Edgar Filing: OLD NATIONAL BANCORP /IN/

Filed by Bowne Pure Compliance

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 June 30, 2007


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 (State or other jurisdiction of incorporation or organization)		35-1539838 (I.R.S. Employer Identification No.)

1 Main Street Evansville, Indiana (Address of principal executive offices)		47708 (Zip Code)

(812) 464-1294
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for at least the past 90 days. Yes þ No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act.


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock. The Registrant has one class of common stock (no par value) with 66,198,000 shares outstanding at July 31, 2007.

OLD NATIONAL BANCORP

FORM 10-Q

INDEX


PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	Page No.

	Consolidated Balance Sheet
	June 30, 2007 (unaudited), December 31, 2006 and June 30, 2006 (unaudited)		3

	Consolidated Statement of Income
	Three and six months ended June 30, 2007 and 2006 (unaudited)		4

	Consolidated Statement of Changes in Shareholders’ Equity
	Six months ended June 30, 2007 and 2006 (unaudited)		5

	Consolidated Statement of Cash Flows
	Six months ended June 30, 2007 and 2006 (unaudited)		6

	Notes to Consolidated Financial Statements (unaudited)		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		32

Item 4.	Controls and Procedures		32

PART II	OTHER INFORMATION		33

SIGNATURES			38

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

OLD NATIONAL BANCORP
CONSOLIDATED BALANCE SHEET


	June 30,			December 31,			June 30,
(dollars and shares in thousands, except per share data)	2007			2006			2006
	(unaudited)						(unaudited)
Assets
Cash and due from banks	$	201,629		$	210,303		$	186,496
Federal funds sold and resell agreements		5,098			283,524			5,556
Money market investments		3,217			4,078			4,874

Total cash and cash equivalents		209,944			497,905			196,926
Investment securities — available-for-sale, at fair value
U.S. Government-sponsored agencies		637,234			680,149			652,203
Mortgage-backed securities		996,812			1,020,178			1,073,435
States and political subdivisions		263,226			273,325			459,559
Other securities		193,329			201,511			193,530

Investment securities — available-for-sale		2,090,601			2,175,163			2,378,727
Investment securities — held-to-maturity, at amortized cost (fair value $136,516, $157,720 and $142,924 respectively)		143,341			162,138			151,864
Federal Home Loan Bank stock, at cost		41,170			38,809			49,051
Residential loans held for sale		19,599			16,634			24,083
Loans:
Commercial		1,717,162			1,629,885			1,634,471
Commercial real estate		1,379,391			1,386,367			1,468,478
Residential real estate		545,275			484,896			500,002
Consumer credit, net of unearned income		1,211,694			1,198,855			1,248,898

Total loans		4,853,522			4,700,003			4,851,849
Allowance for loan losses		(67,487	)		(67,790	)		(76,357	)

Net loans		4,786,035			4,632,213			4,775,492

Premises and equipment, net		44,772			122,865			193,301
Accrued interest receivable		50,408			53,344			52,979
Goodwill		159,198			113,350			113,350
Other intangible assets		33,586			20,813			21,838
Company owned life insurance		210,518			198,038			196,054
Assets held for sale		76,305			—			—
Other assets		122,265			118,243			152,832

Total assets	$	7,987,742		$	8,149,515		$	8,306,497

Liabilities
Deposits:
Noninterest-bearing demand	$	861,411		$	877,870		$	833,222
Interest-bearing:
NOW		1,591,122			1,449,202			1,440,662
Savings		605,939			437,702			427,656
Money market		746,845			925,296			884,258
Time		2,407,311			2,631,424			2,619,641

Total deposits		6,212,628			6,321,494			6,205,439
Short-term borrowings		442,974			312,911			591,375
Other borrowings		591,489			747,545			765,868
Accrued expenses and other liabilities		115,069			125,196			129,151

Total liabilities		7,362,160			7,507,146			7,691,833

Shareholders’ Equity
Preferred stock, 2,000 shares authorized, no shares issued or outstanding		—			—			—
Common stock, $1 stated value, 150,000 shares authorized, 66,194, 66,503 and 66,535 shares issued and outstanding, respectively		66,194			66,503			66,535
Capital surplus		562,940			565,106			567,902
Retained earnings		33,812			35,873			24,995
Accumulated other comprehensive loss, net of tax		(37,364	)		(25,113	)		(44,768	)

Total shareholders’ equity		625,582			642,369			614,664

Total liabilities and shareholders’ equity	$	7,987,742		$	8,149,515		$	8,306,497

The accompanying notes to consolidated financial statements are an integral part of these statements.

OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF INCOME (unaudited)


	Three Months Ended					Six Months Ended
	June 30,					June 30,
(dollars in thousands, except per share data)	2007			2006		2007			2006
Interest Income
Loans including fees:
Taxable	$	82,831		$	78,446	$	162,494		$	154,049
Nontaxable		5,364			4,852		10,616			9,445
Investment securities, available-for-sale:
Taxable		22,415			22,989		45,537			44,238
Nontaxable		3,033			5,385		6,136			10,846
Investment securities, held-to-maturity, taxable		1,698			1,702		3,529			3,489
Money market investments		2,577			337		5,918			1,243

Total interest income		117,918			113,711		234,230			223,310

Interest Expense
Deposits		49,803			41,104		100,124			81,054
Short-term borrowings		3,768			5,532		7,564			7,925
Other borrowings		10,006			12,677		20,399			25,594

Total interest expense		63,577			59,313		128,087			114,573

Net interest income		54,341			54,398		106,143			108,737
Provision for loan losses		—			3,500		2,445			7,000

Net interest income after provision for loan losses		54,341			50,898		103,698			101,737

Noninterest Income
Wealth management fees		4,821			4,970		9,713			10,149
Service charges on deposit accounts		11,236			10,689		21,469			20,592
ATM fees		3,540			3,017		6,716			5,863
Mortgage banking revenue		1,134			582		2,090			1,790
Insurance premiums and commissions		10,154			9,480		20,793			20,444
Investment product fees		2,754			2,025		5,610			4,282
Company-owned life insurance		2,386			2,258		4,765			4,482
Net securities gains (losses)		(24	)		55		(2,691	)		(92	)
Gain (loss) on derivatives		(206	)		405		(192	)		2,020
Gain on branch divestiture		—			—		—			3,036
Loss on extinguishment of debt		—			—		(1,234	)		—
Other income		2,944			3,326		5,223			7,110

Total noninterest income		38,739			36,807		72,262			79,676

Noninterest Expense
Salaries and employee benefits		41,548			37,706		82,896			79,028
Occupancy		5,529			4,898		11,889			10,112
Equipment		2,841			3,246		5,897			6,624
Marketing		2,204			2,537		4,553			4,834
Data processing		4,827			4,511		9,881			9,116
Communication		2,349			2,382		4,732			4,699
Professional fees		1,852			1,869		3,808			3,836
Loan expense		1,857			1,534		3,044			2,884
Supplies		762			856		1,789			1,698
Other losses		76			83		2,496			696
Other expense		4,589			4,068		9,248			8,650

Total noninterest expense		68,434			63,690		140,233			132,177

Income before income taxes		24,646			24,015		35,727			49,236
Income tax expense		5,095			3,828		5,386			8,380

Net income	$	19,551		$	20,187	$	30,341		$	40,856

Net income per common share
Basic net income per share	$	0.30		$	0.30	$	0.46		$	0.61
Diluted net income per share		0.30			0.30		0.46			0.61

Weighted average number of common shares outstanding
Basic		65,723			66,283		65,764			66,648
Diluted		65,804			66,353		65,836			66,719

Dividends per common share	$	0.22		$	0.21	$	0.44		$	0.42

The accompanying notes to consolidated financial statements are an integral part of these statements.

OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)


													Accumulated
													Other			Total
	Common Stock						Capital			Retained			Comprehensive			Shareholders'			Comprehensive
(dollars and shares in thousands)	Shares			Amount			Surplus			Earnings			Income (Loss)			Equity			Income
Balance, December 31, 2005		67,649		$	67,649		$	591,930		$	12,074		$	(21,755	)	$	649,898
Net income		—			—			—			40,856			—			40,856		$	40,856
Unrealized net securities losses, net of $(15,704) tax		—			—			—			—			(23,259	)		(23,259	)		(23,259	)
Reclassification adjustment for securities losses included in net income, net of $40 tax		—			—			—			—			52			52			52
Reclassification adjustment on cash flow hedges, net of $125 tax		—			—			—			—			194			194			194
Adjustment to stock issued for prior acquisitions		(1	)		(1	)		(15	)		—			—			(16	)
Cash dividends		—			—			—			(27,935	)		—			(27,935	)
Stock repurchased		(1,320	)		(1,320	)		(25,695	)		—			—			(27,015	)
Exercise of stock options, including tax benefits		36			36			655									691
Stock based compensation expense		(23	)		(23	)		1,170									1,147
Stock issued under restricted stock and stock compensation plans		194			194			(143	)		—			—			51

Balance, June 30, 2006		66,535		$	66,535		$	567,902		$	24,995		$	(44,768	)	$	614,664		$	17,843


Balance, December 31, 2006		66,503		$	66,503		$	565,106		$	35,873		$	(25,113	)	$	642,369
Net income		—			—			—			30,341			—			30,341		$	30,341
Unrealized net securities losses, net of $(9,789) tax		—			—			—			—			(15,362	)		(15,362	)		(15,362	)
Reclassification adjustment for securities losses included in net income, net of $1,047 tax		—			—			—			—			1,644			1,644			1,644
Net unrealized derivative gains on cash flow hedges, net of $0 tax		—			—			—			—			—			—
Reclassification adjustment on cash flow hedges, net of $138 tax		—			—			—			—			213			213			213
Amortization of additional pension liability recognized under FAS 158, net of $837 tax		—			—			—			—			1,254			1,254			1,254
Adjustment to initially apply FASB interpretation No. 48		—			—			—			(3,368	)		—			(3,368	)
Adjustment for adoption of EITF No. 06-5		—			—			—			(118	)		—			(118	)
Cash dividends		—			—			—			(28,916	)		—			(28,916	)
Stock repurchased		(228	)		(228	)		(3,850	)		—			—			(4,078	)
Exercise of stock options, including tax benefits		7			7			68									75
Stock based compensation expense		—			—			924									924
Stock issued (forfeited) under restricted stock and stock compensation plans		(88	)		(88	)		140			—			—			52
Adjustment for St. Joseph
Capital Corp. stock options		—			—			552			—			—			552

Balance, June 30, 2007		66,194		$	66,194		$	562,940		$	33,812		$	(37,364	)	$	625,582		$	18,090

The accompanying notes to consolidated financial statements are an integral part of these statements.

OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)


	Six Months Ended
	June 30,
(dollars in thousands)	2007			2006
Cash Flows From Operating Activities
Net income	$	30,341		$	40,856

Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		4,489			6,843
Amortization of other intangible assets and goodwill impairment		1,689			1,222
Net discount accretion on investment securities		(1,260	)		(973	)
Restricted stock expense		781			500
Stock option expense		143			647
Provision for loan losses		2,445			7,000
Net securities losses		2,691			92
Gain on branch divestiture		—			(3,036	)
(Gain) loss on derivatives		192			(2,020	)
Net gains on sales and write-downs of loans and other assets		(232	)		(684	)
Loss on retirement of debt		1,234			—
FHLB stock dividend		—			(33	)
Increase in cash surrender value of company owned life insurance		(3,788	)		(2,590	)
Residential real estate loans originated for sale		(141,708	)		(114,891	)
Proceeds from sale of residential real estate loans		140,611			136,086
Decrease in interest receivable		5,159			2,590
(Increase) decrease in other assets		11,419			(43,408	)
Increase (decrease) in accrued expenses and other liabilities		(19,979	)		26,253

Total adjustments		3,886			13,598

Net cash flows provided by operating activities		34,227			54,454

Cash Flows From Investing Activities
Cash and cash equivalents of acquired subsidiaries		17,429			—
Purchase of subsidiaries		(78,109	)		—
Purchases of investment securities available-for-sale		(546,508	)		(305,519	)
Proceeds from maturities, prepayments and calls of investment securities available-for-sale		536,049			164,808
Proceeds from sales of investment securities available-for-sale		149,662			24,251
Proceeds from maturities, prepayments and calls of investment securities held-to-maturity		18,318			14,529
Proceeds from redemption of FHLB stock		758			591
Proceeds from branch divestiture		—			10,511
Proceeds from sale of loans		8,468			—
Net principal collected from loan customers		159,492			4,577
Proceeds from sale of premises and equipment and other assets		3,394			1,166
Purchase of premises and equipment		(3,996	)		(3,968	)

Net cash flows provided by (used in) investing activities		264,957			(89,054	)

Cash Flows From Financing Activities
Net increase (decrease) in deposits and short-term borrowings:
Noninterest-bearing demand deposits		(55,758	)		(57,717	)
Savings, NOW and money market deposits		(128,655	)		(222,887	)
Time deposits		(282,827	)		51,716
Short-term borrowings		116,744			288,610
Payments for maturities on other borrowings		(16,297	)		(176,404	)
Payments related to retirement of debt		(187,485	)		—
Cash dividends paid		(28,916	)		(27,935	)
Common stock repurchased		(4,078	)		(27,015	)
Proceeds from exercise of stock options, including tax benefit		75			691
Common stock issued under restricted stock and stock compensation plans		52			51

Net cash flows used in financing activities		(587,145	)		(170,890	)

Net decrease in cash and cash equivalents		(287,961	)		(205,490	)
Cash and cash equivalents at beginning of period		497,905			402,416

Cash and cash equivalents at end of period	$	209,944		$	196,926

Total interest paid	$	131,249		$	113,821
Total taxes paid (net of refunds)	$	7,435		$	7,642

The accompanying notes to consolidated financial statements are an integral part of these statements.

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. The allowance for loan losses, goodwill and intangibles, derivative financial instruments and income taxes are particularly subject to change. 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 June 30, 2007 and 2006, and December 31, 2006, and the results of its operations for the three and six months ended June 30, 2007 and 2006. 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, 2006.

All significant intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform with the 2007 presentation. Such reclassifications had no effect on net income.

NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS

FASB Interpretation No. 48 — In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 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 became effective for the Company on January 1, 2007. The impact of adopting FIN 48 is discussed in Note 14 to the consolidated financial statements.

SFAS No. 157 — In September 2006, the FASB issued Statement No. 157 — Fair Value Measurements. The standard defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The standard 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 the Company on January 1, 2008. The Company is currently evaluating the impact of adopting SFAS No. 157 on the consolidated financial statements.

SFAS No. 159 — In February 2007, the FASB issued Statement No. 159 — The Fair Value Option for Financial Assets and Financial Liabilities. The standard provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The new standard is effective for the Company on January 1, 2008. The Company is currently evaluating the impact of adopting SFAS No. 159 on the consolidated financial statements.

EITF 06-5 — In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-5, Accounting for Purchases of Life Insurance — Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4 (Accounting for Purchases of Life Insurance). This Issue requires that a policyholder consider contractual terms of a life insurance policy in determining the amount that could be realized under the insurance contract. It also requires that if the contract provides for a greater surrender value if all individual policies in a group are surrendered at the same time, that the surrender value be determined based on the assumption that policies will be surrendered on an individual basis. Lastly, the Issue discusses whether the cash surrender value should be discounted when the policyholder is contractually limited in its ability to surrender a policy. EITF 06-5 became effective for the Company on January 1, 2007 and resulted in a $0.1 million reduction to retained earnings.

NOTE 3 — ACQUISITION

On February 1, 2007, Old National acquired St. Joseph Capital Corporation (“St. Joseph”), a banking franchise headquartered in Mishawaka, Indiana, for $78.1 million, including acquisition costs. Pursuant to the merger agreement, the shareholders of St. Joseph received $40.00 in cash for each share of St. Joseph stock in an all-cash transaction. Goodwill of $45.8 million was recorded, of which none is deductible for tax purposes. In addition, intangible assets totaling $14.5 million related to core deposits and customer relationships were recorded and are being amortized over 10 to 11 years. See Note 9 to the consolidated financial statements for additional information. On the date of acquisition, unaudited financial statements of St. Joseph showed assets of $452.9 million, which included $336.6 million of loans and $78.6 million of securities, $357.3 million of deposits and year-to-date net interest income and other income of $0.8 million and net loss of $3.3 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 of 2006.

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. Diluted net income per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued.

The following table reconciles basic and diluted net income per share for the three and six months ended June 30:


	Three Months Ended						Three Months Ended
(dollars and shares in thousands,	June 30, 2007						June 30, 2006
except per share data)	Income		Shares		Amount		Income		Shares		Amount
Basic Net Income Per Share
Income from operations	$	19,551		65,723	$	0.30	$	20,187		66,283	$	0.30


Effect of dilutive securities:
Restricted stock				54						64
Stock options				27						6


Diluted Net Income Per Share
Income from operations and assumed conversions	$	19,551		65,804	$	0.30	$	20,187		66,353	$	0.30


	Six Months Ended						Six Months Ended
(dollars and shares in thousands,	June 30, 2007						June 30, 2006
except per share data)	Income		Shares		Amount		Income		Shares		Amount
Basic Net Income Per Share
Income from continuing operations	$	30,341		65,764	$	0.46	$	40,856		66,648	$	0.61


Effect of dilutive securities:
Restricted stock				42						60
Stock options				30						11


Diluted Net Income Per Share
Income from operations and assumed conversions	$	30,341		65,836	$	0.46	$	40,856		66,719	$	0.61

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 June 30, 2007 and December 31, 2006 and the corresponding amounts of unrealized gains and losses therein:


	Amortized		Unrealized		Unrealized			Fair
(dollars in thousands)	Cost		Gains		Losses			Value
June 30, 2007
Available-for-sale
U.S. Government-sponsored agencies	$	646,683	$	263	$	(9,712	)	$	637,234
Mortgage-backed securities		1,038,438		830		(42,456	)		996,812
States and political subdivisions		258,568		5,368		(710	)		263,226
Other securities		197,018		1,020		(4,709	)		193,329

Total available-for-sale securities	$	2,140,707	$	7,481	$	(57,587	)	$	2,090,601

Held-to-maturity
Mortgage-backed securities	$	116,899	$	—	$	(6,497	)	$	110,402
Other securities		26,442		—		(328	)		26,114

Total held-to-maturity securities	$	143,341	$	—	$	(6,825	)	$	136,516

December 31, 2006
Available-for-sale
U.S. Government-sponsored agencies	$	685,809	$	1,881	$	(7,541	)	$	680,149
Mortgage-backed securities		1,049,712		1,733		(31,267	)		1,020,178
States and political subdivisions		264,343		9,095		(113	)		273,325
Other securities		202,945		1,384		(2,818	)		201,511

Total available-for-sale securities	$	2,202,809	$	14,093	$	(41,739	)	$	2,175,163

Held-to-maturity
Mortgage-backed securities	$	126,800	$	—	$	(4,312	)	$	122,488
Other securities		35,338		—		(106	)		35,232

Total held-to-maturity securities	$	162,138	$	—	$	(4,418	)	$	157,720

Year-to-date proceeds from the sales of investment securities available-for-sale were $149.7 million in 2007 and $24.3 million in 2006. For the six months ended June 30, 2007, realized gains were $0.3 million and losses were $3.0 million. For the six months ended June 30, 2006, realized gains were $0.5 million and losses were $0.6 million.

At June 30, 2007, 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 June 30, 2007 and December 31, 2006, Old National had residential loans held for sale of $19.6 million and $16.6 million, respectively. As of June 30, 2007 and December 31, 2006, ineffectiveness related to the hedge of a portion of the residential loans held for sale was immaterial.

During the first six months of 2007, commercial real estate loans held for investment of $8.8 million and commercial loans of $0.7 million were transferred to loans held for sale at the lower of cost or market, resulting in a $1.1 million reduction to the allowance for loan losses.

NOTE 8 — ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses was as follows:


	Six Months Ended
	June 30,
(dollars in thousands)	2007			2006
Balance, January 1	$	67,790		$	78,847
Additions:
Provision charged to expense		2,445			7,000
Allowance of acquired bank		5,699			—
Deductions:
Write-downs from loans transferred to held for sale		1,084			—
Loans charged-off		13,740			13,796
Recoveries		(6,377	)		(4,306	)

Net charge-offs		8,447			9,490

Balance, June 30	$	67,487		$	76,357

Individually impaired loans were as follows:


	June 30,		December 31,
(dollars in thousands)	2007		2006
Impaired loans without a valuation allowance	$	9,863	$	11,833
Impaired loans with a valuation allowance		39,817		20,476

Total impaired loans	$	49,680	$	32,309


Allowance for loan losses related to impaired loans	$	15,742	$	7,080

For the six months ended June 30, 2007 and 2006, the average balance of impaired loans was $44.6 million and $39.7 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.

Nonperforming loans were as follows:


	June 30,		December 31,
(dollars in thousands)	2007		2006
Nonaccrual loans	$	58,458	$	41,518
Renegotiated loans		7		52

Total nonperforming loans	$	58,465	$	41,570


Past due loans (90 days or more and still accruing)	$	1,026	$	2,141

Nonperforming loans includes both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

NOTE 9 — GOODWILL AND OTHER INTANGIBLE ASSETS

The following table shows the changes in the carrying amount of goodwill by segment for the six months ended June 30, 2007 and 2006:


	Community
(dollars in thousands)	Banking		Other		Total
Balance, January 1, 2007	$	73,477	$	39,873	$	113,350
Goodwill acquired during the period		45,848		—		45,848

Balance, June 30, 2007	$	119,325	$	39,873	$	159,198


Balance, January 1, 2006	$	73,477	$	39,798	$	113,275
Adjustments to goodwill acquired in prior period		—		75		75

Balance, June 30, 2006	$	73,477	$	39,873	$	113,350

Goodwill is reviewed annually for impairment. Old National completed its most recent annual goodwill impairment test as of August 31, 2006 and determined that no impairment existed as of this date. Old National recorded $45.8 million of goodwill in 2007 associated with the acquisition of St. Joseph Capital Corporation.

The gross carrying amount and accumulated amortization of other intangible assets at June 30, 2007 and December 31, 2006 was as follows:


	Gross					Net
	Carrying		Accumulated			Carrying
(dollars in thousands)	Amount		Amortization			Amount
June 30, 2007
Amortized intangible assets:
Core deposit	$	15,623	$	(5,214	)	$	10,409
Customer business relationships		25,553		(6,622	)		18,931
Customer loan relationships		4,413		(167	)		4,246

Total intangible assets	$	45,589	$	(12,003	)	$	33,586

December 31, 2006
Amortized intangible assets:
Core deposit	$	5,574	$	(4,615	)	$	959
Customer business relationships		25,553		(5,699	)		19,854

Total intangible assets	$	31,127	$	(10,314	)	$	20,813

Other intangible assets consist primarily of core deposit intangibles and customer relationship intangibles and are being 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. Old National recorded $14.5 million of other intangibles associated with the acquisition of St. Joseph Capital Corporation in 2007. Total amortization expense associated with other intangible assets for the six months ended June 30 was $1.7 million in 2007 and $1.2 million in 2006.

Estimated amortization expense for the future years is as follows:


(dollars in thousands)
2007 remaining	$	1,807
2008		3,465
2009		3,302
2010		3,118
2011		2,972
Thereafter		18,922

Total	$	33,586

NOTE 10 — ASSETS HELD FOR SALE

In March 2007, Old National committed to sell certain bank branch properties. A letter of intent was executed in May 2007 to sell eighty-five properties to an unrelated party for approximately $205 million and to lease them back pursuant to individual ten, fifteen, and twenty-four year triple-net leases. These assets are reported as held for sale at historical cost of $71.3 million, and the Company anticipates it will record a gain of approximately $134 million, the majority of which will be deferred in accordance with Statement of Financial Accounting Standards No. 98, Accounting for Leases.

Also included in assets held for sale were one building and several parcels of land. The building will be sold to an unrelated party and leased back in a separate transaction.

The carrying amounts of the classes of assets included as held for sale were as follows at June 30, 2007:


(dollars in thousands)
Assets held for sale:
Land	$	22,209
Building and improvements		105,857

Total		128,066
Accumulated depreciation		(51,761	)

Assets held for sale — net	$	76,305

NOTE 11 — FINANCING ACTIVITIES

The following table summarizes Old National’s other borrowings at June 30, 2007, and December 31, 2006:


	June 30,			December 31,
(dollars in thousands)	2007			2006
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
Senior unsecured bank note (fixed rate 5.00%) maturing May 2010		50,000			50,000
Junior subordinated debenture (fixed rates 6.27% to 8.00% and variable rate 8.41%) maturing April 2032 to March 2035		108,000			100,000
SFAS 133 fair value hedge and other basis adjustments		(3,213	)		(4,549	)
Old National Bank:
Securities sold under agreements to repurchase		—			74,000
Federal Home Loan Bank advances (fixed rates 4.84% to 8.34%) maturing May 2008 to January 2023		129,213			219,493
Senior unsecured bank notes (fixed rate 3.95%) maturing February 2008		50,000			50,000
Subordinated bank notes (fixed rate 6.75%) maturing October 2011		150,000			150,000
Capital lease obligation		4,444			4,461
SFAS 133 fair value hedge and other basis adjustments		(6,955	)		(5,860	)

Total other borrowings	$	591,489		$	747,545

Contractual maturities of other borrowings at June 30, 2007, were as follows:


(dollars in thousands)
Due in 2007	$	10,017
Due in 2008		153,037
Due in 2009		2,040
Due in 2010		75,043
Due in 2011		150,046
Thereafter		211,474
SFAS 133 fair value hedge and other basis adjustments		(10,168	)

Total	$	591,489

FEDERAL HOME LOAN BANK
Federal Home Loan Bank advances had weighted-average rates of 5.19% and 5.37% at June 30, 2007, and December 31, 2006, 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, subject to certain limitations, and are in accordance with the senior and subordinated global bank note program in which Old National Bank may issue and sell up to a maximum of $1 billion. Notes issued by Old National Bank under the global note program are not obligations of, or guaranteed by, Old National Bancorp.

JUNIOR SUBORDINATED DEBENTURES
Junior subordinated debentures related to trust preferred securities are classified in “other borrowings”. These securities qualify as Tier 1 capital for regulatory purposes, subject to certain limitations.

Old National guarantees the payment of distributions on the trust preferred securities issued by ONB Capital Trust II. ONB Capital Trust II issued $100 million in preferred securities in April 2002. The preferred securities have a liquidation amount of $25 per share with a cumulative annual distribution rate of 8.0% or $2.00 per share payable quarterly and maturing on April 15, 2032. Proceeds from the issuance of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by ONB Capital Trust II. Old National may redeem the junior subordinated debentures and thereby cause a redemption of the trust preferred securities in whole (or in part from time to time) on or after April 12, 2007, and in whole (but not in part) following the occurrence and continuance of certain adverse federal income tax or capital treatment events. Costs associated with the issuance of these trust preferred securities totaling $3.3 million in 2002 were capitalized and are being amortized through the maturity dates of the securities. The unamortized balance is included in other assets in the consolidated balance sheet.

During February 2007, Old National acquired St. Joseph Capital Trust I and St. Joseph Capital Trust II in conjunction with its acquisition of St. Joseph Capital Corporation. Old National guarantees the payment of distributions on the trust preferred securities issued by St. Joseph Capital Trust I and St. Joseph Capital Trust II. St. Joseph Capital Trust I issued $3.0 million in preferred securities in July 2003. The preferred securities carry a variable rate of interest priced at the three-month LIBOR plus 305 basis points, payable quarterly and maturing on July 11, 2033. Proceeds from the issuance of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by St. Joseph Capital Trust I. St. Joseph Capital Trust II issued $5.0 million in preferred securities in March 2005. The preferred securities have a cumulative annual distribution rate of 6.27% until March 2010 when it will carry a variable rate of interest priced at the three-month LIBOR plus 175 basis points, payable quarterly and maturing on March 17, 2035. Proceeds from the issuance of these securities were used to purchase junior subordinated debentures with the same financial terms as the securities issued by St. Joseph 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 September 30, 2008 (for debentures owned by St. Joseph Capital Trust I) and on or after March 31, 2010 (for debentures owned by St. Joseph Capital Trust II), and in whole (but not in part) following the occurrence and continuance of certain adverse federal income tax or capital treatment events.

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 borrowing rate for similar types of borrowing arrangements.

At June 30, 2007, the future minimum lease payments under the capital lease were as follows:


(dollars in thousands)
2007 remaining	$	185
2008		371
2009		390
2010		390
2011		390
Thereafter		12,094

Total minimum lease payments		13,820
Less amounts representing interest		9,376

Present value of net minimum lease payments	$	4,444

NOTE 12 — EMPLOYEE BENEFIT PLANS

RETIREMENT PLAN
Old National maintains a funded noncontributory defined benefit plan (the “Retirement Plan”) that was frozen as of December 31, 2005. Retirement benefits are based on years of service and compensation during the highest paid five years of employment. The freezing of the plan provides that future salary increases will not be considered. Old National’s policy is to contribute at least the minimum funding requirement determined by the plan’s actuary.

Old National also maintains an unfunded pension restoration plan (the “Restoration Plan”) which provides benefits for eligible employees that are in excess of the limits under Section 415 of the Internal Revenue Code of 1986, as amended, that apply to the Retirement Plan. The Restoration Plan is designed to comply with the requirements of ERISA. The entire cost of the plan, which was also frozen as of December 31, 2005, is supported by contributions from the Company.

As of June 30, 2007, there have been no cash contributions to these Plans, except $0.7 million to cover benefit payments from the Restoration Plan. During the second half of 2007, Old National expects to pay cash of approximately $0.3 million to cover future benefit payments from the Restoration Plan.

The net periodic benefit cost and its components were as follows for the three and six months ended June 30:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(dollars in thousands)	2007			2006			2007			2006
Service cost	$	—		$	—		$	—		$	—
Interest cost		578			689			1,171			1,397
Expected return on plan assets		(843	)		(1,034	)		(1,665	)		(1,894	)
Amortization of prior service cost		—			—			—			—
Recognized actuarial loss		167			218			386			517
Settlement		299			360			599			720

Net periodic benefit cost	$	201		$	233		$	491		$	740

NOTE 13 — STOCK-BASED COMPENSATION

Under the 1999 Equity Incentive Plan, Old National is authorized to grant up to 7.6 million shares of common stock. At June 30, 2007, 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 or released, and 0.7 million shares were available for issuance. In addition, Old National assumed 0.1 million stock options outstanding through various mergers.

Stock Options
Old National recorded $0.1 million of stock based compensation expense, net of tax, during the first six months of 2007 as compared to $0.4 million for the first six months of 2006.

The Company granted 218,100 stock options during 2007 and substituted 47,604 Old National stock options for St. Joseph stock options in connection with its acquisition of St. Joseph. Using the Black-Scholes option pricing model, the Company estimated the fair value of the stock options granted during 2007 to be $0.5 million. The Company will expense this amount ratably over the three-year vesting period. The assumptions used in the option pricing model and the determination of stock option expense were an expected volatility of 15.3%; a risk free interest rate of 4.85%; an expected option term of six years; a 4.23% dividend yield; and a forfeiture rate of 7%. These options expire in ten years.

Restricted Stock
Old National recorded expense of $0.5 million, net of tax benefit, during the first six months of 2007, compared to expense of $0.3 million during the first six months of 2006 related to the vesting of restricted share awards. Included in the first six months of 2007 is the reversal of $0.7 million of expense associated with certain performance-based restricted stock grants.

The Company granted 123 thousand shares of performance based restricted stock awards to certain key officers during 2007, with shares vesting at the end of a thirty-six month period based on the achievement of certain targets. In addition, the Company granted 50 thousand time-based restricted stock awards to certain key officers during 2007, with shares vesting at the end of a thirty-six month period. Compensation expense is recognized on a straight-line basis over the vesting period. Shares are subject to certain restrictions and risk of forfeiture by the participants. As of June 30, 2007, unrecognized compensation expense was estimated to be $6.3 million for unvested restricted share awards.

NOTE 14 — INCOME TAXES

The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), on January 1, 2007 and, as the cumulative effect of applying its provisions, recognized a $3.4 million reduction to the balance of retained earnings on that date with a corresponding decrease in deferred tax assets which are reported as other assets on the balance sheet. The amount of unrecognized tax benefits as of January 1, 2007 totaled $10.3 million, all of which, if recognized, would affect the effective tax rate. Unrecognized state income tax benefits are reported net of their related deferred federal income tax benefit. As of June 30, 2007, unrecognized tax positions have not changed materially since the adoption of FIN 48 at January 1, 2007.

It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in their respective federal or state income tax accounts. As of January 1, 2007, $2.7 million in interest, and no penalties, had been accrued on the Company’s balance sheet.

The Company and its subsidiaries file a consolidated U.S. federal income tax return, as well as filing various state returns. The company is currently under audit by the Internal Revenue Service for the years 2003 and 2004. The federal statute of limitations has been extended on 2002 as a part of this audit and remains open currently. It is likely that the examination phase of this audit will conclude in 2007. It is possible that a reduction in unrecognized tax benefits will occur upon completion of the audit, however, the amount of any possible reduction can not be estimated at this time.

The following is a summary of the major items comprising the differences in taxes from continuing operations computed at the federal statutory rate and as recorded in the consolidated statement of income for the three and six months ended June 30:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(dollars in thousands)	2007			2006			2007			2006
Provision at statutory rate of 35%	$	8,626		$	8,405		$	12,504		$	17,233
Tax-exempt income		(3,524	)		(4,152	)		(7,040	)		(8,280	)
Other, net		(7	)		(425	)		(78	)		(573	)

Income tax expense	$	5,095		$	3,828		$	5,386		$	8,380

Effective tax rate		20.7	%		15.9	%		15.1	%		17.0	%

For the three months ended June 30, 2007, the effective tax rate on income from continuing operations was higher than for the three months ended June 30, 2006. For the six months ended June 30, 2007, the effective tax rate on income from continuing operations was lower than for the six months ended June 30, 2006. The higher effective tax rate for the three months ended June 30, 2007, resulted from a lower percentage of tax-exempt income to income before income tax compared to the three months ended June 30, 2006. The lower effective tax rate for the six months ended June 30, 2007, resulted from a higher percentage of tax-exempt income to income before income taxes compared to the six months ended June 30, 2006.

NOTE 15 — DERIVATIVE FINANCIAL INSTRUMENTS

Old National designates its derivatives based upon criteria established by SFAS No. 133, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment to FASB Statement No. 133, and SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities.

The following table summarizes the derivative financial instruments utilized by Old National:


	June 30, 2007							December 31, 2006
	Notional		Estimated Fair Value					Notional		Estimated Fair Value
(dollars in thousands)	Amount		Gain		Loss			Amount		Gain		Loss
Fair Value Hedges
Receive fixed interest rate swaps	$	384,888	$	—	$	(12,961	)	$	724,609	$	—	$	(20,430	)
Forward mortgage loan contracts		19,631		82		—			16,266		43		—
Stand Alone Derivatives
Receive fixed interest rate swaps		11,120		—		(5	)		—		—		—
Interest rate lock commitments		16,818		104		—			17,750		7		—
Forward mortgage loan contracts		16,661		—		(81	)		17,682		22		—
Matched Customer Hedges
Customer interest rate swaps		424,791		1,492		(3,777	)		417,132		4,269		(1,866	)
Counterparty interest rate swaps		424,791		3,777		(1,492	)		417,132		1,866		(4,269	)
Customer interest rate cap & collars		4,164		—		(10	)		5,459		20		(11	)
Counterparty interest rate cap & collars		4,164		10		—			5,459		11		(20	)
Customer commodity swaps		13,426		46		(332	)		13,426		587		—
Counterparty commodity swaps		13,426		332		(46	)		13,426		—		(587	)

Total	$	1,333,880	$	5,843	$	(18,704	)	$	1,648,341	$	6,825	$	(27,183	)

As of December 31, 2006, Old National had receive-fixed interest rate swaps on certain of its retail certificates of deposit and subordinated debt. Certain of these derivative instruments, having a notional amount of $323.1 million, were terminated in the first quarter of 2007 and a notional amount of $16.6 million were dedesignated and included as stand-alone derivatives on March 1, 2007.

Old National enters into certain matched customer hedges to accommodate the business needs of its customers. Upon the origination of a customer hedge, Old National simultaneously enters into an offsetting contract with a third party to mitigate its exposure.

NOTE 16 — 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 $1.217 billion and standby letters of credit of $135.2 million at June 30, 2007. At December 31, 2006, loan commitments were $1.165 billion, commercial letters of credit were $40 thousand and standby letters of credit were $121.7 million. These commitments are not reflected in the consolidated financial statements. Management believes the reserve for unfunded commitments is adequate as of June 30, 2007.

At June 30, 2007 and December 31, 2006, Old National had credit extensions of $65.9 million and $75.4 million, respectively, with various unaffiliated banks related to letter of credit commitments issued on behalf of Old National’s clients. At June 30, 2007 and December 31, 2006, Old National provided collateral to the unaffiliated banks to secure credit extensions totaling $50.2 million and $54.5 million, respectively. Old National did not provide collateral for the remaining credit extensions.

NOTE 17 — 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 June 30, 2007, the notional amount of standby letters of credit was $135.2 million, which represents the maximum amount of future funding requirements, and the carrying value was $0.5 million.

During the second quarter of 2007, Old National entered into a risk participation in an interest rate swap. The interest rate swap has a notional amount of $9.6 million.

NOTE 18 — 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. Other is comprised of the parent company and several smaller business units including insurance, wealth management, and brokerage. It includes unallocated corporate overhead and intersegment revenue and expense eliminations.

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. 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.

The financial information for each operating segment is reported on the basis used internally by Old National’s management to evaluate performance and is not necessarily comparable with similar information for any other financial institution. Summarized financial information concerning segments is shown in the following table for the three and six months ended June 30:


	Community
(dollars in thousands)	Banking		Treasury			Other			Total

Three months ended June 30, 2007
Net interest income	$	58,632	$	(3,509	)	$	(782	)	$	54,341
Provision for loan losses		193		(193	)		—			-
Noninterest income		18,799		1,848			18,092			38,739
Noninterest expense		50,244		862			17,328			68,434
Income (loss) before income taxes		26,994		(2,330	)		(18	)		24,646
Income tax expense (benefit)		6,983		(1,884	)		(4	)		5,095
Segment profit (loss)		20,011		(446	)		(14	)		19,551
Total assets		5,141,364		2,720,849			125,529			7,987,742


Three months ended June 30, 2006
Net interest income	$	58,659	$	(3,904	)	$	(357	)	$	54,398
Provision for loan losses		4,269		(769	)		—			3,500
Noninterest income		18,084		2,165			16,558			36,807
Noninterest expense		47,329		1,036			15,325			63,690
Income (loss) before income taxes		25,145		(2,006	)		876			24,015
Income tax expense (benefit)		6,118		(2,554	)		264			3,828
Segment profit		19,027		548			612			20,187
Total assets		5,069,083		3,034,278			203,136			8,306,497


Six months ended June 30, 2007
Net interest income	$	113,698	$	(6,146	)	$	(1,409	)	$	106,143
Provision for loan losses		2,172		273			—			2,445
Noninterest income		36,216		(105	)		36,151			72,262
Noninterest expense		104,345		1,204			34,684			140,233
Income (loss) before income taxes		43,397		(7,728	)		58			35,727
Income tax expense (benefit)		9,983		(4,615	)		18			5,386
Segment profit (loss)		33,414		(3,113	)		40			30,341
Total assets		5,141,364		2,720,849			125,529			7,987,742


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		35,530		5,648			38,498			79,676
Noninterest expense		97,888		1,643			32,646			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


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 six months ended June 30, 2007 and 2006, and financial condition as of June 30, 2007, compared to June 30, 2006, and December 31, 2006. 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

Management believes that the balance sheet restructuring and process improvement initiatives completed during the first quarter of 2007, along with improvements in credit administration, retail operations and continued expense controls have the company well positioned for future growth.

Due to continued improvement in key measures of credit quality, the Company did not record a provision for possible loan losses during the second quarter of 2007, compared to $2.4 million during the first quarter of 2007. Criticized loans, or loans exhibiting a potential weakness that deserves management’s close attention, decreased $8.0 million from March 31, 2007 to June 30, 2007. Classified loans, or loans with a well-defined weakness that jeopardizes the liquidation of the debt, decreased $34.6 million during the same time period and nonperforming loans decreased by $2.0 million. In addition, net charge-offs were 0.31% of average loans in the second quarter of 2007 compared to 0.38% in the first quarter of 2007 and 0.33% in the second quarter of 2006. Nonperforming loans totaled 1.20% of total loans at June 30, 2007, up from 0.88% at December 31, 2006, primarily as a result of the acquisition of St. Joseph Capital Corporation. The allowance for loan losses equaled 1.38% of total loans at June 30, 2007, compared to 1.44% at December 31, 2006 and 1.57% at June 30, 2006.

Consumer and commercial loans experienced modest growth, but were partially offset by declines in commercial real estate loans. The Company continues to be cautious towards the real estate market in an effort to lower future potential credit risk. Total loans at June 30, 2007 increased 3.3% compared to December 31, 2006. The June 30, 2007 loan balance includes $338.9 million related to St. Joseph Capital Corporation, which was acquired during the first quarter of 2007.

Deposit growth remains challenging due to the competitive Midwest interest rate environment in which we operate and the Company’s focused effort to reduce higher priced deposits. Total deposits of $6.213 billion at June 30, 2007 decreased 1.7% from December of 2006. Year-over-year, deposits are relatively flat, increasing $7.2 million. Included in total deposits at June 30, 2007 is $258.1 million of deposits associated with the recently acquired St. Joseph Capital Corporation.

Net income was $19.6 million for the three months ended June 30, 2007, a decrease of $0.6 million from the $20.2 million recorded for the three months ended June 30, 2006. On a diluted per share basis, net income was $0.30 for both the three months ended June 30, 2007 and the three months ended June 30, 2006. Old National reported net income of $30.3 million for the six months ended June 30, 2007, a decrease of $10.5 million, or 25.7%, from the $40.9 million recorded for the six months June 30, 2006. On a diluted per share basis, net income was $0.46 for the six months ended June 30, 2007, compared to $0.61 for the six months ended June 30, 2006. Included in net income during the first quarter of 2007 was approximately $5.0 million of expense, net of tax, or $0.08 on a diluted per share basis, associated with restructuring and productivity improvement initiatives.

RESULTS OF OPERATIONS

The following table sets forth certain income statement information of Old National for the three and six months ended June 30, 2007 and 2006:


	Three Months Ended									Six Months Ended
	June 30,						%			June 30,						%
(dollars in thousands)	2007			2006			Change			2007			2006			Change
Income Statement Summary:
Net interest income	$	54,341		$	54,398			(0.1	)%	$	106,143		$	108,737			(2.4	)%
Provision for loan losses		—			3,500			(100.0	)		2,445			7,000			(65.1	)
Noninterest income		38,739			36,807			5.2			72,262			79,676			(9.3	)
Noninterest expense		68,434			63,690			7.4			140,233			132,177			6.1
Other Data:
Return on average equity		12.30	%		12.82	%					9.51	%		12.75	%
Efficiency ratio		70.31			66.05						75.04			66.49
Tier 1 leverage ratio		7.29			7.65						7.29			7.65
Net charge-offs to average loans		0.31			0.33						0.35			0.39

Net Interest Income
Net interest income is Old National’s most significant component of earnings, comprising over 59% of revenues at June 30, 2007. Net interest income and margin are influenced by many factors, primarily the volume and mix of earning assets, funding sources and interest rate fluctuations. Other factors include prepayment risk on mortgage and investment-related assets and the composition and maturity of earning assets and interest-bearing liabilities. Loans typically generate more interest income than investment securities with similar maturities. Funding from client deposits generally cost less than wholesale funding sources. Factors, such as general economic activity, Federal Reserve Board monetary policy and price volatility of competing alternative investments, can also exert significant influence on Old National’s ability to optimize its mix of assets and funding and its net interest income and margin.

Net interest income and net interest margin in the following discussion are presented on a fully taxable equivalent basis, which adjusts tax-exempt or nontaxable interest income to an amount that would be comparable to interest subject to income taxes using the federal statutory tax rate of 35% in effect for all periods. Net income is unaffected by these taxable equivalent adjustments as the offsetting increase of the same amount is made to income tax expense. Net interest income includes taxable equivalent adjustments of $4.3 million and $5.2 million for the three months ended June 30, 2007 and 2006, respectively. Taxable equivalent adjustments for the six months ended June 30, 2007 and 2006, were $8.5 million and $10.4 million, respectively.

Taxable equivalent net interest income was $58.6 million and $114.6 million for the three and six months ended June 30, 2007, down from the $59.6 million and $119.1 million reported for the three and six months ended June 30, 2006. The reduction in net interest income is primarily a result of the lower average earning assets. The net interest margin was 3.20% and 3.10% for the three and six months ended June 30, 2007, compared to 3.18% reported for both the three and six months ended June 30, 2006. The decrease in the year-to-date net interest margin is primarily due to the increase in the cost of funding being greater than the increase in earning asset yields, combined with a change in the mix of interest earning assets and interest-bearing liabilities. The increase in the quarterly comparison of the interest margin is primarily due to the change in the mix of interest earning assets and interest-bearing liabilities combined with a $1.0 million recovery of interest on a commercial real estate loan.

Average earning assets were $7.334 billion for the three months ended June 30, 2007, compared to $7.490 billion for the three months ended June 30, 2006, a decrease of 2.1%, or $156.3 million. Average earning assets were $7.398 billion for the six months ended June 30, 2007, compared to $7.489 billion for the six months ended June 30, 2006, a decrease of 1.2%, or $90.8 million. Significantly affecting average earning assets at June 30, 2007 compared to June 30, 2006, was management’s decision to reduce the size of the investment portfolio and the acquisition of St. Joseph. In addition, commercial and commercial real estate loans have been affected by continued weak loan demand in Old National’s markets, more stringent loan underwriting standards and the Company’s desire to lower future potential credit risk by being cautious towards the real estate market. 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. During the first quarter of 2007, the Company sold $148.2 million of investment securities and $3.8 million of commercial real estate loans. During the second quarter of 2007, the Company sold $5.7 million of commercial and commercial real estate loans. Year over year, commercial 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 retirement of $89 million of Federal Home Loan Bank advances and $74 million of repurchase agreements in the first quarter of 2007. Old National also retired $23 million of Federal Home Loan Bank advances which were acquired from St. Joseph and a $15 million Federal Home Loan Bank advance acquired from St. Joseph also matured in the first quarter of 2007. 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
There was no provision for loan losses during the three months ended June 30, 2007, with a $2.4 million provision for loan losses year-to-date. The 2007 provision compares to $3.5 million and $7.0 million for the three and six months ended June 30, 2006. The lower provision in 2007 is attributable to a decrease in net charge-offs combined with a decrease in total criticized and classified loans during 2007 and enhanced credit administration and underwriting functions.

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 consulting, investment products and insurance. Noninterest income for the three months ended June 30, 2007, was $38.7 million, an increase of $1.9 million, or 5.2%, from the $36.8 million reported for the three months ended June 30, 2006. For the six months ended June 30, 2007, noninterest income was $72.3 million, a decrease of $7.4 million, or 9.3%, from the $79.7 million reported for the six months ended June 30, 2006.

Net securities losses were $24 thousand and $2.7 million for the three and six months ended June 30, 2007, compared to net securities gains of $0.1 million for the three months ended June 30, 2006, and net securities losses of $0.1 million for the six months ended June 30, 2006. The primary reason for the increase in net securities losses was management’s decision to reduce the size of the investment portfolio.

Mortgage banking revenue increased by $0.6 million and $0.3 million for the three and six months ended June 30, 2007 as compared to the three and six months ended June 30, 2006. An increase in the gain on sale of mortgage loans along with fluctuations in the market value of mortgage-related derivatives was the primary reason for the increase.

Investment product fees were $2.8 million and $5.6 million for the three and six months ended June 30, 2007, compared to $2.0 million and $4.3 million for the three and six months ended June 30, 2006. Increases in fees from sales of annuities and mutual funds were the primary reason for the increases.

Gains on derivatives decreased by $0.6 million and $2.2 million for the three and six months ended June 30, 2007 as compared to the three and six months ended June 30, 2006, primarily as a result of a change in the mix of derivatives used in hedging relationships.

During the first quarter of 2006, Old National recorded a $3.0 million gain from the sale of the O’Fallon, Illinois financial center. There was no corresponding sale in the first six months of 2007.

During the first quarter of 2007, Old National recorded a $1.2 million loss on the extinguishment of debt. The loss was related to the early retirement of Federal Home Loan Bank advances and repurchase agreements.

Other income decreased by $0.4 million and $1.9 million for the three and six months ended June 30, 2007 as compared to the three and six months ended June 30, 2006, primarily as a result of a decline in customer derivative fee revenue.

Noninterest Expense
Noninterest expense for the three months ended June 30, 2007, totaled $68.4 million, an increase of $4.7 million, or 7.4%, from the $63.7 million recorded for the three months ended June 30, 2006. For the six months ended June 30, 2007, noninterest expense was $140.2 million, an increase of $8.1 million, or 6.1%, from the $132.2 million recorded for the six months ended June 30, 2006.

Salaries and benefits is the largest component of noninterest expense. For the three months ended June 30, 2007, salaries and benefits were $41.5 million compared to $37.7 million for the three months ended June 30, 2006. For the six months ended June 30, 2007, salaries and benefits amounted to $82.9 million compared to $79.0 million for the six months ended June 30, 2006. Benefiting salaries and benefits expense in both the three and six months ended June 30, 2006 is a $3.5 million adjustment to certain performance-based incentives, which was partially offset by $0.6 million of expense associated with the modification of certain stock options. Included in salaries and benefits expense for the three and six months ended June 30, 2007 is $1.0 million and $1.6 million, respectively, of personnel expense associated with the acquisition of St. Joseph Capital Corporation.

Occupancy expense was $5.5 million and $11.9 million for the three and six months ended June 30, 2007, compared to $4.9 million and $10.1 million for the three and six months ended June 30, 2006. The increase is primarily related to the sale of the Company’s corporate office buildings in Evansville, Indiana in December, 2006 and the lease of those buildings back to the Company. Old National Bank is obligated to pay annual rent of $6.6 million to lease those buildings from the landlords through December 31, 2029; no rent is payable for the final two years of the initial 25-year term. For financial reporting purposes, the rent will be expensed ratably over the 25-year term at an annual rate of $6.0 million. Partially offsetting the increase in rent is a decrease in depreciation expense related to the eighty-five bank branch properties that are currently classified as held for sale.

Other losses totaled $2.5 million for the six months ended June 30, 2007, an increase of $1.8 million compared to $0.7 million for the six months ended June 30, 2006. The increase in other losses was primarily attributable to impairment charges on buildings that the Company identified for consolidation and charges to terminate leases on buildings that the Company no longer occupies that occurred in the first quarter of 2007.

Provision for Income Taxes
Old National records a provision for income taxes currently payable and for income taxes payable or benefits to be received in the future, which arise due to timing differences in the recognition of certain items for financial statement and income tax purposes. The major difference between the effective tax rate applied to Old National’s financial statement income and the federal statutory tax rate is caused by interest on tax-exempt securities and loans. The provision for income taxes on continuing operations, as a percentage of pre-tax income, was 20.7% for the three months ended June 30, 2007, compared to 15.9% for the three months ended June 30, 2006. The provision for income taxes on continuing operations, as a percentage of pre-tax income, was 15.1% for the six months ended June 30, 2007, compared to 17.0% for the six months ended June 30, 2006. The higher effective tax rate for the three months ended June 30, 2007, resulted from a lower percentage of tax-exempt income to income before income tax compared to the three months ended June 30, 2006. The lower effective tax rate for the six months ended June 30, 2007, resulted from a higher percentage of tax-exempt income to income before income taxes compared to the six months ended June 30, 2006.

FINANCIAL CONDITION

Overview
Old National’s assets at June 30, 2007, were $7.988 billion, a 3.8% decrease compared to June 30, 2006 assets of $8.306 billion, and an annualized decrease of 4.0% compared to December 31, 2006 assets of $8.150 billion. The planned reduction of the investment portfolio in conjunction with the sale of our corporate office buildings in December 2006 have lowered our total assets, reducing the Company’s reliance on wholesale funding. Partially offsetting the reduction in assets was the acquisition of St. Joseph. 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.

Earning Assets
Old National’s earning assets are comprised of investment securities, loans and loans held for sale, and money market investments. Earning assets were $7.157 billion at June 30, 2007, a decrease of 4.1% from June 30, 2006, and an annualized decrease of 6.1% since December 31, 2006. Investment securities have decreased over the past twelve months as Old National has reduced its investment portfolio. In the third quarter of 2006, Old National sold $273.1 million of investment securities. In the first quarter of 2007, Old National sold $148.2 million of investment securities. At June 30, 2007, total loans, including loans held for sale, decreased $2.8 million compared to June 30, 2006, and increased $156.5 million compared to December 31, 2006. Included in total loans at June 30, 2007 is $338.9 million of loans associated with the recent acquisition of St. Joseph. In the third quarter of 2006, $28.8 million of loans were sold. In the first quarter of 2007, $3.8 million of loans were sold. In the second quarter of 2007, $5.7 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 June 30, 2007, Old National does not believe any individual unrealized loss on available-for-sale securities represents other-than-temporary impairment. The unrealized losses are primarily attributable to changes in interest rates. As of June 30, 2007, Old National had both the intent and ability to hold the securities for a time necessary to recover the amortized cost.

At June 30, 2007, the investment securities portfolio was $2.275 billion compared to $2.580 billion at June 30, 2006, a decrease of $304.5 million or 11.8%. Investment securities decreased $101.0 million at June 30, 2007, compared to December 31, 2006, an annualized decrease of 8.5%. Investment securities represented 31.8% of earning assets at June 30, 2007, compared to 34.6% at June 30, 2006, and 32.2% at December 31, 2006. In the third quarter of 2006, Old National sold $273.1 million of investment securities. In the first quarter of 2007, Old National sold $148.2 million of investment securities. Old National has reduced the size of the investment portfolio during the past twelve months and used the cash flows generated by the declining investment portfolio to reduce borrowed funds. Stronger commercial loan demand in the future could result in increased investments in loans and a continued reduction in the investment securities portfolio.

The investment securities available-for-sale portfolio had net unrealized losses of $50.1 million at June 30, 2007, a decrease of $23.8 million compared to net unrealized losses of $73.9 million at June 30, 2006, and an increase of $22.5 million compared to net unrealized losses of $27.6 million at December 31, 2006. The decrease over the past twelve months was primarily the result of the smaller portfolio of securities available-for-sale and the resulting change in the average duration and in interest rates for the portfolio.

The investment portfolio had an average duration of 3.59 years at June 30, 2007, compared to 3.48 years at June 30, 2006, and 2.90 years at December 31, 2006. The annualized average yields on investment securities, on a taxable equivalent basis, were 5.10% for the three months ended June 30, 2007, compared to 5.04% for the three months ended June 30, 2006, and 5.01% for the three months ended December 31, 2006. Average yields on investment securities, on a taxable equivalent basis, were 5.07%, 4.99% and 5.01% for the six months ended June 30, 2007 and 2006, and for the year ended December 31, 2006, respectively.

Federal Home Loan Bank stock decreased $7.9 million from the June 30, 2006 balance of $49.1 million to $41.2 million at June 30, 2007. 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 $19.6 million at June 30, 2007, compared to $24.1 million at June 30, 2006, and compared to $16.6 million at December 31, 2006. Residential loans held for sale are loans that are closed, but not yet purchased by investors. The amount of residential loans held for sale on the balance sheet varies depending on the amount of originations and timing of loan sales to the secondary market. The decrease in residential loans held for sale from June 30, 2006, is primarily attributable to increased efficiencies in processing loan sales and the timing of loan sales to the secondary market.

Commercial and Commercial Real Estate Loans
Commercial and commercial real estate loans are the largest classification within the earning assets of Old National, representing 43.3% of earning assets at June 30, 2007, an increase from 41.6% at June 30, 2006, and an increase from 40.9% at December 31, 2006. At June 30, 2007, commercial and commercial real estate loans were $3.097 billion, a decrease of $6.4 million since June 30, 2006, and an increase of $80.3 million since December 31, 2006. Included in the increase were $95.5 million of commercial loans and $121.0 million of commercial real estate loans associated with the St. Joseph acquisition. Commercial loans have increased $82.7 million since June 30, 2006 while commercial real estate loans have decreased $89.1 million since June 30, 2006. In the third quarter of 2006, $28.8 million of commercial and commercial real estate loans were sold. In the first quarter of 2007, the Company sold $3.8 million of commercial real estate loans. In the second quarter of 2007, $5.7 million of commercial and commercial real estate loans were sold. Weak loan demand in Old National’s markets continues to affect loan growth. Old National also has continued to tighten its underwriting standards, which has slowed potential loan growth. Old National continues to be cautious towards the real estate market in an effort to lower future potential credit risk.

Consumer Loans
At June 30, 2007, consumer loans, including automobile loans, personal and home equity loans and lines of credit, and student loans, decreased $37.2 million or 3.0% compared to June 30, 2006, and increased $12.8 million or, annualized, 2.1% since December 31, 2006. Included in consumer loans at June 30, 2007 is $26.9 million of consumer loans associated with the St. Joseph acquisition.

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.

At June 30, 2007, residential real estate loans were $545.3 million, an increase of $45.3 million, or 9.1%, from June 30, 2006. The acquisition of St. Joseph was the primary reason for the increase in residential real estate loans.

Goodwill and Other Intangible Assets
Goodwill and other intangible assets at June 30, 2007, totaled $192.8 million, an increase of $57.6 million compared to $135.2 million at June 30, 2006, and an increase of $58.6 million compared to $134.2 million at December 31, 2006. The increase is primarily the result of $60.3 million in goodwill and intangible assets related to the February 1, 2007 acquisition of St. Joseph Capital Corporation.

Funding
Total funding, comprised of deposits and wholesale borrowings, was $7.247 billion at June 30, 2007, a decrease of 4.2% from $7.563 billion at June 30, 2006, and an annualized decrease of 3.7% from $7.382 billion at December 31, 2006. Included in total funding were deposits of $6.213 billion at June 30, 2007, an increase of $7.2 million, or 0.1%, compared to June 30, 2006, and an annualized decrease of 3.4% compared to December 31, 2006. Included in total deposits at June 30, 2007 is $258.1 million associated with the St. Joseph acquisition. Demand deposits increased 3.4% or $28.2 million compared to June 30, 2006. NOW deposits increased 10.4 % or $150.5 million and savings deposits increased 41.7% or $178.3 million compared to June 30, 2006. Money market deposits decreased 15.5% or $137.4 million and time deposits decreased 8.1% or $212.3 million compared to June 30, 2006. Year over year, Old National experienced a shift into lower cost deposit types.

Old National uses wholesale funding to augment deposit funding and to help maintain its desired interest rate risk position. At June 30, 2007, wholesale borrowings, including short-term borrowings and other borrowings, decreased $322.8 million, or 23.8%, from June 30, 2006 and decreased $26.0 million, or 4.9%, annualized, from December 31, 2006, respectively. Wholesale funding as a percentage of total funding was 14.3% at June 30, 2007, compared to 17.9% at June 30, 2006, and 14.4% at December 31, 2006. The primary causes for the reduction in wholesale funding were the retirement of $89 million of Federal Home Loan Bank advances and $74 million of repurchase agreements in the first quarter of 2007. Old National also retired $23 million of Federal Home Loan Bank advances which were acquired from St. Joseph and a $15 million Federal Home Loan Bank advance acquired from St. Joseph matured in the first quarter of 2007. The reduction of the investment portfolio during 2006 and 2007 has reduced the Company’s reliance on wholesale funding.

Capital
Shareholders’ equity totaled $625.6 million at June 30, 2007, compared to $614.7 million at June 30, 2006, and $642.4 million at December 31, 2006.

Old National paid cash dividends of $0.22 and $0.44 per share for the three and six months ended June 30, 2007, which decreased equity by $28.9 million, compared to cash dividends of $0.21 and $0.42 per share for the three and six months ended June 30, 2006, which decreased equity by $27.9 million. Old National purchased shares of its stock in the open market under an ongoing repurchase program, reducing shareholders’ equity by $4.1 million during the six months ended June 30, 2007, and $27.0 million during the six months ended June 30, 2006. The change in unrealized losses on investment securities decreased equity by $15.4 million during the six months ended June 30, 2007, and decreased equity by $23.3 million during the six months ended June 30, 2006. Shares issued for stock options, restricted stock and stock compensation plans increased shareholders’ equity by $1.1 million during the six months ended June 30, 2007, compared to $1.9 million during the six months ended June 30, 2006. The adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, resulted in a $3.4 million reduction in equity during 2007. The adoption of EITF 06-5 also affected equity in 2007, resulting in a $0.1 million reduction.

Capital Adequacy
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. The decline in the Company’s capital ratios can be attributed primarily to the cash purchase of St. Joseph.


	Regulatory
	Guidelines			June 30,						December 31,
	Minimum			2007			2006			2006
Risk-based capital:
Tier 1 capital to total avg assets (leverage ratio)		4.00	%		7.29	%		7.65	%		8.01	%
Tier 1 capital to risk-adjusted total assets		4.00			10.07			10.36			11.12
Total capital to risk-adjusted total assets		8.00			13.41			14.10			14.47
Shareholders’ equity to assets		N/A			7.83			7.40			7.88

RISK MANAGEMENT

Overview
Old National management, with the oversight of the Board of Directors, has in place company-wide structures, processes, and 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, credit exposures, peer comparisons, 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 June 30, 2007, the Company had no concentration of loans in any single industry exceeding 10% of its portfolio and had no exposure to foreign borrowers or lesser-developed countries. Four measured industry categories, Lessors of Residential Buildings and Dwellings, Lessors of Nonresidential Buildings, Crop Farming and Durable Goods did exceed internal guidelines which set out recommended maximum limits of loan commitments as a percent of capital. Management will continue to monitor these industry categories. 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.

Summary of under-performing, criticized and classified loans:


	June 30,						December 31,
(dollars in thousands)	2007			2006			2006
Nonaccrual loans	$	58,458		$	51,725		$	41,518
Renegotiated loans		7			96			52
Past due loans (90 days or more and still accruing)		1,026			1,335			2,141
Foreclosed properties		2,272			2,907			3,313

Total under-performing assets	$	61,763		$	56,063		$	47,024

Classified loans (includes nonaccrual, renegotiated, past due 90 days and other problem loans)	$	131,769		$	137,899		$	153,215
Criticized loans		89,787			64,843			119,757

Total criticized and classified loans	$	221,556		$	202,742		$	272,972

Asset Quality Ratios: (1)
Non-performing loans/total loans (1) (2)		1.20	%		1.06	%		0.88	%
Under-performing assets/total loans and foreclosed properties (1)		1.27			1.15			1.00
Under-performing assets/total assets		0.77			0.67			0.58
Allowance for loan losses/under-performing assets		109.27			136.20			144.16


(1)		Loans include residential loans held for sale.

(2)		Non-performing loans include nonaccrual and renegotiated loans.

Loan charge-offs, net of recoveries, totaled $3.8 million for the three months ended June 30, 2007, a decrease of $0.1 million from the three months ended June 30, 2006. Net charge-offs for the six months ended June 30, 2007, totaled $8.4 million compared to $9.5 million for the six months ended June 30, 2006. Included in the three and six months ended June 30, 2007 is $1.1 million of impairment associated with commercial and commercial real estate loans which were transferred to held for sale and sold during the second quarter. Net charge-offs to average loans were 0.31% and 0.35% for the three and six months ended June 30, 2007, as compared to 0.33% and 0.39% for the three and six months ended June 30, 2006.

Under-performing assets totaled $61.8 million at June 30, 2007, an increase of $5.7 million compared to $56.1 million at June 30, 2006, and an increase of $14.8 million compared to $47.0 million at December 31, 2006. As a percent of total loans and foreclosed properties, under-performing assets at June 30, 2007, were 1.27%, an increase from the June 30, 2006 ratio of 1.15% and an increase from the December 31, 2006 ratio of 1.00%. Nonaccrual loans were $58.5 million at June 30, 2007, compared to $51.7 million at June 30, 2006, and $41.5 million at December 31, 2006. The increase in nonaccrual loans from December 31, 2006 to June 30, 2007 relates to $11.0 million of nonaccrual loans acquired from St. Joseph and $9.1 million to a single Old National commercial credit. Management will continue its efforts to reduce the level of under-performing loans and will consider the possibility of sales of troubled and non-performing loans, which could result in additional charge-offs to the allowance for loan losses.

Total classified and criticized loans were $221.6 million at June 30, 2007, an increase of $18.8 million from June 30, 2006, and a decrease of $51.4 million from December 31, 2006. Classified loans related to the St. Joseph acquisition amounted to $15.5 million.

Allowance for Loan Losses and Reserve for Unfunded Commitments
To provide for the risk of loss inherent in extending credit, Old National maintains an allowance for loan losses. The determination of the allowance is based upon the size and current risk characteristics of the loan portfolio and includes an assessment of individual problem loans, actual loss experience, current economic events and regulatory guidance. At June 30, 2007, the allowance for loan losses was $67.5 million, a decrease of $8.9 million compared to $76.4 million at June 30, 2006, and a decrease of $0.3 million compared to $67.8 million at December 31, 2006. As a percentage of total loans, including loans held for sale, the allowance decreased to 1.38% at June 30, 2007, from 1.57% at June 30, 2006, and decreased from 1.44% at December 31, 2006. There was no provision for loan losses for the three months ended June 30, 2007, compared to $3.5 million for the three months ended June 30, 2006. The provision for the six months ended June 30, 2007, amounted to $2.4 million compared to $7.0 million for the six months ended June 30, 2006. Continued strong asset quality combined with low charge-off experience necessitated a reduction in the loan loss reserve according to the Company’s reserve formula.

In accordance with generally accepted accounting principles, the $5.2 million reserve for unfunded loan commitments is classified as a liability account on the balance sheet. The reserve for unfunded loan commitments increased $0.4 million during the first six months of 2007 from $4.8 million at December 31, 2006, primarily as a result of the St. Joseph acquisition.

Market Risk
Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, currency exchange rates, and other relevant market rates or prices. Interest rate risk is Old National’s primary market risk and results from timing differences in the re-pricing of assets and liabilities, changes in the slope of the yield curve, and the potential exercise of explicit or embedded options.

Old National manages interest rate risk within an overall asset and liability management framework that includes attention to credit risk, liquidity risk and capitalization. A principal objective of asset/liability management is to manage the sensitivity of net interest income to changing interest rates. Asset and liability management activity is governed by a policy reviewed and approved annually by the Board of Directors. The Board of Directors has delegated the administration of this policy to the Funds Management Committee, a committee of the Board of Directors, and the Executive Balance Sheet Management Committee, a committee comprised of senior executive management. The Funds Management Committee meets quarterly and oversees adherence to policy and recommends policy changes to the Board. The Executive Balance Sheet Management Committee meets quarterly. This committee determines balance sheet management strategies and initiatives for the Company. A group comprised of corporate and line management meets monthly to implement strategies and initiatives determined by the Executive Balance Sheet Management Committee.

Old National uses two modeling techniques to quantify the impact of changing interest rates on the Company, Net Interest Income at Risk and Economic Value of Equity. Net Interest Income at Risk is used by management and the Board of Directors to evaluate the impact of changing rates over a two-year horizon. Economic Value of Equity is used to evaluate long-term interest rate risk. These models simulate the likely behavior of the Company’s net interest income and the likely change in the Company’s economic value due to changes in interest rates under various possible interest rate scenarios. Because the models are driven by expected behavior in various interest rate scenarios and many factors besides market interest rates affect the Company’s net interest income and value, Old National recognizes that model outputs are not guarantees of actual results. For this reason, Old National models many different combinations of interest rates and balance sheet assumptions to understand its overall sensitivity to market interest rate changes.

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, 2007 and 2006 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%

6/30/2007	3.79%	3.92%	2.41%	-1.81%	-3.60%	-5.59%
6/30/2006	1.64%	2.71%	1.99%	-3.14%	-6.93%	-10.42%

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%

6/30/2007	1.68%	2.57%	1.91%	-1.90%	-3.95%	-6.22%
6/30/2006	-2.48%	0.40%	1.06%	-2.50%	-5.83%	-8.93%

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%

6/30/2007	-12.18%	-5.18%	-0.65%	-1.02%	-3.43%	-7.90%
6/30/2006	-13.97%	-5.32%	-0.60%	-2.54%	-5.41%	-9.18%

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, 2007, 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 June 30, 2007, modeling indicated Old National was within the green zone policy limits for all Economic Value of Equity Scenarios. Old National’s green zone is considered the 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 Company’s derivatives had an estimated fair value loss of $12.9 million at June 30, 2007, compared to an estimated fair value loss of $20.4 million at December 31, 2006. The improvement is primarily related to the reduction in notional amount of fair value hedges, specifically receive fixed interest rate swaps. See Note 15 to the consolidated financial statements for additional information.

Liquidity Risk
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.

Loan repayments and maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of investment securities and prepayements of loans and mortgage-related securities are strongly influenced by interest rates, the weakening housing market, general and local economic conditions, and competition in the marketplace. We continue to monitor the securities markets to identify trends that might reduce the predictability of the timing of these sources of funds.

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 June 30, 2007. Fitch Rating Services reaffirmed a negative outlook in conjunction with their ratings as of July 18, 2007. The senior debt ratings of Old National Bancorp and Old National Bank at June 30, 2007, are shown in the following table:

SENIOR DEBT RATINGS

Standard and

Moody’s Investor

Dominion Bond

Poor’s

Services

Fitch, Inc.

Rating Svc.

Long

Short

Long

Short

Long

Short

Long

Short

term

Old National Bancorp

BBB

N/A

BBB

BBB (high)

R-2 (high)

Old National Bank

BBB+

P-1

BBB+

A (low)

R-1 (low)

N/A = not applicable

As of June 30, 2007, Old National Bank had the capacity to borrow $694.9 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.

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. At June 30, 2007, the parent company’s other borrowings outstanding was $264.8 million, compared with $255.5 million at December 31, 2006. The $9.3 million increase in other borrowings from December 31, 2006 to June 30, 2007 was attributable to junior subordinated debentures from the St. Joseph Capital Corporation purchase during the first quarter of 2007 and an increase in value of SFAS 133 fair value hedges. Old National Bancorp, the parent company, has $110.0 million of 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, 2007, regulatory approval was obtained for Old National’s affiliate bank to pay dividends.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Old National’s accounting policies are described in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. Certain accounting policies require management to use significant judgment and estimates, which can have a material impact on the carrying value of certain assets and liabilities. We consider these policies to be critical accounting policies. The judgment and assumptions made are based upon historical experience or other factors that management believes to be reasonable under the circumstances. Because of the nature of the judgment and assumptions, actual results could differ from these judgments and estimates which could have a material affect on our financial condition and results of operations.

The following accounting policies materially affect our reported earnings and financial condition and require significant judgments and estimates.

•

Allowance for Loan Losses. The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses in the consolidated loan portfolio. Management’s evaluation of the adequacy of the allowance is an estimate based on reviews of individual loans, pools of homogeneous loans, assessments of the impact of current and anticipated economic conditions on the portfolio and historical loss experience. The allowance represents management’s best estimate, but significant downturns in circumstances relating to loan quality and economic conditions could result in a requirement for additional allowance in the near future. Likewise, an upturn in loan quality and improved economic conditions may allow a reduction in the required allowance. In either instance, unanticipated changes could have a significant impact on results of operations.

The allowance is increased through a provision charged to operating expense. Uncollectible loans are charged-off through the allowance. Recoveries of loans previously charged-off are added to the allowance. A loan is considered impaired when it is probable that contractual interest and principal payments will not be collected either for the amounts or by the dates as scheduled in the loan agreement. Old National’s policy for recognizing income on impaired loans is to accrue interest unless a loan is placed on nonaccrual status. A loan is generally placed on nonaccrual status when principal or interest becomes 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. 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, grade changes, 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 and regular reviews of problem loan reports, delinquencies and charge-offs.

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 by matching actual losses incurred on loans back to their origination. 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 allowance for consumer and residential real estate loans.

Management’s analysis of probable losses in the portfolio at June 30, 2007, resulted in a range for allowance for loan losses of $8.1 million with the potential effect to net income ranging from a decrease of $1.7 million to an increase of $3.6 million. These sensitivities are hypothetical and are not intended to represent actual results.

•

Goodwill and Intangibles. For acquisitions, Old National is required to record the assets acquired, including identified intangible assets, and the liabilities assumed at their fair value. These often involve estimates based on third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques that may include estimates of attrition, inflation, asset growth rates or other relevant factors. In addition, the determination of the useful lives for which an intangible asset will be amortized is subjective. Under Statement of Financial Accounting Standards (“SFAS”) No. 142 Goodwill and Other Intangible Assets, goodwill and indefinite-lived assets recorded must be reviewed for impairment on an annual basis, as well as on an interim basis if events or changes indicate that the asset might be impaired. An impairment loss must be recognized for any excess of carrying value over fair value of the goodwill or the indefinite-lived intangible asset with subsequent reversal of the impairment loss being prohibited.

The determination of fair values is based on internal valuations using management’s assumptions of future growth rates, future attrition, discount rates, multiples of earnings or other relevant factors. Changes in these factors, as well as downturns in economic or business conditions, could have a significant adverse impact on the carrying values of goodwill or intangible assets and could result in impairment losses affecting the financials of the Company as a whole and the individual lines of business in which the goodwill or intangibles reside.

•		Derivative Financial Instruments. As part of the Company’s overall interest rate risk management, Old National uses derivative instruments to reduce exposure to changes in interest rates and market prices for financial instruments. The application of the hedge accounting policy requires judgment in the assessment of hedge effectiveness, identification of similar hedged item groupings and measurement of changes in the fair value of derivative financial instruments and hedged items. To the extent hedging relationships are found to be effective, as determined by SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, changes in fair value of the derivatives are significantly offset by changes in the fair value of the related hedged item or recorded to other comprehensive income. However, if in the future the derivative financial instruments used by the Company no longer qualify for hedge accounting treatment, all changes in fair value of the derivative would flow through the consolidated statements of income in other noninterest income, resulting in greater volatility in our earnings. Management believes hedge effectiveness is evaluated properly in preparation of the financial statements. All of the derivative financial instruments used by the Company have active markets and indications of fair value can be readily obtained.

•		Income Taxes. The Company is subject to the income tax laws of the U.S, its states and the municipalities in which the Company operates. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws. The Company must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions. Disputes over interpretations of the tax laws may be subject to review/adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit. The Company reviews income tax expense and the carrying value of deferred tax assets quarterly; and as new information becomes available, the balances are adjusted as appropriate.

On January 1, 2007, the Company adopted FIN 48 to account for uncertain tax positions. FIN 48 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. See Note 14 to the Consolidated Financial Statements for a further description of the Company’s provision and related income tax assets and liabilities.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of the Board of Directors and the Audit Committee has reviewed the Company’s disclosure relating to it in this “Management’s Discussion and Analysis”.

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 any 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 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

See Management’s Discussion and Analysis of Financial Condition and Results of Operations-Market Risk and Liquidity Risk.


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 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 a 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.

PART II
OTHER INFORMATION


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, 2006.


ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c)

ISSUER PURCHASES OF EQUITY SECURITIES


					Total Number
					of Shares		Maximum Number
					Purchased as Part		of Shares that
					of Publically		May Yet Be
	Total Number of		Average Price		Announced		Purchased Under the
Period	Shares Purchased		Paid Per Share		Plans or Programs		Plans or Programs

04/01/07 - 04/30/07		—	$	—		—		4,545,192
05/01/07 - 05/31/07		200,000		17.79		200,000		4,345,192
06/01/07 - 06/30/07		20,000		17.85		20,000		4,325,192

Quarter-to-date 06/30/07		220,000	$	17.80		220,000		4,325,192


ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the May 17, 2007, Annual Meeting of Shareholders, the following matters were submitted to a vote of the shareholders:

(a)

Election of Directors — The following directors were elected to Class II of the Board of Directors, each to hold office for three years (until the 2010 Annual Meeting) and until his successor shall have been duly elected and qualified:


	Vote Counts
	For		Withheld
Class II Directors (term ending 2010)
Niel C. Ellerbrook		48,325,310		3,541,691
Kelly N. Stanley		48,416,066		3,449,827

(b)		Declassification of the Board of Directors — Approval of the amendment to Section 1 of Article VII of the Company’s Amended and Restated Articles of Incorporation to declassify the Board of Directors and to provide for the annual election of directors:

		For — 50,364,480; Votes Against — 950,836; Votes Abstained — 551,679; Broker nonvotes — 1,220,333

(c)		Deletion of Article IV of the Amended and Restated Articles of Incorporation — Approval of the amendment to the Company’s Amended and Restated Articles of Incorporation to delete Article IV in its entirety and to renumber the Articles which follow Article IV:

		For — 50,087,596; Votes Against — 875,766; Votes Abstained — 903,635; Broker nonvotes — 1,220,332

(d)		Ratification of the selection of Independent Public Accountants — Crowe Chizek and Company LLC:

		For — 50,570,146; Votes Against — 673,832; Votes Abstained — 623,026; Broker nonvotes — 1,220,324


ITEM 5.		OTHER INFORMATION

(a)

NONE

(b)

There have been no material changes in the procedure by which security holders recommend nominees to the Company’s board of directors.


ITEM 6.		EXHIBITS


Exhibit No.		Description
3.1		Articles of Incorporation of Old National, amended May 22, 2007 (incorporated by reference to Exhibit 3.1 of Old National’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 22, 2007).
3.2		By-Laws of Old National, amended April 26, 2007 (incorporated by reference to Exhibit 3.1 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 30, 2007).
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).*


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).*
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 (incorporated by reference to Exhibit 10.12 of Old National’s 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). *


Exhibit No.		Description
10.18		Form of Executive Stock Option Award Agreement between Old National and certain key associates (incorporated by reference to Exhibit 10(h) of Old National’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004).*
10.19		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).*
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).*
10.23		Form of 2007 “Performance-Based” Restricted Stock Award Agreement between Old National and certain key associates (incorporated by reference to Exhibit 10(w) of Old National’s Annual Report on Form 10-K for the year ended December 31, 2006).*
10.24		Form of 2007 “Service-Based” Restricted Stock Award Agreement between Old National and certain key associates (incorporated by reference to Exhibit 10(x) of Old National’s Annual Report on Form 10-K for the year ended December 31, 2006).*
10.25		Form of 2007 Non-qualified Stock Option Agreement between Old National and certain key associates (incorporated by reference to Exhibit 10(y) of Old National’s Annual Report on Form 10-K for the year ended December 31, 2006).*
10.26		Purchase and Sale Agreement dated December 20, 2006, between Old National Bancorp, Old National Bank, Old National Realty Company, Inc., ONB One Main Landlord, LLC, ONB 123 Main Landlord, LLC, and ONB 4^th Street Landlord, LLC (incorporated by reference to Exhibit 10(z) of Old National’s Annual Report on Form 10-K for the year ended December 31, 2006).*
10.27		Lease Agreement, dated December 20, 2006 between ONB One Main Landlord, LLC and Old National Bank (incorporated by reference to Exhibit 10(aa) of Old National’s Annual Report on Form 10-K for the year ended December 31, 2006).*
10.28		Lease Agreement, dated December 20, 2006 between ONB 123 Main Landlord, LLC and Old National Bank (incorporated by reference to Exhibit 10(ab) of Old National’s Annual Report on Form 10-K for the year ended December 31, 2006).*
10.29		Lease Agreement, dated December 20, 2006 between ONB 4^th Street Landlord, LLC and Old National Bank (incorporated by reference to Exhibit 10(ac) of Old National’s Annual Report on Form 10-K for the year ended December 31, 2006).*


Exhibit No.		Description
10.30		Agreement and Plan of Merger dated as of October 21, 2006 by and among Old National Bancorp, St. Joseph Capital Corporation and SMS Subsidiary, Inc. (the schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K) (incorporated by reference to Exhibit 2.1 of Old National’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 23, 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

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
	Senior Executive Vice President and Chief Financial Officer Duly Authorized Officer and Principal Financial Officer

	Date: August 9, 2007

EXHIBIT INDEX


Exhibit No.		Description
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.

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