** **

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

**Washington, D.C.  20549**

 

**FORM 10-QSB**

 

| **ý** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |   |
|------------|-----------------------------------------------------------------------------------------------|--------|
|       |                                                                                          |   |
|       | **For quarterly period ended June 30, 2003**                                                  |   |
|       |                                                                                          |   |
| **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**

(Addressof principal executive offices)

 

**(217) 787-5111**

(Issuer’stelephone 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 past12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements forthe past 90 days.

 

Yes  ý  No  o

 

As of July 31, 2003, there were 411,701 shares ofcommon stock, $0.01 par value outstanding.

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

 

 

----

 

**ILLINI CORPORATION**

INDEXTO FORM 10-QSB

June30,2003

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

 

**Information Concerning Forward-LookingStatements**

*Statements contained in this Form 10-QSB which are nothistorical facts are “forward-looking statements” within the meaning ofSection 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934. These statements involve important known andunknown risks, uncertainties and other factors and can be identified by phrasesusing “estimate,” “anticipate,” “believe,” “project,” “expect,” “intend,”“predict,” “potential,” “future,” “may,” “should” and similar expressions orwords.  Such forward-looking statementsare subject to risk and uncertainties which could cause actual results todiffer materially from those projected. Such risks and uncertainties include potential change in interest rates,competitive factors in the financial services industry, general economicconditions, the effect of new legislation and other risks detailed in documentsfiled by Illini Corporation with the Securities and Exchange Commission fromtime to time.*

 

2

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**PART I. FINANCIAL INFORMATION**

**Item 1.****  Financial Statements**

 

**ILLINI CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**June 30, 2003 and December 31, 2002**

**Unaudited**

** **
|                                                                                                |   | **June 30,  2003**          |        | **December  31,  2002** |       |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------|-------------|-------------------------|------------|
|                                                                                                |   | **(dollars  in thousands)** |        |
| **ASSETS**                                                                                          |   |                        |        |
| Cash and due  from banks                                                                            |   | **$**                       | **6,968**   | ** **              | $          | 7,654 |   |
| Interest-bearing  deposits in other banks                                                           |   | **32**                      | ** **  | 33                      |       |
| Federal funds  sold                                                                                 |   | **22,566**                  | ** **  | 12,166                  |       |
| Cash and cash  equivalents                                                                          |   | **29,566**                  | ** **  | 19,853                  |       |
| Securities  available for sale, at fair value                                                       |   | **40,989**                  | ** **  | 42,969                  |       |
| Loans, net of  the allowance for loan losses                                                        |   | **195,248**                 | ** **  | 207,366                 |       |
| Premises and  equipment                                                                             |   | **6,510**                   | ** **  | 6,681                   |       |
| Accrued interest  receivable                                                                        |   | **1,683**                   | ** **  | 2,346                   |       |
| Other real  estate owned                                                                            |   | **3,870**                   | ** **  | 787                     |       |
| Goodwill                                                                                            |   | **1,856**                   | ** **  | 1,856                   |       |
| Intangible  assets                                                                                  |   | **279**                     | ** **  | 312                     |       |
| Other assets                                                                                        |   | **570**                     | ** **  | 489                     |       |
| Total Assets                                                                                        |   | **$**                       | **280,571** | ** **              | $          | 282,659 |   |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                      |   |                        | ** **  |                    | ** ** |
| Noninterest-bearing  demand deposits                                                                |   | **$**                       | **32,303**  | ** **              | **$**      | 35,110 | ** ** |
| Interest-bearing  deposits:                                                                         |   |                        | ** **  |                    |       |
| NOW and money  market accounts                                                                      |   | **57,763**                  | ** **  | 56,595                  |       |
| Savings deposits                                                                                    |   | **21,749**                  | ** **  | 19,938                  |       |
| Time deposits,  $100,000 and over                                                                   |   | **24,569**                  | ** **  | 22,794                  |       |
| Other time  deposits                                                                                |   | **107,145**                 | ** **  | 110,397                 |       |
| Total deposits                                                                                      |   | **243,529**                 | ** **  | 244,834                 |       |
| Repurchase  agreements                                                                              |   | **606**                     | ** **  | 656                     |       |
| FHLB advances  and other borrowings                                                                 |   | **8,371**                   | ** **  | 8,395                   |       |
| Preferred  securities of subsidiary trust                                                           |   | **9,000**                   | ** **  | 9,000                   |       |
| Accrued interest  payable                                                                           |   | **1,178**                   | ** **  | 1,332                   |       |
| Other  liabilities                                                                                  |   | **2,106**                   | ** **  | 3,221                   |       |
| Total  liabilities                                                                                  |   | **264,790**                 | ** **  | 267,438                 |       |
|                                                                                                |   |                        | ** **  |                    |       |
| Shareholders’  equity                                                                          |   |                        | ** **  |                    |       |
| Preferred stock,  $0.01 par value, authorized and unissued 10,000,000 shares                        |   | **—**                  | ** **  | —                  |       |
| Common stock,  $0.01 par value, authorized 45,000,000 shares;571,789 shares issued and  outstanding |   | **6**                       | ** **  | 6                       |       |
| Capital surplus                                                                                     |   | **9,070**                   | ** **  | 9,070                   |       |
| Retained  earnings                                                                                  |   | **12,076**                  | ** **  | 11,885                  |       |
| Accumulated  other comprehensive income                                                             |   | **1,833**                   | ** **  | 1,464                   |       |
| Less:  Treasury shares, at cost, 160,088 shares                                                |   | **(7,204**                  | **)**       | (7,204                  | )          |
| Total  shareholders’ equity                                                                    |   | **15,781**                  | ** **  | 15,221                  |       |
| Total  Liabilities and Shareholders’ Equity                                                    |   | **$**                       | **280,571** | ** **              | $          | 282,659 |   |

 

See accompanying notes tounaudited consolidated financial statements.

 

3

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**ILLINI CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF INCOME**

**Three Months and Six Months Ended June30, 2003 and 2002**

**(Unaudited)**

** **
|                                                  |   | **Three  Months Ended  June 30,**                  |       | **Six Months  Ended  June 30,** |       |
|-------------------------------------------------------|--------|----------------------------------------------------|------------|---------------------------------|------------|
|                                                  |   | **2003**                                           |       | **2002**                        |       | **2003** |   | **2002** |   |
|                                                  |   | **(dollars  in thousands, except per share data)** |       |
| Interest income:                                      |   |                                               |       |                            |       |   |   |   |   |
| Interest and  fees on loans                           |   | **$**                                              | **3,198**  | ** **                      | $          | 3,954 | ** ** | **$** | **6,834** | ** ** | $ | 7,913 |   |
| Interest on  securities:                              |   |                                               | ** ** |                            | ** ** |   | ** ** |   | ** ** |
| Taxable                                               |   | **185**                                            | ** ** | 419                             | ** ** | **454** | ** ** | 907 |   |
| Exempt from  federal income taxes                     |   | **229**                                            | ** ** | 204                             | ** ** | **461** | ** ** | 399 |   |
| Interest on  short-term investments                   |   | **54**                                             | ** ** | 20                              | ** ** | **96** | ** ** | 41 |   |
| Total interest  income                                |   | **3,666**                                          | ** ** | 4,597                           | ** ** | **7,845** | ** ** | 9,260 |   |
| Interest  expense:                                    |   |                                               | ** ** |                            |       |   | ** ** |   |   |
| Interest on  deposits:                                |   |                                               | ** ** |                            |       |   | ** ** |   |   |
| NOW and money  market accounts                        |   | **134**                                            | ** ** | 288                             | ** ** | **317** | ** ** | 572 |   |
| Savings deposits                                      |   | **41**                                             | ** ** | 72                              | ** ** | **90** | ** ** | 139 |   |
| Time deposits,  $100,000 and over                     |   | **213**                                            | ** ** | 250                             | ** ** | **429** | ** ** | 582 |   |
| Other time deposits                                   |   | **1,016**                                          | ** ** | 1,086                           | ** ** | **2,071** | ** ** | 2,196 |   |
| Interest on  repurchase agreements                    |   | **4**                                              | ** ** | 16                              | ** ** | **10** | ** ** | 21 |   |
| Interest on FHLB  advances and other borrowings       |   | **98**                                             | ** ** | 90                              | ** ** | **195** | ** ** | 234 |   |
| Interest on  preferred securities of subsidiary trust |   | **229**                                            | ** ** | 229                             | ** ** | **473** | ** ** | 466 |   |
| Total interest  expense                               |   | **1,735**                                          | ** ** | 2,031                           | ** ** | **3,585** | ** ** | 4,210 |   |
| Net interest  income                                  |   | **1,931**                                          | ** ** | 2,566                           | ** ** | **4,260** | ** ** | 5,050 |   |
| Provision for  loan losses                            |   | **0**                                              | ** ** | 190                             | ** ** | **150** | ** ** | 400 |   |
| Net interest  income after provision for loan losses  |   | **1,931**                                          | ** ** | 2,376                           | ** ** | **4,110** | ** ** | 4,650 |   |
| Noninterest  income:                                  |   |                                               | ** ** |                            |       |   | ** ** |   |   |
| Service charges  on deposit accounts                  |   | **339**                                            | ** ** | 331                             | ** ** | **663** | ** ** | 609 |   |
| Other fee income                                      |   | **132**                                            | ** ** | 84                              | ** ** | **263** | ** ** | 165 |   |
| Mortgage loan  servicing fees                         |   | **(3**                                             | **)**      | 25                              | ** ** | **(8** | **)** | 59 |   |
| Gains on sales  of mortgage loans                     |   | **80**                                             | ** ** | 52                              | ** ** | **137** | ** ** | 70 |   |
| Gains (losses)  on sale of other real estate owned    |   | **9**                                              | ** ** | (24                             | )          | **14** | ** ** | (28 | ) |
| Other                                                 |   | **41**                                             | ** ** | 30                              | ** ** | **67** | ** ** | 61 |   |
| Total  noninterest income                             |   | **598**                                            | ** ** | 498                             | ** ** | **1,136** | ** ** | 936 |   |
| Noninterest  expense:                                 |   |                                               | ** ** |                            |       |   | ** ** |   |   |
| Salaries and  employee benefits                       |   | **1,189**                                          | ** ** | 1,283                           | ** ** | **2,375** | ** ** | 2,528 |   |
| Net occupancy  expense                                |   | **192**                                            | ** ** | 189                             | ** ** | **387** | ** ** | 378 |   |
| Equipment  expense                                    |   | **54**                                             | ** ** | 71                              | ** ** | **115** | ** ** | 152 |   |
| Data processing  expense                              |   | **203**                                            | ** ** | 175                             | ** ** | **388** | ** ** | 325 |   |
| Supplies expense                                      |   | **44**                                             | ** ** | 26                              | ** ** | **91** | ** ** | 80 |   |
| Communication  and transportation expense             |   | **116**                                            | ** ** | 111                             | ** ** | **230** | ** ** | 220 |   |
| Marketing and  advertising expense                    |   | **41**                                             | ** ** | 73                              | ** ** | **85** | ** ** | 133 |   |
| Correspondent  and processing fees                    |   | **83**                                             | ** ** | 103                             | ** ** | **160** | ** ** | 189 |   |
| Loan and other  real estate owned expense             |   | **201**                                            | ** ** | 43                              | ** ** | **236** | ** ** | 62 |   |
| Professional  fees                                    |   | **148**                                            | ** ** | 218                             | ** ** | **301** | ** ** | 379 |   |
| Regulatory fees                                       |   | **35**                                             | ** ** | 35                              | ** ** | **58** | ** ** | 58 |   |
| Other                                                 |   | **186**                                            | ** ** | 123                             | ** ** | **338** | ** ** | 247 |   |
| Total noninterest  expense                            |   | **2,492**                                          | ** ** | 2,450                           | ** ** | **4,764** | ** ** | 4,751 |   |
| Income before  income tax expense                     |   | **37**                                             | ** ** | 424                             | ** ** | **482** | ** ** | 835 |   |
| Income tax  expense (benefit)                         |   | **(10**                                            | **)**      | 92                              | ** ** | **86** | ** ** | 180 |   |
| Net income                                            |   | **$**                                              | **47**     | ** **                      | $          | 332 | ** ** | **$** | **396** | ** ** | $ | 655 |   |
| Basic and  diluted earnings per share                 |   | **$**                                              | **0.11**   | ** **                      | $          | 0.81 | ** ** | **$** | **0.96** | ** ** | $ | 1.59 |   |

 

See accompanying notes toconsolidated financial statements.

 

4

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**ILLINI CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY**

**Six Months Ended June 30, 2003 and 2002**

**(Unaudited)**

** **
|                                       |   | **Six Months  Ended  June 30,** |       |
|--------------------------------------------|--------|---------------------------------|------------|
|                                       |   | **2003**                        |       | **2002** |   |
|                                       |   | **(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                 |   | **11,885**                      |       | 10,775 |   |
| Net income                                 |   | **396**                         |       | 655 |   |
| Dividends on  common stock                 |   | **(205**                        | **)**      | (206 | ) |
| End of period  balance                     |   | **12,076**                      |       | 11,224 |   |
|                                       |   |                            | ** ** |   |   |
| Treasury Stock                             |   |                            | ** ** |   |   |
| Beginning of  year balance                 |   | **(7,204**                      | **)**      | (7,204 | ) |
| End of period  balance                     |   | **(7,204**                      | **)**      | (7,204 | ) |
|                                       |   |                            | ** ** |   |   |
| Accumulated  Other Comprehensive Income    |   |                            | ** ** |   |   |
| Beginning of  year balance                 |   | **1,464**                       | ** ** | 943 |   |
| Unrealized gain  on securities, net of tax |   | **369**                         | ** ** | 270 |   |
| End of period  balance                     |   | **1,833**                       | ** ** | 1,213 |   |
|                                       |   |                            | ** ** |   |   |
| Total  Shareholders’ Equity           |   | **$**                           | **15,781** | ** ** | $ | 14,309 |   |

 

See accompanying notes tounaudited consolidated financial statements.

 

 

**ILLINI CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

**Three Months and Six Months Ended June30, 2003 and 2002**

**(Unaudited)**

** **
|                                                                                                          |   | **Three  Months Ended  June 30,** |    | **Six Months  Ended  June 30,** |       |
|---------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|---------------------------------|------------|
|                                                                                                          |   | **2003**                          |    | **2002**                        |       | **2003** |   | **2002** |   |
|                                                                                                          |   | **(dollars in thousands)**        |    | **(dollars in thousands****)**  |       |
| Net Income                                                                                                    |   | **$**                             | **47**  |                            | $          | 332 | ** ** | **$** | **396** |   | $ | 655 |   |
| Other  comprehensive income, unrealized gains  on securities, net of reclassification  adjustment, net of tax |   | **356**                           |    | 278                             | ** ** | **369** |   | 270 |   |
| Comprehensive  income                                                                                         |   | **$**                             | **403** |                            | $          | 610 | ** ** | **$** | **765** |   | $ | 925 |   |

 

See accompanying notes tounaudited consolidated financial statements.

 

5

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**ILLINI CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**Six Months Ended June 30, 2003 and 2002**

**(Unaudited)**

 
|                                                                               |   | **2003**                    |       | **2002**   |   |
|------------------------------------------------------------------------------------|--------|-----------------------------|------------|------------|--------|
|                                                                               |   | **(dollars  in thousands)** |       |
| Cash flows from  operating activities:                                             |   |                        |       |       |   |
| Net income                                                                         |   | **$**                       | **396**    | ** ** | $      | 655 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |   |                        | ** ** |       |   |
| Depreciation and  amortization                                                     |   | **385**                     | ** ** | 418        |   |
| Amortization of  intangible assets                                                 |   | **33**                      | ** ** | 47         |   |
| Provision for  loan losses                                                         |   | **150**                     | ** ** | 400        |   |
| Security  amortization (accretion), net                                            |   | **111**                     | ** ** | (1         | )      |
| Federal Home  Loan Bank stock dividend                                             |   | **(33**                     | **)**      | (19        | )      |
| Gains on sales  of mortgage loans                                                  |   | **(137**                    | **)**      | (70        | )      |
| (Gains) losses  on sale of other real estate owned                                 |   | **(14**                     | **)**      | 28         |   |
| Decrease in  accrued interest receivable                                           |   | **663**                     | ** ** | 229        |   |
| Decrease in  accrued interest payable                                              |   | **(154**                    | **)**      | (4         | )      |
| Origination of  secondary market mortgage loans                                    |   | **(10,545**                 | **)**      | (3,854     | )      |
| Proceeds from  the sales of secondary market mortgage loans                        |   | **11,016**                  | ** ** | 3,815      |   |
| Other, net                                                                         |   | **(1,337**                  | **)**      | 187        |   |
| Net cash  provided by operating activities                                         |   | **534**                     | ** ** | 1,831      |   |
| Cash flows from  investing activities:                                             |   |                        | ** ** |       |   |
| Proceeds from  maturities and paydowns of securities available for sale            |   | **14,521**                  | ** ** | 10,342     |   |
| Purchases of  securities available for sale                                        |   | **(12,033**                 | **)**      | (6,237     | )      |
| Net (increase)  decrease in loans                                                  |   | **8,073**                   | ** ** | (18,126    | )      |
| Purchases of  premises and equipment                                               |   | **(214**                    | **)**      | (384       | )      |
| Proceeds from  sales of other real estate owned                                    |   | **416**                     | ** ** | 44         |   |
| Net cash  provided by (used in) investing activities                               |   | **10,763**                  | ** ** | (14,361    | )      |
| Cash flows from  financing activities:                                             |   |                        | ** ** |       |   |
| Net decrease in  noninterest-bearing demand deposits                               |   | **(2,807**                  | **)**      | (1,174     | )      |
| Net increase in  NOW, money market accounts and savings deposits                   |   | **2,979**                   | ** ** | 3,177      |   |
| Net increase  (decrease) in time deposits, $100,000 and over                       |   | **1,775**                   | ** ** | (6,765     | )      |
| Net increase  (decrease) in other time deposits                                    |   | **(3,252**                  | **)**      | 17,954     |   |
| Net decrease in  repurchase agreements and federal funds purchased                 |   | **(50**                     | **)**      | (1,136     | )      |
| Proceeds of FHLB  advances and other borrowings                                    |   | **—**                  | ** ** | 2,400      |   |
| Repayment of  FHLB advances and other borrowings                                   |   | **(24**                     | **)**      | (2,471     | )      |
| Cash dividends  paid                                                               |   | **(205**                    | **)**      | (206       | )      |
| Net cash  provided by financing activities                                         |   | **(1,584**                  | **)**      | 11,779     |   |
|                                                                               |   |                        | ** ** |       |   |
| Net increase  (decrease) in cash and cash equivalents                              |   | **9,713**                   | ** ** | (751       | )      |
|                                                                               |   |                        | ** ** |       |   |
| Cash and cash  equivalents at beginning of period                                  |   | **19,853**                  | ** ** | 15,585     |   |
|                                                                               |   |                        | ** ** |       |   |
| Cash and cash  equivalents at end of period                                        |   | **$**                       | **29,566** | ** ** | $      | 14,834 |   |
| Supplemental  Information:                                                         |   |                        | ** ** |       |   |
| Income taxes  paid                                                                 |   | **$**                       | **47**     | ** ** | $      | 415 |   |
| Interest paid                                                                      |   | **$**                       | **3,739**  | ** ** | $      | 4,214 |   |
| Other non-cash  investing activities:                                              |   |                        | ** ** |       |   |
| Transfer of  loans to other real estate owned                                      |   | **$**                       | **3,561**  | ** ** | $      | 850 |   |

 

See accompanying notes to unaudited consolidatedfinancial statements.

 

6

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**ILLINI CORPORATION AND SUBSIDIARIES**

**Notes to Unaudited ConsolidatedFinancial Statements**

**June 30, 2003**

 

(1)                                  Basis of Presentation

 

The accompanying unauditedconsolidated financial statements have been prepared in accordance with theinstructions to Form 10-QSB and, therefore, do not include all of theinformation and notes required by accounting principles generally accepted inthe United States of America for complete consolidated financialstatements.  In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included.  For further information, refer to theconsolidated financial statements and footnotes included in the IlliniCorporation (“Corporation”) Annual Report on Form 10-KSB for the year endedDecember 31, 2002.  Certain amounts inthe 2002 consolidated financial statements have been reclassified to conform tothe 2003 presentation.  Suchreclassifications have no effect on previously reported consolidated net incomeor shareholders’ equity.  Theconsolidated balance sheet of the Corporation as of December 31, 2002 has beenderived from the audited consolidated balance sheet of the Corporation as ofthat date.

 

Results for the three and sixmonths ended June 30, 2003 may not be indicative of the annual performance ofIllini Corporation or the subsidiary banks, Illini Bank and Farmers State Bankof Camp Point (“the subsidiary banks”). Management of the Corporation has made estimates and assumptionsrelating to the reporting of assets and liabilities and the disclosure ofcontingent assets and liabilities to prepare the interim consolidated financialstatements (unaudited) in conformity with accounting principles generallyaccepted in the United States of America. Actual results could differ from those estimates.

 

(2)                                  Earningsper Common Share

 

Earnings per share represents income available tocommon shareholders divided by the weighted average number of sharesoutstanding during the period.  TheCompany has no common equivalent shares that could cause dilution.  The following information was used in thecomputation of basic and diluted earnings per share.

 

|                                        |   | **Three  Months Ended  June 30,**                  |       | **Six Months  Ended  June 30,** |       |
|---------------------------------------------|--------|----------------------------------------------------|------------|---------------------------------|------------|
|                                        |   | **2003**                                           |       | **2002**                        |       | **2003** |   | **2002** |   |
|                                        |   | **(dollars  in thousands, except per share data)** |       |
| Net Income                                  |   | **$**                                              | **47**     |                            | $          | 332 | ** ** | **$** | **396** |   | $ | 655 |   |
|                                        |   |                                               | ** ** |                            | ** ** |   | ** ** |   | ** ** |
| Weighted average  common shares outstanding |   | **411,701**                                        |       | 411,701                         | ** ** | **411,701** |   | 411,701 |   |
|                                             |        |                                                    |            |                                 |            |  |  |  |  |  |  |  |  |

 

(3)                                  Terminationof Proposed Acquisition

 

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

 

7

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Illini Corporation provided a directloan to ICBI for these items.  OnDecember 23, 2002 the Federal Reserve Board of Governors denied the mergerapplication.  Illini Corporationsubsequently filed an appeal with the Board of Governors forreconsideration.  The Corporation wasnotified the appeal was denied.  On June13, 2003, the Corporation entered into an agreement with ICBI to terminate themerger by mutual consent.  Thetermination agreement reaffirmed certain provisions of the original mergeragreement including payment of expenses by each party, the disposition of theloan, and general release between all parties in the merger.  The Corporation collected all principal andinterest on the note, approximately $532,000 and received approximately $50,000as payment in full on the account receivable from ICBI.  The account receivable represented fundspaid by the Corporation for professional services related to the merger.  The balance of the account, approximately$75,000 was written off in conjunction with the termination agreement.  These fees were for accountants, lawyers andfiling fees used to prepare the merger agreement and filing with the U.S.Securities and Exchange Commission.  Thetermination agreement ended the merger agreement and released both parties fromcontinuing performance under the terms of the merger agreement.

 

(4)                                  Use of Estimates in the Preparation of FinancialStatements

 

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

 

(5)                                  Stock Redemption by Farmers State Bank of CampPoint

 

On June 30, 2003 the Farmers State Bank of Camp Point(a wholly owned bank subsidiary) effected a stock redemption.  The transaction, which was approved by theFDIC and the Illinois Office of Banks and Real Estate (“OBRE”), involvedreducing the amount of common stock outstanding from 2,100 shares to 2,000shares.  A $900,000 payment to theCorporation was made from the capital accounts of the Farmers State Bank.  After the transaction, Farmers State Bankremained “well capitalized” under the regulatory classifications.  The transaction was completed to adjust thecapital level at Farmers State Bank and to provide the funds to the Corporationfor general corporate purposes.

 

(6)                                  NewAccounting Pronouncements

 

The Financial Accounting Standards Board (FASB)recently issued two new accounting standards, Statement 149, Amendment ofStatement 133 on Derivative Instruments and Hedging Activities, and Statement150, Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equities, both of which generally become effective in thequarter beginning July 1, 2003.  Underthe new standard for certain liabilities and equity instruments, mandatorilyredeemable instruments such as trust preferred securities are consideredliabilities and not part of mezzanine (or temporary) equity.  Accordingly, as of July 1, 2003, theCorporation will continue to carry $9 million of trust preferred securities as liabilities.

 

8

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

 

**THREE AND SIX MONTHS ENDED JUNE 30,2003**

 

**SELECTED FINANCIAL RESULTS**

 

The following table shows selected financialresults and measures for the three and six months ended June 30, 2003 comparedwith the same period in 2002.

 
|                           |   | **Three  Months Ended June 30,** |   | **Six Months  Ended June 30,** |   |
|--------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                           |   | **2003**                         |   | **2002**                       |   | **Change** |   | **Change**-**%** |   | **2003** |   | **2002** |   | **Change** |   | **Change**-**%** |   |
|                           |   | **(dollars  in thousands)**      |   |
| Net income                     |   | **$**                            | **47** |                           | $      | 332 |   | $ | (285 | ) | (85.9 | )% | **$** | **396** |   | $ | 655 |   | $ | (259 | ) | (39.6 | )% |
| Average assets                 |   | **280,398**                      |   | 279,656                        |   | 742 |   | 0.3 | % | **280,372** |   | 279,275 |   | 1,097 |   | 0.4 | % |
| Average equity                 |   | **15,901**                       |   | 13,543                         |   | 2,358 |   | 17.5 | % | **15,669** |   | 13,514 |   | 2,155 |   | 16.0 | % |
| Return on assets               |   | **0.07**                         | **%**  | 0.48                           | %      | (0.41 | )% | (85.4 | )% | **0.28** | **%** | 0.47 | % | (0.19 | )% | (40.5 | )% |
| Return on equity               |   | **1.19**                         | **%**  | 9.85                           | %      | (8.66 | )% | (88.0 | )% | **5.10** | **%** | 9.78 | % | (4.68 | )% | (47.9 | )% |
| Efficiency ratio               |   | **94.43**                        | **%**  | 77.05                          | %      | 17.38 | % | 22.6 | % | **84.83** | **%** | 76.50 | % | 8.33 | % | 10.9 | % |
| Dividend payout ratio          |   | **218.99**                       | **%**  | 30.96                          | %      | 188.03 | % | 607.4 | % | **51.98** | **%** | 31.42 | % | 20.56 | % | 65.5 | % |
| Equity to assets ratio         |   | **5.67**                         | **%**  | 4.84                           | %      | 0.83 | % | 17.2 | % | **5.59** | **%** | 4.84 | % | 0.75 | % | 15.5 | % |
| Tier 1 leverage ratio          |   | **5.91**                         | **%**  | 5.50                           | %      | 0.41 | % | 7.5 | % |   | ** ** |   |   |   |   |   |   |
| Total risk-based capital ratio |   | **10.89**                        | **%**  | 9.87                           | %      | 1.02 | % | 10.4 | % |   |   |   |   |   |   |   |   |
|                                |        |                                  |        |                                |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Definitions of ratios:

Return on assets - annualized net income dividedby average assets.

Return on equity - annualized net income dividedby average shareholders’ equity.

Efficiency ratio - noninterest expense divided bynoninterest income plus taxable equivalent net interest income.

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

Equity to assets ratio - average equity dividedby average assets.

Tier 1 leverage ratio - Tier 1 capital divided byaverage assets.

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

 

The Corporation recorded net income of $47,000for the three months ended June 30, 2003, down $285,000 from the same period in2002 and $396,000 for the six months ended June 30, 2003, down $259,000 fromthe first half of 2002.  The return onaverage equity decreased to 1.2% for the three months ended June 30, 2003 as comparedto 9.9% for the same period ended June 30, 2002.  Return on average equity for the six-month period ended June 30,2003 was 5.1% as compared to 9.8% for the same period in 2002.  Similarly, basic earnings per share for thethree months ended June 30, 2003 was $0.11 per share versus $0.81 for the samequarter in 2002.  This represents adecrease of 86.4%.  Basic earnings pershare for the six months ended June 30, 2003 was $0.96 compared to $1.59 forthe same period ended June 30, 2002. This represents a decrease of 39.6%. The decrease in earnings during 2003 is primarily due to the decline innet interest income as discussed in the Results of Operations section of thisdocument.

 

**FINANCIALCONDITION**

 

Average earning assets of the Corporation for the first six months of2003 decreased 0.2% or $0.6 million to $258.5 million from $259.1 million atJune 30, 2002.

 

9

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Average loans decreased to $198.9 million for thethree months ended June 30, 2003 compared to $212.1 million for the same periodin 2002.  In comparing the two periods,the portfolio has the following noteworthy changes in average balances:  commercial loans down $7.5 million,residential real estate up $1.8 million and consumer loans down $4.6million.  The average yield on the loanportfolio, net of the allowance for loan losses, decreased 107 basis points to6.53% for the three months ended June 30, 2003, compared to 7.60% for the threemonths ended June 30, 2002.

 

Average loans decreased to $203.3 million for thesix months ended June 30, 2003 compared to $209.9 million for the same periodin 2002.  In comparing the two periods,the portfolio has the following noteworthy changes in average balances:  commercial loans down $6.9 million,commercial real estate up $3.6 million, residential real estate up $1.9 millionand consumer loans down $4.2 million. The average yield on the loan portfolio, net of the allowance for loanlosses, decreased 86 basis points to 6.87% for the six months ended June 30,2003, compared to 7.73% for the six months ended June 30, 2002.  The decrease in average yields for the threemonth and six month periods is due to lower interest rates and adjustable rateloans repricing downward.

 

Average securities decreased $4.3 million and$6.4 million for the three and six months ended June 30, 2003, as compared tothe same period in 2002.  The decreaseis primarily offset by $ 15.5 million and $12.5 million increase in short-terminvestments for the three and six months ended June 30, 2003,respectively.  A significant portion ofthe decline in the investment portfolio is related to the rapid repayment ofthe mortgage-backed securities. Management has opted to increase the liquidity position, and maintain arather conservative investment strategy given the current interest rateenvironment.  The average yield of thesecurities portfolio was 5.08% and 5.63% for the three and six months endedJune 30, 2003, respectively, a decrease of 128 and 79 basis points as comparedto the same periods in 2002.

 

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 thesix months ended June 30, 2003 increased 2.3% or $5.0 million to $220.7 millionfrom $215.7 million for the six months ended June 30, 2002.  The average rate paid on total interestbearing liabilities for the six months ended June 30, 2003 decreased 56 basispoints to 3.13% when compared to 3.69% for the six months ended June 30, 2002.

 

The small increase in average core deposits for the six months endedJune 30, 2003 as compared to the same period in 2002 demonstrates a local,stable funding source for the banks activities.

 

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.

 

As of June 30, 2003, other real estate owned increased $3,082,000 or391.4% from December 31, 2002.  This netincrease was reported as Illini Bank obtained title to three foreclosedproperties and also disposed of a commercial property from other real estateowned. More information regarding the changes between nonperforming loans andother real estate owned can be found in the Credit Quality section of thisdocument.

 

 

**RESULTS OF OPERATIONS**

 

This discussion should be read in conjunctionwith the consolidated financial statements, notes, and tables includedelsewhere in this report and in the 2002 Illini Corporation Annual Report onForm 10-KSB (2002 Form 10-KSB).

 

10

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Net Interest Income

 

The following tables show average balances andrelated interest income or interest expense, with the resulting average yieldor rate by category of average earning assets or interest bearingliabilities.  Interest income and theresulting net interest income are shown on a tax equivalent basis.

 

**ConsolidatedAverage Balances, Interest Income/Expense and Yield/Rates**

 
|                                             |   | **Three  months ended June 30,** |        |
|--------------------------------------------------|--------|----------------------------------|-------------|
|                                             |   | **2003**                         |        | **2002** |   |
|                                             |   | **Average  Balance**             |        | **Interest  Income/  Expense** |   | **Average  Yield/  Rate** |   | **Average  Balance** |   | **Interest  Income/  Expense** |   | **Average  Yield/  Rate** |   |
|                                             |   | **(dollars  in thousands)**      |        |
| **ASSETS**                                       |   |                             |        |
| Interest-earning  assets:                        |   |                             |        |   |   |   |   |   |   |   |   |   |   |
| Short-term  investments                          |   | **$**                            | **20,382**  | ** ** | **$** | **54** | ** ** | **1.07** | **%** | $ | 4,929 |   | $ | 20 |   | 1.67 | % |
| Investment  securities (3)                       |   |                             |        |   |   |   |   |   |   |   |   |   |   |
| Taxable                                          |   | **24,932**                       | ** **  | **185** | ** ** | **2.97** |   | 30,616 |   | 419 |   | 5.47 |   |
| Tax-exempt (1)                                   |   | **15,707**                       | ** **  | **331** | ** ** | **8.44** |   | 14,298 |   | 295 |   | 8.27 |   |
| Total securities                                 |   | **40,639**                       | ** **  | **516** | ** ** | **5.08** |   | 44,914 |   | 714 |   | 6.36 |   |
| Loans                                            |   |                             |        |   |   |   |   |   |   |   |   |   |   |
| Commercial (1)                                   |   | **38,410**                       | ** **  | **626** | ** ** | **6.54** |   | 45,913 |   | 856 |   | 7.48 |   |
| Agriculture                                      |   | **14,788**                       | ** **  | **199** | ** ** | **5.40** |   | 16,596 |   | 333 |   | 8.05 |   |
| Real estate                                      |   |                             |        |   |   |   |   |   |   |   |   |   |   |
| Commercial                                       |   | **97,593**                       | ** **  | **1,475** | ** ** | **6.06** |   | 98,241 |   | 1,746 |   | 7.13 |   |
| Agriculture                                      |   | **6,024**                        | ** **  | **118** | ** ** | **7.85** |   | 6,306 |   | 123 |   | 7.83 |   |
| Residential                                      |   | **33,613**                       | ** **  | **581** | ** ** | **6.94** |   | 31,860 |   | 613 |   | 7.71 |   |
| Consumer, net                                    |   | **7,751**                        | ** **  | **173** | ** ** | **8.97** |   | 12,333 |   | 271 |   | 8.82 |   |
| Credit card                                      |   | **763**                          | ** **  | **33** | ** ** | **17.15** |   | 818 |   | 35 |   | 17.25 |   |
| Total loans                                      |   | **198,942**                      | ** **  | **3,205** | ** ** | **6.46** |   | 212,067 |   | 3,977 |   | 7.52 |   |
| Allowance for  loan losses                       |   | **(2,078**                       | **)**       |   |   |   | ** ** | (2,245 | ) |   | ** ** |   | ** ** |
| Net loans (1)  (2)                               |   | **196,864**                      | ** **  | **3,205** | ** ** | **6.53** |   | 209,822 |   | 3,977 |   | 7.60 |   |
| Total  interest-earning assets                   |   | **257,885**                      | ** **  | **3,775** | ** ** | **5.87** |   | 259,665 |   | 4,711 |   | 7.28 |   |
| Other assets                                     |   | **22,513**                       |        |   |   |   |   | 19,991 |   |   |   |   |   |
| Total assets                                     |   | **$**                            | **280,398** |   |   |   |   |   | $ | 279,656 |   |   |   |   |   |
| **LIABILITIES**                                  |   |                             |        |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                   |   |                             |        |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                        |   |                             |        |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  demand                         |   | **$**                            | **57,457**  | ** ** | **$** | **134** | ** ** | **0.93** | **%** | $ | 59,919 |   | $ | 288 |   | 1.93 | % |
| Savings                                          |   | **21,848**                       | ** **  | **41** | ** ** | **0.76** | ** ** | 19,924 |   | 72 |   | 1.46 |   |
| Time deposits  less than $100,000                |   | **109,017**                      | ** **  | **1,016** | ** ** | **3.74** | ** ** | 107,877 |   | 1,086 |   | 4.04 |   |
| Time deposits  $100,000 and over                 |   | **24,841**                       | ** **  | **213** | ** ** | **3.43** | ** ** | 23,458 |   | 250 |   | 4.27 |   |
| Total  interest-bearing deposits                 |   | **213,163**                      | ** **  | **1,404** | ** ** | **2.64** | ** ** | 211,178 |   | 1,696 |   | 3.22 |   |
| Short-term  borrowings                           |   | **635**                          | ** **  | **4** | ** ** | **2.79** | ** ** | 2,800 |   | 16 |   | 2.31 |   |
| Long-term  borrowings                            |   | **8,371**                        | ** **  | **98** | ** ** | **4.70** | ** ** | 8,400 |   | 90 |   | 4.27 |   |
| Preferred  securities of trust subsidiary (4)    |   | **9,000**                        | ** **  | **229** | ** ** | **10.23** | ** ** | 9,000 |   | 229 |   | 10.23 |   |
| Total  interest-bearing liabilities              |   | **231,169**                      | ** **  | **1,735** | ** ** | **3.01** | ** ** | 231,378 |   | 2,031 |   | 3.52 |   |
| Other  liabilities                               |   | **33,328**                       |        |   |   |   | ** ** | 34,735 |   |   |   |   |   |
| Shareholders’  equity                       |   | **15,901**                       |        |   |   |   | ** ** | 13,543 |   |   |   |   |   |
| Total  liabilities and shareholders’ equity |   | **$**                            | **280,398** |   |   |   |   | ** ** | $ | 279,656 |   |   |   |   |   |
| **Net interest margin**                          |   |                             | ** **  | **$** | **2,040** |   | **3.17** | **%** |   |   | $ | 2,680 |   | 4.14 | % |

 

11

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----

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

(2)                                  Nonaccrualloans are included in the loan balances. Interest income includes related fee income of $103,000 in 2003 and$108,000 in 2002.

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

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

 

Net interest margin is a measure of the net return on interest-earningassets and is computed by dividing annualized net interest income by theaverage of total interest-earning assets for the period.

 

Fluctuations in net interest income can result from the changes in thevolumes of assets and liabilities as well as changes in interest rates.  The Federal Reserve has lowered key rates tothe lowest levels in over four decades. As a consequence, performance of financial instruments and predictinginterest rate spreads has reached levels with no relevant historical referencepoints.  Management of interest ratemargins is very difficult and subject to significant change.

 

 

**ConsolidatedAverage Balances, Interest Income/Expense and Yield/Rates**

 
|                                             |   | **Six months  ended June 30,** |        |
|--------------------------------------------------|--------|--------------------------------|-------------|
|                                             |   | **2003**                       |        | **2002** |   |
|                                             |   | **Interest  Average  Balance** |        | **Average  Income/  Expense** |   | **Interest  Yield/  Rate** |   | **Average  Average  Balance** |   | **Income/  Expense** |   | **Yield/  Rate** |   |
|                                             |   | **(dollars  in thousands)**    |        |
| **ASSETS**                                       |   |                           |        |
| Interest-earning  assets:                        |   |                           |        |   |   |   | ** ** |   |   |   |   |   |   |
| Short-term  investments                          |   | **$**                          | **17,578**  | ** ** | **$** | **96** | ** ** | **1.10** | **%** | $ | 5,101 |   | $ | 41 |   | 1.64 | % |
| Investment  securities (3)                       |   |                           |        |   |   |   | ** ** |   |   |   |   |   |   |
| Taxable                                          |   | **24,007**                     | ** **  | **454** | ** ** | **3.78** |   | 32,408 |   | 907 |   | 5.60 |   |
| Tax-exempt (1)                                   |   | **15,842**                     | ** **  | **668** | ** ** | **8.44** |   | 13,877 |   | 579 |   | 8.34 |   |
| Total securities                                 |   | **39,849**                     | ** **  | **1,122** | ** ** | **5.63** |   | 46,285 |   | 1,486 |   | 6.42 |   |
| Loans                                            |   |                           |        |   |   |   |   |   |   |   |   |   |   |
| Commercial (1)                                   |   | **39,030**                     | ** **  | **1,291** | ** ** | **6.67** |   | 45,962 |   | 1,711 |   | 7.51 |   |
| Agriculture                                      |   | **15,493**                     | ** **  | **421** | ** ** | **5.48** |   | 16,154 |   | 564 |   | 7.04 |   |
| Real estate                                      |   |                           |        |   |   |   |   |   |   |   |   |   |   |
| Commercial                                       |   | **98,951**                     | ** **  | **3,258** | ** ** | **6.64** |   | 95,333 |   | 3,536 |   | 7.48 |   |
| Agriculture                                      |   | **6,368**                      | ** **  | **247** | ** ** | **7.81** |   | 6,578 |   | 259 |   | 7.93 |   |
| Residential                                      |   | **34,496**                     | ** **  | **1,196** | ** ** | **6.99** |   | 32,572 |   | 1,278 |   | 7.91 |   |
| Consumer, net                                    |   | **8,216**                      | ** **  | **366** | ** ** | **8.99** |   | 12,463 |   | 541 |   | 8.75 |   |
| Credit card                                      |   | **789**                        | ** **  | **68** | ** ** | **17.30** |   | 833 |   | 68 |   | 16.58 |   |
| Total loans                                      |   | **203,343**                    | ** **  | **6,847** | ** ** | **6.79** |   | 209,895 |   | 7,957 |   | 7.64 |   |
| Allowance for  loan losses                       |   | **(2,314**                     | **)**       |   |   |   |   | (2,224 | ) |   |   |   |   |
| Net loans (1)  (2)                               |   | **201,029**                    | ** **  | **6,847** | ** ** | **6.87** |   | 207,671 |   | 7,957 |   | 7.73 |   |
| Total  interest-earning assets                   |   | **258,456**                    | ** **  | **8,065** | ** ** | **6.29** |   | 259,057 |   | 9,484 |   | 7.38 |   |
| Other assets                                     |   | **21,916**                     |        |   |   |   |   | 20,218 |   |   |   |   |   |
| Total assets                                     |   | **$**                          | **280,372** |   |   |   |   |   | $ | 279,275 |   |   |   |   |   |
| **LIABILITIES**                                  |   |                           |        |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                   |   |                           |        |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                        |   |                           |        |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  demand                         |   | **$**                          | **57,589**  | ** ** | **$** | **317** | ** ** | **1.11** | **%** | $ | 59,152 |   | $ | 572 |   | 1.95 | % |
| Savings                                          |   | **21,215**                     | ** **  | **90** | ** ** | **0.86** |   | 19,191 |   | 139 |   | 1.47 |   |
| Time deposits  less than $100,000                |   | **110,096**                    | ** **  | **2,071** | ** ** | **3.79** |   | 104,814 |   | 2,196 |   | 4.22 |   |
| Time deposits  $100,000 and over                 |   | **23,926**                     | ** **  | **429** | ** ** | **3.61** |   | 27,691 |   | 582 |   | 4.24 |   |
| Total  interest-bearing deposits                 |   | **212,826**                    | ** **  | **2,907** | ** ** | **2.75** |   | 210,848 |   | 3,489 |   | 3.34 |   |
| Short-term  borrowings                           |   | **646**                        | ** **  | **10** | ** ** | **3.02** |   | 1,767 |   | 21 |   | 2.41 |   |
| Long-term  borrowings                            |   | **8,377**                      | ** **  | **195** | ** ** | **4.70** |   | 8,424 |   | 234 |   | 5.60 |   |
| Preferred  securities of trust subsidiary (4)    |   | **9,000**                      | ** **  | **473** | ** ** | **10.60** |   | 9,000 |   | 466 |   | 10.45 |   |
| Total  interest-bearing liabilities              |   | **230,849**                    | ** **  | **3,585** | ** ** | **3.13** |   | 230,039 |   | 4,210 |   | 3.69 |   |
| Other  liabilities                               |   | **33,854**                     |        |   |   |   |   | 35,722 |   |   |   |   |   |
| Shareholders’  equity                       |   | **15,669**                     |        |   |   |   |   | 13,514 |   |   |   |   |   |
| Total  liabilities and shareholders’ equity |   | **$**                          | **280,372** |   |   |   |   |   | $ | 279,275 |   |   |   |   |   |
| **Net interest margin**                          |   |                           | ** **  | **$** | **4,480** |   | **3.50** | **%** |   |   | $ | 5,274 |   | 4.11 | % |

 

12

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

(2)                                  Nonaccrualloans are included in the loan balances. Interest income includes related fee income of $218,000 in 2003 and$196,000 in 2002.

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

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

 

Net interest margin is a measure of the net return on interest-earningassets and is computed by dividing annualized net interest income by theaverage of total interest-earning assets for the period.

 

The primary reason for the significant decline in earnings during thesecond quarter of 2003, versus 2002 is the $635,000 drop in net interestincome.  This decline is attributable tonumerous factors; the continual decrease in interest rates, the change in thecomposition of the earning assets and problem loans going into nonaccrualstatus.  The unprecedented drop ininterest rates have also caused accelerated prepayments in some of themortgage-backed securities. This caused a $43,000 unplanned amortization ofpremiums in the mortgage-backed investment portfolio.  This rapid repayment pushed the yield on the portfolio from a5.47% in the second quarter of 2002 to 2.97% for the second quarter of 2003.

 

The same decline in interest rates has caused repricing of loans.  In comparing the second quarter of 2002 to2003, the yield on total loans dropped from 7.52% to 6.46%.  Also during the respective periods, theaverage balance of loans declined from $212.1 million to $198.9 million, or$13.2 million.  The third adverse itemto impact earning assets was the reversal of accrued interest on loans that aremoved to nonaccrual status.  During thesecond quarter of 2003, approximately $138,000 of accrued interest was reversedagainst current period interest income. This combination of items resulted in interest on loans for the secondquarter of 2003 to decline to $3.2 million from $4.0 million in the secondquarter of 2002.

 

Fluctuations in net interest income can result from the changes in thevolumes of assets and liabilities as well as changes in interest rates.  The Federal Reserve has lowered key rates tothe lowest levels in over four decades. As a consequence, performance of financial instruments and predictinginterest rate spreads has reached levels with no relevant historical referencepoints.  Management of interest ratemargins is very difficult and subject to significant change.

 

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Noninterest Income

 

The noninterest income increased $100,000 orapproximately 20.1% for the three months ended June 30, 2003, and $200,000 or21.4% for the six month period ended June 30, 2003 when compared to the sameperiod in 2002.  The primary source ofnoninterest income is service charges on deposit accounts.  For the six-month period reported, servicecharges increased $54,000, or 8.9%.  Thecombined fees from mortgage loan servicing and sales were flat at $129,000 forthe six-month period in both 2003 and 2002. During the six months ended June 30, 2003, a gain on the sale of otherreal estate owned of $14,000 was recorded as compared to a loss of $28,000during the same period in 2002.  Theother fee income increase of $98,000 for the six-month period for 2003 relatesprimarily to an application fee on residential real estate loans that wasinstituted in the fourth quarter of 2002. These fees in the first half of 2003amounted to $75,300.

 

Noninterest Expense

 

In comparing the three-month and six-month periods ended June 30, 2003to June 30, 2002, noninterest expense increased $42,000, or 1.7% and increased$13,000, or .3%, respectively.  The moresignificant components that changed in this category were a decline in salariesand employee benefits of $153,000 during the six-months ended June 30, 2003 ascompared to the same period in 2002. This is primarily due to certain positions being unfilled in thesubsidiary banks in 2003 and an overall lower level of accrued incentive andbonus compensation ($118,000) during 2003. This decline was offset by an increase in loan and other real estateowned expenses.  During the six-monthsended June 30, 2003 this item increased $174,000, or 280.6% over the sameperiod in 2002.  This increase inexpenses was used to provide equipment to operate the golf course, pay propertytaxes, insurance on the property, and other operating expenses.  The increase in other real estate ownedexpenses is consistent with the increase in the volume of property that IlliniBank has recorded.  As discussed in theCredit Quality section, the major additions include a golf course, a formerrestaurant and a commercial building. The sale of these properties may or may not recover these expenses inwhole or in part.  Other operatingexpenses increased $91,000 during the six-months ended June 30, 2003 versus thesame period in 2002.  This was primarilyrelated to the write-off of certain asset accounts associated with the mergerwith ICBI.  This nonrecurring expense ismore fully discussed in footnote 3 of this document.

 

The provision for loan losses was $150,000 for the six months endedJune 30, 2003 versus $400,000 for the same period in 2002.  The $250,000 decline represents a drop of62.5%.  As discussed above, three significantloans were foreclosed and converted to other real estate owned at IlliniBank.  Net loan balances have declinedapproximately $12.1 million since December 31, 2002.  As a result of the loan balance decline and transfer of risk onsome of the problem loans, the allowance was lowered consistent with thedetermination of the adequacy of the allowance account.

 

The allowance for loan losses is increased by provisions charged tooperations and is available to absorb probable incurred loan losses.  Loan losses are charged against theallowance when management believes and confirms that the loan balance is notcollectable. Subsequent recoveries, if any, are credited to the allowance.  Illini Corporation utilizes a systematic,documented approach in determining the appropriate level of the allowance forloan losses.  Management’s approach,which provides for general and specific allowances, is based on currenteconomic conditions, past loan losses, collection experience, riskcharacteristics of the portfolio, assessing collateral values by obtainingindependent appraisals for significant properties, results of regulatoryexaminations, and such other factors which, in management’s judgment, deserverecognition in estimating loan losses.

 

Management believes the allowance for loan losses is adequate to absorbprobable incurred losses in the loan portfolio.  While management uses available information to recognize losseson loans, future additions to the allowance for loan losses may be necessarybased on changes in economic conditions.

 

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**CREDIT QUALITY**

 

Gross loans totaled $197.2 million at June 30,2003, a decrease of $12.6 million, or 6.0%, from $209.8 million at December 31,2002.  The provision for loan losses hasdecreased to $150,000 for the six months ended June 30, 2003 as compared to$400,000 for the same period in 2002. At June 30, 2003 the allowance as a percent of total loans was 0.99% ascompared to 1.18% and 1.05% as of December 31, 2002 and June 30, 2002,respectively.  The decrease in the ratiois primarily a result of the charge-offs taken in the first half of 2003.  Based on the inherent risk in the loanportfolio, management believes that as of June 30, 2003, the allowance for loanlosses is adequate.

 
|                             |   | **Six months  ended  June 30,** |        |
|----------------------------------|--------|---------------------------------|-------------|
|                             |   | **2003**                        |        | **2002** |   |
|                             |   | **(dollars  in thousands)**     |        |
| **Allowance for Loan Losses:**   |   |                            |        |
| Balance at  beginning of period  |   | **$**                           | **2,468**   | ** ** | $ | 2,103 |   |
|                             |   |                            | ** **  |   |   |
| Charge-offs                      |   | **(732**                        | **)**       | (285 | ) |
| Recoveries                       |   | **68**                          | ** **  | 63 |   |
| Net charge-offs                  |   | **(664**                        | **)**       | (222 | ) |
|                             |   |                            | ** **  |   |   |
| Provision  charged to operations |   | **150**                         | ** **  | 400 |   |
| Balance at end  of period        |   | **$**                           | **1,954**   | ** ** | $ | 2,281 |   |
| Average loans  outstanding       |   | **$**                           | **203,343** | ** ** | $ | 209,895 |   |

 

Illini Corporation’s primary business of making commercial, realestate, and consumer loans entails potential losses, the magnitude of whichdepends on a variety of economic factors affecting borrowers, which are beyondthe control of the Corporation. Accordingly, a significant factor in the Corporation’s past and futureoperating results is the level of the provision for loan losses*. *Net charge-offs increased to$664,000 for the six months ended June 30, 2003, as compared to $222,000 forthe comparable period in the prior year. Of the $664,000 of net charge-offs in first half 2003, $317,000 was relatedto one commercial loan that carried a 100% allocation in the computation of theallowance for loan losses and one commercial real estate loan was charged downby $268,000 prior to being moved to other real estate owned.  These loans were identified as impaired atDecember 31, 2002 and had a specific reserve of $522,000 allocated at the date.

 
| **Credit Quality**                  |   | **June 30,  2003**          |       | **December  31,  2002** |       | **June 30,  2002** |       |
|-------------------------------------|--------|-----------------------------|------------|-------------------------|------------|--------------------|------------|
|                                |   | **(dollars  in thousands)** |       |
| **Nonperforming assets:**           |   |                        |       |                    |       |               |       |
| Accruing loans  past due 90 days    |   | **$**                       | **9**      |                    | $          | 23                 |       | $ | 26 |   |
| Nonaccrual                          |   | **3,616**                   |       | 4,901                   |       | 4,017              |       |
| Renegotiated                        |   | **619**                     |       | —                  |       | —             |       |
| Other real  estate owned            |   | **3,870**                   |       | 787                     |       | 816                |       |
| Total  nonperforming assets         |   | **$**                       | **8,114**  |                    | $          | 5,711              |       | $ | 4,859 |   |
|                                |   |                        |       |                    |       |               |       |
| **Key ratios**:                     |   |                        | ** ** |                    | ** ** |               | ** ** |
| Nonperforming  loans to loans       |   | **2.15**                    | **%**      | 2.35                    | %          | 1.87               | %          |
| 90 days  delinquent to ending loans |   | **0.00**                    |       | 0.01                    |       | 0.01               |       |
| Allowance to  total loans           |   | **0.99**                    |       | 1.18                    |       | 1.05               |       |
| Allowance to  nonperforming loans   |   | **46.04**                   |       | 50.11                   |       | 56.42              |       |

 

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At June 30, 2003, impaired loans totaled $4.3million, including $3.6 million of loans on nonaccrual and $638,000 of impairedloans past due less than 90 days, compared to $4.9 million of loans onnonaccrual and $0, which were impaired and past due less than 90 days, at December31, 2002.  Nonperforming assets haveincreased $2,403,000 from December 31, 2002. This increase is primarily related to two relationships which managementhas placed on non accrual status.  Atthis time, management does not believe that they will sustain a loss on theseloans due to underlying collateral.

 

As noted in the Corporation’s 2002 Form 10-KSBand prior filings, the nonaccrual loan balance had continued to increase.  The decline in nonaccrual balances in thefirst half of 2003 is related to the subsidiary bank acquiring title to certainreal estate collateral and moving them to “other real estate owned”.  The transfer of title to the bank subsidiaryallows the bank to initiate the sale of the property.  This is necessary to dispose of the property and close thetransaction.  During the first half of2003, three significant properties, securing loans, were transferred into otherreal estate owned.  The carrying valueof the three properties is $3.4 million. Management is working diligently to dispose of these properties in themost cost effective method.

 

The Company has other potential problem loansthat are currently performing, but where some concerns exist as to the abilityof the borrower to comply with present loan repayment terms.  Excluding nonperforming loans and impairedloans, these loans totaled $9,291,000 at June 30, 2003.  The classification of these loans, however,does not imply that management expects losses on each of these loans, but believesthat a higher level of scrutiny and closer monitoring is prudent under thecircumstances.  Such classificationsrelate to specific concerns for each individual borrower and do not relate toany concentration risk common to all loans in this group.

 

Illini Corporation’s loan underwriting guidelinesand credit review procedures and policies are designed to protect theCorporation from credit losses.  IlliniCorporation’s process for monitoring loan quality includes detailed monthlytrend analysis of delinquencies and nonperforming assets.  Management extensively monitors significantcredit relationships through appraisals, assessment of the financial conditionof borrowers, restrictions on out-of-area lending, and avoidance of loanconcentrations.

 

As discussed in the Corporation’s 2002 Form 10-KSBand previous Form 10-QSB reports, management has implemented severalinitiatives to improve credit quality. These steps included an officer driven problem loan identificationsystem, a revamped allowance for loan losses adequacy determination process, anew loan policy, and improved reporting systems (credit quality andproduction).  Management is committed tocontinuing these initiatives and has supplemented these efforts in 2003 byengaging an outside firm to perform a comprehensive review of each bank’s loanportfolio to assess its credit quality and the effectiveness of management’sloan 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 quarterly ratios.

 

 

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|                                                  |   | **Regulatory  requirements  to be:** |   | **Actual  Regulatory Capital Ratios** |   |
|-------------------------------------------------------|--------|--------------------------------------|--------|---------------------------------------|--------|
|                                                  |   | **Adequately  Capitalized**          |   | **Well**-**Capitalized**              |   | **June 30,  2003** |   | **December  31,  2002** |   |
| Total risk-based  capital as% of risk-weighted assets |   | 8.0                                  | %      | 10.0                                  | %      | 10.9 | % | 10.6 | % |
| Tier 1 capital  as% of risk-weighted assets           |   | 4.0                                  | %      | 6.0                                   | %      | 7.9 | % | 7.4 | % |
| Tier 1 capital  as% quarterly average assets          |   | 4.0                                  | %      | 5.0                                   | %      | 5.9 | % | 5.8 | % |

 

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 asset totals.  Management believes, and data in the abovetable show that, as of June 30, 2003 and December 31, 2002 the Company met allcapital adequacy requirements to which it is subject.  As of those dates, the Corporation’s subsidiary banks were “wellcapitalized” under regulatory prompt corrective action provisions.

 

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 andsix months ended June 30, 2003 was 218.99% and 51.98% as compared to 30.96% and31.42% for the three and six months ended June 30, 2002. The dividend per sharefor the three and six months ended June 30, 2003 is unchanged from the sameperiod in 2002.

 

As discussed in the Corporation’s 2002 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 ofJune 30, 2003, the portion eligible for inclusion in the Tier 1 computationamounted to approximately $4.6 million.

 

 

**LIQUIDITY**

 

Illini Corporation’s policy is to manage interest rate risk to a level,which 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 2002 Form10-KSB, beginning on page 15.

 

The assets portion of the balance sheet provides liquidity primarilythrough loan principal repayments, maturities of investment securities, and salesof investment securities available for sale. The liability side of the balance sheet provides liquidity throughvarious customers’ interest-bearing and noninterest-bearing deposit accounts.  Short-term borrowings are an additionalsource of liquidity and represent Illini Corporation’s incremental borrowingcapacity.

 

Illini Corporation uses a comprehensive analysis of its asset/liabilityfunction, including a review of its funds management policy and its principalmeasure of liquidity.  The Corporationutilizes a liquidity measurement, called “Basic Surplus,” which redefinesliquid assets as the total available assets held by the Corporation which canbe converted to cash in thirty days or less, reduced by short term liabilitiesplus available borrowings.  As of June30, 2003, the most recent calculation, Illini Corporation’s basic surplus was$21.9 million, or 7.8% 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

 

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measurement and as compared to peer banks, management believes theliquidity position of the banks is strong.

 

 

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

 

An evaluation was performed under the supervision and with theparticipation of the Corporation’s management, including the Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of the design andoperation of the Corporation’s disclosure controls and procedures (as definedin Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, asamended) as of June 30, 2003. Based on that evaluation, the Corporation’smanagement, including the Chief Executive Officer and Chief Financial Officer,concluded that the Corporation’s disclosure controls and procedures wereeffective. There have been no significant changes in the Corporation’s internalcontrols or in other factors that could significantly affect internal controls

 

 

**PART II.****  OTHER INFORMATION**

 

Item 1                Legal Proceedings 

 

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

Sangamon County Case No. 98 CH 240

 

The case was filed in 1998 by a shareholder of Illini Corporationagainst Illinois Stock Transfer Company, as Rights Agent for Illini Corporationunder Illini Corporation’s Shareholder Rights Agreement (the “RightsAgreement”), for specific performance of the Rights Agreement, bothindividually and on behalf of a class of Illini Corporation shareholders.  The complaint alleges that the RightsAgreement was triggered in April of 1998, and that the Rights Agent has a dutyunder the Rights Agreement to distribute Rights Certificates to theshareholders of Illini Corporation. Illini Corporation was added as a Defendant in 1999, and the class hasbeen certified.  Plaintiff seeks torecover her attorneys’ fees from Illini Corporation in addition to the otherrelief sought.  In January of 2000, thetrial court entered Summary Judgement in favor of Illini Corporation andIllinois Stock Transfer Company. Plaintiff appealed this ruling denying Plaintiff’s summary judgementmotion to the Illinois Appellate Court. The Appellate Court reversed the Summary Judgement for Defendants andremanded the case for trial on the issue of whether the Illini CorporationBoard of Directors acted in good faith in determining that a shareholder’sacceptance of a gift of Illini Corporation Stock did not trigger the RightsAmendment and later, in Illini Corporation’s later amendment of the RightsAgreement.  The Appellate Court furtherruled the Plaintiff’s attorneys’ fees were recoverable under the RightsAgreement.  After a series ofunsuccessful motions filed by the plaintiff’s counsel, Illini Corporationentered a motion to remove the plaintiff’s counsel.  The court removed the counsel for the plaintiff class andappointed new counsel to represent the class. The removed counsel filed a motion for reconsideration, which wasdenied.  The new counsel filed a MotionFor Direction to remove the class representative, which was granted on January15, 2003.  On March 7, 2003 the trialcourt appointed a successor class representative.  Illini Corporation is negotiating for a settlement of the suitwith the new class representative and class counsel.  The former class representative filed a motion to opt out of theclass.  Quinn’s Motion to Opt Out orVoluntarily Dismiss was denied.  Quinnhas now filed a motion to intervene as plaintiff in the class suit.  That motion is pending.  Illini will vigorously oppose.

 

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

Sangamon County Case No. 01 CH 377

 

The case was filed in August of 2001 by a shareholder against a formershareholder and several present and former directors of IlliniCorporation.  The complaint purports tobring a derivative cause of action arising out of the redemption of the sharesof the former shareholder, which is alleged to have caused the defendants tobreach the Shareholder Rights Agreement. The complaint seeks rescission of the stock redemption and recover ofattorneys’ fees.  In July 2002 the courtordered this derivative suit stayed pending completion of the trial in theclass action suit (discussed above) or upon further order.

 

Mary Quinn v. Ida R. Noll, William McCubbin, et al.

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

 

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

Sangamon County Case No. 2003 CH00193

 

In April 2003, Illini, its directors, and one ofits officers were named defendants in two separate complaints filed in theCircuit Court of Sangamon County.  Amongother things, the complaints seek to rescind the stock purchase agreemententered into by Illini in 2001 to purchase approximately 30% of its commonshares from a minority shareholder group. The stock purchase agreement was a normal business transactionbeneficial to its shareholders and was entered into after appropriate duediligence and consultation with the Company’s outside financial advisors.  Illini will vigorously defend the lawsuits.

 

Item 2                Changes in Securities - none

 

Item 3                Defaults Upon Senior Securities — none

 

Item 4                Submission of Matters to a Vote of SecurityHolders —

The Annual Meeting ofShareholders of the Corporation was held on May 15, 2003, for the purpose ofelecting three directors each to serve a term of three years and ratifying theappointment of Crowe Chizek and Company LLC as the Corporation’s independentauditors for fiscal year ending December 31, 2003.  Proxies for the meeting were solicited by management pursuant toRegulation 14A under Securities Exchange Act of 1934, and there was nosolicitation in opposition to management’s solicitation.

 

Allthree of Management’s nominees for director listed in the proxy statement wereelected.  The results of the vote wereas follows:
|                  |   | **Shares  Voted  “For”** |   | **Shares  “Withheld”** |   | **Broker  Non  Votes** |   |
|-----------------------|--------|------------------------------------|--------|----------------------------------|--------|------------------------|--------|
| Thomas A. Black       |   | 330,161                            |   | 5,297                            |   | 0                      |   |
| Lawrence B. Curtin    |   | 333,260                            |   | 2,198                            |   | 0                      |   |
| Anthony F. Liberatore |   | 332,585                            |   | 2,873                            |   | 0                      |   |

 

Theappointment of Crowe Chizek and Company LLC as the Corporation’s auditors forthe fiscal year ending December 31, 2003, was ratified.  The results of the vote were as follows:

 

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|                                         |   | **“For”** |   | **“Against”** |   | **“Abstain**” |   |
|----------------------------------------------|--------|---------------------|--------|-------------------------|--------|-------------------------|--------|
| Ratification of Crowe Chizek and Company LLC |   | 332,665             |   | 480                     |   | 2,313                   |   |

 

Item 5                Other Information - none

 

Item6                Exhibits and Reports on Form 8-K

 

(a)                        Exhibits:

31.1                           Certification of CEO pursuant to rule13a-14(a)/15d-14(a).

31.2                           Certification of CFO pursuant to rule13a-14(a)/15d-14(a).

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

32.2                           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 :

 

(1)                                  The Corporation filed a Form 8-K dated June 26,2003 under Item 5, which reported Illini Corporation entered into an agreementwith Illinois Community Bancorp, Inc. to terminate by mutual consent the mergerbetween the two that was signed on November 21, 2001 and previously announced.

 

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**SIGNATURES**

 

In accordance with the requirements of theExchange Act, the registrant caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

 
| Illini Corporation                |
|-----------------------------------|
| (Registrant)                      |
|                              |
|                              |
|                              | By: /s/ Burnard K. McHone |   | August 13, 2003 |   |
|                              | Burnard K. McHone | Date signed |
|                              | President |   |
|                              |   |   |
|                              |   |   |
| By: /s/ George A. Rosenbaum,  Jr. |   | August 13, 2003 |   |
| George A. Rosenbaum, Jr.          | Date signed |
| Chief Financial Officer           |   |
|                                   |  |  |  |  |  |

 

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