**U.S. Securities and Exchange Commission**

**Washington,D.C.  20549**

 

**FORM 10-QSB**

 

| **ý**                                                                                                 |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |   |
|------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|--------|
|                                                                                                       |
| **For quarterly period ended September 30,  2003**                                                         |
|                                                                                                       |   |                                                                                          |   |   |
| **o**                                                                                                      |   | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF  THE EXCHANGE ACT**                         |   |
|                                                                                                       |
| **Commission file  number            0-13343** |
|                                                                                                            |        |                                                                                               |        |  |  |

 

**IlliniCorporation**

(Exact name of small business issuer as specified in its charter)

** **
| **Illinois**                                                    |   | **37-1135429**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                            |   |                                  |
| **3200 West  Iles Avenue, Springfield,  Illinois  62707**  |
| (Address of principal  executive offices)                       |
|                                                            |   |                                  |
| **(217) 787-5111**                                              |
| (Issuer’s telephone number)                                |

 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act during the past 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90days.

 
| Yes  ý  No  o |
|--------------------------------------------------|

 

As of October31, 2003, there were 411,701 shares of common stock, $0.01 par valueoutstanding.

 
| Transitional Small Business  Disclosure Format: |   | Yes  o  No  ý |
|-------------------------------------------------|--------|--------------------------------------------------|

 

 

----

 

**ILLINI CORPORATION**INDEX TO FORM10-QSBSeptember 30, 2003
| **PART I.**                                | **FINANCIAL INFORMATION** |
|--------------------------------------------|---------------------------|
|                                       |                      |
|                                       | Item 1.                   | Financial Statements (Unaudited) |   |
|                                       |                      |   |   |
|                                       |                      | Consolidated Balance Sheets  September 30, 2003 and December 31, 2002 |   |
|                                       |                      |   |   |
|                                       |                      | Consolidated Statements of Income  Three and Nine Months Ended September 30, 2003 and 2002 |   |
|                                       |                      |   |   |
|                                       |                      | Consolidated Statements of Shareholders’  Equity  Nine Months Ended September 30, 2003 and 2002 |   |
|                                       |                      |   |   |
|                                       |                      | Consolidated Statements of Comprehensive  Income  Three and Nine Months Ended September 30, 2003 and 2002 |   |
|                                       |                      |   |   |
|                                       |                      | Consolidated Statements of Cash Flows  Nine Months Ended September 30, 2003 and 2002 |   |
|                                       |                      |   |   |
|                                       |                      | Notes to Unaudited Consolidated Financial  Statements |   |
|                                       |                      |   |   |
|                                       | Item 2.                   | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |   |
|                                       |                      |   |   |
|                                       | Item 3.                   | Controls and Procedures |   |
|                                       |
| **PART II.   OTHER INFORMATION** |
|                                       |
| **SIGNATURES**                             |
|                                            |                           |  |  |  |  |

 

 

**Information Concerning Forward-LookingStatements**

*Statements contained in this Form 10-QSBwhich are not historical facts are “forward-looking statements” within the meaningof Section 27A of the Securities Act of 1933 and Section 21E of the SecuritiesExchange Act of 1934. These statements involve important known and unknownrisks, uncertainties and other factors and can be identified by phrases using“estimate,” “anticipate,” “believe,” “project,” “expect,” “intend,” “predict,”“potential,” “future,” “may,” “should” and similar expressions or words.  Such forward-looking statements are subjectto risk and uncertainties which could cause actual results to differ materiallyfrom those projected.  Such risks anduncertainties include potential change in interest rates, competitive factorsin the financial services industry, general economic conditions, the effect ofnew legislation and other risks detailed in documents filed by IlliniCorporation with the Securities and Exchange Commission from time to time.*

 

2

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**PART I.  FINANCIAL INFORMATION**

**Item 1.  Financial Statements**

 

**ILLINI CORPORATION AND SUBSIDIARIES****CONSOLIDATED BALANCE SHEETS****September 30, 2003 and December 31, 2002****Unaudited**
|                                                                                                |   | **September  30,  2003**    |        | **December  31,  2002** |       |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------|-------------|-------------------------|------------|
|                                                                                                |   | **(dollars  in thousands)** |        |
| **ASSETS**                                                                                          |   |                        |        |                    |       |   |   |
| Cash and due from banks                                                                             |   | **$**                       | **6,494**   |                    | $          | 7,654 |   |
| Interest-bearing deposits in other banks                                                            |   | **31**                      |        | 33                      |       |
| Federal funds sold                                                                                  |   | **5,973**                   |        | 12,166                  |       |
| Cash and cash equivalents                                                                           |   | **12,498**                  |        | 19,853                  |       |
| Securities available for sale, at fair  value                                                       |   | **44,515**                  |        | 42,969                  |       |
| Loans, net of the allowance for loan losses                                                         |   | **192,207**                 |        | 207,366                 |       |
| Premises and equipment                                                                              |   | **6,375**                   |        | 6,681                   |       |
| Accrued interest receivable                                                                         |   | **2,067**                   |        | 2,346                   |       |
| Other real estate owned                                                                             |   | **3,941**                   |        | 787                     |       |
| Goodwill                                                                                            |   | **1,856**                   |        | 1,856                   |       |
| Intangible assets                                                                                   |   | **263**                     |        | 312                     |       |
| Other assets                                                                                        |   | **540**                     |        | 489                     |       |
| Total   Assets                                                                                 |   | **$**                       | **264,262** |                    | $          | 282,659 |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                       |   |                        | ** **  |                    | ** ** |
| Noninterest-bearing demand deposits                                                                 |   | **$**                       | **32,776**  | ** **              | **$**      | 35,110 | ** ** |
| Interest-bearing deposits:                                                                          |   |                        |        |                    |       |
| NOW and money market accounts                                                                       |   | **58,177**                  |        | 56,595                  |       |
| Savings deposits                                                                                    |   | **21,433**                  |        | 19,938                  |       |
| Time deposits, $100,000 and over                                                                    |   | **18,036**                  |        | 22,794                  |       |
| Other time deposits                                                                                 |   | **95,609**                  |        | 110,397                 |       |
| Total deposits                                                                                      |   | **226,031**                 |        | 244,834                 |       |
| Repurchase agreements                                                                               |   | **599**                     |        | 656                     |       |
| FHLB advances and other borrowings                                                                  |   | **11,360**                  |        | 8,395                   |       |
| Preferred securities of subsidiary trust                                                            |   | **9,000**                   |        | 9,000                   |       |
| Accrued interest payable                                                                            |   | **853**                     |        | 1,332                   |       |
| Other liabilities                                                                                   |   | **997**                     |        | 3,221                   |       |
| Total liabilities                                                                                   |   | **248,840**                 |        | 267,438                 |       |
|                                                                                                |   |                        |        |                    |       |
| Shareholders’ equity                                                                           |   |                        |        |                    |       |
| Preferred stock, $0.01 par value,  authorized and unissued 10,000,000 shares                        |   | **—**                  |        | **—**              |       |
| Common stock, $0.01 par value, authorized  45,000,000 shares; 571,789 shares issued and outstanding |   | **6**                       |        | 6                       |       |
| Capital surplus                                                                                     |   | **9,070**                   |        | 9,070                   |       |
| Retained earnings                                                                                   |   | **12,162**                  |        | 11,885                  |       |
| Accumulated other comprehensive income                                                              |   | **1,388**                   |        | 1,464                   |       |
| Less:   Treasury shares, at cost, 160,088 shares                                               |   | **(7,204**                  | **)**       | (7,204                  | )          |
| Total shareholders’ equity                                                                     |   | **15,422**                  |        | 15,221                  |       |
| Total Liabilities and Shareholders’ Equity                                                     |   | **$**                       | **264,262** |                    | $          | 282,659 |   |

 

See accompanying notes tounaudited consolidated financial statements.

 

3

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**ILLINICORPORATION AND SUBSIDIARIES****CONSOLIDATED STATEMENTS OFINCOME****Three Months and Nine Months Ended September 30, 2003 and2002(Unaudited)**
|                                                  |   | **Three  Months Ended  September 30,**             |       | **Nine  Months Ended  September 30,** |       |
|-------------------------------------------------------|--------|----------------------------------------------------|------------|---------------------------------------|------------|
|                                                  |   | **2003**                                           |       | **2002**                              |       | **2003** |   | **2002** |   |
|                                                  |   | **(dollars in thousands, except per share data )** |       |
| Interest income:                                      |   |                                               |       |                                  |       |   |   |   |   |   |   |   |   |
| Interest and fees on loans                            |   | **$**                                              | **3,131**  |                                  | $          | 3,863 | ** ** | **$** | **9,965** |   | $ | 11,776 |   |
| Interest on securities:                               |   |                                               | ** ** |                                  | ** ** |   | ** ** |   | ** ** |
| Taxable                                               |   | **244**                                            |       | 375                                   | ** ** | **698** |   | 1,282 |   |
| Exempt from federal income taxes                      |   | **225**                                            |       | 207                                   | ** ** | **686** |   | 606 |   |
| Interest on short-term investments                    |   | **25**                                             |       | 38                                    | ** ** | **121** |   | 79 |   |
| Total interest income                                 |   | **3,625**                                          |       | 4,483                                 | ** ** | **11,470** |   | 13,743 |   |
| Interest expense:                                     |   |                                               |       |                                  |       |   |   |   |   |
| Interest on deposits:                                 |   |                                               |       |                                  |       |   |   |   |   |
| NOW and money market accounts                         |   | **121**                                            |       | 266                                   | ** ** | **438** |   | 838 |   |
| Savings deposits                                      |   | **34**                                             |       | 69                                    | ** ** | **124** |   | 208 |   |
| Time deposits, $100,000 and over                      |   | **176**                                            |       | 241                                   | ** ** | **605** |   | 823 |   |
| Other time deposits                                   |   | **865**                                            |       | 1,145                                 | ** ** | **2,936** |   | 3,341 |   |
| Interest on repurchase agreements                     |   | **4**                                              |       | 5                                     | ** ** | **14** |   | 26 |   |
| Interest on FHLB advances and other  borrowings       |   | **97**                                             |       | 102                                   | ** ** | **292** |   | 336 |   |
| Interest on preferred securities of  subsidiary trust |   | **244**                                            |       | 244                                   | ** ** | **717** |   | 710 |   |
| Total interest expense                                |   | **1,541**                                          |       | 2,072                                 | ** ** | **5,126** |   | 6,282 |   |
| Net interest income                                   |   | **2,084**                                          |       | 2,411                                 | ** ** | **6,344** |   | 7,461 |   |
| Provision for loan losses                             |   | **200**                                            |       | 180                                   | ** ** | **350** |   | 580 |   |
| Net interest income after provision for  loan losses  |   | **1,884**                                          |       | 2,231                                 | ** ** | **5,994** |   | 6,881 |   |
| Noninterest income:                                   |   |                                               |       |                                  |       |   |   |   |   |
| Service charges on deposit accounts                   |   | **357**                                            |       | 369                                   | ** ** | **1,020** |   | 978 |   |
| Other fee income                                      |   | **113**                                            |       | 87                                    | ** ** | **376** |   | 252 |   |
| Mortgage loan servicing fees                          |   | **(10**                                            | **)**      | 48                                    | ** ** | **(18** | **)** | 107 |   |
| Gains on sales of mortgage loans                      |   | **47**                                             |       | 130                                   | ** ** | **184** |   | 200 |   |
| Gains (losses) on sale of other real estate  owned    |   | **7**                                              |       | 4                                     | ** ** | **21** |   | (24 | ) |
| Other                                                 |   | **35**                                             |       | 31                                    | ** ** | **102** |   | 92 |   |
| Total noninterest income                              |   | **549**                                            |       | 669                                   | ** ** | **1,685** |   | 1,605 |   |
| Noninterest expense:                                  |   |                                               |       |                                  |       |   |   |   |   |
| Salaries and employee benefits                        |   | **1,154**                                          |       | 1,304                                 | ** ** | **3,529** |   | 3,832 |   |
| Net occupancy expense                                 |   | **188**                                            |       | 197                                   | ** ** | **575** |   | 575 |   |
| Equipment expense                                     |   | **58**                                             |       | 70                                    | ** ** | **173** |   | 222 |   |
| Data processing expense                               |   | **203**                                            |       | 182                                   | ** ** | **591** |   | 507 |   |
| Supplies expense                                      |   | **36**                                             |       | 36                                    | ** ** | **127** |   | 116 |   |
| Communication and transportation expense              |   | **115**                                            |       | 129                                   | ** ** | **345** |   | 349 |   |
| Marketing and advertising expense                     |   | **39**                                             |       | 60                                    | ** ** | **124** |   | 193 |   |
| Correspondent and processing fees                     |   | **82**                                             |       | 84                                    | ** ** | **242** |   | 273 |   |
| Loan and other real estate owned expense              |   | **5**                                              |       | 65                                    | ** ** | **241** |   | 127 |   |
| Professional fees                                     |   | **179**                                            |       | 198                                   | ** ** | **480** |   | 577 |   |
| Regulatory fees                                       |   | **23**                                             |       | 22                                    | ** ** | **81** |   | 80 |   |
| Other                                                 |   | **125**                                            |       | 108                                   | ** ** | **463** |   | 355 |   |
| Total noninterest expense                             |   | **2,207**                                          |       | 2,455                                 | ** ** | **6,971** |   | 7,206 |   |
| Income before income tax expense                      |   | **226**                                            |       | 445                                   | ** ** | **708** |   | 1,280 |   |
| Income tax expense                                    |   | **37**                                             |       | 91                                    | ** ** | **123** |   | 271 |   |
| Net income                                            |   | **$**                                              | **189**    |                                  | $          | 354 | ** ** | **$** | **585** |   | $ | 1,009 |   |
| Basic and diluted earnings per share                  |   | **$**                                              | **0.46**   |                                  | $          | 0.86 | ** ** | **$** | **1.42** |   | $ | 2.45 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

4

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**ILLINICORPORATION AND SUBSIDIARIES****CONSOLIDATEDSTATEMENTS OF SHAREHOLDERS’ EQUITY****Nine Months Ended September 30, 2003 and 2002****(Unaudited)**

 
|                                              |   | **Nine  Months Ended  September 30,** |       |
|---------------------------------------------------|--------|---------------------------------------|------------|
|                                              |   | **2003**                              |       | **2002** |   |
|                                              |   | **(dollars  in thousands)**           |       |
| Common Stock                                      |   |                                  |       |   |   |
| Beginning of year balance                         |   | **$**                                 | **6**      | ** ** | $ | 6 |   |
| End of period balance                             |   | **6**                                 | ** ** | 6 |   |
|                                              |   |                                  | ** ** |   |   |
| Capital Surplus                                   |   |                                  | ** ** |   |   |
| Beginning of year balance                         |   | **9,070**                             | ** ** | 9,070 |   |
| End of period balance                             |   | **9,070**                             | ** ** | 9,070 |   |
|                                              |   |                                  | ** ** |   |   |
| Retained Earnings                                 |   |                                  | ** ** |   |   |
| Beginning of year balance                         |   | **11,885**                            | ** ** | 10,775 |   |
| Net income                                        |   | **585**                               | ** ** | 1,009 |   |
| Dividends on common stock                         |   | **(308**                              | **)**      | (309 | ) |
| End of period balance                             |   | **12,162**                            | ** ** | 11,475 |   |
|                                              |   |                                  | ** ** |   |   |
| Treasury Stock                                    |   |                                  | ** ** |   |   |
| Beginning of year balance                         |   | **(7,204**                            | **)**      | (7,204 | ) |
| End of period balance                             |   | **(7,204**                            | **)**      | (7,204 | ) |
|                                              |   |                                  | ** ** |   |   |
| Accumulated Other Comprehensive Income            |   |                                  | ** ** |   |   |
| Beginning of year balance                         |   | **1,464**                             | ** ** | 943 |   |
| Unrealized gain (loss) on securities, net  of tax |   | **(76**                               | **)**      | 543 |   |
| End of period balance                             |   | **1,388**                             | ** ** | 1,486 |   |
|                                              |   |                                  | ** ** |   |   |
| Total Shareholders’ Equity                   |   | **$**                                 | **15,422** | ** ** | $ | 14,833 |   |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

**ILLINICORPORATION AND SUBSIDIARIES****CONSOLIDATEDSTATEMENTS OF COMPREHENSIVE INCOME****Three Months and Nine Months Ended September 30, 2003 and2002****(Unaudited)**

 
|                                                                                                                 |   | **Three  Months Ended  September 30,** |     | **Nine  Months Ended  September 30,** |       |
|----------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|----------|---------------------------------------|------------|
|                                                                                                                 |   | **2003**                               |     | **2002**                              |       | **2003** |   | **2002** |   |
|                                                                                                                 |   | **(dollars in thousands)**             |     | **(dollars in thousands)**            |       |
| Net Income                                                                                                           |   | **$**                                  | **189**  |                                  | $          | 354 | ** ** | **$** | **585** |   | $ | 1,009 |   |
| Other comprehensive income, unrealized  gains (losses) on securities, net of reclassification adjustment, net of tax |   | **(445**                               | **)**    | 273                                   | ** ** | **(76** | **)** | 543 |   |
| Comprehensive income (loss)                                                                                          |   | **$**                                  | **(256** | **)**                                 | $          | 627 | ** ** | **$** | **509** |   | $ | 1,552 |   |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

5

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**ILLINI CORPORATION AND SUBSIDIARIES****CONSOLIDATED STATEMENTSOF CASH FLOWS****Nine Months Ended September 30, 2003 and 2002****(Unaudited)**
|                                                                               |   | **2003**                   |       | **2002**   |   |
|------------------------------------------------------------------------------------|--------|----------------------------|------------|------------|--------|
|                                                                               |   | **(dollars in thousands)** |       |
| Cash flows from operating activities:                                              |   |                       | ** ** |       |   |
| Net income                                                                         |   | **$**                      | **585**    | ** ** | $      | 1,009 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |   |                       | ** ** |       |   |
| Depreciation and amortization                                                      |   | **579**                    | ** ** | 620        |   |
| Amortization of intangible assets                                                  |   | **49**                     | ** ** | 64         |   |
| Provision for loan losses                                                          |   | **350**                    | ** ** | 580        |   |
| Security amortization, net                                                         |   | **131**                    | ** ** | 17         |   |
| Federal Home Loan Bank stock dividend                                              |   | **(46**                    | **)**      | (28        | )      |
| Gains on sales of mortgage loans                                                   |   | **(184**                   | **)**      | (200       | )      |
| (Gains) losses on sale of other real estate  owned                                 |   | **(21**                    | **)**      | 24         |   |
| (Increase) decrease in accrued interest  receivable                                |   | **279**                    | ** ** | (1         | )      |
| Decrease in accrued interest payable                                               |   | **(479**                   | **)**      | (331       | )      |
| Origination of secondary market mortgage  loans                                    |   | **(14,974**                | **)**      | (12,456    | )      |
| Proceeds from the sales of secondary market  mortgage loans                        |   | **16,650**                 | ** ** | 12,693     |   |
| Other, net                                                                         |   | **(2,231**                 | **)**      | (389       | )      |
| Net cash provided by operating activities                                          |   | **688**                    | ** ** | 1,602      |   |
| Cash flows from investing activities:                                              |   |                       | ** ** |       |   |
| Proceeds from maturities and paydowns of  securities available for sale            |   | **17,561**                 | ** ** | 13,849     |   |
| Purchases of securities available for sale                                         |   | **(19,306**                | **)**      | (7,234     | )      |
| Net (increase) decrease in loans                                                   |   | **9,756**                  | ** ** | (13,222    | )      |
| Purchases of premises and equipment                                                |   | **(273**                   | **)**      | (511       | )      |
| Proceeds from sales of other real estate  owned                                    |   | **422**                    | ** ** | 136        |   |
| Net cash provided by (used in) investing  activities                               |   | **8,160**                  | ** ** | (6,982     | )      |
| Cash flows from financing activities:                                              |   |                       | ** ** |       |   |
| Net decrease in noninterest-bearing demand  deposits                               |   | **(2,334**                 | **)**      | (1,142     | )      |
| Net increase (decrease) in NOW, money  market accounts and savings deposits        |   | **3,077**                  | ** ** | (1,015     | )      |
| Net decrease in time deposits, $100,000 and  over                                  |   | **(4,758**                 | **)**      | (7,791     | )      |
| Net increase (decrease) in other time  deposits                                    |   | **(14,788**                | **)**      | 17,440     |   |
| Net decrease in repurchase agreements and  federal funds purchased                 |   | **(57**                    | **)**      | (1,111     | )      |
| Proceeds of FHLB advances and other  borrowings                                    |   | **3,000**                  | ** ** | 2,400      |   |
| Repayment of FHLB advances and other  borrowings                                   |   | **(35**                    | **)**      | (2,471     | )      |
| Cash dividends paid                                                                |   | **(308**                   | **)**      | (309       | )      |
| Net cash provided by (used in) financing  activities                               |   | **(16,203**                | **)**      | 6,001      |   |
|                                                                               |   |                       | ** ** |       |   |
| Net increase (decrease) in cash and cash  equivalents                              |   | **(7,355**                 | **)**      | 621        |   |
|                                                                               |   |                       | ** ** |       |   |
| Cash and cash equivalents at beginning of  period                                  |   | **19,853**                 | ** ** | 15,585     |   |
|                                                                               |   |                       | ** ** |       |   |
| Cash and cash equivalents at end of period                                         |   | **$**                      | **12,498** |       | $      | 16,206 |   |

 

See accompanyingnotes to unaudited consolidated financial statements.

 

6

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**ILLINI CORPORATION AND SUBSIDIARIES****Notes to UnauditedConsolidated Financial Statements****September 30, 2003**

(1)                                  Basis of Presentation

 

The accompanying unaudited consolidated financial statements have beenprepared in accordance with the instructions to Form 10-QSB and, therefore, donot include all of the information and notes required by accounting principlesgenerally accepted in the United States of America for complete consolidatedfinancial statements.  In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included.  For further information, refer to theconsolidated financial statements and footnotes included in the IlliniCorporation (“Corporation”) Annual Report on Form 10-KSB for the year endedDecember 31, 2002.  Certain amounts inthe 2002 consolidated financial statements have been reclassified to conform tothe 2003 presentation.  Suchreclassifications have no effect on previously reported consolidated net incomeor shareholders’ equity.  The consolidatedbalance sheet of the Corporation as of December 31, 2002 has been derived fromthe audited consolidated balance sheet of the Corporation as of that date.

 

Results for the three and nine months ended September 30, 2003 may notbe indicative of the annual performance of Illini Corporation or the subsidiarybanks, Illini Bank and Farmers State Bank of Camp Point (“the subsidiarybanks”).  Management of the Corporationhas made estimates and assumptions relating to the reporting of assets andliabilities and the disclosure of contingent assets and liabilities to preparethe interim consolidated financial statements (unaudited) in conformity withaccounting principles generally accepted in the United States of America.  Actual results could differ from thoseestimates.

 

(2)                                  Earningsper Common Share

 

Earnings per share represents income available to common shareholdersdivided by the weighted average number of shares outstanding during theperiod.  The Company has no commonequivalent shares that could cause dilution. The following information was used in the computation of basic anddiluted earnings per share.

 
|                                       |   | **Three  Months Ended  September 30,**            |       | **Nine  Months Ended  September 30,** |       |
|--------------------------------------------|--------|---------------------------------------------------|------------|---------------------------------------|------------|
|                                       |   | **2003**                                          |       | **2002**                              |       | **2003** |   | **2002** |   |
|                                       |   | **(dollars in thousands, except per share data)** |       |
| Net Income                                 |   | **$**                                             | **189**    |                                  | $          | 354 | ** ** | **$** | **585** |   | $ | 1,009 |   |
|                                       |   |                                              | ** ** |                                  | ** ** |   | ** ** |   | ** ** |
| Weighted average common shares outstanding |   | **411,701**                                       |       | 411,701                               | ** ** | **411,701** |   | 411,701 |   |
|                                            |        |                                                   |            |                                       |            |  |  |  |  |  |  |  |  |

 

(3)                                  Terminationof Proposed Acquisition

 

In November 2001 Illini Corporation executeda definitive agreement and plan of merger to acquire all of the outstandingstock of Illinois Community Bancorp, Inc (“ICBI”) through the merger of ICBIwith a wholly owned subsidiary of Illini Corporation.  In conjunction with the merger, ICBI requested that IlliniCorporation provide funds to pay certain liabilities of ICBI and expensesrelated to the transaction.

 

7

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Illini Corporation provided a direct loan toICBI for these items.  On December 23,2002 the Federal Reserve Board of Governors denied the merger application.  Illini Corporation subsequently filed anappeal with the Board of Governors for reconsideration.  The Corporation was notified the appeal wasdenied.  On June 13, 2003, theCorporation entered into an agreement with ICBI to terminate the merger bymutual consent.  The termination agreementreaffirmed certain provisions of the original merger agreement includingpayment of expenses by each party, the disposition of the loan, and generalrelease between all parties in the merger. The Corporation collected all principal and interest on the note,approximately $532,000 and received approximately $50,000 as payment in full onthe account receivable from ICBI.  Theaccount receivable represented funds paid by the Corporation for professionalservices related to the merger.  Thebalance of the account, approximately $75,000, was written off during thesecond quarter in conjunction with the termination agreement.  These fees were for accountants, lawyers andfiling fees used to prepare the merger agreement and filing with the U.S.Securities and Exchange Commission.  Thetermination agreement ended the merger agreement and released both parties fromcontinuing performance under the terms of the merger agreement.

 

(4)                                  Use of Estimates in the Preparation of FinancialStatements

 

The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reported period.  Actual results could differ from thoseestimates.  A significant estimate thatis particularly sensitive to change is the allowance for loan losses.

 

(5)                                  Stock Redemption by Farmers State Bank of Camp Point

 

On June 30,2003 the Farmers State Bank of Camp Point (a wholly owned bank subsidiary)effected a stock redemption.  Thetransaction, which was approved by the FDIC and the Illinois Office of Banksand Real Estate (“OBRE”), involved reducing the amount of common stockoutstanding from 2,100 shares to 2,000 shares. A $900,000 payment to the Corporation was made from the capital accountsof the Farmers State Bank.  Thistransaction was eliminated in consolidation. After the transaction, Farmers State Bank remained “well capitalized”under the regulatory classifications. The transaction was completed to adjust the capital level at FarmersState Bank and to provide the funds to the Corporation for general corporatepurposes.

 

(6)                                  NewAccounting Pronouncements

 

In April 2003, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandards 149, “Amendment of Statement 133 on Derivative Instruments andHedging Activities.”   This Statement iseffective for contracts entered into or modified after June 30, 2003, exceptfor hedging activities designated after June 30, 2003 and Statement 133,  “Accounting for Derivative Instruments andHedging Activities,” Implementation Issues that have been effective for fiscalquarters that began prior to June 15, 2003. Statement 149 amends and clarifies financial accounting and reportingfor derivative instruments, including certain derivative instruments embeddedin other contracts and for hedging activities under Statement 133. Adoption ofStatement No. 149 did not have any impact on the Corporation’s financialcondition or results of operations.

 

In May 2003,the Financial Accounting Standards Board issued Statement No. 150, “Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity.” This Statement

 

8

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requires thatan issuer classify a financial instrument that is within its scope as aliability. This Statement was effective for financial instruments entered intoor modified after May 31, 2003 and otherwise will be effective for periodsbeginning after September 15, 2003.  The Corporation does not expect the adoptionof Statement 150 to have any effect on the Corporation’s financial condition orresults of operations.

 

In January 2003, the Financial Accounting StandardsBoard issued Interpretation No. 46, “Consolidation of Variable InterestEntities, an Interpretation of ARB No. 51”. This Interpretation provides newguidance for the consolidation of variable interest entities (VIEs) andrequires such entities to be consolidated by their primary beneficiaries if theentities do not effectively disperse risk among parties involved. TheInterpretation also adds disclosure requirements for investors that areinvolved with unconsolidated VIEs. The consolidation requirements applyimmediately to VIEs created after January 31, 2003 and are effective for thefirst fiscal year or interim period beginning after June 15, 2003 for VIEsacquired before February 1, 2003. The adoption of this interpretation is notexpected have a significant impact on the Corporation’s financial condition orresults of operations.

 

However, there are uncertainties associatedwith regulatory capital treatment of certain VIEs. On July 2, 2003, the Boardof Governors of the Federal Reserve System released SR 03-13, Instructions forReporting Trust Preferred Securities on Schedule HC-R of the FR Y-9C.  These instructions clarified thatinstitutions should continue to include eligible trust preferred securities intier 1 capital for regulatory capital purposes.  In this release, the Federal Reserve indicates they will reviewthe regulatory implications of any accounting treatment changes and, ifnecessary or warranted, will provide further appropriate guidance.

 

**PART I - Item 2.  Management’s Discussion and Analysis of Financial Condition andResults of Operations**

 

**THREE AND NINE MONTHS ENDED SEPTEMBER 30,2003**

 

**SELECTED FINANCIAL RESULTS**

 

The following table showsselected financial results and measures for the three and nine months endedSeptember 30, 2003 compared with the same period in 2002.

 
|                           |   | **Three  Months Ended September 30,** |       | **Nine  Months Ended September 30,** |   |
|--------------------------------|--------|---------------------------------------|------------|--------------------------------------|--------|
|                           |   | **2003**                              |       | **2002**                             |   | **Change** |   | **Change-  %** |   | **2003** |   | **2002** |   | **Change** |   | **Change-  %** |   |
|                           |   | **(dollars in thousands)**            |       |
| Net income                     |   | $                                     | **189**    | ** **                           | $      | 354 |   | $ | (165 | ) | (46.7 | )% | $ | **585** | ** ** | $ | 1,009 |   | $ | (424 | ) | (42.1 | )% |
| Average assets                 |   | **267,896**                           | ** ** | 284,667                              |   | (16,771 | ) | (5.9 | )% | **276,177** | ** ** | 281,220 |   | (5,043 | ) | (1.8 | )% |
| Average equity                 |   | **15,551**                            | ** ** | 14,642                               |   | 909 |   | 6.2 | % | **15,599** | ** ** | 13,794 |   | 1,805 |   | 13.1 | % |
| Return on assets               |   | **0.28**                              | **%**      | 0.49                                 | %      | (0.21 | )% | (42.9 | )% | **0.28** | **%** | 0.48 | % | (0.20 | )% | (41.7 | )% |
| Return on equity               |   | **4.82**                              | **%**      | 9.59                                 | %      | (4.77 | )% | (49.8 | )% | **5.01** | **%** | 9.78 | % | (4.77 | )% | (48.8 | )% |
| Efficiency ratio               |   | **80.48**                             | **%**      | 76.79                                | %      | 3.69 | % | 4.8 | % | **83.40** | **%** | 76.60 | % | 6.80 | % | 8.9 | % |
| Dividend payout ratio          |   | **54.46**                             | **%**      | 29.07                                | %      | 25.39 | % | 87.4 | % | **52.78** | **%** | 30.60 | % | 22.18 | % | 72.5 | % |
| Equity to assets ratio         |   | **5.80**                              | **%**      | 5.14                                 | %      | 0.66 | % | 12.9 | % | **5.65** | **%** | 4.91 | % | 0.74 | % | 15.1 | % |
| Tier 1 leverage ratio          |   | **6.23**                              | **%**      | 5.53                                 | %      | 0.70 | % | 12.7 | % |   | ** ** |   |   |   |   |   |   |
| Total risk-based capital ratio |   | **11.37**                             | **%**      | 10.21                                | %      | 1.16 | % | 11.4 | % |   | ** ** |   |   |   |   |   |   |
|                                |        |                                       |            |                                      |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

9

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Definitions of ratios:

Return on assets - annualizednet income divided by average assets.

Return on equity - annualizednet income divided by average shareholders’ equity.

Efficiency ratio - noninterestexpense divided by noninterest income plus taxable equivalent net interestincome.

Dividend payout ratio -dividends per share divided by net income per share.

Equity to assets ratio -average equity divided by average assets.

Tier 1 leverage ratio - Tier 1capital divided by average assets.

Total risk-based capital ratio- Total risk based capital divided by total risk weighted assets.

 

The Corporation recorded netincome of $189,000 for the three months ended September 30, 2003, down $165,000from the same period in 2002, and recorded net income of $585,000 for the ninemonths ended September 30, 2003, down $424,000 from the same period in2002.  The return on average equitydecreased to 4.8% for the three months ended September 30, 2003 as compared to9.6% for the same period ended September 30, 2002.  Return on average equity for the nine-month period endedSeptember 30, 2003 was 5.0% as compared to 9.8% for the same period in2002.  Similarly, basic and dilutedearnings per share for the three months ended September 30, 2003 was $0.46 pershare versus $0.86 for the same quarter in 2002.  This represents a decrease of 46.5%.  Basic and diluted earnings per share for the nine months endedSeptember 30, 2003 was $1.42 compared to $2.45 for the same period endedSeptember 30, 2002.  This represents a decreaseof 42.0%.  The decrease in earningsduring 2003 is primarily due to the decline in net interest income as discussedin the Results of Operations section of this document.

 

 

**FINANCIALCONDITION**

 

Average earning assets of the Corporation forthe first nine months of 2003 decreased 2.6% or $6.9 million to $253.9 millionfrom $260.8 million at September 30, 2002.

 

Average loans decreased to$194.9 million for the three months ended September 30, 2003 compared to $214.0million for the same period in 2002.  Incomparing the two periods, the portfolio has the following noteworthy changesin average balances:  commercial loansdown $10.2 million, commercial real estate down $9.0 million, residential realestate up $7.1 million and consumer loans down $4.4 million.  Lower interest rates resulted in majorrefinancings of commercial debt and this factor, along with tightened creditstandards on the part of the Corporation, resulted in reductions in thecommercial and commercial real estate segments of the portfolio.  This same low interest rate environmentcreated an increased demand in new home sales and the Corporation was active inprograms promoting home purchases.  Theaverage yield on the loan portfolio, net of the allowance for loan losses,decreased 84 basis points to 6.45% for the three months ended September 30,2003, compared to 7.29% for the three months ended September 30, 2002.

 

Average loans decreased to$200.1 million for the nine months ended September 30, 2003 compared to $211.4million for the same period in 2002.  Incomparing the two periods, the portfolio has the following noteworthy changesin average balances:  commercial loansdown $8.0 million, residential real estate up $3.6 million and consumer loansdown $4.3 million.  The average yield onthe loan portfolio, net of the allowance for loan losses, decreased 84 basispoints to 6.73% for the nine months ended September 30, 2003, compared to 7.57%for the nine months ended September 30, 2002. The decrease in average yields for the three month and nine monthperiods is due to lower interest rates and adjustable rate loans repricingdownward.

 

Average securities decreased $2.2 million and$5.0 million for the three and nine months ended September 30, 2003, ascompared to the same period in 2002. The decrease is primarily offset by $ 1.9 million and $8.9 millionincrease in short-term investments for the three and nine months endedSeptember 30, 2003, respectively.  A

 

10

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significantportion of the decline in the investment portfolio is related to the rapidrepayment of the mortgage-backed securities. Management has opted to increase the liquidity position, and maintain arather conservative investment strategy given the current interest rateenvironment.  The average yield of thesecurities portfolio was 5.65% and 5.64% for the three and nine months endedSeptember 30, 2003, respectively, a decrease of 68 and 75 basis points ascompared to the same periods in 2002.

 

Themost important and stable source of funding is core deposits, considered bymanagement to include non-interest bearing demand deposits, NOW and moneymarket accounts, savings deposits and time deposits under $100,000.  Average core deposits for the nine monthsended September 30, 2003 decreased 1.0% or $2.0 million to $217.0 million from$219.0 million for the nine months ended September 30, 2002.  The average rate paid on total interestbearing liabilities for the nine months ended September 30, 2003 decreased 60basis points to 3.02% when compared to 3.62% for the nine months endedSeptember 30, 2002.

 

Themodest decrease in average core deposits for the nine months ended September30, 2003 as compared to the same period in 2002, given the declining interestrate environment during this period, demonstrates a local, stable fundingsource for the subsidiary banks’ activities.

 

Inaddition to federal funds purchased, Illini Bank and Farmers State Bank of CampPoint maintain an overnight federal funds line of credit with an unaffiliatedfinancial institution and collateralized borrowing capacity with the FederalHome Loan Bank of Chicago.

 

Asof September 30, 2003, other real estate owned increased $3,154,000 or 400.8%from December 31, 2002.  This netincrease was reported as Illini Bank obtained title to three foreclosedproperties and also disposed of a commercial property from other real estateowned. More information regarding the changes between nonperforming loans andother real estate owned can be found in the Credit Quality section of thisdocument.

 

 

**RESULTS OF OPERATIONS**

 

Thisdiscussion should be read in conjunction with the consolidated financialstatements, notes, and tables included elsewhere in this report and in the 2002Illini Corporation Annual Report on Form 10-KSB (2002 Form 10-KSB).

 

NetInterest Income

 

Thefollowing tables show average balances and related interest income or interestexpense, with the resulting average yield or rate by category of averageearning assets or interest bearing liabilities.  Interest income and the resulting net interest income are shownon a tax equivalent basis.

 

11

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**Consolidated Average Balances, Interest Income/Expense andYield/Rates**

 
|                                             |   | **Three months ended September 30,** |        |
|--------------------------------------------------|--------|--------------------------------------|-------------|
|                                             |   | **2003**                             |        | **2002** |   |
|                                             |   | **Average  Balance**                 |        | **Interest  Income/  Expense** |   | **Average  Yield/  Rate** |   | **Average  Balance** |   | **Interest  Income/  Expense** |   | **Average  Yield/  Rate** |   |
|                                             |   | **(dollars in thousands)**           |        |
| **ASSETS**                                       |   |                                 |        |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets:                         |   |                                 |        |   |   |   |   |   |   |   |   |   |   |
| Short-term investments                           |   | **$**                                | **11,365**  | ** ** | **$** | **25** | ** ** | **0.89** | **%** | $ | 9,479 |   | $ | 38 |   | 1.59 | % |
| Investment securities (3)                        |   |                                 |        |   |   |   |   |   |   |   |   |   |   |
| Taxable                                          |   | **24,854**                           | ** **  | **244** | ** ** | **3.92** |   | 28,021 |   | 374 |   | 5.34 |   |
| Tax-exempt (1)                                   |   | **15,493**                           | ** **  | **326** | ** ** | **8.42** |   | 14,510 |   | 299 |   | 8.24 |   |
| Total securities                                 |   | **40,347**                           | ** **  | **570** | ** ** | **5.65** |   | 42,531 |   | 673 |   | 6.33 |   |
| Loans                                            |   |                                 |        |   |   |   |   |   |   |   |   |   |   |
| Commercial (1)                                   |   | **36,018**                           | ** **  | **572** | ** ** | **6.30** |   | 46,202 |   | 784 |   | 6.73 |   |
| Agriculture                                      |   | **14,471**                           | ** **  | **199** | ** ** | **5.46** |   | 16,067 |   | 235 |   | 5.80 |   |
| Real estate                                      |   |                                 |        |   |   |   |   |   |   |   |   |   |   |
| Commercial                                       |   | **95,516**                           | ** **  | **1,490** | ** ** | **6.19** |   | 104,514 |   | 1,881 |   | 7.14 |   |
| Agriculture                                      |   | **5,673**                            | ** **  | **104** | ** ** | **7.24** |   | 6,572 |   | 130 |   | 7.86 |   |
| Residential                                      |   | **35,622**                           | ** **  | **587** | ** ** | **6.54** |   | 28,547 |   | 568 |   | 7.89 |   |
| Consumer, net                                    |   | **6,891**                            | ** **  | **155** | ** ** | **8.93** |   | 11,266 |   | 255 |   | 8.99 |   |
| Credit card                                      |   | **745**                              | ** **  | **33** | ** ** | **17.54** |   | 838 |   | 36 |   | 17.06 |   |
| Total loans                                      |   | **194,936**                          | ** **  | **3,140** | ** ** | **6.39** |   | 214,006 |   | 3,889 |   | 7.21 |   |
| Allowance for loan losses                        |   | **(1,925**                           | **)**       |   |   |   | ** ** | (2,314 | )  |   | ** ** |   | ** ** |
| Net loans (1) (2)                                |   | **193,011**                          | ** **  | **3,140** | ** ** | **6.45** |   | 211,692 |   | 3,889 |   | 7.29 |   |
| Total interest-earning assets                    |   | **244,723**                          | ** **  | **3,735** | ** ** | **6.05** |   | 263,702 |   | 4,600 |   | 6.92 |   |
| Other assets                                     |   | **23,173**                           |        |   |   |   |   | 20,965 |   |   |   |   |   |
| Total assets                                     |   | **$**                                | **267,896** |   |   |   |   |   | $ | 284,667 |   |   |   |   |   |
| **LIABILITIES**                                  |   |                                 |        |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                    |   |                                 |        |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                        |   |                                 |        |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand                          |   | **$**                                | **58,860**  | ** ** | **$** | **121** | ** ** | **0.82** | **%** | $ | 60,117 |   | $ | 266 |   | 1.76 | % |
| Savings                                          |   | **21,650**                           | ** **  | **34** | ** ** | **0.61** |   | 20,045 |   | 69 |   | 1.36 |   |
| Time deposits less than $100,000                 |   | **98,290**                           | ** **  | **865** | ** ** | **3.49** |   | 113,429 |   | 1,145 |   | 4.00 |   |
| Time deposits $100,000 and over                  |   | **20,927**                           | ** **  | **176** | ** ** | **3.35** |   | 24,202 |   | 241 |   | 3.96 |   |
| Total interest-bearing deposits                  |   | **199,727**                          | ** **  | **1,196** | ** ** | **2.38** |   | 217,793 |   | 1,721 |   | 3.13 |   |
| Short-term borrowings                            |   | **821**                              | ** **  | **4** | ** ** | **2.17** |   | 488 |   | 5 |   | 3.68 |   |
| Long-term borrowings                             |   | **9,088**                            | ** **  | **97** | ** ** | **4.21** |   | 8,400 |   | 102 |   | 4.83 |   |
| Preferred securities of trust  subsidiary (4)    |   | **9,000**                            | ** **  | **244** | ** ** | **10.74** |   | 9,000 |   | 244 |   | 10.76 |   |
| Total interest-bearing  liabilities              |   | **218,636**                          | ** **  | **1,541** | ** ** | **2.80** |   | 235,681 |   | 2,072 |   | 3.49 |   |
| Other liabilities                                |   | **33,709**                           |        |   |   |   |   | 34,344 |   |   |   |   |   |
| Shareholders’ equity                        |   | **15,551**                           |        |   |   |   |   | 14,642 |   |   |   |   |   |
| Total liabilities and  shareholders’ equity |   | **$**                                | **267,896** |   |   |   |   |   | $ | 284,667 |   |   |   |   |   |
| **Net interest margin**                          |   |                                 |        | **$** | **2,194** | ** ** | **3.56** | **%** |   |   | $ | 2,528 |   | 3.80 | % |

 

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(1)                                  Incomeamounts are presented on a taxable equivalent basis (TE), which is defined asincome on earning assets that is subject to either a reduced rate or zero rateof income tax, adjusted to give effect to the appropriate incremental federal incometax rate and adjusted for non-deductible carrying costs, where applicable.  Where appropriate, yield calculationsinclude these adjustments.  The federalstatutory rate was 34% for all periods presented.

(2)                                  Nonaccrualloans are included in the loan balances. Interest income includes related fee income of $115,000 in 2003 and$73,000 in 2002.

(3)                                  Averagesecurities balances are based on amortized historical cost, excluding SFAS 115adjustments to fair value, which are included in other assets.

(4)                                  Theaverage balance for the Corporation is based on monthly average balances versesa daily average balance.

 

12

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Netinterest margin is a measure of the net return on interest-earning assets andis computed by dividing annualized net interest income by the average of totalinterest-earning assets for the period.

 

Fluctuationsin net interest income can result from the changes in the volumes of assets andliabilities as well as changes in interest rates.  The Federal Reserve has lowered key rates to the lowest levels inover four decades.  As a consequence,performance of financial instruments and predicting interest rate spreads hasreached levels with no relevant historical reference points.  Management of interest rate margins is verydifficult and subject to significant change.

 

 

**Consolidated Average Balances, Interest Income/Expense andYield/Rates**

 
|                                             |   | **Nine months ended September 30,** |        |
|--------------------------------------------------|--------|-------------------------------------|-------------|
|                                             |   | **2003**                            |        | **2002** |   |
|                                             |   | **Average  Balance**                |        | **Interest  Income/  Expense** |   | **Average  Yield/  Rate** |   | **Average  Balance** |   | **Interest  Income/  Expense** |   | **Average  Yield/  Rate** |   |
|                                             |   | **(dollars in  thousands)**         |        |
| **ASSETS**                                       |   |                                |        |
| Interest-earning assets:                         |   |                                |        |   |   |   |   |   |   |   |   |   |   |
| Short-term investments                           |   | **$**                               | **15,484**  | ** ** | **$** | **121** | ** ** | **1.05** | **%** | $ | 6,577 |   | $ | 79 |   | 1.61 | % |
| Investment securities (3)                        |   |                                |        |   |   |   |   |   |   |   |   |   |   |
| Taxable                                          |   | **24,292**                          | ** **  | **698** | ** ** | **3.83** |   | 30,930 |   | 1,281 |   | 5.52 |   |
| Tax-exempt (1)                                   |   | **15,725**                          | ** **  | **994** | ** ** | **8.43** |   | 14,090 |   | 878 |   | 8.30 |   |
| Total securities                                 |   | **40,017**                          | ** **  | **1,692** | ** ** | **5.64** |   | 45,020 |   | 2,159 |   | 6.39 |   |
| Loans                                            |   |                                |        |   |   |   |   |   |   |   |   |   |   |
| Commercial (1)                                   |   | **38,016**                          | ** **  | **1,863** | ** ** | **6.55** |   | 46,043 |   | 2,495 |   | 7.24 |   |
| Agriculture                                      |   | **15,149**                          | ** **  | **620** | ** ** | **5.48** |   | 16,125 |   | 799 |   | 6.62 |   |
| Real estate                                      |   |                                |        |   |   |   |   |   |   |   |   |   |   |
| Commercial                                       |   | **97,821**                          | ** **  | **4,748** | ** ** | **6.49** |   | 98,492 |   | 5,416 |   | 7.35 |   |
| Agriculture                                      |   | **6,134**                           | ** **  | **350** | ** ** | **7.63** |   | 6,576 |   | 389 |   | 7.91 |   |
| Residential                                      |   | **34,875**                          | ** **  | **1,783** | ** ** | **6.84** |   | 31,262 |   | 1,846 |   | 7.89 |   |
| Consumer, net                                    |   | **7,770**                           | ** **  | **522** | ** ** | **8.98** |   | 12,059 |   | 796 |   | 8.83 |   |
| Credit card                                      |   | **774**                             | ** **  | **101** | ** ** | **17.38** |   | 835 |   | 105 |   | 16.76 |   |
| Total loans                                      |   | **200,539**                         | ** **  | **9,987** | ** ** | **6.66** |   | 211,392 |   | 11,846 |   | 7.49 |   |
| Allowance for loan losses                        |   | **(2,183**                          | **)**       |   |   |   |   | (2,239 | ) |   |   |   |   |
| Net loans (1) (2)                                |   | **198,356**                         | ** **  | **9,987** | ** ** | **6.73** |   | 209,153 |   | 11,846 |   | 7.57 |   |
| Total interest-earning assets                    |   | **253,857**                         | ** **  | **11,800** | ** ** | **6.21** |   | 260,750 |   | 14,084 |   | 7.22 |   |
| Other assets                                     |   | **22,320**                          |        |   |   |   |   | 20,470 |   |   |   |   |   |
| Total assets                                     |   | **$**                               | **276,177** |   |   |   |   |   | $ | 281,220 |   |   |   |   |   |
|                                             |   |                                |        |   |   |   |   |   |   |   |   |   |   |
| **LIABILITIES**                                  |   |                                |        |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                    |   |                                |        |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                        |   |                                |        |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand                          |   | **$**                               | **58,017**  | ** ** | **$** | **438** | ** ** | **1.01** | **%** | $ | 59,477 |   | $ | 838 |   | 1.88 | % |
| Savings                                          |   | **21,362**                          | ** **  | **124** | ** ** | **0.77** |   | 19,479 |   | 208 |   | 1.42 |   |
| Time deposits less than $100,000                 |   | **105,799**                         | ** **  | **2,936** | ** ** | **3.71** |   | 107,717 |   | 3,341 |   | 4.15 |   |
| Time deposits $100,000 and over                  |   | **23,235**                          | ** **  | **605** | ** ** | **3.48** |   | 26,515 |   | 823 |   | 4.15 |   |
| Total interest-bearing deposits                  |   | **208,413**                         | ** **  | **4,103** | ** ** | **2.63** |   | 213,188 |   | 5,210 |   | 3.27 |   |
| Short-term borrowings                            |   | **705**                             | ** **  | **14** | ** ** | **2.75** |   | 1,336 |   | 26 |   | 2.56 |   |
| Long-term borrowings                             |   | **8,616**                           | ** **  | **292** | ** ** | **4.53** |   | 8,416 |   | 336 |   | 5.34 |   |
| Preferred securities of trust  subsidiary (4)    |   | **9,000**                           | ** **  | **717** | ** ** | **10.65** |   | 9,000 |   | 710 |   | 10.55 |   |
| Total interest-bearing  liabilities              |   | **226,734**                         | ** **  | **5,126** | ** ** | **3.02** |   | 231,940 |   | 6,282 |   | 3.62 |   |
| Other liabilities                                |   | **33,844**                          |        |   |   |   |   | 35,486 |   |   |   |   |   |
| Shareholders’ equity                        |   | **15,599**                          |        |   |   |   |   | 13,794 |   |   |   |   |   |
| Total liabilities and  shareholders’ equity |   | **$**                               | **276,177** |   |   |   |   |   | $ | 281,220 |   |   |   |   |   |
| **Net interest  margin**                         |   |                                |        | **$** | **6,674** | ** ** | **3.51** | **%** |   |   | $ | 7,802 |   | 4.00 | % |

 

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(1)                                  Incomeamounts are presented on a taxable equivalent basis (TE), which is defined asincome on earning assets that is subject to either a reduced rate or zero rateof income tax, adjusted to give effect to the appropriate incremental federalincome tax rate and adjusted for non-deductible carrying costs, whereapplicable.  Where appropriate, yieldcalculations include these adjustments. The federal statutory rate was 34% for all periods presented.

(2)                                  Nonaccrualloans are included in the loan balances. Interest income includes related fee income of $333,000 in 2003 and$269,000 in 2002.

(3)                                  Averagesecurities balances are based on amortized historical cost, excluding SFAS 115adjustments to fair value, which are included in other assets.

(4)                                  Theaverage balance for the Corporation is based on monthly average balances versesa daily average balance.

 

Netinterest margin is a measure of the net return on interest-earning assets andis computed by dividing annualized net interest income by the average of totalinterest-earning assets for the period.

 

Netinterest income of $2,084,000 for the third quarter of 2003 declined $327,000(13.6%) compared to $2,411,000 for the same period in 2002.   Continued compression of the net interestmargin (3.56% as of September 30, 2003 compared to 3.80% as of September 30,2002), combined with a reduction of $19.1 million in average loans outstanding($194.9 million versus $214.0 million, third quarter 2003 and third quarter2002, respectively), were primary contributors to this decline.

 

Fluctuationsin net interest income can result from the changes in the volumes of assets andliabilities as well as changes in interest rates.  The Federal Reserve has lowered key rates to the lowest levels inover four decades.  As a consequence,performance of financial instruments and predicting interest rate spreads hasreached levels with no relevant historical reference points.  Management of interest rate margins is verydifficult and subject to significant change.

 

NoninterestIncome

 

Noninterestincome decreased by $120,000 (17.9%) for the three months ended September 30,2003, but increased $80,000 (5.0%) for the nine months ended September 30,2003, as compared to the same periods in 2002.   Service charges on deposit accounts, the major component ofnoninterest income, increased $42,000 (4.3%) for the nine-month period reported,when compared to the like period in 2002. Other fee income of $376,000 for the nine months ended September 30,2003 represented an increase of $124,000 (49.2%) compared to the same period in2002.  Application fees on residentialreal estate loans, instituted in December, 2002 contributed $98,700 of to theother fee income amount.  Gains on salesof other real estate of $21,000 for the nine month period ended September 30,2003 compared favorably to losses of $24,000 for the same period

 

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in2002.  These increases were mitigated bya decrease of $125,000 in mortgage loan servicing fees.  This decrease was the result of anacceleration in the amortization of mortgage service rights, due to the largenumber of mortgage refinancings during the first nine months of 2003, and areduction in mortgage loans serviced for others from $70.7 million at December31, 2002 to $50.7 million as of September 30, 2003.

 

NoninterestExpense

 

TheCorporation continues to work at containing noninterest expenses.  Total noninterest expenses of $2,207,000 forthe three months ended September 30, 2003, were down $248,000 (10.1%) whencompared to the same period in 2002. Salaries and employee benefits decreased $150,000 (11.5%) to $1,154,000,compared to $1,304,000 for the three months ended September 30, 2002 and weredown $303,000 (7.9%) for the nine months ended September 30, 2003.  This is primarily due to certain positionsbeing unfilled in the subsidiary banks in 2003 and an overall lower level ofaccrued incentive and bonus compensation during 2003.   These declines were offset by increases in loan and other realestate owned expenses, for the nine-month period reported.  The increase in other real estate expensesis consistent with the increase in the volume of other real estate owned thatIllini Bank has recorded.  The sale ofproperties in other real estate owned may or may not recover these expenses inwhole or in part.

 

Theprovision for loan losses was $350,000 for the nine months ended September 30,2003, versus $580,000 for the same period in 2002.  This decrease in the provision was the result of a decline inloan balances of approximately $15.0 million since December 31, 2002, and achange in composition of the loan portfolio.

 

Theallowance for loan losses is increased by provisions charged to operations andis available to absorb probable incurred loan losses.  Loan losses are charged against the allowance when managementbelieves and confirms that the loan balance is not collectable. Subsequentrecoveries, if any, are credited to the allowance.  Illini Corporation utilizes a systematic, documented approach indetermining the appropriate level of the allowance for loan losses.  Management’s approach, which provides forgeneral and specific allowances, is based on current economic conditions, pastloan losses, collection experience, risk characteristics of the portfolio,assessing collateral values by obtaining independent appraisals for significantproperties, results of regulatory examinations, and such other factors which,in management’s judgment, deserve recognition in estimating loan losses.

 

Managementbelieves the allowance for loan losses is adequate to absorb probable incurredlosses in the loan portfolio.  Whilemanagement uses available information to recognize losses on loans, futureadditions to the allowance for loan losses may be necessary based on changes ineconomic conditions.

 

**CREDIT QUALITY**

 

Grossloans totaled $194.3 million at September 30, 2003, a decrease of $15.5million, or 7.4%, from $209.8 million at December 31, 2002.  The provision for loan losses has decreasedto $350,000 for the nine months ended September 30, 2003 as compared to$580,000 for the same period in 2002. At September 30, 2003 the allowance as a percent of total loans was1.08% as compared to 0.99%, 1.18% and 1.10% as of June 30, 2003, December 31,2002 and September 30, 2002, respectively. The decrease in the ratio compared to those reported in 2002 is a resultof the charge-offs taken in the first nine months of 2003 along with reducedprovision for loan losses when compared to the same period for 2002.  Based on the inherent risk in the loanportfolio, management believes that as of September 30, 2003, the allowance forloan losses is adequate.

 

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|                            |   | **Nine months ended  September 30,** |        |
|---------------------------------|--------|--------------------------------------|-------------|
|                            |   | **2003**                             |        | **2002** |   |
|                            |   | **(dollars in  thousands)**          |        |
| **Allowance for  Loan Losses:** |   |                                 |        |
| Balance at beginning of period  |   | **$**                                | **2,468**   |   | $ | 2,103 |   |
|                            |   |                                 |        |   |   |
| Charge-offs                     |   | **(794**                             | **)**       | (464 | ) |
| Recoveries                      |   | **72**                               | ** **  | 109 |   |
| Net charge-offs                 |   | **(722**                             | **)**       | (355 | ) |
|                            |   |                                 |        |   |   |
| Provision charged to operations |   | **350**                              |        | 580 |   |
| Balance at end of period        |   | **$**                                | **2,096**   |   | $ | 2,328 |   |
| Average loans outstanding       |   | **$**                                | **200,539** |   | $ | 211,392 |   |

 

IlliniCorporation’s primary business of making commercial, real estate, and consumerloans entails potential losses, the magnitude of which depends on a variety ofeconomic factors affecting borrowers, which are beyond the control of theCorporation.  Accordingly, a significantfactor in the Corporation’s past and future operating results is the level ofthe provision for loan losses*. *Net charge-offs increased to$722,000 for the nine months ended September 30, 2003, as compared to $355,000for the comparable period in the prior year. Of the $722,000 of net charge-offs in first nine months of 2003,$317,000 was related to one commercial loan that carried a 100% allocation inthe computation of the allowance for loan losses and one commercial real estateloan was charged down by $268,000 prior to being moved to other real estateowned.  These loans were identified asimpaired at December 31, 2002 and had a specific reserve of $522,000 allocatedat the date.

 
| **Credit  Quality**                 |   | **September 30,  2003**     |       | **December 31,  2002** |       | **September 30,  2002** |       |
|-------------------------------------|--------|-----------------------------|------------|------------------------|------------|-------------------------|------------|
|                                |   | **(dollars in  thousands)** |       |
| **Nonperforming  assets:**          |   |                        |       |                   |       |                    |       |
| Accruing loans past due 90 days     |   | **$**                       | **4**      |                   | $          | 23                      |       | $ | 20 |   |
| Nonaccrual                          |   | **4,338**                   |       | 4,901                  |       | 5,603                   |       |
| Renegotiated                        |   | **616**                     |       | —                 |       | —                  |       |
| Other real estate owned             |   | **3,741**                   |       | 787                    |       | 838                     |       |
| Total nonperforming assets          |   | **$**                       | **8,699**  |                   | $          | 5,711                   |       | $ | 6,461 |   |
|                                |   |                        | ** ** |                   | ** ** |                    | ** ** |
| **Key ratios**:                     |   |                        | ** ** |                   | ** ** |                    | ** ** |
| Nonperforming loans to loans        |   | **2.55**                    | **%**      | 2.35                   | %          | 2.66                    | %          |
| 90 days delinquent to ending  loans |   | **0.00**                    |       | 0.01                   |       | 0.01                    |       |
| Allowance to total loans            |   | **1.08**                    |       | 1.18                   |       | 1.10                    |       |
| Allowance to nonperforming loans    |   | **42.28**                   |       | 50.11                  |       | 41.40                   |       |

 

AtSeptember 30, 2003, nonaccrual loans totaled $4.3 million, compared to $3.6million as of June 30, 2003 and $5.6 million as of September 30, 2002.  Impaired loans past due less than 90 daystotaled $0, $638,000, and $0 as of September 30, 2003, June 30, 2003, andSeptember 30, 2002, respectively. Nonperforming assets have increased $2,988,000 from December 31,2002.  This increase is primarilyrelated to two relationships which management has placed on noanaccrualstatus.  At this time, management doesnot believe they will sustain a loss on these loans due to underlyingcollateral.

 

Asnoted in the Corporation’s 2002 Form 10-KSB and prior filings, the nonaccrualloan balance had continued to increase. The decline in nonaccrual balances in the first nine months of 2003 isrelated to the subsidiary bank acquiring title to certain real estatecollateral and moving them to “other real estate owned”.  The transfer of title to

 

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thebank subsidiary allows the bank to initiate the sale of the property.  This is necessary to dispose of the propertyand close the transaction.  During thefirst nine months of 2003, three significant properties, securing loans, weretransferred into other real estate owned. The carrying value of the three properties is $3.4 million.  Management is working diligently to disposeof these properties in the most cost effective method.

 

TheCompany has other potential problem loans that are currently performing, butwhere some concerns exist as to the ability of the borrower to comply withpresent loan repayment terms.  Excludingnonperforming loans and impaired loans, these loans totaled $7,736,000 atSeptember 30, 2003.  The classificationof these loans, however, does not imply that management expects losses on eachof these loans, but believes that a higher level of scrutiny and closermonitoring is prudent under the circumstances. Such classifications relate to specific concerns for each individual borrowerand do not relate to any concentration risk common to all loans in this group.

 

IlliniCorporation’s loan underwriting guidelines and credit review procedures andpolicies are designed to protect the Corporation from credit losses.  Illini Corporation’s process for monitoringloan quality includes detailed monthly trend analysis of delinquencies andnonperforming assets.  Managementextensively monitors significant credit relationships through appraisals,assessment of the financial condition of borrowers, restrictions on out-of-arealending, and avoidance of loan concentrations.

 

Asdiscussed in the Corporation’s 2002 Form 10-KSB and previous Form 10-QSBreports, management has implemented several initiatives to improve creditquality.  These steps included anofficer driven problem loan identification system, a revamped allowance forloan losses adequacy determination process, a new loan policy, and improvedreporting systems (credit quality and production).  Management is committed to continuing these initiatives and hassupplemented these efforts in 2003 by engaging an outside firm to perform acomprehensive review of each bank’s loan portfolio to assess its credit qualityand the effectiveness of management’s loan quality systems and controls.

 

 

**CAPITAL RESOURCES**

 

Thecurrent economic and regulatory environment places increased emphasis oncapital strength.  A strong capitalposition, which is vital to the continued profitability of Illini Corporation,also promotes depositor and investor confidence and provides a solid foundationfor the future growth of the organization. Illini Corporation has historically satisfied its capital requirementsprincipally through the retention of earnings.

 

Thetable below shows the various measures of regulatory capital and relatedquarterly ratios.

 
|                                                  |   | **Regulatory requirements  to be:** |   | **Actual Regulatory Capital Ratios** |   |
|-------------------------------------------------------|--------|-------------------------------------|--------|--------------------------------------|--------|
|                                                  |   | **Adequately  Capitalized**         |   | **Well-  Capitalized**               |   | **September 30,  2003** |   | **December 31,  2002** |   |
| Total risk-based capital as% of  risk-weighted assets |   | 8.0                                 | %      | 10.0                                 | %      | 11.4 | % | 10.6 | % |
| Tier 1 capital as% of risk-weighted  assets           |   | 4.0                                 | %      | 6.0                                  | %      | 8.2 | % | 7.4 | % |
| Tier 1 capital as% quarterly  average assets          |   | 4.0                                 | %      | 5.0                                  | %      | 6.2 | % | 5.8 | % |

 

Risk-basedcapital guidelines require the classification of assets and some off-balanceitems in terms of credit-risk exposure and the measuring of capital as apercentage of the risk adjusted asset totals. Management believes, and data in the above table show that, as ofSeptember 30, 2003 and December 31, 2002 the Company met all capital adequacyrequirements to which it is subject.  Asof those dates, the Corporation’s subsidiary

 

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bankswere “well capitalized” under regulatory prompt corrective action provisions.

 

Earningsretention is affected by the Board of Director’s declaration of cashdividends.  The dividend payout ratio isan indicator of the level of earnings retained.  The Board of Directors of the Corporation considers the capitalstrength of the Corporation and the banks in determining the appropriate levelof cash dividends to be paid to shareholders. The dividend payout ratio for the three and nine months ended September30, 2003 was 54.46% and 52.78% as compared to 29.07% and 30.60% for the threeand nine months ended September 30, 2002. The dividend per share for the threeand nine months ended September 30, 2003 is unchanged from the same period in2002.

 

Asdiscussed in the Corporation’s 2002 Form 10-KSB, the Corporation has $9 millionof trust preferred securities outstanding. Per regulation, 25% of the Tier 1 capital ratio can be comprised of thetrust preferred issue.  As of September30, 2003, the portion eligible for inclusion in the Tier 1 computation amountedto approximately $4.7 million.

 

 

**LIQUIDITY**

 

IlliniCorporation’s policy is to manage interest rate risk to a level, which placeslimits on the sensitivity of its earnings to changes in market interestrates.  An explanation of theasset/liability management process is found in the Corporation’s 2002 Form10-KSB, beginning on page 15.

 

Theassets portion of the balance sheet provides liquidity primarily through loanprincipal repayments, maturities of investment securities, and sales ofinvestment securities available for sale. The liability side of the balance sheet provides liquidity throughvarious customers’ interest-bearing and noninterest-bearing depositaccounts.  Short-term borrowings are anadditional source of liquidity and represent Illini Corporation’s incrementalborrowing capacity.

 

IlliniCorporation uses a comprehensive analysis of its asset/liability function,including a review of its funds management policy and its principal measure ofliquidity.  The Corporation utilizes aliquidity measurement, called “Basic Surplus,” which redefines liquid assets asthe total available assets held by the Corporation which can be converted tocash in thirty days or less, reduced by short term liabilities plus availableborrowings.  As of September 30, 2003,the most recent calculation, Illini Corporation’s basic surplus was $23.3million, or 8.5% of total average assets.

 

Managementbelieves the formula provides an accurate measurement of liquidity and providesmanagement with a comprehensible and consistent tool to develop pricing andprofitability strategies.  Based on thenew measurement and as compared to peer banks, management believes theliquidity position of the banks is strong.

 

 

**PART I -Item 3.  Controls and Procedures**

 

Anevaluation was performed under the supervision and with the participation ofthe Corporation’s management, including the Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the design and operation of theCorporation’s disclosure controls and procedures (as defined in Rule 13a-15(e)promulgated under the Securities and Exchange Act of 1934, as amended) as of September30, 2003.  Based on that evaluation, theCorporation’s management, including the Chief Executive Officer and ChiefFinancial Officer, concluded that the Corporation’s disclosure controls andprocedures were effective. There have been no significant changes in theCorporation’s internal controls or in other factors that could significantlyaffect internal controls

 

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**PART II.  OTHER INFORMATION**

 

Item1                Legal Proceedings 

 

MaryQuinn v. Illini Corporation and Illinois Stock Transfer Co.,

SangamonCounty Case No. 98 CH 240

 

Thecase was filed in 1998 by a shareholder of Illini Corporation against IllinoisStock Transfer Company, as Rights Agent for Illini Corporation under IlliniCorporation’s Shareholder Rights Agreement (the “Rights Agreement”), forspecific performance of the Rights Agreement, both individually and on behalfof a class of Illini Corporation shareholders. The complaint alleges that the Rights Agreement was triggered in Aprilof 1998, and that the Rights Agent has a duty under the Rights Agreement todistribute Rights Certificates to the shareholders of Illini Corporation.  Illini Corporation was added as a Defendantin 1999, and the class has been certified. Plaintiff seeks to recover her attorneys’ fees from Illini Corporationin addition to the other relief sought. In January of 2000, the trial court entered Summary Judgement in favorof Illini Corporation and Illinois Stock Transfer Company.  Plaintiff appealed this ruling denyingPlaintiff’s summary judgement motion to the Illinois Appellate Court.  The Appellate Court reversed the SummaryJudgement for Defendants and remanded the case for trial on the issue ofwhether the Illini Corporation Board of Directors acted in good faith indetermining that a shareholder’s acceptance of a gift of Illini CorporationStock did not trigger the Rights Amendment and later, in Illini Corporation’slater amendment of the Rights Agreement. The Appellate Court further ruled the Plaintiff’s attorneys’ fees wererecoverable under the Rights Agreement. After a series of unsuccessful motions filed by the plaintiff’s counsel,Illini Corporation entered a motion to remove the plaintiff’s counsel.  The court removed the counsel for theplaintiff class and appointed new counsel to represent the class.  The removed counsel filed a motion forreconsideration, which was denied.  Thenew counsel filed a Motion For Direction to remove the class representative,which was granted on January 15, 2003. On March 7, 2003 the trial court appointed a successor classrepresentative.  Illini Corporation isnegotiating for a settlement of the suit with the new class representative andclass counsel.  The former classrepresentative filed a motion to opt out of the class.  Quinn’s Motion to Opt Out or VoluntarilyDismiss was denied.  Quinn thereafterfiled a motion to intervene as plaintiff in the class suit.  That motion was denied. Quinn then filed aMotion For Trial Setting in which Quinn requested clarification as to her rightto a trial on her individual claims and to set those claims for trial.  The Court denied Quinn’s Motion For TrialSetting.  Illini will vigorously opposethis action.

 

 

MaryQuinn v. Ida R. Noll, Burnard McHone, et al.

SangamonCounty Case No. 01 CH 377

 

Thecase was filed in August of 2001 by a shareholder against a former shareholderand several present and former directors of Illini Corporation.  The complaint purports to bring a derivativecause of action arising out of the redemption of the shares of the formershareholder, which is alleged to have caused the defendants to breach theShareholder Rights Agreement.  Thecomplaint seeks rescission of the stock redemption and recovery of attorneys’fees.  In July 2002 the court orderedthis derivative suit stayed pending completion of the trial in the class actionsuit (discussed above) or upon further order. In October 2003, Plaintiff moved to dismiss the case without prejudiceand moved for an award of attorneys’ fees. The Court granted the motion to voluntarily dismiss, but denied themotion for attorneys’ fees.  Plaintiffhas requested clarification or reconsideration of the request for attorneys’fees and a hearing on the motion to clarify or reconsider will be heard onNovember 26, 2003.  Illini will continueto vigorously defend this action.

 

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MaryQuinn v. Ida R. Noll, William McCubbin, et al.

SangamonCounty Case No. 2001 CH 00377, filed April 4, 2003, CIV.-3

 

EdLudwig and Phyllis Ludwig v. Ida Noll, William McCubbin, et al.

SangamonCounty Case No. 2003 CH 00193

 

InApril 2003, Illini, its directors, and one of its officers were nameddefendants in two separate complaints filed in the Circuit Court of SangamonCounty.  Among other things, thecomplaints seek to rescind the stock purchase agreement entered into by Illiniin 2001 to purchase approximately 30% of its common shares from a minorityshareholder group.  The stock purchaseagreement was a normal business transaction beneficial to its shareholders andwas entered into after appropriate due diligence and consultation with theCompany’s outside financial advisors. Illini has filed a motion to dismiss on the basis of a prior pendingaction and a motion for a stay of proceedings until review of the case by itsindependent directors.  The review is inprocess.  The judge has recused himselffrom the case and it has been reassigned. The motions remain pending. IIllini will vigorously defend the lawsuits.

 

Item2                Changes in Securities -none

 

Item3                Defaults Upon SeniorSecurities - none

 

Item4                Submission of Matters to aVote of Security Holders - none

 

Item5                Other Information -none

 

Item 6                          Exhibitsand Reports on Form 8-K

 
| (a)    | Exhibits:                                                                          |
|--------|------------------------------------------------------------------------------------|
|   | 31.1                                                                               | Certification of CEO pursuant to rule 13a-14(a)/15d-14(a). |
|   | 31.2                                                                               | Certification of CFO pursuant to rule  13a-14(a)/15d-14(a). |
|   | 32.1                                                                               | CEO Certification pursuant to 18 U.S.C. section 1350, as  adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
|   | 32.2                                                                               | CFO Certification pursuant to 18 U.S.C. section 1350, as  adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                               |   |
| (b)    | Reports on Form 8-K:                                                               |
|   | There were no reports on Form 8-K filed for the quarter  ended September 30, 2003. |

 

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**SIGNATURES**

 

Inaccordance with the requirements of the Exchange Act, the registrant causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

 
| Illini Corporation       |        |
|--------------------------|-------------|
| (Registrant)             |        |
|                     |        |
|                     |        |
| By: /s/Burnard K. McHone |        | November 12, 2003 |   |
| Burnard K. McHone        | Date signed |
| President                |        |
|                     |        |
|                     |        |
| By: /s/Dennis B. Guthrie |        | November 12, 2003 |   |
| Dennis B. Guthrie        | Date signed |
| Chief Financial Officer  |        |

 

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