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**U.S.Securities and Exchange Commission****Washington, D.C. 20549**

**FORM10-QSB**

| **ý**                                   | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|----------------------------------------------|----------------------------------------------------------------------------------------|
|                                         |                                                                                   |
| **For quarterly period ended June 30, 2001** |
|                                         |
| **o**                                        | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**                   |
|                                         |                                                                                   |
| **Commission file number 0-13343**           |

**IlliniCorporation**(Exact name of smallbusiness issuer as specified in its charter)

| **Illinois**                                                     |   | **37-1135429**                       |
|------------------------------------------------------------------|--------|--------------------------------------|
| (State  or other jurisdiction  of incorporation or organization) |   | (I.R.S.  EmployerIdentification No.) |

**3200 West Iles Avenue, Springfield,  Illinois 62707**(Address ofprincipal executive offices)

**(217) 787-5111******(Issuer’s telephonenumber)

                Checkwhether the issuer (1) filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.

Yes  ý  No  o

                Statethe number of shares outstanding of each of the issuer's classes of commonequity, as of the latest practicable date: 411,701 shares of $10 par value common stock as of  July 31, 2001.

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

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**ILLINI CORPORATION**INDEX TO FORM 10-QSBJune 30, 2001

| **PART I.**        | **FINANCIAL INFORMATION**                                                                      |   |
|--------------------|------------------------------------------------------------------------------------------------|--------|
|               |                                                                                           |   |
| Item 1.            | Financial Statements  (Unaudited)                                                              |   |
|               |                                                                                           |   |
|               | Condensed  Consolidated Balance SheetsJune 30,  2001 and December 31, 2000                     |   |
|               |                                                                                           |   |
|               | Condensed  Consolidated Statements of IncomeThree  and Six Months Ended June 30, 2001 and 2000 |   |
|               |                                                                                           |   |
|               | Condensed  Consolidated Statements of Cash FlowsSix  Months Ended June 30, 2001 and 2000       |   |
|               |                                                                                           |   |
|               | Notes  to Interim Condensed Consolidated Financial Statements                                  |   |
|               |                                                                                           |   |
| Item  2.           | Management's  Discussion and Analysis of Operations                                            |   |
|               |                                                                                           |   |
| Item  3.           | Quantitative  and Qualitative Disclosures AboutMarket  Risk                                    |   |
|               |                                                                                           |   |
| **PART II.**       | **OTHER INFORMATION**                                                                          |   |
|               |                                                                                           |   |
| **SIGNATURES**     |                                                                                           |
|               |                                                                                           |
| **EXHIBIT  INDEX** |                                                                                           |

 

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| **Information Concerning  Forward-Looking Statements**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *Statements contained in this Form  10-QSB which are not historical facts are “forward-looking statements” within  the meaning of Section 27A of the Securities Act of 1933 and Section 21E of  the Securities Exchange Act of 1934. These statements involve important known  and unknown risks, 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 subject to risk and uncertainties which could  cause actual results to differ materially from those projected.  Such risks and uncertainties include  potential change in interest rates, competitive factors in the financial  services industry, general economic conditions, the effect of new legislation  and other risks detailed in documents filed by Illini Corporation with the  Securities and Exchange Commission from time to time.* |

 

**PART I.  FINANCIALINFORMATION****Item 1. Financial Statements**

**ILLINI CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCESHEETSJune 30, 2001 and December 31, 2000**

|                                     | **June 30,****2001**                                                                          |        | December 31,2000 |       |
|------------------------------------------|-----------------------------------------------------------------------------------------------|-------------|------------------|------------|
|                                     | ****                                                                                          |        |                  |       |
|                                     | **(Unaudited)**                                                                               |        |             |       |
|                                     | (dollars in thousands )                                                                       |        |
| **ASSETS**                               |                                                                                          |        |
|                                     | Cash and due from banks                                                                       | **$**       | **5,477**        |       | $ | 6,993 |   |
|                                     | Interest-bearing deposits in other banks                                                      | **30**      |             | 30         |   |
|                                     | Federal funds sold                                                                            | **6,180**   |             | 0          |   |
|                                     |                                                                                          | ****        |             |            |   |
|                                     | Cash and cash equivalents                                                                     | **11,687**  |             | 7,023      |   |
|                                     | Investment securities available for sale, at fair value                                       | **47,121**  |             | 54,602     |   |
|                                     | Loans, net of the allowance for loan losses                                                   | **183,318** |             | 166,781    |   |
|                                     | Premises and equipment                                                                        | **7,255**   |             | 6,555      |   |
|                                     | Accrued interest receivable                                                                   | **2,325**   |             | 2,395      |   |
|                                     | Other real estate owned                                                                       | **494**     |             | 359        |   |
|                                     | Other assets                                                                                  | **2,918**   |             | 2,316      |   |
|                                     |                                                                                          | ****        |             |            |   |
|                                     | **$**                                                                                         | **255,118** |             | $          | 240,031 |   |
|                                     | ****                                                                                          |        |                  |       |
| **LIABILITIES AND SHAREHOLDERS' EQUITY** |                                                                                          | ** **  |             | ** ** |
|                                     | Noninterest-bearing demand deposits                                                           | **26,298**  |             | 32,725     |   |
|                                     | Interest-bearing deposits:                                                                    |        |             |       |   |
|                                     | NOW and money market accounts                                                                 | **61,375**  |             | 52,571     |   |
|                                     | Savings deposits                                                                              | **17,187**  |             | 16,651     |   |
|                                     | Time deposits, $100,000 and over                                                              | **26,302**  |             | 26,143     |   |
|                                     | Other time deposits                                                                           | **87,096**  |             | 75,202     |   |
|                                     |                                                                                          | ****        |             |            |   |
|                                     | Total deposits                                                                                | **218,258** |             | 203,292    |   |
|                                     | Short-term debt                                                                               | **505**     |             | 8,481      |   |
|                                     | Long-term debt                                                                                | **10,710**  |             | 6,000      |   |
|                                     | Accrued interest payable                                                                      | **1,759**   |             | 1,181      |   |
|                                     | Other liabilities                                                                             | **1,824**   |             | 1,719      |   |
|                                     |                                                                                          | ****        |             |            |   |
|                                     | Total liabilities                                                                             | **233,056** |             | 220,673    |   |
|                                     |                                                                                          | ****        |             |            |   |
|                                     | **COMMITMENTS AND CONTINGENT LIABILITIES**                                                    |        | ** **       |       | ** ** |
|                                     | Preferred securities of subsidiary trust                                                      | **9,000**   |             | ----       |   |
|                                     |                                                                                          |        |             |       |
|                                     | Shareholders' equity:                                                                         |        |             |       |   |
|                                     | Common stock-$10 par value, authorized 800,000 shares; 571,789  shares issued and outstanding | **5,718**   |             | 5,718      |   |
|                                     | Capital surplus                                                                               | **3,358**   |             | 3,358      |   |
|                                     | Retained earnings                                                                             | **10,333**  |             | 9,948      |   |
|                                     | Accumulated other comprehensive income                                                        | **857**     |             | 334        |   |
|                                     | Less: Treasury shares, at cost, 160,088 shares for 2001                                       | **(7,204**  | )                | ----       |   |
|                                     |                                                                                          | ****        |             |            |   |
|                                     | Total shareholders' equity                                                                    | **13,062**  |             | 19,358     |   |
|                                     |                                                                                          | ****        |             |            |   |
|                                     | **$**                                                                                         | **255,118** |             | $          | 240,031 |   |
|                                     | ****                                                                                          |        |                  |       |
|                                          |                                                                                               |             |                  |            |  |  |  |  |  |  |  |  |

Seeaccompanying notes to interim condensed consolidated financial statements.**ILLINI CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATEDSTATEMENTS OF INCOMEThree Months and Six Months Ended June 30, 2001 and 2000(Unaudited) Three  Months EndedJune 30, Six  Months Ended  June 30,     **2001** 2000 **2001** 2000  ****  ****  Interest income:(dollars  in thousands, except per share data)  Interest and fees on loans**$****3,847** $3,102 **$****7,548** $6,708  **Interest on investment securities:** ** ** ** ** ** ** ** ** Taxable**539** 751** ****1,174** 1,509  Exempt from federal income taxes**180** 147** ****361** 254  Interest on short term investments**127** 195** ****198** 235   ****  ****   Total interest income**4,693** 4,195** ****9,281** 8,076   ****  ****  Interest expense:         Interest on deposits:         NOW and money market accounts**536** 488** ****1,079** 949  Savings deposits**85** 93** ****167** 185  Time deposits, $100,000 and over**353** 361** ****754** 633  Other time deposits**1,248** 1,120** ****2,435** 2,109  Interest on short-term debt**6** 29** ****64** 59  Interest on long-term debt**202** 0** ****302** 0  Interest on Trust Preferred  securities**229** 0** ****323** 0   ****  ****   Total interest expense**2,659** 2,091** ****5,124** 3,935   ****  ****   Net interest income**2,034** 2,104** ****4,157** 4,141   ****  ****  Provision for loan losses**90** 135** ****190** 270  ****  ****   Net interest income after  provision for loan losses**1,944** 1,969** ****3,967** 3,871          Noninterest income:         Service charges on deposit  accounts**366** 343** ****699** 663  Other fee income**80** 69** ****148** 141  Mortgage loan servicing fees**79** 57** ****138** 115  Gain on sale of mortgage loans**213** 10** ****256** 11  Securities gains (losses)**0** (13)**0** (13) Other**50** 42** ****86** 91   ****  ****   Total noninterest income**788** 508** ****1,327** 1,008 Noninterest expense:         Salaries and employee benefits**1,004** 900** ****2,014** 1,803  Net occupancy expense**189** 199** ****388** 410  Equipment expense**90** 101** ****194** 206  Data processing**191** 186** ****374** 370  Supplies**50** 42** ****93** 79  Communication and transportation**112** 118** ****216** 233  Marketing and advertising**67** 53** ****124** 103  Correspondent and processing fees**76** 65** ****147** 127  Loan and other real estate owned  expenses**60** 18** ****74** 35  Professional fees**257** 185** ****443** 379  Directors’ and regulatory fees**83** 71** ****158** 125  Other**106** 99** ****203** 191   ****  ****   Total noninterest expense**2,285** 2,037** ****4,428** 4,061            Income before income tax expense**447** 440** ****866** 818 Income tax expense**125** 127** ****235** 241  ****  ****   Net income**$****322** $313** ****$****631** $577   ****  ****  Basic and diluted earnings per  share         (based on weighted average common  shares outstanding of 539,772 for the three month period and 555,780 for the  six month period in 2001 and 571,789 in 2000)**$**0.60 $0.55 **$**1.13 $1.01   ****  ****  
See accompanying notes to interimcondensed consolidated financial statements.

**ILLINI CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSix Months Ended June 30, 2001 and 2000**
 **2001** 2000  ****   **(Unaudited)**   Cash flows from operating activities:(dollars in thousands )  Net income**$****631** $577  Adjustments to reconcile net income to net cash provided by operating  activities:     Depreciation and amortization**367** 563  Amortization of goodwill**87** 82  Provision for loan losses**190** 270  Losses on sales of securities, net**----** 13  Gains on sales of premises and equipment**----** (2) Net gain on sale of loans**(256****)**(11) (Increase) decrease in accrued interest receivable**70** (101) Increase in accrued interest payable**578** 28  Origination of secondary market mortgage loans**(14,684****)**(3,402) Proceeds from the sales of secondary market mortgage loans**14,463** 3,298  Other, net**(612****)**(455)  ****   Net cash provided by operating activities**834** 860   ****    ** ** ** ** Cash flows from investing activities:     Proceeds from sales of investment securities available for sale**----** 4,757  Proceeds from maturities and paydowns of investment  securities available for sale**11,332** 3,237  Purchases of investment securities available for sale**(2,982****)**(6,144) Net increase in loans, net**(16,659****)**(12,609) Purchases of premises and equipment**(1,111****)**(59) Proceeds from sales of premises and equipment**----**** **2  Proceeds from sales of other real estate owned**----**** **124   ****   Net cash used by investing activities**(9,420****)**(10,692)  ****       Cash flows from financing activities:     Net decrease in non-interest bearing demand deposits**(6,427****)**(819) Net increase in NOW, money market accounts and savings deposits**9,340** 1,564  Net increase in time deposits, $100,000 and over**159** 1,471  Net increase in other time deposits**11,894** 5,426  Net increase (decrease) in short-term debt**(7,976****)**8  Net increase in long-term debt**4,710** ----  Proceeds from issuance of preferred securities of subsidiary  trust**9,000** ----  Purchase of treasury shares**(7,204****)**----  Cash dividends paid**(246****)**(286)  ****   Net cash provided by financing activities**13,250** 7,364   ****       Net increase (decrease) in cash and cash equivalents**4,664** (2,468)     Cash and cash equivalents at beginning of period**7,023** 13,006  ****       Cash and cash equivalents at end of period**$****11,687** $10,538  ****  Supplemental Information:     Income taxes paid**$****866** $448  Interest paid**$****4,546** $3,907   ****  Other non-cash investing activities:     Transfer of loans to other real estate owned**$****153** $15   ****  
See accompanying notes to interim condensed consolidatedfinancial statements.

**ILLINI CORPORATION AND SUBSIDIARIESNotes to Interim Condensed ConsolidatedFinancial Statements (Unaudited)June 30, 2001**

(1)           Basisof Presentation

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with the instructions toForm 10-QSB and, therefore, do not include all of the information and notesrequired by generally accepted accounting principles 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 Annual Report on Form 10-KSB for the year ended December 31, 2000.

Basic earnings per share is computed by dividing incomeavailable to common shareholders by the weighted-average number of commonshares outstanding for the period. Illini Corporation has no potential common shares, which are dilutive.

Results for the three and six months ended June 30, 2001may not be indicative of the annual performance of Illini Corporation (or theBanks).  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 condensed consolidated financial statements (unaudited) inconformity with generally accepted accounting principals.  Actual results could differ from thoseestimates.

(2)           RecentDevelopments

OnJune, 13, 2001, Illini Corporation executed a definitive stock purchaseagreement to redeem 160,088 of its shares (27.99% of total shares outstanding)from the Noll family and related interests. The agreement contains separate non-compete and standstillagreements.  The standstill agreementprohibits certain members of the family from owning voting shares in IlliniCorporation or directly or indirectly exercising influence over the Company’soperations for a period of ten years from the date of execution. The Companypaid $45 per share plus $150,000 related to the non-compete and standstillagreements.  One-third of the purchaseprice was paid by the Company in cash at closing, with the balance of unpaidprincipal due in three equal installments on March 31, 2002, March 31, 2003,and March 31, 2004.  Interest will bepaid quarterly on the unpaid principal balance at seven percent (7%) perannum.  The Company provided a letter ofcredit to the sellers in lieu of pledging the purchased shares.  The buyer received physical possession of160,088 shares as a result of the transaction. The Board of Directors will hold the purchased shares as treasury stockpending further action.  The originaldate of issue of the irrevocable letter of credit was April 6, 2001 and willexpire on April 6, 2004.  The drawsavailable under this letter of credit decrease automatically with and in theamount of each principal payment made under the promissory note.  Partial draws are allowed hereunder,provided, however, that the amount of any draft drawn under the letter ofcredit when aggregated with the amount of all prior drafts drawn under theletter of credit does not exceed the face amount of the letter of credit on thedate of such draft.

IlliniStatutory Trust I is a wholly-owned subsidiary of the Company which was formedon January 31, 2001, solely for the purpose of issuing capital and commonsecurities.  Illini Statutory Trust Iissued 9,279 shares of preferred securities bearing an interest rate of 10.20%with a maturity date of February 22, 2031 for net proceeds of $9.0 million,after deducting underwriting commissions, capital, and other costs.  Also included in the agreement, after the 10thyear the bank may accelerate payment according to the terms of theagreement.  Illini Statutory Trust Iinvested the proceeds in junior subordinated debentures of the Company, whichalso had an interest rate of 10.20%. The Company used $3.0 million of the proceeds from the juniorsubordinated debentures to increase the equity capital of Illini Bank.  Interest on the junior subordinateddebentures and distributions on the preferred securities are payablesemi-annually in arrears, with the first payment to be paid on August 22,2001.  Distribution on the securities iscumulative and based upon the liquidation value of $1,000 per capitalsecurity.  The Company has the right, atany time, so long as no event of default has occurred and is continuing, todefer payments of interest on the junior subordinated debentures for a periodnot exceeding 10 consecutive semi-annual periods; provided, that such deferralmay not extend beyond the stated maturity of the junior subordinateddebentures.  The securities are subjectto mandatory redemption, in whole or in part, upon repayment of the juniorsubordinated debentures at maturity or their earlier redemption.
(3)           Allowancefor Loan Losses and Impaired Loans

Theallowance for loan losses is increased by provisions charged to operations andis available to absorb loan losses. Illini Corporation utilizes a systematic, documented approach indetermining the appropriate level of the allowance for loan losses of itssubsidiary banks. Management’s approach, which provides for general andspecific allowances, is based on current economic conditions, past loan losses,collection experience, risk characteristics of the portfolio, assessingcollateral values by obtaining independent appraisals for significantproperties, and such other factors which, in management’s judgment, deservecurrent recognition in estimating potential loan losses.  The determination of the allowance for loanlosses is one of the estimates made by management in the preparation of theconsolidated financial statements.
  June  30,   2001 2000   (dollars  in thousands) Balance at beginning  of period $2,188 $1,696 Provision charged to  expense 190 270 Charge-offs 87 91 Less: recoveries 27 35      Net charge-offs 60 56      Balance at end of  period $2,318 $1,910     
Loans, except largegroups of smaller-balance homogeneous loans, for which the full collection ofprincipal and interest according to the contractual terms of the loan agreementis not probable, are evaluated for impairment. Information regarding impaired loans at June 30, 2001 and December 31,2000 is as follows:
  June  30, December  31,   2001 2000   (dollars  in thousands) Nonaccrual loans $2,123 $772 Impaired loans  continuing to accrue interest 1,948 ---     Total impaired loans $4,071 $772           Allowance for losses  on specific impaired loans $115 $115 Impaired loans with no  specific related allowance for loan losses   3,913 614 Average balance of  impaired loans during the period 1,892 714     
 

(4)           NewAccounting Pronouncements

InJune 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instrumentsand Hedging Activities (SFAS 133), which establishes standards for derivativeinstruments, including certain derivative instruments embedded in othercontracts and for hedging activities. SFAS 133 requires an entity to recognize all derivatives as eitherassets or liabilities in the balance sheet and measure those instruments atfair value.  In June 1999, the FASBissued SFAS No. 137, Accounting for Derivative Instruments and HedgingActivities – Deferral of the Effective Date of FASB Statement No. 133, whichstates SFAS 133 shall be effective for all fiscal quarters of all fiscal yearsbeginning after June 15, 2000. The adoption of the Statement did not have amaterial impact on the Company's financial condition or results of operation.

In2000, the FASB issued Statement of Financial Accounting Standards No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishmentsof Liabilities.  This Statement replacesStatement of Financial Accounting Standards No. 125.  This Statement is also effective for the recognition andreclassification of collateral and for disclosures relating to securitizationtransactions.  This Statement iseffective for fiscal years ending after December 15, 2000.  The adoption of this Statement did not haveany impact on the Company's financial condition or results of operations.

In July 2001, the Financial AccountingStandards Board issued SFAS No. 141, "Business Combinations" and SFASNo.  142,  "Goodwill and Other Intangible Assets." SFAS No. 141requires that all business combinations be accounted for using the purchase method of accounting  andrequires separate  recognition ofintangible  assets that meetcertain  criteria.  This statement applies to all businesscombinations after June 30, 2001.

SFAS No. 142 requires that an intangible asset that is acquired shall beinitially recognized and measured based on its fair value.  This statement also provides that goodwillshould not be amortized, but shall be tested for impairment annually, or morefrequently if circumstances indicate potential impairment, through a comparisonof fair value to its carrying amount. SFAS No. 142 is effective for fiscalperiods beginning after December 15, 2001. The Company has goodwill of$1,936,000 as of June 30, 2001 related to the Camp Point acquisition.  The Company will continue to amortize theexisting goodwill through the remainder of fiscal 2001.  As of January 1, 2001, identifiable intangibleassets will continue to be amortized while the amortization of goodwill willcease and will be reviewed for impairment. We are currently evaluating theimpact of the new accounting standardson existing goodwill and other intangible assets. The ultimate impact of thenew accounting standards has not yet been determined.   Goodwill amortization expense forthe six-months ended June 30, 2001 was $86,725.

(5)           OtherComprehensive Income

For the three and six-month periods ended June 30, 2001and 2000, unrealized gains (losses) on debt and marketable equity securitiesavailable for sale, net of tax, is the Corporation's only other comprehensiveincome component.  Other comprehensiveincome for the three and six-month periods ended June 30, 2001 and 2000 is summarizedas follows: Three  Months Ended June 30, 2001    Tax  Before-Tax (Expense) Net-of-Tax  Amount Benefit Amount     Net realized and  unrealized gains (losses) on securities available for sale$(51)$17 $(34)       Less adjustment for  net securities gains(losses) realized in net income---- ---- ----      Other comprehensive  income (loss)$(51)$17 $34     Three  Months Ended June 30, 2000    Tax  Before-Tax (Expense) Net-of-Tax  Amount Benefit Amount Net realized and  unrealized gains (losses)on securities available for sale$13 $(1)$12        Less adjustment for  net securities gains(losses) realized in net income(13)5 (8)      Other comprehensive  income (loss)$26 $(6)$20      Six  Months Ended June 30, 2001    Tax  Before-Tax (Expense) Net-of-Tax  Amount Benefit Amount     Net realized and  unrealized gains (losses) on securities available for sale$825 $(302)$523        Less adjustment for  net securities gains (losses) realized in net income---- ---- ----       Other comprehensive  income (loss)$825 $(302)$523      Six  Months Ended June 30, 2000    Tax  Before-Tax (Expense) Net-of-Tax  Amount Benefit Amount     Net realized and  unrealized gains (losses)on securities available for sale$(107)$42 $(65)       Less adjustment for  net securities gains(losses) realized in net income(13)5 (8)      Other comprehensive  income (loss)$(94)$37 $(57)     
(6)         Sale of Menard County Branches

On May 24, 2000, Illini Corporation signed a BranchPurchase and Assumption Agreement with Petefish Skiles & Company ofVirginia, Illinois, to sell Illini Corporation branches located in Tallula,Greenview and Petersburg, Illinois.  Thesale includes real property, personal property, loans and deposit liabilities.  Total average loan and total average depositliabilities for these branches at September 30, 2000 were $6.1 million and$14.1 million, respectively.  Thetransaction was completed in the fourth quarter of 2000 with a before tax gainof $1,071,000 recorded.
**Item 2.  Management'sDiscussion and Analysis of Operations**

This discussion should be read in conjunction with theconsolidated financial statements, notes, and tables included elsewhere in thisreport and in the 2000 Illini Corporation Annual Report on Form 10-KSB (2000Form 10-KSB).

**SUMMARY**
 Quarter ended  June 30,   Six months ended  June 30,     Percent  Change  Percent  Change      **Earnings****2001** 2000  **2001** 2000     (dollars in thousands, except per  share data)   Total revenue**$****5,481** $4,703 16.54%  **$****10,608** $9,084 16.77%Net income**322** 313 2.74%  **631** 577 9.29%Basic earnings per share**$****0.60** $0.55 8.83%  **$****1.13** $1.01 12.44%
 
 Quarter ended  June 30, Basis  Point  Change Six months ended  June 30, Basis  Point  Change      **Key Ratios****2001** 2000  **2001** 2000               Return on average assets (1)**0.51****%**0.55%(0.04)%**0.51****%**0.52%(0.01)%Return on average equity (1)**7.30****%**7.03%0.27%**6.96****%**6.58%0.38%Average equity to assets**6.96****%**7.84%(0.88)%**7.32****%**7.94%(0.62)%Tier 1 leverage ratio**5.21****%**7.05%(1.84)% ** **    Tier 1 risk-based capital ratio**6.47****%**10.24%(3.77)% ** **    Total risk-based capital ratio**10.43****%**11.46%(1.03)% ** **    Dividend payout ratio**41.92****%**45.63%(3.71)%**44.05****%**49.53%(5.48)%Net interest margin**3.64****%**4.14%(0.50)%**3.80****%**4.19%(0.39)%Efficiency ratio**78.53****%**75.89%(2.64)%**78.21****%**76.97%1.24%(1)Reported on an  annualized basis.
**RESULTS OF OPERATION**

Earning Assets

Averageearning assets of the Corporation for the first six months of 2001 increased12.85% or $26.2 million to $230.3 million from $204.1 million at June 30,2000.  Earning assets increasedprimarily due to planned loan growth. On February 22, 2001, the Company issued $9.3 million of junior subordinateddebentures to it's subsidiary, Illini Statutory Trust I which completed a $9.0million sale of trust preferred stock.

Asdiscussed in the asset quality section of this Form 10-QSB, management hasactively pursued the improvement of the asset quality of all earning assets,loans, and investment securities.

Average net loans increased to $178.2 million for thethree months ended June 30, 2001 compared to $140.6 million for the same periodin 2000.  The increase of $37.6 millionfor the three months ended June 30, 2001 as compared to the same period for2000 was primarily due to an increase of $33.5 million in commercial loans,including commercial real estate loans, $1.0 million in residential loans, $0.8million in agriculture loans, including agriculture real estate, and $2.5million in consumer loans.  The averageyield on the loan portfolio, net of the allowance for loan losses, decreased 19basis points to 8.68% for the three months ended June 30, 2001, compared to thethree months ended June 30, 2000.

Average net loans increased to $174.1 million for thesix months ended June 30, 2001 compared to $138.8 million for the same periodin 2000.  The increase of $35.3 millionfor the six months ended June 30, 2001 as compared to the same period in 2000was primarily due to an increase of $30.1 million in commercial loans,including commercial real estate loans, $1.9 million in residential loans, $1.6million in agriculture loans, including agriculture real estate, and $2.0million in consumer loans.  The averageyield on the loan portfolio, net of the allowance for loan losses, decreased 4basis points to 8.76% for the six months ended June 30, 2001, compared to thesix months ended June 30, 2000.

Average investment securities decreased $10.0 million and$7.5 million for the three and six months ended June 30, 2001, respectively, ascompared to the same periods in 2000. The average yield of the investment securities portfolio was 6.71% and6.79% for the three and six months ended June 30, 2001, respectively, anincrease of 3 and 27 basis points as compared to the same periods in 2000.  The decrease in investments from December31, 2000 to June 30, 2001 is a result of the increase in loan growth, and isconsistent with management's intent to maintain a balance in the investmentportfolio to support basic surplus, which is used as a measurement ofliquidity.

Funding

The most important and stable source offunding is core deposits, considered by management to include non-interestbearing demand deposits, NOW and money market accounts, savings deposits andtime deposits under $100,000.  Averagecore deposits for the six months ended June 30, 2001 increased 4.56% or $8.0million to $184.5 million from $176.5 million for the six months ended June 30,2000.  The average rate paid on totalinterest bearing liabilities for the six months ended June 30, 2001 increased43 basis points when compared to the six months ended June 30, 2000.  The average rate paid on preferred securitiesof trust subsidiary for the six months ended June 30, 2001 was 8.69%.  The average balance for the Corporation isbased on a monthly average balance verses a daily average balance.

The increase in average core deposits forthe six months ended June 30, 2001 as compared to the same period in 2000 hasprovided a low cost funding source for the growth in the loan portfolio.  In addition to federal funds purchased,Illini Bank and Camp Point maintain an overnight federal funds line of creditwith an unaffiliated financial institution and a line of credit with theFederal Home Loan Bank of Chicago.
Net Interest Income/NetInterest Margin

The operating results of the Corporationare highly dependent on net interest income, which is the difference betweeninterest income on interest-earning assets and interest expense oninterest-bearing liabilities, consisting primarily of deposits.  Net interest income is determined by thedifference between yields earned on assets and rates paid on liabilities andthe relative amounts of interest-earning assets and interest-bearingliabilities.

Interest income, on a fully taxableequivalent basis, was $4.8 million and $9.5 million for the three and sixmonths ended June 30, 2001, respectively, compared to $4.3 million and $8.2million for same periods in 2000, respectively.  Interest expense was $2.7 million and $5.1 million for the threeand six months ended June 30, 2001, respectively, compared to $2.1 million and$3.9 million for the same periods in 2000, respectively.  An increase in interest income and interestexpense resulted in a $0.07 million increase in net interest income for the sixmonths ended June 30, 2001.

Net interest margin for the six monthsended June 30, 2001 of 3.80% was down from 4.19% reported for the same periodin 2000.  The decrease in the netinterest margin is primarily due to interest bearing liabilities repricing athigher rates.  Management will continueto structure the balance sheet to provide insulation for extreme interest ratechanges.  Management continues to focuson increasing the loan portfolio without jeopardizing the enhanced liquiditythat has been gained in prior periods.

Net interest income is affected by thegrowth, pricing, mix, and maturity of interest earning-assets and interest-bearing liabilities, as well as other factors, including loan quality.  Also, the Corporation’s interest-rate spreadis affected by regulatory, economic, and competitive factors that influenceinterest rates, loan demand, and deposit flow. Individual components of net interest income and net interest margin arepresented in the consolidated average balances, interest income/expense andyield/rates table located elsewhere in this report under the headings;Consolidated Average Balances, Interest Income/Expense and yield/Rates, and NetInterest Income-Rate/Volume Variance Analysis.

**Consolidated Average Balances, Interest Income/Expense andYield/Rates**
 Quarter ended June 30,  **2001** 2000  ****   **Average  Balance** **Percent  of Total****Assets** **Interest****Income/  Expense** **Average  Yield/****Rate** Average  Balance Percent  of Total  Assets Interest  Income/  Expense Average  Yield/ Rate  **** **** **** ****      (dollars in thousands)**ASSETS** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** **Interest-earning assets:   ** **             Short-term  investments**$****8,138**** ****3.2****% ****$****127**** ****6.26**%$12,637 5.5%  $195 6.17% Investment  securities (3)   ** **   ** **         Taxable**35,106**** ****13.8**** ****539**** ****6.14**** **46,904 20.6 751 6.40  Tax-exempt  (1)**12,656**** ****5.0**** ****262**** ****8.29**** **10,827 4.7 213 7.89  **** **** **** ****      Total  securities**47,762**** ****18.8**** ****801**** ****6.71**** **57,731 25.3 964 6.68  Loans   ** **   ** **         Commercial  (1)**31,917**** ****12.6**** ****683**** ****8.58**** **23,379 10.3 541 9.29  Agriculture**13,445**** ****5.3**** ****253**** ****7.56**** **12,661 5.5 272 8.61  Real  estate:   ** **   ** **         Commercial**81,190**** ****31.9**** ****1,755**** ****8.67**** **56,229 24.7 1,223 8.72  Agriculture**7,515**** ****3.0**** ****160**** ****8.56**** **7,485 3.3 154 8.27  Residential**32,555**** ****12.8**** ****683**** ****8.41**** **31,507 13.8 648 8.25  Consumer,  net**13,015**** ****5.1**** ****287**** ****8.85**** **10,520 4.6 241 9.20  Credit  card**783**** ****0.3**** ****33**** ****17.14**** **674 0.3 29 17.21  ****   ****          Total  loans**180,420**** ****71.0**** ****3,854**** ****8.57**** **142,455 62.5 3,108 8.75  Allowance  for loan losses**(2,236****)****(0.9****)**    (1,879)(0.8)     ****              Net  loans (1) (2)**178,184**** ****70.1**** ****3,854**** ****8.68**** **140,576 61.7 3,108 8.87  **** **** ****         Total  interest-earning assets**234,084**** ****92.1**** ****$****4,782**** ****8.19****%**210,944 92.5 $4,267 8.11% ****   ****         Cash  and due from banks**6,642**** ****2.6**** **    5,724 2.5     Premises  and equipment**6,840**** ****2.7**** **    7,278 3.2     Other  real estate owned**475**** ****0.2**** **    613 0.3     Other  assets (3)**6,214**** ****2.4**** **    3,472 1.5      **** ****            **Total assets****$****254,255**** ****100.0****%**    $228,031 100.0%     **** ****           **LIABILITIES AND SHAREHOLDERS' EQUITY** Deposits:   ** **   ** **         Noninterest-bearing demand**$****26,723**** ****10.5****%  **    $29,873 13.1%       Interest-bearing demand**59,082**** ****23.3**** ****$****536**** ****3.64****%  **51,457 22.6 $488 3.80% Savings**17,186**** ****6.8**** ****85**** ****1.98**** **18,606 8.2 93 2.00  Time deposits, less than $100,000**86,779**** ****34.1**** ****1,248**** ****5.77**** **79,653 34.9 1,120 5.64  ****   ****          Total core deposits**189,770**** ****74.7**** ****1,869**** ****3.95**** **179,589 78.8 1,701 3.80  Time deposits, $100,000 and over**26,499**** ****10.4**** ****353**** ****5.35**** **26,911 11.8 361 5.37  ****   ****          Total deposits**216,269**** ****85.1**** ****2,222**** ****4.12**** **206,500 90.6 2,062 4.00  Short-term debt**544**** ****0.2**** ****6**** ****4.78**** **1,444 0.6 29 8.06  Long-term debt**7,570**** ****3.0**** ****202**** ****10.69**** **---- ---- ---- ----  Total interest-bearing liabilities**197,660**** ****77.8**** ****2,430**** ****4.93**** **178,071 78.1 2,091 4.71 Other liabilities**3,176**** ****1.2**** **    2,206 1.0      **** ****            Total liabilities**227,559**** ****89.5**** **    210,150 92.2     Preferred securities of trust subsidiary (4)**9,000**** ****3.5**** ****229**** ****10.20**** **---- ---- ---- ---- Shareholders’ equity**17,696**** ****7.0**** **    17,881 7.8      **** ****            **Total liabilities and   shareholders' equity****$****254,255**** ****100.0****%**    $228,031 100.0%     **** ****           **Net interest margin**   ** ****$****2,123** **3.64****%**    $2,176 4.14%     **** ****       (1)Income  amounts are presented on a fully taxable equivalent basis (FTE), which is  defined as income on earning assets that is subject to either a reduced rate  or zero rate of income tax, adjusted to give effect to the appropriate  incremental federal income tax rate and adjusted for non-deductible carrying  costs, where applicable.  Where  appropriate, yield calculations include these adjustments.  The federal statutory rate was 34% for all  periods presented.(2)Nonaccrual loans are  included in the loan balances.   Interest income includes related fee income of $93,000 in 2001 and  $93,000 in 2000.(3)Average securities  balances are based on amortized historical cost, excluding SFAS 115  adjustments to fair value, which are included in other assets.(4)The average balance  for the Corporation is based on a monthly average balance verses a daily  average balance.
**Consolidated Average Balances, Interest Income/Expense andYield/Rates**
 Six months ended June 30,  **2001** 2000  ****   **Average  Balance** **Percent  of Total****Assets** **Interest****Income/  Expense** **Average  Yield/****Rate** Average  Balance Percent  of Total  Assets Interest  Income/  Expense Average  Yield/ Rate  **** **** **** ****      (dollars in thousands)**ASSETS** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** **Interest-earning assets:   ** **             Short-term  investments**$****6,162** **2.5****%****$****198** **6.47****%**$7,721 3.5 $235 6.10% Investment  securities (3)   ** **   ** **         Taxable**37,274**** ****14.9**** ****1,174**** ****6.30**** **47,851 21.6 1,509 6.31  Tax-exempt  (1)**12,725**** ****5.1**** ****524**** ****8.24**** **9,691 4.4 368 7.60  **** **** **** ****      Total  securities**49,999**** ****20.0**** ****1,698**** ****6.79**** **57,542 26.0 1,877 6.52  Loans   ** **   ** **         Commercial  (1)**30,365**** ****12.2**** ****1,334**** ****8.86**** **22,261 10.0 1,013 9.12  Agriculture**13,622**** ****5.5**** ****536**** ****7.93**** **12,185 5.5 525 8.64  Real  estate:   ** **   ** **         Commercial**77,966**** ****31.2**** ****3,363**** ****8.70**** **55,964 25.2 2,409 8.63  Agriculture**7,380**** ****3.0**** ****319**** ****8.73**** **7,197 3.3 303 8.43  Residential**33,682**** ****13.5**** ****1,393**** ****8.34**** **31,806 14.3 1,300 8.20  Consumer,  net**12,574**** ****5.0**** ****552**** ****8.85**** **10,559 4.8 485 9.21  Credit  card**783**** ****0.3**** ****67**** ****17.16**** **671 0.3 57 17.09  ****   ****          Total  loans**176,372**** ****70.7**** ****7,564**** ****8.65**** **140,643 63.4 6,092 8.69  Allowance  for loan losses**(2,225****)****(0.9****)**    (1,819)(0.8)     ****              Net  loans (1) (2)**174,147**** ****69.8**** ****7,564**** ****8.76**** **138,824 62.6 6,092 8.80  **** **** ****         Total  interest-earning assets**230,308**** ****92.3**** ****$****9,460**** ****8.28****%**204,087 92.1 $8,204 8.06% ****   ****         Cash  and due from banks**6,150**** ****2.4**** **    6,058 2.7     Premises  and equipment**6,769**** ****2.7**** **    7,374 3.3     Other  real estate owned**441**** ****0.2**** **    613 0.3     Other  assets (3)**5,974**** ****2.4**** **    3,602 1.6      **** ****            **Total assets****$****249,642**** ****100.0****%**    $221,734 100.0%     **** ****           **LIABILITIES AND SHAREHOLDERS' EQUITY** Deposits:   ** **   ** **         Noninterest-bearing  demand**$****27,406**** ****11.0****%  **    $29,511 13.3%       Interest-bearing  demand**56,704**** ****22.7**** ****$****1,079**** ****3.84****%  **51,738 23.3 $949 3.68% Savings**16,923**** ****6.8**** ****167**** ****1.99**** **18,639 8.4 185 2.00  Time  deposits, less than $100,000**83,516**** ****33.4**** ****2,435**** ****5.88**** **76,606 34.6 2,109 5.52  ****   ****          Total  core deposits**184,549**** ****73.9**** ****3,681**** ****4.02**** **176,494 79.6 3,243 3.69  Time  deposits, $100,000 and over**27,464**** ****11.0**** ****754**** ****5.54**** **23,703 10.7 633 5.35  ****   ****          Total  deposits**212,013**** ****84.9**** ****4,435**** ****4.22**** **200,197 90.3 3,876 3.88  Short-term  debt**1,713**** ****0.7**** ****64**** ****7.57**** **1,522 0.7 59 7.79  Long-term  debt**6,952**** ****2.8**** ****302**** ****8.75**** **---- ---- ---- ----  Total  interest-bearing liabilities**193,272**** ****77.4**** ****4,801**** ****5.01**** **172,208 77.7 3,935 4.58 Other  liabilities**3,182**** ****1.3**** **    2,418 1.1      **** ****            Total  liabilities**223,860**** ****89.7**** **    204,137 92.1     Preferred  securities of trust subsidiary (4)**7,500**** ****3.0**** ****323**** ****8.69** ---- ---- ---- ---- Shareholders’  equity**18,282**** ****7.3**** **    17,597 7.9      **** ****            **Total liabilities and   shareholders' equity****$****249,642**** ****100.0****%**    $221,734 100.0%     **** ****           **Net  interest margin**   ** ****$****4,336** **3.80****%**    $4,269 4.19%     **** ****       (1)Income  amounts are presented on a fully taxable equivalent basis (FTE), which is  defined as income on earning assets that is subject to either a reduced rate  or zero rate of income tax, adjusted to give effect to the appropriate  incremental federal income tax rate and adjusted for non-deductible carrying  costs, where applicable.  Where  appropriate, yield calculations include these adjustments.  The federal statutory rate was 34% for all  periods presented.(2)Nonaccrual loans are  included in the loan balances.   Interest income includes related fee income of $93,000 in 2001 and  $93,000 in 2000.(3)Average securities  balances are based on amortized historical cost, excluding SFAS 115  adjustments to fair value, which are included in other assets.(4)The average balance  for the Corporation is based on a monthly average balance verses a daily  average balance.****Net Interest Income – Rate/Volume Variance Analysis(*)**
 **Quarter ended June 30, 2001  as compared to  quarter ended June 30, 2000**  ****  **Changes in****Income/Expense** **Volume Effect** **Rate**** ****Effect**  **** **** ****  (dollars in thousands)   Short-term investments$(68)$(69)$1 Investment securities:       Taxable(212)(188)(24) Tax-exempt49 36 13      Total securities(163)(152)(11)Loans:       Commercial142 198 (56) Agriculture(19)17 (36) Real Estate:       Commercial532 542 (10) Agriculture6 1 5  Residential35 21 14  Consumer, net46 57 (11) Credit card4 5 (1)     Total loans746 841 (95)     Total interest income515 620 (105)      Interest bearing demand48 72 (24 Savings(8)(7)(1)Time deposits, less than $100,000128 100 28      Total core deposits168 165 3 Time deposits, $100,000 and over(8)(5)(3)     Total deposits160 160 0 Short-term debt(23)(18)(5)Long-term debt431 0 431      Total borrowed funds408 (18)426  Total interest expense568 142 426        Net interest income (expense)$(53)$478 $(531)    (*)   Fully taxable equivalent basisNOTE:The  change in interest which can not be attributed to only a change in volume or  a change in rate, but instead represents a combination of the two factors,  has been allocated to the rate effect.
**Net Interest Income – Rate/VolumeVariance Analysis(*)**
 **Six months ended June 30, 2001  as compared to  six months ended June 30, 2000**  ****  **Changes in**  **Income/Expense** **Volume Effect** **Rate Effect**  **** **** ****  (dollars in thousands)   Short-term investments$(37)$(47)$10 Investment securities:       Taxable(335)(331)(4) Tax-exempt156 114 42      Total securities(179)(217)38 Loans:       Commercial321 366 (45) Agriculture11 62 (51) Real Estate:       Commercial954 942 12  Agriculture16 8 8  Residential93 76 17  Consumer, net67 92 (25) Credit card10 9 1      Total loans1,472 1,555 (83)     Total interest income1,256 1,291 (35)      Interest bearing demand130 91 39 Savings(18)(17)(1)Time deposits, less than $100,000326 189 137      Total core deposits438 263 175 Time deposits, $100,000 and over121 100 21      Total deposits559 363 196 Short-term debt5 7 (2)Long-term debt625 0 625      Total borrowed funds630 7 623  Total interest expense1,189 370 819        Net interest income (expense)$67 $921 $(854)    (*)   Fully taxable equivalent basisNOTE:The  change in interest which can not be attributed to only a change in volume or  a change in rate, but instead represents a combination of the two factors,  has been allocated to the rate effect.
**Noninterest Income**
 Three months  endedJune 30, PercentChange Six months  endedJune 30, PercentChange       **2001** 2000 **2001/2000** **2001** 2000 **2001/2000**  ****  **** ****  ****  (dollars in thousands) Service charges on deposit accounts**$****366** $343** ****6.7****%  ****$****699** $663** ****5.4****%**Other fee income**80** 69** ****15.9**** ****148** 141** ****5.0**** **Mortgage loan servicing fees**79** 57** ****38.6**** ****138** 115** ****20.0**** **Gain on sale of mortgage loans**213** 10** ****2300.0**** ****256** 11** ****2,227.3**** **Securities gains (losses)**----** (13)**100.0**** ****---** (13)**100.0**** **Other**50** 42** ****0.0**** ****86** 91** ****6.2**** ** ****  **** ****  ****  **$****788**** **$508** ****55.1****%****$****1,327** $1,008** ****31.6**** **  **** **** ****  **** 
Total noninterest income increased $280,000 and $319,000for the three and six months ended June 30, 2001, respectively, when comparedto the same periods in 2000.  Theincrease in noninterest income is due to continued growth in transactionaccounts, and the increase in the capitalization of mortgage servicing rightsat Illini Bank.  The increase in thegain on sale of mortgage loans is due to increased refinancing in the realestate market caused by lower interest rates.

**Noninterest Expense**
 Three months  ended  June 30, Percent  Change Six monthsendedJune 30, Percent  Change       **2001** 2000 **2001/2000** **2001** 2000 **2001/2000**  ****  **** ****  ****  (dollars in thousands) Salaries and employee benefits**$****1,004** $900** ****11.6****%  ****$****2,014** $1,803** ****11.7****%**Net occupancy expense**189** 199** ****(5.0****)****388** 410** ****(5.4****)**Equipment expense**90** 101** ****(10.9****)****194** 206** ****(5.8****)**Data processing**191** 186** ****2.7**** ****374** 370** ****1.1**** **Supplies**50** 42** ****19.0**** ****93** 79** ****17.7**** **Communication and transportation**112** 118** ****(5.1****)****216** 233** ****(7.3****)**Marketing and advertising**67** 53** ****26.4**** ****124** 103** ****20.4**** **Correspondent and processing fees**76** 65** ****16.9**** ****147** 127** ****15.7**** **Loan and other real estate owned expenses**60** 18** ****233.3**** ****74** 35** ****111.4**** **Professional fees**257** 185** ****38.9**** ****443** 379** ****16.9**** **Directors’ and regulatory fees**83** 71** ****16.9**** ****158** 125** ****26.4**** **Other**106** 99** ****7.1**** ****203** 191** ****6.3**** ** ****  **** ****  ****  **$****2,285** $2,037** ****12.2****%****$****4,428** $4,061** ****9.0****%**  **** **** ****  **** 
Salaries and employee benefits increased $104,000 and$211,000 for the three and six months ended June 30, 2001, respectively, whencompared to the same periods in 2000. This increase is a result of increased incentive pay, increasedinsurance benefits for employees, and normal cost of living increases tooverall base salaries.

Net occupancy expense decreased $10,000 and $22,000 forthe three and six months ended June 30, 2001 when compared to the same periodsin 2000.  The decrease in occupancyexpense is a result of consolidations of several older branches, and sale ofMenard County branches
Equipment expense decreased $11,000 for the six monthsended June 30, 2001.  Data processingexpense increased $5,000 for the six months ended June 30, 2001 when comparedto the same period in 2000.  Theincrease is related to vender cost increases. Supplies increased $12,000 for the six months ended June 30, 2001, andis due to costs associated with Regulation P notices mailed.  Communication and transportation expensedereased $6,000 and $17,000 for the three months and six months ended June 30,2001, respectively, when compared to the same periods in 2000.  Loan and other real estate owned expensesincreased $42,000 and $39,000 for the three months and six months ended June30, 2001, when compared to the same periods in 2000.  The increase is due to liquidation expenses incurred for FNMArepossessions.   Marketing andadvertising expenses increased $14,000 and $21,000 for the three and six monthsended June 30, 2001, respectively, when compared to the same periods in2000.  The increase is a direct resultof expenses related to community enhancement activities, and increasedadvertising costs.

Professional fees increased $72,000 and $64,000 for thethree and six months ended June 30, 2001. The increase is a direct result ofcosts associated with shareholder litigation, and increased fees for accountingservices.  Directors’ and regulatoryfees increased $12,000 and $33,000 for the three and six months ended June 30,2001, respectively, when compared to the same periods in 2000.  The increase is due to increased depositinsurance assessments and is attributed to growth.

Other operating expenses increased $7,000 and $12,000for the three and six months ended June 30, 2001, respectively, when comparedto the same periods in 2000.  Theincrease is a direct result of growth at Illini Bank and Camp Point.
**CREDIT QUALITY**

Gross loans totaled $185.6 million at June 30, 2001, anincrease of $16.9 million, or 10.02%, from $168.7 million at December 31,2000.  The provision for loan losses hasdecreased to $190,000 for the six months ended June 30, 2001 as compared to$270,000 for the same period in 2000. At June 30, 2001 the allowance as a percent of total loans decreased to1.25% as compared to 1.30% at December 31, 2000.  The decrease is a result of the growth in the loanportfolio.  Management believes theallowance for loan losses is adequate to support any anticipated losses.
 Three months endedJune 30, Six months endedJune 30,  **2001** 2000 **2001** 2000  ****  ****  **Allowance for Loan Losses:**(dollars in thousands)  Balance at beginning of period**$****2,234**** **$1,824** ****$****2,188**** **$1,696  Provision charged to expense**90**** **135** ****190**** **270  Charge-offs**22**** **64** ****87**** **91  Less: recoveries**16**** **15** ****27**** **35  ****  ****   Net charge-offs**6**** **49** ****60**** **56  ****  ****   Balance at end of period**$****2,318**** **$1,910** ****$****2,318**** **$1,910  ** ** ** ** **Net Charge-Off Ratios** (1): ** **   ** **   Commercial**0.04****%**0.35%**0.07****%**0.14% Real Estate**0.00**** **0.10** ****0.06**** **0.05  Installment**(0.03****)**(0.27)**0.08**** **(0.04) Credit Cards**0.84**** **0.92** ****0.62**** **2.54  Totals**0.01****%**0.14%**0.07****%**0.08%(1)Ratios to average loans are presented on  an annualized basis
Illini Corporation’s primary business ofmaking commercial, real estate, and consumer loans entails potential losses,the magnitude of which depends on a variety of economic factors affectingborrowers, which are beyond the control of the Corporation.  Accordingly, a significant factor in theCorporation’s past and future operating results is the level of the provisionfor loan losses.  The provision for loanlosses is down 33.3% and 29.6% for the three and six months ended June 30,2001, respectively, as compared to the comparable periods in the prioryear.  Net charge-offs decreased to$6,000 for the three months ended June 30, 2001, and increased $4,000 for thesix months ended June 30, 2001

Management feels that credit quality systems andcontrols, along with the creation of a formalized credit administrationfunction, have continued to improve credit quality.  Illini Corporation has a 1.25% allowance to gross loans ratio asof June 30, 2001 compared to 1.30% and 1.29% as of December 31, 2000 and June30, 2000, respectively.  The netcharge-off ratio for the three and six months ended June 30, 2001 was 0.01% and0.07% compared to 0.03% and 0.09% for years ended December 31, 2000 and 1999,respectively.

At June 30, 2001, impaired loans totaled $4,071,000, ofwhich $1,948,000 of loans are not past due 90 days, compared to $772,000 atDecember 31, 2000.  The majority of theincrease in impaired loans is due to three commercial real estate loanstotaling $1,080,000, and two commercial loans totaling $2,179,000.  The three commercial real estate loans aresecured by first mortgages with a loan to value of less than 85%.  Management is working closely with theborrower to bring these loans into compliance with the terms of the debtinstruments.  The two commercial loansare secured by inventory, cash value of life insurance, 2ndmortgages on real estate, and personal guarantees of the borrowers.  Management is working closely with borrowersto liquidate collateral.  Managementestimates no loss on these loans.**Credit Quality****June 30,****2001** December 31,  2000 June 30,2000 ********    (dollars in thousands) **Nonperforming assets:**       Loans delinquent over 90 days, still accruing interest**$****0** $0 $0  Nonaccrual**2,123** 772 862  Renegotiated**0** 0 32  Other real estate owned**494** 359 508   ****    Total nonperforming assets**$****2,617** $1,131 $1,402  ****** ******** ******** **       **Key ratios**: ** ** ** ** ** ** Nonperforming loans to ending loans**1.14****%**0.46%0.58% 90 days delinquent to ending loans**0.00** 0.00 0.00  Allowance to ending loans**1.25** 1.30 1.29  Allowance to nonperforming loans**109.19** 283.49 221.58 
Illini Corporation’s loan underwriting guidelines and creditreview procedures and policies are designed to protect the Corporation fromcredit losses.  Illini Corporation’sprocess for monitoring loan quality includes detailed monthly trend analysis ofdelinquencies and nonperforming assets. Management and the board of directors monitor potential problem loans,changes to the watchlist, and extensions of credit outside of the loanpolicy.  Management extensively monitorssignificant credit relationships through appraisals, assessment of thefinancial condition of borrowers, restrictions on out-of-area lending, andavoidance of loan concentrations.

As discussed in the Corporation’s 2000 Form 10-KSB andprevious Form 10-QSB reports, management has implemented several initiatives toimprove credit quality.  These stepsincluded a officer driven problem loan identification system, a revampedallowance for loan losses adequacy determination process, a new loan policy,and improved reporting systems (credit quality and production).  Management is committed to continuing theseinitiatives and has supplemented these efforts in 2001 by engaging an outsidefirm to perform a comprehensive review of each bank’s loan portfolio to assessits credit quality and the effectiveness of management’s loan quality systemsand controls.

**CAPITAL RESOURCES**

The current economic and regulatoryenvironment places increased emphasis on capital strength.  A strong capital position, which is vital tothe continued profitability of Illini Corporation, also promotes depositor andinvestor confidence and provides a solid foundation for the future growth ofthe organization.  Illini Corporationhas satisfied its capital requirements principally through the retention ofearnings.  At June 30, 2001, Tier 1risk-based capital, total risk-based capital and leverage capital ratios were6.47%, 10.43% and 5.21%, respectively, as compared to 9.63%, 10.87% and 7.27%for the period ending December 31, 2000. The decrease is due to the repurchase of 160,088 shares of Illini stockfrom the Noll family, as described on Form 8-K filings dated May 2, 2001 andJune 13, 2001.  The decrease in capitalwas offset by the increase in a preferred security issued by the trustsubsidiary, Illini Statutory Trust I, which was completed February 22,2001.  Per regulation 25% of the trustpreferred issue is calculated in the Tier I capital ratio.  For a further explanation please refer toSection 2 under the heading Recent Development.    As of June 30, 2001, the Corporation and subsidiary banks metthe criteria to be classified as “well capitalized.”
Earnings retention is affected by theboard of director’s declaration of cash dividends.  The dividend payout ratio is an indicator of the level ofearnings retained.  The Board ofDirectors of the Corporation considers the capital strength of the Corporationand the banks in determining the appropriate level of cash dividends to be paidto shareholders.  The dividend payoutratio for the three and six months ended June 30, 2001 was 41.92% and 44.05%,respectively as compared to 45.63% and 49.53% for the three and six monthsended June 30, 2000. The dividend per share for the three and six months endedJune 30, 2000 is unchanged from the same period in 2000.

**LIQUIDITY**

Illini Corporation’s policy is to manageinterest rate risk to a level which places limits on the sensitivity of itsearnings to changes in market interest rates. An explanation of the asset/liability management process is found in theCorporation’s 2000 Form 10-KSB, beginning onpage 15.  Interest rate riskmanagement at Illini Corporation is executed through the use of on-balancesheet investment products.

The assets portion of the balance sheetprovides liquidity primarily through loan principal repayments, maturities ofinvestment securities, and sales of investment securities available forsale.  The liability side of the balancesheet provides liquidity through various customers’ interest-bearing andnoninterest-bearing deposit accounts. Short-term borrowings are an additional source of liquidity andrepresent Illini Corporation’s incremental borrowing capacity.

Illini Corporation uses a comprehensiveanalysis of its asset/liability function, including a review of its fundsmanagement policy and its principal measure of liquidity.  The Corporation implemented a new measure ofliquidity measurement, called “Basic Surplus,” which redefines liquid assets asthe total assets held by the Corporation which can be converted to cash inthirty days or less, reduced by short term liabilities.  As of June 30, 2001, the most recentcalculation, Illini Corporation’s core liquidity was $24.1 million, or 9.46% oftotal average assets.

Management believes the formula providesan accurate measurement of liquidity and provides management with acomprehensible and consistent tool to develop pricing and profitabilitystrategies.  Based on the newmeasurement and as compared to peer banks, management believes the liquidityposition of the banks is strong.
**Item3.  Quantitative and QualitativeDisclosures About Market Risk**

Derivative financial instruments includefutures, forwards, interest rate swaps, option contracts, and other financialinstruments with similar characteristics. The bank subsidiaries currently do not enter into futures, forwards,swaps, or options.  However, they are a partyto financial instruments with off-balance sheet risk in the normal course ofbusiness to meet the financing needs of its customers.  These financial instruments includecommitments to extend credit and standby letters of credit.  These instruments involve to varyingdegrees, elements of credit and interest rate risk in excess of the amountrecognized in the consolidated balance sheets. Commitments generally have fixed expiration dates and require collateralfrom the borrower if deemed necessary by the banks.  Standby letters of credit are conditional commitments issued bythe banks to guarantee the performance of a customer to a third party up to astipulated amount and within specified terms and conditions.  Commitments to extend credit and standby lettersof credit are not recorded as an asset or liability by the banks until andunless the instrument is exercised.

The bank subsidiaries exposure to market risk andinterest rate risk is reviewed by their individual Asset/LiabilityCommittees.  Management realizes certainrisks are inherent, such as the uncertainty of market interest rates, and thatits goal is to identify and manage such risks. The primary tool management uses to monitor and manage interest raterisk is a static gap report.  The bank subsidiarieshave no market risk sensitive instruments held for trading purposes.

The Corporation’s interest rate and market risk profilehas not materially changed from the year ended December 31, 2000.  Please refer to the Corporation’s 2000 Form10-KSB for further discussion of the Corporation’s market and interest raterisk.
**PART II.  OTHER INFORMATION**

Item 1    LegalProceedings 

Mary Quinn v. IlliniCorporation and Illinois Stock Transfer Co.,Sangamon County Case No. 98 CH 240

                IlliniCorporation adopted a Shareholder Rights Agreement on June 20, 1997, and namedIllinois Stock Transfer Company (“ISTC”) as its rights agent thereunder.  Illini Corporation was notified in May 1998of a threatened complaint against ISTC by an Illini Corporation shareholder.  The shareholder, Mary K. Quinn (“Quinn”), whoowns 21 shares of stock in Illini Corporation, filed suit against ISTC on June9, 1998 in the Seventh Judicial Circuit Court, Sangamon County, Illinois.  Quinn sought to compel ISTC to distributerights certificates to Illini Corporation’s shareholders and further sought tocertify all Illini Corporation shareholders as a class.  Quinn asserted that Ida R. Noll became anacquiring person under the Rights Agreement on April 16, 1998, and that theRights Agreement was triggered.  IST hasvigorously contested Quinn’s assertions that Ida R. Noll was an acquiringperson, that the Rights Agreement had been triggered, and that ISTC had a dutyto distribute rights certificates.                On June 9, 1998, Quinnfiled a Motion to Certify the Class, which was granted on December 29,1998.  On January 13, 1999, Quinn filedan Amended Complaint adding Illini Corporation as a defendant to heraction.  Both Illini Corporation andISTC answered the Amended Complaint and denied that Ida R. Noll was anacquiring person.  Quinn asserted thatshe was entitled to recover her attorneys’ fees from Illini Corporation andISTC.                Quinn filed a Motion forSummary Judgment that asked the Court to determine as a matter of law that IdaR. Noll became an acquiring person on April 16, 1998, that the Rights Agreementwas triggered as a result and that Illini Corporation and ISTC had a duty todistribute rights certificates to all shareholders as of April 16, 1998, exceptfor Ida R. Noll.  Illini Corporationopposed Quinn’s Motion for Summary Judgment, which was heard by the Court onJune 18, 1999.  On June 29, 1999, theCourt entered an Opinion and Order denying Quinn’s Motion for Summary Judgment.                On or about May 6, 1999,counsel for Quinn advised Illini Corporation’s counsel of her intent to seek aninjunction that would preclude Illini Corporation from completing itsacquisition of the Farmers State Bank of Camp Point (Camp Point), pendingfurther order of the Court.  Quinnsubsequently filed a Motion for Preliminary Injunction and a Memorandum of Lawin Support of her Motion.  Quinn arguedthat the class (consisting of all Illini Corporation’s shareholders as of April16, 1998, except for Ida R. Noll) would be irreparably harmed if the Camp Pointmerger closed prior to a determination on the merits of her suit.  Illini Corporation filed extensive briefs inopposition to the Motion for Preliminary Injunction, and the Court heard theMotion on July 1, 1999.  The Courtentered a written Order on July 13, 1999, denying the Motion for PreliminaryInjunction.                Quinn’s counsel filed aMotion for Reconsideration of the Orders denying Quinn’s Motion for SummaryJudgment and Motion for Preliminary Injunction.  Illini Corporation and ISTC filed a Motion for Summary Judgmenton August 25, 1999.  At a hearing heldon October 18, 1999, the Court granted Illini Corporation and ISTC’s Motion forSummary Judgment and denied Quinn’s Motion for Reconsideration.  An Order was subsequently entered on January12, 2000.                Quinn’s counsel announcedon October 18, 1999, the intention to petition the Court for an order directingIllini Corporation and ISTC to pay Quinn’s attorneys’ fees pursuant to theattorney fee provision of the Rights Agreement.  Quinn’s fee petition was heard and denied.  Quinn has filed a pending appeal as to alladverse orders.  The Corporation isvigorously contesting the appeal.  Oralargument was held before the Illinois Appellate Court for the Fourth Districton July 18, 2000.
                OnJuly 31, 2000, the Appellate Court issued an order reversing the trial court’sorder granting summary judgment to Illini Corporation and remanding the casefor trial.  The Appellate Court foundthat genuine issue of material fact remained concerning whether the IlliniCorporation board of directors acted in good faith (1) in determining onApril 30, 1998 that Ida Noll’s acquisition of shares was inadvertent and(2) in amending the agreement on June 30, 1998.  The Appellate Court also reversed the trial court’s order denyingQuinn’s request for costs, expenses and attorneys fees, finding that the feeprovision of the Rights Agreement did not require one who brought an action toenforce the agreement to prevail in that action in order to recover fees.  As of June 30, 2001, Illini Corporation hasaccrued its best estimate as a contingency reserve for this litigation to coverexpenses and attorneys fees, although such amounts shall be subject to furtherdiscovery.                The case has been remandedto the trial court.  The trial court haspermitted Quinn to add Mrs. Noll as a party to the action.  Quinn subsequently filed a motion to compelan additional deposition of Burnard K. McHone, President, Illini Corporation,with respect to a certain Stock Purchase Agreement pursuant to which sharesowned by Mrs. Noll’s family were redeemed by Illini Corporation.  The trial court denied the motion to compelfinding that Quinn failed to show any basis that the Stock Purchase Agreementwas relevant to her claims in the lawsuit. The case has not been set for trial.

Ida R Noll v. IlliniCorporation, et al.,Sangamon County Case No. 98 MR 226

                Thiscase is described in Illini Corporation’s Annual Report on form 10KSB for2000.   The case was dismissed withprejudice on June 3, 2001.

Ida R. Noll v. Ernest H.Huls, Illini Corporation, et al,Sangamon County Case No. 99 CH 196

                Thiscase is described in Illini Corporation’s Annual Report on form 10KSB for2000.   The case was dismissed withprejudice on June 13, 2001.

Item 2    Changesin Securities - none

Item 3    DefaultsUpon Senior Securities – none

Item 4    Submissionof Matters to a Vote of Security Holders -none

Item 5    OtherInformation - none

Item 6    Exhibitsand Reports on Form 8-K
 (a)Exhibits:   The Exhibits filed  herewith are set forth in the Exhibit Index filed as a part of these Form  10-QSB.     (b)Reports on Form 8-K:  (1)The Company filed a  current report on Form 8-K on April 27, 2001 relative to the resignation of  two Illini Corporation directors, Mr. Charles Delano and Ms. Cathleen  Sweeten, from the Company's Board of Directors at a special meeting held on  April 27, 2001.  (2)The Company filed a  current report on From 8-K on April 27, 2001 relative to the Board of  Directors of Ilini Corporation amended Section 2.1 **Annual Meeting.**  The purpose of the amendment was to  provide the Board with more flexibility in scheduling its annual meeting of  shareholders and to reduce expense. (3)The Company filed a  current report on Form 8-K on May 2, 2001 relative to executing a definitive  stock purchase agreement to redeem 160,088 of its shares (27.99% of total  shares outstanding) from a Springfield, Illinois family and related  interests.  The agreement was executed  on April 12, 2001.  The agreement is  subject to the approval of federal and state banking regulators and, if  approved, is expected to close on or before the end of the third quarter  2001.  (4)The Company filed a  current report on Form 8-K on June 13, 2001 relative to completing its  purchase of common shares owned by the Noll family and related  interests.  On June 13, 2001, Illini  closed out of escrow the Stock Purchase Agreement it entered into on April  12, 2001.
 

**SIGNATURES**

In accordance with the requirements of the Exchange Act,the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.
Illini Corporation   (Registrant)       By:/s/ Burnard K. McHone August 13, 2001 Burnard K. McHoneDate signedPresident     By:/s/ Deann Hager August 13, 2001 Deann HagerDate signedFinance Manager 
**EXHIBIT INDEX**
Number Description (none) (none)
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