UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) Of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2010

Commission File Number 1-15817

OLD NATIONAL BANCORP

(Exact name of the Registrant as specified in its charter)

INDIANA		35-1539838
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
One Main Street
Evansville, Indiana		47708
(Address of principal executive offices)		(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act

Title of Each Class		Name of each exchange on which registered
Common Stock, No Par Value
Preferred Stock Purchase Rights		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (s232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (s229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

The aggregate market value of the Registrant’s voting common stock held by non-affiliates on June 30, 2010, was $871,266,571 (based on the closing price on that date of $10.36). In calculating the market value of securities held by non-affiliates of the Registrant, the Registrant has treated as securities held by affiliates as of June 30, 2010, voting stock owned of record by its directors and principal executive officers, and voting stock held by the Registrant’s trust department in a fiduciary capacity for benefit of its directors and principal executive officers. This calculation does not reflect a determination that persons are affiliates for any other purposes.

The number of shares outstanding of the Registrant’s common stock, as of January 31, 2011, was 94,760,000.

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held May 19, 2011, are incorporated by reference into Part III of this Form 10-K.

 

 

OLD NATIONAL BANCORP
2010 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

		PAGE
PART I
Item 1. Business			4
Item 1A. Risk Factors			11
Item 1B. Unresolved Staff Comments			16
Item 2. Properties			16
Item 3. Legal Proceedings			16
Item 4. (Removed and Reserved)			17
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			17
Item 6. Selected Financial Data			19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			49
Item 8. Financial Statements and Supplementary Data			49
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			110
Item 9A. Controls and Procedures			110
Item 9B. Other Information			110
PART III
Item 10. Directors and Executive Officers of the Registrant			111
Item 11. Executive Compensation			111
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			111
Item 13. Certain Relationships and Related Transactions			111
Item 14. Principal Accounting Fees and Services			111
PART IV
Item 15. Exhibits and Financial Statement Schedules			112
SIGNATURES			118
Exhibit 10(av)
Exhibit 10(aw)
Exhibit 10(ax)
Exhibit 21
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

OLD NATIONAL BANCORP
2010 ANNUAL REPORT ON FORM 10-K

FORWARD-LOOKING STATEMENTS

In this report, we have made various statements regarding current expectations or forecasts of future events, which speak only as of the date the statements are made. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are also made from time-to-time in press releases and in oral statements made by the officers of Old National Bancorp (“Old National,” or the “Company”). Forward-looking statements are identified by the words “expect,” “may,” “could,” “intend,” “project,” “estimate,” “believe”, “anticipate” and similar expressions. Forward-looking statements also include, but are not limited to, statements regarding estimated cost savings, plans and objectives for future operations, and expectations about performance as well as economic and market conditions and trends.

Such forward-looking statements are based on assumptions and estimates, which although believed to be reasonable, may turn out to be incorrect. Therefore, undue reliance should not be placed upon these estimates and statements. We can not assure that any of these statements, estimates, or beliefs will be realized and actual results may differ from those contemplated in these “forward-looking statements.” We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. You are advised to consult further disclosures we may make on related subjects in our filings with the SEC. In addition to other factors discussed in this report, some of the important factors that could cause actual results to differ materially from those discussed in the forward-looking statements include the following:

•		economic, market, operational, liquidity, credit and interest rate risks associated with our business;
•		economic conditions generally and in the financial services industry;
•		increased competition in the financial services industry either nationally or regionally, resulting in, among other things, credit quality deterioration;
•		our ability to achieve loan and deposit growth;
•		volatility and direction of market interest rates;
•		governmental legislation and regulation, including changes in accounting regulation or standards;
•		our ability to execute our business plan;
•		a weakening of the economy which could materially impact credit quality trends and the ability to generate loans;
•		changes in the securities markets; and
•		changes in fiscal, monetary and tax policies.

Investors should consider these risks, uncertainties and other factors in addition to risk factors included in our other filings with the SEC.

PART I

ITEM 1.		BUSINESS

GENERAL

Old National is a financial holding company incorporated in the State of Indiana and maintains its principal executive office in Evansville, Indiana. We, through our wholly owned banking subsidiary, provide a wide range of services, including commercial and consumer loan and depository services, investment and brokerage services, lease financing and other traditional banking services. Through our non-bank affiliates, we provide services to supplement the banking business including fiduciary and wealth management services, insurance and other financial services. As of December 31, 2010, we employed 2,491 full-time equivalent associates.

COMPANY PROFILE

Old National Bank, our wholly owned banking subsidiary (“Old National Bank”), was founded in 1834 and is the oldest company in Evansville, Indiana. In 1982, Old National was formed; in 2001 we became a financial holding company and we are currently the largest financial holding company headquartered in the state of Indiana. Also in 2001, we completed the consolidation of 21 bank charters enabling us to operate under a common name with consistent product offerings throughout the financial center locations, consolidating back-office operations and allowing us to provide more convenient service to clients. We provide financial services primarily in Indiana, eastern and southeastern Illinois, and central and western Kentucky.

OPERATING SEGMENTS

We operate in two segments: community banking and treasury. Substantially all of our revenues are derived from customers located in, and substantially all of our assets are located in, the United States. A description of each segment follows.

Community Banking Segment

The community banking segment operates through Old National Bank, and has traditionally been the most significant contributor to our revenue and earnings. The primary goal of the community banking segment is to provide products and services that address clients’ needs and help clients reach their financial goals by offering a broad array of quality services. Our financial centers focus on convenience factors such as location, space for private consultations and quick client access to routine transactions.

As of December 31, 2010, Old National Bank operated 161 banking financial centers located primarily in Indiana, Illinois, and Kentucky. The community banking segment primarily consists of lending and depository activities along with merchant cash management, internet banking and other services relating to the general banking business. In addition, the community banking segment includes Indiana Old National Insurance Company (“IONIC”), which reinsures credit life insurance. IONIC also provides property and casualty insurance for Old National and reinsures most of the coverage with non-affiliated carriers.

Lending Activities

We earn interest income on loans as well as fee income from the origination of loans. Lending activities include loans to individuals which primarily consist of home equity lines of credit, residential real estate loans and consumer loans, and loans to commercial clients, which include commercial loans, commercial real estate loans, letters of credit and lease financing. Residential real estate loans are either kept in our loan portfolio or sold servicing released to secondary investors, with gains or losses from the sales being recognized.

Depository Activities

We strive to serve individuals and commercial clients by providing depository services that fit their needs at competitive rates. We pay interest on the interest-bearing deposits and receive service fee revenue on various accounts. Deposit accounts include products such as noninterest-bearing demand, negotiable order of withdrawal (“NOW”), savings and money market, and time deposits. Debit and ATM cards provide clients with access to their accounts 24 hours a day at any ATM location. We also provide 24-hour telephone access and online banking as well as other electronic banking services.

Investment and Brokerage Services

We, through a registered third party broker-dealer, provide clients with convenient and professional investment services and a variety of brokerage products. This line of business offers a full array of investment options and investment advice to its clients.

Treasury Segment

Treasury manages investments, wholesale funding, interest rate risk, liquidity and leverage for Old National. Treasury also provides capital markets products, including interest rate derivatives, foreign exchange and industrial revenue bond financing for our commercial clients.

Other

The following lines of business are included in the “other” column for all periods reported:

Wealth Management

Fiduciary and trust services targeted at high net worth individuals are offered through an affiliate trust company under the business name of Old National Trust Company.

Insurance Agency Services

Through our insurance agency subsidiaries, we offer full-service insurance brokerage services including commercial property and casualty, surety, loss control services, employee benefits consulting and administration, and personal insurance. These subsidiaries are insurance agencies that offer products that are issued and underwritten by various insurance companies not affiliated with us.

Additional information about our business segments is included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 21 to the consolidated financial statements.

MARKET AREA

We own the largest Indiana-based bank and one of the largest independent insurance agencies headquartered in Indiana. Operating from a home base in Evansville, Indiana, we have continued to grow our footprint in Indiana and Kentucky with continued expansion in the attractive Louisville, Indianapolis and Lafayette markets. In February 2007, we expanded into Northern Indiana by acquiring St. Joseph Capital Corporation, which had banking offices in Mishawaka and Elkhart, Indiana. In March 2009, we completed the acquisition of the Indiana retail branch banking network of Citizens Financial Group, which consisted of 65 branches and a training facility. The branches are located primarily in the Indianapolis area.

Subsequent to year-end, we closed on our acquisition of Monroe Bancorp, strengthening our presence in Bloomington, Indiana and the central and south central Indiana markets.

The following table reflects the market locations where we have a significant share of the deposit market. The market share data is by metropolitan statistical area. The Evansville, Indiana data includes branches in Henderson, Kentucky.

Old National Deposit Market Share and Number of Branch Locations
Deposits as of June 30, 2010

		Number of				Deposit Market
Market Location		Branches				Share Rank
Central City, Kentucky			4			1st
Danville, Illinois			3			1st
Harrisburg, Illinois			1			2nd
Evansville, Indiana			20			2nd
Terre Haute, Indiana			6			2nd
Jasper, Indiana			6			2nd
Carbondale, Illinois			4			2nd
Vincennes, Indiana			4			2nd
Washington, Indiana			3			2nd
Muncie, Indiana			6			3rd

ACQUISITION AND DIVESTITURE STRATEGY

Since the formation of Old National in 1982, we have acquired more than 40 financial institutions and financial services companies. Future acquisitions and divestitures will be driven by a disciplined financial process and will be consistent with the existing focus on community banking, client relationships and consistent quality earnings. Targeted geographic markets for acquisitions include mid-size markets within or near our existing franchise with average to above average growth rates.

As with previous acquisitions, the consideration paid by us will be in the form of cash, debt or Old National stock. The amount and structure of such consideration is based on reasonable growth and cost savings assumptions and a thorough analysis of the impact on both long- and short-term financial results.

Subsequent to year end, we acquired Monroe Bancorp in an all stock transaction. Monroe Bancorp is headquartered in Bloomington, Indiana and has 15 banking centers. Pursuant to the merger agreement, the shareholders of Monroe Bancorp received approximately 7.6 million shares of Old National Bancorp stock valued at approximately $90.1 million. On January 1, 2011, unaudited financial statements of Monroe Bancorp showed assets of $808.1 million, which included $509.6 million of loans, $166.4 million of securities and $711.5 million of deposits. The acquisition strengthens our deposit market share in the Bloomington, Indiana market and should improve our deposit market share rank to first place in 2011.

COMPETITION

The banking industry and related financial service providers operate in a highly competitive market. Old National competes with financial service providers such as local, regional and national banking institutions, savings and loan associations, credit unions, finance companies, investment brokers, and mortgage banking companies. In addition, Old National’s non-bank services face competition with asset managers and advisory services, money market and mutual fund companies and insurance agencies.

SUPERVISION AND REGULATION

Old National is subject to extensive regulation under federal and state laws. The regulatory framework is intended primarily for the protection of depositors, federal deposit insurance funds and the banking system as a whole and not for the protection of shareholders and creditors.

Significant elements of the laws and regulations applicable to Old National and its subsidiaries are described below. The description is qualified in its entirety by reference to the full text of the statutes, regulations and policies that are described. Also, such statutes, regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory agencies. A change in statutes, regulations or regulatory policies applicable to Old National and its subsidiaries could have a material effect on the business of the company.

The Dodd-Frank Act

On July 21, 2010, financial regulatory reform legislation entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act implements far-reaching changes across the financial regulatory landscape, including provisions that, among other things, will:

	•		Centralize responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, responsible for implementing, examining and enforcing compliance with federal consumer financial laws.
	•		Restrict the preemption of state law by federal law and disallow subsidiaries and affiliates of national banks, such as Old National Bank, from availing themselves of such preemption.
	•		Apply the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies, which, among other things, will require Old National to deduct, over three years beginning January 1, 2013, all trust preferred securities from Old National’s Tier 1 capital.
	•		Require the Office of the Comptroller of the Currency to seek to make its capital requirements for national banks, such as Old National Bank, countercyclical so that capital requirements increase in times of economic expansion and decrease in times of economic contraction.
	•		Require financial holding companies to be well capitalized and well managed as of July 21, 2011. Bank holding companies and banks must also be both well capitalized and well managed in order to acquire banks located outside their home state.
	•		Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminate the ceiling on the size of the Deposit Insurance Fund (“DIF”) and increase the floor of the size of the DIF.
	•		Impose comprehensive regulation of the over-the-counter derivatives market, which would include certain provisions that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in the institution itself.
	•		Require large, publicly traded bank holding companies to create a risk committee responsible for the oversight of enterprise risk management. Old National already has a risk committee which meets this requirement.
	•		Implement corporate governance revisions, including with regard to executive compensation and proxy access by shareholders, that apply to all public companies, not just financial institutions.
	•		Make permanent the $250 thousand limit for federal deposit insurance and increase the cash limit of Securities Investor Protection Corporation protection from $100 thousand to $250 thousand and provide unlimited federal deposit insurance until December 31, 2012 for noninterest bearing demand transaction accounts at all insured depository institutions.
	•		Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction accounts as well as other accounts.
	•		Amend the Electronic Fund Transfer Act (“EFTA”) to, among other things, give the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer.

Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on Old National, its customers or the financial industry more generally. Provisions in the legislation that affect the payment of interest on demand deposits and interchange fees are likely to increase the costs associated with deposits as well as place limitations on certain revenues those deposits may generate. Provisions in the legislation that revoke the Tier 1 capital treatment of trust preferred securities and otherwise require revisions to the capital requirements of Old National and Old National Bank could require Old National and Old National Bank to seek other sources of capital in the future.

Other Regulatory Agencies and Requirements

Old National is registered as a bank holding company and has elected to be a financial holding company. It is subject to the supervision of, and regulation by, the Board of Governors of the Federal Reserve System (“Federal Reserve”) under the Bank Holding Company Act of 1956, as amended (“BHC Act”). The Federal Reserve has issued regulations under the BHC Act requiring a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. It is the policy of the Federal Reserve that, pursuant to this requirement, a bank holding company should stand ready to use its resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity.

The BHC Act requires the prior approval of the Federal Reserve to acquire more than a 5% voting interest of any bank or bank holding company. Additionally, the BHC Act restricts Old National’s non-banking activities to those which are determined by the Federal Reserve to be closely related to banking and a proper incident thereto.

On July 30, 2002, the Senate and the House of Representatives of the United States (“Congress”) enacted the Sarbanes-Oxley Act of 2002, a law that addresses, among other issues, corporate governance, auditing and accounting, executive compensation and enhanced and timely disclosures of corporate information. In response, the New York Stock Exchange also adopted new corporate governance rules that are intended to allow shareholders to more easily and efficiently monitor the performance of companies and directors.

Effective August 29, 2002, as directed by Section 302(a) of the Sarbanes-Oxley Act, Old National’s principal executive officer and principal financial officer are required to certify that Old National’s quarterly and annual reports do not contain any untrue statements of a material fact. The rules also require that these officers certify that they are responsible for establishing, maintaining and regularly evaluating the effectiveness of Old National’s internal controls; they have made certain disclosures to auditors and the Audit Committee of the Board of Directors about internal controls; and they have included information in Old National’s quarterly and annual reports about their evaluation and whether there have been significant changes in Old National’s internal controls or in other factors that could significantly affect internal controls subject to the evaluation. Old National filed the Section 302(a) certifications with the SEC and the Listed Company Manual Section 303A.12(a) CEO certification with the New York Stock Exchange for the prior year. Old National’s current year’s Sarbanes-Oxley Section 302 certification is filed as an exhibit to this Form 10-K.

On October 26, 2001, the USA Patriot Act of 2001 was signed into law. Enacted in response to the terrorist attacks in New York, Pennsylvania and Washington, D.C. on September 11, 2001, the Patriot Act is intended to strengthen U.S. law enforcement’s and the intelligence community’s ability to work cohesively to combat terrorism on a variety of fronts. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and the statute and regulations promulgated under it impose a number of significant obligations on entities subject to its provisions, including: (a) due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons; (b) standards for verifying customer identification at account opening; (c) rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; (d) reports by non-financial trades and businesses filed with the U.S. Treasury Department’s (the “Treasury Department” or the “Treasury”) Financial Crimes Enforcement Network for transactions exceeding $10,000; and (e) filing of suspicious activities reports by brokers and dealers if they believe a customer may be violating U.S. laws and regulations.

Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), a bank holding company is required to guarantee the compliance of any insured depository institution subsidiary that may become “undercapitalized” (as defined in FDICIA) with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal bank regulatory agency.

Bank holding companies are required to comply with the Federal Reserve’s risk-based capital guidelines. The Federal Deposit Insurance Corporation (“FDIC”) and the Office of the Comptroller of the Currency (“OCC”) have adopted risk-based capital ratio guidelines to which depository institutions under their respective supervision are subject. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. Risk-based capital ratios are determined by allocating assets and specified off-balance sheet commitments to four risk-weighted categories, with higher levels of capital being required for the categories perceived as representing greater risk. Old National’s banking affiliate, Old National Bank, met all risk-based capital requirements of the FDIC and OCC as of December 31, 2010. For Old National’s regulatory capital ratios and regulatory requirements as of December 31, 2010, see Note 19 to the consolidated financial statements.

Old National Bank is subject to the provisions of the National Bank Act, is supervised, regulated and examined by the OCC, and is subject to the rules and regulations of the OCC, Federal Reserve and the FDIC.

A substantial portion of Old National’s cash revenue is derived from dividends paid to it by Old National Bank. These dividends are subject to various legal and regulatory restrictions as summarized in Note 19 to the consolidated financial statements.

Both federal and state law extensively regulate various aspects of the banking business, such as reserve requirements, truth-in-lending and truth-in-savings disclosures, equal credit opportunity, fair credit reporting, trading in securities and other aspects of banking operations. Branching by Old National Bank is subject to the jurisdiction and requires notice to or the prior approval of the OCC.

Old National and Old National Bank are subject to the Federal Reserve Act, which restricts financial transactions between banks and affiliated companies. The statute limits credit transactions between banks, affiliated companies and its executive officers and its affiliates. The statute prescribes terms and conditions for bank affiliate transactions deemed to be consistent with safe and sound banking practices, and restricts the types of collateral security permitted in connection with a bank’s extension of credit to an affiliate. Additionally, all transactions with an affiliate must be on terms substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with nonaffiliated parties.

FDICIA accomplished a number of sweeping changes in the regulation of depository institutions, including Old National Bank. FDICIA requires, among other things, federal bank regulatory authorities to take “prompt corrective action” with respect to banks which do not meet minimum capital requirements. FDICIA further directs that each federal banking agency prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, management compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value of publicly traded shares and such other standards as the agency deems appropriate.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 allows for interstate banking and interstate branching without regard to whether such activity is permissible under state law. Bank holding companies may now acquire banks anywhere in the United States subject to certain state restrictions.

The Gramm-Leach-Bliley Act (“GLBA”) permits bank holding companies which have elected to become financial holding companies to engage in a substantially broader range of non-banking activities, including securities, investment advice and insurance activities, than is permissible for bank holding companies that have not elected to become financial holding companies. Old National has elected to be a financial holding company. As a result, Old National may underwrite and sell securities and insurance. It may acquire, or be acquired by, brokerage firms and insurance underwriters.

GLBA established new requirements for financial institutions to provide enhanced privacy protections to customers. In June of 2000, the Federal banking agencies jointly adopted a final regulation providing for the implementation of these protections. Financial institutions are required to provide notice to consumers which details its privacy policies and practices, describes under what conditions a financial institution may disclose nonpublic personal information about consumers to nonaffiliated third parties and provides an “opt-out” method which enables consumers to prevent the financial institution from disclosing customer information to nonaffiliated third parties. Financial institutions were required to be in compliance with the final regulation by July 1, 2001, and Old National was in compliance at such date and continues to be in compliance.

In October 2008, the Emergency Economic Stabilization Act of 2008 (“EESA”) was enacted. The EESA authorizes the Treasury Department to purchase from financial institutions and their holding companies up to $700 billion in mortgage loans, mortgage-related securities and certain other financial instruments, including debt and equity securities issued by financial institutions and their holding companies in a troubled asset relief program (“TARP”). The purpose of TARP is to restore confidence and stability to the U.S. banking system and to encourage financial institutions to increase their lending to customers and to each other. The Treasury Department has allocated $350 billion towards the TARP Capital Purchase Program (“CPP”). Under the CPP, Treasury will purchase debt or equity securities from participating institutions. The TARP also will include direct purchases or guarantees of troubled assets of financial institutions. Participants in the CPP are subject to executive compensation limits and are encouraged to expand their lending and mortgage loan modifications. For details regarding Old National’s participation in TARP, refer to the “Financial Condition — Capital” section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

EESA also increased FDIC deposit insurance on most accounts from $100,000 to $250,000. The Dodd-Frank Act made permanent the $250,000 deposit insurance limit for insured deposits.

Following a systemic risk determination, the FDIC established a Temporary Liquidity Guarantee Program (“TLGP”) on October 14, 2008. The TLGP includes the Transaction Account Guarantee Program (“TAGP”), which provided unlimited deposit insurance coverage through December 31, 2009 for noninterest-bearing transaction accounts (typically business checking accounts) and certain funds swept into noninterest-bearing savings accounts. Institutions participating in the TAGP pay a 10 basis points fee (annualized) on the balance of each covered account in excess of $250,000, while the extra deposit insurance is in place. The TAGP was extended through December 31, 2010.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law by President Obama. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients, including Old National, until the institution has repaid the Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to the Treasury’s consultation with the recipient’s appropriate regulatory agency. Old National has been a TARP recipient, but has exercised its right to repay Treasury and is no longer subject to the compensation and corporate expenditure limits imposed by ARRA on TARP recipients. For details regarding Old National’s participation in TARP, refer to the “Financial Condition — Capital” section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

In addition to the matters discussed above, Old National Bank is subject to additional regulation of its activities, including a variety of consumer protection regulations affecting its lending, deposit and collection activities and regulations affecting secondary mortgage market activities. The earnings of financial institutions are also affected by general economic conditions and prevailing interest rates, both domestic and foreign and by the monetary and fiscal policies of the United States government and its various agencies, particularly the Federal Reserve.

Additional legislative and administrative actions affecting the banking industry may be considered by Congress, state legislatures and various regulatory agencies, including those referred to above. It cannot be predicted with certainty whether such legislative or administrative action will be enacted or the extent to which the banking industry in general or Old National and Old National Bank in particular would be affected.

AVAILABLE INFORMATION

All reports filed electronically by Old National with the Securities and Exchange Commission (“SEC”), including the annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements, other information and amendments to those reports filed (if applicable), are accessible at no cost on Old National’s web site at www.oldnational.com. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, and Old National’s filings are accessible on the SEC’s web site at www.sec.gov. The public may read and copy any materials filed by Old National with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

ITEM 1A.		RISK FACTORS

Old National’s business could be harmed by any of the risks noted below. In analyzing whether to make or to continue an investment in Old National, investors should consider, among other factors, the following:

Risks Related to Old National’s Business

Economic conditions have affected and could continue to adversely affect our revenues and profits.

From December 2007 through June 2009, the U.S. economy was in recession. Business activity across a wide range of industries and regions in the U.S. was greatly reduced. Although economic conditions have begun to improve, certain sectors, such as real estate, remain weak and unemployment remains high. Local governments and many businesses are still in serious difficulty due to lower consumer spending and the lack of liquidity in the credit markets.

Market conditions also led to the failure or merger of several prominent financial institutions and numerous regional and community-based financial institutions. These failures, as well as projected future failures, have had a significant negative impact on the capitalization level of the deposit insurance fund of the FDIC, which, in turn, has led to a significant increase in deposit insurance premiums paid by financial institutions.

Old National’s financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services that Old national offers, is highly dependent upon the business environment in the markets where Old National operates and in the United States as a whole. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment, natural disasters, or a combination of these or other factors.

Overall, during 2010 the business environment has been adverse for many households and businesses in the United States and worldwide. While economic conditions in the United States and worldwide have begun to improve, there can be no assurance that this improvement will continue. Such conditions could adversely affect the credit quality of Old National’s loans, results of operations and financial condition.

In response to economic and market conditions, from time to time we have undertaken initiatives to reduce our cost structure where appropriate. These initiatives, as well as any future workforce and facilities reductions, may not be sufficient to meet current and future changes in economic and market conditions and allow us to achieve profitability. In addition, costs actually incurred in connection with our restructuring actions may be higher than our estimates of such costs and/or may not lead to the anticipated cost savings. Unless and until the economy, loan demand, credit quality and consumer confidence improve, it is unlikely that revenues will increase significantly, and may be reduced further.

We face risks with respect to future expansion.

We may acquire other financial institutions or parts of those institutions in the future, and we may engage in de novo branch expansion. We may also consider and enter into new lines of business or offer new products or services. Acquisitions and mergers involve a number of expenses and risks, including:

	•		the time and costs associated with identifying potential new markets, as well as acquisition and merger targets;
	•		the estimates and judgments used to evaluate credit, operations, management and market risks with respect to the target institution may not be accurate;

	•		the time and costs of evaluating new markets, hiring experienced local management and opening new offices, and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion;
	•		our ability to finance an acquisition and possible dilution to our existing shareholders;
	•		the diversion of our management’s attention to the negotiation of a transaction, and the integration of the operations and personnel of the combined businesses;
	•		entry into new markets where we lack experience;
	•		the introduction of new products and services into our business;
	•		the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and
	•		the risk of loss of key employees and customers.

We may incur substantial costs to expand, and we can give no assurance such expansion will result in the levels of profits we seek. There can be no assurance integration efforts for any future mergers or acquisitions will be successful. Also, we may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to our current shareholders. There is no assurance that, following any future mergers or acquisitions, our integration efforts will be successful or that, after giving effect to the acquisition, we will achieve profits comparable to or better than our historical experience.

If Old National’s actual loan losses exceed Old National’s allowance for loan losses, Old National’s net income will decrease.

Old National makes various assumptions and judgments about the collectibility of Old National’s loan portfolio, including the creditworthiness of Old National’s borrowers and the value of the real estate and other assets serving as collateral for the repayment of Old National’s loans. Despite Old National’s underwriting and monitoring practices, the effect of the declining economy could negatively impact the ability of Old National’s borrowers to repay loans in a timely manner and could also negatively impact collateral values. As a result, Old National may experience significant loan losses that could have a material adverse effect on Old National’s operating results. Since Old National must use assumptions regarding individual loans and the economy, Old National’s current allowance for loan losses may not be sufficient to cover actual loan losses. Old National’s assumptions may not anticipate the severity or duration of the current credit cycle and Old National may need to significantly increase Old National’s provision for losses on loans if one or more of Old National’s larger loans or credit relationships becomes delinquent or if Old National expands its commercial real estate and commercial lending. In addition, federal and state regulators periodically review Old National’s allowance for loan losses and may require Old National to increase the provision for loan losses or recognize loan charge-offs. Material additions to Old National’s allowance would materially decrease Old National’s net income. There can be no assurance that Old National’s monitoring procedures and policies will reduce certain lending risks or that Old National’s allowance for loan losses will be adequate to cover actual losses.

Old National’s loan portfolio includes loans with a higher risk of loss.

Old National Bank originates commercial real estate loans, commercial loans, agricultural real estate loans, agricultural loans, consumer loans, and residential real estate loans primarily within Old National’s market areas. Commercial real estate, commercial, consumer, and agricultural loans may expose a lender to greater credit risk than loans secured by residential real estate because the collateral securing these loans may not be sold as easily as residential real estate. These loans also have greater credit risk than residential real estate for the following reasons:

•

Commercial Real Estate Loans. Repayment is dependent upon income being generated in amounts sufficient to cover operating expenses and debt service.

	•		Commercial Loans. Repayment is dependent upon the successful operation of the borrower’s business.
	•		Consumer Loans. Consumer loans (such as personal lines of credit) are collateralized, if at all, with assets that may not provide an adequate source of payment of the loan due to depreciation, damage, or loss.
	•		Agricultural Loans. Repayment is dependent upon the successful operation of the business, which is greatly dependent on many things outside the control of either Old National Bank or the borrowers. These factors include weather, commodity prices, and interest rates.

Credit quality issues may continue to broaden in these sectors during 2011 depending on the severity and duration of the declining economy and current credit cycle.

If Old National forecloses on collateral property, Old National may be subject to the increased costs associated with the ownership of real property, resulting in reduced revenues.

Old National may have to foreclose on collateral property to protect Old National’s investment and may thereafter own and operate such property, in which case Old National will be exposed to the risks inherent in the ownership of real estate. The amount that Old National, as a mortgagee, may realize after a default is dependent upon factors outside of Old National’s control, including, but not limited to: (i) general or local economic conditions; (ii) neighborhood values; (iii) interest rates; (iv) real estate tax rates; (v) operating expenses of the mortgaged properties; (vi) environmental remediation liabilities; (vii) ability to obtain and maintain adequate occupancy of the properties; (viii) zoning laws; (ix) governmental rules, regulations and fiscal policies; and (x) acts of God. Certain expenditures associated with the ownership of real estate, principally real estate taxes, insurance, and maintenance costs, may adversely affect the income from the real estate. Therefore, the cost of operating real property may exceed the income earned from such property, and Old National may have to advance funds in order to protect Old National’s investment, or Old National may be required to dispose of the real property at a loss. The foregoing expenditures and costs could adversely affect Old National’s ability to generate revenues, resulting in reduced levels of profitability.

Old National operates in an extremely competitive market, and Old National’s business will suffer if Old National is unable to compete effectively.

In Old National’s market area, the Company encounters significant competition from other commercial banks, savings and loan associations, credit unions, mortgage banking firms, consumer finance companies securities brokerage firms, insurance companies, money market mutual funds and other financial intermediaries. The Company’s competitors may have substantially greater resources and lending limits than Old National does and may offer services that Old National does not or cannot provide. Old National’s profitability depends upon Old National’s continued ability to compete successfully in Old National’s market area.

The loss of key members of Old National’s senior management team could adversely affect Old National’s business.

Old National believes that Old National’s success depends largely on the efforts and abilities of Old National’s senior management. Their experience and industry contacts significantly benefit Old National. The competition for qualified personnel in the financial services industry is intense, and the loss of any of Old National’s key personnel or an inability to continue to attract, retain and motivate key personnel could adversely affect Old National’s business.

A breach of information security or compliance breach by one of our agents or vendors could negatively affect Old National’s reputation and business.

Old National relies upon a variety of computing platforms and networks over the internet for the purposes of data processing, communication and information exchange. Despite the safeguards instituted by Old National, such systems are susceptible to a breach of security. In addition, Old National relies on the services of a variety of third- party vendors to meet Old National’s data processing and communication needs. The occurrence of any failures, interruptions or security breaches of Old National’s information systems or our vendors information systems could damage our reputation, result in a loss of customer business, and expose us to civil litigation and possible financial loss. Such costs and/or losses could materially affect Old National’s earnings.

Fiduciary Activity Risk Factor

Old National Is Subject To Claims and Litigation Pertaining To Fiduciary Responsibility

From time to time, customers make claims and take legal action pertaining to Old National’s performance of its fiduciary responsibilities. If such claims and legal actions are not resolved in a manner favorable to Old National they may result in significant financial liability and/or adversely affect the market perception of Old National and its products and services as well as impact customer demand for those products and services. Any financial liability or reputational damage could have a material adverse effect on the Old National’s business, which, in turn, could have a material adverse effect on the Old National’s financial condition and results of operations.

Risks Related to the Banking Industry

Old National operates in a highly regulated environment, and changes in laws and regulations to which Old National is subject may adversely affect Old National’s results of operations.

Old National operates in a highly regulated environment and is subject to extensive regulation, supervision and examination by the Office of Comptroller of the Currency (“OCC”), the Federal Deposit Insurance Corporation (“FDIC”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the State of Indiana. Such regulation and supervision of the activities in which an institution may engage is primarily intended for the protection of the depositors and federal deposit insurance funds. In addition, the Treasury has certain supervisory and oversight duties and responsibilities under EESA and the CPP. See “Business — Supervision and Regulation” herein. Applicable laws and regulations may change, and such changes may adversely affect Old National’s business. The Dodd-Frank Act, enacted in July 2010, instituted major changes to the banking and financial institutions regulatory regimes in light of the recent performance of and government intervention in the financial services sector. In addition, regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including but not limited to the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution’s allowance for loan losses. Any change in such regulation and oversight, whether in the form of restrictions on activities, regulatory policy, regulations, or legislation, including but not limited to changes in the regulations governing institutions, could have a material impact on Old National and its operations.

Changes in economic or political conditions could adversely affect Old National’s earnings, as Old National’s borrowers’ ability to repay loans and the value of the collateral securing Old National’s loans decline.

Old National’s success depends, to a certain extent, upon economic or political conditions, local and national, as well as governmental monetary policies. Conditions such as recession, unemployment, changes in interest rates, inflation, money supply and other factors beyond Old National’s control may adversely affect its asset quality, deposit levels and loan demand and, therefore, the Old National’s earnings. Because Old National has a significant amount of commercial real estate loans, decreases in real estate values could adversely affect the value of property used as collateral. Adverse changes in the economy may also have a negative effect on the ability of Old National’s borrowers to make timely repayments of their loans, which would have an adverse impact on Old National’s earnings. In addition, substantially all of Old National’s loans are to individuals and businesses in Old National’s market area. Consequently, any economic decline in Old National’s primary market areas which include Indiana, Kentucky and Illinois could have an adverse impact on Old National’s earnings.

Changes in interest rates could adversely affect Old National’s results of operations and financial condition.

Old National’s earnings depend substantially on Old National’s interest rate spread, which is the difference between (i) the rates Old National earns on loans, securities and other earning assets and (ii) the interest rates Old National pays on deposits and other borrowings. These rates are highly sensitive to many factors beyond Old National’s control, including general economic conditions and the policies of various governmental and regulatory authorities. If market interest rates rise, Old National will have competitive pressures to increase the rates Old National pays on deposits, which could result in a decrease of Old National’s net interest income. If market interest rates decline, Old National could experience fixed rate loan prepayments and higher investment portfolio cash flows, resulting in a lower yield on earnings assets.

Our Internal Operations are Subject to a Number of Risks.

Old National’s internal operations are subject to certain risks, including but not limited to, data processing system failures and errors, customer or employee fraud and catastrophic failures resulting from terrorist acts or natural disasters. Operational risk resulting from inadequate or failed internal processes, people, and systems includes the risk of fraud by employees or persons outside of our company, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems, and breaches of the internal control system and compliance requirements. This risk of loss also includes potential legal actions that could arise as a result of the operational deficiency or as a result of noncompliance with applicable regulatory standards.

The banking industry is undergoing technological innovation at a fast pace. To keep up with its competition, Old National needs to stay abreast of innovations and evaluate those technologies that will enable it to compete on a cost-effective basis. The cost of such technology, including personnel, can be high in both absolute and relative terms. There can be no assurance, given the fast pace of change and innovation, that Old National’s technology, either purchased or developed internally, will meet or continue to meet the needs of Old National.

Our earnings could be adversely impacted by incidences of fraud and compliance failures that are not within our direct control.

Financial institutions are inherently exposed to fraud risk. A fraud can be perpetrated by a customer of the Bank, an employee, a vendor, or members of the general public. We are most subject to fraud and compliance risk in connection with the origination of loans, ACH transactions, ATM transactions and checking transactions. Our largest fraud risk, associated with the origination of loans, includes the intentional misstatement of information in property appraisals or other underwriting documentation provided to us by third parties. Compliance risk is the risk that loans are not originated in compliance with applicable laws and regulations and our standards. There can be no assurance that we can prevent or detect acts of fraud or violation of law or our compliance standards by the third parties that we deal with. Repeated incidences of fraud or compliance failures would adversely impact the performance of our loan portfolio.

Risks Related to Old National’s Stock

We may not be able to pay dividends in the future in accordance with past practice.

Old National has traditionally paid a quarterly dividend to common stockholders. The payment of dividends is subject to legal and regulatory restrictions. Any payment of dividends in the future will depend, in large part, on Old National’s earnings, capital requirements, financial condition and other factors considered relevant by Old National’s Board of Directors.

The price of Old National’s common stock may be volatile, which may result in losses for investors.

General market price declines or market volatility in the future could adversely affect the price of Old National’s common stock. In addition, the following factors may cause the market price for shares of Old National’s common stock to fluctuate:

	•		announcements of developments related to Old National’s business;
	•		fluctuations in Old National’s results of operations;
	•		sales or purchases of substantial amounts of Old National’s securities in the marketplace;

	•		general conditions in Old National’s banking niche or the worldwide economy;
	•		a shortfall or excess in revenues or earnings compared to securities analysts’ expectations;
	•		changes in analysts’ recommendations or projections; and
	•		Old National’s announcement of new acquisitions or other projects.

ITEM 1B.		UNRESOLVED STAFF COMMENTS

None.

ITEM 2.		PROPERTIES

As of December 31, 2010, Old National and its affiliates operated a total of 161 banking centers, loan production or other financial services offices, primarily in the states of Indiana, Illinois and Kentucky. Of these facilities, 4 were owned.

The executive offices of Old National are located at 1 Main Street, Evansville, Indiana. This building, which houses Old National’s general corporate functions, is leased from an unaffiliated third party. The lease term expires December 31, 2031, and provides for the tenant’s option to extend the term of the lease for four five-year periods. In addition, we lease 157 financial centers from unaffiliated third parties. The terms of these leases range from five to twenty-four years. See Note 17 to the consolidated financial statements.

ITEM 3.		LEGAL PROCEEDINGS

In the normal course of business, Old National and its subsidiaries have been named, from time to time, as defendants in various legal actions. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages.

Old National contests liability and/or the amount of damages as appropriate in each pending matter. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages or where investigations and proceedings are in the early stages, Old National cannot predict with certainty the loss or range of loss, if any, related to such matters, how or if such matters will be resolved, when they will ultimately be resolved, or what the eventual settlement, or other relief, if any, might be. Subject to the foregoing, Old National believes, based on current knowledge and after consultation with counsel, that the outcome of such pending matters will not have a material adverse effect on the consolidated financial condition of Old National, although the outcome of such matters could be material to Old National’s operating results and cash flows for a particular future period, depending on, among other things, the level of Old National’s revenues or income for such period.

In November 2002, several beneficiaries of certain trusts filed a complaint against Old National and Old National Trust Company in the United States District Court for the Western District of Kentucky relating to the administration of the trusts in 1997. The complaint, as amended, alleged that Old National (through a predecessor), as trustee, mismanaged termination of a lease between the trusts and a tenant mining company. The complaint seeks, among other relief, unspecified damages (costs and expenses, including attorneys’ fees, and such other relief as the court might find just and proper). On March 25, 2009, the Court granted summary judgment to Old National concluding that the plaintiffs do not have standing to sue Old National in this matter. The plaintiffs subsequently filed a motion to alter or amend the judgment with the Court. The Plaintiffs motion to alter or amend the judgment was granted by the Court on July 29, 2009, reversing the Court’s March 25, 2009 Order as to standing. The July 29, 2009 Order permitted Old National to file a new motion for summary judgment with respect to issues that had not been resolved by the Court. On December 10, 2009, the Court granted Old National partial summary judgment and also granted a motion by Plaintiffs to amend their complaint. The Court’s December 10, 2009 Order permitted Old National to file a new motion for summary judgment on the amended complaint. Old National filed its motion for summary judgment on January 22, 2010, which was granted in part and denied in part on

August 6, 2010. The Court has calendared a trial date of February 13, 2012. In addition, the Court has ordered mediation that was rescheduled for March of 2011. Old National continues to believe that it has meritorious defenses to each of the claims in the lawsuit and intends to continue to vigorously defend the lawsuit. There can be no assurance, however, that Old National will be successful, and an adverse resolution of the lawsuit could have a material adverse effect on its consolidated financial position and results of operations in the period in which the lawsuit is resolved. Old National is not presently able to reasonably estimate potential losses, if any, related to the lawsuit and has not recorded a liability in its accompanying Consolidated Balance Sheets.

In November 2010, Old National was named in a class action lawsuit, much like many other banks, challenging Old National Bank’s checking account practices. The plaintiff seeks damages and other relief, including restitution. Old National believes it has meritorious defenses to the claims brought by the plaintiff. At this phase of the litigation, it is not possible for management of Old National to determine the probability of a material adverse outcome or reasonably estimate the amount of any loss.

ITEM 4.		(REMOVED AND RESERVED)

PART II

ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Old National’s common stock is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol ONB. The following table lists the high and low closing sales prices as reported by the NYSE, share volume and dividend data for 2010 and 2009:

		Price Per Share								Share				Dividend
		High				Low				Volume				Declared
2010
First Quarter		$	12.63			$	11.01				40,933,700			$	0.07
Second Quarter			13.92				10.36				37,445,200				0.07
Third Quarter			11.05				9.16				36,704,800				0.07
Fourth Quarter			11.94				9.35				37,829,000				0.07
2009
First Quarter		$	18.11			$	8.97				52,994,300			$	0.23
Second Quarter			15.15				9.82				41,854,300				0.07
Third Quarter			12.66				9.08				46,979,700				0.07
Fourth Quarter			12.58				9.85				57,355,000				0.07

There were 24,233 shareholders of record as of December 31, 2010. Old National declared cash dividends of $0.28 per share during the year ended December 31, 2010. Old National declared cash dividends of $0.44 per share during the year ended December 31, 2009. Old National’s ability to pay cash dividends depends primarily on cash dividends received from Old National Bank. Dividend payments from Old National Bank are subject to various regulatory restrictions. See Note 19 to the consolidated financial statements for additional information.

Old National repurchased no equity securities during the fourth quarter of 2010. During the twelve months ended December 31, 2010, Old National repurchased a limited number of shares associated with employee share-based incentive programs but did not repurchase any shares on the open market. There were no Board approved repurchase plans or programs for the repurchase of stock as of December 31, 2010, except for those associated with employee share-based incentive programs.

Subsequent to year-end, the Board of Directors approved the repurchase of up to 2.25 million shares of common stock over a twelve month period that runs through January 31, 2012.

EQUITY COMPENSATION PLAN INFORMATION

The following table contains information concerning the 2008 Equity Incentive Plan approved by security holders, as of December 31, 2010.

2008 EQUITY COMPENSATION PLAN

Number of securities

remaining available for

Number of securities to

Weighted-average

future issuance under

be issued upon exercise

exercise price of

equity compensation plan

of outstanding options,

outstanding options,

(excluding securities

warrants and rights

warrants and rights

reflected in column (a))

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders

6,647,047

$

20.37

1,282,523

Equity compensation plans not approved by security holders

—

—

—

Total

6,647,047

$

20.37

1,282,523

The following table compares cumulative five-year total shareholder returns, assuming reinvestment of dividends, for the Company’s common stock to cumulative total returns of a broad-based equity market index and two published industry indices.

The comparison of shareholder returns (change in December year end stock price plus reinvested dividends) for each of the periods assumes that $100 was invested on December 31, 2005, in common stock of each of the Company, the S&P Small Cap 600 Index, the NYSE Financial Index and the SNL Bank and Thrift Index with investment weighted on the basis of market capitalization.

ITEM 6.		SELECTED FINANCIAL DATA

(dollars in thousands, except per share data)		2010				2009				2008				2007				2006
Operating Results
Net interest income		$	218,416			$	231,399			$	243,325			$	219,191			$	212,717
Conversion to fully taxable equivalent (1)			13,482				20,831				19,326				17,160				19,526
Net interest income — tax equivalent basis			231,898				252,230				262,651				236,351				232,243
Provision for loan losses			30,781				63,280				51,464				4,118				7,000
Noninterest income			170,150				163,460				166,969				155,138				153,920
Noninterest expense			314,305				338,956				297,229				277,998				264,690
Net income available to common shareholders			38,214				9,845				62,180				74,890				79,373
Common Share Data (2)
Weighted average diluted shares			86,928				71,367				65,776				65,750				66,261
Net income (diluted)		$	0.44			$	0.14			$	0.95			$	1.14			$	1.20
Cash dividends (3)			0.28				0.44				0.69				1.11				0.84
Common dividend payout ratio (4)			63.75				308.59				73.51				97.38				70.02
Book value at year-end			10.08				9.68				9.56				9.86				9.66
Stock price at year-end			11.89				12.43				18.16				14.96				18.92
Balance Sheet Data (at December 31)
Loans (5)		$	3,747,270			$	3,908,276			$	4,777,514			$	4,699,356			$	4,716,637
Total assets			7,263,892				8,005,335				7,873,890				7,846,126				8,149,515
Deposits			5,462,925				5,903,488				5,422,287				5,663,383				6,321,494
Other borrowings			421,911				699,059				834,867				656,722				747,545
Shareholders’ equity			878,805				843,826				730,865				652,881				642,369
Performance Ratios
Return on average assets (ROA)			0.50	%			0.17	%			0.82	%			0.94	%			0.97	%
Return on average common shareholders’ equity (ROE)			4.40				1.41				9.49				11.67				12.43
Average equity to average assets			11.46				9.06				8.67				8.04				7.81
Net interest margin (6)			3.40				3.50				3.82				3.28				3.15
Efficiency ratio (7)			78.18				81.54				69.18				71.01				68.54
Asset Quality (8)
Net charge-offs to average loans			0.75	%			1.40	%			0.87	%			0.44	%			0.38	%
Allowance for loan losses to ending loans			1.93				1.81				1.41				1.20				1.44
Allowance for loan losses		$	72,309			$	69,548			$	67,087			$	56,463			$	67,790
Underperforming assets (9)			77,108				78,666				69,883				45,203				47,024
Other Data
Full-time equivalent employees			2,491				2,812				2,507				2,494				2,568
Branches and financial centers			161				172				117				115				120

ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is an analysis of our results of operations for the fiscal years ended December 31, 2010, 2009 and 2008, and financial condition as of December 31, 2010 and 2009. This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes. This discussion contains forward-looking statements concerning our business. Readers are cautioned that, by their nature, forward-looking statements are based on estimates and assumptions and are subject to risks, uncertainties, and other factors. Actual results may differ materially from our expectations that are expressed or implied by any forward-looking statement. The discussion in Item 1A, “Risk Factors,” lists some of the factors that could cause our actual results to vary materially from those expressed or implied by any forward-looking statements, and such discussion is incorporated into this discussion by reference.

In June 2009, the FASB issued Statement No. 168 — The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (FASB ASC 105-10, Generally Accepted Accounting Principles). SFAS No. 168 replaces SFAS No. 162 and establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”). Rules and interpretative releases of the Securities and Exchange Commission under federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB Accounting Standards Codification became effective for financial statements that cover interim and annual periods ending after September 15, 2009. Other than resolving certain minor inconsistencies in current GAAP, the FASB Accounting Standards Codification is not intended to change GAAP, but rather to make it easier to review and research GAAP applicable to a particular transaction or accounting issue. Technical references to generally accepted accounting principles included in this Form 10-K are provided under the new FASB ASC structure with the prior terminology included parenthetically.

GENERAL OVERVIEW

Old National is a financial holding company incorporated in the State of Indiana and maintains its principal executive offices in Evansville, Indiana. Old National, through Old National Bank, provides a wide range of services, including commercial and consumer loan and depository services, lease financing and other traditional banking services. Old National also provides services to supplement the traditional banking business including fiduciary and wealth management services, investment and brokerage services, investment consulting, insurance and other financial services.

The Company’s basic mission is to be THE community bank in the cities and towns it serves. The Company focuses on establishing and maintaining long-term relationships with customers, and is committed to serving the financial needs of the communities in its market area. Old National provides financial services primarily in Indiana, eastern and southeastern Illinois, and central and western Kentucky.

CORPORATE DEVELOPMENTS IN FISCAL 2010

From December 2007 through June 2009, the U.S. economy was in recession. Business activity across a wide range of industries and regions in the U. S. was greatly reduced. Although economic conditions have begun to improve, certain sectors, such as real estate, remain weak and unemployment remains high. Local governments and many businesses are still in serious difficulty due to lower consumer spending and the lack of liquidity in the credit markets.

Overall, during 2010, the business environment has been adverse for many households and businesses in our footprint. While economic conditions in the State of Indiana, and the U.S. in general, have begun to improve, there can be no assurance that this improvement will continue. Such conditions could adversely affect the credit quality of our loans, results of operations and financial condition.

Net income for 2010 was $38.2 million, an increase of $24.5 million from 2009. Diluted earnings per share available to common shareholders were $0.44 per share, an increase of $0.30 per share from 2009.

Improvement in 2010 net income was primarily due to the following:

	•		The provision for credit losses declined $32.5 million due to lower net charge-offs; and
	•		Actions taken by management to reduce non-interest expense including an 11.4% reduction in full time equivalent employees (“FTE”) and other cost containment efforts.

Other significant actions taken during 2010 include:

	•		Old National launched two new initiatives designed to increase the speed and simplicity with which certain loan requests can be processed. The process improvements do not represent a willingness to increase risk, but instead, a better coordination of associates and process flow resulting in shared information that reduces decision making time. The result has been to better serve our customers while cutting unnecessary time and cost out of the process.
	•		Old National announced the acquisition of Monroe Bancorp based out of Bloomington, Indiana during the third quarter of 2010. This acquisition will add 15 financial centers and increase our presence in central and south central Indiana.
	•		During 2010, we continued to reduce long-term debt, a more expensive source of funding, as a $50.0 million senior unsecured note matured and we prepaid $75.0 million of FHLB advances and $49.0 million of long-term repurchase agreements. In addition, we redeemed $100.0 million of 8.0% trust preferred securities on December 15, 2010.

BUSINESS OUTLOOK

We believe we will see slow improvement in 2011, but do not anticipate that we will see any improvement in loan demand until unemployment levels improve and there is sustained confidence in the economic recovery.

In addition, it is uncertain how the Dodd-Frank Act and other regulatory measures might impact the Company. We do believe that the Dodd-Frank Act’s repeal of the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts beginning July 21, 2011, will impact Old National. Although the ultimate impact of this legislation on the Corporation has not yet been determined, we expect interest costs associated with demand deposits to increase.

Our balance sheet has historically been asset sensitive, meaning that earning assets generally re-price more quickly than interest-bearing liabilities. Therefore, our net interest margin is likely to increase in sustained periods of rising interest rates and decrease in sustained periods of declining interest rates.

Our capital levels remain solid and we believe we are well-positioned to take advantage of any market disruptions in our footprint. Management will continue to focus on the expense base and process improvement. We believe these actions should help Old National emerge from this extended negative credit cycle as a more efficient and profitable core banking franchise.

RESULTS OF OPERATIONS

The following table sets forth certain income statement information of Old National for the years ended December 31, 2010, 2009, and 2008:

(dollars in thousands)		2010				2009				2008
Income Statement Summary:
Net interest income		$	218,416			$	231,399			$	243,325
Provision for loan losses			30,781				63,280				51,464
Noninterest income			170,150				163,460				166,969
Noninterest expense			314,305				338,956				297,229
Other Data:
Return on average common equity			4.40	%			1.41	%			9.49	%
Efficiency ratio			78.18	%			81.54	%			69.18	%
Tier 1 leverage ratio			9.01	%			9.51	%			9.50	%
Net charge-offs to average loans			0.75	%			1.40	%			0.87	%

Comparison of Fiscal Years 2010 and 2009

Net Interest Income

Net interest income is the most significant component of our earnings, comprising over 57% of 2010 revenues. Net interest income and net interest margin in the following discussion are presented on a fully taxable equivalent basis, which adjusts tax-exempt interest income to an amount that would be comparable to interest subject to income taxes. Net income is unaffected by these taxable equivalent adjustments as an offsetting increase of the same amount is made in the income tax section. Net interest income includes taxable equivalent adjustments of $13.5 million for 2010 and $20.8 million for 2009.

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. In the current market, certain wholesale funding sources cost less than certain client deposits; however, ordinarily funding from client deposits costs 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 our ability to optimize the mix of assets and funding and the net interest income and margin.

Net interest income is the excess of interest received from earning assets over interest paid on interest-bearing liabilities. For analytical purposes, net interest income is also presented in the table that follows, adjusted to a taxable equivalent basis to reflect what our tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset. We used the federal statutory tax rate in effect of 35% for all periods adjusted for the TEFRA interest disallowance applicable to certain tax-exempt obligations. This analysis portrays the income tax benefits associated in tax-exempt assets and helps to facilitate a comparison between taxable and tax-exempt assets. Management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis. Therefore, management believes these measures provide useful information for both management and investors by allowing them to make peer comparisons.

(dollars in thousands)		2010				2009				2008
Net interest income		$	218,416			$	231,399			$	243,325
Conversion to fully taxable equivalent			13,482				20,831				19,326
Net interest income — taxable equivalent basis		$	231,898			$	252,230			$	262,651
Average earning assets			6,814,607				7,207,225				6,875,710
Net interest margin			3.21	%			3.21	%			3.54	%
Net interest margin — taxable equivalent basis			3.40	%			3.50	%			3.82	%

Net interest income was $218.4 million in 2010, a 5.6% decrease from the $231.4 million reported in 2009. Taxable equivalent net interest income was $231.9 million in 2010, an 8.1% decrease from the $252.2 million reported in 2009. The net interest margin was 3.40% for 2010, a 10 basis point decrease compared to the 3.50% reported in 2009. The decrease in both net interest income and net interest margin is primarily due to the decrease in earning asset yield being greater than the decrease in the cost of funding, combined with a change in the mix of interest-earning assets and interest-bearing liabilities. Although the cost of interest-bearing liabilities declined by 35 basis points, the decrease was more than offset by the 47 basis decrease in the yield on average assets. The yield on average earning assets decreased from 5.02% to 4.55% while the cost of interest-bearing liabilities decreased from 1.82% to 1.47%. Average earning assets decreased by $392.6 million, or 5.4%. Average interest-bearing liabilities decreased $695.9 million, or 11.6%. The decrease in average earning assets consisted of a $184.9 million increase in lower yielding investment securities, a $675.6 million decrease in loans and a $98.1 million increase in money market and other interest-earning investments. The decrease in average interest-bearing liabilities consisted of a $300.2 million decrease in interest-bearing deposits, a $198.6 million decrease in short-term borrowings and a $197.1 million decrease in other borrowings. Noninterest-bearing deposits increased by $164.2 million.

Significantly affecting average earning assets during 2010 was the increase in the size of the investment portfolio combined with the increase in interest earning cash balances at the Federal Reserve and the reduction in the size of the loan portfolio. During 2010, approximately $1.362 billion of investment securities were purchased and $1.318 billion of investment securities were called by the issuers or sold. In addition, commercial and commercial real estate loans continue to be affected by weak loan demand in our markets, more stringent loan underwriting standards and our desire to lower future potential credit risk by being cautious towards the real estate market. The $413.2 million decline in average commercial loans during 2010 was combined with a $109.6 million decrease in average commercial real estate loans and a $148.0 million decrease in average consumer loans. We sold $3.2 million of commercial and commercial real estate loans during 2010. During the third quarter of 2009, approximately $258.0 million of leases held for sale were sold. In 2009, we sold $2.6 million of commercial and commercial real estate loans. The investment portfolio, which generally has an average yield lower than the loan portfolio, was approximately 40 percent of interest earning assets at December 31, 2010.

Positively affecting margin was an increase in noninterest-bearing demand deposits combined with a decrease in time deposits. During 2010, we prepaid $75.0 million of FHLB advances and $49.0 million of long-term repurchase agreements. In the second quarter of 2010, a senior unsecured note totaling $50.0 million matured. In the fourth quarter of 2010, we redeemed $100.0 million of 8.0% trust preferred securities. During 2009, $81.0 million of high cost brokered certificates of deposit were called and $70.0 million of retail certificates of deposit were called. In the fourth quarter of 2009, we prepaid $105.0 million of FHLB advances. During 2009, a total of $130.0 million of FHLB advances were prepaid. Year over year, time deposits and brokered certificates of deposit, which have an average interest rate higher than other types of deposits, have decreased as a percent of interest-bearing liabilities. Year over year, noninterest-bearing demand deposits have increased as a percent of total funding.

The following table presents a three-year average balance sheet and for each major asset and liability category, its related interest income and yield or its expense and rate for the years ended December 31.

THREE-YEAR AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS

		2010												2009												2008
(tax equivalent basis,		Average				Interest				Yield/				Average				Interest				Yield/				Average				Interest				Yield/
dollars in thousands)		Balance				& Fees				Rate				Balance				& Fees				Rate				Balance				& Fees				Rate
Earning Assets
Money market and other interest-earning investments (7)		$	177,786			$	431				0.24	%		$	79,701			$	133				0.17	%		$	21,955			$	746				3.40	%
Investment securities: (6)
U.S. Treasury & Government-sponsored agencies (1)			2,150,562				77,208				3.59				1,979,557				89,109				4.50				1,569,779				78,185				4.98
States and political subdivisions (3)			536,295				33,181				6.19				506,709				34,072				6.72				329,386				22,745				6.91
Other securities			198,747				9,307				4.68				214,414				10,570				4.93				251,444				13,927				5.54
Total investment securities			2,885,604				119,696				4.15				2,700,680				133,751				4.95				2,150,609				114,857				5.34
Loans: (2)
Commercial (3) (4)			1,271,515				56,153				4.42				1,684,693				75,629				4.49				1,779,445				104,617				5.88
Commercial real estate			1,007,636				44,992				4.47				1,117,285				51,652				4.62				1,205,087				74,960				6.22
Residential real estate (5)			464,676				26,209				5.64				469,446				26,422				5.63				528,049				30,989				5.87
Consumer, net of unearned income			1,007,390				62,849				6.24				1,155,420				73,921				6.40				1,190,565				85,679				7.20
Total loans (4) (5)			3,751,217				190,203				5.07				4,426,844				227,624				5.14				4,703,146				296,245				6.30
Total earning assets			6,814,607			$	310,330				4.55	%			7,207,225			$	361,508				5.02	%			6,875,710			$	411,848				5.99	%
Less: Allowance for loan losses			(73,868	)											(70,098	)											(61,981	)
Non-Earning Assets
Cash and due from banks			124,565												127,697												155,868
Other assets			721,142												724,969												648,225
Total assets		$	7,586,446											$	7,989,793											$	7,617,822
Interest-Bearing Liabilities
NOW deposits		$	1,221,352			$	411				0.03	%		$	1,250,745			$	473				0.04	%		$	1,249,482			$	6,355				0.51	%
Savings deposits			1,043,289				3,134				0.30				937,642				3,585				0.38				886,351				12,919				1.46
Money market deposits			361,166				357				0.10				436,507				441				0.10				487,514				5,456				1.12
Time deposits			1,753,561				44,706				2.55				2,054,740				63,129				3.07				1,867,103				70,723				3.79
Total interest-bearing deposits			4,379,368				48,608				1.11				4,679,634				67,628				1.45				4,490,450				95,453				2.13
Short-term borrowings			328,535				662				0.20				527,147				1,410				0.27				616,935				10,902				1.77
Other borrowings			615,006				29,162				4.74				812,062				40,240				4.96				810,052				42,842				5.29
Total interest-bearing liabilities			5,322,909			$	78,432				1.47	%			6,018,843			$	109,278				1.82	%			5,917,437			$	149,197				2.52	%
Noninterest-Bearing Liabilities
Demand deposits			1,182,653												1,018,405												834,981
Other liabilities			211,651												228,646												205,235
Shareholders’ equity			869,233												723,899												660,169
Total liabilities and shareholders’ equity		$	7,586,446											$	7,989,793											$	7,617,822
Interest Margin Recap
Interest income/average earning assets						$	310,330				4.55	%						$	361,508				5.02	%						$	411,848				5.99	%
Interest expense/average earning assets							78,432				1.15								109,278				1.52								149,197				2.17
Net interest income and margin						$	231,898				3.40	%						$	252,230				3.50	%						$	262,651				3.82	%

The following table shows fluctuations in net interest income attributable to changes in the average balances of assets and liabilities and the yields earned or rates paid for the years ended December 31.

NET INTEREST INCOME — RATE/VOLUME ANALYSIS (tax equivalent basis, dollars in thousands)

		2010 vs. 2009												2009 vs. 2008
		Total				Attributed to								Total				Attributed to
		Change				Volume				Rate				Change				Volume				Rate
Interest Income
Money market and other interest-earning investments		$	298			$	200			$	98			$	(613	)		$	1,030			$	(1,643	)
Investment securities (1)			(14,055	)			8,415				(22,470	)			18,894				28,310				(9,416	)
Loans (1)			(37,421	)			(34,499	)			(2,922	)			(68,621	)			(15,806	)			(52,815	)
Total interest income			(51,178	)			(25,884	)			(25,294	)			(50,340	)			13,534				(63,874	)
Interest Expense
NOW deposits			(62	)			(11	)			(51	)			(5,882	)			4				(5,886	)
Savings deposits			(451	)			360				(811	)			(9,334	)			472				(9,806	)
Money market deposits			(84	)			(76	)			(8	)			(5,015	)			(311	)			(4,704	)
Time deposits			(18,423	)			(8,466	)			(9,957	)			(7,594	)			6,436				(14,030	)
Short-term borrowings			(748	)			(466	)			(282	)			(9,492	)			(914	)			(8,578	)
Other borrowings			(11,078	)			(9,432	)			(1,646	)			(2,602	)			103				(2,705	)
Total interest expense			(30,846	)			(18,091	)			(12,755	)			(39,919	)			5,790				(45,709	)
Net interest income		$	(20,332	)		$	(7,793	)		$	(12,539	)		$	(10,421	)		$	7,744			$	(18,165	)

Provision for Loan Losses

The provision for loan losses was $30.8 million in 2010, a $32.5 million decrease from the $63.3 million recorded in 2009. The lower provision in 2010 is primarily attributable to the decrease in net charge-offs. For additional information about non-performing loans, charge-offs and additional items impacting the provision, refer to the “Risk Management — Credit Risk” section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Noninterest Income

We generate revenues in the form of noninterest income through client fees and sales commissions from our core banking franchise and other related businesses, such as wealth management, investment consulting, investment products and insurance. This source of revenue has remained relatively constant as a percentage of total revenue at 42.3% in 2010 compared to 39.3% in 2009.

Noninterest income for 2010 was $170.2 million, an increase of $6.7 million, or 4.1% compared to $163.5 million reported for 2009. Net securities gains were $13.2 million during 2010 compared to $2.5 million for 2009. Included in 2010 is $17.1 million of security gains partially offset by $3.9 million of other-than-temporary-impairment on three pooled trust preferred securities and ten non-agency mortgage-backed securities. Included in 2009 is $27.3 million of security gains partially offset by $24.8 million of other-than-temporary-impairment on six pooled trust preferred securities and ten non-agency mortgage-backed securities. Sales of securities increased during 2009 and continued into 2010 as we adjusted the composition of the investment portfolio to manage the effective duration of the portfolio and reduce the leverage on the balance sheet as proceeds from securities sales were used to reduce wholesale funding. Also affecting noninterest income in 2010 is a $5.2 million decrease in service charges on deposit accounts, a $4.0 million decrease in mortgage banking revenue and a $1.4 million decrease in insurance premiums and commissions. Partially offsetting these decreases were a $2.5 million increase in ATM and debit card fees, a $1.7 million increase in revenue from company-owned life insurance and a $0.8 million increase in gains on derivatives.

Service charges and overdraft fees on deposit accounts decreased by $5.2 million to $50.0 million in 2010 as compared to $55.2 million in 2009. The decrease in revenue is primarily attributable to a decrease in fee income for overdrafts and returned items. Service charges and overdraft fees were negatively impacted by new regulatory requirements in the third quarter of 2010. The negative impact was partially mitigated with adjustments to our product pricing structure late in the third quarter of 2010.

Debit card and ATM fees increased by $2.5 million to $23.0 million in 2010 as compared to $20.5 million in 2009. The increase in debit card usage is primarily attributable to the Citizens Financial branch acquisition and an increase in transaction activity.

Mortgage banking revenue was $2.2 million in 2010, a decrease of $4.0 million as compared to $6.2 million in 2009. Mortgage fee revenue declined as a result of our decision to retain more mortgage production and sell less to the secondary market.

Insurance premiums and commissions decreased $1.4 million to $36.5 million in 2010 as compared to $37.9 million in 2009, primarily as a result of a decrease in contingency income.

Revenue from company-owned life insurance was $4.1 million in 2010 compared to $2.4 million in 2009. During the third quarter of 2008, the crediting rate formula for the 1997 company-owned life insurance policy was amended to adopt a more conservative position and improve the overall market to book value ratio. This change resulted in lower revenues from company-owned life insurance in 2009 and while revenues slowly improved in 2010 and should continue to improve in future years, we anticipate revenue will remain below 2008 levels in future years.

Fluctuations in the value of our derivatives resulted in gains on derivatives of $1.5 million in 2010 as compared to gains on derivatives of $0.7 million in 2009.

Other income increased $0.6 million in 2010 as compared to 2009. Included in 2010 is a $0.9 million decrease in gain on sale of other real estate owned. Included in 2009 is a $1.4 million loss from the sale of approximately $258.0 million of leases held for sale, net of transaction fees.

The following table presents changes in the components of noninterest income for the years ended December 31.

NONINTEREST INCOME

														% Change From
														Prior Year
(dollars in thousands)		2010				2009				2008				2010				2009
Wealth management fees		$	16,120			$	15,963			$	17,361				1.0	%			(8.1	)%
Service charges on deposit accounts			50,018				55,196				45,175				(9.4	)			22.2
ATM fees			22,967				20,472				17,234				12.2				18.8
Mortgage banking revenue			2,230				6,238				5,100				(64.3	)			22.3
Insurance premiums and commissions			36,463				37,851				39,153				(3.7	)			(3.3	)
Investment product fees			9,192				8,515				9,493				8.0				(10.3	)
Company-owned life insurance			4,052				2,355				9,181				72.1				(74.3	)
Other income			7,967				7,394				11,534				7.7				(35.9	)
Total fee and service charge income			149,009				153,984				154,231				(3.2	)			(0.2	)
Net securities gains			17,124				27,251				7,562				(37.2	)			N/M
Impairment on available-for-sale securities			(3,927	)			(24,795	)			—				(84.2	)			N/M
Gain (loss) on derivatives			1,492				719				(1,144	)			107.6				N/M
Gain on sale leasebacks			6,452				6,301				6,320				2.4				(0.3	)
Total noninterest income		$	170,150			$	163,460			$	166,969				4.1	%			(2.1	)%
Noninterest income to total revenue (1)			42.3	%			39.3	%			38.9	%

Noninterest Expense

Noninterest expense for 2010 totaled $314.3 million, a decrease of $24.7 million, or 7.3% from the $339.0 million recorded in 2009. Decreases in salaries and benefits expense, marketing expense, FDIC assessment expense and other noninterest expense were the primary reason for the decrease in noninterest expense.

Salaries and benefits, the largest component of noninterest expense, totaled $170.6 million in 2010, compared to $181.4 million in 2009, a decrease of $10.8 million, or 5.9%. The decrease in salaries and benefits expense is primarily a result of an 11.4% decline in full time equivalent employees, a $2.6 million decrease in performance-based incentive compensation expense and a $3.0 million decrease in profit sharing expense. Partially offsetting these decreases was approximately $1.7 million of severance expense related to full time equivalent employee reductions. Included in 2010 is a full year of expense associated with the acquisition of the retail branch banking network of Citizens Financial Group, which occurred in the first quarter of 2009.

Marketing expense decreased $3.9 million in 2010 primarily as a result of decreases in advertising expense, public relations expense and sales promotion expense due to our cost containment efforts.

Professional fees decreased $1.2 million for 2010 as compared to 2009. The decrease is primarily attributable to legal and management consultant fees associated with the acquisition of the Citizen Financial branch network in the first quarter of 2009 and cost containment efforts.

Supplies expense decreased $1.4 million, or 31.6%, in 2010 primarily as a result of expense associated with the acquisition of the retail branch banking network of Citizen Financial Group.

The $2.2 million increase in loss on extinguishment of debt is primarily due to the call of our $100 million 8% trust preferred security in December 2010.

FDIC assessment expense totaled $8.4 million in 2010, compared to $12.4 million for 2009. The decrease is primarily due to the special assessment that the FDIC implemented during the second quarter of 2009, which resulted in approximately $4.0 million of additional expense. In the fourth quarter of 2009, the FDIC announced that it would require insured institutions to prepay their estimated 2010, 2011 and 2012 assessments in December 2009. As of December 31, 2010, our prepaid assessment was $23.4 million and will be expensed over the next two years as the actual FDIC assessments are determined.

Other noninterest expense totaled $13.9 million for 2010 compared to $18.2 million for 2009, a decrease of $4.3 million, or 23.8%. The provision for unfunded commitments decreased $3.7 million for 2010 as compared to 2009. Included in 2009 is approximately $1.1 million of conversion expenses related to the acquisition of the retail branch banking network of Citizens Financial Group.

The following table presents changes in the components of noninterest expense for the years ended December 31.

NONINTEREST EXPENSE

														% Change From
														Prior Year
(dollars in thousands)		2010				2009				2008				2010				2009
Salaries and employee benefits		$	170,601			$	181,368			$	167,764				(5.9	)%			8.1	%
Occupancy			46,410				47,064				39,668				(1.4	)			18.6
Equipment			10,641				10,440				9,464				1.9				10.3
Marketing			5,720				9,578				9,554				(40.3	)			0.3
Data processing			21,409				20,700				19,021				3.4				8.8
Communications			9,803				10,922				9,267				(10.2	)			17.9
Professional fees			8,253				9,491				7,187				(13.0	)			32.0
Loan expense			3,936				4,335				6,619				(9.2	)			(34.5	)
Supplies			2,935				4,294				3,283				(31.6	)			30.8
Loss on extinguishment of debt			6,107				3,941				—				55.0				N/M
Fraud loss			124				184				6,406				(32.4	)			(97.1	)
FDIC assessment			8,370				12,447				1,513				(32.8	)			N/M
Amortization of intangibles			6,130				5,988				3,659				2.4				63.7
Other expense			13,866				18,204				13,824				(23.8	)			31.7
Total noninterest expense		$	314,305			$	338,956			$	297,229				(7.3	)%			14.0	%

Provision for Income Taxes

We record 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 our financial statement income and the federal statutory tax rate is caused by interest on tax-exempt securities and loans. The effective tax rate varied significantly from 2008 to 2010 due to large fluctuations in pre-tax income while the majority of other items affecting the rate, in particular tax-exempt income, remained relatively stable. The increase in our state tax benefit in 2009 directly correlated to the declines in pre-tax income. See Note 10 to the consolidated financial statements for additional details on Old National’s income tax provision.

Comparison of Fiscal Years 2009 and 2008

In 2009, we generated net income available to common stockholders of $9.8 million and diluted net income per share of $0.14 compared to $62.2 million and $0.95, respectively in 2008. The 2009 earnings included an $11.9 million decrease in net interest income, an $11.8 million increase in the provision for loan losses, a $5.1 million decrease in net securities gains and a $41.7 million increase in noninterest expense. Offsetting these decreases to net income in 2009 was a $20.2 million decrease in income tax expense.

Taxable equivalent net interest income was $252.2 million in 2009, a 4.0% decrease from the $262.7 million reported in 2008. The net interest margin was 3.50% for 2009, a 32 basis point decrease compared to 3.82% reported for 2008. Although average earning assets increased by $331.5 million during 2009, the yield on average earning assets decreased 97 basis points from 5.99% to 5.02%. Average interest-bearing liabilities increased $101.4 million and the cost of interest-bearing liabilities decreased from 2.52% to 1.82%.

The provision for loan losses was $63.3 million in 2009, an $11.8 million increase from the $51.5 million recorded in 2008. The higher provision in 2009 was primarily attributable to the increase in net charge-offs. During the fourth quarter of 2009 we recorded a charge-off of $12.0 million for one non-real estate commercial loan.

Noninterest income for 2009 was $163.5 million, a decrease of $3.5 million, or 2.1% from the $167.0 million reported for 2008. Net securities gains were $2.5 million during 2009 compared to $7.6 million for 2008. Included in 2009 is $27.3 million of security gains partially offset by $24.8 million of other-than-temporary-impairment on six pooled trust preferred securities and ten non-agency mortgage-backed securities. Sales of securities increased during 2009 as we adjusted the composition of the investment portfolio to reduce the effective duration of the portfolio during the second half of 2009 and reduce our holdings of tax-exempt securities. Also affecting noninterest income in 2009 was a $10.0 million increase in service charges on deposit accounts, a $3.3 million increase in ATM and debit card fees and a $1.9 million increase in gains on derivatives. Partially offsetting these increases were a $6.8 million decrease in revenue from company-owned life insurance, a $1.4 million decrease in wealth management fees and a $1.4 million decrease in other income.

Noninterest expense for 2009 totaled $339.0 million, an increase of $41.7 million, or 14.0% from the $297.2 million recorded in 2008. The increased expenses in 2009 relate primarily to costs associated with the 65 Citizens Financial branches acquired in March 2009, as well as an increase in FDIC insurance expense. Included in 2008 was a $6.3 million fraud loss expense.

The provision for income taxes on continuing operations was a benefit of $21.1 million in 2009 compared to a benefit of $0.9 million in 2008. Old National’s effective tax rate was 286.2% in 2009 compared to (1.4)% in 2008. The effective tax rate varied significantly from 2008 to 2009 due to large fluctuations in pre-tax income while the other items affecting the rate, in particular tax-exempt income, remained relatively stable.

BUSINESS LINE RESULTS

We operate in two operating segments: community banking and treasury. The following table summarizes our business line results for the years ended December 31.

BUSINESS LINE RESULTS

(dollars in thousands)		2010				2009				2008
Community banking		$	73,108			$	48,003			$	64,894
Treasury			(26,310	)			(50,072	)			(2,357	)
Other			(3,318	)			(5,308	)			(936	)
Income (loss) before income taxes		$	43,480			$	(7,377	)		$	61,601

The 2010 community banking segment profit increased $25.1 million from 2009 levels, primarily as a result of a decrease in provision for loan loss expense and lower FDIC assessment expense. The 2009 community banking segment profit decreased $16.9 million from 2008, primarily as a result of an increase in provision for loan loss expense, higher FDIC assessment expense and costs associated with our acquisition of the 65 branches from Citizens Financial Group in the first quarter of 2009.

The 2010 treasury segment profit increased $23.8 million from 2009 primarily as a result of the $20.9 million decrease in other-than-temporary-impairment in 2010. In 2010, $3.9 million of other-than-temporary impairment was recorded on three pooled trust preferred securities and ten non-agency mortgage-backed securities. The 2009 treasury segment profit decreased $47.7 million from 2008 primarily as a result of $24.8 million of other-than-temporary-impairment on six pooled trust preferred securities and ten non-agency mortgage-backed securities. The treasury segment also absorbed part of the increase in the FDIC assessment expense.

The 2010 “other” segment profit increased approximately $2.0 million from 2009 primarily as a result of lower expenses in the insurance agency area. The 2009 “other” segment profit decreased approximately $4.4 million from 2008 primarily as a result of lower wealth management revenue and insurance premiums and commissions.

FINANCIAL CONDITION

Overview

At December 31, 2010, our total assets were $7.264 billion, a 9.3% decrease from $8.005 billion at December 31, 2009. The decrease in investment security balances, interest earning cash balances and loan balances over the past twelve months has allowed us to reduce our reliance on higher cost deposits and wholesale funding. In September 2009, Old National sold $258.0 million of finance leases and raised approximately $195.7 million, net of issuance costs, from a public offering of common stock. Earning assets, comprised of investment securities, portfolio loans, loans and leases held for sale, money market investments and interest earning accounts with the Federal Reserve, were $6.522 billion at December 31, 2010, a decrease of $657.9 million, or 9.2%, from $7.180 billion at December 31, 2009. The decrease in earnings assets is primarily a result of a decline in investment securities, interest earning balances at the Federal Reserve and loans. Year over year, time deposits and brokered certificates of deposit, which have an average interest rate higher that other types of deposits, have decreased as a percent of total funding. Also, other borrowings have decreased as a percent of total funding. Year over year, noninterest-bearing demand deposits have increased as a percent of total funding.

Investment Securities

We classify 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 our funding requirements. However, we also have $117.0 million of 15- and 20-year fixed-rate mortgage pass-through securities, $303.3 million of U.S. government-sponsored entity and agency securities and $217.4 million of state and political subdivision securities in our held-to-maturity investment portfolio at December 31, 2010. During the second quarter of 2010, approximately $143.8 million of state and political subdivision securities were transferred from the available-for-sale portfolio to our held-to-maturity portfolio at fair value. During the second quarter of 2009, approximately $230.1 million of U.S. government-sponsored and agency securities were transferred from the available-for-sale portfolio to our held-to-maturity portfolio at fair value.

At December 31, 2010, the investment securities portfolio was $2.630 billion compared to $2.918 billion at December 31, 2009, a decrease of 9.9%. Investment securities represented 40.3% of earning assets at December 31, 2010, compared to 40.6% at December 31, 2009. Contributing to the decrease in investment securities was the use of cash flows from calls and maturities of securities to reduce our wholesale funding as part of management’s efforts to deleverage the balance sheet. During 2010, approximately $1.362 billion of investment securities were purchased, $481.5 million of investment securities were sold and proceeds from maturities, prepayments and calls of investment securities were $1.201 billion. Stronger commercial loan demand in the future and management’s efforts to deleverage the balance sheet could result in a further reduction in the investment securities portfolio. As of December 31, 2010, management does not intend to sell any securities with an unrealized loss position.

The investment securities available-for-sale portfolio had net unrealized gains of $6.4 million at December 31, 2010, compared to net unrealized losses of $13.0 million at December 31, 2009. A $3.9 million charge was recorded during 2010 related to other-than-temporary-impairment on three pooled trust preferred securities and ten non-agency mortgage-backed securities. A $24.8 million charge was recorded during 2009 related to other-than-temporary-impairment on six pooled trust preferred securities and ten non-agency mortgage-backed securities. See Note 1 to the consolidated financial statements for the impact of other-than-temporary-impairment in other comprehensive income and Note 3 to the consolidated financial statements for details on management’s evaluation of securities for other-than-temporary-impairment.

The investment portfolio had an effective duration of 4.23% at December 31, 2010, compared to 4.63% at December 31, 2009. Effective duration measures the percentage change in value of the portfolio in response to a change in interest rates. The weighted average yields on available-for-sale investment securities were 4.06% in 2010 and 4.52% in 2009. The average yields on the held-to-maturity portfolio were 3.84% in 2010 and 3.78% in 2009.

At December 31, 2010, Old National had a concentration of investment securities issued by the state of Indiana and its political subdivisions with an aggregate market value of $212.2 million, which represented 24.1% of shareholders’ equity. At December 31, 2009, Old National had a concentration of investment securities issued by the state of Indiana and its political subdivisions with an aggregate market value of $169.6 million, which represented 20.1% of shareholders’ equity. There were no other concentrations of investment securities issued by an individual state and its political subdivisions that were greater than 10% of shareholders’ equity. In 2011 we plan to continue to allow our holdings of non-taxable municipal bonds to decrease.

Loan Portfolio

We lend primarily to consumers and small to medium-sized commercial and commercial real estate clients in various industries including manufacturing, agribusiness, transportation, mining, wholesaling and retailing. Our policy is to concentrate our lending activity in the geographic market areas we serve, primarily Indiana, Illinois and Kentucky.

The following table presents the composition of the loan portfolio at December 31.

LOAN PORTFOLIO AT YEAR-END

																						Four-Year
(dollars in thousands)		2010				2009				2008				2007				2006				Growth Rate
Commercial		$	1,211,399			$	1,287,168			$	1,897,966			$	1,694,736			$	1,629,885				(7.1	)%
Commercial real estate			942,395				1,062,910				1,154,916				1,270,408				1,386,367				(9.2	)
Consumer credit			924,952				1,082,017				1,210,951				1,187,764				1,198,855				(6.3	)
Total loans excluding residential real estate			3,078,746				3,432,095				4,263,833				4,152,908				4,215,107				(7.6	)
Residential real estate			664,705				403,391				496,526				533,448				484,896				8.2
Total loans			3,743,451				3,835,486				4,760,359				4,686,356				4,700,003				(5.5	)%
Less: Allowance for loan losses			72,309				69,548				67,087				56,463				67,790
Net loans		$	3,671,142			$	3,765,938			$	4,693,272			$	4,629,893			$	4,632,213