Fitch Affirms Old National Bancorp's IDR at 'BBB'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed all ratings for Old National Bancorp (ONB) and its principal banking subsidiaries, including the long-term Issuer Default Rating (IDR) of 'BBB' and the short-term IDR of 'F2'. The Rating Outlook is Stable. A complete list of ratings follows at the end of this release.

Today's rating actions reflect the company's solid capital position and continued manageable levels of problem assets and credit costs. ONB's common equity raise during the latter half of 2009 netted approximately $196 million in proceeds and boosted tangible common equity to 8.25% of tangible assets at Dec. 31, 2009. Fitch believes ONB's asset quality has fared better than most peers during the current economic cycle due to its adherence to its lending standards. The amount of nonperforming assets (NPAs) has declined over the last three quarters and compares favorably to most peers at 1.95% of loans and foreclosed real estate. ONB's exposure to commercial real estate is lower than many other regional banks. In addition, while the company's markets have suffered during the current economic cycle, they have generally fared better than neighboring states Michigan and Ohio in terms of unemployment and home value declines.

Fitch's affirmation also takes into account that ONB's capital base can absorb projected stress in the commercial real estate loan book along with additional write-downs in its book of non-agency mortgage-backed securities and trust preferred collateralized debt obligations which totaled $257 million at Dec. 31, 2009. ONB reported $25 million in other-than-temporary impairment charges on these securities during 2009.

Earnings continue to benefit from a sound net interest margin and good fee income, and have absorbed higher credit costs to date. More disciplined loan and deposit pricing and good interest rate risk management have produced a healthier net interest margin. The franchise's insurance and wealth management businesses help generate reasonable revenue diversity for a bank its size. Management is focusing increasingly on expense management as ONB will likely continue to face depressed loan demand, stiff pricing competition, and elevated credit costs.

Additionally, ONB's ratings are supported by a veteran management team, a solid core deposit base with a strong position in many of its markets, sufficient access to contingent funding sources, and sound holding company finances. The franchise's geographic concentration, however, remains a constraining ratings factor.

This rating action reflects the application of Fitch's current criteria which is available on Fitch's web site at 'www.fitchratings.com' and specifically includes:

--'Master Global Financial Institutions Criteria' (Dec. 29, 2009);

--'Bank Holding Companies' (Dec. 30, 2009).

ONB is an $8 billion bank holding company based in Evansville, IN. It operates 117 locations in its core markets of Indiana, southern Illinois and western and central Kentucky.

Fitch affirms the following ratings:

Old National Bancorp

--IDR at 'BBB';

--Senior unsecured at 'BBB';

--Short-term IDR at 'F2';

--Individual at 'B/C';

--Support at '5';

--Support floor at 'NF';

--Rating Outlook Stable.

Old National Bank

--IDR at 'BBB';

--Short-term IDR at 'F2';

--Long-term deposits at 'BBB+';

--Short-term deposits at 'F2';

--Subordinated debt at 'BBB-';

--Individual at 'B/C';

--Support at '5';

--Support floor at 'NF';

--Rating Outlook Stable.

ONB Capital Trust II

St. Joseph Capital Trust I and II

--Preferred stock at 'BB+'.

Additional information is available at 'www.fitchratings.com'.

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