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 JuneSeptember 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) Identification No.)
   
1 Main Street 47708
Evansville, Indiana (Zip Code)
(Address of principal executive offices)  
 
(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. Yesþ Noo
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 filerþ          Accelerated filero          Non-accelerated filero
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).Yeso Noþ
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 66,443,00066,406,000 shares outstanding at JulyOctober 31, 2006.
 
 

 

OLD NATIONAL BANCORP
FORM 10-Q
INDEX
     
  Page No.
PART I. FINANCIAL INFORMATION
    
 
Item 1. Financial Statements    
     
Consolidated Balance Sheet JuneSeptember 30, 2006 (unaudited), December 31, 2005 and JuneSeptember 30, 2005 (unaudited)
  3 
     
Consolidated Statement of Income Three and sixnine months ended JuneSeptember 30, 2006 and 2005 (unaudited)
  4 
     
Consolidated Statement of Changes in Shareholders’ Equity SixNine months ended JuneSeptember 30, 2006 and 2005 (unaudited)
  5 
     
Consolidated Statement of Cash Flows SixNine months ended JuneSeptember 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
  2021 
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk
  3032 
     
Item 4. Controls and Procedures
  3332 
     
PART II OTHER INFORMATION
  3433 
     
SIGNATURES
  3837 
 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
                        
 June 30, December 31, June 30,  September 30, December 31, September 30,
(dollars and shares in thousands) 2006 2005 2005 
(dollars and shares in thousands, except per share data) 2006 2005 2005
 (unaudited) (unaudited)  (unaudited) (unaudited)
Assets
  
Cash and due from banks $186,496 $245,364 $216,891  $176,632 $245,364 $199,210 
Federal funds sold 5,556 123,943 2,424  78,800 123,943 2,464 
Money market investments 4,874 33,109 15,835  7,525 33,109 18,245 
Total cash and cash equivalents 196,926 402,416 235,150  262,957 402,416 219,919 
Investment securities — available-for-sale, at fair value  
U.S. Government-sponsored agencies 652,203 509,744 511,020  546,692 509,744 435,130 
Mortgage-backed securities 1,073,435 1,105,257 1,157,605  1,060,914 1,105,257 1,175,112 
States and political subdivisions 459,559 488,369 515,384  297,171 488,369 485,165 
Other securities 193,530 196,696 217,647  184,844 196,696 204,627 
Investment securities — available-for-sale 2,378,727 2,300,066 2,401,656  2,089,621 2,300,066 2,300,034 
Investment securities — held-to-maturity, at amortized cost (fair value $142,924, $161,252 and $184,897 respectively) 151,864 166,799 187,032 
Investment securities — held-to-maturity, at amortized cost (fair value $138,691, $161,252 and $172,616 respectively) 144,016 166,799 176,021 
Federal Home Loan Bank stock, at cost 49,051 49,608 49,572  42,266 49,608 49,589 
Residential loans held for sale 24,083 43,804 46,809  15,856 43,804 49,523 
Loans:  
Commercial 1,634,471 1,553,742 1,643,640  1,598,071 1,553,742 1,650,628 
Commercial real estate 1,468,478 1,534,385 1,599,091  1,406,883 1,534,385 1,612,956 
Residential real estate 500,002 543,903 551,059  492,099 543,903 547,703 
Consumer credit, net of unearned income 1,248,898 1,261,797 1,231,170  1,219,268 1,261,797 1,297,660 
Total loans 4,851,849 4,893,827 5,024,960  4,716,321 4,893,827 5,108,947 
Allowance for loan losses  (76,357)  (78,847)  (80,645)  (71,632)  (78,847)  (81,356)
Net loans 4,775,492 4,814,980 4,944,315  4,644,689 4,814,980 5,027,591 
Premises and equipment, net 193,301 199,878 211,356  123,062 199,878 211,951 
Accrued interest receivable 52,979 55,658 55,030  54,260 55,658 57,169 
Goodwill 113,350 113,275 113,135  113,350 113,275 113,275 
Other intangible assets 21,838 23,060 24,335  21,372 23,060 23,694 
Mortgage servicing rights — — 14,565 
Assets held for sale — — 60,230  69,895 — — 
Other assets 348,886 322,478 305,323  338,544 322,478 306,525 
Total assets $8,306,497 $8,492,022 $8,648,508  $7,919,888 $8,492,022 $8,535,291 
Liabilities
  
Deposits:  
Noninterest-bearing demand $833,222 $891,541 $857,051  $844,913 $891,541 $872,499 
Interest-bearing:  
NOW 1,440,662 1,640,750 1,749,073  1,328,923 1,640,750 1,614,526 
Savings 427,656 480,358 481,064  411,412 480,358 483,928 
Money market 884,258 869,039 662,622  868,794 869,039 809,568 
Time 2,619,641 2,583,948 2,574,289  2,629,834 2,583,948 2,592,859 
Total deposits 6,205,439 6,465,636 6,324,099  6,083,876 6,465,636 6,373,380 
Short-term borrowings 591,375 302,765 468,046  301,535 302,765 350,999 
Other borrowings 765,868 954,925 1,047,316  772,215 954,925 1,033,963 
Liabilities held for sale — — 14,333 
Accrued expenses and other liabilities 129,151 118,798 93,124  119,499 118,798 107,884 
Total liabilities 7,691,833 7,842,124 7,946,918  7,277,125 7,842,124 7,866,226 
Shareholders’ Equity
  
Preferred stock, 2,000 shares authorized, no shares issued or outstanding — — —  — — — 
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 
Common stock, $1 stated value, 150,000 shares authorized, 66,406, 67,649 and 68,010 shares issued and outstanding, respectively 66,406 67,649 68,010 
Capital surplus 567,902 591,930 619,350  564,691 591,930 600,294 
Retained earnings 24,995 12,074 13,780  32,187 12,074 5,399 
Accumulated other comprehensive loss, net of tax  (44,768)  (21,755)  (490)  (20,521)  (21,755)  (4,638)
Total shareholders’ equity 614,664 649,898 701,590  642,763 649,898 669,065 
Total liabilities and shareholders’ equity $8,306,497 $8,492,022 $8,648,508  $7,919,888 $8,492,022 $8,535,291 
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 Six Months Ended  Three Months Ended Nine Months Ended
 June 30, June 30,  September 30, September 30,
(dollars in thousands, except per share data) 2006 2005 2006 2005  2006 2005 2006 2005
Interest Income
  
Loans including fees:  
Taxable $78,446 $71,645 $154,049 $140,225  $80,578 $75,770 $234,627 $215,995 
Nontaxable 4,852 4,308 9,445 8,370  5,065 4,476 14,510 12,846 
Investment securities, available-for-sale:  
Taxable 22,989 20,559 44,238 42,097  22,230 19,753 66,468 61,850 
Nontaxable 5,385 6,404 10,846 13,077  4,349 5,699 15,195 18,776 
Investment securities, held-to-maturity, taxable 1,702 1,837 3,489 3,623  1,618 1,953 5,107 5,576 
Money market investments 337 253 1,243 382  161 260 1,404 642 
Total interest income 113,711 105,006 223,310 207,774  114,001 107,911 337,311 315,685 
Interest Expense
  
Deposits 41,104 33,247 81,054 64,096  44,406 35,848 125,460 99,944 
Short-term borrowings 5,532 2,666 7,925 4,683  4,953 2,657 12,878 7,340 
Other borrowings 12,677 14,412 25,594 29,117  12,334 13,740 37,928 42,857 
Total interest expense 59,313 50,325 114,573 97,896  61,693 52,245 176,266 150,141 
Net interest income 54,398 54,681 108,737 109,878  52,308 55,666 161,045 165,544 
Provision for loan losses 3,500 6,000 7,000 11,100  — 6,000 7,000 17,100 
Net interest income after provision for loan losses 50,898 48,681 101,737 98,778  52,308 49,666 154,045 148,444 
Noninterest Income
  
Wealth management fees 4,970 5,635 10,149 10,510  4,710 5,041 14,859 15,551 
Service charges on deposit accounts 10,689 12,065 20,592 23,163  10,596 12,529 31,188 35,692 
ATM fees 3,017 2,817 5,863 5,457  3,043 2,872 8,906 8,329 
Mortgage banking revenue 582 1,267 1,790 2,644  1,045 1,756 2,835 4,400 
Insurance premiums and commissions 9,480 9,094 20,444 18,145  8,761 8,466 29,205 26,611 
Investment product fees 2,025 2,316 4,282 4,899  2,041 2,246 6,323 7,145 
Bank-owned life insurance 2,135 1,741 4,236 3,495  2,161 1,922 6,397 5,417 
Net securities gains (losses) 55 1,043  (92) 523 
Gain on derivatives 405 8,149 2,020 5,277 
Net securities gains 789 652 697 1,175 
Gain (loss) on derivatives  (67)  (4,632) 1,953 645 
Gain on branch divestiture — — 3,036 —  — — 3,036 — 
Other income 3,449 2,391 7,356 5,663  3,484 3,608 10,840 9,271 
Total noninterest income 36,807 46,518 79,676 79,776  36,563 34,460 116,239 114,236 
Noninterest Expense
  
Salaries and employee benefits 37,706 38,733 79,028 77,771  36,789 35,866 115,817 113,637 
Occupancy 4,898 5,124 10,112 10,155  5,059 4,591 15,171 14,746 
Equipment 3,246 3,882 6,624 7,394  3,052 3,587 9,676 10,981 
Marketing 2,537 2,226 4,834 4,138  2,738 1,912 7,572 6,050 
Data processing 4,511 5,342 9,116 10,737  4,404 5,107 13,520 15,844 
Communication 2,382 2,542 4,699 5,063  2,151 2,336 6,850 7,399 
Professional fees 1,869 2,035 3,836 4,149  1,845 2,291 5,681 6,440 
Loan expense 1,534 1,420 2,884 2,319  1,454 1,570 4,338 3,889 
Supplies 856 1,071 1,698 1,946  852 908 2,550 2,854 
Other expense 4,151 1,526 9,346 6,585  4,528 3,834 13,874 10,419 
Total noninterest expense 63,690 63,901 132,177 130,257  62,872 62,002 195,049 192,259 
Income before income taxes and discontinued operations 24,015 31,298 49,236 48,297  25,999 22,124 75,235 70,421 
Income tax expense 3,828 6,601 8,380 8,044  4,985 3,248 13,365 11,292 
Income from continuing operations 20,187 24,697 40,856 40,253  21,014 18,876 61,870 59,129 
Income (loss) from discontinued operations, net of tax expense of $368 and $301, respectively — 542 —  (442)
Loss from discontinued operations, net of tax expense of $6,302 and $6,603, respectively —  (14,383) —  (14,825)
Net income $20,187 $25,239 $40,856 $39,811  $21,014 $4,493 $61,870 $44,304 
Basic net income per share from continuing operations $0.30 $0.37 $0.61 $0.59  $0.32 $0.28 $0.93 $0.87 
Basic net loss per share from discontinued operations — — —  (0.01) —  (0.21) —  (0.22)
Basic net income per share 0.30 0.37 0.61 0.58  0.32 0.07 0.93 0.65 
Diluted net income per share from continuing operations $0.30 $0.37 $0.61 $0.59  $0.32 $0.28 $0.93 $0.87 
Diluted net loss per share from discontinued operations — — —  (0.01) —  (0.21) —  (0.22)
Diluted net income per share 0.30 0.37 0.61 0.58  0.32 0.07 0.93 0.65 
Dividends per common share $0.21 $0.19 $0.42 $0.38  $0.21 $0.19 $0.63 $0.57 
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   
(dollars and shares Common Stock Capital Retained Comprehensive Shareholders’  Common Stock Capital Retained Comprehensive Shareholders’ Comprehensive 
in thousands) Shares Amount Surplus Earnings Income (Loss) Equity  Shares Amount Surplus Earnings Income (Loss) Equity Income 
   
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 — — — 39,811 — 39,811  — — — 44,304 — 44,304   $44,304 
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)
Unrealized net securities losses, net of $(5,882) tax — — — —  (8,761)  (8,761)   (8,761)
Reclassification adjustment for securities gains included in net income, net of $(472) tax — — — —  (703)  (703)   (703)
Net unrealized derivative gains on cash flow hedges, net of $331 tax — — — — 512 512   512 
Reclassification adjustment on cash flow hedges, net of $(19) tax — — — —  (30)  (30)   (30)
Stock issued for acquisition 971 971 17,569 — — 18,540  971 971 17,569 — — 18,540   
Cash dividends — — —  (26,031) —  (26,031) — — —  (38,905) —  (38,905)  
Stock repurchased  (1,584)  (1,584)  (31,373) — —  (32,957)  (2,571)  (2,571)  (52,284) — —  (54,855)  
Stock issued under stock option, restricted stock and stock purchase plans 276 276 2,693 — — 2,969  323 323 4,548 — — 4,871   
   
Balance, June 30, 2005
 68,950 $68,950 $619,350 $13,780 $(490) $701,590 
Balance, September 30, 2005
 68,010 $68,010 $600,294 $5,399 $(4,638) $669,065   $35,322 
  
  
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 — — — 40,856 — 40,856  — — — 61,870 — 61,870   $61,870 
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 
Unrealized net securities gains, net of $1,482 tax — — — — 1,344 1,344   1,344 
Reclassification adjustment for securities gains included in net income, net of $(284) tax — — — —  (413)  (413)   (413)
Reclassification adjustment on cash flow hedges, net of $196 tax — — — — 303 303   303 
Adjustment to stock issued for prior acquisitions  (1)  (1)  (15) — —  (16)  (1)  (1)  (15) — —  (16)  
Cash dividends — — —  (27,935) —  (27,935) — — —  (41,757) —  (41,757)  
Stock repurchased  (1,318)  (1,318)  (25,665) — —  (26,983)  (1,445)  (1,445)  (27,982) — —  (29,427)  
Stock issued under stock option, restricted stock and stock purchase plans 205 205 1,652 — — 1,857  203 203 758 — — 961   
   
Balance, June 30, 2006
 66,535 $66,535 $567,902 $24,995 $(44,768) $614,664 
Balance, September 30, 2006
 66,406 $66,406 $564,691 $32,187 $(20,521) $642,763   $63,104 
   
Comprehensive income for the three months ended September 30, 2006 and 2005 was $45.3 million and $0.3 million, respectively.
The accompanying notes to consolidated financial statements are an integral part of this statement.

5

OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
         
  Nine Months Ended
  September 30,
(dollars in thousands) 2006 2005
 
Cash Flows From Operating Activities
        
Net income $61,870  $44,304 
 
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation  10,173   11,352 
Amortization of other intangible assets and goodwill impairment  1,831   5,378 
Net premium (discount) amortization on investment securities  (1,605)  2,449 
Restricted stock expense (benefit)  (437)  2,228 
Stock option expense  688   — 
Provision for loan losses  7,000   17,100 
Net securities gains  (697)  (1,175)
Gain on branch divestiture  (3,036)  — 
Gain on derivatives  (1,953)  (645)
Net (gains) losses on sales and write-downs of loans and other assets  (1,453)  8,346 
Residential real estate loans originated for sale  (186,012)  (300,309)
Proceeds from sale of residential real estate loans  216,436   257,921 
Increase in accrued interest and other assets  (16,224)  (8,501)
Increase (decrease) in accrued expenses and other liabilities  (470)  10,456 
 
Total adjustments  24,241   4,600 
 
Net cash flows provided by operating activities  86,111   48,904 
 
Cash Flows From Investing Activities
        
Cash and cash equivalents of subsidiaries acquired, net  —   2,699 
Purchases of investment securities available-for-sale  (471,047)  (417,964)
Purchases of investment securities held-to-maturity  —   (25,000)
Proceeds from maturities, prepayments and calls of investment securities available-for-sale  394,832   277,372 
Proceeds from sales of investment securities available-for-sale  298,715   609,466 
Proceeds from maturities, prepayments and calls of investment securities held-to-maturity  22,212   26,264 
Proceeds from branch divestiture  10,511   — 
Proceeds from sale of loans  26,062   21,355 
Net principal collected from (loans made to) customers  109,318   (170,490)
Proceeds from sale of premises and equipment and other assets  1,932   1,169 
Purchase of premises and equipment  (7,882)  (11,296)
Proceeds from sale of other assets  —   40,805 
 
Net cash flows provided by investing activities  384,653   354,380 
 
Cash Flows From Financing Activities
        
Net increase (decrease) in deposits and short-term borrowings:        
Noninterest-bearing demand deposits  (46,026)  21,281 
Savings, NOW and money market deposits  (366,334)  (66,205)
Time deposits  53,473   (405)
Short-term borrowings  (1,230)  3,646 
Payments for maturities on other borrowings  (179,632)  (317,563)
Proceeds from issuance of other borrowings  —   50,000 
Cash dividends paid  (41,757)  (38,905)
Common stock repurchased  (29,427)  (54,855)
Common stock issued under stock option, restricted stock and stock purchase plans  710   2,643 
 
Net cash flows used in financing activities  (610,223)  (400,363)
 
Net increase (decrease) in cash and cash equivalents  (139,459)  2,921 
Cash and cash equivalents at beginning of period  402,416   216,998 
 
Cash and cash equivalents at end of period
 $262,957  $219,919 
 
 
Total interest paid $171,424  $138,906 
Total taxes paid $8,243  $7,756 
         
  Six Months Ended 
  June 30, 
(dollars in thousands) 2006  2005 
 
Cash Flows From Operating Activities
        
Net income $40,856  $39,811 
 
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation  6,843   7,641 
Amortization of other intangible assets and goodwill impairment  1,222   4,137 
Net premium (discount) amortization on investment securities  (973)  1,677 
Restricted stock expense  500   1,441 
Stock option expense  647   — 
Provision for loan losses  7,000   11,100 
Net securities (gains) losses  92   (523)
Gain on branch divestiture  (3,036)  — 
(Gain) on derivatives  (2,020)  (5,277)
Net gains on sales and write-downs of loans and other assets  (684)  (797)
Residential real estate loans originated for sale  (114,891)  (187,739)
Proceeds from sale of residential real estate loans  136,086   157,628 
Increase in accrued interest and other assets  (43,408)  (584)
Increase (decrease) in accrued expenses and other liabilities  26,253   (8,737)
 
Total adjustments  13,631   (20,033)
 
Net cash flows provided by operating activities  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  (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  164,808   188,155 
Proceeds from sales of investment securities available-for-sale  24,842   444,670 
Proceeds from maturities, prepayments and calls of investment securities held-to-maturity  14,529   15,414 
Proceeds from branch divestiture  10,511   — 
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  1,166   830 
Purchase of premises and equipment  (3,968)  (6,698)
 
Net cash flows provided by (used in) investing activities  (89,087)  292,046 
 
Cash Flows From Financing Activities
        
Net increase (decrease) in deposits and short-term borrowings:        
Noninterest-bearing demand deposits  (57,717)  5,833 
Savings, NOW and money market deposits  (222,887)  (81,468)
Time deposits  51,716   (18,975)
Short-term borrowings  288,610   120,693 
Payments for maturities on other borrowings  (176,404)  (312,295)
Proceeds from issuance of other borrowings  —   50,000 
Cash dividends paid  (27,935)  (26,031)
Common stock repurchased  (26,983)  (32,957)
Common stock issued under stock option, restricted stock and stock purchase plans  710   1,528 
 
Net cash flows used in financing activities  (170,890)  (293,672)
 
Net increase (decrease) in cash and cash equivalents  (205,490)  18,152 
Cash and cash equivalents at beginning of period  402,416   216,998 
 
Cash and cash equivalents at end of period
 $196,926  $235,150 
 
Total interest paid $113,821  $92,378 
Total taxes paid $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 JuneSeptember 30, 2006 and 2005, and December 31, 2005, and the results of its operations for the three and sixnine months ended JuneSeptember 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
FASB Interpretation No. 48– In JuneJuly 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “AccountingAccounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“109(“FIN 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax 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 December 15, 2006. The Company hasis currently evaluating the impact of adopting FIN 48 on the consolidated financial statements.
SFAS No. 157– In September 2006, the FASB issued Statement No. 157,Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The new standard is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS No. 157 on the consolidated financial statements.
SFAS No. 158– In September 2006, the FASB issued Statement No. 158 –Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R). This Statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability, with any unrecognized prior service costs, transition obligations or actuarial gains/losses reported as component of other comprehensive in shareholders’ equity. The new standard is effective for fiscal years ending after December 15, 2006.
Based on the Company’s funded status of plan obligations disclosed in Note 14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, the estimated impact of adopting SFAS 158 would have been a reduction to December 31, 2005 comprehensive income of approximately $9.6 million, with no impact to the Company’s consolidated statements of income or cash flows. As the actual impact of adopting SFAS 158 will be dependent upon the fair value of plan assets and the amount of projected benefit obligations measured as of December 31, 2006, the above estimated amount may not completed its evaluationbe reflective of the actual impact of the adoption at December 31, 2006.
SAB 108 –In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (SAB 108). SAB 108 provides interpretive guidance on how the effects of FIN 48.the carryover or reversal of prior year misstatements should be considered in quantifying a potential current year misstatement. Prior to SAB 108, companies might evaluate the materiality of financial statement misstatements using either the income statement or balance sheet approach, with the income statement approach focusing on new misstatements added in the current year, and the balance sheet approach focusing on the cumulative amount of misstatement present in a company’s balance sheet. Misstatements that would be material under one approach could be viewed as immaterial under another approach, and not be corrected. SAB 108 now requires that companies view financial statement

7

misstatements as material if they are material according to either the income statement or balance sheet approach. This statement is effective as of the end of the fiscal year ending after December 15, 2006. The Company is currently evaluating the impact of adopting SAB 108 on the consolidated financial statements.
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,In February, 2005, Old National had committed to a plan to sell J.W. Terrill Insurance Agency (“Terrill”) in St. Louis, Missouri, and the Fund Evaluation Group (“FEG”) 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. During the third quarter of 2005, Old National completed the sale of both Terrill and FEG. Old National sold Terrill for $22.2 million of cash. Terrill had been acquired in a tax-free reorganization under Internal Revenue Code section 368, and as a result of the taxable sale, Old National recorded a loss of $8.7 million, including $8.6 million of tax expense. Old National completed the sale of FEG for $15.1 million of cash and a $0.5 million note receivable. The sale resulted in an after tax loss of $5.9 million.

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NOTE 5 — 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 sixnine months ended JuneSeptember 30, 2005 because their inclusion would have been anti-dilutive.

8

The following table reconciles basic and diluted net income per share for the three and sixnine months ended JuneSeptember 30:
                        
 Three Months Ended Three Months Ended                           
(dollars and shares June 30, 2006 June 30, 2005  Three Months Ended Three Months Ended 
in thousands,              September 30, 2006 September 30, 2005 
except per share data) Income Shares Amount Income Shares Amount  Income Shares Amount Income Shares Amount 
    
Basic Net Income Per Share
  
Income from continuing operations $20,187 66,283 $0.30 $24,697 68,471 $0.37  $21,014 65,823 $0.32 $18,876 68,011 $0.28 
Income from discontinued operations — 66,283 — 542 68,471 —  — 65,823 —  (14,383) 68,011  (0.21)
                  
Net income $20,187 $0.30 $25,239 $0.37  $21,014 $0.32 $4,493 $0.07 
                  
 
Effect of dilutive securities:
  
Restricted stock 64 —  6 10 
Stock options 6 17  5 310 
          
 
Diluted Net Income Per Share
  
Income from continuing operations and assumed conversions $20,187 66,353 $0.30 $24,697 68,488 $0.37  $21,014 65,834 $0.32 $18,876 68,331 $0.28 
Income from discontinued operations — 66,353 — 542 68,488 — 
Loss from discontinued operations — 65,834 —  (14,383) 68,331  (0.21)
                  
Net income and assumed conversions $20,187 $0.30 $25,239 $0.37  $21,014 $0.32 $4,493 $0.07 
                        
 Six Months Ended Six Months Ended                         
(dollars and shares June 30, 2006 June 30, 2005  Nine Months Ended Nine Months Ended 
in thousands,              September 30, 2006 September 30, 2005 
except per share data) Income Shares Amount Income Shares Amount  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  $61,870 66,370 $0.93 $59,129 68,355 $0.87 
Loss from discontinued operations — 66,648 —  (442) 68,530  (0.01) — 66,370 —  (14,825) 68,355  (0.22)
                  
Net income $40,856 $0.61 $39,811 $0.58  $61,870 $0.93 $44,304 $0.65 
                  
  
Effect of dilutive securities:
  
Restricted stock 60 —  2 — 
Stock options 11 42  7 127 
          
 
Diluted Net Income Per Share
  
Income from continuing operations and assumed conversions $40,856 66,719 $0.61 $40,253 68,572 $0.59  $61,870 66,379 $0.93 $59,129 68,482 $0.87 
Loss from discontinued operations — 66,719 —  (442) 68,572  (0.01) — 66,379 —  (14,825) 68,482  (0.22)
                  
Net income and assumed conversions $40,856 $0.61 $39,811 $0.58  $61,870 $0.93 $44,304 $0.65 

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NOTE 6 — 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 JuneSeptember 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 
June 30, 2006
 
September 30, 2006
 
Available-for-sale $2,452,605 $12,536 $(86,414) $2,378,727  
U.S. Government-sponsored agencies $554,356 $1,309 $(8,973) $546,692 
Mortgage-backed securities 1,094,204 1,711  (35,001) 1,060,914 
States and political subdivisions 287,486 9,874  (189) 297,171 
Other securities 186,453 1,734  (3,343) 184,844 
Total available-for-sale securities $2,122,499 $14,628 $(47,506) $2,089,621 
Held-to-maturity 151,864 —  (8,940) 142,924  
Mortgage-backed securities $131,661 $— $(5,111) $126,550 
Other securities 12,355 —  (214) 12,141 
Total held-to-maturity securities $144,016 $— $(5,325) $138,691 
December 31, 2005
  
Available-for-sale $2,335,073 $20,125 $(55,132) $2,300,066  
U.S. Government-sponsored agencies $522,351 $122 $(12,729) $509,744 
Mortgage-backed securities 1,141,581 1,898  (38,222) 1,105,257 
States and political subdivisions 473,231 15,685  (547) 488,369 
Other securities 197,910 2,420  (3,634) 196,696 
Total available-for-sale securities $2,335,073 $20,125 $(55,132) $2,300,066 
Held-to-maturity 166,799 —  (5,547) 161,252  
Mortgage-backed securities $148,035 $— $(5,274) $142,761 
Other securities 18,764 —  (273) 18,491 
Total held-to-maturity securities $166,799 $— $(5,547) $161,252 
During the third quarter of 2006, proceeds from the sales of investment securities available-for-sale were $273.9 million, resulting in a gain of $0.8 million. Year-to-date proceeds from sales of investment securities available-for-sale were $298.7 million in 2006 and $609.5 million in 2005. For the nine months ended September 30, 2006, realized gains were $4.4 million and losses were $3.7 million. For the nine months ended September 30, 2005, realized gains were $8.3 million and losses were $7.1 million.
At JuneSeptember 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 7 — 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 JuneSeptember 30, 2006 and December 31, 2005, Old National had residential loans held for sale of $24.1$15.9 million and $43.8 million, respectively. As of JuneSeptember 30, 2006 and December 31, 2005, ineffectiveness related to the hedge of a portion of the residential loans held for sale was immaterial.

10

During the secondthird quarter of 2005,2006, commercial real estate loans held for investment of $26.7$27.4 million and commercial loans of $1.4 million were reclassified to loans held for sale and sold for $21.4$26.1 million resulting in a write-down on loans transferred to held for sale of $5.3$2.8 million, which was recorded as a reduction to the allowance for loan losses.
NOTE 8 — ALLOWANCE FOR LOAN LOSSES
The following summarizes the changes in the allowance for loan losses:
                
 Six months ended  Nine months ended
 June 30,  September 30,
(dollars in thousands) 2006 2005  2006 2005
Balance, January 1 $78,847 $85,749  $78,847 $85,749 
Additions:  
Provision charged to expense 7,000 11,100  7,000 17,100 
Deductions:  
Write-downs from loans transferred to held for sale — 5,348  2,770 5,348 
Loans charged-off 13,796 15,090  18,391 24,516 
Recoveries  (4,306)  (4,234)  (6,946)  (8,371)
Net charge-offs 9,490 16,204  14,215 21,493 
Balance, June 30 $76,357 $80,645 
Balance, September 30 $71,632 $81,356 

9

The following presents information regarding the period-end balances of impaired loans:
                
 June 30, December 31,  September 30, December 31,
(dollars in thousands) 2006 2005  2006 2005
Impaired loans without a valuation allowance $17,199 $13,780  $11,801 $13,780 
Impaired loans with a valuation allowance 24,229 25,681  24,516 25,681 
Total impaired loans $41,428 $39,461  $36,317 $39,461 
 
Valuation allowance related to impaired loans $12,953 $12,472  $10,936 $12,472 
For the sixnine months ended JuneSeptember 30, 2006 and 2005, the average balance of impaired loans was $39.7$38.9 million and $42.4$43.1 million, respectively, for which no interest income 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 9 — GOODWILL AND OTHER INTANGIBLE ASSETS
SFAS No. 142,Goodwill and 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 completed its most recent annual goodwill impairment test required by this Statement as of August 31, 20052006 and determined that no impairment existed as of this date.

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The changes in the carrying amount of goodwill by segment for the sixnine months ended JuneSeptember 30, 2006 and 2005, were as follows:
                       
 Community      Community     
(dollars in thousands) Banking Other Total  Banking Other Total 
Balance, January 1, 2006 $73,477 $39,798 $113,275  $73,477 $39,798 $113,275 
Adjustments to goodwill acquired in prior year — 75 75  — 75 75 
Balance, June 30, 2006 $73,477 $39,873 $113,350 
Balance, September 30, 2006 $73,477 $39,873 $113,350 
  
Balance, January 1, 2005 $70,944 $59,003 $129,947  $70,944 $59,003 $129,947 
Goodwill acquired during the year — 12,020 12,020  — 12,038 12,038 
Adjustments to goodwill acquired in prior year — 150 150  — 272 272 
Goodwill transferred to held for sale —  (26,082)  (26,082) —  (26,082)  (26,082)
Goodwill impairment —  (2,900)  (2,900) —  (2,900)  (2,900)
Balance, June 30, 2005 $70,944 $42,191 $113,135 
Balance, September 30, 2005 $70,944 $42,331 $113,275 
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 reviews intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.

10

The following table shows the gross carrying amounts and accumulated amortization for other intangible assets as of JuneSeptember 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 
June 30, 2006
 
September 30, 2006
 
Amortized intangible assets:  
Core deposit $5,574 $(4,426) $1,148  $5,574 $(4,545) $1,029 
Customer business relationships 25,411  (4,721) 20,690  25,553  (5,210) 20,343 
Total intangible assets $30,985 $(9,147) $21,838  $31,127 $(9,755) $21,372 
December 31, 2005
  
Amortized intangible assets:  
Core deposit $5,574 $(4,175) $1,399  $5,574 $(4,175) $1,399 
Customer business relationships 25,411  (3,750) 21,661  25,411  (3,750) 21,661 
Total intangible assets $30,985 $(7,925) $23,060  $30,985 $(7,925) $23,060 
Total amortization expense associated with other intangible assets for the three months ended JuneSeptember 30 was $0.6 million in 2006 and $0.6 million in 2005. Amortization expense for the sixnine months ended JuneSeptember 30, 2006 and 2005, was $1.2$1.8 million and $1.2$1.9 million, respectively.
Estimated amortization expense for the future years is as follows:
        
(dollars in thousands)  
2006 remaining $1,162  $559 
2007 2,011  2,023 
2008 1,880  1,892 
2009 1,756  1,767 
2010 1,610  1,620 
Thereafter 13,419  13,511 
Total $21,838  $21,372 

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NOTE 10 — 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.
The activity for mortgage servicing rights and the related valuation allowance for the period ended JuneSeptember 30, 2005 is summarized below:
        
(dollars in thousands) 2005  2005 
Balance before valuation allowance, January 1 $15,829  $15,829 
Rights capitalized 1,514  2,505 
Amortization  (2,778)  (4,126)
Sale of mortgage servicing rights  (14,208)
Balance before valuation allowance, June 30 14,565 
Balance before valuation allowance, September 30 — 
Valuation allowance:  
Balance, January 1 —  — 
Additions to valuation allowance —  — 
Reductions to valuation allowance —  — 
Balance, June 30 — 
Balance, September 30 — 
Mortgage servicing rights, net $14,565  $— 
Mortgage servicing rights from loans sold with servicing retained were $14.6 millionNOTE 11 –ASSETS HELD FOR SALE
In September, 2006, Old National committed to a plan to sell and lease back its three main buildings in downtown Evansville, Indiana. A letter of intent was executed in September and the transaction is expected to close during the fourth quarter of 2006. These assets are reported as held for sale at June 30, 2005. Loans serviced for others were not includedhistorical cost as the sales price less costs to sell is expected to exceed the carrying value. These assets are reported in the consolidated balance sheet“other” column for segment reporting.
The carrying amounts of Old National. The unpaid principal balancethe classes of mortgage loans servicedassets included as held for otherssale were as follows at JuneSeptember 30, 2005 was $1.937 billion, and the fair value of capitalized2006:
     
(dollars in thousands)    
 
Assets held for sale:
    
Land $5,591 
Building and improvements  73,424 
 
Total  79,015 
Accumulated depreciation  (9,120)
 
Assets held for sale — net $69,895 
 

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mortgage servicing rights was $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 18.3% and a weighted average discount rate of 9.1% at June 30, 2005.
NOTE 1112 — FINANCING ACTIVITIES
The following table summarizes Old National’s other borrowings at JuneSeptember 30, 2006, and December 31, 2005:
                
 June 30, December 31,  September 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%) maturing August 2007 to June 2008 $110,000 $110,000  $110,000 $110,000 
Senior unsecured bank note (fixed rate 5.00%) maturing May 2010 50,000 50,000  50,000 50,000 
Junior subordinated debenture (fixed rate 8.00%) maturing April 2032 100,000 100,000  100,000 100,000 
SFAS 133 fair value hedge and other basis adjustments  (9,426)  (5,125)  (6,297)  (5,125)
Old National Bank:
  
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 
Securities sold under agreements to repurchase (fixed rates 2.75% to 5.17% and variable rate 5.64%) maturing May 2008 to November 2009 98,000 148,000 
Federal Home Loan Bank advances (fixed rates 4.84% to 8.34%) maturing February 2008 to January 2023 222,094 301,703 
Senior unsecured bank notes (fixed rate 3.95%) maturing 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 4,477 4,493  4,470 4,493 
SFAS 133 fair value hedge and other basis adjustments  (12,497)  (4,146)  (6,052)  (4,146)
Total other borrowings $765,868 $954,925  $772,215 $954,925 
Contractual maturities of other borrowings at JuneSeptember 30, 2006, were as follows:
        
(dollars in thousands)  
Due in 2006 $3,016  $8 
Due in 2007 10,034  10,034 
Due in 2008 317,037  317,037 
Due in 2009 26,040  26,040 
Due in 2010 75,043  75,043 
Thereafter 356,621  356,402 
SFAS 133 fair value hedge and other basis adjustments  (21,923)  (12,349)
Total $765,868  $772,215 
FEDERAL HOME LOAN BANK
Federal Home Loan Bank advances had weighted-average rates of 5.36%5.37% and 5.22% at JuneSeptember 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

12

$1 $1 billion. Notes issued by Old National Bank under the global note program are not obligations of, or guaranteed by, Old National Bancorp.

14

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 borrowingsborrowing rate for similar types of borrowing arrangements.
At JuneSeptember 30, 2006, the future minimum lease payments under the capital lease were as follows:
        
(dollars in thousands)  
2006 remaining $186  $93 
2007 371  371 
2008 371  371 
2009 390  390 
2010 390  390 
Thereafter 12,484  12,484 
Total minimum lease payments 14,192  14,099 
Less amounts representing interest 9,715  9,629 
Present value of net minimum lease payments $4,477  $4,470 

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NOTE 1213 — 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 sixnine months ended JuneSeptember 30:
                                
 Three Months Ended Six Months Ended  Three Months Ended Nine Months Ended
 June 30, June 30,  September 30, September 30,
(dollars in thousands) 2006 2005 2006 2005  2006 2005 2006 2005
Service cost $— $360 $— $878  $— $360 $— $1,238 
Interest cost 689 891 1,397 1,784  689 891 2,086 2,675 
Expected return on plan assets  (1,034)  (1,012)  (1,894)  (1,920)  (1,034)  (1,012)  (2,928)  (2,932)
Amortization of prior service cost —  (86) —  (78) —  (86) —  (164)
Recognized actuarial loss 218 378 517 786  218 378 735 1,164 
Settlement 360 — 720 —  360 — 1,080 — 
Net periodic benefit cost $233 $531 $740 $1,450  $233 $531 $973 $1,981 

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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 an additional $0.6 million to fund its pension plans in 2006.
NOTE 1314 — 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 JuneSeptember 30, 2006, 6.4 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 three and sixnine months ended JuneSeptember 30, 2005.
              
 Three Months Ended Six Months Ended  Three Months Ended Nine Months Ended
(dollars in thousands, except per share data) June 30, 2005 June 30, 2005  September 30, 2005 September 30, 2005
Net income as reported $25,239 $39,811  $4,493 $44,304 
Restricted Stock:
  
Add: restricted stock compensation expense included in reported net income, net of related tax effects 617 937  511 1,448 
Deduct: restricted stock compensation expense determined under fair value based method for all awards, net of related tax effects  (587)  (1,070)  (551)  (1,621)
Stock Options:
  
Deduct: stock option compensation expense determined under fair value based method for all awards, net of related tax effects  (544)  (1,871)  (506)  (2,377)
Proforma net income $24,725 $37,807  $3,947 $41,754 
  
Basic net income per share:  
As reported $0.37 $0.58  $0.07 $0.65 
Proforma 0.36 0.55  0.06 0.61 
Diluted net income per share:  
As reported $0.37 $0.58  $0.07 $0.65 
Proforma 0.36 0.55  0.06 0.61 
Stock Options
Included in Old National’sNational recorded $0.4 million of stock based compensation expense, net of tax, during the first sixnine months of 20062006. This cost is the costprimarily related to the unvestedmodification of certain options during the second quarter and the pro-rata vesting of options during the year.

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The Company granted 141,700 stock options granted during 2006. Using the first six months of 2006. Stock options granted prior to fiscal 2006 were fully vested as ofBlack-Scholes option pricing model, the beginning of 2006. TheCompany estimated the fair value of the stock options granted during 2006 to be $0.5 million. The Company will expense this amount ratably over the first six months of 2006 was estimated at $0.5 million on the date of grant using the Black-Scholes option pricing model.three-year vesting period. The assumptions used in the option pricing model and the determination of stock option expense were an expected volatility of 19.5%; a risk free interest rate of 4.7%; an expected option term of six years; a 3.6% dividend yield; and a forfeiture rate of 0%. The expense recognized during the six months ended June 30, 2006, was $0.4 million, net of an income tax benefit of $0.2 million. Of this total expense, $0.5 million is related to the modification of certain options. The remaining $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. ThereNo options were no stock options granted in 2005.
Restricted Stock
DuringOld National recorded income of $0.3 million, net of tax benefit, during the first sixnine months of 2006, Old National’s Boardrelated to the reversal of Directors approvedexpense associated with certain performance-based restricted stock grants. This reversal of expense was partially offset by the pro-rata vesting of restricted stock awards during the year.
The Company granted 132 thousand shares of performance based restricted stock awards to grant 132 thousand shares to certain key officers during 2006, 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 approvedCompany granted 60 thousand time-based restricted stock awards to grant 59 thousand shares to certain key officers during 2006, 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.
Expense recognized during the first six months of 2006 related to the vesting of all restricted stock awards was $0.3 million, net of an income tax benefit of $0.2 million. As of JuneSeptember 30, 2006, unrecorded compensation expense was estimated to be $6.0$3.9 million for nonvestedunvested restricted stock awards.

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NOTE 1415 — 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 sixnine months ended JuneSeptember 30:
                                
 Three Months Ended Six Months Ended  Three Months Ended Nine Months Ended
 June 30, June 30,  September 30, September 30,
(dollars in thousands) 2006 2005 2006 2005  2006 2005 2006 2005
Provision at statutory rate of 35% $8,405 $10,954 $17,233 $16,904  $9,100 $7,743 $26,332 $24,647 
Tax-exempt income  (4,152)  (4,332)  (8,280)  (8,672)  (3,870)  (4,132)  (12,150)  (12,804)
Other, net  (425)  (21)  (573)  (188)  (245)  (363)  (817)  (551)
Income tax expense $3,828 $6,601 $8,380 $8,044  $4,985 $3,248 $13,365 $11,292 
Effective tax rate  15.9%  21.1%  17.0%  16.7%  19.2%  14.7%  17.8%  16.0%
For the three months ended June 30, 2006, the effective tax rate on income from continuing operations was lower than for the threeand nine months ended June 30, 2005. For the six months ended JuneSeptember 30, 2006, the effective tax rate on income from continuing operations was higher than for the sixthree months and nine 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 JuneSeptember 30, 2005. The increased effective tax rate forin the sixthree months and nine months ended JuneSeptember 30, 2006 resulted from a lower percentage of tax-exempt income to total income compared to the sixthree months and nine months ended JuneSeptember 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 
 

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NOTE 16 — 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.

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The following table summarizes the derivative financial instruments utilized by Old National:
                                                
 June 30, 2006 December 31, 2005  September 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 $824,609 $— $(39,406) $717,346 $— $(21,487) $824,609 $— $(22,822) 717,346 $— $(21,487)
Pay fixed interest rate swaps 20,000 1,095 — 20,000 245 —  — — — 20,000 245 — 
Forward mortgage loan contracts 23,725 180 — 42,650 —  (357) 14,977 —  (71) 42,650 —  (357)
Stand Alone Derivatives
  
Receive fixed interest rate swaps — — — 445,071 678  (10,774) — — — 445,071 678  (10,774)
Interest rate lock commitments 31,404 —  (48) 26,012 47 —  31,259 222 — 26,012 47 — 
Forward mortgage loan contracts 29,848 92 — 10,833 326 —  31,093 —  (172) 10,833 326 — 
Matched Customer Hedges
  
Customer interest rate swaps 408,008 705  (6,694) 251,383 1,018  (1,766) 421,934 4,550  (1,890) 251,383 1,018  (1,766)
Customer interest rate swaps with counterparty 408,008 6,694  (705) 251,383 1,766  (1,018) 421,934 1,890  (4,550) 251,383 1,766  (1,018)
Customer interest rate cap & collars 5,459 34  (4) 11,089 83  (15) 5,459 24  (13) 11,089 83  (15)
Customer interest rate cap & collars with counterparty 5,459 4  (34) 11,089 15  (83) 5,459 13  (24) 11,089 15  (83)
Customer commodity swaps (72,000 barrels) 5,224 —  (195) — — —  5,224 309 — — — — 
Customer commodity swaps with counterparty (72,000 barrels) 5,224 195 — — — —  5,224 —  (309) — — — 
Option for customer commodity swap (120,000 barrels) 8,202 29 — — — — 
Option for customer commodity swap with counterparty (120,000 barrels) 8,202 —  (29) — — — 
Customer foreign exchange forward contract 38 — — — — — 
Customer foreign exchange forward contract with counterparty 38 — — — — — 
Total $1,766,968 $8,999 $(47,086) $1,786,856 $4,178 $(35,500) $1,783,652 $7,037 $(29,880) $1,786,856 $4,178 $(35,500)
Old National enteredenters into certain oil commodity swaps during the quarter ended June 30, 2006matched customer hedges to accommodate the business needs of its customers. Upon the origination of a commodity swap with a customer hedge, Old National simultaneously enters into an offsetting contract with a third party to mitigate the exposure to fluctuations in commodity prices.its exposure.
NOTE 17 — 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 $1.138$1.326 billion, commercial letters of credit of $30$92 thousand and standby letters of credit of $134.4$130.7 million at JuneSeptember 30, 2006. At December 31, 2005, loan commitments were $1.317 billion, commercial letters of credit were $55 thousand and standby letters of credit were $141.6 million. These commitments are not reflected in the consolidated financial statements. Management believes the reserve for unfunded commitments is adequate as of JuneSeptember 30, 2006.

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At JuneSeptember 30, 2006 and December 31, 2005, Old National had credit extensions of $87.0$77.7 million and $88.1 million, respectively, with various unaffiliated banks related to letter of credit commitments issued on behalf of Old

17

National’s clients. At JuneSeptember 30, 2006 and December 31, 2005, Old National provided collateral to the unaffiliated banks to secure credit extensions totaling $54.8$54.5 million and $55.2 million, respectively. Old National did not provide collateral for the remaining credit extensions.
NOTE 18 — 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 JuneSeptember 30, 2006, the notional amount of standby letters of credit was $134.4$130.7 million, which represents the maximum amount of future funding requirements, and the carrying value was $0.5 million.
NOTE 19 — 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.

1819

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 sixnine months ended JuneSeptember 30:
                                
 Community        Community       
(dollars in thousands) Banking Treasury Other Total  Banking Treasury Other Total 
Three months ended June 30, 2006
 
Three months ended September 30, 2006
 
Net interest income $57,166 $(3,481) $(1,377) $52,308 
Provision for loan losses 13  (13) — — 
Noninterest income 25,051 2,612 8,900 36,563 
Noninterest expense 53,856 907 8,109 62,872 
Income (loss) before income taxes 28,348  (1,763)  (586) 25,999 
Income tax expense (benefit) 7,269  (2,105)  (179) 4,985 
Segment profit (loss) 21,079 342  (407) 21,014 
Total assets 4,921,550 2,794,930 203,408 7,919,888 
Three months ended September 30, 2005
 
Net interest income $65,167 $(6,021) $(3,480) $55,666 
Provision for loan losses 6,115  (115) — 6,000 
Noninterest income 19,865  (2,079) 16,674 34,460 
Noninterest expense 49,683 702 11,617 62,002 
Income (loss) before income taxes and discontinued operations 29,234  (8,687) 1,577 22,124 
Income tax expense (benefit) 7,898  (5,159) 509 3,248 
Income (loss) from discontinued operations, net of income tax — 1,124  (15,507)  (14,383)
Segment profit (loss) 21,336  (2,404)  (14,439) 4,493 
Total assets 5,371,185 2,948,865 215,241 8,535,291 
Nine months ended September 30, 2006
 
Net interest income $58,659 $(3,904) $(357) $54,398  $177,748 $(12,098) $(4,605) $161,045 
Provision for loan losses 4,269  (769) — 3,500  7,580  (580) — 7,000 
Noninterest income 24,902 2,165 9,740 36,807  74,693 8,260 33,286 116,239 
Noninterest expense 54,147 1,036 8,507 63,690  165,856 2,550 26,643 195,049 
Income (loss) before income taxes 25,145  (2,006) 876 24,015  79,005  (5,808) 2,038 75,235 
Income tax expense (benefit) 6,118  (2,554) 264 3,828  19,966  (7,244) 643 13,365 
Segment profit 19,027 548 612 20,187  59,039 1,436 1,395 61,870 
Total assets 5,069,083 3,034,278 203,136 8,306,497  4,921,550 2,794,930 203,408 7,919,888 
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
 
Nine months ended September 30, 2005
 
Net interest income $129,831 $(12,857) $(7,096) $109,878  $194,998 $(18,878) $(10,576) $165,544 
Provision for loan losses 10,976 124 — 11,100  17,091 9 — 17,100 
Noninterest income 36,410 8,747 34,619 79,776  56,275 6,668 51,293 114,236 
Noninterest expense 105,933 1,745 22,579 130,257  155,616 2,447 34,196 192,259 
Income (loss) before income taxes and discontinued operations 49,332  (5,979) 4,944 48,297  78,566  (14,666) 6,521 70,421 
Income tax expense (benefit) 12,984  (6,533) 1,593 8,044  20,882  (11,692) 2,102 11,292 
Income (loss) from discontinued operations, net of income tax expense —  (1,124) 682  (442)
Loss from discontinued operations, net of income tax expense — —  (14,825)  (14,825)
Segment profit (loss) 36,348  (570) 4,033 39,811  57,684  (2,974)  (10,406) 44,304 
Total assets 5,315,115 3,052,496 280,897 8,648,508  5,371,185 2,948,865 215,241 8,535,291 

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NOTE 20 — SUBSEQUENT EVENT
On October 21, 2006, the Company entered into an agreement and plan of merger with St. Joseph Capital Corporation (“St. Joseph”), a banking franchise headquartered in Mishawaka, Indiana, with approximately $500 million in assets. Pursuant to the merger agreement, the shareholders of St. Joseph will be entitled to receive $40.00 in cash for every share of St. Joseph stock in an all-cash transaction valued at approximately $75.6 million. The merger is subject to customary closing conditions, including regulatory approval and the approval of St. Joseph’s shareholders, and is expected to close in the first quarter of 2007. The Company believes the purchase of St. Joseph is a natural extension of its Indiana franchise and is consistent with Old National’s growth market expansion strategy. This acquisition will serve as a platform for future expansion into northern Indiana.
PART I. FINANCIAL INFORMATION
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 sixnine months ended JuneSeptember 30, 2006 and 2005, and financial condition as of JuneSeptember 30, 2006, compared to JuneSeptember 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 qualityManagement continues to improve. Net charge offslook for ways to optimize Old National’s return on assets. Several initiatives were 0.33%implemented subsequent to quarter-end. Consistent with management’s growth market expansion strategy, management announced the agreement and plan of average loansmerger with St. Joseph Capital Corporation. Management believes this acquisition will serve as a platform for future expansion in northern Indiana. Also, consistent with the second quarter of 2006 comparedgrowth market expansion strategy, management identified seven branches with low growth potential. The Company plans to 0.46% inconsolidate these branches during the first quarter of 2006.2007, transferring their assets to other Old National branches within close proximity.
In management’s on-going efforts to improve the margin, a letter of intent was executed during the quarter to sell and leaseback three office buildings in downtown Evansville. Reducing these non-earning assets will allow Old National to pay down long-term funding as it comes due. Management believes that margin and earnings should improve as a result of the transaction.
Credit quality remains solid. Nonperforming loans totaled 1.06%0.95% of total loans at JuneSeptember 30, 2006, down from 1.13% at December 31, 2005. The allowance for loan losses equaled 1.57%1.51% of total loans at JuneSeptember 30, 2006, compared to 1.59%1.60% at June 30,December 31, 2005. Net charge-offs were 0.39% of average loans in the third quarter of 2006 compared to 0.33% in the second quarter of 2006. This increase is attributable to the bulk loan sale in the third quarter which accelerated write-downs into the current quarter.
Loan and deposit growth remains challenging. TotalNet loans at JuneSeptember 30, 2006 increased 0.9%decreased 3.5% compared to MarchDecember 31, 2006.2005. The September 30, 2006 loan balance reflects a $27.9 million decrease related to the sale of the O’Fallon, Illinois financial center during the first quarter of 2006 and the bulk sale of $28.8 million of loans during the third quarter. 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 openopened two new branches in Indianapolis nextduring the third quarter. CoreYear-over-year, deposits have increased $27.7 million in Louisville and $32.2 million in Indianapolis. However, company-wide, deposits at JuneSeptember 30, 2006 remained relatively constant compared to Marchlower than December 31, 2005 levels. The September 30, 2006 balance reflects a $22.2 million decrease in deposits associated with the divestiture of the O’Fallon, Illinois financial center in the first quarter of 2006. The Company continues to focus on its initiatives to grow low cost deposits which include (1) a heightened focus on small business and corporate cash management, (2) properly

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aligning incentive plans, (3) the creation of a referral program, and (4) a new direct mail program. In addition, Old National has changed its pricing policy on money market accounts and remains committed to disciplined pricing of commercial loans.loans
Net income of $20.2$21.0 million for the three months ended JuneSeptember 30, 2006, decreased 20.0%increased 367.7%, from the $25.2$4.5 million recorded for the three months ended JuneSeptember 30, 2005. On a diluted per share basis, net income was $0.30$0.32 for the three months ended JuneSeptember 30, 2006, compared to $0.37$0.07 for the three months ended JuneSeptember 30, 2005. Included in net income for the secondthird quarter of 2005 is $ 3.54.2 million of income,expense, 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 six months of 2005 is $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 $0.4$14.4 million, net of tax. Old National reported net income of $61.9 million for the nine months ended September 30, 2006, an increase of $17.6 million, or 39.6%, from the $44.3 million recorded for the nine months ended September 30, 2005. On a diluted per share basis, net income was $0.93 for the nine months ended September 30, 2006, compared to $0.65 for the nine months ended September 30, 2005. Included in net income for the nine months ended September 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 nine months of 2005 is $4.6 million of expense, 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 a loss from discontinued operations of $14.8 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, Old National’s return on average assets for the secondthird quarter of 2006 was 0.97%1.04% and return on shareholders’ equity was 12.82%13.40%, compared to 1.16%0.21% and 14.56%2.66%, respectively, for the three months ended JuneSeptember 30, 2005. Based on net income, Old National’s return on average assets for the sixnine months ended JuneSeptember 30, 2006, was 0.99%1.00% and return on shareholders’ equity was 12.75%12.96%, compared to 0.91%0.68% and 11.39%8.54%, respectively, for the sixnine months ended JuneSeptember 30, 2005.

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RESULTS OF OPERATIONS
The following table sets forth certain income statement information of Old National for the three and sixnine months ended JuneSeptember 30, 2006 and 2005:
                                                
 Three Months Ended Six Months Ended    Three Months Ended Nine Months Ended   
 June 30, June 30,    September 30, % September 30, % 
(dollars in thousands) 2006 2005 Change 2006 2005 Change  2006 2005 Change 2006 2005 Change 
Income Statement Summary:
  
Net interest income $54,398 $54,681  (0.5)% $108,737 $109,878  (1.0)% $52,308 $55,666  (6.0)% $161,045 $165,544  (2.7)%
Provision for loan losses 3,500 6,000  (41.7) 7,000 11,100  (36.9) — 6,000  (100.0) 7,000 17,100  (59.1)
Noninterest income 36,807 46,518  (20.9) 79,676 79,776  (0.1) 36,563 34,460 6.1 116,239 114,236 1.8 
Noninterest expense 63,690 63,901  (0.3) 132,177 130,257 1.5  62,872 62,002 1.4 195,049 192,259 1.5 
Other Data:
  
Return on average equity  12.82%  14.56%  12.75%  11.39%   13.40%  2.66%  12.96%  8.54% 
Efficiency ratio 66.05 59.87 66.49 64.88  67.13 65.02 66.70 64.93 
Tier 1 leverage ratio 7.65 7.23 7.65 7.23  7.92 7.57 7.92 7.57 
Net charge-offs to average loans 0.33 0.93 0.39 0.65  0.39 0.41 0.39 0.57 
Net Interest Income
Net interest income is Old National’s most significant component of earnings, comprising over 57%58% of revenues at JuneSeptember 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.

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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 $5.2$4.8 million and $5.5$5.2 million for the three months ended JuneSeptember 30, 2006 and 2005, respectively. Taxable equivalent adjustments for the sixnine months ended JuneSeptember 30, 2006 and 2005, were $10.4$15.2 million and $11.1$16.3 million, respectively.
Taxable equivalent net interest income was $59.6$57.1 million and $119.1$176.2 million for the three and sixnine months ended JuneSeptember 30, 2006, respectively, down from the $60.2$60.9 million and $121.0$181.9 million reported for the three and sixnine months ended JuneSeptember 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%3.15% and 3.17% for both the three and sixnine months ended JuneSeptember 30, 2006, compared to 3.07%3.16% and 3.06%3.09% reported for the three and sixnine months ended JuneSeptember 30, 2005. The increase in net interest margin for the nine months ended September 30, 2006 is primarily due to the disallowance of hedge accounting treatment for certain derivatives in the fourth quarter ofduring 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 $7.490$7.262 billion for the three months ended JuneSeptember 30, 2006, compared to $7.841$7.714 billion for the three months ended JuneSeptember 30, 2005, a decrease of 4.5%5.9%, or $350.7$452.0 million. Average earning assets were $7.489$7.413 billion for the sixnine months ended JuneSeptember 30, 2006, compared to $7.901$7.838 billion for the sixnine months ended JuneSeptember 30, 2005, a decrease of 5.2%5.4%, or $411.6$425.1 million. Significantly affecting average earning assets at JuneSeptember 30, 2006 compared to JuneSeptember 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. During the third quarter of 2006, the Company sold investment securities of $273.1 million and $28.8 million of commercial and commercial real estate loans. 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.
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 brokered certificates of deposit and the maturity of a $25 million Federal 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 long-term borrowings have decreased as a percent of interest-bearing liabilities.
Provision for Loan Losses
TheThere was no provision for loan losses was $3.5during the three months ended September 30, 2006, with a $7.0 million provision for loan losses year-to-date. The 2006 provision compares to $6.0 million and $7.0$17.1 million for the three and sixnine months ended June 30, 2006, respectively, compared to $6.0 million and $11.1 million for the three and six months ended JuneSeptember 30, 2005, respectively. The lower provision in 2006 is attributable to a decrease in net charge-offs combined with a stable level ofdecrease in nonaccrual loans, an 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 LossesAlso considered were the changes in migration loss rates during the quarter and Asset Quality” section for further discussion of non-performing loans, charge-offsthe loan sales and additional items impacting the provision.their effect on reducing outstanding loan balances across several lower quality asset rating categories.
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 JuneSeptember 30, 2006, was $36.8$36.6 million, a decreasean increase of $9.7$2.1 million, or 20.9%6.1% from the $46.5$34.5 million reported for the three months ended JuneSeptember 30, 2005. For the sixnine months ended JuneSeptember 30, 2006, noninterest income was $79.7$116.2 million, a decreasean increase of $0.1$2.0 million, or 0.1%1.8%, from the $79.8$114.2 million reported for the sixnine months ended JuneSeptember 30, 2005. The decreaseincrease in the three-month comparison is primarily due to a $7.7$4.6 million fluctuation in the market value of derivatives.derivatives which was partially offset by a $1.9 million decrease in service charges on deposit accounts. During the three-months ended JuneSeptember 30, 2005, the restatement required that net cash settlements and fair value adjustments related to derivative instruments associated with certain brokered certificates of deposit and junior subordinated debt be reported as

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noninterest income. See Old National’s Form 8-K filed January 31, 2006, for additional information related to the restatement. The decreaseincrease in the six-monthnine-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.and the $2.6 million increase in insurance premiums and commissions, which were partially offset by a $4.5 million decrease in service charges on deposit accounts.
Service charges on deposit accounts were $10.7$10.6 million and $20.6$31.2 million for the three and sixnine months ended JuneSeptember 30, 2006, compared to $12.1$12.5 million and $23.2$35.7 million for the three and sixnine months ended JuneSeptember 30, 2005. The decrease in 2006 is primarily 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$1.0 million and $1.8$2.8 million for the three and sixnine months ended JuneSeptember 30, 2006, compared to $1.3$1.8 million and $2.6$4.4 million for the three and sixnine months ended JuneSeptember 30, 2005. A decrease in loan production along with fluctuations in the market value of mortgage-related derivatives werewas the primary reasonsreason 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$8.8 million and $20.4$29.2 million for the three and sixnine months ended JuneSeptember 30, 2006, compared to $9.1$8.5 million and $18.1$26.6 million for the three and sixnine months ended JuneSeptember 30, 2005, a 4.2%3.5% and 12.7%9.7% increase, respectively.
Included in other income in 2006 is a $1.2$1.0 million increase in fees for other risk management services from the J.W.F. Insurance Companies. Other income as of September 30, 2005 included five months of revenue from J.W.F. Insurance Companies, which was acquired on May 1, 2005.

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Noninterest Expense
Noninterest expense for the three months ended JuneSeptember 30, 2006, totaled $63.7$62.9 million, a decreasean increase of $0.2$0.9 million, or 0.3%1.4%, from the $63.9$62.0 million recorded for the three months ended JuneSeptember 30, 2005. For the sixnine months ended JuneSeptember 30, 2006, noninterest expense was $132.2$195.0 million, an increase of $1.9$2.8 million, or 1.5%, from the $130.3$192.3 million recorded for the sixnine months ended JuneSeptember 30, 2005.
Salaries and benefits is the largest component of noninterest expense. For the three months ended JuneSeptember 30, 2006, salaries and benefits were $37.7$36.8 million compared to $38.7$35.9 million for the three months ended JuneSeptember 30, 2005. For the sixnine months ended JuneSeptember 30, 2006, salaries and benefits amounted to $79.0$115.8 million compared to $77.8$113.6 million for the sixnine months ended JuneSeptember 30, 2005. The $1.0$0.9 million decreaseincrease in the three-month comparison is primarily the result of a $3.5 million adjustmentan increase in incentive-based compensation during 2006 compared 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 $2.2 million increase in salaries and benefits for the sixnine months ended JuneSeptember 30, 2006, is primarily a result of the $2.7$2.9 million increase in personnel expense associated with the acquisition of J.W.F. Insurance Companies, severance costspartially offset by the reversal of $1.0 million relating to senior executives and mortgage employees, and a $1.2 million increase in commissions and other incentive expenses. Partially offsetting these increases was the net reduction inexpense associated with certain performance-based pay discussed above.restricted stock units.
Data processingMarketing expense totaled $4.5$2.7 million for the three months ended JuneSeptember 30, 2006, compared to $5.3$1.9 million for the three months ended JuneSeptember 30, 2005. For the sixnine months ended JuneSeptember 30, 2006, data processingmarketing expense totaled $9.1$7.6 million compared to $10.7$6.1 million for the sixnine months ended JuneSeptember 30, 2005. The decreaseincrease in data processingmarketing expense was primarily attributable to a decrease in outside mortgage servicing fees, as mortgages are currently being soldcosts associated with servicing released.the Company’s “Unbeatable Checking” advertising campaign and public relations.
All other components of noninterest expense totaled $21.5$23.3 million for the three months ended JuneSeptember 30, 2006, compared to $19.8$24.2 million for the three months ended JuneSeptember 30, 2005. For the sixnine months ended JuneSeptember 30, 2006 and 2005, all other components of noninterest expense totaled $44.0$71.7 million and $41.7$72.6 million, respectively. Included in the totals for 2005 is a $3.0$4.6 million reduction in expense associated with lowering 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.

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The provision for income taxes on continuing operations, as a percentage of pre-tax income, was 15.9%19.2% for the three months ended JuneSeptember 30, 2006, compared to 21.1%14.7% in the three months ended JuneSeptember 30, 2005. The provision for income taxes on continuing operations, as a percentage of pre-tax income, was 17.0%17.8% for the sixnine months ended JuneSeptember 30, 2006, compared to 16.7%16.0% in the sixnine 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 JuneSeptember 30, 2005. The increased effective tax rate for the six months ended June 30,in 2006 resulted from a lower percentage of tax-exempt income to total income compared to the six months ended June 30,than in 2005.
FINANCIAL CONDITION
Overview
Old National’s assets at JuneSeptember 30, 2006, were $8.306$7.920 billion, a 4.0%7.2% decrease compared to JuneSeptember 30, 2005 assets of $8.649$8.535 billion, and a decrease of 2.2%6.7% compared to December 31, 2005 assets of $8.492 billion. FederalThe lower level of earning assets and planned reduction of the investment portfolio has reduced the Company’s reliance on wholesale funding. Year over year, deposits, which have an average interest rate lower than borrowed funds, soldhave increased $3.1 million since June 30, 2005, and decreased $118.4 million since December 31, 2005. Investments decreased $58.6 million since June 30, 2005, and increased $63.2 million since December 31, 2005. Loans decreased $173.1 million since June 30, 2005, and decreased $42.0 million since December 31, 2005. Totalas a percent of interest-bearing liabilities decreased $255.1 million compared to June 30, 2005, primarily from a reduction inas long-term borrowings andhave decreased $150.3 million since December 31, 2005, primarily fromas a $260.2 million reduction inpercent of interest-bearing 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 $86.9 million from June 30, 2005, and

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decreased $35.2 million from December 31, 2005. The decrease in shareholders’ equity from June 30, 2005 to June 30, 2006 is primarily attributable to the $57.9 million in stock repurchases and fluctuations in the market value of investment securities. At June 30, 2006, accumulated other comprehensive income, of which the largest component is unrealized gains (losses) on securities, was a net loss of $44.8 million compared to a net loss of $0.5 million at June 30, 2005.liabilities.
Earning Assets
Old National’s earning assets are comprised of investment securities, loans and loans held for sale, investment securities and money market investments. Earning assets were $7.466$7.094 billion at JuneSeptember 30, 2006, a decrease of 3.4%7.9% from JuneSeptember 30, 2005, and an annualized decrease of 3.8%9.1% since December 31, 2005. Investment securities have decreased over the past 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. In the third quarter of 2006, Old National sold $273.1 million of investment securities. At JuneSeptember 30, 2006, total loans, including loans held for sale, decreased $195.8$426.3 million compared to JuneSeptember 30, 2005, and decreased $61.7$205.5 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. In the third quarter of 2006, $28.8 million of loans were sold.
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 JuneSeptember 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 JuneSeptember 30, 2006, Old National had both the intent and ability to hold the securities for a time necessary to recover the amortized cost.
At JuneSeptember 30, 2006, the investment securities portfolio was $2.580$2.276 billion compared to $2.638$2.526 billion at JuneSeptember 30, 2005, a decrease of $58.6$249.7 million or 2.2%9.9%. Investment securities increased $63.2decreased $240.6 million at JuneSeptember 30, 2006, compared to December 31, 2005, an annualized increasedecrease of 5.0%12.7%. Investment securities represented 34.6%32.1% of earning assets at JuneSeptember 30, 2006, compared to 34.1%32.8% at JuneSeptember 30, 2005, and 33.1% at December 31, 2005. In the third quarter of 2006, Old National sold $273.1 million of investment securities. 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 $73.9$32.9 million at JuneSeptember 30, 2006, an increase of $74.8$26.3 million compared to net unrealized gainslosses of $0.9$6.5 million at JuneSeptember 30, 2005, and an increasea decrease of $38.9$2.1 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 JuneSeptember 30, 2006.
The investment portfolio had an average duration of 3.483.12 years at JuneSeptember 30, 2006, compared to 3.323.31 years at JuneSeptember 30, 2005, and 3.42 years at December 31, 2005. The annualized average yields on investment securities, on a taxable equivalent basis, were 5.04%5.05% for the three months ended JuneSeptember 30, 2006, compared to 4.57%4.70% for the three months ended JuneSeptember 30, 2005, and 4.79% for the three months ended December 31, 2005. AverageThe

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annualized average yields on investment securities, on a taxable equivalent basis, were 4.99%5.01%, 4.51%4.57% and 4.62% for the sixnine months ended JuneSeptember 30, 2006 and 2005, and for the year ended December 31, 2005, respectively. Federal Home Loan Bank stock decreased $7.3 million from the December 31, 2005 balance of $49.6 million to $42.3 million at September 30, 2006. This decrease is primarily the result of the Federal Home Loan Banks’ decision to repurchase excess stock during the third quarter of 2006.
Residential Loans Held for Sale
Residential loans held for sale were $24.1$15.9 million at JuneSeptember 30, 2006, compared to $46.8$49.5 million at JuneSeptember 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. The decrease in residential loans held for sale from December 31, 2005, is primarily attributable to the bulk sale of approximately $12.1 million of loans during the first quarter of 2006, lower loan production in 2006, and the timing of 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.
LendingCommercial and Loan AdministrationConsumer Loans
Commercial and consumer loans are the largest classification within the earning assets of Old National representing 59.5% of earning assets at September 30, 2006, an increase from 59.2% at September 30, 2005, and an increase from 57.2% at December 31, 2005. At September 30, 2006, commercial and commercial real estate loans were $3.005 billion, a decrease of $258.6 million since September 30, 2005, and a decrease of $83.2 million since December 31, 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. In the third quarter of 2006, $28.8 million of commercial and commercial real estate loans were sold.
At September 30, 2006, consumer loans, including automobile loans, personal and home equity loans and lines of credit, and student loans, decreased $78.4 million or 6.0% compared to September 30, 2005, and decreased $42.5 million or, annualized, 4.5% 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 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 September 30, 2006, residential real estate loans were $492.1 million, a decrease of $55.6 million, or 10.2%, from September 30, 2005. The sale of the Clarksville, Tennessee financial centers in the fourth quarter of 2005 included $8.5 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. In addition, $14.3 million loans were transferred to residential loans held for sale during the fourth quarter of 2005.
Funding
Total funding, comprised of deposits and wholesale borrowings, was $7.158 billion at September 30, 2006, a decrease of 7.7% from $7.758 billion at September 30, 2005, and an annualized decrease of 9.8% from $7.723 billion at December 31, 2005. Included in total funding were deposits of $6.084 billion at September 30, 2006, a decrease of $289.5 million, or 4.5%, compared to September 30, 2005, and an annualized decrease of 7.9% compared to December 31, 2005. The decrease in deposits is 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.
Old National has implemented certain credit approval disciplines in orderuses wholesale funding to continueaugment deposit funding and to focus on the reduction of problemhelp maintain its desired interest rate risk position. At September 30, 2006, wholesale borrowings, including short-term borrowings and non-performing loans in the portfolio, including a restructuring of the manner in which commercialother borrowings, decreased 22.5% from September 30, 2005 and decreased 19.5%, annualized, from December 31, 2005,

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loansrespectively. Wholesale borrowings as a percentage of total funding was 15.0% at September 30, 2006, compared to 17.9% at September 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 and 2006 has reduced the Company’s reliance on wholesale funding since 2005.
Capital
Shareholders’ equity totaled $642.8 million at September 30, 2006, compared to $669.1 million at September 30, 2005, and $649.9 million at December 31, 2005.
Old National paid cash dividends of $0.21 and $0.63 per share for the three and nine months ended September 30, 2006, which decreased equity by $41.8 million, compared to cash dividends of $0.19 and $0.57 per share for the three and nine months ended September 30, 2005, which decreased equity by $38.9 million. Old National purchased shares of its stock in the open market under an ongoing repurchase program, reducing shareholders’ equity by $29.4 million during the nine months ended September 30, 2006, compared to $54.9 million during the nine months ended September 30, 2005. The change in unrealized losses on investment securities increased equity by $1.3 million during the nine months ended September 30, 2006, and decreased equity by $8.8 million during the nine months ended September 30, 2005. Shares issued for stock options, restricted stock and stock purchase plans increased shareholders’ equity by $1.0 million during the nine months ended September 30, 2006, compared to $4.9 million during the nine months ended September 30, 2005. Additionally, stock issued for acquisitions increased shareholders’ equity by $18.5 million in the nine months ended September 30, 2005.
Capital Adequacy
Old National and the banking industry are analyzedsubject 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       
  Guidelines  September 30,  December 31, 
  Minimum  2006  2005  2005 
 
Risk-based capital:
                
Tier 1 capital to total avg assets (leverage ratio)  4.00%  7.92%  7.57%  7.67%
Tier 1 capital to risk-adjusted total assets  4.00   11.01   10.36   10.64 
Total capital to risk-adjusted total assets  8.00   14.89   14.05   14.40 
Shareholders’ equity to assets  N/A   8.12   7.84   7.65 
 
RISK MANAGEMENT
Overview
Old National management, with the oversight of the Board of Directors, has in place company-wide structures, processes, and approved. controls for managing and mitigating risk. The following discussion addresses the three major risks facing Old National: credit, market, and liquidity.
Credit Risk
Credit risk represents the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms. Old National’s primary credit risk results from the Company’s lending activities.
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 JuneSeptember 30, 2006, the Company had no concentration of loans in any single industry exceeding

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10% of its total loan portfolio and had no exposure to foreign borrowers or lesser-developed countries. FourThree measured industry categories, Lessors of Residential Buildings and Dwellings, Lessors of Nonresidential Buildings and 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. Management expects that trends in under-performing, criticized and classified loans will be influenced by the degree to which the economy strengthens.
CommercialSummary of under-performing , criticized and Consumer Loans
classified loans:
Commercial and consumer loans are
             
  September 30,  December 31, 
(dollars in thousands) 2006  2005  2005 
 
Nonaccrual loans $44,868  $58,820  $55,589 
Renegotiated loans  74   —   — 
Past due loans (90 days or more and still accruing)  3,081   1,919   1,835 
Foreclosed properties  4,042   3,406   3,605 
 
Total under-performing assets $52,065  $64,145  $61,029 
 
Classified loans (includes nonaccrual, renegotiated, past due 90 days and other problem loans) $127,795  $145,884  $136,597 
Criticized loans  119,186   102,855   83,213 
 
Total criticized and classified loans $246,981  $248,739  $219,810 
 
Asset Quality Ratios: (1)            
Non-performing loans/total loans (1) (2)  0.95%  1.14%  1.13%
Under-performing assets/total loans and foreclosed properties (1)  1.10   1.24   1.24 
Under-performing assets/total assets  0.66   0.75   0.72 
Allowance for loan losses/under-performing assets  137.58   126.83   129.20 
 
(1)Loans include residential loans held for sale.
(2)Non-performing loans include nonaccrual and renegotiated loans.
Loan charge-offs, net of recoveries, totaled $4.7 million for the largest classification within the earning assets of Old National representing 58.3% of earning assets at Junethree months ended September 30, 2006, an increase from 57.9% at June 30, 2005, and an increase from 57.2% at December 31, 2005. At June 30, 2006, commercial and commercial real estate loans were $3.103 billion, a decrease of $139.8$0.6 million since Junefrom the three months ended September 30, 2005, and an increase of $14.8 million since December 31, 2005. InNet charge-offs for 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 Junenine months ended September 30, 2006, consumer loans, including automobile loans, personal and home equity loans and lines of credit, and student loans, increased $17.7totaled $14.2 million or 1.4% compared to June$21.5 million for the nine months ended September 30, 2005,2005. Annualized, net charge-offs to average loans were 0.39% for both the three and decreased $12.9 million or, annualized, 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 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 Junenine months ended September 30, 2006, residential real estate loans were $500.0as compared to 0.41% and 0.57% for the three and nine months ended September 30, 2005.
Under-performing assets totaled $52.1 million at September 30, 2006, a decrease of $51.1 million, or 9.3%, from June 30, 2005. The sale of the Clarksville, Tennessee financial centers in the fourth quarter of 2005 included $8.5 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.
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 June 30, 2006, the allowance for loan losses was $76.4 million, a decrease of $4.2$12.0 million compared to $80.6$64.1 million at JuneSeptember 30, 2005, and a decrease of $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 June 30, 2005, and decreased from 1.60% at December 31, 2005. For the three months ended June 30, 2006, the provision for loan losses amounted to $3.5 million, a decrease of $2.5 million from the three months ended 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 six 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 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. The allowance for unfunded loan commitments was unchanged during the first six months of 2006.
Charge-offs, net of recoveries, totaled $4.0 million for the three months ended June 30, 2006, a decrease of $7.7 million from the three months ended 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 0.33% and 0.39% for the three and six months ended June 30, 2006, as compared to 0.93% and 0.65% for the three and six months ended June 30, 2005.
Under-performing assets totaled $56.1 million at June 30, 2006, an increase of $0.3 million compared to $55.8 million at June 30, 2005, and a decrease of $4.9$8.9 million compared to $61.0 million at December 31, 2005. As a percent of total loans and foreclosed properties, under-performing assets at JuneSeptember 30, 2006, were 1.15%1.10%, an increasea decrease from the JuneSeptember 30, 2005 ratio of 1.10%1.24% and a reduction from the December 31, 2005 ratio of 1.24%. Nonaccrual loans were $51.7$44.9 million at JuneSeptember 30, 2006, compared to $49.0$58.8 million at JuneSeptember 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 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 $202.7$247.0 million at JuneSeptember 30, 2006, a decrease of $62.0$1.8 million from JuneSeptember 30, 2005, and a increase of $27.2 million from December 31, 2005.
Allowance for Loan Losses and Reserve for Unfunded Commitments
The Company maintains an allowance which provides for the risk of credit losses inherent in the credit extension process. The allowance is increased and decreased through the provisioning process. At September 30, 2006, the allowance for loan losses was $71.6 million, a decrease of $9.8 million compared to $81.4 million at September 30, 2005, and a decrease of $17.1$7.2 million fromcompared to $78.8 million at December 31, 2005.
Management believes it has taken As a prudent approachpercentage of total loans, including loans held for sale, the allowance decreased to 1.51% at September 30, 2006, from 1.58% at

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September 30, 2005, and decreased from 1.60% at December 31, 2005. For the evaluationthree months ended September 30, 2006, no provision for loan losses was recorded, a decrease of under-performing, criticized and classified$6.0 million from the three months ended September 30, 2005. The provision for the nine months ended September 30, 2006, amounted to $7.0 million compared to $17.1 million for the nine months ended September 30, 2005. Reductions in nonperforming loans during 2005 and the loan portfoliofirst nine months of 2006 were significant factors in general both in acknowledging the portfolio’s general condition and in establishingdecrease of the allowance for loan losses. Another factor was the bulk sale of $20.4 million of nonaccrual and substandard commercial and commercial real estate loans during the third quarter of 2006.
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. The allowance for unfunded loan commitments was unchanged during the first nine months of 2006.
Market Risk
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 been affected by weaknessexposure 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 economyslope of its markets, which has resulted in minimal growththe yield curve and the pace of commercial loansinterest rate changes may also impact net interest income and tighterthe 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 underwriting standards. Management expects that trends in under-performing, criticizedrisk, liquidity risk and classified loans will be influencedcapitalization. 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 degreeBoard of Directors. The Board of Directors has delegated the administration of this policy to which the economy strengthens. 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 operatesuses 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 Midwest, primarilyCompany’s economic value due to changes in interest rates under various possible interest rate scenarios. Because the statemodels 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 Indiana, which has been particularly negatively affected by the weakness in the manufacturing segmentactual results. For this reason, Old National models many different combinations 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 loansinterest rates and loan losses.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 September 30, 2006 and 2005 results, are as follows:
Net Interest Income — 12 Month Policies (+/-)
                         
Interest Rate Change in Basis Points (bp)
  Down 300 Down 200 Down 100 Up 100 Up 200 Up 300
Green Zone  12.00%   6.50%  3.00%  3.00%  6.50%  12.00%
Yellow Zone  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  15.00%   8.50%  4.00%  4.00%  8.50%  15.00%
                    
9/30/2006  -3.09%   -0.25%  0.59%  -1.50%  -3.33%  -5.48%
9/30/2005  n/a   1.45%  1.55%  -2.70%  -6.41%  -10.28%
Net Interest Income — 24 Month Cumulative Policies (+/-)
                         
Interest Rate Change in Basis Points (bp)
  Down 300 Down 200 Down 100 Up 100 Up 200 Up 300
Green Zone  10.00%  5.00%  2.25%  2.25%  5.00%  10.00%
Yellow Zone  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  12.50%  7.00%  3.25%  3.25%  7.00%  12.50%
                   
9/30/2006  -5.69%  -1.72%  0.08%  -1.21%  -3.01%  -5.14%
9/30/2005  n/a  -0.79%  0.76%  -2.21%  -5.75%  -9.66%
Economic Value of Equity Policies (+/-)
                         
Interest Rate Change in Basis Points (bp)
  Down 300 Down 200 Down 100 Up 100 Up 200 Up 300
Green Zone  22.00%  12.00%  5.00%  5.00%  12.00%  22.00%
Yellow Zone  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  30.00%  17.00%  7.50%  7.50%  17.00%  30.00%
                   
9/30/2006  -24.37%  -11.78%  -3.54%  -0.29%  -2.47%  -5.20%
9/30/2005  n/a  -15.19%  -4.60%  0.20%  -2.17%  -5.27%
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 September 30, 2006, modeling indicated Old National was within the green zone policy limits for all Net Interest Income at Risk Scenarios. Old National’s green zone is considered the normal and acceptable interest rate risk level.
At September 30, 2006, modeling indicated Old National was within the yellow zone for the down 300bp Economic Value of Equity Scenario. Management will continue to closely monitor this scenario. All other Economic Value of Equity Scenarios fell within the green zone, which is considered a normal and acceptable interest rate risk level.
Old National uses derivatives, primarily interest rate swaps, as one method to manage interest rate risk in the ordinary course of business. The table below showsCompany’s derivatives had an estimated fair value loss of $22.8 million at September 30, 2006, compared to an estimated fair value loss of $31.3 million at December 31, 2005. The improvement is related to decreases in medium and long-term interest rates and the various componentsresulting increase in market value of under-performing assets:the receive fixed interest rate swaps. In addition, the notional amount of derivatives decreased by $3.2 million. See Note 16 to the consolidated financial statements for additional information.

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Liquidity Risk
             
  June 30,  December 31, 
(dollars in thousands) 2006  2005  2005 
 
Nonaccrual loans $51,725  $48,996  $ 55,589 
Renegotiated loans  96   —   — 
Past due loans (90 days or more and still accruing)  1,335   2,421   1,835 
Foreclosed properties  2,907   4,341   3,605 
 
Total under-performing assets $56,063  $55,758  $ 61,029 
 
Classified loans (includes nonaccrual, renegotiated, past due 90 days and other problem loans) $137,899  $158,620  $ 136,597 
Criticized loans  64,843   106,149   83,213 
 
Total criticized and classified loans $202,742  $264,769  $ 219,810 
 
Asset Quality Ratios: (1)            
Non-performing loans/total loans (1) (2)  1.06%  0.97%  1.13%
Under-performing assets/total loans and foreclosed properties (1)  1.15   1.10   1.24 
Under-performing assets/total assets  0.67   0.64   0.72 
Allowance for loan losses/under-performing assets  136.20   144.63   129.20 
 
Liquidity risk arises from the possibility the Company may not be able to satisfy current or future financial commitments, or may become unduly reliant on alternative funding sources. 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. Standard and Poor’s, Moody’s Investor Services and Dominion Bond Rating Services have each issued a stable outlook in conjunction with their ratings as of September 30, 2006. Fitch Rating Services issued a negative outlook in conjunction with their ratings as of September 30, 2006. The senior debt ratings of Old National Bancorp and Old National Bank at September 30, 2006, are shown in the following table:
SENIOR DEBT RATINGS
Standard and Poor’sMoody’s Investor ServicesFitch, Inc.Dominion Bond Rating Svc.
LongShortLongShortLongShortLongShort
termtermtermtermtermtermtermterm
Old National BancorpBBBA2Baa1N/ABBBF2BBB (high)R-2 (high)
Old National BankBBB+A2A3P-2BBB+F2A (low)R-1 (low)
 
(1)Loans include residential loans held for sale.
(2)Non-performing loans include nonaccrual and renegotiated loans.N/A = not applicable
Goodwill and Other Intangible Assets
Goodwill and other intangible assets at JuneAs of September 30, 2006, totaled $135.2 million, a decrease of $2.3 million compared to $137.5 million at June 30, 2005, and a decrease of $1.1 million compared to $136.3 million at December 31, 2005. The decreases are primarily attributable to normal amortization expense.
Funding
Total funding, comprised of deposits and wholesale borrowings, was $7.563 billion at June 30, 2006, a decrease of 3.5% from $7.839 billion at June 30, 2005, and an annualized decrease of 4.2% from $7.723 billion at December 31, 2005. Included in total funding were deposits of $6.205 billion at June 30, 2006, a decrease of $118.7 million, or 1.9%, compared to June 30, 2005, and an annualized decrease of 8.0% compared to December 31, 2005. The decrease in deposits is 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.
Old National uses wholesale fundingBank had the capacity to augment deposit funding and to help maintain its desired interest rate risk position. At June 30, 2006, wholesale borrowings, including short-term borrowings and other borrowings, decreased 10.4%borrow $781.4 million from June 30, 2005 and increased 15.8%, annualized, from December 31, 2005, respectively. As other borrowings have decreased in 2006, primarily due to the maturingFederal Reserve Bank’s discount window. Old National Bank is also a member of the Federal Home Loan Bank advances(“FHLB”) of Indianapolis, which provides a source of funding through FHLB advances. Old National maintains relationships in capital markets with brokers and seniordealers to issue certificates of deposits and short-term and medium-term bank notes federal funds purchased have increased. Wholesale borrowings as a percentage of total funding was 17.9%well. In addition, at JuneSeptember 30, 2006, compared to 19.3% at June 30, 2005,Old National had $660 million available for issuance under a $1 billion global bank note program for senior 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 since 2005.
Capital Resources and Regulatory Guidelines
Shareholders’ equity totaled $614.7 million at June 30, 2006, compared to $701.6 million at June 30, 2005, and $649.9 million at December 31, 2005.subordinated debt.
Old National paidBancorp, 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 $0.21 and $0.42 per sharedebt securities. In addition, at September 30, 2006, Old National Bancorp has $700 million available under a $750.0 million global shelf registration for the threeissuance of a variety of securities including debt, common and six months ended Junepreferred stock, depository shares, units and warrants of Old National. At September 30, 2006, which decreased equity by $27.9the parent company’s other borrowings outstanding was $253.7 million, compared to cash dividends of $0.19 and $0.38 per share for the three and six months ended Junewith $255.0 million at September 30, 2005. The $1.3 million decrease in other borrowings from September 30, 2005 which decreased equity by $26.0 million.to September 30, 2006 was primarily attributable to the restatement in 2005 resulting in the elimination of fair value adjustments on the junior subordinated debt and a decline in derivative market values. Old National purchased sharesBancorp, the parent company, has $5.0 million of its stock indebt scheduled to mature within the open market under an ongoing repurchase program, reducing shareholders’ equitynext 12 months.
Federal banking laws regulate the amount of dividends that may be paid by $27.0 million during the six months ended Junebanking subsidiaries without prior approval. At September 30, 2006, and $33.0 million during the six months ended June 30, 2005. Between June 30, 2005 and December 31, 2005,prior regulatory approval was not required for Old National reduced shareholders’ equity by purchasing $30.9 million of itsNational’s affiliate bank.

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stock in the open market. The change in unrealized losses on investment securities decreased equity by $23.3 million during the six months ended June 30, 2006, and decreased equity by $5.0 million during the six months ended June 30, 2005. Shares issued for stock options, restricted stock and stock purchase plans increased shareholders’ equity by $1.9 million during the six months ended June 30, 2006, compared to $3.0 million during the six months ended 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       
  Guidelines  June 30,  December 31, 
  Minimum  2006  2005  2005 
 
Risk-based capital:
                
Tier 1 capital to total avg assets (leverage ratio)  4.00%  7.65%  7.23%  7.67%
Tier 1 capital to risk-adjusted total assets  4.00   10.36   10.08   10.64 
Total capital to risk-adjusted total assets  8.00   14.10   13.79   14.40 
Shareholders’ equity to assets  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 JuneSeptember 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; (6) governmental legislation and regulation, including changes in accounting regulation or standards; (7) the ability of Old National to execute its

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business plan; (8) a weakening of the economy which could materially impact credit quality trends and the ability to generate loans; (9) changes in the securities markets; and (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 sensitivitySee Management’s Discussion and Analysis of income, fair market valuesFinancial Condition 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 slopeResults 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 atOperations-Market 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.Liquidity Risk.

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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 June 30, 2006 and 2005 results, are as follows:
Net Interest Income — 12 Month Policies (+/-)
             
    Interest Rate Change in Basis Points (bp)
  Down 300 Down 200 Down 100 Up 100 Up 200 Up 300
Green Zone 12.00% 6.50% 3.00% 3.00% 6.50% 12.00%
Yellow Zone 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 15.00% 8.50% 4.00% 4.00% 8.50% 15.00%
 
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)
  Down 300 Down 200 Down 100 Up 100 Up 200 Up 300
Green Zone 10.00% 5.00% 2.25% 2.25% 5.00% 10.00%
Yellow Zone 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 12.50% 7.00% 3.25% 3.25% 7.00% 12.50%
 
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)
  Down 300 Down 200 Down 100 Up 100 Up 200 Up 300
Green Zone 22.00% 12.00% 5.00% 5.00% 12.00% 22.00%
Yellow Zone 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 30.00% 17.00% 7.50% 7.50% 17.00% 30.00%
 
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 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 and Up 200 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 June 30, 2006, modeling indicated Old National was within the green zone policy limit for all Economic Value of Equity Scenarios.
At 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 –21.44% at June 30, 2005, to –5.32% at June 30, 2006. The 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 accounts.

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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 $38.1 million at June 30, 2006, compared to an estimated fair value loss of $31.3 million at December 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. In addition, the notional amount of derivatives decreased by $19.9 million. See Note 16 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 June 30, 2006. The senior debt ratings of Old National Bancorp and Old National Bank at June 30, 2006, are shown in the following table:
SENIOR DEBT RATINGS
Standard and Poor’sMoody’s Investor ServicesFitch, Inc.Dominion Bond Rating Svc.
LongShortLongShortLongShortLongShort
termtermtermtermtermtermtermterm
Old National BancorpBBB   A2Baa1N/ABBB  F2BBB (high)R-2 (high)
Old National BankBBB+A2A3P-2BBB+F2A (low)R-1 (low)
N/A = not applicable
As of June 30, 2006, Old National Bank had the capacity to borrow $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 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 June 30, 2006, Old National Bancorp has $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 June 30, 2006, the parent company’s other borrowings outstanding was $250.6 million, compared with $256.6 million at 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 2005 resulting in the elimination of fair value adjustments on the junior subordinated debt and a 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 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. 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. 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

32

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. 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
NONENONE.
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 
 
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 
 
                 
          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 
07/01/06 - 07/31/06  93,500  $19.21   93,500   4,588,421 
08/01/06 - 08/31/06  33,600   19.05   33,600   4,554,821 
09/01/06 - 09/30/06  —   —   —   4,554,821 
 
Quarter-to-date 09/30/06  127,100  $19.17   127,100   4,554,821 
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the April 27, 2006, Annual Meeting of Shareholders, the following matters were submitted to a vote of the shareholders:NONE
(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
2.1Agreement and Plan of Merger dated as of October 21, 2006 by and among Old National Bancorp, St. Joseph Capital Corporation and SMS Subsidiary, Inc. (incorporated by reference to Exhibit 2.1 of Old National’s Current Report on Form 8-K filed with the Securities Exchange Commission on October 23, 2006).
2.2Voting Agreement dated as of October 21, 2006, between Old National Bancorp and certain directors of St. Joseph Capital Corporation identified therein. (incorporated by reference to Exhibit 2.2 of Old National’s Current Report on Form 8-K filed with the Securities Exchange Commission on October 23, 2006).
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 July 27, 2006 (incorporated by reference to Exhibit 3.1 of Old National’s Current Report on Form 8-K filed with the Securities Exchange Commission on July 31, 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).
   
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).*

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Exhibit No.Description
 
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).*

35

   
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).*
   
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.(incorporated by reference to Exhibit 10.12 of Old National’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006).*
   
10.13 Form 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 Securities and Exchange Commission on January 4, 2005).*
   
10.14 Old National Bancorp 1999 Equity Incentive Plan (incorporated by reference to Old National’s Form S-8 filed on July 20, 2001).*
   
10.15 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).*
   
10.16 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).*
   
10.17 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). *
   
10.18 Form of Executive Stock Option Award Agreement between Old National and certain key associates (incorporated

35

Exhibit No.Description
(incorporated by reference to Exhibit 10(h) of Old National’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004).*
   
10.19 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).
   
10.20 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

   
Exhibit 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).*
   
10.22 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
Duly Authorized Officer and Principal Financial Officer  
     
  Date: August 4,November 8, 2006  

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