DBRS Confirms Ratings of Old National Bancorp & Related Entities – Senior at BBB (high)

DBRS has today confirmed the ratings of Old National Bancorp (ONB or the Company) and its rated subsidiaries as indicated below. The rating action follows a review by DBRS of ONB’s operating results and financial fundamentals. The trend for all ratings remains Stable.

The DBRS ratings action takes into account ONB’s less robust stand-alone bank holding company (BHC) risk profile. At about 126%, double-leverage is high, while the Company’s unencumbered liquidity covers less than one year’s operating expenses, shareholder dividends and debt service obligations. DBRS notes that with $105 million of medium-term notes maturing through June 2008, ONB will be required to upstream dividends from its regulated operating bank subsidiary as well as issue debt in order to meet this obligation. ONB received regulatory approval to declare a dividend of up to $76 million in Q1 2007 to fund the purchase of St. Joseph Capital Corporation, which closed February 1, 2007. ONB obtained regulatory approval to upstream dividends during the first three quarters of 2007 and will likely require regulatory approval to upstream dividends to the holding company for the foreseeable future. Should the bank be unable to upstream dividends, the bank holding company would be constrained in its ability to cover its operating, debt and dividend payments. ONB’s inability to repair its BHC liquidity position through the short-term may likely result in negative rating pressure.

For the first nine months of 2007, ONB produced satisfactory operating results in a challenging environment. Net income fell by 14%, pressured by non-core expenses, including a loss on the sale of securities, a loss on the extinguishment of debt and impairment charges on buildings related to the consolidation of financial centers. Partially offsetting, the Company had lower loan-loss provisions due to a decline in criticized and classified loans. At the same time, ONB continued its strategy of building out its franchise with the acquisition of St. Joseph Capital Corporation, which boosted its market presence and business potential in the South Bend area of Indiana.

ONB’s profitability indicators for the first nine months of 2007 – ROA and ROE – were down slightly from the comparable period in 2006. However, the first three months of 2007 included charges related to the consolidation of branches and other balance sheet restructuring charges as mentioned previously. Net interest margin (NIM), however, widened by two basis points, due mostly to the recovery of $2.6 million in interest related to two commercial real estate loans. DBRS notes that the Company’s securities portfolio, relatively the largest in its rating range at 29% of assets, lowers ONB’s NIM and other profitability metrics. At the same time, however, the securities portfolio contributes to ONB’s strong liquidity profile at the bank level, and lowers its overall risk profile. Although ONB’s earnings performance measures continue to lag the peer median of similarly rated banks, these results were in line with DBRS expectations based on ONB’s aggregate risk profile.

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 sound asset quality, prevent further weakening of its holding company fundamentals 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 and solid deposit market shares in several of its markets.

Old National Bancorp, a bank holding company headquartered in Evansville, Indiana reported $7.8 billion in assets at September 30, 2007.

Note:
All figures are in U.S. dollars unless otherwise noted.