**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 endedSeptember 30, 2002**

 
| **o** | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE  ACT** |
|-------|----------------------------------------------------------------------|

 

**Commission file number           0-13343**

 

| **Illini Corporation**                                                    |
|---------------------------------------------------------------------------|
| (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 October 31, 2002, there were 411,701 shares of common stock,$0.01 par value outstanding.

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

 

 

----

 

**ILLINI CORPORATION**

INDEX TO FORM 10-QSB

September 30, 2002

 
| **PART I.**    | **FINANCIAL INFORMATION** |
|----------------|---------------------------|
|           |                      |   |   |
|           | Item 1.                   | Financial Statements  (Unaudited) |
|           |                      |   |   |
|           |                      | Consolidated Balance Sheets  September 30, 2002 and December 31, 2001 |
|           |                      |   |   |
|           |                      | Consolidated  Statements of Income  Three and Nine Months Ended September 30, 2002 and 2001 |
|           |                      |   |   |
|           |                      | Consolidated  Statements of Shareholders’ Equity  Nine Months Ended September 30, 2002 and 2001 |
|           |                      |   |   |
|           |                      | Consolidated  Statements of Comprehensive Income  Nine Months Ended September 30, 2002 and 2001 |
|           |                      |   |   |
|           |                      | Consolidated  Statements of Cash Flows  Nine Months Ended September 30, 2002 and 2001 |
|           |                      |   |   |
|           |                      | Notes  to Consolidated Financial Statements |
|           |                      |   |   |
|           | Item  2.                  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|           |                      |   |   |
| **PART II.**   | **OTHER INFORMATION**     |
|           |                      |   |   |
| **SIGNATURES** |
|                |                           |  |  |  |  |  |

 

**Information Concerning Forward-LookingStatements**

*Statementscontained in this Form 10-QSB which are not historical facts are“forward-looking statements” within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.These statements involve important known and unknown risks, uncertainties andother 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 anduncertainties which could cause actual results to differ materially from thoseprojected.  Such risks and uncertaintiesinclude potential change in interest rates, competitive factors in thefinancial services industry, general economic conditions, the effect of newlegislation and other risks detailed in documents filed by Illini Corporationwith 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, 2002 and December 31,2001**

** **
|                                                                                                 |   | **September  30,  2002**    |        | **December  31,  2001** |       |
|------------------------------------------------------------------------------------------------------|--------|-----------------------------|-------------|-------------------------|------------|
|                                                                                                 |   | **(Unaudited)**             |        |                    |       |
|                                                                                                 |   | **(dollars  in thousands)** |        |
| **ASSETS**                                                                                           |   |                        |        |                    |       |
| Cash and due  from banks                                                                             |   | **$**                       | **7,279**   | ** **              | $          | 8,146 |   |
| Interest-bearing  deposits in other banks                                                            |   | **32**                      | ** **  | 29                      |       |
| Federal funds  sold                                                                                  |   | **8,895**                   | ** **  | 7,410                   |       |
| Cash and cash  equivalents                                                                           |   | **16,206**                  |        | 15,585                  |       |
| Investment  securities available for sale, at fair value                                             |   | **43,388**                  | ** **  | 49,156                  |       |
| Loans, net of  the allowance for loan losses                                                         |   | **208,890**                 | ** **  | 196,913                 |       |
| Premises and  equipment                                                                              |   | **6,837**                   | ** **  | 6,946                   |       |
| Accrued interest  receivable                                                                         |   | **2,550**                   | ** **  | 2,549                   |       |
| Other real  estate owned                                                                             |   | **838**                     | ** **  | 370                     |       |
| Goodwill                                                                                             |   | **1,856**                   | ** **  | 1,856                   |       |
| Intangible  assets                                                                                   |   | **328**                     | ** **  | 392                     |       |
| Other assets                                                                                         |   | **543**                     | ** **  | 745                     |       |
| Total  Assets                                                                                   |   | **$**                       | **281,436** | ** **              | $          | 274,512 |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                        |   |                        | ** **  |                    | ** ** |
| Noninterest-bearing  demand deposits                                                                 |   | **$**                       | **32,998**  | ** **              | **$**      | 34,140 | ** ** |
| Interest-bearing  deposits:                                                                          |   |                        | ** **  |                    |       |
| NOW and money  market accounts                                                                       |   | **57,288**                  | ** **  | 60,057                  |       |
| Savings deposits                                                                                     |   | **19,749**                  | ** **  | 17,995                  |       |
| Time deposits,  $100,000 and over                                                                    |   | **24,051**                  | ** **  | 31,842                  |       |
| Other time  deposits                                                                                 |   | **112,233**                 | ** **  | 94,793                  |       |
| Total deposits                                                                                       |   | **246,319**                 | ** **  | 238,827                 |       |
| Short-term debt                                                                                      |   | **502**                     | ** **  | 1,613                   |       |
| Long-term debt                                                                                       |   | **8,400**                   | ** **  | 8,471                   |       |
| Preferred  securities of subsidiary trust                                                            |   | **9,000**                   | ** **  | 9,000                   |       |
| Accrued interest  payable                                                                            |   | **1,083**                   | ** **  | 1,414                   |       |
| Other  liabilities                                                                                   |   | **1,299**                   | ** **  | 1,597                   |       |
| Total  liabilities                                                                                   |   | **266,603**                 | ** **  | 260,922                 |       |
|                                                                                                 |   |                        | ** **  |                    |       |
| **COMMITMENTS AND CONTINGENT  LIABILITIES**                                                          |   |                        | ** **  |                    | ** ** |
|                                                                                                 |   |                        | ** **  |                    |       |
| Shareholders’  equity                                                                           |   |                        | ** **  |                    |       |
| Preferred stock,  $0.01 par value, authorized and unissued 10,000,000 shares                         |   | **—**                  | ** **  | —                  |       |
| Common stock,  $0.01 par value, authorized 45,000,000 shares; 571,789 shares issued and  outstanding |   | **6**                       | ** **  | 6                       |       |
| Capital surplus                                                                                      |   | **9,070**                   | ** **  | 9,070                   |       |
| Retained  earnings                                                                                   |   | **11,475**                  | ** **  | 10,775                  |       |
| Accumulated  other comprehensive income                                                              |   | **1,486**                   | ** **  | 943                     |       |
| Less:  Treasury shares, at cost, 160,088 shares                                                 |   | **(7,204**                  | **)**       | (7,204                  | )          |
| Total  shareholders’ equity                                                                     |   | **14,833**                  | ** **  | 13,590                  |       |
| Total  Liabilities and Shareholders’ Equity                                                     |   | **$**                       | **281,436** | ** **              | $          | 274,512 |   |

 

See accompanying notes to consolidated financial statements.

 

3

----

 

**ILLINICORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF INCOME**

**Three Monthsand Nine Months Ended September 30, 2002 and 2001**

**(Unaudited)**

 
|                                                  |   | **Three  Months Ended  September 30,**             |       | **Nine  Months Ended  September 30,** |       |
|-------------------------------------------------------|--------|----------------------------------------------------|------------|---------------------------------------|------------|
|                                                  |   | **2002**                                           |       | **2001**                              |       | **2002** |   | **2001** |   |
|                                                  |   | **(dollars in  thousands, except per share data)** |       |
| Interest income:                                      |   |                                               |       |                                  |       |   |   |   |   |
| Interest and  fees on loans                           |   | **$**                                              | **3,863**  |                                  | $          | 3,996 | ** ** | **$** | **11,776** | ** ** | $ | 11,544 |   |
| Interest on  investment securities:                   |   |                                               | ** ** |                                  | ** ** |   | ** ** |   | ** ** |
| Taxable                                               |   | **375**                                            |       | 570                                   | ** ** | **1,282** | ** ** | 1,744 |   |
| Exempt from  federal income taxes                     |   | **207**                                            |       | 185                                   | ** ** | **606** | ** ** | 546 |   |
| Interest on  short-term investments                   |   | **38**                                             |       | 96                                    | ** ** | **79** | ** ** | 294 |   |
| Total interest  income                                |   | **4,483**                                          |       | 4,847                                 | ** ** | **13,743** | ** ** | 14,128 |   |
| Interest  expense:                                    |   |                                               |       |                                  |       |   | ** ** |   |   |
| Interest on  deposits:                                |   |                                               |       |                                  |       |   | ** ** |   |   |
| NOW and money  market accounts                        |   | **266**                                            |       | 487                                   | ** ** | **838** | ** ** | 1,566 |   |
| Savings deposits                                      |   | **69**                                             |       | 76                                    | ** ** | **208** | ** ** | 243 |   |
| Time deposits,  $100,000 and over                     |   | **241**                                            |       | 368                                   | ** ** | **823** | ** ** | 1,122 |   |
| Other time  deposits                                  |   | **1,145**                                          |       | 1,299                                 | ** ** | **3,341** | ** ** | 3,734 |   |
| Interest on  short-term debt                          |   | **5**                                              |       | 6                                     | ** ** | **26** | ** ** | 70 |   |
| Interest on  long-term debt                           |   | **102**                                            |       | 171                                   | ** ** | **336** | ** ** | 473 |   |
| Interest on  preferred securities of subsidiary trust |   | **244**                                            |       | 232                                   | ** ** | **710** | ** ** | 555 |   |
| Total interest  expense                               |   | **2,072**                                          |       | 2,639                                 | ** ** | **6,282** | ** ** | 7,763 |   |
| Net interest  income                                  |   | **2,411**                                          |       | 2,208                                 | ** ** | **7,461** | ** ** | 6,365 |   |
| Provision for  loan losses                            |   | **180**                                            |       | 90                                    | ** ** | **580** | ** ** | 280 |   |
| Net interest  income after provision for loan losses  |   | **2,231**                                          |       | 2,118                                 | ** ** | **6,881** | ** ** | 6,085 |   |
| Noninterest  income:                                  |   |                                               |       |                                  |       |   | ** ** |   |   |
| Service charges  on deposit accounts                  |   | **369**                                            |       | 338                                   | ** ** | **978** | ** ** | 1,037 |   |
| Other fee income                                      |   | **87**                                             |       | 77                                    | ** ** | **252** | ** ** | 225 |   |
| Mortgage loan  servicing fees                         |   | **48**                                             |       | 61                                    | ** ** | **107** | ** ** | 199 |   |
| Gains on sales  of mortgage loans                     |   | **130**                                            |       | 140                                   | ** ** | **200** | ** ** | 396 |   |
| Securities gains                                      |   | **—**                                         |       | 7                                     | ** ** | **—** | ** ** | 7 |   |
| Gains (losses)  on sale of other real estate owned    |   | **4**                                              |       | 23                                    | ** ** | **(24** | **)** | 33 |   |
| Other                                                 |   | **31**                                             |       | 28                                    | ** ** | **92** | ** ** | 104 |   |
| Total  noninterest income                             |   | **669**                                            |       | 674                                   | ** ** | **1,605** | ** ** | 2,001 |   |
| Noninterest  expense:                                 |   |                                               |       |                                  |       |   | ** ** |   |   |
| Salaries and  employee benefits                       |   | **1,304**                                          |       | 1,035                                 | ** ** | **3,832** | ** ** | 3,049 |   |
| Net occupancy  expense                                |   | **197**                                            |       | 193                                   | ** ** | **575** | ** ** | 581 |   |
| Equipment  expense                                    |   | **70**                                             |       | 87                                    | ** ** | **222** | ** ** | 281 |   |
| Data processing  expense                              |   | **182**                                            |       | 241                                   | ** ** | **507** | ** ** | 615 |   |
| Supplies expense                                      |   | **36**                                             |       | 54                                    | ** ** | **116** | ** ** | 147 |   |
| Communication  and transportation expense             |   | **129**                                            |       | 150                                   | ** ** | **349** | ** ** | 366 |   |
| Marketing and  advertising expense                    |   | **60**                                             |       | 74                                    | ** ** | **193** | ** ** | 198 |   |
| Correspondent  and processing fees                    |   | **84**                                             |       | 79                                    | ** ** | **273** | ** ** | 226 |   |
| Loan and other  real estate owned expense             |   | **65**                                             |       | 14                                    | ** ** | **127** | ** ** | 88 |   |
| Professional  fees                                    |   | **198**                                            |       | 254                                   | ** ** | **577** | ** ** | 697 |   |
| Regulatory fees                                       |   | **22**                                             |       | 23                                    | ** ** | **80** | ** ** | 100 |   |
| Other                                                 |   | **108**                                            |       | 175                                   | ** ** | **355** | ** ** | 459 |   |
| Total  noninterest expense                            |   | **2,455**                                          |       | 2,379                                 | ** ** | **7,206** | ** ** | 6,807 |   |
| Income before  income tax expense                     |   | **445**                                            |       | 413                                   | ** ** | **1,280** | ** ** | 1,279 |   |
| Income tax  expense                                   |   | **91**                                             |       | 113                                   | ** ** | **271** | ** ** | 348 |   |
| Net income                                            |   | **$**                                              | **354**    |                                  | $          | 300 | ** ** | **$** | **1,009** | ** ** | $ | 931 |   |
| Basic earnings  per share                             |   | **$**                                              | **0.86**   |                                  | $          | 0.73 | ** ** | **$** | **2.45** | ** ** | $ | 1.83 |   |

 

See accompanying notes to consolidated financial statements.

 

4

----

 

**ILLINICORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY**

**Nine MonthsEnded September 30, 2002 and 2001**

**(Unaudited)**

 
|                                           |   | **Nine  Months Ended  September 30,** |       |
|------------------------------------------------|--------|---------------------------------------|------------|
|                                           |   | **2002**                              |       | **2001** |   |
|                                           |   | **(dollars  in thousands)**           |       |
| Common Stock                                   |   |                                  | ** ** |   |   |
| Beginning of  year balance                     |   | **$**                                 | **6**      | ** ** | $ | 6 |   |
| End of period  balance                         |   | **6**                                 | ** ** | 6 |   |
|                                           |   |                                  | ** ** |   |   |
| Additional Paid  in Capital                    |   |                                  |       |   |   |
| Beginning of  year balance                     |   | **9,070**                             | ** ** | 9,070 |   |
| End of period  balance                         |   | **9,070**                             | ** ** | 9,070 |   |
|                                           |   |                                  | ** ** |   |   |
| Retained  Earnings                             |   |                                  |       |   |   |
| Beginning of year  balance                     |   | **10,775**                            | ** ** | 9,948 |   |
| Net income                                     |   | **1,009**                             | ** ** | 931 |   |
| Dividends on  common stock                     |   | **(309**                              | **)**      | (349 | ) |
| End of period  balance                         |   | **11,475**                            |       | 10,530 |   |
|                                           |   |                                  | ** ** |   |   |
| Treasury Stock                                 |   |                                  |       |   |   |
| Beginning of  year balance                     |   | **(7,204**                            | **)**      | — |   |
| Purchase of  treasury stock                    |   | **—**                            |       | (7,204 | ) |
| End of period  balance                         |   | **(7,204**                            | **)**      | (7,204 | ) |
|                                           |   |                                  | ** ** |   |   |
| Accumulated  Other Comprehensive Income (Loss) |   |                                  |       |   |   |
| Beginning of  year balance                     |   | **943**                               | ** ** | 334 |   |
| Unrealized gain  on securities, net of tax     |   | **543**                               |       | 880 |   |
| End of period  balance                         |   | **1,486**                             |       | 1,214 |   |
|                                           |   |                                  | ** ** |   |   |
| Total Shareholders'  Equity                    |   | **$**                                 | **14,833** |   | $ | 13,616 |   |

 

See accompanying notes to consolidated financial statements.

 

**ILLINICORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

**Nine MonthsEnded September 30, 2002 and 2001**

**(Unaudited)**

 
|                                                                                                                                                                  |   | **Nine  Months Ended  September 30,** |      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|-----------|
|                                                                                                                                                                  |   | **2002**                              |      | **2001** |   |
|                                                                                                                                                                  |   | **(dollars  in thousands)**           |      |
| Net Income                                                                                                                                                            |   | **$**                                 | **1,009** |   | $ | 931 |   |
| Other  comprehensive income, unrealized gains on securities, net of reclassification  adjustment, net of tax of $293,000 and $507,000 in 2002 and 2001,  respectively |   | **543**                               |      | 880 |   |
| Comprehensive  income                                                                                                                                                 |   | **$**                                 | **1,552** |   | $ | 1,811 |   |

 

See accompanying notes to consolidated financial statements.

 

5

----

 

**ILLINI CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**Nine Months Ended September 30, 2002and 2001**

**(Unaudited)**

 
|                                                                               |   | **2002**                    |       | **2001**   |   |
|------------------------------------------------------------------------------------|--------|-----------------------------|------------|------------|--------|
|                                                                               |   | **(dollars  in thousands)** |       |
| Cash flows from  operating activities:                                             |   |                        | ** ** |       |   |
| Net income                                                                         |   | **$**                       | **1,009**  | ** ** | $      | 931 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |   |                        | ** ** |       |   |
| Depreciation and  amortization                                                     |   | **620**                     | ** ** | 691        |   |
| Amortization of  goodwill and other intangibles                                    |   | **64**                      | ** ** | 141        |   |
| Provision for  loan losses                                                         |   | **580**                     | ** ** | 280        |   |
| Investment  security amortization (accretion), net                                 |   | **17**                      | ** ** | (63        | )      |
| Gains on sales  of securities, net                                                 |   | **—**                  | ** ** | (7         | )      |
| Federal Home  Loan Bank stock dividend                                             |   | **(28**                     | **)**      | (36        | )      |
| Gains on sales  of premises and equipment                                          |   | **—**                  | ** ** | (4         | )      |
| Gains on sales  of mortgage loans                                                  |   | **(200**                    | **)**      | (396       | )      |
| (Gains) loss on  sale of other real estate owned                                   |   | **24**                      | ** ** | (33        | )      |
| Increase in  accrued interest receivable                                           |   | **(1**                      | **)**      | (456       | )      |
| Increase  (decrease) in accrued interest payable                                   |   | **(331**                    | **)**      | 313        |   |
| Origination of  secondary market mortgage loans                                    |   | **(12,456**                 | **)**      | (20,998    | )      |
| Proceeds from  the sales of secondary market mortgage loans                        |   | **12,693**                  | ** ** | 21,182     |   |
| Other, net                                                                         |   | **(389**                    | **)**      | (1,057     | )      |
| Net cash  provided by operating activities                                         |   | **1,602**                   | ** ** | 488        |   |
| Cash flows from  investing activities:                                             |   |                        | ** ** |       |   |
| Proceeds from  sales of investment securities available for sale                   |   | **—**                  | ** ** | 875        |   |
| Proceeds from  maturities and paydowns of investment securities available for sale |   | **13,849**                  | ** ** | 15,327     |   |
| Purchases of  investment securities available for sale                             |   | **(7,234**                  | **)**      | (18,799    | )      |
| Net increase in  loans                                                             |   | **(13,222**                 | **)**      | (24,377    | )      |
| Purchases of  premises and equipment                                               |   | **(511**                    | **)**      | (1,240     | )      |
| Proceeds from  sale of premises and equipment                                      |   | **—**                  | ** ** | 4          |   |
| Proceeds from  sales of other real estate owned                                    |   | **136**                     | ** ** | 134        |   |
| Net cash used in  investing activities                                             |   | **(6,982**                  | **)**      | (28,076    | )      |
| Cash flows from  financing activities:                                             |   |                        | ** ** |       |   |
| Net decrease in  noninterest-bearing demand deposits                               |   | **(1,142**                  | **)**      | (3,526     | )      |
| Net increase  (decrease) in NOW, money market accounts and savings deposits        |   | **(1,015**                  | **)**      | 9,046      |   |
| Net increase  (decrease) in time deposits, $100,000 and over                       |   | **(7,791**                  | **)**      | 3,796      |   |
| Net increase in  other time deposits                                               |   | **17,440**                  | ** ** | 20,490     |   |
| Net decrease in  short-term debt                                                   |   | **(1,111**                  | **)**      | (7,377     | )      |
| Proceeds from  issuance of preferred securities of subsidiary trust                |   | **—**                  | ** ** | 9,000      |   |
| Proceeds of  long-term debt                                                   |   | **2,400**                   | ** ** | —     |   |
| Repayment of  long-term debt                                                       |   | **(2,471**                  | **)**      | (2,239     | )      |
| Purchase of  treasury shares                                                       |   | **—**                  | ** ** | (2,494     | )      |
| Cash dividends  paid                                                               |   | **(309**                    | **)**      | (349       | )      |
| Net cash  provided by financing activities                                         |   | **6,001**                   | ** ** | 26,347     |   |
| Net increase  (decrease) in cash and cash equivalents                              |   | **621**                     | ** ** | (1,241     | )      |
| Cash and cash  equivalents at beginning of period                                  |   | **15,585**                  | ** ** | 7,023      |   |
| Cash and cash  equivalents at end of period                                        |   | **$**                       | **16,206** | ** ** | $      | 5,782 |   |
| Supplemental  Information:                                                         |   |                        | ** ** |       |   |
| Income taxes  paid                                                                 |   | **$**                       | **497**    | ** ** | $      | 1,013 |   |
| Interest paid                                                                      |   | **$**                       | **6,613**  | ** ** | $      | 7,450 |   |
| Other non-cash  investing activities:                                              |   |                        | ** ** |       |   |
| Transfer of  loans to other real estate owned                                      |   | **$**                       | **628**    | ** ** | $      | 182 |   |

 

See accompanying notes to consolidated financial statements.

 

6

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**ILLINI CORPORATION AND SUBSIDIARIES**

**Notes to Consolidated Financial Statements (Unaudited)**

**September 30, 2002**

 

(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, 2001.  The common stock andcapital surplus have been reclassified from the Annual Report on Form 10-KSBfor the year ended December 31, 2001 due to the amendments approved by theshareholders described in recent developments. Certain amounts in the 2001 consolidated financial statements have beenreclassified to conform to the 2002 presentation.  Such reclassifications have no effect on previously reportedconsolidated net income or shareholders’ equity.  The consolidated balance sheet of the Corporation as of December31, 2001 has been derived from the audited consolidated balance sheet of theCorporation as of that date.

 

Results for the three and nine months ended September 30, 2002 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 tocommon shareholders divided by the weighted average number of shares outstandingduring the period.  The Company has nocommon equivalent shares that could cause dilution.  The following information was used in the computation of basicearnings per shares.

 

|                                        |   | **Three  Months Ended  September 30,**             |       | **Nine  Months Ended  September 30,** |       |
|---------------------------------------------|--------|----------------------------------------------------|------------|---------------------------------------|------------|
|                                        |   | **2002**                                           |       | **2001**                              |       | **2002** |   | **2001** |   |
|                                        |   | **(dollars  in thousands, except per share data)** |       |
| Net Income                                  |   | **$**                                              | **354**    |                                  | $          | 300 | ** ** | **$** | **1,009** |   | $ | 931 |   |
|                                        |   |                                               | ** ** |                                  | ** ** |   | ** ** |   | ** ** |
| Weighted average  common shares outstanding |   | **411,701**                                        |       | 411,701                               | ** ** | **411,701** |   | 507,754 | ** ** |
|                                             |        |                                                    |            |                                       |            |  |  |  |  |  |  |  |  |

 

7

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(3)                                  RecentDevelopments

 

Illini Corporation has executed a definitive agreementand plan of merger to acquire all of the outstanding stock of IllinoisCommunity Bancorp, Inc (“ICBI”) through the merger of ICBI with a wholly ownedsubsidiary of Illini Corporation.  Underthe terms of the merger agreement, ICBI’s shareholders will receive .2126shares of common stock of the Illini Corporation in exchange for each share ofICBI common stock.  In the event thatcertain loan contingencies are resolved prior to closing, the exchange ratiomay be increased to up to .2472 shares of Illini Corporation in exchange foreach share of ICBI stock.  As ofDecember 31, 2001, ICBI had total assets of $57,040,000, total liabilities of$53,629,000 and total equity of $3,401,000. For the year ended December 31, 2001, ICBI had a net loss of$1,763,000.  The original mergeragreement provided that either party could terminate the agreement any timeafter May 31, 2002 if certain prior approvals were not obtained.  Additionally the original merger agreementprovided either party an opportunity to terminate the agreement any time afterAugust 31, 2002 if the merger were not completed.  As a result of ongoing discussions with one of the federalregulatory agencies, the parties agreed to modify the agreement and change therespective dates to May 31, 2003 and August 31, 2003. The shareholders of ICBIapproved the transaction on June 13, 2002.

 

In conjunction with the proposed transaction betweenthe Corporation and ICBI, certain regulatory agencies have expressed a desirefor the Corporation to consider increasing capital levels on a consolidatedbasis.  Management is currentlyexploring the various possibilities of raising additional capital including thefeasibility of a private offering of common stock.

 

The shareholders of the Corporation, at a specialmeeting on March 21, 2002, approved certain amendments to the Articles ofIncorporation of Illini Corporation. The approved amendments include: the elimination of preemptive rights ofshareholders; elimination of cumulative voting for the election of directors;increase of the number of authorized shares of common stock to 45,000,000shares and the reduction of the par value of common shares from $10 per shareto $.01 per share; authorization of 10,000,000 shares of preferred stock, parvalue $.01 per share; reduction of the vote required, pursuant to Sections11.20 (b) and 11.60(e) of The Business Corporation Act of 1983, to approve amerger or sale transaction from approval by two-thirds of the issued andoutstanding shares of common stock to approval by a majority of the issued andoutstanding shares of common stock; the adoption of a qualified incentive stockoption plan (60,000 shares) for executive employees of the Corporation and anon-qualified incentive stock option plan (7,500 shares) for directors of theCorporation.  As of September 30, 2002, no stock options have been granted toemployees or directors of the Corporation.

 

(4)                                  Use of Estimates in the Preparation of FinancialStatements

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reported period. Actual results could differ from those estimates.  A significant estimate that is particularlysensitive to change is the allowance for loan losses.

 

(5)                                  Accounting Change

 

Effective January1, 2002, the Illini Corporation applied FASB Statement No. 142, Goodwill andOther Intangible Assets.  Among itsprovisions is a requirement to disclose what reported net income would havebeen in all periods presented exclusive of amortization expense (net of relatedincome tax effects)

 

8

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recognized inthose periods related to goodwill, intangible assets no longer being amortized,and changes in amortization periods for intangible assets that will continue tobe amortized together with related per share amounts.

 

|                       |   | **Three  Months Ended  September 30,**             |       | **Nine  Months Ended  September 30,** |       |
|----------------------------|--------|----------------------------------------------------|------------|---------------------------------------|------------|
|                       |   | **2002**                                           |       | **2001**                              |       | **2002** |   | **2001** |   |
|                       |   | **(dollars  in thousands, except per share data)** |       |
| Reported net  income       |   | **$**                                              | **354**    |                                  | $          | 300 | ** ** | **$** | **1,009** |   | $ | 931 |   |
| Add goodwill  amortization |   | **—**                                         |       | 29                                    | ** ** | **—** |   | 88 |   |
| Adjusted net  income       |   | **$**                                              | **354**    | ** **                            | $          | 329 | ** ** | **$** | **1,009** | ** ** | $ | 1,019 | ** ** |
|                       |   |                                               | ** ** |                                  | ** ** |   | ** ** |   | ** ** |
| Basic earnings  per share: |   |                                               | ** ** |                                  | ** ** |   | ** ** |   | ** ** |
| Reported net  income       |   | **$**                                              | **.86**    | ** **                            | $          | .73 | ** ** | **$** | **2.45** | ** ** | $ | 1.83 | ** ** |
| Add goodwill  amortization |   | **—**                                         |       | .07                                   | ** ** | **—** |   | .17 |   |
| Adjusted net  income       |   | **$**                                              | **.86**    | ** **                            | $          | .80 | ** ** | **$** | **2.45** | ** ** | $ | 2.00 | ** ** |

 

Illini Corporationhas not yet performed the annual impairment test for 2002.  It is anticipated that based on currentinformation, there will not be impairment as the result of the application ofFASB Statement No. 142.  The annual impairmenttesting will be performed during the fourth quarter of 2002.

 

(6)                                  Controls and Procedures

 

Based upon anevaluation within the 90 days prior to the filing date of this report, theCompany’s Chief Executive Officer and Chief Financial Officer concluded thatthe Company’s disclosure controls and procedures are effective.  There have been no significant changes inthe Company’s internal controls or in other factors that could significantlyaffect the Company’s internal controls subsequent to the date of theevaluation, including any corrective actions with regard to significant deficienciesand material weaknesses.

 

9

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

 

**THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2002**

 

**SELECTED FINANCIALRESULTS**

 

The following table shows selected financial results and measures forthe three and nine months ended September 30, 2002 compared with the sameperiods in 2001.

 
|                            |   | **Three  Months Ended September 30,** |       | **Nine  Months Ended September 30,** |   |
|---------------------------------|--------|---------------------------------------|------------|--------------------------------------|--------|
|                            |   | **2002**                              |       | **2001**                             |   | **Change** |   | **Change-  %** |   | **2002** |   | **2001** |   | **Change** |   | **Change-  %** |   |
|                            |   | **(dollars  in thousands)**           |       |
| Net income                      |   | **$**                                 | **354**    | ** **                           | $      | 300 |   | $ | 54 |   | 18.0 | % | **$** | **1,009** | ** ** | $ | 931 |   | $ | 78 |   | 8.4 | % |
| Average assets                  |   | **284,667**                           | ** ** | 267,040                              |   | 17,627 |   | 6.6 | % | **281,220** | ** ** | 254,658 |   | 26,562 |   | 10.4 | % |
| Average equity                  |   | **14,642**                            | ** ** | 13,086                               |   | 1,556 |   | 11.9 | % | **13,794** | ** ** | 16,295 |   | (2,501 | ) | (15.4 | )% |
| Return on assets                |   | **0.49**                              | **%**      | 0.45                                 | %      | 0.04 |   | 8.9 | % | **0.48** | **%** | 0.49 | % | (0.01 | ) | (2.0 | )% |
| Return on equity                |   | **9.59**                              | **%**      | 9.10                                 | %      | 0.49 |   | 5.4 | % | **9.78** | **%** | 7.64 | % | 2.14 |   | 28.0 | % |
| Efficiency ratio                |   | **76.79**                             | **%**      | 79.95                                | %      | (3.16 | ) | (4.0 | )% | **76.60** | **%** | 78.80 | % | (2.20 | ) | (2.8 | )% |
| Dividend payout  ratio          |   | **29.07**                             | **%**      | 34.31                                | %      | (5.24 | ) | (15.3 | )% | **30.60** | **%** | 40.90 | % | (10.30 | ) | (25.2 | )% |
| Equity to assets  ratio         |   | **5.14**                              | **%**      | 4.90                                 | %      | 0.24 |   | 4.9 | % | **4.91** | **%** | 6.40 | % | (1.49 | ) | (23.3 | )% |
| Tier 1 leverage  ratio          |   | **5.53**                              | **%**      | 5.33                                 | %      | 0.20 |   | 3.8 | % |   | ** ** |   |   |   |   |   |   |
| Total risk-based  capital ratio |   | **10.21**                             | **%**      | 10.15                                | %      | 0.06 |   | 0.6 | % |   | ** ** |   |   |   |   |   |   |
|                                 |        |                                       |            |                                      |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Definitions of ratios:

 

Return on assets - annualized net income divided by average assets.

Return on equity - annualized net income divided by averageshareholders’ equity.

Efficiency ratio - noninterest expense divided by noninterest incomeplus taxable equivalent net interest income.

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

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

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

Total risk-based capital ratio - risk based capital divided by totalassets.

 

The Corporation recorded net income of $354,000 for the three monthsended September 30, 2002 and $1,009,000 for the nine-month period endedSeptember 30, 2002.  This comparesfavorably to $300,000 and $931,000 recorded in the respective periods endedSeptember 30, 2001.  The return onaverage equity increased to 9.6% for the three months ended September 30, 2002as compared to 9.1% for the same period ended September 30, 2001.  Return on average equity for the nine-monthperiod ended September 30, 2002 was 9.8% as compared to 7.6% for the same periodin 2001.  Similarly, basic earnings pershare for the three months ended September 30, 2002 was $0.86 per share versus$0.73 for the same quarter in 2001. This represents an increase of 17.8%. Basic earnings per share for the nine months ended September 30, 2002was $2.45 compared to $1.83 for the same period ended September 30, 2001.  This represents a 33.9% increase incomparing the two periods.  Theseincreases in performance measurements are primarily attributable to the stockredemption that occurred in June 2001.

 

10

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**RESULTS OFOPERATIONS**

 

This discussion should be read in conjunction with the consolidatedfinancial statements, notes, and tables included elsewhere in this report andin the 2001 Illini Corporation Annual Report on Form 10-KSB (2001 Form 10-KSB).

 

Net Interest Income

 

The following tables show average balances and related interest incomeor interest expense, with the resulting average yield or rate by category ofaverage earning assets or interest bearing liabilities.  Interest income and the resulting netinterest income are shown on a fully taxable basis.

 

**Consolidated Average Balances,Interest Income/Expense and Yield/Rates**

 
|                                         |   | **Three  months ended September 30,** |       |
|----------------------------------------------|--------|---------------------------------------|------------|
|                                         |   | **2002**                              |       | **2001** |   |
|                                         |   | **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                      |   | **$**                                 | **9,479**  | ** ** | **$** | **38** | ** ** | **1.59** | **%** | $ | 9,732 |   | $ | 96 |   | 3.93 | % |
| Investment  securities(3)                    |   |                                  |       |   |   |   | ** ** |   |   |   |   |   |   |
| Taxable                                      |   | **28,021**                            | ** ** | **374** | ** ** | **5.34** | ** ** | 37,008 |   | 570 |   | 6.16 |   |
| Tax-exempt(1)                                |   | **14,510**                            | ** ** | **299** | ** ** | **8.24** | ** ** | 12,855 |   | 267 |   | 8.31 |   |
| Total securities                             |   | **42,531**                            | ** ** | **673** | ** ** | **6.33** | ** ** | 49,863 |   | 837 |   | 6.72 |   |
| Loans                                        |   |                                  |       |   |   |   | ** ** |   |   |   |   |   |   |
| Commercial(1)                                |   | **46,202**                            | ** ** | **784** | ** ** | **6.73** | ** ** | 35,274 |   | 737 |   | 8.29 |   |
| Agriculture                                  |   | **16,067**                            | ** ** | **235** | ** ** | **5.80** | ** ** | 13,441 |   | 239 |   | 7.04 |   |
| Real estate                                  |   |                                  |       |   |   |   | ** ** |   |   |   |   |   |   |
| Commercial                                   |   | **104,514**                           | ** ** | **1,881** | ** ** | **7.14** | ** ** | 87,024 |   | 1,860 |   | 8.48 |   |
| Agriculture                                  |   | **6,572**                             | ** ** | **130** | ** ** | **7.86** | ** ** | 7,397 |   | 156 |   | 8.36 |   |
| Residential                                  |   | **28,547**                            | ** ** | **568** | ** ** | **7.89** | ** ** | 32,342 |   | 681 |   | 8.36 |   |
| Consumer, net                                |   | **11,266**                            | ** ** | **255** | ** ** | **8.99** | ** ** | 13,473 |   | 298 |   | 8.78 |   |
| Credit card                                  |   | **838**                               | ** ** | **36** | ** ** | **17.06** | ** ** | 822 |   | 36 |   | 17.38 |   |
| Total loans                                  |   | **214,006**                           | ** ** | **3,889** | ** ** | **7.21** | ** ** | 189,773 |   | 4,007 |   | 8.38 |   |
| Allowance for  loan losses                   |   | **(2,314**                            | )          |   |   |   | ** ** | (2,321 | ) |   |   |   |   |
| Net loans(1)(2)                              |   | **211,692**                           | ** ** | **3,889** | ** ** | **7.29** | ** ** | 187,452 |   | 4,007 |   | 8.48 |   |
| Total  interest-earning assets               |   | **263,702**                           | ** ** | **4,600** | ** ** | **6.92** | ** ** | 247,047 |   | 4,940 |   | 7.93 |   |
| **LIABILITIES**                              |   |                                  |       |   |   |   | ** ** |   |   |   |   |   |   |
| Interest-bearing  liabilities:               |   |                                  |       |   |   |   | ** ** |   |   |   |   |   |   |
| Deposits:                                    |   |                                  |       |   |   |   | ** ** |   |   |   |   |   |   |
| Interest-bearing  demand                     |   | **$**                                 | **60,117** | ** ** | **$** | **266** | ** ** | **1.76** | **%** | $ | 62,397 |   | $ | 487 |   | 3.09 | % |
| Savings                                      |   | **20,045**                            | ** ** | **69** | ** ** | **1.36** | ** ** | 17,418 |   | 76 |   | 1.74 |   |
| Time deposits  less than $100,000            |   | **113,429**                           | ** ** | **1,145** | ** ** | **4.00** | ** ** | 94,949 |   | 1,299 |   | 5.43 |   |
| Time deposits  $100,000 and over             |   | **24,202**                            | ** ** | **241** | ** ** | **3.96** | ** ** | 28,741 |   | 368 |   | 5.08 |   |
| Total  interest-bearing deposits             |   | **217,793**                           | ** ** | **1,721** | ** ** | **3.13** | ** ** | 203,505 |   | 2,230 |   | 4.35 |   |
| Short-term  borrowings                       |   | **488**                               | ** ** | **5** | ** ** | **3.68** | ** ** | 482 |   | 6 |   | 4.78 |   |
| Long-term  borrowings                        |   | **8,400**                             | ** ** | **102** | ** ** | **4.83** | ** ** | 9,217 |   | 171 |   | 7.38 |   |
| Preferred  securities of trust subsidiary(4) |   | **9,000**                             | ** ** | **244** | ** ** | **10.76** | ** ** | 9,000 |   | 232 |   | 10.21 |   |
| Total  interest-bearing liabilities          |   | **235,681**                           | ** ** | **2,072** | ** ** | **3.49** | ** ** | 222,204 |   | 2,639 |   | 4.71 |   |
|                                         |   |                                  |       |   |   |   | ** ** |   |   |   |   |   |   |
| **Net interest margin**                      |   |                                  | ** ** | **$** | **2,528** |   | **3.80** | **%** |   |   | $ | 2,301 |   | 3.69 | % |

 

----

(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 $73,000 in 2002 and$109,000 in 2001.

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

(4)                      The averagebalance for the Corporation is based on monthly average balances verses a dailyaverage balance.

 

11

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Net interestmargin is a measure of the net return on interest-earning assets and iscomputed by dividing annualized net interest income by the average of totalinterest-earning assets for the period.

 

Fluctuations innet interest income can result from the changes in the volumes of assets andliabilities as well as changes in interest rates.  Interest rates moved down throughout the year 2001.  Through the first nine months of 2002, theFederal Reserve has not changed the target rate for Federal funds.

 

**Consolidated Average Balances,Interest Income/Expense and Yield/Rates**

 
|                                         |   | **Nine  months ended September 30,** |       |
|----------------------------------------------|--------|--------------------------------------|------------|
|                                         |   | **2002**                             |       | **2001** |   |
|                                         |   | **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                      |   | **$**                                | **6,577**  | ** ** | **$** | **79** | ** ** | **1.61** | **%** | $ | 7,365 |   | $ | 294 |   | 5.34 | % |
| Investment  securities(3)                    |   |                                 |       |   |   |   | ** ** |   |   |   |   |   |   |
| Taxable                                      |   | **30,930**                           | ** ** | **1,281** | ** ** | **5.52** | ** ** | 37,184 |   | 1,744 |   | 6.25 |   |
| Tax-exempt(1)                                |   | **14,090**                           | ** ** | **878** | ** ** | **8.30** | ** ** | 12,769 |   | 792 |   | 8.27 |   |
| Total securities                             |   | **45,020**                           | ** ** | **2,159** | ** ** | **6.39** | ** ** | 49,953 |   | 2,536 |   | 6.77 |   |
| Loans                                        |   |                                 |       |   |   |   | ** ** |   |   |   |   |   |   |
| Commercial(1)                                |   | **46,043**                           | ** ** | **2,495** | ** ** | **7.24** | ** ** | 31,923 |   | 2,071 |   | 8.68 |   |
| Agriculture                                  |   | **16,125**                           | ** ** | **799** | ** ** | **6.62** | ** ** | 13,538 |   | 774 |   | 7.65 |   |
| Real estate                                  |   |                                 |       |   |   |   | ** ** |   |   |   |   |   |   |
| Commercial                                   |   | **98,492**                           | ** ** | **5,416** | ** ** | **7.35** | ** ** | 80,768 |   | 5,222 |   | 8.64 |   |
| Agriculture                                  |   | **6,576**                            | ** ** | **389** | ** ** | **7.91** | ** ** | 7,382 |   | 475 |   | 8.61 |   |
| Residential                                  |   | **31,262**                           | ** ** | **1,846** | ** ** | **7.89** | ** ** | 32,740 |   | 2,075 |   | 8.47 |   |
| Consumer, net                                |   | **12,059**                           | ** ** | **796** | ** ** | **8.83** | ** ** | 12,841 |   | 850 |   | 8.85 |   |
| Credit card                                  |   | **835**                              | ** ** | **105** | ** ** | **16.76** | ** ** | 796 |   | 103 |   | 17.24 |   |
| Total loans                                  |   | **211,392**                          | ** ** | **11,846** | ** ** | **7.49** | ** ** | 179,988 |   | 11,570 |   | 8.59 |   |
| Allowance for  loan losses                   |   | **(2,239**                           | )          |   |   |   | ** ** | (2,258 | ) |   |   |   |   |
| Net loans(1)(2)                              |   | **209,153**                          | ** ** | **11,846** | ** ** | **7.57** | ** ** | 177,730 |   | 11,570 |   | 8.70 |   |
| Total  interest-earning assets               |   | **260,750**                          | ** ** | **14,084** | ** ** | **7.22** | ** ** | 235,048 |   | 14,400 |   | 8.19 |   |
| **LIABILITIES**                              |   |                                 |       |   |   |   | ** ** |   |   |   |   |   |   |
| Interest-bearing  liabilities:               |   |                                 |       |   |   |   | ** ** |   |   |   |   |   |   |
| Deposits:                                    |   |                                 |       |   |   |   | ** ** |   |   |   |   |   |   |
| Interest-bearing  demand                     |   | **$**                                | **59,477** | ** ** | **$** | **838** | ** ** | **1.88** | **%** | $ | 58,623 |   | $ | 1,566 |   | 3.57 | % |
| Savings                                      |   | **19,479**                           | ** ** | **208** | ** ** | **1.42** | ** ** | 17,089 |   | 243 |   | 1.90 |   |
| Time deposits  less than $100,000            |   | **107,717**                          | ** ** | **3,341** | ** ** | **4.15** | ** ** | 87,369 |   | 3,734 |   | 5.71 |   |
| Time deposits  $100,000 and over             |   | **26,515**                           | ** ** | **823** | ** ** | **4.15** | ** ** | 27,894 |   | 1,122 |   | 5.38 |   |
| Total deposits                               |   | **213,188**                          | ** ** | **5,210** | ** ** | **3.27** | ** ** | 190,975 |   | 6,665 |   | 4.67 |   |
| Short-term  borrowings                       |   | **1,336**                            | ** ** | **26** | ** ** | **2.56** |   | 1,298 |   | 70 |   | 7.22 |   |
| Long-term  borrowings                        |   | **8,416**                            | ** ** | **336** | ** ** | **5.34** |   | 7,707 |   | 473 |   | 8.21 |   |
| Preferred  securities of trust subsidiary(4) |   | **9,000**                            | ** ** | **710** | ** ** | **10.55** |   | 8,000 |   | 555 |   | 9.27 |   |
| Total  interest-bearing liabilities          |   | **231,940**                          | ** ** | **6,282** | ** ** | **3.62** |   | 207,980 |   | 7,763 |   | 4.99 |   |
|                                         |   |                                 |       |   |   |   | ** ** |   |   |   |   |   |   |
| **Net interest margin**                      |   |                                 | ** ** | **$** | **7,802** |   | **4.00** | **%** |   |   | $ | 6,637 |   | 3.78 | % |
|                                              |        |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(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 $269,000 in 2002 and$277,000 in 2001.

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

(4)                      The averagebalance for the Corporation is based on monthly average balances verses a dailyaverage balance.

 

12

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Net interestmargin is a measure of the net return on interest-earning assets and iscomputed by dividing annualized net interest income by the average of totalinterest-earning assets for the period.

 

Fluctuations innet interest income can result from the changes in the volumes of assets andliabilities as well as changes in interest rates.  Interest rates moved down throughout the year 2001.  Through the first nine months of 2002, theFederal Reserve has not changed the target rate for Federal funds.

 

**FINANCIAL CONDITION**

 

Average earningassets of the Corporation for the first nine months of 2002 increased 11.0% or$25.8 million to $260.8 million from $235.0 million at September 30, 2001.  Earning assets increased primarily due toplanned loan growth.

 

As discussed inthe credit quality section of this Form 10-QSB, management has actively pursuedthe improvement of the asset quality of all earning assets, loans, andinvestment securities.

 

Average net loans increased to $211.7 million for the three monthsended September 30, 2002 compared to $187.5 million for the same period in2001.  The increase of $24.2 million forthe three months ended September 30, 2002 as compared to the same period for2001 was primarily due to an increase of $28.4 million in commercial loans,including commercial real estate loans. The average yield on the loan portfolio, net of the allowance for loanlosses, decreased 119 basis points to 7.29% for the three months endedSeptember 30, 2002, compared to 8.48% for the three months ended September 30,2001.

 

Average net loans increased to $209.2 million for the nine months endedSeptember 30, 2002 compared to $177.7 million for the same period in 2001.  The increase of $31.5 million for the ninemonths ended September 30, 2002 as compared to the same period in 2001 wasprimarily due to an increase of $31.8 million in commercial loans, includingcommercial real estate loans.  Theaverage yield on the loan portfolio, net of the allowance for loan losses,decreased 113 basis points to 7.57% for the nine months ended September 30,2002, compared to 8.70% for the nine months ended September 30, 2001.  The decrease in average yields for the threemonth and nine month periods is due to lower interest rates and adjustable rateloans repricing.

 

Average investment securities decreased $7.3 million and $4.9 millionfor the three and nine months ended September 30, 2002, respectively, ascompared to the same periods in 2001. The average yield of the investment securities portfolio was 6.33% and6.39% for the three and nine months ended September 30, 2002, respectively, a

 

13

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decrease of 39 and 38 basis points as compared to the same periods in2001.  The decrease in investments fromDecember 31, 2001 to September 30, 2002 is a result of the increase in loangrowth, and is consistent with management’s intent to maintain a balance in theinvestment portfolio to support basic surplus, which is used as a measurementof liquidity.

 

The most important and stable source of funding is core deposits,considered by management to include non-interest bearing demand deposits, NOWand money market accounts, savings deposits and time deposits under$100,000.  Average core deposits for thenine months ended September 30, 2002 increased 14.8% or $28.2 million to $219.0million from $190.8 million for the nine months ended September 30, 2001.  The average rate paid on total interestbearing liabilities for the nine months ended September 30, 2002 decreased 137basis points to 3.62% when compared to 4.99% for the nine months endedSeptember 30, 2001.

 

The increase in average core deposits for the nine months endedSeptember 30, 2002 as compared to the same period in 2001 has provided a lowcost funding source for the growth in the loan portfolio.

 

In addition to federal funds purchased, Illini Bank and Farmers StateBank of Camp Point maintain an overnight federal funds line of credit with anunaffiliated financial institution and collateralized borrowing capacity withthe Federal Home Loan Bank of Chicago.

 

Noninterest Income

 

The noninterest income decreased $5,000 and $396,000 for the three andnine months ended September 30, 2002, respectively, when compared to the sameperiods in 2001.  The decrease innoninterest income is primarily due to a decrease in residential mortgagelending activities.  The residentialmortgage market place is highly competitive. The Company has more closely focused on serving the local markets thatwe do business in.  Additionally, theCompany has experienced a net loss of $24,000 in the sale of other real estateowned in 2002 compared to a $33,000 gain during the same nine month period in2001.

 

Noninterest Expense

 

Salaries and employee benefits increased $269,000 and $783,000 for thethree and nine months ended September 30, 2002, respectively, when compared tothe same periods in 2001.  This increaseis a result of an increase in the number of full time equivalent employees,higher incentive pay, increased insurance premiums for employees, and normalcost of living increases to overall base salaries.

 

Data processing expense decreased $108,000 for the nine months endedSeptember 30, 2002 when compared to the same period in 2001.  The decrease is due to cost savings fromsystems conversion and upgrading of the information and processing system.

 

Professional expenses decreased $120,000 for the nine months endedSeptember 30, 2002 as compared to the same period in 2001.  This decrease is principally related to thedecline in litigation related costs. Other operating expenses decreased $67,000 and $104,000 for the threeand nine months ended September 30, 2002, respectively, when compared to thesame periods in 2001.  The decrease isdue to cost controls put into place in 2001.

 

The provision for loan losses increased $90,000 and $300,000 for thethree and nine months ended September 30, 2002, respectively, when compared tothe same periods in 2001.  Theseincreases were deemed necessary by management to adequately reserve againstpotential loan losses.  A morecomprehensive discussion of loan related issues can be found in the CreditQuality section of this document.

 

14

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**CREDIT QUALITY**

 

Gross loans totaled $211.2 million at September 30, 2002, an increaseof $12.2 million, or 6.13%, from $199.0 million at December 31, 2001.  The provision for loan losses has increasedto $580,000 for the nine months ended September 30, 2002 as compared to$280,000 for the same period in 2001. At September 30, 2002 the allowance as a percent of total loans was1.10% as compared to 1.06% and 1.23% as of December 31, 2001 and September 30,2001, respectively.  The decrease in theratio is primarily a result of the growth in the loan portfolio.  Based on the inherent risk in the loanportfolio, management believes that as of September 30, 2002, the allowance forloan losses is adequate.

 
|                             |   | **Nine  months ended  September 30,** |        |
|----------------------------------|--------|---------------------------------------|-------------|
|                             |   | **2002**                              |        | **2001** |   |
|                             |   | **(dollars  in thousands)**           |        |
| **Allowance for Loan Losses:**   |   |                                  |        |   |   |
| Balance at  beginning of period  |   | **$**                                 | **2,103**   |   | $ | 2,188 |   |
|                             |   |                                  |        |   |   |
| Charge-offs                      |   | **(464**                              | **)**       | (138 | ) |
| Recoveries                       |   | **109**                               | ** **  | 43 |   |
| Net charge-offs                  |   | **(355**                              | **)**       | (95 | ) |
|                             |   |                                  | ** **  |   |   |
| Provision  charged to operations |   | **580**                               | ** **  | 280 |   |
| Balance at end  of period        |   | **$**                                 | **2,328**   | ** ** | $ | 2,373 |   |
|                             |   |                                  |        |   |   |
| Average loans  outstanding       |   | **$**                                 | **211,392** |   | $ | 179,988 |   |

 

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*. *Netcharge-offs increased to $355,000 for the nine months ended September 30, 2002,respectively, as compared to $95,000 for the comparable period in the prioryear.  These increases primarily relateto commercial real estate loans.

 
| **Credit  Quality**               |   | **September  30,  2002**    |       | **December  31,  2001** |       | **September  30,  2001** |       |
|-----------------------------------|--------|-----------------------------|------------|-------------------------|------------|--------------------------|------------|
|                              |   | **(dollars  in thousands)** |       |
| **Nonperforming assets:**         |   |                        |       |                    |       |                     |       |
| Accruing loans  past due 90 days  |   | **$**                       | **—** |                    | $          | —                   |       | $ | — |   |
| Nonaccrual                        |   | **5,603**                   |       | 4,920                   |       | 3,287                    |       |
| Renegotiated                      |   | **—**                  |       | —                  |       | —                   |       |
| Other real  estate owned          |   | **838**                     |       | 370                     |       | 423                      |       |
| Total  nonperforming assets       |   | **$**                       | **6,441**  |                    | $          | 5,290                    |       | $ | 3,710 |   |
|                              |   |                        |       |                    |       |                     |       |
| **Key ratios**:                   |   |                        | ** ** |                    | ** ** |                     | ** ** |
| Nonperforming  loans to loans     |   | **2.65**                    | **%**      | 2.47                    | %          | 1.70                     | %          |
| Allowance to  total loans         |   | **1.10**                    |       | 1.06                    |       | 1.23                     |       |
| Allowance to  nonperforming loans |   | **41.55**                   |       | 42.74                   |       | 72.19                    |       |

 

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At September 30, 2002, impaired loans totaled $5.7 million, including$5.6 million of loans on nonaccrual and $114,000 of loans past due less than 90days, compared to $4.9 million of loans on nonaccrual and $212,000, which werepast due less than 90 days, at December 31, 2001.  Nonperforming assets have increased $1.2 million from December31, 2001.  At September 30, 2002, of the$5.6 million of nonaccrual loans, four borrowers make up $4.2 million or 75% ofthe total. These loans are primarily collateralized by commercial real estateand are in various stages of foreclosure. The increase in nonperforming assets is generally associated with a moredirect approach to dealing with borrowers who are unable or unwilling tofulfill the terms of the loan agreements. Management continues to vigorously pursue the collection of the loans.

 

Illini Corporation’s loan underwriting guidelines and credit reviewprocedures and policies are designed to protect the Corporation from creditlosses.  Illini Corporation’s processfor monitoring loan quality includes detailed monthly trend analysis ofdelinquencies and nonperforming assets. 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 2001 Form 10-KSB and previous Form10-QSB reports, management has implemented several initiatives to improvecredit quality.  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 2002 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.

 

**CAPITALRESOURCES**

 

The current economic and regulatory environment places increasedemphasis on capital strength.  A strongcapital position, which is vital to the continued profitability of IlliniCorporation, also promotes depositor and investor confidence and provides asolid foundation for the future growth of the organization.  Illini Corporation has historicallysatisfied its capital requirements principally through the retention ofearnings.

 

The table below shows the various measures of regulatory capital andrelated ratios.

 
|                                                   |   | **Regulatory  requirements  to be:** |   | **Actual  Regulatory Capital Ratios** |   |
|--------------------------------------------------------|--------|--------------------------------------|--------|---------------------------------------|--------|
|                                                   |   | **Adequately  Capitalized**          |   | **Well -  Capitalized**               |   | **September  30,  2002** |   | **December  31,  2001** |   |
| Total risk-based  capital as % of risk-weighted assets |   | 8.0                                  | %      | 10.0                                  | %      | 10.2 | % | 10.0 | % |
| Tier 1 capital  as % of risk-weighted assets           |   | 4.0                                  | %      | 6.0                                   | %      | 7.1 | % | 6.8 | % |
| Tier 1 capital  as % average assets                    |   | 4.0                                  | %      | 5.0                                   | %      | 5.5 | % | 5.4 | % |

 

Risk-based capital guidelines require the classification of assets andsome off-balance items in terms of credit-risk exposure and the measuring ofcapital as a percentage of the risk adjusted assets totals.  Management believes, and data in the abovetable show that, as of September 30, 2002 and December 31, 2001 the Company metall capital adequacy requirements to which it is subject.  As of those dates, the Corporation’ssubsidiary banks were “well capitalized” under regulatory prompt correctiveaction provisions.

 

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Earnings retention is affected by the Board of Director’s declarationof cash dividends.  The dividend payoutratio is an indicator of the level of earnings retained.  The Board of Directors of the Corporationconsiders the capital strength of the Corporation and the banks in determiningthe appropriate level of cash dividends to be paid to shareholders.  The dividend payout ratio for the three andnine months ended September 30, 2002 was 29.1% and 30.6%, respectively ascompared to 34.3% and 40.9% for the three and nine months ended September 30, 2001.The dividend per share for the three and nine months ended September 30, 2002is unchanged from the same periods in 2001.

 

As discussed in the Corporation’s 2001 Form 10-KSB, the Corporation has$9 million of trust preferred securities outstanding.  Per regulation, 25% of the Tier 1 capital ratio can be comprisedof the trust preferred issue.  As ofSeptember 30, 2002, the portion eligible for inclusion in the Tier 1computation amounted to approximately $4.4 million

 

**LIQUIDITY**

 

Illini Corporation’s policy is to manage interest rate risk to a levelwhich places limits on the sensitivity of its earnings to changes in marketinterest rates.  An explanation of theasset/liability management process is found in the Corporation’s 2001 Form10-KSB, beginning on page 15.

 

The assets portion of the balance sheet provides liquidity primarilythrough loan principal repayments, maturities of investment securities, andsales of investment securities available for sale.  The liability side of the balance sheet provides liquiditythrough various customers’ interest-bearing and noninterest-bearing depositaccounts.  Short-term borrowings are anadditional source of liquidity and represent Illini Corporation’s incrementalborrowing capacity.

 

Illini Corporation uses a comprehensive analysis of its asset/liabilityfunction, including a review of its funds management policy and its principalmeasure of liquidity.  The Corporationimplemented a new measure of liquidity measurement, called “Basic Surplus,”which redefines liquid assets as the total available assets held by theCorporation which can be converted to cash in thirty days or less, reduced byshort term liabilities.  As of September30, 2002, the most recent calculation, Illini Corporation’s core liquidity was$28.7 million, or 10.2% of total average assets.

 

Management believes the formula provides an accurate measurement ofliquidity and provides management with a comprehensible and consistent tool todevelop pricing and profitability strategies. Based on the new measurement and as compared to peer banks, managementbelieves the liquidity position of the banks is strong.

 

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**PART II.  OTHERINFORMATION**

 

Item 1    Legal Proceedings 

Mary Quinn v. Illini Corporation and Illinois StockTransfer Co.,

Sangamon County Case No. 98 CH 240

 

Illini Corporationadopted a Shareholder Rights Agreement on June 20, 1997, and named IllinoisStock Transfer Company (“ISTC”) as its rights agent thereunder.  Illini Corporation was notified in May 1998of a threatened complaint against ISTC by an Illini Corporationshareholder.  The shareholder, Mary K.Quinn (“Quinn”), who owns 21 shares of stock in Illini Corporation, filed suitagainst ISTC on June 9, 1998 in the Seventh Judicial Circuit Court, SangamonCounty, Illinois.  Quinn sought tocompel ISTC to distribute rights certificates to Illini Corporation’sshareholders and further sought to certify all Illini Corporation shareholdersas a class.  Quinn asserted that Ida R.Noll became an acquiring person under the Rights Agreement on April 16, 1998,and that the Rights Agreement was triggered. ISTC has vigorously contested Quinn’s assertions that Ida R. Noll was anacquiring person, that the Rights Agreement had been triggered, and that ISTChad a duty to 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 her action.  Both Illini Corporation and ISTC answeredthe Amended Complaint and denied that Ida R. Noll was an acquiring person.  Quinn asserted that she was entitled torecover her attorneys’ fees from Illini Corporation and ISTC.

 

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 filed a pending appeal as to all adverse orders.  On July 31, 2000, the Appellate Court issuedan order reversing the trial court’s order granting summary judgment to IlliniCorporation and remanding the case for trial. The Appellate Court found that genuine issue of material fact remainedconcerning whether the Illini Corporation board of directors acted in goodfaith (1) in determining on April 30, 1998 that Ida Noll’s acquisition ofshares was inadvertent and (2) in amending the agreement on June 30,1998.  The Appellate Court also reversedthe trial court’s order denying Quinn’s request

 

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for costs,expenses and attorneys fees, finding that the fee provision of the RightsAgreement did not require one who brought an action to enforce the agreement toprevail in that action in order to recover fees..

 

The case has beenremanded to the trial court. Upon Quinn’s motion the trial court permittedQuinn to add Mrs. Noll as a party to the action.  Quinn subsequently filed a motion to compel an additionaldeposition of Burnard K. McHone, President, Illini Corporation, with respect toa certain Stock Purchase Agreement pursuant to which shares owned by Mrs.Noll’s family were redeemed by Illini Corporation.  The trial court denied the motion to compel finding that Quinnfailed to show any basis that the Stock Purchase Agreement was relevant to herclaims in the lawsuit.  Defendants fileda motion to vacate the trial court’s order to add Mrs. Noll as a party to theaction.  The trial court vacated theprior order in December 2001.  Quinnmoved for recusal of the presiding judge on the grounds that the judge isallegedly prejudiced or biased against her. The motion was denied.  Illinithereafter moved for removal of plaintiff’s counsel on the basis that counselhad a conflict of interest arising from his cooperation in the litigation witha non-class member and her counsel.  Thecourt removed the counsel for the plaintiff class and appointed new counsel torepresent the class.  The removedcounsel has requested reconsideration of his removal and a hearing on thereconsideration is scheduled on November 22, 2002.  Illini anticipates the case will be tried in early 2003.

 

Mary Quinn v. Ida R. Noll, Burnard McHone, et al.

Sangamon County Case No. 01 CH 377

 

On August 14, 2001, MaryQuinn filed a four count complaint against Ida Noll and several present andformer members of Illini Corporation’s Board of Directors in the SeventhJudicial Circuit, Sangamon County, Illinois. The named defendants in the action are Ida Noll, Burnard McHone, WilliamEtherton, Ronald Thunman, Thomas Black, John Pickrell, Kenneth Deverman, LarryCurtin, Robert Olson and William McCubbin. Quinn purports to allege derivativecauses of action arising out of Illini entering into a Stock Purchase Agreementwith Ida R. Noll and others.  Quinnasserts that the defendants caused Illini to breach the Shareholder RightsAgreement, that the directors breached their fiduciary duty, and usurped abusiness opportunity of the Shareholders. Quinn also seeks rescission of the Stock Purchase Agreement.  The directors named as defendants in theaction are represented by the law firm of Samuels, Miller, Schreoder, Jackson& Sly.  Attorney James Jackson ofthe Samuels Miller firm moved on behalf of the defendant directors to dismissthe complaint.  The motion was grantedin part and denied in part.  Quinnthereafter moved to consolidate this suit with her previously filed classaction suit.  Illini intervened for thepurposes of opposing consolidation.  Thecourt denied the motion to consolidate on July 25, 2002, and ordered thederivative suit stayed pending completion of the trial in the class action suit(98 CH 240) or further order.

 

Quinn seeks recovery ofher attorney’s fees in the derivative action pursuant to the attorney feeprovision of the Shareholder Rights Agreement.

 

Item 2    Changes in Securities- none

 

Item 3    Defaults Upon SeniorSecurities - none

 

Item 4    Submission of Mattersto a Vote of Security Holders - none

 

Item 5    Other Information- none

 

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Item 6             Exhibitsand Reports on Form 8-K

 

(a)           Exhibits:

99.1                  CEO Certification pursuant to 18 U.S.C. section1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

99.2                  CFO Certification pursuant to 18 U.S.C. section1350, 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 September30, 2002.

 

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**SIGNATURES**

 

In accordance with the requirements of the Exchange Act, the registrantcaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

 

 
| Illini  Corporation              |         |
|----------------------------------|--------------|
| (Registrant)                     |         |
|                             |         |
|                             |         |
|                             |         |
| By:  /s/Burnard K. McHone        |         | November  12, 2002 |
| Burnard  K. McHone               | Date  signed |
| President                        |         |
|                             |         |
|                             |         |
|                             |         |
|                             |         |
|                             |         |
|                             |         |
| By:  /s/George A. Rosenbaum, Jr. |         | November  12, 2002 |
| George  A. Rosenbaum, Jr.        | Date  signed |
| Chief  Financial Officer         |         |

 

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** **

 

Form of Certification forQuarterly Reports on Form 10-QSB

 

I, Burnard K. McHone, certify that:

 

1.               I have reviewedthis quarterly report on Form 10-QSB of Illini Corporation;

 

2.               Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.               Based on myknowledge, the financial statements, and other financial information includedin the quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.               The registrant’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)              designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b)             evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)              presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)              all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)             any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.               The registrant’sother certifying officers and I have indicated in this quarterly report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 
| Date:   November 12, 2002 | /s/ Burnard K. McHone                 |
|--------------------------------|---------------------------------------|
|                           | Burnard K. McHone                     |
|                           | President and Chief Executive Officer |

 

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** **

 

Form of Certification forQuarterly Reports on Form 10-QSB

 

I, George A. Rosenbaum Jr., certify that:

 

1.               I have reviewedthis quarterly report on Form 10-QSB of Illini Corporation;

 

2.               Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.               Based on myknowledge, the financial statements, and other financial information includedin the quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.               The registrant’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)              designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b)             evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)              presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)              all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)             any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.               The registrant’sother certifying officers and I have indicated in this quarterly report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 
| Date:   November 12, 2002 | /s/ George A. Rosenbaum, Jr. |
|--------------------------------|------------------------------|
|                           | George A. Rosenbaum, Jr.     |
|                           | Chief Financial Officer      |

 

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