships, are amortized on a straight-line or accelerated basis over their estimated useful lives, generally over a period of 10 to 25 years. Old National had $22.4 million and $16.5 million, respectively,reviews intangible assets for possible impairment whenever events or changes in unamortized intangible assets. During the quarter ended March 31, 2005, Old National reclassified definite-lived intangiblecircumstances indicate that carrying amounts may not be recoverable.

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assets of $18.9 million and indefinite-lived assets of $2.8 million to assets held for sale and discontinued the related amortization. In the third quarter of 2005, Old National sold these assets classified as held for sale. Old National continues to amortize definite-lived intangible assets in continuing operations over the estimated remaining life of each respective asset.
The following table shows the gross carrying amounts and accumulated amortization for other intangible assets as of March 31:June 30, 2006 and December 31, 2005:
                        
 Gross Carrying Accumulated Net Carrying  Gross Carrying Accumulated Net Carrying 
(dollars in thousands) Amount Amortization Amount  Amount Amortization Amount 
2006
 
June 30, 2006
 
Amortized intangible assets:  
Core deposit $  5,574 $(4,301) $  1,273  $5,574 $(4,426) $1,148 
Customer business relationships 25,411  (4,235) 21,176  25,411  (4,721) 20,690 
Total intangible assets $30,985 $(8,536) $22,449  $30,985 $(9,147) $21,838 
2005
 
December 31, 2005
 
Amortized intangible assets:  
Core deposit $  5,574 $(3,778) $  1,796  $5,574 $(4,175) $1,399 
Customer business relationships 17,025  (2,295) 14,730  25,411  (3,750) 21,661 
Total intangible assets $22,599 $(6,073) $16,526  $30,985 $(7,925) $23,060 
Total amortization expense associated with other intangible assets for the three months ended March 31June 30 was $0.6 million in 2006 and $0.7$0.6 million in 2005. Amortization expense for the six months ended June 30, 2006 and 2005, was $1.2 million and $1.2 million, respectively.
The following is the estimatedEstimated amortization expense for the future years ending:is as follows:
        
(dollars in thousands)  
2006 remaining $1,773  $1,162 
2007 2,011  2,011 
2008 1,880  1,880 
2009 1,756  1,756 
2010 1,610  1,610 
Thereafter 13,419  13,419 
Total $22,449  $21,838 
NOTE 910 — MORTGAGE SERVICING RIGHTS
During the third quarter of 2005, Old National sold its mortgage servicing rights relating to $1.917 billion of mortgage loans serviced for other investors for a total sales price of $17.7 million. The sale resulted in a pre-tax net gain of $0.4 million which was included in Other Income during the third quarter of 2005.

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The activity for mortgage servicing rights and the related valuation allowance for the period ended March 31,June 30, 2005 is summarized below:
        
(dollars in thousands) 2005  2005 
Balance before valuation allowance, January 1 $15,829  $15,829 
Rights capitalized 688  1,514 
Amortization  (1,388)  (2,778)
Balance before valuation allowance, March 31 15,129 
Balance before valuation allowance, June 30 14,565 
Valuation allowance:  
Balance, January 1 —  — 
Additions to valuation allowance —  — 
Reductions to valuation allowance —  — 
Balance, March 31 — 
Balance, June 30 — 
Mortgage servicing rights, net $15,129  $14,565 
Mortgage servicing rights from loans sold with servicing retained were $15.1$14.6 million at March 31,June 30, 2005. Loans serviced for others were not included in the consolidated balance sheet of Old National. The unpaid principal balance of mortgage loans serviced for others at March 31,June 30, 2005 was $1.949$1.937 billion, and the fair value of capitalized

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mortgage servicing rights was $20.4$16.9 million. Old National’s key economic assumptions used in determining the fair value of mortgage servicing rights were a weighted average prepayment rate of 13.9%18.3% and a weighted average discount rate of 9.1% at March 31,June 30, 2005.
NOTE 1011 — FINANCING ACTIVITIES
The following table summarizes Old National’s other borrowings at March 31:June 30, 2006, and December 31, 2005:
        
         June 30, December 31, 
(dollars in thousands) 2006 2005  2006 2005 
Old National Bancorp:
  
Medium-term notes, Series 1997 (fixed rates 3.50% to 7.03%) maturities August 2007 to June 2008 $110,000 $110,000 
Senior unsecured bank note (fixed rate 5.00%) maturity May 2010 50,000 - 
Junior subordinated debenture (fixed rate 8.00%) maturity April 2032 100,000 150,000 
Medium-term notes, Series 1997 (fixed rates 3.50% to 7.03%) maturing August 2007 to June 2008 $110,000 $110,000 
Senior unsecured bank note (fixed rate 5.00%) maturing May 2010 50,000 50,000 
Junior subordinated debenture (fixed rate 8.00%) maturing April 2032 100,000 100,000 
SFAS 133 fair value hedge and other basis adjustments  (7,989)  (5,196)  (9,426)  (5,125)
Old National Bank:
  
Securities sold under agreements to repurchase (fixed rates 2.05% to 2.75% and variable rates 5.17% to 5.56%) maturities May 2008 to December 2009 148,000 198,000 
Federal Home Loan Bank advances (fixed rates 4.53% to 8.34%) maturities April 2006 to January 2023 250,473 434,741 
Senior unsecured bank notes (fixed rate 3.95% and variable rates 5.07% to 5.25%) maturities May 2006 to February 2008 100,000 115,000 
Securities sold under agreements to repurchase (fixed rates 2.75% to 5.17% and variable rate 5.46%) maturing May 2008 to November 2009 98,000 148,000 
Federal Home Loan Bank advances (fixed rates 4.82% to 8.34%) maturing July 2006 to January 2023 225,314 301,703 
Senior unsecured bank notes (fixed rate 3.95%) maturing to February 2008 50,000 100,000 
Subordinated bank note (fixed rate 6.75%) maturing October 2011 150,000 150,000  150,000 150,000 
Capital lease obligation 4,485 4,515  4,477 4,493 
SFAS 133 fair value hedge and other basis adjustments  (9,193)  (4,797)  (12,497)  (4,146)
Total other borrowings $895,776 $1,152,263  $765,868 $954,925 

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Contractual maturities of other borrowings at March 31,June 30, 2006, were as follows:
        
(dollars in thousands)  
Due in 2006 $54,983  $3,016 
Due in 2007 10,034  10,034 
Due in 2008 340,037  317,037 
Due in 2009 76,040  26,040 
Due in 2010 75,043  75,043 
Thereafter 356,821  356,621 
SFAS 133 fair value hedge and other basis adjustments  (17,182)  (21,923)
Total $895,776  $765,868 
FEDERAL HOME LOAN BANK
Federal Home Loan Bank advances had weighted-average rates of 5.32%5.36% and 5.71%5.22% at March 31,June 30, 2006, and December 31, 2005, respectively. These borrowings are collateralized by investment securities and residential real estate loans up to 145% of outstanding debt.
SUBORDINATED BANK NOTES
Subordinated bank notes qualify as Tier 2 Capital for regulatory purposes and are in accordance with the senior and subordinated global bank note program in which Old National Bank may issue and sell up to a maximum of $1

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$1 billion. Notes issued by Old National Bank under the global note program are not obligations of, or guaranteed by, Old National Bancorp.
JUNIOR SUBORDINATED DEBENTURES
Junior subordinated debentures related to trust preferred securities are classified in “other borrowings”. These securities qualify as Tier 1 capital for regulatory purposes, subject to certain limitations.
Old National guarantees the payment of distributions on the trust preferred securities issued by ONB Capital Trust II. ONB Capital Trust II issued $100 million in preferred securities in April 2002. The preferred securities have a liquidation amount of $25 per share with a cumulative annual distribution rate of 8.0% or $2.00 per share payable quarterly and maturing on April 15, 2032. Proceeds from the issuance of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by ONB Capital Trust II. Old National may redeem the junior subordinated debentures and thereby cause a redemption of the trust preferred securities in whole (or in part from time to time) on or after April 12, 2007, and in whole (but not in part) following the occurrence and continuance of certain adverse federal income tax or capital treatment events. Costs associated with the issuance of these trust preferred securities totaling $3.3 million in 2002 were capitalized and are being amortized through the maturity dates of the securities. The unamortized balance is included in other assets in the consolidated balance sheet.
In March 2000, ONB Capital Trust I issued $50 million in preferred securities guaranteed by Old National. Proceeds from the issuance of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by ONB Capital Trust I. In May 2005, Old National redeemed the $50 million of junior subordinated debentures issued in March 2000, thereby causing a redemption of all of the ONB Capital Trust, 9.5% trust preferred securities. In connection with the redemption, Old National expensed the remaining $1.7 million of unamortized debt issuance costs related to this debt.
CAPITAL LEASE OBLIGATION
On January 1, 2004, Old National entered into a long-term capital lease obligation for a new branch office building in Owensboro, Kentucky, which extends for 25 years with one renewal option for 10 years. The economic substance of this lease is that Old National is financing the acquisition of the building through the lease and accordingly, the building is recorded as an asset and the lease is recorded as a liability. The fair value of the capital lease obligation was estimated using a discounted cash flow analysis based on Old National’s current incremental borrowings rate for similar types of borrowing arrangements.

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At March 31,June 30, 2006, the future minimum lease payments under the capital lease were as follows:
        
(dollars in thousands)  
2006 remaining $278  $186 
2007 371  371 
2008 371  371 
2009 390  390 
2010 390  390 
Thereafter 12,484  12,484 
Total minimum lease payments 14,284  14,192 
Less amounts representing interest 9,799  9,715 
Present value of net minimum lease payments $4,485  $4,477 

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NOTE 1112 — EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN
The following table sets forth the components of the net periodic benefit cost for Old National’s noncontributory defined benefit retirement plan for the threesix months ended March 31:June 30:
                        
 Three Months Ended  Three Months Ended Six Months Ended 
 March 31,  June 30, June 30, 
(dollars in thousands) 2006 2005  2006 2005 2006 2005 
Service cost $— $518  $— $360 $— $878 
Interest cost 708 893  689 891 1,397 1,784 
Expected return on plan assets  (860)  (908)  (1,034)  (1,012)  (1,894)  (1,920)
Amortization of prior service cost — 8  —  (86) —  (78)
Recognized actuarial loss 299 408  218 378 517 786 
Settlement 360 —  360 — 720 — 
Net periodic benefit cost $507 $919  $233 $531 $740 $1,450 
Old National has qualified and nonqualified noncontributory defined benefit pension plans. During 2001, Old National amended the plans freezing the benefits accrued for all participants except active participants who had completed at least 20 years of service or who had attained age 50 with at least five years of vesting service. In addition, the amendment discontinued new enrollments under the plans after December 31, 2001. During 2005, Old National amended the plan by redefining the pay definition, resulting in a reduction to the Projected Benefit Obligation of $2.8 million. During the third quarter of 2005, Old National further amended the plan to grant two years additional benefits to plan participants age 55 or older with 15 years of benefit service resulting in an increase in the Projected Benefit Obligation of $0.8 million and to freeze benefit accruals for all remaining participants effective December 31, 2005. The curtailment resulted in a $10.1 million reduction in Projected Benefit Obligation and a one-time curtailment gain of $1.5 million. Lump sum cash payments of $5.2 million paid to participants during 2005 reduced the Projected Benefit Obligation by the same amount. The Company presently anticipates contributing $0.6 million to fund its pension plans in 2006.
NOTE 13 — STOCK-BASED COMPENSATION
Under the 1999 Equity Incentive Plan, Old National is authorized to grant up to 7.6 million shares of common stock. At March 31,June 30, 2006, 6.56.4 million shares were outstanding under the plan, including 5.8 million stock options and 0.6 million shares of restricted stock, 0.5 million shares have been exercised, and 0.7 million shares were available for issuance. In addition, Old National assumed 0.1 million stock options outstanding through various mergers. Effective January 1, 2006, the Company began recording compensation expense associated with the stock options in accordance with SFAS No. 123-R,Share-Based Payment.Prior to January 1, 2006, the Company accounted for its stock-based compensation plans in accordance with APB Opinion No. 25 and related Interpretations, under which no compensation cost had been recognized, except with respect to the restricted stock plans. Old National adopted the fair value recognition provisions of SFAS No. 123-R using the modified prospective transition method, and, consequently, has not retroactively adjusted results from prior periods.

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The following table reflects the effect on net income and net income per share as if the fair value based method had been applied to all outstanding and unvested stock options during the periodthree and six months ended March 31,June 30, 2005.
      
     Three Months Ended Six Months Ended 
(dollars in thousands, except per share data)  June 30, 2005 June 30, 2005 
Net income as reported $14,572  $25,239 $39,811 
Restricted Stock:
  
Add: restricted stock compensation expense included in reported net income, net of related tax effects 320  617 937 
Deduct: restricted stock compensation expense determined under fair value based method for all awards, net of related tax effects  (483)  (587)  (1,070)
Stock Options:
  
Deduct: stock option compensation expense determined under fair value based method for all awards, net of related tax effects  (1,326)  (544)  (1,871)
Proforma net income $13,083  $24,725 $37,807 
  
Basic net income per share:  
As reported $0.21  $0.37 $0.58 
Proforma 0.19  0.36 0.55 
Diluted net income per share:  
As reported $0.21  $0.37 $0.58 
Proforma 0.19  0.36 0.55 
Stock Options
Included in Old National’s stock based compensation during the first quartersix months of 2006 is the cost related to the unvested stock options granted during the first quartersix months of 2006. Stock options granted prior to fiscal 2006 were fully vested as of the beginning of 2006. The fair value of the stock options granted during the first quartersix months of 2006 was estimated at $0.6$0.5 million on the date of grant using the Black-Scholes option pricing model. The assumptions used in the option pricing model were an expected volatility of 19.5%; a risk free interest rate of 4.7%; an expected option term of ten years,six years; a 3.6% dividend yield,yield; and a forfeiture rate of 0%. The expense recognized during the threesix months ended March 31,June 30, 2006, related to the vesting of these awards was $14 thousand,$0.4 million, net of an income tax benefit of $7 thousand.$0.2 million. Of this total expense, $0.5 million is related to the modification of certain options. The remaining $0.6$0.4 million of the estimated value of remaining 2006 stock option grants will be expensed ratably over the three year vesting period. These options expire in ten years. There were no stock options granted in 2005.
Stock option activity under the 1999 Equity Incentive Plan for the period ended March 31, 2006 is summarized as follows:
         
      Weighted 
      Average 
      Exercise 
(shares in thousands) Shares  Price 
 
Outstanding, January 1, 2006  5,818  $20.92 
Granted  142   21.65 
Exercised  (30)  20.63 
Forfeited  (35)  20.89 
 
Outstanding, March 31, 2006  5,895  $20.94 
 
Options exercisable at end of period  5,753  $20.92 
Weighted-average fair value of options granted during the year      4.25 
 
At March 31, 2006, 5,895 stock options were outstanding with a weighted average exercise price of $20.94, an aggregate intrinsic value of $4.1 million, and a weighted average remaining term of 6.2 years. Of the stock options outstanding, 5,753 were exercisable at March 31, 2006 with a weighted average exercise price of $20.92, an aggregate intrinsic value of $4.1 million, and a weighted average remaining term of 6.1 years. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of our

14

common stock as of the reporting date. No shares vested during the period ended March 31, 2006 and the intrinsic value of options exercised was $28 thousand.
Restricted Stock
During the first quartersix months of 2006, Old National’s Board of Directors approved performance based restricted stock awards to grant 132 thousand shares to certain key officers with shares vesting at the end of a thirty-six month period based on the achievement of certain targets. In addition, the Board of Directors approved time-based restricted stock awards to grant 5859 thousand shares to certain key officers with vesting periods ranging from 12 to 36 months. On January 27, 2005, Old National’s Board of Directors approved a restricted stock award to grant 0.2 million shares to certain key officers with shares vesting at the end of a thirty-eight month period based on the achievement of certain targets. Compensation expense is recognized on a straight-line basis over the performance period. Shares are subject to certain restrictions and risk of forfeiture by the participants.
Restricted stock activity under the 1999 Equity Incentive Plan for the period ended March 31, 2006 is summarized as follows:
         
      Weighted Average Grant-Date 
  Number Outstanding  Fair Value 
 
Nonvested balance at January 1, 2006  448,180   $    22.40 
         
Granted during the year  190,460   21.62 
Vested during the year  —   — 
Forfeited during the year  (10,771)  22.31 
 
Nonvested balance at March 31, 2006  627,869   $    22.16 
 
Expense recognized during the first quartersix months of 2006 related to the vesting of all restricted stock awards was $0.4$0.3 million, net of an income tax benefit of $0.2 million. The remaining $7.2As of June 30, 2006, unrecorded compensation expense was estimated to be $6.0 million of deferred compensation is included as a component of capital surplus.for nonvested restricted stock awards.

15

NOTE 1214 — INCOME TAXES
The following is a summary of the major items comprising the differences in taxes from continuing operations computed at the federal statutory rate and as recorded in the consolidated statement of income for the three and six months ended March 31:June 30:
                        
 Three Months Ended  Three Months Ended Six Months Ended 
 March 31,  June 30, June 30, 
(dollars in thousands) 2006 2005  2006 2005 2006 2005 
Provision at statutory rate of 35% $8,827 $5,950  $8,405 $10,954 $17,233 $16,904 
Tax-exempt income  (4,129)  (4,340)  (4,152)  (4,332)  (8,280)  (8,672)
Other, net  (146)  (167)  (425)  (21)  (573)  (188)
Income tax expense $4,552 $1,443  $3,828 $6,601 $8,380 $8,044 
Effective tax rate  18.0%  8.5%  15.9%  21.1%  17.0%  16.7%
For the three months ended March 31,June 30, 2006, the effective tax rate on income from continuing operations was lower than for the three months ended June 30, 2005. For the six months ended June 30, 2006, the effective tax rate on income from continuing operations was higher than for the six months ended June 30, 2005. The decreased effective tax rate for the three months ended March 31,June 30 2006, resulted from a higher percentage of tax-exempt income to total income compared to the three months ended June 30, 2005. The increased effective tax rate for the six months ended June 30, 2006, resulted from a lower percentage of tax-exempt income to total income compared to the threesix months ended March 31,June 30, 2005.
NOTE 15 — COMPREHENSIVE INCOME
                 
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
(dollars in thousands) 2006  2005  2006  2005 
 
Net income: $20,187  $25,239  $40,856  $39,811 
Unrealized gains (losses) on securities:                
Unrealized holding gains (losses) arising during the period, net of tax  (17,184)  18,789   (23,259)  (5,010)
Less: reclassification adjustment for securities (gains) losses realized in net income, net of tax  (33)  (644)  52   (333)
Cash flow hedges:                
Net unrealized derivative gains (losses) on cash flow hedges, net of tax  —   (1,171)  —   585 
Less: reclassification adjustment on cash flow hedges, net of tax  97   (10)  194   (76)
 
Net unrealized gains (losses)  (17,120)  16,964   (23,013)  (4,834)
 
Comprehensive income $3,067  $42,203  $17,843  $34,977 
 

1516

NOTE 13 — COMPREHENSIVE INCOME (LOSS)
         
  Three Months Ended 
  March 31, 
(dollars in thousands) 2006  2005 
 
Net income: $20,669  $14,572 
Unrealized gains (losses) on securities:        
Unrealized holding losses arising during the period, net of tax  (6,075)  (23,799)
Less: reclassification adjustment for securities losses realized in net income, net of tax  85   311 
Cash flow hedges:        
Net unrealized derivative gains on cash flow hedges, net of tax  —   1,756 
Less: reclassification adjustment on cash flow hedges, net of tax  97   (66)
 
Net unrealized losses  (5,893)  (21,798)
 
Comprehensive income (loss) $14,776  $(7,226)
 
NOTE 1416 — DERIVATIVE FINANCIAL INSTRUMENTS
Old National designates its derivatives based upon criteria established by SFAS No. 133, as amended by SFAS No. 138,Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment to FASB Statement No. 133, and SFAS No. 149,Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The following table summarizes the derivative financial instruments utilized by Old National at March 31:National:
                                                
 2006 2005  June 30, 2006 December 31, 2005 
 Notional Estimated Fair Value Notional Estimated Fair Value  Notional Estimated Fair Value Notional Estimated Fair Value 
(dollars in thousands) Amount Gain Loss Amount Gain Loss  Amount Gain Loss Amount Gain Loss 
Fair Value Hedges
  
Receive fixed interest rate swaps $974,609 $— $(37,378) $748,313 $60 $(19,683) $824,609 $— $(39,406) $717,346 $— $(21,487)
Pay fixed interest rate swaps 20,000 749 — 20,000 180  (3) 20,000 1,095 — 20,000 245 — 
Forward mortgage loan contracts 19,092 164 — 8,745 163 —  23,725 180 — 42,650 —  (357)
Cash Flow Hedges
 
HELOC cash flow — — — 100,000 —  (1,244)
Pay fixed interest rate swaps — — — 50,000 504 — 
Anticipated floating rate debt — — — 195,000 1,942  (29)
Stand Alone Hedges
 
Stand Alone Derivatives
 
Receive fixed interest rate swaps — — — 456,000 3,332  (8,420) — — — 445,071 678  (10,774)
Interest rate lock commitments 23,987 —  (19) 36,234 24 —  31,404 —  (48) 26,012 47 — 
Forward mortgage loan contracts 24,621 110 — 50,860 282 —  29,848 92 — 10,833 326 — 
Matched Customer Hedges
  
Customer interest rate swaps 333,851 372  (4,007) 101,904 478  (1,016) 408,008 705  (6,694) 251,383 1,018  (1,766)
Customer interest rate swaps with counterparty 333,851 4,007  (372) 101,904 1,012  (474) 408,008 6,694  (705) 251,383 1,766  (1,018)
Customer interest rate cap 3,389 2  (20) 2,300 —  (21)
Customer interest rate cap with counterparty 3,389 20  (2) 2,300 21 — 
Customer interest rate cap & collars 5,459 34  (4) 11,089 83  (15)
Customer interest rate cap & collars with counterparty 5,459 4  (34) 11,089 15  (83)
Customer commodity swaps (72,000 barrels) 5,224 —  (195) — — — 
Customer commodity swaps with counterparty (72,000 barrels) 5,224 195 — — — — 
Total $1,736,789 $5,424 $(41,798) $1,873,560 $7,998 $(30,890) $1,766,968 $8,999 $(47,086) $1,786,856 $4,178 $(35,500)
Old National has receive-fixed interest rateentered into certain oil commodity swaps on certain of its brokered certificates of deposit and junior subordinated debt which were included with stand-alone hedges as of December 31, 2005. Certain of these derivative instruments, having a notional amount of $162.8 million, were terminated during the quarter ended June 30, 2006 to accommodate the business needs of its customers. Upon the origination of a commodity swap with a customer, Old National simultaneously enters into an offsetting contract with a third party to mitigate the remainder re-designated as fair value hedges on January 24, 2006.exposure to fluctuations in commodity prices.

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NOTE 1517 — COMMITMENTS AND CONTINGENCIES
LITIGATION
In the normal course of business, various legal actions and proceedings, which are being vigorously defended, are pending against Old National and its affiliates. Management does not believe any of these claims will have a material impact on Old National’s results of operations.
CREDIT-RELATED FINANCIAL INSTRUMENTS
In the normal course of business, Old National’s banking affiliates have entered into various agreements to extend credit, including loan commitments of $1.361$1.138 billion, commercial letters of credit of $132$30 thousand and standby letters of credit of $152.2$134.4 million at March 31,June 30, 2006. At MarchDecember 31, 2005, loan commitments were $1.235$1.317 billion, commercial letters of credit were $6.4 million$55 thousand and standby letters of credit were $136.7$141.6 million. These commitments are not reflected in the consolidated financial statements. Management believes the reserve for unfunded commitments is adequate as of March 31,June 30, 2006.
At March 31,June 30, 2006 and December 31, 2005, Old National had credit extensions of $90.8$87.0 million and $93.4$88.1 million, respectively, with various unaffiliated banks related to letter of credit commitments issued on behalf of Old

17

National’s clients. At March 31,June 30, 2006 and December 31, 2005, Old National provided collateral to the unaffiliated banks to secure credit extensions totaling $54.9$54.8 million and $62.7$55.2 million, respectively. Old National did not provide collateral for the remaining credit extensions.
NOTE 1618 — FINANCIAL GUARANTEES
Old National holds instruments, in the normal course of business with clients, that are considered financial guarantees in accordance with FIN 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,which requires the Company to record the instruments at fair value. Standby letters of credit guarantees are issued in connection with agreements made by clients to counterparties. Standby letters of credit are contingent upon failure of the client to perform the terms of the underlying contract. Credit risk associated with standby letters of credit is essentially the same as that associated with extending loans to clients and is subject to normal credit policies. The term of these standby letters of credit is typically one year or less. At March 31,June 30, 2006, the notional amount of standby letters of credit was $152.2$134.4 million, which represents the maximum amount of future funding requirements, and the carrying value was $0.5 million.
NOTE 1719 — SEGMENT INFORMATION
Old National operates in two operating segments: community banking and treasury. The community banking segment serves customers in both urban and rural markets providing a wide range of financial services including commercial, real estate and consumer loans; lease financing; checking, savings, time deposits and other depository accounts; cash management services; and debit cards and other electronically accessed banking services and Internet banking. Treasury manages investments, wholesale funding, interest rate risk, liquidity and leverage for Old National. Additionally, treasury provides other miscellaneous capital markets products for its corporate banking clients. Beginning January 1, 2005, Old National disaggregated internal reporting for its non-bank operations, including wealth management, investment consulting, insurance, brokerage and investment and annuity sales. These lines of business are now included in the “Other” column for all periods reported.
In order to measure performance for each segment, Old National allocates capital, corporate overhead and income tax provision to each segment. Capital and corporate overhead are allocated to each segment using various methodologies, which are subject to periodic changes by management. Income taxes are allocated using the effective tax rate. Tax-exempt income is primarily within the treasury segment, creating a tax benefit for this segment. Intersegment sales and transfers are not significant.
Old National uses a funds transfer pricing (“FTP”) system to eliminate the effect of interest rate risk from net interest income in the community banking segment and from companies included in the “other” column. The FTP system is used to credit or charge each segment for the funds the segments create or use. The net FTP credit or charge is reflected in segment net interest income.

1718

The financial information for each operating segment is reported on the basis used internally by Old National’s management to evaluate performance and is not necessarily comparable with similar information for any other financial institution. Summarized financial information concerning segments is shown in the following table for the three and six months ended March 31:June 30:
                                
 Community        Community       
(dollars in thousands) Banking Treasury Other Total  Banking Treasury Other Total 
Three months ended March 31, 2006
 
Three months ended June 30, 2006
 
Net interest income $61,923 $(4,713) $(2,871) $54,339  $58,659 $(3,904) $(357) $54,398 
Provision for loan losses 3,298 202 — 3,500  4,269  (769) — 3,500 
Noninterest income 24,740 3,483 14,646 42,869  24,902 2,165 9,740 36,807 
Noninterest expense 57,853 607 10,027 68,487  54,147 1,036 8,507 63,690 
Income (loss) before income taxes 25,512  (2,039) 1,748 25,221  25,145  (2,006) 876 24,015 
Income tax expense (benefit) 6,579  (2,585) 558 4,552  6,118  (2,554) 264 3,828 
Segment profit 18,933 546 1,190 20,669  19,027 548 612 20,187 
Total assets 5,005,827 3,031,667 207,427 8,244,921  5,069,083 3,034,278 203,136 8,306,497 
Three months ended March 31, 2005
 
Three months ended June 30, 2005
 
Net interest income $64,030 $(5,621) $(3,728) $54,681 
Provision for loan losses 5,897 103 — 6,000 
Noninterest income 18,748 9,833 17,937 46,518 
Noninterest expense 51,527 998 11,376 63,901 
Income before income taxes and discontinued operations 25,354 3,111 2,833 31,298 
Income tax expense (benefit) 6,635  (943) 909 6,601 
Income (loss) from discontinued operations, net of income tax —  (1,124) 1,666 542 
Segment profit 18,719 2,930 3,590 25,239 
Total assets 5,315,115 3,052,496 280,897 8,648,508 
Six months ended June 30, 2006
 
Net interest income $120,582 $(8,617) $(3,228) $108,737 
Provision for loan losses 7,567  (567) — 7,000 
Noninterest income 49,642 5,648 24,386 79,676 
Noninterest expense 112,000 1,643 18,534 132,177 
Income (loss) before income taxes 50,657  (4,045) 2,624 49,236 
Income tax expense (benefit) 12,697  (5,139) 822 8,380 
Segment profit 37,960 1,094 1,802 40,856 
Total assets 5,069,083 3,034,278 203,136 8,306,497 
Six months ended June 30, 2005
 
Net interest income $65,801 $(7,236) $(3,368) $55,197  $129,831 $(12,857) $(7,096) $109,878 
Provision for loan losses 5,079 21 — 5,100  10,976 124 — 11,100 
Noninterest income 17,662  (1,086) 16,682 33,258  36,410 8,747 34,619 79,776 
Noninterest expense 54,406 747 11,203 66,356  105,933 1,745 22,579 130,257 
Income (loss) before income taxes and discontinued operations 23,978  (9,090) 2,111 16,999  49,332  (5,979) 4,944 48,297 
Income tax expense (benefit) 6,349  (5,590) 684 1,443  12,984  (6,533) 1,593 8,044 
Loss from discontinued operations, net of income tax benefit — —  (984)  (984)
Income (loss) from discontinued operations, net of income tax expense —  (1,124) 682  (442)
Segment profit (loss) 17,629  (3,500) 443 14,572  36,348  (570) 4,033 39,811 
Total assets 5,161,309 3,370,095 261,643 8,793,047  5,315,115 3,052,496 280,897 8,648,508 

1819

PART I.FINANCIAL INFORMATION
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is an analysis of Old National’s results of operations for the three and six months ended March 31,June 30, 2006 and 2005, and financial condition as of March 31,June 30, 2006, compared to March 31,June 30, 2005, and December 31, 2005. This discussion and analysis should be read in conjunction with Old National’s consolidated financial statements and related notes. This discussion contains forward-looking statements concerning Old National’s business that are based on estimates and involves certain risks and uncertainties. Therefore, future results could differ significantly from management’s current expectations and the related forward-looking statements.
EXECUTIVE SUMMARY
Credit quality continues to improve. Net charge offs were 0.33% of average loans in the second quarter of 2006 compared to 0.46% in the first quarter of 2006. Nonperforming loans totaled 1.06% of total loans at June 30, 2006, down from 1.13% at December 31, 2005. The allowance for loan losses equaled 1.57% of total loans at June 30, 2006, compared to 1.59% at June 30, 2005.
Loan and deposit growth remains challenging. Total loans at June 30, 2006 increased 0.9% compared to March 31, 2006. The Company continues to expand in Indianapolis and Louisville, markets which have stronger economic growth than other markets in which Old National operates. A new branch was opened in Louisville during the second quarter, and the Company plans to open two new branches in Indianapolis next quarter. Core deposits at June 30, 2006 remained relatively constant compared to March 31, 2006. The Company continues to focus on its key strategic initiatives:initiatives to grow low cost deposits which include (1) strengthena heightened focus on small business and corporate cash management, (2) properly aligning incentive plans, (3) the risk profile; (2) enhance management discipline;creation of a referral program, and (3) achieve consistent quality earnings.
Old National’s asset quality steadily improves. Non-performing loans at March 31, 2006, were $51.4 million compared to $55.2 million at March 31, 2005. Criticized and classified loans were $221.4 million at March 31, 2006, compared to $311.6 million at March 31, 2005.
(4) a new direct mail program. In following its disciplined approach to capital allocation,addition, Old National exited the O’Fallon, Illinoishas changed its pricing policy on money market during the first quarteraccounts and remains committed to disciplined pricing of 2006, recording a pre-tax gain of $3.0 million on the sale of this financial center which was included in income from continuing operations. The sale of the O’Fallon financial center furthered the Company’s efforts begun in 2005 to realign the balance sheet and position the Company for growth.commercial loans.
The key to the Company’s success in 2006 will be loan and deposit growth along with increased non-interest revenue. Five areas of heightened focus include: (1) improving net interest margin, (2) optimizing non-interest revenue, including deposit service charges, (3) continually improving support and core business processes, (4) product innovation, and (5) developing a cohesive small business strategy.
Old National reported netNet income of $20.7$20.2 million for the three months ended March 31,June 30, 2006, an increase of $6.1 million, or 41.8%decreased 20.0%, from the $14.6$25.2 million recorded for the three months ended March 31,June 30, 2005. On a diluted per share basis, net income was $0.31$0.30 for the three months ended March 31,June 30, 2006, compared to $0.21$0.37 for the three months ended March 31,June 30, 2005. Included in net income for the second quarter of 2005 is $ 3.5 million of income, net of tax, associated with the restatement of financial statements due to an error in the Company’s interpretation of SFAS No. 133 resulting in the disallowance of hedge accounting treatment for certain derivatives, and income from discontinued operations of $0.5 million, net of tax. Old National reported net income of $40.9 million for the six months ended June 30, 2006, an increase of $1.0 million, or 2.6%, from the $39.8 million recorded for the six months ended June 30, 2005. On a diluted per share basis, net income was $0.61 for the six months ended June 30, 2006, compared to $0.58 for the six months ended June 30, 2005. Included in net income for the six months ended June 30, 2006 is a $1.9 million gain, net of tax, on the sale of the O’ Fallon financial center. Included in net income during the first quartersix months of 2005 is $3.8$0.3 million of expense associated with the restatement of financial statements due to an error in the Company’s interpretation of SFAS No. 133 resulting in the disallowance of hedge accounting treatment for certain derivatives and a loss from discontinued operations of $1.0$0.4 million, net of tax. See Old National’s Form 8-K filed January 31, 2006, for additional information related to the restatement.
Calculated based on net income, from continuing operations, Old National’s return on average assets for the firstsecond quarter of 2006 was 1.00%0.97% and return on shareholders’ equity was 12.68%12.82%, compared to 0.71%1.16% and 8.83%14.56%, respectively, for the three months ended March 31,June 30, 2005. Calculated basedBased on net income, Old National’s return on average assets for the first quarter ofsix months ended June 30, 2006, was 1.00%0.99% and return on shareholders’ equity was 12.68%12.75%, compared to 0.66%0.91% and 8.27%11.39%, respectively, for the threesix months ended March 31,June 30, 2005.

1920

RESULTS OF OPERATIONS
The following table sets forth certain income statement information of Old National for the three and six months ended March 31,June 30, 2006 and 2005:
                                    
 Three Months Ended  Three Months Ended Six Months Ended   
 March 31,  June 30, June 30,   
(dollars in thousands) 2006 2005 Change  2006 2005 Change 2006 2005 Change 
Income Statement Summary:
  
Net interest income $54,339 $55,197  (1.6)% $54,398 $54,681  (0.5)% $108,737 $109,878  (1.0)%
Provision for loan losses 3,500 5,100  (31.4) 3,500 6,000  (41.7) 7,000 11,100  (36.9)
Noninterest income 42,869 33,258 28.9  36,807 46,518  (20.9) 79,676 79,776  (0.1)
Noninterest expense 68,487 66,356 3.2  63,690 63,901  (0.3) 132,177 130,257 1.5 
Other Data:
  
Return on average equity  12.68%  8.27%   12.82%  14.56%  12.75%  11.39% 
Efficiency ratio 66.91 70.58  66.05 59.87 66.49 64.88 
Tier 1 leverage ratio 7.78 7.73  7.65 7.23 7.65 7.23 
Net charge-offs to average loans 0.46 0.37  0.33 0.93 0.39 0.65 
Net Interest Income
Net interest income is Old National’s most significant component of earnings, comprising over 55%57% of revenues at March 31,June 30, 2006. Net interest income and margin are influenced by many factors, primarily the volume and mix of earning assets, funding sources and interest rate fluctuations. Other factors include prepayment risk on mortgage and investment-related assets and the composition and maturity of earning assets and interest-bearing liabilities. Loans typically generate more interest income than investment securities with similar maturities. Funding from client deposits generally cost less than wholesale funding sources. Factors, such as general economic activity, Federal Reserve Board monetary policy and price volatility of competing alternative investments, can also exert significant influence on Old National’s ability to optimize its mix of assets and funding and its net interest income and margin.
Net interest income and net interest margin in the following discussion are presented on a fully taxable equivalent basis, which adjusts tax-exempt or nontaxable interest income to an amount that would be comparable to interest subject to income taxes using the federal statutory tax rate of 35% in effect for all periods. Net income is unaffected by these taxable equivalent adjustments as the offsetting increase of the same amount is made to income tax expense. Net interest income includes taxable equivalent adjustments of $5.1$5.2 million and $5.6$5.5 million for the three months ended March 31,June 30, 2006 and 2005, respectively. Taxable equivalent adjustments for the six months ended June 30, 2006 and 2005, were $10.4 million and $11.1 million, respectively.
Taxable equivalent net interest income was $59.5$59.6 million and $119.1 million for the three and six months ended March 31,June 30, 2006, respectively, down from the $60.8$60.2 million and $121.0 million reported for the three and six months ended March 31,June 30, 2005. The reduction in net interest income is primarily a result of the lower average earning assets. The net interest margin was 3.18% for both the three and six months ended March 31,June 30, 2006, compared to 3.05%3.07% and 3.06% reported for the three and six months ended March 31,June 30, 2005. The increase in net interest margin is primarily due to the disallowance of hedge accounting treatment for certain derivatives in the fourth quarter of 2005 along with the increase in the net interest spread combined with the change in the mix of interest earning assets and interest-bearing liabilities.
Average earning assets were $7.488$7.490 billion for the three months ended March 31,June 30, 2006, compared to $7.961$7.841 billion for the three months ended March 31,June 30, 2005, a decrease of 5.9%4.5%, or $472.4$350.7 million. Average earning assets were $7.489 billion for the six months ended June 30, 2006, compared to $7.901 billion for the six months ended June 30, 2005, a decrease of 5.2%, or $411.6 million. Significantly affecting average earning assets at March 31,June 30, 2006 compared to March 31,June 30, 2005, was Management’s decision to reduce the investment portfolio and the sale of $142.1 million of loans associated with the divestitures of the Clarksville, Tennessee and O’Fallon, Illinois financial centers. In addition, Old National experienced a large amount of line pay-downs in the fourth quarter of 2005 and sold $26.7 million of nonaccrual and substandard commercial and commercial real estate loans during the quarter ended June

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30, 2005. Year over year, commercial and consumer loans, which have an average yield higher than the investment portfolio, have increased as a percent of interest earning assets while the investment portfolio has decreased as a percent of interest earning assets.

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Also affecting margin were decreases in borrowed funding due to the early termination of a high cost, $50 million Federal Home Loan Bank advance in December of 2005, the exercise of a call option on $20 million of high cost brokeragebrokered certificates of deposit and the maturity of a $25 million federal home loan bankFederal Home Loan Bank advance in the first quarter of 2006 and the maturity of $50 million of senior unsecured bank notes in the second quarter of 2006. Year over year, deposits, which have an average interest rate lower than borrowed funds, have increased as a percent of interest-bearing liabilities as short-term and long-term borrowings have decreased as a percent of interest-bearing liabilities.
Provision for Loan Losses
The provision for loan losses was $3.5 million for the three months ended March 31, 2006, compared to $5.1and $7.0 million for the three and six months ended March 31, 2005.June 30, 2006, respectively, compared to $6.0 million and $11.1 million for the three and six months ended June 30, 2005, respectively. The lower provision in 2006 is attributable to a decrease in net charge-offs combined with a stable level of nonaccrual loans, and thean improvement in total criticized and classified loans over the past twelve months and enhanced credit administration and underwriting functions that began in 2004. Refer to “Allowance for Loan Losses and Asset Quality” section for further discussion of non-performing loans, charge-offs and additional items impacting the provision.
Noninterest Income
Old National generates revenues in the form of noninterest income through client fees and sales commissions from its core banking franchise and other related businesses, such as wealth management, investment products and insurance. Noninterest income for the three months ended March 31,June 30, 2006, was $42.9$36.8 million, an increasea decrease of $9.6$9.7 million, or 28.9%20.9% from the $33.3$46.5 million reported for the three months ended March 31,June 30, 2005. For the six months ended June 30, 2006, noninterest income was $79.7 million, a decrease of $0.1 million, or 0.1%, from the $79.8 million reported for the six months ended June 30, 2005. The increasedecrease in the three-month comparison is primarily due to the $3.0 million gain from the sale of the O’Fallon, Illinois financial center and a $4.5$7.7 million fluctuation in the market value of derivatives resulting fromderivatives. During the three-months ended June 30, 2005, the restatement required that net cash settlements and fair value adjustments related to derivative instruments associated with certain brokered certificates of financial statements in 2005 due to an error in the Company’s interpretation of SFAS No. 133 resulting in the disallowance of hedge accounting treatment for certain derivatives.deposit and junior subordinated debt be reported as noninterest income. See Old National’s Form 8-K filed January 31, 2006, for additional information related to the restatement. The decrease in the six-month comparison is primarily due to a $3.3 million decrease in the market value of derivatives which was partially offset by a $3.0 million gain from the sale of the O’Fallon, Illinois financial center in the first quarter of 2006.
Also increasing noninterest incomeService charges on deposit accounts were insurance premiums$10.7 million and commissions which increased to $11.0$20.6 million for the three and six months ended March 31,June 30, 2006, compared to $9.1$12.1 million and $23.2 million for the three and six months ended March 31,June 30, 2005. This increaseThe decrease in 2006 is primarily a result of the acquisition of J.W.F. Insurance Companies in the second quarter of 2005.
Partially offsetting these increases were service charges on deposit accounts which decreased to $9.9 million for the three months ended March 31, 2006, compared to $11.1 million for the three months ended March 31, 2005, primarily as the result of a decrease in the volume of overdraft service charges and the sale of the Clarksville, Tennessee and O’Fallon, Illinois financial centers.
Mortgage banking revenue was $0.6 million and $1.8 million for the three and six months ended June 30, 2006, compared to $1.3 million and $2.6 million for the three and six months ended June 30, 2005. A decrease in loan production along with fluctuations in the market value of mortgage-related derivatives were the primary reasons for the decrease.
Primarily as a result of the acquisition of J.W.F. Insurance Companies in the second quarter of 2005, insurance premiums and commissions increased to $9.5 million and $20.4 million for the three and six months ended June 30, 2006, compared to $9.1 million and $18.1 million for the three and six months ended June 30, 2005, a 4.2% and 12.7% increase, respectively.
Included in other income in 2006 is a $1.2 million increase in fees for other risk management services from the J.W.F. Insurance Companies.

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Noninterest Expense
Noninterest expense for the three months ended March 31,June 30, 2006, totaled $68.5$63.7 million, an increasea decrease of $2.1$0.2 million, or 3.2%0.3%, from the $66.4$63.9 million recorded for the three months ended March 31,June 30, 2005. For the six months ended June 30, 2006, noninterest expense was $132.2 million, an increase of $1.9 million, or 1.5%, from the $130.3 million recorded for the six months ended June 30, 2005.
Salaries and benefits is the largest component of noninterest expense. For the three months ended March 31,June 30, 2006, salaries and benefits were $41.3$37.7 million compared to $39.0$38.7 million for the three months ended March 31,June 30, 2005. For the six months ended June 30, 2006, salaries and benefits amounted to $79.0 million compared to $77.8 million for the six months ended June 30, 2005. The $1.0 million decrease in the three-month comparison is primarily the result of a $3.5 million adjustment to certain performance-based incentives which was partially offset by $0.6 million of expense associated with the modification of certain stock options and $0.8 million of personnel expense associated with the acquisition of J.W.F Insurance Companies during the second quarter of 2005. The increase in salaries and benefits fromfor the six months ended June 30, 2006, is primarily a result of the $2.7 million increase in personnel expense associated with the acquisition of J.W.F. Insurance Companies. Also included in the three months ended March 31, 2006, wereCompanies, severance costs of $1.0 million relating to senior executives and mortgage employees.employees, and a $1.2 million increase in commissions and other incentive expenses. Partially offsetting these increases was the net reduction in performance-based pay discussed above.
MarketingData processing expense totaled $2.3$4.5 million for the three months ended March 31,June 30, 2006, compared to $1.9$5.3 million for the three months ended March 31,June 30, 2005. For the six months ended June 30, 2006, data processing expense totaled $9.1 million compared to $10.7 million for the six months ended June 30, 2005. The increasedecrease in marketingdata processing expense was primarily attributable to expenses incurreda decrease in connectionoutside mortgage servicing fees, as mortgages are currently being sold with servicing released.
All other components of noninterest expense totaled $21.5 million for the “Unbeatable Checking” advertising campaign.three months ended June 30, 2006, compared to $19.8 million for the three months ended June 30, 2005. For the six months ended June 30, 2006 and 2005, all other components of noninterest expense totaled $44.0 million and $41.7 million, respectively. Included in the totals for 2005 is a $3.0 million reduction in the reserve for unfunded commitments.
Provision for Income Taxes
Old National records a provision for income taxes currently payable and for income taxes payable or benefits to be received in the future, which arise due to timing differences in the recognition of certain items for financial statement and income tax purposes. The major difference between the effective tax rate applied to Old National’s financial statement income and the federal statutory tax rate is caused by interest on tax-exempt securities and loans. The provision for income taxes on continuing operations, as a percentage of pre-tax income, was 18.0%15.9% for the three

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months ended March 31,June 30, 2006, compared to 8.5%21.1% in the three months ended March 31,June 30, 2005. The provision for income taxes on continuing operations, as a percentage of pre-tax income, was 17.0% for the six months ended June 30, 2006, compared to 16.7% in the six months ended June 30, 2005. The decreased effective tax rate for the three months ended June 30 2006, resulted from a higher percentage of tax-exempt income to total income compared to the three months ended June 30, 2005. The increased effective tax rate infor the six months ended June 30, 2006, resulted from a lower percentage of tax-exempt income to total income than incompared to the six months ended June 30, 2005.
FINANCIAL CONDITION
Overview
Old National’s assets at March 31,June 30, 2006, were $8.245$8.306 billion, a 6.2%4.0% decrease compared to March 31,June 30, 2005 assets of $8.793$8.649 billion, and an annualizeda decrease of 11.6%2.2% compared to December 31, 2005 assets of $8.492 billion. Federal funds sold decreased $6.9increased $3.1 million since March 31,June 30, 2005, and decreased $120.8$118.4 million since December 31, 2005. Investments decreased $364.0$58.6 million since March 31,June 30, 2005, and increased $57.2$63.2 million since December 31, 2005. Loans decreased $130.8$173.1 million since March 31,June 30, 2005, and decreased $84.3$42.0 million since December 31, 2005. Total liabilities decreased $522.9$255.1 million compared to March 31,June 30, 2005, primarily from a reduction in long-term borrowings, and decreased $239.6$150.3 million since December 31, 2005, primarily from a $260.2 million reduction in interest-bearing deposits.deposits and a $189.1 million reduction in long-term borrowings, partially offset by a $288.6 million increase in short-term borrowings. Total shareholders’ equity decreased $25.2$86.9 million from March 31,June 30, 2005, and

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decreased $7.5$35.2 million from December 31, 2005. The decrease in shareholders’ equity from March 31,June 30, 2005 to June 30, 2006 is primarily attributable to the $45.5$57.9 million in stock repurchases between March 31, 2005 and December 31, 2005, fluctuations in the market value of investment securities in the amount of $15.3 million, and the issuance of $18.5 million in stock for the acquisition of J. W. F. Insurance Companies.securities. At March 31,June 30, 2006, accumulated other comprehensive income, of which the largest component is unrealized gains (losses) on securities, was a net loss of $27.6$44.8 million compared to a net loss of $17.5$0.5 million at March 31,June 30, 2005.
Earning Assets
Old National’s earning assets are comprised of loans and loans held for sale, investment securities and money market investments. Earning assets were $7.435$7.466 billion at March 31,June 30, 2006, a decrease of 6.5%3.4% from March 31,June 30, 2005, and an annualized decrease of 9.2%3.8% since December 31, 2005. Much ofInvestment securities have decreased over the decrease is attributable to decreases in investment securitiespast twelve months as Old National has reduced its investment portfolio in response to the flattening of the yield curve and the desire to reduce its sensitivity to rising interest rates. At March 31,June 30, 2006, total loans, including loans held for sale, decreased $140.6$195.8 million compared to March 31,June 30, 2005, and decreased $106.2$61.7 million compared to December 31, 2005. In the fourth quarter of 2005, the Clarksville, Tennessee financial centers were sold, which included $114.3 million of loans. In the first quarter of 2006, the O’Fallon, Illinois financial center was sold, which included $27.9 million of loans.
Investment Securities
Old National classifies investment securities primarily as available-for-sale to give management the flexibility to sell the securities prior to maturity if needed, based on fluctuating interest rates or changes in the Company’s funding requirements. At March 31,June 30, 2006, Old National does not believe any individual unrealized loss on available-for-sale securities represents other-than-temporary impairment. The unrealized losses are primarily attributable to changes in interest rates. As of June 30, 2006, Old National hashad both the intent and ability to hold the securities for a time necessary to recover the amortized cost.
At March 31,June 30, 2006, the investment securities portfolio was $2.573$2.580 billion compared to $2.938$2.638 billion at March 31,June 30, 2005, a decrease of $364.0$58.6 million or 12.4%2.2%. Investment securities increased $57.2$63.2 million at March 31,June 30, 2006, compared to December 31, 2005, an annualized increase of 9.1%5.0%. Investment securities represented 34.6% of earning assets at March 31,June 30, 2006, compared to 37.0%34.1% at March 31,June 30, 2005, and 33.1% at December 31, 2005. Old National has reduced the size of the investment portfolio during the past twelve months to reduce its sensitivity to rising interest rates.
The investment securities available-for-sale portfolio had net unrealized losses of $45.4$73.9 million at March 31,June 30, 2006, an increase of $15.4$74.8 million compared to net unrealized lossesgains of $30.0$0.9 million at March 31,June 30, 2005, and an increase of $10.3$38.9 million compared to net unrealized losses of $35.0 million at December 31, 2005. These changes were primarily the result of higher market interest rates and the change in the portfolio of securities available-for-sale at March 31,June 30, 2006.
The investment portfolio had an average duration of 3.433.48 years at March 31,June 30, 2006, compared to 3.803.32 years at March 31,June 30, 2005, and 3.42 years at December 31, 2005. The average yields on investment securities, on a taxable

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equivalent basis, were 4.93%5.04% for the three months ended March 31,June 30, 2006, compared to 4.46%4.57% for the three months ended March 31,June 30, 2005, and 4.79% for the three months ended December 31, 2005. Average yields on investment securities, on a taxable equivalent basis, were 4.99%, 4.51% and 4.62% for the six months ended June 30, 2006 and 2005, and for the year ended December 31, 2005, respectively.
Residential Loans Held for Sale
Residential loans held for sale were $22.0$24.1 million at March 31,June 30, 2006, compared to $31.7$46.8 million at March 31,June 30, 2005, and compared to $43.8 million at December 31, 2005. Residential loans held for sale are loans that are closed, but not yet purchased by investors. The decrease in residential loans held for sale is primarily attributable to the bulk sale of approximately $12.1 million of loans during the first quarter of 2006. The amount of residential loans held for sale on the balance sheet can vary depending on the timing of originations and loan sales to the secondary market. Prior to September 30, 2005, these loans were sold with loan servicing retained. In the fourth quarter of 2005, in an effort to reduce the overall volatility in the Company’s earnings stream, Old National started selling loans with servicing released.
Lending and Loan Administration
Old National has implemented certain credit approval disciplines in order to continue to focus on the reduction of problem and non-performing loans in the portfolio, including a restructuring of the manner in which commercial

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loans are analyzed and approved. Community-based lending personnel, along with region-based independent underwriting and analytic support staff, extend credit under guidelines established and administered by Old National’s Risk and Credit Policy Committee. This committee, which meets quarterly, includes members from both the holding company and the bank, as well as outside directors. The committee monitors credit quality through its review of information such as delinquencies, problem loans and charge-offs and reviews and approves recommended loan policy changes to assure it remains appropriate for the current lending environment.
Old National lends primarily to small- and medium-sized commercial and commercial real estate clients in various industries including manufacturing, agribusiness, transportation, mining, wholesaling and retailing. As measured by Old National at March 31,June 30, 2006, the Company had no concentration of loans in any single industry exceeding 10% of its total loan portfolio and had no exposure to foreign borrowers or lesser-developed countries. Four measured industry categories, Lessors of Residential Buildings and Dwellings, Lessors of Nonresidential Buildings, Crop Farming and Durable Goods Wholesale Trade did exceed internal guidelines which set out recommended maximum limits of loan commitments as a percent of capital. Management is working to bring these loan commitments back within internal policy guidelines. Old National’s policy is to concentrate its lending activity in the geographic market areas it serves, primarily Indiana, Illinois and Kentucky. Old National continues to be affected by weakness in the economy of its principal markets, particularly in its home state of Indiana.
Commercial and Consumer Loans
Commercial and consumer loans are the largest classification within the earning assets of Old National representing 57.8%58.3% of earning assets at March 31,June 30, 2006, an increase from 55.1%57.9% at March 31,June 30, 2005, and an increase from 57.2% at December 31, 2005. At March 31,June 30, 2006, commercial and commercial real estate loans were $3.050$3.103 billion, a decrease of $112.4$139.8 million since March 31,June 30, 2005, and a decreasean increase of $38.0$14.8 million since December 31, 2005. These changes include commercial and commercial real estate loan sales of $26.7 million during the three months ended June 30, 2005. In the fourth quarter of 2005, the Clarksville, Tennessee financial centers were sold, which included $105.7 million of commercial and consumer loans. In the first quarter of 2006, the O’Fallon, Illinois financial center was sold, which included $27.7 million of commercial and consumer loans.
At March 31,June 30, 2006, consumer loans, including automobile loans, personal and home equity loans and lines of credit, and student loans, increased $27.4$17.7 million or 2.2%1.4% compared to March 31,June 30, 2005, and decreased $14.7$12.9 million or, annualized, 4.7%2.0% since December 31, 2005.
Residential Real Estate Loans
Residential real estate loans, primarily 1-4 family properties, have decreased in significance to the loan portfolio over the past five years due to higher levels of loan sales into the secondary market, primarily to Federal Home Loan Mortgage Corporation and other private investors. Old National sells the majority of residential real estate loans originated as a strategy to better manage interest rate risk and liquidity. Old National sells almost all residential real estate loans without recourse.
At March 31,June 30, 2006, residential real estate loans were $512.3$500.0 million, a decrease of $45.9$51.1 million, or 8.2%9.3%, from March 31,June 30, 2005. The sale of the Clarksville, Tennessee financial centers in the fourth quarter of 2005 included $8.5

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million of residential real estate loans while the sale of the O’Fallon, Illinois financial center during the first quarter of 2006 included $0.2 million of residential real estate loans.
Allowance for Loan Losses and Asset Quality Administration
Old National monitors the quality of its loan portfolio on an on-going basis and uses a combination of detailed credit assessments by relationship managers and credit officers, historic loss trends, and economic and business environment factors in determining its allowance for loan losses. Old National records provisions for loan losses based on current loans outstanding, loan risk grades, mix of loans and expected losses. A detailed loan loss evaluation on an individual loan basis for the Company’s highest risk loans is performed quarterly. Management follows the progress of the economy and how it might affect Old National’s borrowers in both the near and the intermediate term. Old National has a formalized and disciplined independent loan review program to evaluate loan administration, credit quality and compliance with corporate loan standards. This program includes periodic reviews conducted at selected bank locations as well as regular reviews of problem loan reports, delinquencies and charge-offs.
Each month, problem loan reports are prepared and reviewed, which include borrowers that show indications of being unable to meet debt obligations in the normal course of business, and loans which have other characteristics

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deemed by bank management to warrant special attention or have been criticized by regulators in the examination process. Classified loans include non-performing loans, loans past due 90 days or more, and other loans deemed to have well-defined weaknesses while criticized loans, also known as special mention loans, are loans that are deemed to have potential weaknesses that deserve management’s close attention and also require specific monthly reviews by the bank.
Assets determined by the various evaluation processes to be under-performing are closely monitored by Old National management. Under-performing assets consist of: 1) nonaccrual loans where the ultimate collectibility of interest or principal is uncertain; 2) loans renegotiated in some manner, primarily to provide for a reduction or deferral of interest or principal payments because the borrower’s financial condition deteriorated; 3) loans with principal or interest past due ninety (90) days or more; and 4) foreclosed properties.
A loan is generally placed on nonaccrual status when principal or interest become 90 days past due unless it is well secured and in the process of collection, or earlier when concern exists as to the ultimate collectibility of principal or interest. When loans are classified as nonaccrual, interest accrued during the current year is reversed against earnings; interest accrued in the prior year, if any, is charged to the allowance for loan losses. Cash received while a loan is classified as nonaccrual is recorded to principal.
Adjustments to the allowance for loan losses are made as deemed necessary for probable losses inherent in the portfolio. While an estimate of probable losses is, by its very nature, difficult to precisely predict, management of Old National believes the methodology that it uses in determining an appropriate reserve for probable losses is reasonable. Old National monitors differences between estimated and actual loan losses. This process includes quarterly assessments by senior management of the loan portfolio and the models used to estimate losses in the portfolio.
Loan officers and credit underwriters jointly grade the larger commercial and commercial real estate loans in the portfolio periodically as determined by loan policy requirements or determined by specific guidelines based on loan characteristics as set by management and banking regulation. Periodically, these loan grades are reviewed independently by the loan review department. For impaired loans, an assessment is conducted as to whether there is likely loss in the event of default. If such a loss is determined to be likely, the loss is quantified and a specific reserve is assigned to the loan. For the balance of the commercial and commercial real estate loan portfolio, loan grade migration analysis coupled with historic loss experience within the respective grades is used to develop reserve requirement ranges.
A loan is considered impaired under SFAS No. 114, “Accounting by Creditors for Impairment of a Loan, an amendment of FASB Statement No. 5 and 15” when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. An impaired loan does not include larger groups of smaller-balance homogeneous loans that are collectively evaluated for impairment, loans that are measured at fair value or at the lower of cost or fair value, leases and debt securities.

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Old National uses migration analysis as a tool to determine the adequacy of the allowance for loan losses for non-retail loans that are not impaired. Migration analysis is a statistical technique that attempts to estimate probable losses for existing pools of loans based on the historic loss experience of the subject pools. The migration-derived historical commercial loan loss rates are applied to the current commercial loan pools to arrive at an estimate of probable losses for the loans existing at the time of analysis.
Old National calculates migration analysis using several different scenarios based on varying assumptions to evaluate the widest range of possible outcomes. The amounts determined by migration analysis are adjusted for management’s best estimate of the effects of current economic conditions, loan quality trends, results from internal and external review examinations, loan volume trends, credit concentrations and various other factors. Historic loss ratios adjusted for expectations of future economic conditions are used in determining the appropriate level of reserves for consumer and residential real estate loans.
Allowance for Loan Losses and Asset Quality
At March 31,June 30, 2006, the allowance for loan losses was $76.8$76.4 million, a decrease of $9.5$4.2 million compared to $86.3$80.6 million at March 31,June 30, 2005, and a decrease of $2.0$2.4 million compared to $78.8 million at December 31, 2005. As a percentage of total loans, including loans held for sale, the allowance decreased to 1.57% at June 30, 2006, from

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1.59% at March 31, 2006, from 1.74% at March 31,June 30, 2005, and decreased from 1.60% at December 31, 2005. For the three months ended March 31,June 30, 2006, the provision for loan losses amounted to $3.5 million, a decrease of $1.6$2.5 million from the three months ended March 31,June 30, 2005. The provision for the six months ended June 30, 2006, amounted to $7.0 million compared to $11.1 million for the six months ended June 30, 2005. Reductions in nonperforming loans during 2005 and the first threesix months of 2006 were significant factors in the decrease of the allowance for loan losses. Other factors include reductions in criticized and classified loans during the periods due in part from the sales of $26.7 million in substandard commercial real estate loans during 2005.past twelve months. Changes to separate the loan production functions from the underwriting functions and significant strengthening of the commercial underwriting processes including the elevation of the Credit Policy Committee to a board level committee to improve credit quality were contributing factors to the reduction in criticized and classified loans during the period.
In accordance with generally accepted accounting principles, the amount of the allowance for unfunded loan commitments is classified as a liability account on the balance sheet during 2006 and 2005.sheet. The allowance for unfunded loan commitments was unchanged during the first threesix months of 2006.
Charge-offs, net of recoveries, totaled $5.5$4.0 million for the three months ended March 31,June 30, 2006, an increasea decrease of $1.0$7.7 million from the three months ended March 31,June 30, 2005. Net charge-offs for the six months ended June 30, 2006, totaled $9.5 million compared to $16.2 million for the six months ended June 30, 2005. Net charge-offs to average loans were 0.46%0.33% and 0.39% for the three and six months ended March 31,June 30, 2006, as compared to 0.37%0.93% and 0.65% for the three and six months ended March 31,June 30, 2005.
Under-performing assets totaled $55.1$56.1 million at March 31,June 30, 2006, a decreasean increase of $6.9$0.3 million compared to $62.0$55.8 million at March 31,June 30, 2005, and a decrease of $5.9$4.9 million compared to $61.0 million at December 31, 2005. As a percent of total loans and foreclosed properties, under-performing assets at March 31,June 30, 2006, were 1.14%1.15%, a reductionan increase from the March 31,June 30, 2005 ratio of 1.25%1.10% and a reduction from the December 31, 2005 ratio of 1.24%. Nonaccrual loans were $51.4$51.7 million at March 31,June 30, 2006, compared to $55.2$49.0 million at March 31,June 30, 2005, and $55.6 million at December 31, 2005. Management will continue its efforts to reduce the level of under-performing loans and may consider the possibility of additional sales of troubled and non-performing loans, which could result in additional write-downs to the allowance for loan losses.
Total classified and criticized loans were $221.4$202.7 million at March 31,June 30, 2006, a decrease of $90.2$62.0 million from March 31,June 30, 2005, and an increasea decrease of $1.5$17.1 million from December 31, 2005.
Management believes it has taken a prudent approach to the evaluation of under-performing, criticized and classified loans, and the loan portfolio in general both in acknowledging the portfolio’s general condition and in establishing the allowance for loan losses. Old National has been affected by weakness in the economy of its markets, which has resulted in minimal growth of commercial loans and tighter credit underwriting standards. Management expects that trends in under-performing, criticized and classified loans will be influenced by the degree to which the economy strengthens. Old National operates in the Midwest, primarily in the state of Indiana, which has been particularly negatively affected by the weakness in the manufacturing segment of the economy. The longer this softness in manufacturing continues the more stress it puts on Old National’s borrowers, increasing the potential for additional nonaccrual loans and loan losses.

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The table below shows the various components of under-performing assets:
                       
 March 31, December 31,  June 30, December 31, 
(dollars in thousands) 2006 2005 2005  2006 2005 2005 
Nonaccrual loans $51,351 $55,172 $55,589  $51,725 $48,996 $ 55,589 
Renegotiated loans — — —  96 — — 
Past due loans (90 days or more and still accruing) 1,353 1,782 1,835  1,335 2,421 1,835 
Foreclosed properties 2,348 5,073 3,605  2,907 4,341 3,605 
Total under-performing assets $55,052 $62,027 $61,029  $56,063 $55,758 $ 61,029 
Classified loans (includes nonaccrual, renegotiated, past due 90 days and other problem loans) $139,764 $183,241 $136,597  $137,899 $158,620 $ 136,597 
Criticized loans 81,588 128,347 83,213  64,843 106,149 83,213 
Total criticized and classified loans $221,352 $311,588 $219,810  $202,742 $264,769 $ 219,810 
Asset Quality Ratios: (1)  
Non-performing loans/total loans (1) (2)  1.06%  1.11%  1.13%  1.06%  0.97%  1.13%
Under-performing assets/total loans and foreclosed properties (1) 1.14 1.25 1.24  1.15 1.10 1.24 
Under-performing assets/total assets 0.67 0.71 0.72  0.67 0.64 0.72 
Allowance for loan losses/under-performing assets 139.52 139.14 129.20  136.20 144.63 129.20 
(1) Loans include residential loans held for sale.
 
(2) Non-performing loans include nonaccrual and renegotiated loans.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets at March 31,June 30, 2006, totaled $135.8$135.2 million, an increasea decrease of $18.3$2.3 million compared to $117.5$137.5 million at March 31,June 30, 2005, and a decrease of $0.5$1.1 million compared to $136.3 million at December 31, 2005. The increase from March 31, 2005 isdecreases are primarily the result of $20.4 million in goodwill and intangible assets relatedattributable to the May 1, 2005 acquisition of J.W.F. Insurance Companies.normal amortization expense.
Funding
Total funding, comprised of deposits and wholesale borrowings, was $7.473$7.563 billion at March 31,June 30, 2006, a decrease of 6.8%3.5% from $8.015$7.839 billion at March 31,June 30, 2005, and an annualized decrease of 13.0%4.2% from $7.723 billion at December 31, 2005. Included in total funding were deposits of $6.218$6.205 billion at March 31,June 30, 2006, a decrease of $151.8$118.7 million, or 2.4%1.9%, compared to March 31,June 30, 2005, and an annualized decrease of 15.3%8.0% compared to December 31, 2005. Included in theThe decrease in deposits areis primarily the result of the assignment of $172.7 million of deposits associated with the divestiture of the Clarksville, Tennessee financial centers in the fourth quarter of 2005 and $22.2 million of deposits associated with the divestiture of the O’Fallon, Illinois financial center in the first quarter of 2006. During the first quarter of 2006, Old National experienced a decrease of approximately $126.3 million in public funds deposits, which are generally among the most expensive sources of funding. Year over year, Old National experienced a shift from NOW deposits into money market deposits due to the rising interest rate environment.
Old National uses wholesale funding to augment deposit funding and to help maintain its desired interest rate risk position. At March 31,June 30, 2006, wholesale borrowings, including short-term borrowings and other borrowings, decreased 23.7%10.4% from June 30, 2005 and 0.8%increased 15.8%, annualized, from March 31, 2005, and December 31, 2005, respectively. As other borrowings have decreased in 2006, primarily due to the maturing of Federal Home Loan Bank advances and senior bank notes, federal funds purchased have increased. Wholesale borrowings as a percentage of total funding was 16.8%17.9% at March 31,June 30, 2006, compared to 20.5%19.3% at March 31,June 30, 2005, and 16.3% at December 31, 2005. The lower level of earning assets and a planned reduction of the investment portfolio during 2005 reduced the Company’s reliance on wholesale funding.funding since 2005.
Capital Resources and Regulatory Guidelines
Shareholders’ equity totaled $642.3$614.7 million at March 31,June 30, 2006, compared to $667.6$701.6 million at March 31,June 30, 2005, and $649.9 million at December 31, 2005.
Old National paid cash dividends of $0.21 and $0.42 per share for the three and six months ended March 31,June 30, 2006, which decreased equity by $14.1$27.9 million, compared to cash dividends of $0.19 and $0.38 per share for the three and six months ended March

26

31,June 30, 2005, which decreased equity by $13.0$26.0 million. Old National purchased shares of its stock in the open market under an ongoing repurchase program, reducing shareholders’ equity by $9.5$27.0 million during the threesix months ended March 31,June 30, 2006, and $18.4$33.0 million during the threesix months ended March 31,June 30, 2005. Between March 31,June 30, 2005 and December 31, 2005, Old National reduced shareholders’ equity by purchasing $45.5$30.9 million of its

28

stock in the open market. The change in unrealized losses on investment securities decreased equity by $6.1$23.3 million during the threesix months ended March 31,June 30, 2006, and decreased equity by $23.8$5.0 million during the threesix months ended March 31,June 30, 2005. Shares issued for stock options, restricted stock and stock purchase plans increased shareholders’ equity by $1.3$1.9 million during the threesix months ended March 31,June 30, 2006, compared to $2.1$3.0 million during the threesix months ended March 31,June 30, 2005. Additionally, stock issued for acquisitions increased shareholders’ equity by $18.5 million in the six months ended June 30, 2005.
Old National filed an S-3 Registration Statement with the Securities and Exchange Commission for the purpose of amending the Old National Bancorp Stock Purchase and Dividend Reinvestment Plan, which became effective on January 6, 2005. The plan has two main purposes. First, the plan allows investors and shareholders a convenient, low-cost way to buy shares and reinvest cash dividends in additional shares of Old National common stock. Secondly, the plan gives Old National the ability to raise capital by selling newly issued shares of common stock. A key feature is the ability for Old National to sell newly issued shares at a discount from the market price. Common stock totaling 3.5 million shares can be issued under this plan.
Old National and the banking industry are subject to various regulatory capital requirements administered by the federal banking agencies. Old National’s consolidated capital position remains strong as evidenced by the following comparisons of key industry ratios.
                                
 Regulatory      Regulatory     
 Guidelines March 31, December 31,  Guidelines June 30, December 31, 
 Minimum 2006 2005 2005  Minimum 2006 2005 2005 
Risk-based capital:
  
Tier 1 capital to total avg assets (leverage ratio)  4.00%  7.78%  7.73%  7.67%  4.00%  7.65%  7.23%  7.67%
Tier 1 capital to risk-adjusted total assets 4.00 10.75 10.96 10.64  4.00 10.36 10.08 10.64 
Total capital to risk-adjusted total assets 8.00 14.54 14.67 14.40  8.00 14.10 13.79 14.40 
Shareholders’ equity to assets N/A 7.79 7.59 7.65  N/A 7.40 8.11 7.65 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Old National’s critical accounting policies involving the more significant judgments, estimates and assumptions used in the preparation of the consolidated financial statements as of March 31,June 30, 2006 remain unchanged from December 31, 2005. These policies relate to the accounting for the allowance for loan losses, goodwill and other intangible assets, and derivative financial instruments. Disclosure on these critical accounting policies is incorporated by reference under Item 7-“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.
FORWARD-LOOKING STATEMENTS
The following is a cautionary note about forward-looking statements. In its oral and written communications, Old National from time to time includes forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements can include statements about estimated cost savings, plans and objectives for future operations, and expectations about performance as well as economic and market conditions and trends. These statements often can be identified by the use of words like “expect,” “may,” “could,” “intend,” “project,” “estimate,” “believe” or “anticipate.” Old National may include forward-looking statements in filings with the Securities and Exchange Commission, such as this Form 10-Q, in other written materials and in oral statements made by senior management to analysts, investors, representatives of the media and others. It is intended that these forward-looking statements speak only as of the date they are made, and Old National undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the forward-looking statement is made or to reflect the occurrence of unanticipated events. By their nature, forward-looking statements are based on assumptions and are subject to risks, uncertainties and other factors. Actual results may differ materially from those contained in the forward-looking statement. Uncertainties which could affect Old National’s future performance include, but are not limited to: (1) economic, market, operational, liquidity, credit and interest rate risks associated with Old National’s business; (2) economic conditions generally and in the financial services industry; (3) increased competition in the financial services industry either nationally or regionally, resulting in, among other things, credit quality deterioration; (4) the ability of Old National to achieve loan and deposit growth; (5) volatility and direction of market interest rates; (5)(6) governmental legislation and regulation, including changes in accounting regulation or

27

standards; (6)(7) the ability of Old National to execute its

29

business plan; (7)(8) a weakening of the economy which could materially impact credit quality trends and the ability to generate loans; (8)(9) changes in the securities markets; and (9)(10) changes in fiscal, monetary and tax policies. Investors should consider these risks, uncertainties and other factors in addition to those mentioned by Old National in this and its other filings from time to time when considering any forward-looking statement.
ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK MANAGEMENT
Inherent in Old National’s balance sheet is market risk, defined as the sensitivity of income, fair market values and capital to changes in interest rates, foreign currency exchange rates, commodity prices and other relevant market rates or prices. The primary market risk to which Old National has exposure is interest rate risk. Interest rate risk arises because assets and liabilities may reprice, mature or prepay at different times or based upon different market instruments as market interest rates change. Changes in the slope of the yield curve and the pace of interest rate changes may also impact net interest income and the fair value of the balance sheet.
Old National manages interest rate risk within an overall asset and liability management framework that includes attention to credit risk, liquidity risk and capitalization. A principal objective of asset/liability management is to manage the sensitivity of net interest income to changing interest rates. Asset and liability management activity is governed by a policy reviewed and approved annually by the Board of Directors. The Board of Directors has delegated the administration of this policy to the Funds Management Committee, a committee of the Board of Directors, and the Executive Balance Sheet Management Committee, a committee comprised of senior executive management. The Funds Management Committee meets quarterly and oversees adherence to policy and recommends policy changes to the Board. The Executive Balance Sheet Management Committee meets quarterly. This committee determines balance sheet management strategies and initiatives for the Company. A group comprised of corporate and line management meets monthly to implement strategies and initiatives determined by the Executive Balance Sheet Management Committee.
Old National uses two modeling techniques to quantify the impact of changing interest rates on the Company, Net Interest Income at Risk and Economic Value of Equity. Net Interest Income at Risk is used by management and the Board of Directors to evaluate the impact of changing rates over a two-year horizon. Economic Value of Equity is used to evaluate long-term interest rate risk. These models simulate the likely behavior of the Company’s net interest income and the likely change in the Company’s economic value due to changes in interest rates under various possible interest rate scenarios. Because the models are driven by expected behavior in various interest rate scenarios and many factors besides market interest rates affect the Company’s net interest income and value, Old National recognizes that model outputs are not guarantees of actual results. For this reason, Old National models many different combinations of interest rates and balance sheet assumptions to best understand its overall sensitivity to market interest rate changes.

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Old National’s Board of Directors, through its Funds Management Committee, monitors the Company’s interest rate risk. Policy guidelines, in addition to March 31,June 30, 2006 and 2005 results, are as follows:
Net Interest Income — 12 Month Policies (+/-)
                                
 Interest Rate Change in Basis Points (bp) Interest Rate Change in Basis Points (bp)
 Down 200 Down 100 Up 100 Up 200 Up 300 Down 300 Down 200 Down 100 Up 100 Up 200 Up 300
Green Zone  6.50%  3.00%  3.00%  6.50%  12.00% 12.00% 6.50% 3.00% 3.00% 6.50% 12.00%
Yellow Zone  6.50% - 8.50%  3.00% - 4.00%  3.00% - 4.00%  6.50% - 8.50%  12.00% - 15.00% 12.00% - 15.00% 6.50% - 8.50% 3.00% - 4.00% 3.00% - 4.00% 6.50% - 8.50% 12.00% - 15.00%
Red Zone  8.50%  4.00%  4.00%  8.50%  15.00% 15.00% 8.50% 4.00% 4.00% 8.50% 15.00%
 
03/31/2006  2.87%  2.24%  -3.34%  -7.33%  -11.56%
03/31/2005  2.78%  2.31%  -3.22%  -7.33%  -11.97%
06/30/2006 1.64% 2.71% 1.99% -3.14% -6.93% -10.42%
06/30/2005 n/a 1.58% 1.63% -3.71% -8.07% -13.38%
Net Interest Income — 24 Month Cumulative Policies (+/-)
                                
 Interest Rate Change in Basis Points (bp) Interest Rate Change in Basis Points (bp)
 Down 200 Down 100 Up 100 Up 200 Up 300 Down 300 Down 200 Down 100 Up 100 Up 200 Up 300
Green Zone  5.00%  2.25%  2.25%  5.00%  10.00% 10.00% 5.00% 2.25% 2.25% 5.00% 10.00%
Yellow Zone  5.00% - 7.00%  2.25% - 3.25%  2.25% - 3.25%  5.00% - 7.00%  10.00% - 12.50% 10.00% - 12.50% 5.00% - 7.00% 2.25% - 3.25% 2.25% - 3.25% 5.00% - 7.00% 10.00% - 12.50%
Red Zone  7.00%  3.25%  3.25%  7.00%  12.50% 12.50% 7.00% 3.25% 3.25% 7.00% 12.50%
 
03/31/2006  0.76%  1.42%  -2.87%  -6.58%  -10.59%
03/31/2005  -0.25%  1.28%  -2.53%  -5.97%  -10.06%
06/30/2006 -2.48% 0.40% 1.06% -2.50% -5.83% -8.93%
06/30/2005 n/a -1.29% 0.63% -3.12% -7.12% -12.12%
Economic Value of Equity Policies (+/-)
                                
 Interest Rate Change in Basis Points (bp) Interest Rate Change in Basis Points (bp)
 Down 200 Down 100 Up 100 Up 200 Up 300 Down 300 Down 200 Down 100 Up 100 Up 200 Up 300
Green Zone  12.00%  5.00%  5.00%  12.00%  22.00% 22.00% 12.00% 5.00% 5.00% 12.00% 22.00%
Yellow Zone  12.00% - 17.00%  5.00% - 7.50%  5.00% - 7.50%  12.00% - 17.00%  22.00% - 30.00% 22.00% - 30.00% 12.00% - 17.00% 5.00% - 7.50% 5.00% - 7.50% 12.00% - 17.00% 22.00% - 30.00%
Red Zone  17.00%  7.50%  7.50%  17.00%  30.00% 30.00% 17.00% 7.50% 7.50% 17.00% 30.00%
 
03/31/2006  -8.40%  -1.70%  -1.71%  -5.05%  -8.90%
03/31/2005  -13.78%  -3.27%  -1.21%  -4.02%  -7.96%
06/30/2006 -13.97% -5.32% -0.60% -2.54% -5.41% -9.18%
06/30/2005 n/a -21.44% -7.34% 1.49% -0.57% -4.56%
Red zone policy limits represent Old National’s absolute interest rate risk exposure compliance limit. Policy limits defined as green zone represent the range of potential interest rate risk exposures that the Funds Management Committee believes to be normal and acceptable operating behavior. Yellow zone policy limits represent a range of interest rate risk exposures falling below the bank’s maximum allowable exposure (red zone) but above its normally acceptable interest rate risk levels (green zone).
At March 31,June 30, 2006, modeling indicated Old National was within the yellow zone policy limits for the Up 100 and Up 200 12 month Net Interest Income at Risk Scenarios. In addition, modeling indicated Old National was within the yellow zone policy limits for the Up 100 Up 200 and Up 300200 24-month cumulative Net Interest Income at Risk Scenarios. Old National is taking steps to reduce its exposure to rising interest rates. All other Net Interest Income at Risk modeling scenarios fell within Old National’s green zone, which is considered the normal and acceptable interest rate risk level.
At March 31,June 30, 2006, modeling indicated Old National was within the green zone policy limit for all Economic Value of Equity Scenarios.
At March 31,June 30, 2006, a notable change in the Company’s rate risk profile was reflected in the decrease in the Company’s estimated change in Economic Value of Equity resulting in the Down 200 basis points yield curve shock. Economic Value of Equity changed from —13.78%–21.44% at March 31,June 30, 2005, to —8.40%–5.32% at March 31,June 30, 2006. The

29

Company reduced its long term exposure to falling interest rates through the sale of its mortgage servicing rights and the shift in mix of its deposit mix from certificates of deposit to transaction accounts.

31

Old National uses derivatives, primarily interest rate swaps, as one method to manage interest rate risk in the ordinary course of business. The Company’s derivatives had an estimated fair value loss of $36.4$38.1 million at March 31,June 30, 2006, compared to an estimated fair value loss of $22.9$31.3 million at MarchDecember 31, 2005. The decrease in market value was primarily due to increases in short term interest rates and the resulting decline in market value of the receive fixed interest rate swaps for the three months ended March 31, 2006 compared to the three months ended March 31, 2005.swaps. In addition, the notional amount of derivatives decreased by $136.8$19.9 million. See Note 1416 to the consolidated financial statements for additional information.
LIQUIDITY MANAGEMENT
The Funds Management Committee of the Board of Directors establishes liquidity risk guidelines and, along with the Balance Sheet Management Committee, monitors liquidity risk. The objective of liquidity management is to ensure Old National has the ability to fund balance sheet growth and meet deposit and debt obligations in a timely and cost-effective manner. Management monitors liquidity through a regular review of asset and liability maturities, funding sources, and loan and deposit forecasts. The Company maintains strategic and contingency liquidity plans to ensure sufficient available funding to satisfy requirements for balance sheet growth, properly manage capital markets’ funding sources and to address unexpected liquidity requirements.
Old National’s ability to raise funding at competitive prices is influenced by rating agencies’ views of the Company’s credit quality, liquidity, capital and earnings. These rating agencies have issued a stable outlook in conjunction with their ratings as of March 31,June 30, 2006. The senior debt ratings of Old National Bancorp and Old National Bank at March 31,June 30, 2006, are shown in the following table:
SENIOR DEBT RATINGS
                                 
  Standard and Poor’s  Moody’s Investor Services  Fitch, Inc.  Dominion Bond Rating Svc. 
  Long  Short  Long  Short  Long  Short  Long  Short 
  term  term  term  term  term  term  term  term 
 
Old National Bancorp BBB  A2  Baa1   N/A  BBB  F2  BBB (high) R-2 (high)
Old National Bank BBB+  A2   A3   P-2  BBB+  F2  A (low) R-1 (low)
N/A = not applicable
As of March 31,June 30, 2006, Old National Bank had the capacity to borrow $729.7$929.7 million from the Federal Reserve Bank’s discount window. Old National Bank is also a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis, which provides a source of funding through FHLB advances. Old National maintains relationships in capital markets with brokers and dealers to issue certificates of deposits and short-term and medium-term bank notes as well. In addition, at March 31,June 30, 2006, Old National had $660 million available for issuance under a $1 billion global bank note program for senior and subordinated debt.
Old National Bancorp, the parent company, has routine funding requirements consisting primarily of operating expenses, dividends to shareholders, debt service, net derivative cash flows and funds used for acquisitions. Old National Bancorp obtains funding to meet its obligations from dividends and management fees collected from its subsidiaries and the issuance of debt securities. In addition, at March 31,June 30, 2006, Old National Bancorp has $700$700.0 million available under a $750.0 million global shelf registration for the issuance of a variety of securities including debt, common and preferred stock, depository shares, units and warrants of Old National. At March 31,June 30, 2006, the parent company’s other borrowings outstanding was $252.0$250.6 million, compared with $254.8$256.6 million at March 31,June 30, 2005. The $6.0 million decrease in other borrowings from June 30, 2005 to June 30,2006 was primarily attributable to the restatement in 2006 was driven by2005 resulting in the elimination of fair value adjustments on the junior subordinated debt and a $2.8 million decline in derivative market values. Old National Bancorp, the parent company, has no debt scheduled to mature within the next 12 months.
Federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval. At March 31,June 30, 2006, prior regulatory approval was not required for Old National’s affiliate bank.

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ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Evaluation of disclosure controls and procedures.procedures. Old National’s principal executive officer and principal financial officer have concluded that Old National’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended), based on their evaluation of these controls and procedures as of the end of the period covered by this Form 10-Q, are effective at the reasonable assurance level as discussed below to ensure that information required to be disclosed by Old National in the reports it files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to Old National’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Limitations on the Effectiveness of Controls.Controls. Management, including the principal executive officer and principal financial officer, does not expect that Old National’s disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgements in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be only reasonable assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting.Reporting. There were no changes in Old National’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, Old National’s internal control over financial reporting.

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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section of the Company’s annual report on Form 10-K for the year ended December 31, 2005.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c)ISSUER PURCHASES OF EQUITY SECURITIES
                 
          Total Number    
          of Shares    
  Total  Average  Purchased as  Maximum Number of 
  Number  Price  Part of Publically  Shares that May Yet 
  of Shares  Paid Per  Announced Plans  Be Purchased Under 
Period Purchased  Share  or Programs  the Plans or Programs 
 
01/01/06 - 01/31/06  87,700  $21.73   87,700   5,912,300 
02/01/06 - 02/28/06  150,700   20.88   150,700   5,761,600 
03/01/06 - 03/31/06  210,600   20.95   210,600   5,551,000 
 
Quarter-to-date 03/31/06  449,000  $21.08   449,000   5,551,000 
 
                 
          Total Number    
          of Shares    
  Total  Average  Purchased as  Maximum Number of 
  Number  Price  Part of Publically  Shares that May Yet 
  of Shares  Paid Per  Announced Plans  Be Purchased Under 
Period Purchased  Share  or Programs  the Plans or Programs 
 
04/01/06 - 04/30/06  302,976  $20.53   302,976   5,248,024 
05/01/06 - 05/31/06  436,303   20.01   436,303   4,811,721 
06/01/06 - 06/30/06  129,800   19.30   129,800   4,681,921 
 
Quarter-to-date 06/30/06  869,079  $20.09   869,079   4,681,921 
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONEAt the April 27, 2006, Annual Meeting of Shareholders, the following matters were submitted to a vote of the shareholders:
(a)Election of Directors – The following directors were elected to Class I of the Board of Directors, each to hold office for three years (until the 2009 Annual Meeting) and until his or her successor shall have been duly elected and qualified:
         
  Vote Counts
  For Withheld
Class I Directors (term ending 2009)
        
Joseph D. Barnette, Jr.  50,275,724   1,942,531 
Larry E. Dunigan  49,513,526   2,705,808 
Phelps L. Lambert  49,594,220   2,626,062 
Marjorie Z. Soyugenc  49,565,796   2,658,670 
(b)Ratification of the selection of Independent Public Accountants – Crowe Chizek and Company LLC — For — 50,491,782; Votes Against — 926,573; Votes Abstained — 798,496; Broker nonvotes — 588,697
ITEM 5. OTHER INFORMATION
NONE

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ITEM 6. EXHIBITS
   
Exhibit No. Description
3.1 Articles of Incorporation of Old National (incorporated by reference to Exhibit 3(i) of Old National’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).
   
3.2 By-Laws of Old National, amended and restated effective April 22, 2004July 27, 2006 (incorporated by reference to Exhibit 3(ii)3.1 of Old National’s QuarterlyCurrent Report on Form 10-Q for8-K filed with the quarter ended MarchSecurities Exchange Commission on July 31, 2004)2006).
   
4.1 Senior Indenture between Old National and J.P. Morgan Trust Company, National Association (as successor to Bank One, NA), as trustee (incorporated by reference to Exhibit 4.3 to Old National’s Registration Statement on Form S-3, Registration No. 333-118374, filed with the Securities and Exchange Commission on December 2, 2004).

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Exhibit No.Description
4.2 Form of Indenture between Old National and J.P. Morgan Trust Company, National Association (as successor to Bank One, NA), as trustee (incorporated by reference to Exhibit 4.1 to Old National’s Registration Statement on Form S-3, Registration No. 333-87573, filed with the Securities and Exchange Commission on September 22, 1999).
   
4.3 Rights Agreement, dated March 1, 1990, as amended on February 29, 2000, between Old National Bancorp and Old National Bank, as trustee (incorporated by reference to Old National’s Form 8-A, dated March 1, 2000).
   
4.4 First Indenture Supplement dated as of May 20, 2005, between Old National and J.P. Morgan Trust Company, as trustee, providing for the issuance of its 5.00% Senior Notes due 2010 (incorporated by reference to Exhibit 4.1 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 20, 2005).
   
4.5 Form of 5.00% Senior Notes due 2010 (incorporated by reference to Exhibit 4.2 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 20, 2005).
   
10.1 Deferred Compensation Plan for Directors of Old National Bancorp and Subsidiaries (As Amended and Restated Effective as of January 1, 2003) (incorporated by reference to Exhibit 10(a) of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 15, 2004).*
   
10.2 Second Amendment to the Deferred Compensation Plan for Directors of Old National Bancorp and Subsidiaries (As Amended and Restated Effective as of January 1, 2003) (incorporated by reference to Exhibit 10(b) of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 15, 2004).*
   
10.3 2005 Directors Deferred Compensation Plan (Effective as of January 1, 2005) (incorporated by reference to Exhibit 10(c) of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 15, 2004).*
   
10.4 Supplemental Deferred Compensation Plan for Select Executive Employees of Old National Bancorp and Subsidiaries (As Amended and Restated Effective as of January 1, 2003) (incorporated by reference to Exhibit 10(d) of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 15, 2004).*
   
10.5 Second Amendment to the Supplemental Deferred Compensation Plan for Select Executive Employees of Old National Bancorp and Subsidiaries (As Amended and Restated Effective as of January 1, 2003) (incorporated by reference to Exhibit 10(e) of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 15, 2004).*

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Exhibit No.Description
10.6 Third Amendment to the Supplemental Deferred Compensation Plan for Select Executive Employees of Old National Bancorp and Subsidiaries (As Amended and Restated Effective as of January 1, 2003) (incorporated by reference to Exhibit 10(f) of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 15, 2004).*
   
10.7 2005 Executive Deferred Compensation Plan (Effective as of January 1, 2005) (incorporated by reference to Exhibit 10(g) of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 15, 2004).*
   
10.8 Summary of Old National Bancorp’s Outside Director Compensation Program (incorporated by reference to Old National’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).*
   
10.9 Old National Bancorp Short-Term Incentive Compensation Plan (incorporated by reference to Appendix II of Old National’s Definitive Proxy Statement filed with the Securities and Exchange Commission on March 16, 2005).*

33

   
Exhibit No.Description
10.10 Severance Agreement, between Old National and Robert G. Jones (incorporated by reference to Exhibit 10(a) of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 4, 2005).*
   
10.11 Form of Severance Agreement for Michael R. Hinton, Annette W. Hudgions, Daryl D. Moore and Christopher A. Wolking, as amended (incorporated by reference to Exhibit 10(b) of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 4, 2005).*
   
10.12 Release and Separation Agreement between Old National and Michael R. Hinton, is filed herewith.*
10.13Form of Change of Control Agreement for Robert G. Jones, Annette W. Hudgions, Daryl D. Moore and Christopher A. Wolking, as amended (incorporated by reference to Exhibit 10(c) of Old National’s Current Report on Form 8-K filed with the ecuritiesSecurities and Exchange Commission on January 4, 2005).*
   
10.1310.14 Old National Bancorp 1999 Equity Incentive Plan (incorporated by reference to Old National’s Form S-8 filed on July 20, 2001).*
   
10.1410.15 First Amendment to the Old National Bancorp 1999 Equity Incentive Plan (incorporated by reference to Exhibit 10(f) of Old National’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004).*
   
10.1510.16 Form of 2004 “Performance-Based” Restricted Stock Award Agreement between Old National and certain key associates (incorporated by reference to Exhibit 10(g) of Old National’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004).*
   
10.1610.17 Form of 2005 “Performance-Based” Restricted Stock Award Agreement between Old National and certain key associates, (incorporated by reference to Exhibit 10(r) of Old National’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005). *
   
10.1710.18 Form of Executive Stock Option Award Agreement between Old National and certain key associates (incorporated by reference to Exhibit 10(h) of Old National’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004).*
   
10.1810.19 Stock Purchase and Dividend Reinvestment Plan (incorporated by reference to Old National’s Registration Statement on Form S-3, Registration No. 333-120545 filed with the Securities and Exchange Commission on November 16, 2004).
   
10.1910.20 Form of 2006 “Performance-Based” Restricted Stock Award Agreement between Old National and certain key associates (incorporated by reference to Exhibit 99.1 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 2, 2006).*

36

   
10.20Exhibit No.Description
10.21 Form of 2006 “Service-Based” Restricted Stock Award Agreement between Old National and certain key associates (incorporated by reference to Exhibit 99.2 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 2, 2006).*
   
10.2110.22 Form of 2006 Non-qualified Stock Option Agreement (incorporated by reference to Exhibit 99.3 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 2, 2006).*
   
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
* Management contract or compensatory plan or arrangement

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
     
OLD NATIONAL BANCORP

(Registrant)		  
     
By: /s/ Christopher A. Wolking
Christopher A. Wolking		  
  Executive Vice President and Chief Financial Officer  
  Christopher A. Wolking
Executive Vice President and Chief Financial Officer
Duly Authorized Officer and Principal Financial Officer		  
     
  Date: May 10,August 4, 2006  

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