DBRS Confirms Old National Bancorp at BBB (high); Old National Bank at A (low); Trend Remains Stable

Dominion Bond Rating Service (DBRS) has today confirmed the ratings of Old National Bancorp (ONB or the Company) and its rated subsidiaries as indicated in the table below. The rating action followed a review by DBRS of ONB’s strategic initiatives, operating results and financial fundamentals. The trend for all ratings remains Stable.

For the first nine months in 2006, ONB produced satisfactory operating results in a challenging environment, further strengthened asset quality and improved profitability. At the same time, ONB continued its strategy of building out its franchise with the pending acquisition of St. Joseph Capital Corporation (expected to close in Q1 2007), which will boost its market presence and business potential in the South Bend area of Indiana.

Lower loan loss provisions, reflecting improvements in credit quality, more than offset lower net interest income from slightly smaller average loan and securities portfolios to produce a modest increase in earnings relative to the same three-quarter period in 2005. Profitability indicators – return on assets, net interest margin and return on equity – all improved over the same period in the prior year from better loan pricing and good expense control, which effectively neutralized higher funding costs. These results were in line with DBRS’s expectations based on the Company’s prevailing ratings.

The ratings and Stable trend are based on the expectation that ONB will continue to produce satisfactory operating results commensurate with its rating range, sustain strong asset quality and continue strengthening its branch network and product mix through prudent organic growth and acquisitions. The ratings also take into account ONB’s well-entrenched Midwestern community banking franchise, solid deposit market shares in several of its markets and materially improved asset quality.

The loan portfolio is sufficiently diversified among various types of commercial and consumer loans, and it lacks material risk concentrations. Moreover, loan granularity has substantially improved from a concerted effort to lower large relationship exposures. Fees and commissions arising from a diverse product range have steadily grown over the past four years to over 40% for the first nine months in 2006, and contribute to a stable core earnings base.

A large and stable core deposit base that accounts for over 100% of loans (at September 30, 2006) together with a high-quality securities portfolio provides the Company with sufficient liquidity. Capital adequacy ratios are good, and generally in line with those of banks similarly rated by DBRS.

The holding company’s standalone risk profile is relatively weak. At about 124% (H1 2006), double-leverage is moderately high. Compounding the issue is that unencumbered liquidity covers less than one year’s operating expenses and debt service obligations without relying on dividends from the regulated operating bank subsidiary.

Old National Bancorp, a bank holding company headquartered in Evansville, Indiana, reported $7.9 billion in assets at September 30, 2006.

Notes:
The Trust Preferred Securities contain certain unique covenants that give them some equity-like characteristics.
All figures are in U.S. dollars unless otherwise noted.