** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-KSB**

 

| **  **ý | Annual Report  Pursuant to Section 13 or 15(d)         |
|------------------------|--------------------------------------------------------|
|                   | of the  Securities Exchange Act of 1934 (Fee Required) |

 

| o      | Transition  Report under Section 13 or 15(d)              |
|--------|-----------------------------------------------------------|
|   | of the Securities  Exchange Act of 1934 (No Fee Required) |

 

**Forthe fiscal year ended December 31, 2001**

**Commissionfile number 0-13343**

 

**ILLINICORPORATION**

(Name of smallbusiness issuer in its charter)

 

| **Illinois**                                           |
|--------------------------------------------------------|
| (State of  Incorporation)                              |
|                                                   |
| **37-1135429**                                         |
| (I.R.S. Employer  I.D. No.)                            |
|                                                   |
| **3200  West Iles Avenue**                             |
| **Springfield,  Illinois 62707**                       |
| (Address of  principal executive offices and zip code) |
|                                                   |
| Issuer’s  telephone number                        |
| **(217)  787-5111**                                    |

 

Securitiesregistered pursuant to Section 12(b) of

the Exchange Act:

None

 

Securities registeredpursuant to Section 12(g) of

the Exchange Act:

Common Stock, parvalue $10.00 per share

(Title and Class)

 

Check whether the issuer(1) filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months, and (2) has been subject to such filingrequirements for the past 90 days. Yes    ý     No   o

 

Check if there is nodisclosure of delinquent filers in response to Item 405 of Regulation S-B isnot contained in this form and no disclosure will be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or any amendment tothis Form 10-KSB.   ý

 

The Registrant’s revenuesfor fiscal year 2001 were $21,664,000.

 

On March 1, 2002, 411,701shares of common stock were outstanding. The aggregate market value of such shares held by non-affiliates of theregistrant was approximately $10,292,525 (based on the average of the bid and askedprices of securities traded as of March 1, 2002).

 

 

 

**TABLE OF CONTENTS**

 
| **Part I**   |
|--------------|
| 1.           | Description  of Business |
| 2.           | Description of Properties |
| 3.           | Legal Proceedings |
| 4.           | Submission  of Matters to a Vote of Security Holders |
|         |   |
| **Part II**  |
| 5.           | Market  for Common Equity and Related Stockholder Matters |
| 6.           | Management’s  Discussion and Analysis of Financial Condition & Results of Operations |
| 7.           | Financial  Statements |
| 8.           | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure |
|         |   |
| **Part III** |
| 9.           | Directors, Executive Officers, Promoters and  Control Persons |
| 10.          | Executive  Compensation |
| 11.          | Security  Ownership of Certain Beneficial Owners and Management |
| 12.          | Certain  Relationships and Related Transactions |
| 13.          | Exhibits and Reports  on Form 8-K |
|         |   |
| Signatures   |

 

**PART I**

 

**ITEM 1. - DESCRIPTION OF BUSINESS**

 

Illini Corporation (or “Corporation”), a bank holdingcompany as defined in the Bank Holding Company Act of 1956, as amended, wasincorporated under the laws of the State of Illinois in 1983.  Illini Corporation presently operates threewholly owned subsidiaries, Illini Bank, with 13 locations throughout fourcounties in central Illinois, Farmers State Bank of Camp Point, Camp Point,Illinois and Illini Statutory Trust I. Illini Corporation’s executive offices are located at 3200 West IlesAvenue, Springfield, Illinois 62707, and its telephone number is 217/787-5111.

 

Illini Corporation’s management philosophy is tocentralize overall corporate policies, procedures, and administrative functionsand to provide operational support for the subsidiary banks.  While each location is allowed flexibilityin responding to local market conditions and customer and community needs,Illini Corporation operates as a single business segment.  Illini Corporation is committed to being awell managed, profitable financial institution providing a broad range offinancial services and products, as well as contributing to the economic andsocial environment of its communities.

 

Illini Statutory Trust I is a special purposesubsidiary created for the sole purpose of issuing cumulative trust preferredsecurities.  Illini Corporation owns allof the securities of IST that possess general voting powers. The preferredsecurities, issued through an underwritten pooled public offering on February22, 2001, were sold at their $1,000 par value. IST issued 9,279 shares of thepreferred securities bearing a dividend rate of 10.2% for net proceeds of $9million, after deducting underwriting commissions and other costs. IST investedthe proceeds in Illinois Corporation junior subordinated debentures, which alsohave an interest rate of 10.2%.  IST’ssole asset is the holding company’s junior subordinated debt.

 

Illini Bank (“Illini”) is an Illinois state bank, which had total assets of $236.7million at December 31, 2001.  Illinimaintains 13 banking facilities in the following Illinois communities:Springfield, Lincoln, Auburn, Danvers, Divernon, Elkhart, Hudson,Mechanicsburg, Sherman, and Stonington. Farmers State Bank of Camp Point (“Camp Point”) is an Illinois statebank, which had total assets of $36.7 million at December 31, 2001.  Camp Point maintains one banking facilitylocated in Camp Point, Illinois.

 

Each Bank offers their customers a wide variety offinancial services and products. Deposit products

 

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include a variety of checking, NOW, money market, savings, investmentsweep accounts, and certificates of deposit. Lending products include short, intermediate, and long-term business andagricultural loans, commercial and residential real estate loans, personal andconsumer purchase loans, home equity loans, and personal secured and unsecuredlines of credit.  Additional productofferings include letters of credit, credit cards, notary services, safedeposit boxes, and check imaging.

 

Illini and Camp Point’s deposit accounts are insuredby the Federal Deposit Insurance Corporation (the “FDIC”) under the BankInsurance Fund (“BIF”) to the maximum amount allowed by law.  Illini Corporation is supervised andregulated by the Board of Governors of the Federal Reserve (“FRB”) and Illiniand Camp Point are supervised and regulated by the FDIC and the Office of Banksand Real Estate of the State of Illinois.

 

•           ***Competition***

 

The activities and geographic markets in which Illiniand Camp Point are engaged are highly competitive.  Competition among financial institutions is based upon interestrates offered on deposit accounts and on loans and other credit and servicecharges, the quality of services rendered, the convenience of bankingfacilities and, in the case of loans to large commercial borrowers, relativelending limits.

 

The subsidiary banks are subject to competition fromother financial institutions and credit unions.

 

•              ***Supervision and Regulation - General***

 

Various federal and state banking laws and regulationsaffect the business of Illini Corporation. Illini Corporation is subject to supervision, regulation, and periodicexamination by the Board of Governors of the FRB.  Illini Corporation’s subsidiary banks are subject to supervision,regulation, and periodic examinations by the Commissioner of Banks and RealEstate and the FDIC.  The following is asummary of certain statutes and regulations affecting Illini Corporation,Illini and Camp Point.  This summary isqualified in its entirety by such statutes and regulations, which are subjectto change based on pending and future legislation and action by regulatoryagencies.  Proposals to change the lawsand regulations governing the operation of banks and companies which controlbanks and other financial institutions are frequently raised in Congress.  The likelihood of any major legislation andthe impact such legislation might have on Illini Corporation, Illini or CampPoint is, however, impossible to predict.

 

•              ***The Bank Holding Company Act***

 

As a bank holding company, Illini Corporation issubject to regulation by the FRB under the Bank Holding Company Act of 1956, asamended (the “BHCA”).  The BHCArestricts the product range of a bank holding company by circumscribing thetypes of businesses it may own or acquire. The BHCA limits a bank holding company to owning and managing banks orcompanies engaged in activities determined by the FRB to be closely related tobanking.  As described more fully in the“Recent Developments” section immediately following, a bank holding companythat becomes a financial holding company may engage in additional activities.

 

Among the activities that the FRB has determined areclosely related to banking are activities that are usual in connection withmaking, acquiring, brokering or servicing loans, leasing personal or realproperty, engaging in trust company functions, acting as investment orfinancial advisor, providing securities brokerage services, certain managementconsulting and counseling services, engaging in certain insurance agencyactivities and providing data processing services.

 

The BHCA requires a bank holding company to obtain theprior approval of the FRB before acquiring substantially all of the assets ordirect or indirect ownership or control of more than five percent of the votingshares of a bank or a bank holding company or merging or consolidating with anyother bank holding company.

 

Under the Riegle-Neal Interstate Banking and BranchingEfficiency Act of 1994 (the “Riegle-Neal Act”), since September 29, 1995, theFRB is permitted, under specified circumstances, to approve the acquisition bya bank holding company located in one state of a bank or a bank holding companylocated in another state, without regard to most prohibitions contained instate law.

 

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The Riegle-Neal Act permits states to require that atarget bank have been in operation for a minimum period, up to five years, andto impose non-discriminatory limits on the percentage of the total amount ofdeposits with insured depository institutions in the state which may becontrolled by a single bank or bank holding company.  In addition, the Riegle-Neal Act imposes federal depositconcentration limits (10% of nationwide total deposits, and 30% of totaldeposits in the host state on applications subsequent to the applicant’sinitial entry to the host state), and adds new statutory conditions to FRBapproval, e.g., the applicant is adequately capitalized and adequately managed.

 

The Riegle-Neal Act also authorized, effective June 1,1997, the federal banking regulators to approve applications for mergers ofdepository institutions across state lines without regard to whether suchactivity is contrary to state law.  Anystate could, however, by adoption of a non-discriminatory law after September29, 1994 and before June 1, 1997, elect to opt-out of the provision.  The effect of opting out is to prevent bankschartered by, or having their main office located in, such state fromparticipating in any interstate branch merger. Each state was permitted to retain a minimum age requirement of up tofive years, a non-discriminatory deposit cap, and non-discriminatory notice orfiling requirements.  The responsiblefederal agency will apply the same federal concentration limits and capital andmanagement adequacy requirements noted above with respect to BHCA applications.  Only Texas opted-out of the interstatemerger provision.

 

While Illinois adopted legislation to opt-in to theinterstate merger provision, unlike some states and as permitted by federallaw, Illinois law does not authorize the establishment of de novo branches orthe purchase by an out-of-state bank of one or more branches of a bank with itsmain office in Illinois.  Since the lawsof the various states which do authorize de novo branches or branch purchasesnormally have reciprocity provisions, Illinois state-chartered banks generallyare not able to establish or acquire branches in other states except throughthe merger with a bank in another state.

 

Branches acquired in a host state by both out-of-statestate-chartered and national banks will be subject to community reinvestment,consumer protection, fair lending, and interstate branching laws of the hoststate to the same extent as branches of a national bank having its main officein the host state.  Among other things,the Riegle-Neal Act also preserves state taxation authority, prohibits theoperation by out-of-state banks of interstate branches as deposit productionoffices, imposes additional notice requirements upon interstate banks proposingto close branch offices in a low or moderate-income area, and creates newCommunity Reinvestment Act evaluation requirements for interstate depositoryinstitutions.

 

The Gramm-Leach-Bliley Act (“GLB Act”) was enacted inNovember 1999.  Under the GLB Act, bankholding companies that meet certain standards are permitted to engage in awider range of activities than has been permitted up to now, includingsecurities and insurance activities. Specifically, a bank holding company that elects to become a “financialholding company” may engage in any activity that the Federal Reserve Board, inconsultation with the Secretary of the Treasury, determines is (i) financial innature or incidental thereto, or (ii) complementary to any suchfinancial-in-nature activity, *provided* that such complementary activitydoes not pose a substantial risk to the safety and soundness of depositoryinstitutions or the financial system generally.  A bank holding company may elect to become a financial holdingcompany only if each of its depository institution subsidiaries iswell-capitalized, well-managed, and has a Community Reinvestment Act rating of“satisfactory” or better at its most recent examination.

 

This law specifies many activities that are financialin nature, including lending, exchanging, transferring, investing for others,or safeguarding money or securities; underwriting and selling insurance;providing financial, investment, or economic advisory services; underwriting,dealing in, or making a market in securities; and those activities currentlypermitted for bank holding companies that are so closely related to banking, ormanaging or controlling banks, as to be proper incident thereto.

 

The GLB Act changes federal laws to facilitateaffiliation between banks and entities engaged in securities and insuranceactivities.  The law also establishes asystem of functional regulation under which banking activities, securitiesactivities, and insurance activities conducted by financial holding companiesand their subsidiaries and affiliates will be separately regulated by banking,securities, and insurance regulators, respectively.

 

The GLB Act affects many other changes to federal lawapplicable to Illini Corporation, Illini, and Camp Point.  One of these changes is a requirement thatfinancial institutions take steps to protect customers’ “nonpublic personalinformation.”  Regulations involving"nonpublic personal information" were promulgated in November 2000,and compliance by financial institutions was required by June 30, 2001.  Illini has taken the required steps toprotect customers’ nonpublic personal information. 

 

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•              ***Dividend Restrictions***

 

Illini Corporation’s principal source of income is thepayment of dividends on the stock of the banks owned by IlliniCorporation.  Illinois law restricts theBank’s ability to pay these dividends. Under the Illinois Banking Act, no dividend may be declared by anIllinois state-chartered bank (i) except out of the bank’s net profits and (ii)unless the bank has transferred to surplus at least one-tenth of its netprofits since the date of the declaration of the last preceding dividend, untilthe amount of its surplus is at least equal to its capital.  Net profits under the Illinois Banking Actmust be adjusted for losses and bad debts (i.e. debts owing to the bank onwhich interest is past due and unpaid for a period of six months or more unlesssuch debts are well secured and in the process of collection).

 

Under the Federal Deposit Insurance CorporationImprovement Act of 1991 (“FDICIA”), no insured depository institution maydeclare any dividend if, following the payment of such dividend, theinstitution would be undercapitalized.

 

•              ***Transactions with Affiliates and Insiders***

 

Illini Bank, Camp Point and Illini Corporation areaffiliates of each other and, as such, are subject to certain federalrestrictions on loans and extensions of credit to Illini Corporation, oninvestments in Illini Corporation and its affiliates’ securities, on acceptanceof such securities as collateral for loans to any borrower and on leases andservices and other contracts between the banks and Illini Corporation.  Additionally, regulations allow each Bank toextend credit to the executive officers, directors, and principal shareholdersor their related interests only if the loan is made on substantially the sameterms, including interest rates and collateral, as those prevailing at the timefor comparable transactions with non-insiders. Moreover, loans to insiders must not involve more than the normal riskor repayment or present other unfavorable features and must, in certaincircumstances, be approved in advance by a majority of the entire board ofdirectors of each bank.  The aggregateamount that can be lent to all insiders is limited to each banks unimpairedcapital and surplus.  There areadditional limitations on the amount of loans that can be made to each banks’executive officers.

 

•              ***Deposit Insurance***

 

Deposits held by Illini and Camp Point are insured, tothe extent permitted by law, by the Bank Insurance Fund (“BIF”) administered bythe FDIC.  A minimum designated reserveratio of 1.25 percent of insured deposits has been established for theBIF.  However, the FDIC may set a higherdesignated reserve ratio if circumstances raise a significant risk ofsubstantial future losses to the BIF. Assessment rates are established sufficient to maintain reserves at thedesignated reserve ratio or, if the ratio is less than the designated ratio, toincrease the ratio to the designated ratio within a reasonable period of time.

 

As required under FDICIA, the FDIC has established asystem of risk-based deposit insurance premiums.  Under this system each insured institution’s assessment is basedon the probability that the BIF will incur a loss related to that institution,the likely amount of the loss, and the revenue needs of the BIF.

 

Under the current risk-based assessment system, adepository institution pays an assessment of between 0 cents and 27 cents per$100 of insured deposits based on its capital level and riskclassification.  To arrive at arisk-based assessment for an insured institution, the FDIC places it in one ofnine risk categories using a two step analysis based first on capital ratiosand then on relevant supervisory information.

 

In addition, pursuant to the Deposit Insurance FundsAct of 1996, the FDIC imposed a special assessment on bank deposits at a ratenot tied to risk classification in order to service debt on the FinancingCorporation (FICO) bonds issued in connection with the federal government’sbail out of the thrift industry.  Anyfurther significant changes in the deposit insurance assessment rate imposed bythe FDIC could have a material effect on the earnings of Illini Corporation.

 

•              ***Capital Requirements***

 

The FRB has imposed risk-based capital guidelinesapplicable to Illini Corporation.  Theseguidelines require that bank holding companies maintain capital commensuratewith both on and off balance sheet credit and other risks of theiroperations.  Under the guidelines, abank holding company must have a

 

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minimum ratio of totalcapital to risk-weighted assets of 8 percent. In addition, a bank holding company must maintain a minimum ratio ofTier 1 capital equal to 4 percent of risk-weighted assets.  Tier 1 capital includes common shareholders’equity, qualifying perpetual preferred stock and minority interests in equityaccounts of consolidated subsidiaries, less goodwill.  As a supplement to risk-based capital requirements, the FRB hasalso imposed leverage capital ratio requirements.  The leverage ratio requirements establish a minimum requiredratio of Tier 1 capital to total assets less goodwill of 3 percent for the mosthighly rated bank holding companies. All other bank holding companies are required to maintain additionalTier 1 capital yielding a leverage ratio of 4 percent to 5 percent, dependingon the particular circumstances and risk profile of the institution.  Refer to the Capital Resources Section ofItem 6 and Note 17 included under Item 7 for a summary of Illini Corporation’s capitalratios as of December 31, 2001 and 2000.

 

Each bank is also subject to risk-weighted capitalstandards and leverage measures, which are similar, but in some cases notidentical, to the requirements for bank holding companies, which apply toIllini Corporation.  At December 31,2001 Illini and Camp Point met all applicable capital requirements.  Under FDICIA, the federal bank regulatorsmust take various specified prompt corrective actions based on levels of aninsured depository institution’s capital that are below the adequatelycapitalized level.  These prescribedactions increase restrictions on the institution as its capital declines.

 

•              ***Safety and Soundness Guidelines***

 

As required by federal law, the federal bankingregulators have adopted interagency guidelines (the “Guidelines”) establishingstandards for safety and soundness for depository institutions on matters suchas internal controls, internal audit systems, loan documentation, creditunderwriting, interest rate risk exposure, asset growth and quality, earnings,and compensation and other benefits.  Ingeneral, the Guidelines prescribe the goals to be achieved in each area, andeach institution will be responsible for establishing its own procedures toachieve these goals.  If an institutionfails to comply with any of the standards set forth in the Guidelines, theinstitution’s primary federal regulator may require the institution to submit aplan for achieving and maintaining compliance. Failure to submit an acceptable compliance plan, or failure to adhere toa compliance plan that has been accepted by the appropriate regulator, wouldconstitute grounds for further enforcement action.

 

The Federal Deposit Insurance Act generally requiresall depository institutions to be examined annually by the bankingregulators.  Depository institutionswith assets of $250 million or less which are well capitalized, well managed,have a CAMELS rating of 1 (or a CAMELS rating of 2 for institutions with assetsof $100 million or less), are not subject to a formal enforcement proceeding ororder and have not undergone a change in control in the previous twelve monthsare eligible to be examined every eighteen months.  FDIC regulations also require insured depository institutionshaving $500 million or more in total assets to prepare annual financialstatements which are audited by an independent public accountant, to have anaudit committee comprised solely of outside directors, and to hire outsideauditors to evaluate the institution’s internal control structure.  For institutions that are subsidiaries ofbank holding companies, the financial statement requirement can be satisfied byaudited financial statements of the consolidated bank holding company.  Other audit related requirements forsubsidiary institutions that have total assets of less than $5 billion orassets of $5 billion or more and a composite CAMELS rating of 1 or 2 also maybe satisfied by the parent bank holding company.  The FDIC, in adopting the regulations, reiterated its belief thatevery depository institution, regardless of size, should have an annualindependent audit and an independent audit committee. 

 

•              ***Monetary Policy and Economic Conditions***

 

The business of commercial banks, such as Illini andCamp Point is affected by monetary and fiscal policies of various regulatoryagencies, including the FRB.  Among theregulatory techniques available to the FRB are open market operations in UnitedStates Government securities, changing the discount rate for member bankborrowings, and imposing and changing the reserve requirements applicable tomember bank deposits and to certain borrowings by member banks and theiraffiliates (including parent companies). These policies influence to a significant extent the overall growth anddistribution of bank loans, investments and deposits and the interest ratescharged on loans, as well as the interest rates paid on savings and timedeposits.

 

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The monetary policies of the FRB have had asignificant effect on the operating results of commercial banks in the past andare expected to continue to do so in the future.  In view of constantly changing conditions in the national economyand the money market, as well as the effect of acts by the monetary and fiscalauthorities, including the FRB, no definitive predictions can be made by IlliniCorporation or the banks as to future changes in interest rates, creditavailability, deposit levels, or the effect of any such changes on IlliniCorporation’s or the banks operations and financial condition.

 

•              ***Employees***

 

As of December 31, 2001, Illini Corporation, Illiniand Camp Point had 110 total employees and 83 full-time employees.

 

•              ***Statistical Disclosure***

* *
| Consolidated Average  Balances, Interest Income/Expense and Yields/Rates |
|--------------------------------------------------------------------------|
| Rate/Volume  Variance Analysis                                           |
| Investment Securities Available for Sale                                 |
| Investment  Securities Available for Sale Maturity Schedule              |
| Loan Portfolio                                                           |
| Selected  Loan Maturity and Interest Rate Sensitivity                    |
| Nonperforming  Assets                                                    |
| Summary of Loan Loss  Experience                                         |
| Allocation  of Allowance for Loan Losses                                 |
| Maturities of Time Deposits                                              |
| Return  on Equity and Assets                                             |
| Interest Rate Sensitivity  Analysis                                      |
| Noninterest  Income                                                      |
| Noninterest  Expense                                                     |

 

**ITEM 2. -DESCRIPTION OF PROPERTIES**

 

Illini Corporation’s corporate offices are located at3200 West Iles Avenue, Springfield, Illinois. Illini owns 11 and leases two of the banking offices at which itoperates. Illini operates four banking offices in Springfield, Illinois and oneeach in the following Illinois communities: Auburn, Danvers, Divernon, Elkhart,Hudson, Lincoln, Mechanicsburg, Sherman, and Stonington.  Illini leases space for the banking officesin Lincoln and 615 W. Jefferson, Springfield. Camp Point owns and operates one office in Camp Point, Illinois, locatedat 206 E. Wood Street.

 

**ITEM 3. -LEGAL PROCEEDINGS**

 

Mary Quinn v. IlliniCorporation and Illinois Stock Transfer Co.,

Sangamon County Case No.98 CH 240

 

Illini Corporation adopted a Shareholder RightsAgreement on June 20, 1997, and named Illinois Stock Transfer Company (“ISTC”)as its rights agent thereunder.  IlliniCorporation was notified in May 1998 of a threatened complaint against ISTC byan Illini Corporation shareholder.  Theshareholder, Mary K. Quinn (“Quinn”), who owns 21 shares of stock in IlliniCorporation, filed suit against ISTC on June 9, 1998 in the Seventh JudicialCircuit Court, Sangamon County, Illinois. Quinn sought to compel ISTC to distribute rights certificates to IlliniCorporation’s shareholders and further sought to certify all Illini Corporationshareholders as a class.  Quinn assertedthat Ida R. Noll became an acquiring person under the Rights Agreement on April16, 1998, and that the Rights Agreement was triggered.  ISTC has vigorously contested Quinn’sassertions that Ida R. Noll was an acquiring person, that the Rights Agreementhad been triggered, and that ISTC had a duty to distribute rights certificates.

 

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On June 9, 1998, Quinn filed a Motion to Certify theClass, which was granted on December 29, 1998. On January 13, 1999, Quinn filed an Amended Complaint adding IlliniCorporation as a defendant to her action. Both Illini Corporation and ISTC answered the Amended Complaint anddenied that Ida R. Noll was an acquiring person.  Quinn asserted that she was entitled to recover her attorneys’fees from Illini Corporation and ISTC.

 

Quinn filed a Motion for Summary Judgment that askedthe Court to determine as a matter of law that Ida R. Noll became an acquiringperson on April 16, 1998, that the Rights Agreement was triggered as a resultand that Illini Corporation and ISTC had a duty to distribute rights certificatesto all shareholders as of April 16, 1998, except for Ida R. Noll.  Illini Corporation opposed Quinn’s Motionfor Summary Judgment, which was heard by the Court on June 18, 1999.  On June 29, 1999, the Court entered anOpinion and Order denying Quinn’s Motion for Summary Judgment.

 

On or about May 6, 1999, counsel for Quinn advisedIllini Corporation’s counsel of her intent to seek an injunction that wouldpreclude Illini Corporation from completing its acquisition of the FarmersState Bank of Camp Point (Camp Point), pending further order of the Court.  Quinn subsequently filed a Motion forPreliminary Injunction and a Memorandum of Law in Support of her Motion.  Quinn argued that the class (consisting ofall Illini Corporation’s shareholders as of April 16, 1998, except for Ida R.Noll) would be irreparably harmed if the Camp Point merger closed prior to adetermination on the merits of her suit. Illini Corporation filed extensive briefs in opposition to the Motion forPreliminary Injunction, and the Court heard the Motion on July 1, 1999.  The Court entered a written Order on July13, 1999, denying the Motion for Preliminary Injunction.

 

Quinn’s counsel filed a Motion for Reconsideration ofthe Orders denying Quinn’s Motion for Summary Judgment and Motion forPreliminary Injunction.  IlliniCorporation and ISTC filed a Motion for Summary Judgment on August 25,1999.  At a hearing held on October 18,1999, the Court granted Illini Corporation and ISTC’s Motion for SummaryJudgment and denied Quinn’s Motion for Reconsideration.  An Order was subsequently entered on January12, 2000.

 

Quinn’s counsel announced on October 18, 1999, theintention to petition the Court for an order directing Illini Corporation andISTC to pay Quinn’s attorneys’ fees pursuant to the attorney fee provision ofthe Rights Agreement.  Quinn’s feepetition was heard and denied.  Quinnhas filed a pending appeal as to all adverse orders.  The Corporation is vigorously contesting the appeal.  Oral argument was held before the IllinoisAppellate Court for the Fourth District on July 18, 2000.

 

On July 31, 2000, the Appellate Court issued an orderreversing the trial court’s order granting summary judgment to IlliniCorporation and remanding the case for trial. The Appellate Court found that genuine issue of material fact remainedconcerning whether the Illini Corporation board of directors acted in goodfaith (1) in determining on April 30, 1998 that Ida Noll’s acquisition ofshares was inadvertent and (2) in amending the agreement on June 30,1998.  The Appellate Court also reversedthe trial court’s order denying Quinn’s request for costs, expenses andattorneys fees, finding that the fee provision of the Rights Agreement did notrequire one who brought an action to enforce the agreement to prevail in thataction in order to recover fees.  As ofDecember 31, 2001, Illini Corporation has accrued its best estimate as acontingency reserve for this litigation to cover expenses and attorneys fees,although such amounts shall be subject to further discovery.

 

The case has been remanded to the trial court. UponQuinn’s motion the trial court permitted Quinn to add Mrs. Noll as a party tothe action.  Quinn subsequently filed amotion to compel an additional deposition of Burnard K. McHone, President,Illini Corporation, with respect to a certain Stock Purchase Agreement pursuantto which shares owned by Mrs. Noll’s family were redeemed by IlliniCorporation.  The trial court denied themotion to compel finding that Quinn failed to show any basis that the StockPurchase Agreement was relevant to her claims in the lawsuit.  Defendants filed a motion to vacate thetrial court’s order to add Mrs. Noll as a party to the action.  The trial court vacated the prior order inDecember, 2001.  Illini anticipates thatthe case will be tried in the Summer of 2002.

 

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

SangamonCounty Case No. 01 CH 377

 

On August 14, 2001, Mary Quinn filed a four countcomplaint against Ida Noll and several present and former members of IlliniCorporation’s Board of Directors in the Seventh Judicial Circuit, SangamonCounty, Illinois.  The named defendantsin the action are Ida Noll, Burnard McHone, William Etherton,

 

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Ronald Thunman, ThomasBlack, John Pickrell, Kenneth Deverman, Larry Curtin, Robert Olson and WilliamMcCubbin. Quinn purports to allege derivative causes of action arising out ofIllini entering into a Stock Purchase Agreement with Ida R. Noll and others.  Quinn asserts that the defendants causedIllini to breach the Shareholder Rights Agreement, that the directors breachedtheir fiduciary duty, and usurped a business opportunity of theShareholders.  Quinn also seeksrescission of the Stock Purchase Agreement. The directors named as defendants in the action are represented by thelaw firm of Samuels, Miller, Schreoder, Jackson & Sly.  Attorney James Jackson of the Samuels Millerfirm has filed a motion to dismiss the complaint on behalf of thedirectors.  Illini Corporation hasengaged Howard & Howard Attorneys, P.C. to intervene in the action on itsbehalf.

 

Quinn seeks recovery of her attorney’s fees in thederivative action pursuant to the attorney fee provision of the ShareholderRights Agreement.

 

Ida R Noll v. IlliniCorporation, et al.,

Sangamon County Case No.98 MR 226

 

This case is described in Illini Corporation’s AnnualReport on form 10KSB for 2000.  The casewas dismissed with prejudice on June 3, 2001.

 

Ida R. Noll v. Ernest H.Huls, Illini Corporation, et al,

Sangamon County Case No.99 CH 196

 

This case is described in Illini Corporation’s AnnualReport on form 10KSB for 2000.  The casewas dismissed with prejudice on June 13, 2001.

 

**ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

No matters were submitted to a vote of securityholders during the fourth quarter of 2001.

 

**PART II.**

** **

**ITEM5. - MARKET FOR THE COMMON EQUITY ANDRELATED STOCKHOLDER MATTERS**

 

The common stock of Illini Corporation is traded overthe counter and listed on the over the counter bulletin board (OTCBB).  The following table sets forth the high andlow bid prices by calendar quarter of the common stock of IlliniCorporation.  The prices shown do notreflect retail mark-ups, markdowns, or commissions and may not represent actualtransactions.

 

| **2001**         |   | **High**  |       | **Low**    |       | **Cash  Dividends  Declared** |       |
|------------------|--------|-----------|------------|------------|------------|-------------------------------|------------|
| **1st  Quarter** |   | **$**     | **24.00**  | ** ** | **$**      | **24.00**                     | ** ** | **$** | **.25** |   |
| **2nd  Quarter** |   | **25.00** | ** ** | **22.00**  | ** ** | **.25**                       |       |
| **3rd  Quarter** |   | **31.00** | ** ** | **25.00**  | ** ** | **.25**                       |       |
| **4th  Quarter** |   | **26.20** | ** ** | **24.05**  | ** ** | **.25**                       |       |
|                  |        |           |            |            |            |                               |            |  |  |  |

 

9

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| **2000**     |   | **High** |   | **Low** |   | **Cash  Dividends  Declared** |   |
|--------------|--------|----------|--------|---------|--------|-------------------------------|--------|
| 1st  Quarter |   | $        | 30.50  |    | $      | 25.00                         |   | $ | .25 |   |
| 2nd  Quarter |   | 30.00    |   | 25.00   |   | .25                           |   |
| 3rd  Quarter |   | 30.00    |   | 25.00   |   | .25                           |   |
| 4th  Quarter |   | 30.00    |   | 21.50   |   | .25                           |   |
|              |        |          |        |         |        |                               |        |  |  |  |

 

As of December 31, 2001, there were 1,370 shareholdersof record of Illini Corporation common stock.

 

In 2001 and 2000, Illini Corporation issued $1.00 pershare in dividends, which resulted in $451,723 in 2001 and $571,789 in2000.  Due to its status as a bankholding company, Illini Corporation’s ability to issue dividends is restrictedby regulatory provisions set forth in “Item 1. Description ofBusiness—Supervision and Regulation—Dividend Restrictions” which isincorporated by reference herein.

 

**ITEM 6. - MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

•              ***Introduction***

 

The following discussion highlights the significantfactors affecting the operations and financial condition of Illini Corporationfor the two fiscal years ended December 31, 2001 and December 31, 2000.  The discussion should be read in conjunctionwith the consolidated financial statements, accompanying notes, and selectedfinancial data as set forth in “Item 7. Financial Statements” which isincorporated by reference herein.

 

Illini Corporation cautions that any forward lookingstatements contained in this report, in a report incorporated by reference tothis report, or made by management involve estimates and uncertainties and aresubject to change based upon various important factors.  Actual results for 2002 and beyond coulddiffer materially from results expressed or implied by forward lookingstatements in this report.

*** ***

•              ***Summary***

 

Illini continues to meet its operational goals.  The year ending December 31, 2001 resultedin $1.279 million net income as compared to $1.695 million for 2000.  The decrease in earnings in 2001 is due totwo major factors.  In 2000, Illini Banksold two Menard County branches and realized an after tax gain of$708,000.  In June of 2001, Illini Bankcompleted a systems conversion and upgraded related computer equipment.  One-time net expenses associated with thisconversion and upgrade totaled $292,000. Subtracting the gain from the branch sales, 2000 net income fromoperations would have been $987,000, or $1.73 per share compared to $1.279million, or $2.64 per share in 2001. This represents an increase of 29.67% over 2000 net income.  Interest and fee income on loans increased$2.377 million in 2001 to $15.461 million. Contributing to the increase in net interest income was the growth inearning assets represented by the growth in loans.  Total interest expense increased $1.522 million to $10.051million.  The interest on the TrustAuthorized Preferred Securities issue of $786,000 represented 51.64% of theincrease.

 

Operating expenses increased $706,000 in 2001 to$9.258 million.  The increase is aresult of higher salaries and benefits totaling $588,000 and net costsassociated with the systems conversion; education, supplies, and travel.

 

Due to the growth in 1999 and 2000, managementcompleted a Trust Authorized Preferred Securities (TAPS) issue on February 22,2001.  The issue increased cash balances$9.0 million.  The Federal Reserve Boardallows the TAPS to be included in a bank holding company's Tier 1 Capital,limited to 25% of Tier 1 capital.  Theproceeds from this issue have allowed Illini to further execute its businessplan.

 

10

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Management continues to focus on credit quality,reducing overhead costs, increasing revenues through targeted sales efforts,and continued development of our associates through the execution of ourbusiness plan.

 

The following table details changes in IlliniCorporation’s net income per share over the last two fiscal years.

 

**Change in Earnings Per Share (EPS)for 2001 and 2000**

 

|                                      |   | **2001-00** |     | **2000-99** |   |
|-------------------------------------------|--------|-------------|----------|-------------|--------|
| Per  share                                |   |        |     |        |   |
| Net  income prior period                  |   | **$**       | **2.96** |        | $      | 1.45 |   |
| Change  in EPS attributable to change in: |   |        |     |        |   |
| Net  interest income                      |   | **3.50**    |     | 0.18        |   |
| Provision  for loan losses                |   | **(0.31**   | **)**    | (0.35       | )      |
| Noninterest  income                       |   | **0.46**    |     | 1.28        |   |
| Noninterest  expense                      |   | **(4.18**   | **)**    | 1.07        |   |
| Income  tax expense                       |   | **0.21**    |     | (0.67       | )      |
| Net  increase (decrease)                  |   | **(0.32**   | **)**    | 1.51        |   |
| Net  income current period                |   | **$**       | **2.64** |        | $      | 2.96 |   |

 

•              ***Overview-Balance Sheet Review***

 

Average assets were $259.6 million in 2001, anincrease of $32.5 million, or 14.3%, from 2000.  Average loans were $183.7 million in 2001, an increase of $34.2million, or 22.9%, from 2000. Management believes the increase in loan volume is an expected outcomefrom the reengineering of the Corporation and efforts to pursue new loanrelationships in both retail and commercial loan services.  Average deposits were $223.2 million in2001, an increase of $21.1 million, or 10.4%, from 2000.  We believe this trend of growth willcontinue as our product offerings become more sophisticated and the level ofmerger and acquisition activity continues to rise.

 

•              ***Securities***

 

Total securities as of December 31, 2001 were $49.2million, a decrease of $5.4 million, or 10.0%, over the prior year-end.  At December 31, 2001 and 2000, the totalsecurities portfolio comprised 17.9% and 22.8% respectively of total assets.

 

Illini Corporation’s investment strategy is tomaximize portfolio yields commensurate with credit risk and liquidityconsiderations.  The decision topurchase or sell securities is based upon the current assessment of economicand financial conditions, including the interest rate environment.  Approximately $8.8 million, or 17.9%, of thesecurities portfolio at December 31, 2001 matures or reprices within oneyear.  Scheduled maturities and theprepayment of mortgage-backed securities represent a source of liquidity forIllini and Camp Point, as well as federal funds sold, federal funds purchasedlines, and lines of credit established at other banks which are discussedfurther in the Liquidity section of this report.

 

Mortgage-backed securities as of December 31, 2001totaled $29.1 million and represent 59.3% of total securities.  The distribution of mortgage-backedsecurities include $13.6 million of U.S. government agency mortgage-backed passthrough securities and $15.5 million of private issue collateral mortgageobligations, all of which are rated AAA.

 

At December 31, 2001, securities available for saletotaled $49.2 million.  There were nosecurities classified as held to maturity or trading at the end of 2001 or2000.  The securities available for saleportfolio at the end of 2001 included gross unrealized gains of $1,575,000 andgross unrealized losses of $90,000, of which the combined effect, net of tax,is included as an unrealized gain in stockholders’ equity.  For comparative purposes, at December 31,2000, gross unrealized gains of $870,000 and gross unrealized losses of$348,000 were included in the securities available for sale portfolio, which isset forth in “Item 7.

 

11

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Financial Statements–Note 4” which is incorporated by reference herein.

 

•              ***Maturities and Duration***

 

The maturities and weighted average yields of theinvestment portfolio at the end of 2001 are presented in the followingtable.  Maturities of privatemortgage-backed securities are based on their average expected lives andinclude the effects of anticipated prepayments.  All other securities are listed at their actual maturity orcontractual repricing interval.  Theamounts and yields disclosed reflect the net carrying value, which is the sameas fair value.  Taxable equivalentadjustments, using a 34% tax rate, have been made in calculating yields ontax-exempt obligations.

 

The securities portfolio at December 31, 2001,contained, in the aggregate, securities of the City of Litchfield that had abook or market value in excess of 10% of shareholders’ equity of IlliniCorporation.  Excluding those issued bythe United States government, or its agencies or corporations there were noother securities of an issuer with an aggregate book or market value in excessof 10% of shareholders' equity of Illini Corporation.

 

**Maturities and Yield of Securities**

** **
|                                                                 |   | **Total**                  |       | **Weighted Average  Tax Equivalent Yield** |       |
|----------------------------------------------------------------------|--------|----------------------------|------------|--------------------------------------------|------------|
|                                                                 |   | **(dollars in thousands)** |       |
| U.S.  Treasury securities:                                           |   |                       |       |                                       |       |
| 0 to  1 year                                                         |   | **$**                      | **1,763**  | ** **                                 | **3.91**   | **%** |
|                                                                 |   |                       |       |                                       |       |
| U.S.  government agencies:                                           |   |                       |       |                                       |       |
| 0 to  1 years                                                        |   | $                          | **1,139**  | ** **                                 | **6.86**   | **%** |
| 1 to  5 years                                                        |   | **1,145**                  | ** ** | **7.01**                                   | ** ** |
| 5 to  10 years                                                       |   | **304**                    | ** ** | **6.52**                                   | ** ** |
| Total                                                                |   | **$**                      | **2,588**  | ** **                                 | **6.88**   | **%** |
|                                                                 |   |                       |       |                                       |       |
| Mortgage-backed  securities and collateralized mortgage obligations: |   |                       |       |                                       |       |
| 0 to  1 year                                                         |   | $                          | **2,272**  | ** **                                 | **5.82**   | **%** |
| 1 to  5 years                                                        |   | **20,223**                 | ** ** | **5.74**                                   | ** ** |
| 5 to  10 years                                                       |   | **4,012**                  | ** ** | **5.62**                                   | ** ** |
| Over  10 years                                                       |   | **2,636**                  | ** ** | **6.10**                                   | ** ** |
| Total                                                                |   | **$**                      | **29,143** | ** **                                 | **5.76**   | **%** |
|                                                                 |   |                       |       |                                       |       |
| States  of the U.S. and political subdivisions:                      |   |                       |       |                                       |       |
| 0 to  1 year                                                         |   | **$**                      | **1,005**  | ** **                                 | **7.42**   | **%** |
| 1 to  5 years                                                        |   | **2,681**                  | ** ** | **8.67**                                   | ** ** |
| 5 to  10 years                                                       |   | **7,438**                  | ** ** | **8.23**                                   | ** ** |
| Over  10 years                                                       |   | **3,822**                  | ** ** | **9.18**                                   | ** ** |
| Total                                                                |   | **$**                      | **14,946** | ** **                                 | **8.50**   | **%** |
|                                                                 |   |                       |       |                                       |       |
| FHLB  stock and other equity securities, no stated maturity          |   | **$**                      | **716**    | ** **                                 | **—** | ** ** |
|                                                                 |   |                       |       |                                       |       |
| Total  securities:                                                   |   |                       |       |                                       |       |
| 0 to  1 year                                                         |   | **$**                      | **6,179**  | ** **                                 | **5.73**   | **%** |
| 1 to  5 years                                                        |   | **24,049**                 | ** ** | **6.13**                                   | ** ** |
| 5 to  10 years                                                       |   | **11,754**                 | ** ** | **7.30**                                   | ** ** |
| Over  10 years                                                       |   | **6,458**                  | ** ** | **7.92**                                   | ** ** |
| No  stated maturity                                                  |   | **716**                    | ** ** |                                       | ** ** |
| Total                                                                |   | **$**                      | **49,156** | ** **                                 | **6.60**   | **%** |

 

12

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•              ***Loans***

 

Illini Corporation’s loan portfolio consists of adiverse variety of loan types within the following major categories: commercialreal estate, residential real estate, consumer, commercial, and agriculturalloans.

 

Net loans increased $30.1 million from $166.8 millionas of December 31, 2000 to $196.9 million as of December 31, 2001.  Average total loans increased $34.2 millionfrom $149.5 million in 2000 to $183.7 million in 2001.  Growth in the loan portfolio resultedprimarily from management’s priority on evaluating and managing credit risk inexisting loan relationships and new business development.

 

The largest increase was in commercial real estateloans for which the average balance increased $22.7 million to $83.3 million in2001. Commercial loans increased $9.9 million on average to $33.7 million.  Agricultural real estate loans remained thesame at $7.4 million and consumer loans increased $1.9 million to $13.0 millionin average total loans.

 

All of Illini Corporation’s loans are domestic.  Illini Corporation does not currently engagein foreign loans, lease financing, or loans to financial institutions.  Additionally, Illini Corporation does nothave any concentration of loans exceeding 10% of total loans, which are nototherwise disclosed under “types of loans.”

 

Each major type of loan will normally have differentrisk elements.  Real estate loans andinstallment loans to individuals can be affected by the general strength of theeconomy in a given geographical area.  Awide range of economic and other factors can impact the businesses to whichcommercial loans are extended.  Suchthings as drought, floods, U.S. and foreign market prices, and federalgovernment subsidies and programs can affect agricultural loans.

 

•              ***Types of Loans***

 

A summary of loans by type as of December 31, 2001 and2000 is set forth in “Item 7. Financial Statements—Note 5” which isincorporated by reference herein.

 

•              ***Maturities and Interest Rate Sensitivity of Loans***

 

$53.7 million, or 27.0%, ofIllini and Camp Point’s loan portfolios reprice within one year.  $179.0 million, or 89.9%, of the portfolioreprices within five years.  The relativelyshort duration of the loan portfolio requires diligence on the part ofmanagement to replace and/or renew maturing loans more frequently.  However, it benefits the banks by decreasingits susceptibility to rising interest rates and by allowing management morefrequent opportunities to reassess and adjust loan agreements with borrowersand to exit deteriorating loan relationships. 50.8% of commercial, financial, and agricultural loans mature within oneyear as referenced in the table below.

 

***Loans***

 
|                                     |                  | **Maturity**                |                   |
|------------------------------------------|-----------------------|-----------------------------|------------------------|
|                                     | **One year  or less** |                        | **One to  five years** |   | **After  five years** |   | **Total** |   |
|                                     |                  | **(dollars  in thousands)** | ** **             |
| Commercial,  financial, and agricultural |                  | **$**                       | **27,610**             | ** ** | **$** | **23,411** | ** ** | **$** | **3,305** | ** ** | **$** | **54,326** | ** ** |
| Real  estate construction                |                  | **9,466**                   | ** **             | **5,285** | ** ** | **279** | ** ** | **15,030** | ** ** |
|                                     |                  | **$**                       | **37,076**             | ** ** | **$** | **28,696** | ** ** | **$** | **3,584** | ** ** | **$** | **69,356** | ** ** |

 

13

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|                                       |                       | **Interest  Sensitivity**   |                                         |
|--------------------------------------------|----------------------------|-----------------------------|----------------------------------------------|
|                                       | **Fixed  interest  rates** |                        | **Floating  or  adjustable  interest rates** |   | **Total** |   |
|                                       |                       | **(dollars  in thousands)** | ** **                                   |
| Loans  due after one but within five years |                       | **$**                       | **27,559**                                   | ** ** | **$** | **1,137** | ** ** | **$** | **28,696** | ** ** |
| Loans  due after five years                |                       | **2,023**                   | ** **                                   | **1,561** | ** ** | **3,584** | ** ** |
|                                       |                       | **$**                       | **29,582**                                   | ** ** | **$** | **2,698** | ** ** | **$** | **32,280** | ** ** |

 

***Deposits***

 
|                                   |                       | **Average  Balances of Deposits and  Cost of Funds** |              |
|----------------------------------------|----------------------------|------------------------------------------------------|-------------------|
|                                   | **2001  Average**          |                                                 | **2000  Average** |   |
|                                   |                       | **Balance**                                          | ** **        | **Rate** | ** ** | **Balance** | ** ** | **Rate** | ** ** |
|                                   | **(dollars in thousands)** | ** **                                           |
| Noninterest  bearing demand deposits   |                       | **$**                                                | **28,724**        | ** ** | **—** |   | $ | 29,780 |   | — |   |
| NOW  and money market deposit accounts |                       | **59,356**                                           | ** **        | **3.21** | % | 52,316 |   | 3.95 | % |
| Savings  deposits                      |                       | **17,288**                                           | ** **        | **1.82** |   | 17,858 |   | 2.01 |   |
| Time  deposits                         |                       | **117,875**                                          | ** **        | **5.39** |   | 102,187 |   | 5.65 |   |
|                                   |                       | **$**                                                | **223,243**       |   | **3.84** | % | $ | 202,141 |   | 4.05 | % |

 
|                  |                               | **Maturity  of Time Deposits Greater Than $100,000  At December 31, 2001** |                      |
|-----------------------|------------------------------------|----------------------------------------------------------------------------|---------------------------|
|                  | **Time  Certificates  of Deposit** |                                                                       | **Other  Time  Deposits** |   | **Total** |   |
|                  |                               | **(dollars  in thousands)**                                                | ** **                |
| Three  months or less |                               | **$**                                                                      | **6,286**                 | ** ** | **$** | **960** | ** ** | **$** | **7,246** | ** ** |
| Three  to six months  |                               | **3,352**                                                                  | ** **                | **520** | ** ** | **3,872** | ** ** |
| Six  to twelve months |                               | **7,803**                                                                  | ** **                | **5,740** | ** ** | **13,543** | ** ** |
| Over  twelve months   |                               | **7,181**                                                                  | ** **                | **—** | ** ** | **7,181** | ** ** |
|                  |                               | **$**                                                                      | **24,622**                | ** ** | **$** | **7,220** | ** ** | **$** | **31,842** | ** ** |

 

Included in the above table in other time deposits isa State of Illinois deposit in the amount of $6.2 million that funds the Stateof Illinois agricultural loan production program for Illini Bank.  It is anticipated that this deposit will notbe renewed at its maturity date.

 

Average deposits increased $21.1 million, or 10.4%, to$223.2 million in 2001.  Due to theincrease in deposits required to fund loan growth, management increased depositrates to attract new deposits.  Illiniand Camp Point’s overall cost of funds related to deposits decreased 21 basispoints to 3.84% in 2001 due to the declining interest rate environment. FromDecember 31, 2000 to December 31, 2001, noninterest bearing accounts increased$1.4 million to $34.1 million, NOW and Money Market accounts were up $7.5million to $60.1 million, time deposits increased $25.3 million to $126.6million, and savings increased $1.3 million to $18.0 million in 2001.  Total deposits increased $35.5 million, or17.6%, to $238.8 million at December 31, 2001.

 

14

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•              ***Liquidity***

 

Liquidity represents the availability of funding tomeet obligations to depositors, borrowers, and creditors at a reasonable costwithout adverse consequences. Accordingly, the liquidity position is influenced by the funding baseand asset mix.

 

Illini Corporation requires adequate liquidity to payits expenses and pay stockholder dividends. Liquidity is provided to Illini Corporation in the form ofdividends.  In 2001 and 2000, dividendsfrom Illini amounted to $1.2 million for each year.  Dividends from Camp Point totaled $0.2 million in 2001, comparedto $1.7 million in 2000.  Illini andCamp Point’s liquidity is provided by bank cash balances, liquidation ofshort-term investments, loan payments, an overnight federal funds line ofcredit, and borrowings from the Federal Home Loan Bank of Chicago.  While the banks are limited in the amount ofdividends they pay, as of December 31, 2001, a combined $3.6 million wasavailable for payment to Illini Corporation in the form of dividends withoutprior regulatory approval.

 

Cash and cash equivalents, which include federal fundssold and interest bearing deposits with banks, increased $8.6 million to $15.6million at December 31, 2001, compared to $7.0 million at December 31, 2000.

 

The asset portion of the balance sheet providesliquidity primarily through loan principal repayments, maturities of investmentsecurities, the sale of available for sale investment securities, and the saleof 1-4 family mortgage loans to the secondary mortgage market through theFederal National Mortgage Association.

 

The liability portion of the balance sheet providesliquidity through federal funds purchased, securities sold under agreements torepurchase, other short-term debt, and long-term debt.  As of December 31, 2001, Illini had anovernight federal funds line of credit with an unaffiliated financial institutionin the amount of $7.7 million, all of which was available for borrowing.  Illini is also a member of the Federal HomeLoan Bank of Chicago and can borrow up to $18.0 million.  As of December 31, 2001, Illini had $6.41million of debt maturing in 2002, and a $2.0 million advance maturing in2003.  Illini also has a letter ofcredit in the amount of $6.2 million pledged to the State of Illinois for anagricultural production deposit, which matures May 1, 2002.  The various sources of liquidity availableto the banks provide ample long-term as well as short-term fundingalternatives.

 

•              ***Interest Rate Sensitivity***

 

In conjunction with maintaining a satisfactory levelof liquidity, management monitors the degree of interest rate risk assumed onthe balance sheet.  Illini Corporationmonitors its interest rate risk by the use of static and dynamic gap models atthe one-year interval.  The static gapmodel monitors the difference in interest rate sensitive assets and interestrate sensitive liabilities that mature within the specified time frame as apercentage of total interest earning assets. The dynamic gap model goes further in that it assumes that interest ratesensitive assets and liabilities will be reinvested.  Illini Corporation uses a computerized model to monitor itsinterest rate risk.

 

Illini and Camp Point’s static interest rate gapposition as of December 31, 2001 is presented below:

 

15

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|                                                    |                | **Interest  Rate Sensitivity Analysis** |                |
|---------------------------------------------------------|---------------------|-----------------------------------------|---------------------|
|                                                    | **Up to 3  months** |                                    | **4 to  12 Months** |   | **Total  1 year** |   | **Over  1 year** |   | **Total** |   |
|                                                    |                | **(dollars  in thousands)**             | ** **          |
| Interest-earning  assets:                               |                |                                    |                |   |   |   |   |   |   |   |   |
| Loans                                                   |                | **$**                                   | **33,317**          | ** ** | **$** | **20,393** | ** ** | **$** | **53,710** | ** ** | **$** | **145,306** | ** ** | **$** | **199,016** | ** ** |
| Investment  securities                                  |                | **5,256**                               | ** **          | **3,526** | ** ** | **8,782** | ** ** | **40,374** | ** ** | **49,156** | ** ** |
| Federal  funds sold and other interest-bearing deposits |                | **7,439**                               | ** **          | **—** | ** ** | **7,439** | ** ** | **—** | ** ** | **7,439** | ** ** |
| Total  interest-earning assets                          |                | **$**                                   | **46,012**          | ** ** | **$** | **23,919** | ** ** | **$** | **69,931** | ** ** | **$** | **185,680** | ** ** | **$** | **255,611** | ** ** |
| Interest-bearing  liabilities:                          |                |                                    |                |   |   |   |   |   |   |   |   |
| Savings,  NOW, and money market (1)                     |                | **$**                                   | **39,026**          | ** ** | **$** | **—** | ** ** | **$** | **39,026** | ** ** | **$** | **39,026** | ** ** | **$** | **78,052** | ** ** |
| Time  deposits                                          |                | **27,642**                              | ** **          | **53,697** | ** ** | **81,339** | ** ** | **45,296** | ** ** | **126,635** | ** ** |
| Short-term  debt                                        |                | **1,613**                               | ** **          | **—** | ** ** | **1,613** | ** ** | **—** | ** ** | **1,613** | ** ** |
| Long-term  debt                                         |                | **4,000**                               | ** **          | **—** | ** ** | **4,000** | ** ** | **4,471** | ** ** | **8,471** | ** ** |
| Preferred  securities of subsidiary trust               |                | **—**                              | ** **          | **—** | ** ** | **—** | ** ** | **9,000** | ** ** | **9,000** | ** ** |
| Total  interest-bearing liabilities                     |                | **$**                                   | **72,281**          | ** ** | **$** | **53,697** | ** ** | **$** | **125,978** | ** ** | **$** | **97,793** | ** ** | **$** | **223,771** | ** ** |
|                                                    |                |                                    |                |   |   |   |   |   |   |   |   |
| Gap  by period                                          |                | **$**                                   | **(26,269**         | **)** | **$** | **(29,778** | **)** | **$** | **(56,047** | **)** | **$** | **87,887** | ** ** | **$** | **31,840** | ** ** |
|                                                    |                |                                    |                |   |   |   |   |   |   |   |   |
| Cumulative  gap                                         |                | **$**                                   | **(26,269**         | **)** | **$** | **(56,047** | **)** | **$** | **(56,047** | **)** | **$** | **31,840** | ** ** | **$** | **31,840** | ** ** |
|                                                    |                |                                    |                |   |   |   |   |   |   |   |   |
| Cumulative  gap as a percent of earning assets          |                | **-10.28**                              | **%**               | **-21.93** | **%** | **-21.93** | **%** | **12.46** | **%** | **12.46** | **%** |

 

----

(1) Illini Corporation’sexperience with transactional interest bearing demand, money market accounts,and savings accounts has been that these deposits are subject to immediatewithdrawal, or re-pricing, with portions of the balances remaining relativelyconstant in periods of both rising and falling rates.  Therefore, a portion of these deposits is included in the over 1year category.  If these deposits wereall included in the total 1 year or less category the cumulative ratio ofinterest sensitive assets to interest sensitive liabilities would be –37.19%.

 

In June 2001, Illini Corporation renewed itsconsulting contract to assist in asset/liability management efforts.  Management believes that timely reviewsenable Illini Corporation to proactively react to financial conditions in ourmarket place.  The asset/liabilitymanagement policy adopted October 15, 1998 was revised and updated in2001.  There can be no assurance,however, that such steps will have the desired result.

 

•              ***Quantitative and Qualitative Disclosures about MarketRisk***

 

Derivative financial instruments include futures,forwards, interest rate swaps, option contracts, and other financialinstruments with similar characteristics. Illini and Camp Point currently do not enter into futures, forwards,swaps, or options.  However, Illini andCamp Point are party to financial instruments with off-balance sheet risk inthe normal course of business to meet the financing needs of itscustomers.  These financial instrumentsinclude commitments to extend credit and standby letters of credit.  These instruments involve to varying degreeselements of credit and interest rate risk in excess of the amount recognized inthe consolidated balance sheets. Commitments to extend credit are agreements to lend to a customer aslong as there is no violation of any condition established in the contract.  Commitments generally have fixed expirationdates and require collateral from the borrower if deemed necessary by eachbank.  Standby letters of credit areconditional commitments issued by each bank to guarantee the performance of acustomer to a third party up to a stipulated amount and within specified termsand conditions.

 

Commitments to extend credit and standby letters ofcredit are not recorded as an asset or liability by the banks until and unlessthe instrument is exercised.

 

Each bank’s exposure to market risk is reviewed by theAsset/Liability Committee.  Interestrate risk is the potential of economic losses due to future interest ratechanges.  These economic losses can bereflected as a loss of future net interest income and/or a loss of current fairmarket values.  The objective is

 

16

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to measure the effect onnet interest income and to adjust the balance sheet in order to minimize theinherent risk, while at the same time maximize income.  Management realizes certain risks areinherent, such as the uncertainty of market interest rates, and that its goalis to identify and minimize the risks. The primary tool management uses to monitor and manage interest raterisk is a static gap report.  Illini andCamp Point have no market risk sensitive instruments held for trading purposes.

 

The condensed gap reportsummarizing Illini and Camp Point’s interest rate sensitivity is as follows:

 
|                                                    |       | **Market  Risk Sensitive Instruments** |                              |
|---------------------------------------------------------|------------|----------------------------------------|-----------------------------------|
|                                                    | **1 year** |                                   | **Over 1  year through  3 years** |   | **Over 3  years through  5 years** |   | **Over  5 years** |   | **Total** |   |
|                                                    |       | **(dollars  in thousands)**            |                              |
| Assets:                                                 |       |                                   |                              |   |   |   |   |   |   |   |   |
| Investment securities                                   |       | **$**                                  | **8,782**                         | ** ** | **$** | **3,558** | ** ** | **$** | **2,268** | ** ** | **$** | **34,548** | ** ** | **$** | **49,156** | ** ** |
| Loans                                                   |       | **53,710**                             | ** **                        | **73,606** | ** ** | **51,671** | ** ** | **20,029** | ** ** | **199,016** | ** ** |
| Federal  funds sold and other interest-bearing deposits |       | **7,439**                              | ** **                        | **—** | ** ** | **—** | ** ** | **—** | ** ** | **7,439** | ** ** |
|                                                    |       | **$**                                  | **69,931**                        | ** ** | **$** | **77,164** | ** ** | **$** | **53,939** | ** ** | **$** | **54,577** |   | **$** | **255,611** |   |
|                                                    |       |                                   |                              |   |   |   |   |   |   |   |   |
| Liabilities:                                            |       |                                   |                              |   |   |   |   |   |   |   |   |
| Savings,  NOW and money market (1)                      |       | **$**                                  | **39,026**                        | ** ** | **$** | **39,026** | ** ** | **$** | **—** | ** ** | **$** | **—** | ** ** | **$** | **78,052** | ** ** |
| Time  deposits                                          |       | **81,339**                             | ** **                        | **44,251** | ** ** | **1,045** | ** ** | **—** | ** ** | **126,635** | ** ** |
| Short-term  debt                                        |       | **1,613**                              | ** **                        | **—** | ** ** | **—** | ** ** | **—** | ** ** | **1,613** | ** ** |
| Long-term  debt                                         |       | **4,000**                              | ** **                        | **4,471** | ** ** | **—** | ** ** | **—** | ** ** | **8,471** | ** ** |
| Preferred  securities of subsidiary trust               |       | **—**                             | ** **                        | **—** | ** ** | **—** | ** ** | **9,000** | ** ** | **9,000** | ** ** |
|                                                    |       | **$**                                  | **125,978**                       | ** ** | **$** | **87,748** | ** ** | **$** | **1,045** | ** ** | **$** | **9,000** |   | **$** | **223,771** |   |

 
|                                      |   | **Total**   |       | **Average  Interest Rate** |       | **Fair Value** |       |
|-------------------------------------------|--------|-------------|------------|----------------------------|------------|----------------|------------|
| Assets:                                   |   |        |       |                       |       |           |       |
| Investment  securities (2)                |   | **$**       | **49,156** | ** **                 | **6.66**   | **%**          | **$**      | **49,156** |   |
| Loans  (2)                                |   | **199,016** | ** ** | **8.44**                   | ** ** | **200,985**    |       |
| Federal  funds sold                       |   | **7,410**   | ** ** | **4.55**                   | ** ** | **7,439**      | ** ** |
|                                      |   |        |       |                       |       |           |       |
| Liabilities:                              |   |        |       |                       |       |           |       |
| Savings,  NOW and money market            |   | **$**       | **78,052** | ** **                 | **2.90**   | **%**          | **$**      | **78,052** | ** ** |
| Time  deposits                            |   | **126,635** | ** ** | **5.39**                   | ** ** | **126,635**    | ** ** |
| Short-term  debt                          |   | **1,613**   | ** ** | **2.49**                   | ** ** | **1,613**      | ** ** |
| Long-term  debt                           |   | **8,471**   | ** ** | **10.31**                  | ** ** | **8,471**      | ** ** |
| Preferred  securities of subsidiary trust |   | **9,000**   | ** ** | **9.53**                   | ** ** | **9,000**      |       |

 

----

(1)     Management’sexperience with interest bearing checking accounts, money market and savingsdeposits has been that, although these deposits are subject to immediatewithdrawal or repricing, a portion of the balances has remained relativelyconstant in periods of both rising and falling rates.  Therefore, a portion of these deposits is included in the over 1year through 3 years.

(2)     Interest ratesare presented on a fully taxable equivalent basis.

 

***•              Capital Resources***

 

Total shareholders’ equity decreased from $19.4million at December 31, 2000 to $13.6 million at December 31, 2001.  The reason for the decrease is due to arepurchase of 160,088 shares of common stock at a cost of $7,204,000 that waspurchased from a former shareholder and related interests.  Included in the

 

17

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repurchase is anagreement that contains separate non-compete and standstill agreements. Thestandstill agreement prohibits certain members of the family from owning votingshares in Illini Corporation or directly or indirectly exercising influenceover the Company’s operations for a period of ten years from the date ofexecution. The Company paid $45 per share plus $150,000 related to thenon-compete and standstill agreements. One-third of the purchase price was paid by the Company in cash atclosing, with the balance of unpaid principal due in three equal installmentson March 31, 2002, March 31, 2003, and March 31, 2004.  Interest will be paid quarterly on the unpaidprincipal balance at seven percent (7%) per annum. The Company provided aletter of credit to the sellers in lieu of pledging the purchased shares.  The agreement also provides for acontingency in the case that Illini Corporation were to be acquired or issueshares of common stock at a price in excess of $45.00 per share at any timeprior to the second anniversary date of April 12, 2003.  During the first six months all of suchdifference would be payable; during the second six months 75% of such differencewould be payable; and during the last six months 25% of such difference wouldbe payable.  Had the above transactionnot occurred, shareholders' equity would have increased from $19.4 million atDecember 31, 2000 to $20.8 million at December 31, 2001.  The primary source of capital of IlliniCorporation is retained earnings.  Cashdividends per share were $1.00 for 2001 and 2000.  Illini Corporation retained 62.1% of its earnings for 2001 and66.3% for 2000.  

 

The decrease in core capital was offset by theincrease in a preferred security issued by the trust subsidiary, IlliniStatutory Trust I, which was completed February 22, 2001.  Per regulation, 25% of the Tier I capitalratio can be comprised of the trust preferred issue. Illini Statutory Trust Iis a wholly-owned subsidiary of the Company which was formed on January 31,2001, solely for the purpose of issuing capital and common securities.  Illini Statutory Trust I issued 9,279 sharesof preferred securities bearing an interest rate of 10.20% with a maturity dateof February 22, 2031 for net proceeds of $9.0 million, after deductingunderwriting commissions, capital, and other costs.  Also included in the agreement, after the 10th yearthe bank may accelerate payment according to the terms of the agreement.  Illini Statutory Trust I invested theproceeds in junior subordinated debentures of the Company, which also had aninterest rate of 10.20%.  The Companyused $3.0 million of the proceeds from the junior subordinated debentures toincrease the equity capital of Illini Bank. Interest on the junior subordinated debentures and distributions on thepreferred securities are payable semi-annually in arrears, with the firstpayment paid on August 22, 2001. Distribution on the securities is cumulative and based upon theliquidation value of $1,000 per capital security.  The Company has the right, at any time, so long as no event ofdefault has occurred and is continuing, to defer payments of interest on thejunior subordinated debentures for a period not exceeding 10 consecutivesemi-annual periods; provided, that such deferral may not extend beyond thestated maturity of the junior subordinated debentures.  The securities are subject to mandatoryredemption, in whole or in part, upon repayment of the junior subordinateddebentures at maturity or their earlier redemption.

 

Regulatory guidelines require bank holding companies,commercial banks, and thrifts to maintain certain minimum ratios and definecompanies as “well capitalized” that sufficiently exceed the minimumratios.  The banking regulators mayalter minimum capital requirements as a result of revising their internalpolicies and their ratings of individual institutions.  To be “well capitalized,” banks mustmaintain a Tier 1 leverage ratio of no less than 5.0%, a Tier 1 risk basedratio of no less than 6.0%, and a total risk based ratio of no less than 10.0%.Illini’s ratios as of December 31, 2001 were 7.51%, 9.29%, and 10.27%,respectively, which meet the criteria for “well capitalized.” Camp Point’sratios as of December 31, 2001 were 9.94%, 13.74%, and 14.69%, respectively,which meet the criteria for “well capitalized.”  The Corporation’s ratios as of December 31, 2001 were 5.35%,6.75%, and 10.04%, respectively.

 

As of December 31, 2001, management is not aware ofany current recommendations by banking regulatory authorities which, if theywere to be implemented, would have or are reasonably likely to have a materialadverse impact on the Corporation’s liquidity, capital resources, or operations.

 

18

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**RESULTS OF OPERATIONS**

 
|                            |     | **Key Ratios  For the years ended December 31,** |     |
|---------------------------------|----------|--------------------------------------------------|----------|
|                            | **2001** |                                             | **2000** | ** ** | **1999** | ** ** | **1998** | ** ** | **1997** | ** ** |
| Return  on average assets       |     | **0.49**                                         | **%**    | 0.75 | % | 0.39 | % | 0.41 | % | 0.44 | % |
| Return  on average equity       |     | **8.00**                                         |     | 9.42 |   | 4.31 |   | 4.19 |   | 4.44 |   |
| Dividend  payout ratio          |     | **37.88**                                        |     | 33.74 |   | 71.30 |   | 71.15 |   | 69.00 |   |
| Average  equity to assets ratio |     | **6.16**                                         |     | 7.92 |   | 9.00 |   | 9.77 |   | 9.98 |   |

 

•           ***Net Interest Income***

 

Net interest income is the principal component ofIllini Corporation’s net income stream and represents the difference betweeninterest and fee income generated from earning assets and interest expense paidon deposits and borrowed funds. Fluctuations in interest rates, as well as volume and mix changes inearning assets and interest bearing liabilities, can materially impact netinterest income.  The discussion of netinterest income is presented on a taxable equivalent basis to facilitateperformance comparisons among various taxable and tax-exempt assets.

 

Interest income increased $1.9 million from 2000 to2001.  Interest expense increased $1.5million from 2000 to 2001, resulting in an increase in net interest income of$402,000.  The net interest margin fellfrom 4.14% in 2000 to 3.83% in 2001. The decline in the interest margin is due to loans repricing into lowerinterest rates, and the increase in nonperforming loans, caused by the economicdownturn nationally.  The securitiesportfolio has a weighted average tax equivalent yield of 6.66%, while our loanportfolio has an average yield of 8.44%. With the increase in the loan balances, total earning assets increasedto $239.5 million.  Management plans toutilize cash flow from securities as an additional source of funds for loangrowth.

 

The $1.5 million increase in interest expense wasprimarily the result of growth in core deposits as well as a preferred securityof the trust subsidiary issued during 2001. Our average interest bearing liabilities grew $26.8 million, whileexperiencing a 27 basis point decrease to our overall cost of funds, excludingthe effects of the preferred securities of trust subsidiary.  The TAPS issue contributed $786,000 or51.64% of the $1.5 million increase to interest expense for 2001.

 

The decrease in the average yield was the result ofthe Federal Reserve System's effort to stimulate the economy by the repeatedlowering of interest rates during 2001. During 2001, the Federal Open Market Committee, the government body thatestablishes the federal funds rate and the discount rate, lowered these keyinterest rates a total of 11 times.  Thefederal funds rate dropped from a high of 6.5% in January 2001 to 1.75% inDecember 2001.  The interest rates thatthe Company charges to borrowers are greatly influenced by these rates.  The lower interest rate environment madeborrowing more attractive to borrowers and attributed to the growth in theaverage balance of loans

 

19

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**Net Interest Income - Rate/Volume Variance Analysis**

 
|                      |                           | **2001-00**                 |               | **2000-99** |             |
|---------------------------|--------------------------------|-----------------------------|--------------------|-------------|------------------|
|                      | **Changes in  Income/Expense** |                        | **Volume  Effect** |        | **Rate  Effect** |   | **Changes in  Income/Expense** |   | **Volume  Effect** |   | **Rate  Effect** | ** ** |
|                      |                           | **(dollars  in thousands)** | ** **         |
| Short-term  investments   |                           | **$**                       | **(18**            | **)**       | **$**            | **110** | ** ** | **$** | **(128** | **)** | $ | 204 |   | $ | 117 |   | $ | 87 |   |
| Investment  securities:   |                           |                        |               |        |             |   |   |   |   |   |   |   |   |
| Taxable                   |                           | **(585**                    | **)**              | **(474**    | **)**            | **(111** | **)** | 304 |   | 98 |   | 206 |   |
| Nontaxable  (*)           |                           | **217**                     | ** **         | **141**     | ** **       | **76** |   | 350 |   | 265 |   | 85 |   |
| Loans                     |                           | **2,393**                   | ** **         | **3,073**   | ** **       | **(680** | **)** | 3,969 |   | 3,816 |   | 153 |   |
| Total  interest income    |                           | **$**                       | **2,007**          | ** **  | **$**            | **2,850** | ** ** | **$** | **(843** | **)** | $ | 4,827 |   | $ | 4,296 |   | $ | 531 |   |
|                      |                           |                        |               |        |             |   |   |   |   |   |   |   |   |
| Savings  and NOW accounts |                           | **(206**                    | **)**              | **267**     | ** **       | **(473** | **)** | 683 |   | 317 |   | 366 |   |
| Time  deposits            |                           | **579**                     | ** **         | **885**     | ** **       | **(306** | **)** | 2,132 |   | 1,738 |   | 394 |   |
| Short-term  debt          |                           | **(93**                     | **)**              | **70**      | ** **       | **(163** | **)** | 55 |   | (3 | ) | 58 |   |
| Long-term  debt           |                           | **456**                     | ** **         | **260**     | ** **       | **196** |   | 163 |   | 0 |   | 163 |   |
| Preferred  securities of  |                           |                        |               |        |             |   |   |   |   |   |   |   |   |
| Trust  subsidiary         |                           | **786**                     | ** **         | —      | ** **       | **786** |   | — |   | — |   | — |   |
| Total  interest expense   |                           | **$**                       | **1,522**          | ** **  | **$**            | **1,482** | ** ** | **$** | **40** |   | $ | 3,033 |   | $ | 2,052 |   | $ | 981 |   |
|                      |                           |                        |               |        |             |   |   |   |   |   |   |   |   |
| Net  interest income      |                           | **$**                       | **485**            | ** **  | **$**            | **1,368** | ** ** | **$** | **(883** | **)** | $ | 1,794 |   | $ | 2,244 |   | $ | (450 | ) |

 

----

(*) Fully taxableequivalent basis using the federal statutory rate of 34% for all yearspresented.

NOTE:  The change in interest which can not beattributed to only a change in volume or a change in rate, but insteadrepresents a combination of the two factors, has been allocated to the rateeffect.

 

20

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

 
|                                                 |                       | **Year ended  December 31,** |        |
|------------------------------------------------------|----------------------------|------------------------------|-------------|
|                                                 | **2001**                   |                         | **2000**    |   |
|                                                 |                       | **Average  Balance**         |        | **Percent  of Total  Assets** |   | **Interest  Income/Expense** |   | **Average  Yield/Rate** |   | **Average  Balance** |   | **Percent  of Total  Assets** |   | **Interest  Income/Expense** |   | **Average  Yield/Rate** |   |
|                                                 | **(dollars  in thousand)** |                         |
| **ASSETS**                                           |                       |                         |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning  assets:                            |                       |                         |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term  investments                              |                       | **$**                        | **7,283**   | ** ** | **2.8** | **%** | **$** | **331** | ** ** | **4.55 ** | **%** | $ | 5,536 |   | 2.4 | % | $ | 349 |   | 6.30 | % |
| Investment  securities (3)                           |                       |                         | ** **  |   | ** ** |   | ** ** |   | ** ** |   |   |   |   |   |   |   |   |
| Taxable                                              |                       | **37,791**                   | ** **  | **14.5** | ** ** | **2,290** | ** ** | **6.06** | ** ** | 45,235 |   | 19.9 |   | 2,875 |   | 6.36 |   |
| Tax-exempt  (1)                                      |                       | **12,890**                   | ** **  | **5.0** | ** ** | **1,087** | ** ** | **8.43** | ** ** | 11,093 |   | 4.9 |   | 870 |   | 7.84 |   |
| Total  securities                                    |                       | **50,681**                   | ** **  | **19.5** | ** ** | **3,377** | ** ** | **6.66** | ** ** | 56,328 |   | 24.8 |   | 3,745 |   | 6.65 |   |
| Loans                                                |                       |                         | ** **  |   | ** ** |   | ** ** |   | ** ** |   |   |   |   |   |   |   |   |
| Commercial  (1)                                      |                       | **33,739**                   | ** **  | **13.0** | ** ** | **2,829** | ** ** | **8.39** | ** ** | 23,844 |   | 10.5 |   | 2,198 |   | 9.22 |   |
| Agriculture                                          |                       | **12,985**                   | ** **  | **5.0** | ** ** | **970** | ** ** | **7.47** | ** ** | 12,705 |   | 5.6 |   | 1,087 |   | 8.56 |   |
| Real  estate                                         |                       |                         | ** **  |   | ** ** |   | ** ** |   | ** ** |   |   |   |   |   |   |   |   |
| Commercial                                           |                       | **83,258**                   | ** **  | **32.1** | ** ** | **7,074** | ** ** | **8.50** | ** ** | 60,570 |   | 26.7 |   | 5,330 |   | 8.80 |   |
| Agriculture                                          |                       | **7,420**                    | ** **  | **2.9** | ** ** | **629** | ** ** | **8.47** | ** ** | 7,402 |   | 3.3 |   | 644 |   | 8.71 |   |
| Residential                                          |                       | **32,513**                   | ** **  | **12.5** | ** ** | **2,715** | ** ** | **8.35** | ** ** | 33,184 |   | 14.6 |   | 2,706 |   | 8.16 |   |
| Consumer,  net                                       |                       | **13,019**                   | ** **  | **5.0** | ** ** | **1,138** | ** ** | **8.74** | ** ** | 11,121 |   | 4.9 |   | 1,020 |   | 9.18 |   |
| Credit  card                                         |                       | **808**                      | ** **  | **0.3** | ** ** | **148** | ** ** | **18.29** | ** ** | 702 |   | 0.3 |   | 125 |   | 17.76 |   |
| Total  loans                                         |                       | **183,742**                  | ** **  | **70.8** | ** ** | **15,503** | ** ** | **8.44** | ** ** | 149,528 |   | 65.9 |   | 13,110 |   | 8.77 |   |
| Allowance  for loan losses                           |                       | **(2,241**                   | **)**       | **(0.9** | **)** |   |   |   |   | (1,943 | ) | (0.9 | ) |   |   |   |   |
| Net  loans (1) (2)                                   |                       | **181,501**                  | ** **  | **69.9** | ** ** | **15,503** | ** ** | **8.54** | ** ** | 147,585 |   | 65.0 |   | 13,110 |   | 8.88 |   |
| Total  interest earning assets                       |                       | **239,465**                  | ** **  | **92.2** | ** ** | **19,211** | ** ** | **8.02** | ** ** | 209,449 |   | 92.2 |   | 17,204 |   | 8.21 |   |
| Cash  and due from banks                             |                       | **5,847**                    | ** **  | **2.2** | ** ** |   |   |   | ** ** | 6,022 |   | 2.7 |   |   |   |   |   |
| Premises  and equipment                              |                       | **6,961**                    | ** **  | **2.7** | ** ** |   |   |   | ** ** | 7,125 |   | 3.1 |   |   |   |   |   |
| Other  real estate owned                             |                       | **444**                      | ** **  | **0.2** | ** ** |   |   |   | ** ** | 497 |   | 0.2 |   |   |   |   |   |
| Other  assets (3)                                    |                       | **6,883**                    | ** **  | **2.7** | ** ** |   |   |   | ** ** | 4,013 |   | 1.8 |   |   |   |   |   |
| **Total  assets**                                    |                       | **$**                        | **259,600** | ** ** | **100.0** | **%** |   |   |   |   | $ | 227,106 |   | 100.0 | % |   |   |   |   |
|                                                 |                       |                         | ** **  |   | ** ** |   | ** ** |   | ** ** |   |   |   |   |   |   |   |   |
| **LIABILITIES**                                      |                       |                         | ** **  |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Deposits:                                            |                       |                         | ** **  |   | ** ** |   | ** ** |   | ** ** |   |   |   |   |   |   |   |   |
| Non  interest bearing deposits                       |                       | **$**                        | **28,724**  | ** ** | **11.1** | **%** |   |   |   |   | 29,780 |   | 13.1 | % |   |   |   |   |
| Interest  bearing demand                             |                       | **59,356**                   | ** **  | **22.9** | ** ** | **$** | **1,906** | ** ** | **3.21** | **%** | 52,316 |   | 23.0 |   | $ | 2,068 |   | 3.95 | % |
| Savings                                              |                       | **17,288**                   | ** **  | **6.7** | ** ** | **314** | ** ** | **1.82** | ** ** | 17,858 |   | 7.9 |   | 358 |   | 2.01 |   |
| Time  deposits less than $100,000                    |                       | **89,199**                   | ** **  | **34.3** | ** ** | **4,866** | ** ** | **5.45** | ** ** | 77,799 |   | 34.3 |   | 4,434 |   | 5.70 |   |
| Total  core deposits                                 |                       | **194,567**                  | ** **  | **75.0** | ** ** | **7,086** | ** ** | **3.64** | ** ** | 177,753 |   | 78.3 |   | 6,860 |   | 3.86 |   |
| Time  deposits $100,000 and over                     |                       | **28,676**                   | ** **  | **11.0** | ** ** | **1,483** | ** ** | **5.17** | ** ** | 24,388 |   | 10.7 |   | 1,336 |   | 5.48 |   |
| Total  deposits                                      |                       | **223,243**                  | ** **  | **86.0** | ** ** | **8,569** | ** ** | **3.84** | ** ** | 202,141 |   | 89.0 |   | 8,196 |   | 4.05 |   |
| Short-term  debt                                     |                       | **3,098**                    | ** **  | **1.2** | ** ** | **77** | ** ** | **2.49** | ** ** | 2,193 |   | 1.0 |   | 170 |   | 7.77 |   |
| Long-term  debt                                      |                       | **6,000**                    | ** **  | **2.3** | ** ** | **619** | ** ** | **10.31** | ** ** | 2,311 |   | 1.0 |   | 163 |   | 7.05 |   |
| Total  interest bearing liabilities                  |                       | **203,617**                  | ** **  | **78.4** | ** ** | **9,265** | ** ** | **4.55** | ** ** | 176,865 |   | 77.9 |   | 8,529 |   | 4.82 |   |
| Other  liabilities                                   |                       | **3,025**                    | ** **  | **1.2** | ** ** |   |   |   | ** ** | 2,469 |   | 1.1 |   |   |   |   |   |
| Total  liabilities                                   |                       | **235,366**                  | ** **  | **90.7** | ** ** |   |   |   | ** ** | 209,114 |   | 92.1 |   |   |   |   |   |
| Preferred  securities of trust subsidiary (4)        |                       | **8,250**                    | ** **  | **3.2** | ** ** | **786** | ** ** | **9.53** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** |
| Shareholders’  Equity                           |                       | **15,984**                   | ** **  | **6.1** | ** ** |   |   |   | ** ** | 17,992 |   | 7.9 |   |   |   |   |   |
| **Total  liabilities and shareholders’ equity** |                       | **$**                        | **259,600** | ** ** | **100.0** | **%** |   |   |   |   | $ | 227,106 |   | 100.0 | % |   |   |   |   |
| **Net  interest margin**                             |                       |                         |        |   |   | **$** | **9,160** | ** ** | **3.83** | **%** |   |   |   |   | $ | 8,675 |   | 4.14 | % |

 

----

(1)               Incomeamounts are presented on a fully taxable equivalent basis (FTE), which isdefined as income on earning assets that is subject to either a reduced rate orzero rate of income tax, adjusted to give effect to the appropriate incrementalfederal income tax rate and adjusted for non-deductible carrying costs, whereapplicable.  Where appropriate, yieldcalculations include these adjustments. The federal statutory rate was 34% for all years presented.

(2)               Nonaccrualloans are included in the loan balances. Interest income includes related fee income of $388,000 in 2001 and$345,000 in 2000.

(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 a monthly average balanceverses a daily average balance.

 

21

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**Consolidated****AverageBalances, Interest Income/Expense and Yield/Rates**

 
|                                |                        | **Year ended  December 31,** | ** ** |
|-------------------------------------|-----------------------------|------------------------------|------------|
|                                | **1999**                    |                         |
|                                |                        | **Average  Balance**         |       | **Percent  of Total  Assets** |   | **Interest  Income/  Expense** |   | **Average  Yield/  Rate** |   |
|                                | **(dollars  in thousands)** |                         |
| **ASSETS**                          |                        |                         |       |   |   |   |   |   |   |
| Interest-earning  assets:           |                        |                         |       |   |   |   |   |   |   |
| Short-term  investments             |                        | $                            | 3,064      |   | 1.8 | % | $ | 145 |   | 4.73 | % |
| Investment  securities (3)          |                        |                         |       |   |   |   |   |   |   |
| Taxable                             |                        | 43,568                       |       | 25.1 |   | 2,571 |   | 5.90 |   |
| Tax-exempt  (1)                     |                        | 7,350                        |       | 4.2 |   | 520 |   | 7.07 |   |
| Total  securities                   |                        | 50,918                       |       | 29.3 |   | 3,091 |   | 6.07 |   |
| Loans                               |                        |                         |       |   |   |   |   |   |   |
| Commercial  (1)                     |                        | 14,921                       |       | 8.6 |   | 1,327 |   | 8.89 |   |
| Agriculture                         |                        | 8,504                        |       | 4.9 |   | 718 |   | 8.45 |   |
| Real  estate                        |                        |                         |       |   |   |   |   |   |   |
| Commercial                          |                        | 42,029                       |       | 24.2 |   | 3,604 |   | 8.57 |   |
| Agriculture                         |                        | 3,677                        |       | 2.1 |   | 320 |   | 8.70 |   |
| Residential                         |                        | 25,932                       |       | 15.0 |   | 2,154 |   | 8.31 |   |
| Consumer,  net                      |                        | 9,646                        |       | 5.5 |   | 909 |   | 9.43 |   |
| Credit  card                        |                        | 627                          |       | 0.4 |   | 109 |   | 17.36 |   |
| Total  loans                        |                        | 105,336                      |       | 60.7 |   | 9,141 |   | 8.68 |   |
| Allowance  for loan losses          |                        | (1,434                       | )          | (0.8 | ) |   |   |   |   |
| Net  loans (1) (2)                  |                        | 103,902                      |       | 59.9 |   | 9,141 |   | 8.80 |   |
| Total  interest earning assets      |                        | 157,884                      |       | 91.0 |   | 12,377 |   | 7.84 |   |
| Cash  and due from banks            |                        | 5,342                        |       | 3.1 |   |   |   |   |   |
| Premises  and equipment             |                        | 7,289                        |       | 4.2 |   |   |   |   |   |
| Other  real estate owned            |                        | 452                          |       | 0.3 |   |   |   |   |   |
| Other  assets (3)                   |                        | 2,377                        |       | 1.4 |   |   |   |   |   |
| **Total  assets**                   |                        | $                            | 173,344    |   | 100.0 | % |   |   |   |   |
|                                |                        |                         |       |   |   |   |   |   |   |
| **LIABILITIES**                     |                        |                         |       |   |   |   |   |   |   |
| Deposits:                           |                        |                         |       |   |   |   |   |   |   |
| Non  interest bearing deposits      |                        | $                            | 23,921     |   | 13.8 | % |   |   |   |   |
| Interest  bearing demand            |                        | 42,863                       |       | 24.7 |   | $ | 1,393 |   | 3.25 | % |
| Savings                             |                        | 17,382                       |       | 10.0 |   | 350 |   | 2.01 |   |
| Time  deposits less than $100,000   |                        | 52,458                       |       | 30.3 |   | 2,769 |   | 5.28 |   |
| Total  core deposits                |                        | 136,624                      |       | 78.8 |   | 4,512 |   | 3.30 |   |
| Time  deposits $100,000 and over    |                        | 16,700                       |       | 9.7 |   | 869 |   | 5.20 |   |
| Total  deposits                     |                        | 153,324                      |       | 88.5 |   | 5,381 |   | 3.51 |   |
| Short-term  debt                    |                        | 2,251                        |       | 1.3 |   | 115 |   | 5.10 |   |
| Total  interest bearing liabilities |                        | 131,654                      |       | 76.0 |   | 5,496 |   | 4.17 |   |
| Other  liabilities                  |                        | 2,166                        |       | 1.2 |   |   |   |   |   |
| Total  liabilities                  |                        | 157,741                      |       | 91.0 |   |   |   |   |   |
| Shareholders’  Equity          |                        | 15,603                       |       | 9.0 |   |   |   |   |   |
| **Total  liabilities and**          |                        |                         | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **shareholders’  equity**      |                        | $                            | 173,344    |   | 100.0 | % |   |   |   |   |
| **Net  interest margin**            |                        |                         |       |   |   | $ | 6,881 |   | 4.36 | % |
|                                     |                             |                              |            |  |  |  |  |  |  |  |  |  |

 

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(1)               Incomeamounts are presented on a fully taxable equivalent basis (FTE), which isdefined as income on earning assets that is subject to either a reduced rate orzero rate of income tax, adjusted to give effect to the appropriate incrementalfederal income tax rate and adjusted for non-deductible carrying costs, whereapplicable.  Where appropriate, yieldcalculations include these adjustments. The federal statutory rate was 34% for all years presented.

(2)               Nonaccrualloans are included in the loan balances. Interest income includes related fee income of $293,000 in 1999.

(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 a monthly average balanceverses a daily average balance.

 

22

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***•              Provision for Loan Losses, Net Charge-Offs andAllowance for Loan Losses***

 

The provision for loanlosses charged to earnings was $0.6 million for 2001, an increase of $0.1million, or 12.0%, from the $0.5 million in 2000.  During 1999, the provision for loan losses was $0.3 million.  The ratio of net charge-offs to averageloans outstanding has increased from 0.09% to 0.03% to 0.38% for the yearsended December 31, 1999, 2000 and 2001, respectively.  The provision for loan loss expense increased to $605,000 for2001 from $540,000 in 2000 primarily due to management's intent to maintain alevel of reserves consistent with the Companies risk profile.  Nonaccrual loans increased to $4,920,000 atDecember 31, 2001, compared to $772,000 at December 31, 2000.

 

The management of IlliniCorporation considers a number of factors in determining the amount of theallowance for loan losses.  Thesefactors include, but are not limited to, the following:

 

•    Historicaldata and trends relating to net charge-offs, average loans, and the level ofthe allowance for loan losses;

•    Otherhistorical data and trends, including the allowance as a percentage of totalloans outstanding and loan volume;

•              Borrowers identified on Illini’s and CampPoint’s watch list, borrowers with significant credit exposure, and loans thatare past due or on nonaccrual status;

•              The capability of management’s creditrisk management processes to successfully underwrite credit and to identify andresolve problem loans on an ongoing basis;

•    Resultsof continuing reviews of individual higher risk loans by management personnel;and

•    Considerationas to the impact of present economic conditions on the loan portfolio.

 

The allowance for loanlosses as a percent of total loans decreased from 1.30% at December 31, 2000,to 1.06% at December 31, 2001.  In thefourth quarter of 2001 Illini wrote off $547,000 of loans of which $535,000 wasrelated to a single commercial loan. Management believes at this time this single exposure was ananomaly.  Illini did however increaseits regular provision to maintain its reserve for losses at a level sufficientto cover the existing risk profile of its loan portfolio.

 

23

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***•              Summary of LoanLoss Experience***

 

The following summarypresents the changes in the allowance for loan losses for the years endedDecember 31, 2001, 2000, and 1999:

 
|                                                                     |                        | **2001** |        | **2000** |       | **1999** |       |
|--------------------------------------------------------------------------|-----------------------------|----------|-------------|----------|------------|----------|------------|
|                                                                     | **(dollars  in thousands)** |     |
| Average  loans outstanding                                               |                        | **$**    | **183,742** |     | $          | 149,528  |       | $ | 105,336 |   |
|                                                                     |                        |     |        |     |       |     |       |
| Allowance for loan losses:                                               |                        |     | ** **  |     | ** ** |     | ** ** |
| Balance  at beginning of year                                            |                        | **$**    | **2,188**   |     | $          | 1,696    |       | $ | 1,368 |   |
| Purchase  of Camp Point                                                  |                        | —   |        | —   |       | 153      |       |
|                                                                     |                        |     |        |     |       |     |       |
| Loans  charged-off:                                                      |                        |     |        |     |       |     |       |
| Commercial,  financial, and agricultural                                 |                        | **(581** | **)**       | (55      | )          | (57      | )          |
| Real  estate                                                             |                        | **(108** | **)**       | (23      | )          | (58      | )          |
| Consumer                                                                 |                        | **(51**  | **)**       | (114     | )          | (87      | )          |
| Total                                                                    |                        | **(740** | **)**       | (192     | )          | (202     | )          |
| Recoveries  of loans previously charged-off:                             |                        |     |        |     |       |     |       |
| Commercial,  financial, and agricultural                                 |                        | **16**   |        | 79       |       | 60       |       |
| Real  estate                                                             |                        | **19**   |        | 7        |       | 5        |       |
| Consumer                                                                 |                        | **15**   |        | 58       |       | 37       |       |
| Total                                                                    |                        | **50**   |        | 144      |       | 102      |       |
| Net  charge-offs                                                         |                        | **(690** | **)**       | (48      | )          | (100     | )          |
| Provision  charged to expense                                            |                        | **605**  |        | 540      |       | 275      |       |
| Balance  at end of year                                                  |                        | **$**    | **2,103**   |     | $          | 2,188    |       | $ | 1,696 |   |
|                                                                     |                        |     |        |     |       |     |       |
| Ratio  of net charge-offs to average loans outstanding during the period |                        | **0.38** | **%**       | 0.03     | %          | 0.09     | %          |

 

In 2001, as illustratedin the preceding chart, loan losses increased in all areas except consumer,which had a $63,000 decrease. An overall increase in net charge-offs reflectsthe downturn in the U.S. economy and its impact on the major loan categories ofthe compamy.

 

Efforts continue tomaintain quality, and to enhance credit quality processes and controls.

 

***•              Allowance Allocation***

 

The risk of lossesinherent in the loan portfolio is not precisely attributable to a particularloan or category of loans.  There wereno changes in estimation methods or assumptions that affected our methodologyfor assessing the appropriateness of the allowance for loan losses fromDecember 31, 2000 through December 31, 2001. The change in allocation among the various loan categories relatedprimarily to an increase in the specific allowance allocation due to individualcredit exposure as identified by management. Based on its review for adequacy, management has estimated thoseportions of the allowance that could be attributable to major categories ofloans as follows:

 

24

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|                                    |       | **2001**                    |                  | **2000**   |       |
|-----------------------------------------|------------|-----------------------------|-----------------------|------------|------------|
|                                    | **Amount** |                        | **% of Total  Loans** |       | **Amount** |   | **% of Total  Loans** |   |
|                                    |       | **(dollars  in thousands)** |                  |
| Commercial,  financial, and agriculture |       | **$**                       | **1,527**             | ** ** | **27.30**  | **%** | $ | 1,164 |   | 24.03 | % |
| Real  estate                            |       | **357**                     | ** **            | **66.23**  |       | 710 |   | 68.70 |   |
| Consumer                                |       | **219**                     | ** **            | **6.47**   |       | 314 |   | 7.27 |   |
| Total  allowance for loan losses        |       | **$**                       | **2,103**             | ** ** | **100.00** | **%** | $ | 2,188 |   | 100.00 | % |

 

These allocationestimates do not specifically represent that loan charge-offs of that magnitudewill be incurred, nor do these allocations restrict future loan lossesattributable to a particular category from being absorbed by the allowanceattributable to other categories.  Therisk factors considered when estimating the allocations for major loancategories are the same as the factors considered when determining the adequacyof the overall allowance as specified in the allowance summary.  Due to a significant increase ofnonperforming commercial real estate loans the allowance for this category ofloans, and identified as commercial, financial and agriculture in the abovetable, increased from $1,164,000 in 2000 to $1,527,000 in 2001.

 

***•              Nonperforming Assets***

 

Nonperforming assetsconsist of loans greater than 90 days past due, nonaccrual loans, loans withrestructured terms and other real estate owned.  Loans are generally classified as nonaccrual when there arereasonable doubts as to the collectibility of principal and interest or whenpayment becomes 90 days past due, except loans which are well secured and inthe process of collection.  Interestcollection on nonaccrual loans for which the ultimate collectibility ofprincipal is uncertain is applied as principal reduction.  Otherwise, such collections are applied tointerest when received.  The followingtable presents information concerning the aggregate amount of nonperformingassets and loans 90 days or more past due but still accruing interest.
|                                  |     | **December  31,**           |      |
|---------------------------------------|----------|-----------------------------|-----------|
|                                  | **2001** |                        | **2000**  |   |
|                                  |     | **(dollars  in thousands)** |      |
| Nonaccrual                            |     | **$**                       | **4,920** |   | $ | 772 |   |
| Renegotiated                          |     | —                      |      | — |   |
| Accruing  loans past due 90 days      |     | —                      |      | — |   |
| Other  real estate owned              |     | **370**                     |      | 359 |   |
| Nonperforming  assets                 |     | **$**                       | **5,290** |   | $ | 1,131 |   |
|                                  |     |                        |      |   |   |
| Nonperforming  loans to total loans   |     | **2.47**                    | **%**     | 0.46 | % |
| Nonperforming  assets to total assets |     | **1.93**                    | **%**     | 0.47 | % |

 

Nonperforming assetstotaled $5,290,000 as of year-end 2001, an increase of $4,159,000 from the$1,131,000 at year-end 2000.  Totalnonperforming assets represent 1.93% of total assets at December 31, 2001,compared to 0.47% at December 31, 2000. Impaired loans as of December 31, 2001 and 2000 were $5,132,000 and$772,00 respectively, and include all nonaccrual loans.

 

Nonperforming loansincreased $4,148,000, to a total of $4,920,000 at year-end 2001. The majorityof the increase is a result of six commercial real estate loans and two commercialloans, which are in various stages of foreclosure or litigation.  As of December 31, 2001, nonperforming loansto total loans were

 

25

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2.47% compared to 0.46%and 0.41% for years ended 2000 and 1999. The increase in nonperforming loans is due to a weaker economy.  After slowing significantly during the firsteight months of 2001, the U.S. economy suffered an additional shock from theSeptember 11th terrorist attacks on New York and Washington.  This development spread to all regions ofthe country and has had an affect on loan quality in nearly every banking lineof business.  Illini and Camp Point didnot carry any loans past due more than 90 days and still accruing interest asof December 31, 2001.  Individualnonaccrual loans are written down to management's estimate of the netrealizable value of collateral and/or realistic estimates of other paymentsfrom the borrower.  Additionally,specific allocations to the allowance for loan losses are made on loans wherethere may be uncertainties as to the collection of the estimated value ofcollateral.

 

***•              Potential Problem Loans***

 

As of December 31, 2001,there were no loans not included in the above table identified by management ashaving potential weaknesses, which, if not corrected, could affect theborrower’s ability to comply with the current loan repayment terms. 

 

***•              NoninterestIncome***

 

The following tabledepicts the amount of and annual changes in noninterest income categories:

 
|                                 |     | **Year Ended  December 31,** |      | **Percent  Change** |     |
|--------------------------------------|----------|------------------------------|-----------|---------------------|----------|
|                                 | **2001** |                         | **2000**  | ** **          | **1999** |   | **2001/2000** | ** ** | **2000/1999** |   |
|                                 |     | **(dollars  in thousands)**  |      |
| Service  charges on deposit accounts |     | **$**                        | **1,367** |                | $        | 1,361 |   | $ | 1,305 | ** ** | **0.4** | **%** | 4.3 | % |
| Other  fee income                    |     | **290**                      |      | 283                 |     | 206 | ** ** | **2.5** |   | 37.4 |   |
| Mortgage  loan servicing fees        |     | **265**                      |      | 212                 |     | 222 | ** ** | **25.0** |   | (4.5 | ) |
| Gains  on sales of mortgage loans    |     | **569**                      |      | 23                  |     | 42 | ** ** | **2,373.9** |   | (45.2 | ) |
| Gain  on deposit premiums            |     | —                       |      | 695                 |     | — | ** ** | **(100.0** | **)** | N/A |   |
| Gain  on sale of fixed assets        |     | **(13**                      | **)**     | 379                 |     | — | ** ** | **(103.4** | **)** | N/A |   |
| Gains  on sales of securities, net   |     | **136**                      |      | (13                 | )        | 6 | ** ** | **1,146.2** |   | (316.7 | ) |
| Gains  (losses) on sales of other    |     |                         |      |                |     |   |   |   |   |   |   |
| real  estate owned                   |     | **29**                       |      | (6                  | )        | 25 | ** ** | **583.3** |   | (124.0 | ) |
| Other                                |     | **189**                      |      | 148                 |     | 97 | ** ** | **27.7** |   | 52.6 |   |
|                                 |     | **$**                        | **2,832** |                | $        | 3,082 |   | $ | 1,903 | ** ** | **(8.1** | **)** | (62.0 | ) |

 

Total non-interest incomedecreased $250,000 from 2000 to 2001. The decrease is a result of the sale of three Menard County branches inOctober 2000.  Deducting the gain ondeposit premium and gain on sale of the branch fixed assets from 2000, thenon-interest income for 2001 would have increased $824,000.  The largest contributors to the non-interestincome in 2001 was the increase in gains on the sale of mortgage loans,increased mortgage loan servicing fees, and the sale of stock of a serviceprovider for bank ATM's.  In the currentyear gains on sales of mortgage loans, including the capitalization of mortgageservicing rights, resulted in an increase in income of $546,000 to a total of$569,000 for the year ending December 31, 2001.  The increase is a result of refinancing of mortgage loans thatwas a direct result of lower interest rates.

 

26

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***•              NoninterestExpense***

 

The following tabledepicts the amount of and annual changes in noninterest expense categories:

 
|                                       |   | **Year Ended  December 31,** |      | **Percent  Change** |   |
|--------------------------------------------|--------|------------------------------|-----------|---------------------|--------|
|                                       |   | **2001**                     |      | **2000**            |   | **1999** |   | **2001/2000** |   | **2000/1999** |   |
|                                       |   | **(dollars  in thousands)**  |      |
| Salaries  and employee benefits            |   | **$**                        | **4,358** |                | $      | 3,770 |   | $ | 3,102 | ** ** | **15.6** | **%** | 21.5 | % |
| Net  occupancy expense                     |   | **780**                      |      | 810                 |   | 835 | ** ** | **(3.7** | **)** | (3.0 | ) |
| Equipment  expense                         |   | **359**                      |      | 407                 |   | 402 | ** ** | **(11.8** | **)** | 1.2 |   |
| Data  processing                           |   | **807**                      |      | 717                 |   | 653 | ** ** | **12.6** |   | 9.8 |   |
| Supplies                                   |   | **199**                      |      | 166                 |   | 179 | ** ** | **19.9** |   | (7.3 | ) |
| Communication  and transportation          |   | **451**                      |      | 462                 |   | 430 | ** ** | **(2.4** | **)** | 7.4 |   |
| Marketing  and advertising                 |   | **195**                      |      | 189                 |   | 88 | ** ** | **3.2** |   | 114.8 |   |
| Correspondent  and processing fees         |   | **311**                      |      | 266                 |   | 217 | ** ** | **16.9** |   | 22.6 |   |
| Loan  and other real estate owned expenses |   | **102**                      |      | 60                  |   | 44 | ** ** | **70.0** |   | 36.4 |   |
| Professional  fees                         |   | **914**                      |      | 1,078               |   | 1,007 | ** ** | **(15.2** | **)** | 7.1 |   |
| Regulatory  fees                           |   | **123**                      |      | 100                 |   | 63 | ** ** | **23.0** |   | 58.7 |   |
| Other                                      |   | **659**                      |      | 527                 |   | 396 | ** ** | **25.0** |   | 33.1 |   |
| Total  noninterest expense                 |   | **$**                        | **9,258** |                | $      | 8,552 |   | $ | 7,416 | ** ** | **8.3** |   | 15.3 |   |

 

Total non-interestexpense increased $706,000 in 2001, as compared to year ended 2000.  Salaries and benefits increased $588,000 andwas a result of cost of living adjustments to base salaries and performanceincentives.  Data processing expenseincreased $90,000 and is due to costs of a systems conversion and upgrading ofthe information and processing system. Other operating expense increased $132,000.  The increase is due to education, travel and additional customernotification expense related to the system conversion.

 

***•              Income Tax Expense***

 

Total income tax expensewas $471,000 in 2001, compared to $674,000 in 2000.  The decrease is attributable to higher taxable income in2000.  The effective tax rates for theyears ended December 31, 2001 and 2000 were 26.9% and 28.5%.  The effective tax rate was higher in 2000 asnet income was higher due to the gain on the sale of bank assets, and gain onsale of deposits in Menard County.

 

***•           NewAccounting Pronouncements***

 

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

 

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

 

27

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In July 2001, theFinancial Accounting Standards Board issued SFAS No. 141, "BusinessCombinations" and SFAS No. 142,  "Goodwill and OtherIntangible Assets." SFAS No. 141 requires that all businesscombinations  be accounted for using thepurchase  method of accounting  and requires separate  recognition of intangible  assets that meet certain  criteria. This statement applies to all business combinations after June 30, 2001.

 

SFAS No.  142 requires that an intangible asset thatis acquired shall be initially recognized and measured based on its fairvalue.  This statement also providesthat goodwill should not be amortized, but shall be tested for impairmentannually, or more frequently if circumstances indicate potential impairment,through a comparison of fair value to its carrying amount. SFAS No. 142 iseffective for fiscal periods beginning after December 15, 2001. The Company hasgoodwill of $1,600,000 as of December 31, 2001 related to the Camp Pointacquisition.  The Company continued toamortize the existing goodwill through the remainder of fiscal 2001.  As of January 1, 2002, identifiableintangible assets, if any will continue to be amortized while the amortizationof goodwill will cease and will be reviewed for impairment. The ultimate impactof the new accounting standards has not yet been determined.  Goodwill amortization expense for the yearended December 30, 2001 was $162,000.

 

In July 2001, SFAS No.143, “Accounting for Asset Retirement Obligations” was issued.  SFAS No. 143 establishes standards foraccounting and reporting of obligations associated with the retirement oftangible long-lived assets and associated asset retirement costs.  SFAS No. 143 is effective beginning June 15,2002.  The adoption of this statement isnot expected to have an impact on the Company.

 

In October 2001, SFAS No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” wasissued.  Under SFAS No. 144, long-livedassets to be sold within one year must be separately identified and carried atthe lower of carrying value or fair value less costs to sell.  Long-lived assets expected to be held longerthan one year are subject to depreciation and must be written down to fairvalue upon impairment.  Long-livedassets no longer expected to be sold within one year, such as some foreclosedreal estate, must be written down to the lower of current fair value or fairvalue at the date of foreclosure adjusted to reflect depreciation sinceacquisition.  SFAS No. 144 must be implementedby January 1, 2002.  The adoption ofthis statement is not expected to have an impact on the Company.

 

***•              Effects of Inflation***

 

The effects of inflationon financial institutions are different from the effects on other commercialenterprises due to making fewer significant capital or inventory expenditureswhich are directly affected by changing prices.  Because bank assets and liabilities are virtually all monetary innature, inflation does not affect a financial institution as much as do changesin interest rates. The general level of inflation does, in fact, underlie thegeneral level of most interest rates; however, interest rates do not increaseat the rate of inflation as do the prices of goods and services.  Rather, interest rates react more to thechanges in the expected rate of inflation and to changes in monetary and fiscalpolicy.

 

Inflation, however, doeshave an impact on the growth of total assets in the banking industry, oftenresulting in a need to increase capital at higher than normal rates to maintainan appropriate capital-to-asset ratio.

 

**ITEM 7. - FINANCIAL STATEMENTS**

 

Index to IlliniCorporation’s Consolidated Financial Statements.

 
| Independent Accountants'  Report                                                                      |
|-------------------------------------------------------------------------------------------------------|
| Consolidated  Balance Sheets as of December 31, 2001 and 2000                                         |
| Consolidated  Statements of Income for the years ended December 31, 2001 and 2000                     |
| Consolidated  Statements of Shareholders’ Equity for the years ended December 31, 2001 and  2000 |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2001 and 2000                 |
| Notes to  Consolidated Financial Statements                                                           |

 

28

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**Independent Accountant's Report**

 

To the Stockholders andBoard of DirectorsIllini CorporationSpringfield, Illinois

 

We have audited theaccompanying consolidated balance sheets of Illini Corporation and subsidiariesas of December 31, 2001 and 2000, and the related consolidated statements ofincome, shareholders' equity, and cash flows for the years then ended. These consolidated financial statementsare the responsibility of the Company's management. Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudits. 

 

We conducted our auditsin accordance with auditing standards generally accepted in the United Statesof America. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion. 

 

In our opinion, theconsolidated financial statements described above present fairly, in allmaterial respects, the consolidated financial position of Illini Corporationand subsidiaries as of December 31, 2001 and 2000, and the results of their operationsand their cash flows for the years then ended in conformity with accountingprinciples generally accepted in the United States of America. 

 

/s/ BKD LLPDecatur, IllinoisMarch 1, 2002

 

29

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**ILLINI CORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATED BALANCE SHEETS**

**December 31, 2001 and 2000**

 
|                                                                                           |                                                  | **2001**    |        | **2000** |           |
|------------------------------------------------------------------------------------------------|-------------------------------------------------------|-------------|-------------|----------|----------------|
|                                                                                           | **(dollars  in thousands, except per share amounts)** |        |
| ASSETS:                                                                                        |                                                  |        |        |     |           |
| Cash  and due from banks                                                                       |                                                  | **$**       | **8,146**   |     | $              | 6,993 |   |
| Interest-bearing  deposits in other banks                                                      |                                                  | **29**      |        | 30       |           |
| Federal  funds sold                                                                            |                                                  | **7,410**   |        | —   |           |
| Cash  and cash equivalents                                                                     |                                                  | **15,585**  |        | 7,023    |           |
| Investment  securities available for sale, at fair value                                       |                                                  | **49,156**  |        | 54,602   |           |
| Loans,  net of allowance for loan losses                                                       |                                                  | **196,913** |        | 166,781  |           |
| Premises  and equipment                                                                        |                                                  | **6,946**   |        | 6,555    |           |
| Accrued  interest receivable                                                                   |                                                  | **2,549**   |        | 2,395    |           |
| Other  real estate owned                                                                       |                                                  | **370**     |        | 359      |           |
| Goodwill  and other intangibles                                                                |                                                  | **2,248**   |        | 2,023    |           |
| Other  assets                                                                                  |                                                  | **745**     |        | 293      |           |
|                                                                                           |                                                  | **$**       | **274,512** |     | $              | 240,031 |   |
|                                                                                           |                                                  |        |        |     |           |
| LIABILITIES  AND SHAREHOLDERS’ EQUITY:                                                    |                                                  |        |        |     |           |
| Noninterest-bearing  demand deposits                                                           |                                                  | **$**       | **34,140**  |     | $              | 32,725 |   |
| Interest-bearing  deposits:                                                                    |                                                  |        |        |     |           |
| NOW  and money market accounts                                                                 |                                                  | **60,057**  |        | 52,571   |           |
| Savings  deposits                                                                              |                                                  | **17,995**  |        | 16,651   |           |
| Time  deposits, $100,000 and over                                                              |                                                  | **31,842**  |        | 26,143   |           |
| Other  time deposits                                                                           |                                                  | **94,793**  |        | 75,202   |           |
| Total  deposits                                                                                |                                                  | **238,827** |        | 203,292  |           |
|                                                                                           |                                                  |        |        |     |           |
| Short-term  debt                                                                               |                                                  | **1,613**   |        | 8,481    |           |
| Long-term  debt                                                                                |                                                  | **8,471**   |        | 6,000    |           |
| Preferred  securities of subsidiary trust                                                      |                                                  | **9,000**   |        | —   |           |
| Accrued  interest payable                                                                      |                                                  | **1,414**   |        | 1,181    |           |
| Other  liabilities                                                                             |                                                  | **1,597**   |        | 1,719    |           |
| Total  liabilities                                                                             |                                                  | **260,922** |        | 220,673  |           |
|                                                                                           |                                                  |        |        |     |           |
| COMMITMENTS  AND CONTINGENT LIABILITIES                                                        |                                                  |        |        |     |           |
|                                                                                           |                                                  |        |        |     |           |
| Shareholders’  equity:                                                                    |                                                  |        |        |     |           |
| Common  stock-$10 par value, authorized 800,000 shares;  571,789 shares issued and outstanding |                                                  | **5,718**   |        | 5,718    |  

  |
| Capital  surplus                                                                               |                                                  | **3,358**   |        | 3,358    |           |
| Retained  earnings                                                                             |                                                  | **10,775**  |        | 9,948    |           |
| Accumulated  other comprehensive income                                                        |                                                  | **943**     |        | 334      |           |
| Less:  Treasury shares, at cost, 160,088 shares  for 2001                                 |                                                  | **(7,204**  | **)**       | —   |           |
| Total  shareholders’ equity                                                               |                                                  | **13,590**  |        | 19,358   |           |
|                                                                                           |                                                  | **$**       | **274,512** |     | $              | 240,031 |   |

 

See accompanying notes toconsolidated financial statements.

 

30

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**ILLINI CORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF INCOME**

**Years Ended December 31****, 2001 and2000**

 
|                                                                                                                    |                                                  | **2001**   |       | **2000** |   |
|-------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------|------------|------------|----------|--------|
|                                                                                                                    | **(dollars  in thousands, except per share amounts)** |       |
| Interest  income:                                                                                                       |                                                  |       |       |     |   |
| Interest  and fees on loans                                                                                             |                                                  | **$**      | **15,461** |     | $      | 13,084 |   |
| Interest  on investment securities:                                                                                     |                                                  |       |       |     |   |
| Taxable                                                                                                                 |                                                  | **2,290**  |       | 2,875    |   |
| Exempt  from federal income taxes                                                                                       |                                                  | **750**    |       | 600      |   |
| Interest  on short-term investments                                                                                     |                                                  | **331**    |       | 349      |   |
| Total  interest income                                                                                                  |                                                  | **18,832** |       | 16,908   |   |
| Interest  expense:                                                                                                      |                                                  |       |       |     |   |
| Interest  on deposits:                                                                                                  |                                                  |       |       |     |   |
| NOW  and money market accounts                                                                                          |                                                  | **1,906**  |       | 2,068    |   |
| Savings  deposits                                                                                                       |                                                  | **314**    |       | 358      |   |
| Time  deposits, $100,000 and over                                                                                       |                                                  | **1,483**  |       | 1,336    |   |
| Other  time deposits                                                                                                    |                                                  | **4,866**  |       | 4,434    |   |
| Interest  on short-term debt                                                                                            |                                                  | **77**     |       | 170      |   |
| Interest  on long-term debt                                                                                             |                                                  | **619**    |       | 163      |   |
| Interest  on preferred securities of subsidiary trust                                                                   |                                                  | **786**    |       | ----     |   |
| Total  interest expense                                                                                                 |                                                  | **10,051** |       | 8,529    |   |
|                                                                                                                    |                                                  |       |       |     |   |
| Net  interest income                                                                                                    |                                                  | **8,781**  |       | 8,379    |   |
| Provision  for loan losses                                                                                              |                                                  | **605**    |       | 540      |   |
| Net  interest income after provision for loan losses                                                                    |                                                  | **8,176**  |       | 7,839    |   |
| Noninterest  income:                                                                                                    |                                                  |       |       |     |   |
| Service  charges on deposit accounts                                                                                    |                                                  | **1,367**  |       | 1,361    |   |
| Other  fee income                                                                                                       |                                                  | **290**    |       | 283      |   |
| Mortgage  loan servicing fees                                                                                           |                                                  | **265**    |       | 212      |   |
| Gains  on sales of mortgage loans                                                                                       |                                                  | **569**    |       | 23       |   |
| Gains  on sale of branch deposits                                                                                       |                                                  | **----**   |       | 695      |   |
| Gains  (losses) on sales of securities, net                                                                             |                                                  | **136**    |       | (13      | )      |
| Gains  (losses) on sales of fixed assets                                                                                |                                                  | **(13**    | **)**      | 379      |   |
| Gains  (losses) on sales of other real estate owned                                                                     |                                                  | **29**     |       | (6       | )      |
| Other                                                                                                                   |                                                  | **189**    |       | 148      |   |
| Total  noninterest income                                                                                               |                                                  | **2,832**  |       | 3,082    |   |
| Noninterest  expense:                                                                                                   |                                                  |       |       |     |   |
| Salaries  and employee benefits                                                                                         |                                                  | **4,358**  |       | 3,770    |   |
| Net  occupancy expense                                                                                                  |                                                  | **780**    |       | 810      |   |
| Equipment  expense                                                                                                      |                                                  | **359**    |       | 407      |   |
| Data  processing fees                                                                                                   |                                                  | **807**    |       | 717      |   |
| Supplies  expense                                                                                                       |                                                  | **199**    |       | 166      |   |
| Communication  and transportation expense                                                                               |                                                  | **451**    |       | 462      |   |
| Marketing  and advertising expense                                                                                      |                                                  | **195**    |       | 189      |   |
| Correspondent  and processing fees                                                                                      |                                                  | **311**    |       | 266      |   |
| Loan  and other real estate owned expense                                                                               |                                                  | **102**    |       | 60       |   |
| Professional  fees                                                                                                      |                                                  | **914**    |       | 1,078    |   |
| Regulatory  fees                                                                                                        |                                                  | **123**    |       | 100      |   |
| Other                                                                                                                   |                                                  | **659**    |       | 527      |   |
| Total  noninterest expense                                                                                              |                                                  | **9,258**  |       | 8,552    |   |
| Income  before income tax expense                                                                                       |                                                  | **1,750**  |       | 2,369    |   |
| Income  tax expense                                                                                                     |                                                  | **471**    |       | 674      |   |
| Net  income                                                                                                             |                                                  | **$**      | **1,279**  |     | $      | 1,695 |   |
| Basic  earnings per share (based on weighted average common shares outstanding of  483,741 in 2001 and 571,789 in 2000) |                                                  | **$**      | **2.64**   |     | $      | 2.96 |   |

 

See accompanying notes toconsolidated financial statements.

 

31

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**ILLINI CORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF SHAREHOLDERS’ EQUITY**

**YearsEnded December 31****,2001 and 2000**

 
|                                                                                                              |   | **Common  stock**                                    |       | **Capital  surplus** | ** ** | **Retained  earnings** | ** ** | **Treasury  stock** | ** ** | **Accumulated  other  comprehensive  income (loss)** |   | **Total** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|------------|----------------------|------------|------------------------|------------|---------------------|------------|------------------------------------------------------|--------|-----------|------------|
|                                                                                                              |   | **(dollars in thousands, except per share amounts)** | ** ** |
| Balance at January 1, 2000                                                                                        |   | $                                                    | 5,718      |                 | $          | 3,358                  |       | $                   | 8,825      |                                                 | — |      | $          | (575 | ) | $ | 17,326 |   |
|                                                                                                              |   |                                                 |       |                 |       |                   |       |                |       |                                                 |   |      |       |
| Comprehensive income:                                                                                             |   |                                                 |       |                 |       |                   |       |                |       |                                                 |   |      |       |
| Net income                                                                                                        |   | —                                               |       | —               |       | 1,695                  |       | —              |       | —                                               |   | 1,695     |       |
| Change in unrealized gains (losses) on securities  available for sale, net of tax and reclassification adjustment |   | —                                               |       | —               |       | —                 |       | —              |       | 909                                                  |   | 909       |       |
| Total comprehensive income                                                                                        |   |                                                 |       |                 |       |                   |       |                |       |                                                 |   | 2,604     |       |
| Cash dividends paid -$1.00 per share                                                                              |   | —                                               |       | —               |       | (572                   | )          | —              |       | —                                               |   | (572      | )          |
|                                                                                                              |   |                                                 |       |                 |       |                   |       |                |       |                                                 |   |      |       |
| Balance at December 31, 2000                                                                                      |   | 5,718                                                |       | 3,358                |       | 9,948                  |       | —              |       | 334                                                  |   | 19,358    |       |
|                                                                                                              |   |                                                 |       |                 |       |                   |       |                |       |                                                 |   |      |       |
| Comprehensive income:                                                                                             |   |                                                 |       |                 |       |                   |       |                |       |                                                 |   |      |       |
| Net income                                                                                                        |   | —                                               |       | —               |       | 1,279                  |       | —              |       | —                                               |   | 1,279     |       |
| Change in unrealized gains (losses) on securities  available for sale, net of tax and reclassification adjustment |   | —                                               |       | —               |       | —                 |       | —              |       | 609                                                  |   | 609       |       |
| Total comprehensive income                                                                                        |   |                                                 |       |                 |       |                   |       |                |       |                                                 |   | 1,888     |       |
| Purchase of treasury stock (160,088 shares)                                                                       |   |                                                 |       |                 |       |                   |       | (7,204              | )          |                                                 |   | (7,204    | )          |
| Cash dividends paid -$1.00 per share                                                                              |   | —                                               |       | —               |       | (452                   | )          | —              |       | —                                               |   | (452      | )          |
|                                                                                                              |   |                                                 |       |                 |       |                   |       |                |       |                                                 |   |      |       |
| Balance at December 31, 2001                                                                                      |   | $                                                    | 5,718      |                 | $          | 3,358                  |       | $                   | 10,775     |                                                 | $      | (7,204    | )          | $ | 943 |   | $ | 13,590 |   |
|                                                                                                                   |        |                                                      |            |                      |            |                        |            |                     |            |                                                      |        |           |            |  |  |  |  |  |  |  |

 

See accompanying notes toconsolidated financial statements.

 

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**ILLINI CORPORATION AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**YearsEnded December 31****,2001 and 2000**

 
|                                                                               |                        | **2001**    |       | **2000**   |   |
|------------------------------------------------------------------------------------|-----------------------------|-------------|------------|------------|--------|
|                                                                               | **(dollars  in thousands)** |        |
| Cash  flows from operating activities:                                             |                        |        |       |
| Net  income                                                                        |                        | **$**       | **1,279**  | ** ** | $      | 1,695 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |                        |        |       |       |   |
| Depreciation  and amortization                                                     |                        | **939**     | ** ** | 874        |   |
| Amortization  of goodwill and other intangibles                                    |                        | **196**     | ** ** | 164        |   |
| Provision  for loan losses                                                         |                        | **605**     | ** ** | 540        |   |
| Investment  security amortization (accretion), net                                 |                        | **(106**    | **)**      | 39         |   |
| (Gains)  losses on sales of securities, net                                        |                        | **(136**    | **)**      | 13         |   |
| Federal  Home Loan Bank stock dividend                                             |                        | **(40**     | **)**      | (5         | )      |
| Gains  on sales of mortgage loans                                                  |                        | **(569**    | **)**      | (23        | )      |
| Net  gain on sale of branch deposits                                               |                        | —      | ** ** | (695       | )      |
| (Gains)  losses on sale of premises and equipment                                  |                        | **13**      | ** ** | (379       | )      |
| Deferred  tax benefit                                                              |                        | **(48**     | **)**      | (371       | )      |
| (Gains)  losses on sales of other real estate owned                                |                        | **(29**     | **)**      | 6          |   |
| Increase  in accrued interest receivable                                           |                        | **(154**    | **)**      | (487       | )      |
| Increase  in accrued interest payable                                              |                        | **233**     | ** ** | 147        |   |
| Origination  of secondary market mortgage loans                                    |                        | **(26,325** | **)**      | (6,250     | )      |
| Proceeds  from the sales of secondary market mortgage loans                        |                        | **27,040**  | ** ** | 6,067      |   |
| Other,  net                                                                        |                        | **(880**    | **)**      | 528        |   |
| Net  cash provided by operating activities                                         |                        | **2,018**   | ** ** | 1,863      |   |
| Cash  flows from investing activities:                                             |                        |        |       |       |   |
| Proceeds  from sales of investment securities available for sale                   |                        | **1,004**   |       | 4,757      |   |
| Proceeds  from maturities and paydowns of investment securities available for sale |                        | **26,593**  |       | 7,011      |   |
| Purchases  of investment securities available for sale                             |                        | **(20,906** | **)**      | (8,009     | )      |
| Net  increase in loans                                                             |                        | **(31,065** | **)**      | (33,127    | )      |
| Purchases  of premises and equipment                                               |                        | **(1,350**  | **)**      | (147       | )      |
| Proceeds  from sale of premises and equipment                                      |                        | **7**       | ** ** | 38         |   |
| Net  cash and cash equivalents received from sale of branch deposits               |                        | —      | ** ** | (10,683    | )      |
| Proceeds  from sales of other real estate owned                                    |                        | **200**     | ** ** | 328        |   |
| Net  cash used in investing activities                                             |                        | **(25,517** | **)**      | (39,832    | )      |
| Cash  flows from financing activities:                                             |                        |        | ** ** |       |   |
| Net  increase in non-interest bearing deposit accounts                             |                        | **1,415**   | ** ** | 4,179      |   |
| Net  increase in NOW, money market accounts and savings deposits                   |                        | **8,830**   | ** ** | 3,903      |   |
| Net  increase in time deposits, $100,000 and over                                  |                        | **5,699**   | ** ** | 3,806      |   |
| Net  increase in other time deposits                                               |                        | **19,591**  | ** ** | 7,583      |   |
| Net  increase (decrease) in short-term debt                                        |                        | **(6,868**  | **)**      | 7,087      |   |
| Proceeds  from issuance of preferred securities of subsidiary trust                |                        | **9,000**   | ** ** | —     |   |
| Purchase  of treasury shares                                                       |                        | **(2,494**  | **)**      | —     |   |
| Proceeds  of long-term debt                                                        |                        | —      | ** ** | 6,000      |   |
| Repayment  of long-term debt                                                       |                        | **(2,239**  | **)**      | —     |   |
| Cash  paid for other intangibles                                                   |                        | **(421**    | **)**      | —     |   |
| Cash  dividends paid                                                               |                        | **(452**    | **)**      | (572       | )      |
| Net  cash provided by financing activities                                         |                        | **32,061**  | ** ** | 31,986     |   |
|                                                                               |                        |        | ** ** |       |   |
| Net  increase (decrease) in cash and cash equivalents                              |                        | **8,562**   | ** ** | (5,983     | )      |
| Cash  and cash equivalents at beginning of period                                  |                        | **7,023**   | ** ** | 13,006     |   |
| Cash  and cash equivalents at end of period                                        |                        | **$**       | **15,585** | ** ** | $      | 7,023 |   |
|                                                                               |                        |        | ** ** |       |   |
| Supplemental  information:                                                         |                        |        | ** ** |       |   |
| Interest  paid                                                                     |                        | **$**       | **9,818**  | ** ** | $      | 8,470 |   |
| Income  taxes paid                                                                 |                        | **1,025**   | ** ** | 448        |   |
| Other  non-cash investing activities:                                              |                        |        | ** ** |       |   |
| Transfer  of premises to other real estate owned                                   |                        | **$**       | —     | ** ** | $      | 43 |   |
| Transfer  of loans to other real estate owned                                      |                        | **182**     | ** ** | 32         |   |
| Purchase  of treasury shares financed by note payable                              |                        | **4,710**   | ** ** | —     |   |

 

See accompanying notes toconsolidated financial statements.

 

33

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**ILLINI CORPORATION AND SUBSIDIARIES**Notes toConsolidated Financial StatementsDecember 31, 2001 and 2000

 

**(1)           Summary ofSignificant Accounting Policies**

 

Illini Corporation, whichoperates as a single business segment, provides a full range of bankingservices to individual, corporate, and institutional customers through its 14locations throughout central Illinois. Illini Corporation and its wholly-owned subsidiaries, Illini Bank(“Illini”), Farmers State Bank of Camp Point (“Camp Point”), and Illini StatutoryTrust I (IST) are subject to competition from other financial and nonfinancialinstitutions providing financial products in central Illinois. Additionally,Illini Corporation, Illini, and Camp Point are subject to the regulations ofcertain federal and state agencies and undergo periodic examinations by thoseregulatory authorities.

 

IST is a wholly ownedsubsidiary, which was formed on January 31, 2001, to issue cumulative trustpreferred securities.  IlliniCorporation owns all of the securities of IST that possess general votingpowers. The preferred securities, issued through an underwritten pooled publicoffering on February 22, 2001, were sold at their $1,000 par value. IST issued9,279 shares of the preferred securities bearing a dividend rate of 10.2% fornet proceeds of $9 million, after deducting underwriting commissions and othercosts. IST invested the proceeds in Illinois Corporation junior subordinateddebentures, which also have an interest rate of 10.2%. The junior subordinateddebentures mature on February 22, 2031, which date may be shortened to a datenot earlier than February 22, 2011, if certain conditions are met. IST’s soleasset is the holding company’s junior subordinated debt. Considered together,Illini Corporation's obligations with respect to the issuance of the preferredsecurities constitute a full and unconditional guarantee of IST’s obligationswith respect to the preferred securities. The Corporation used $3 million of the proceeds from the juniorsubordinated debt to increase the equity capital of Illini.  Interest on the junior subordinateddebentures and distributions on the preferred securities are payablesemi-annually in arrears.  Distributionson the preferred securities are cumulative and based upon the liquidation valueof $1,000 per preferred security. Illini Corporation has the right, at any time, so long as no event ofdefault has occurred and is continuing, to defer payments of interest on thejunior subordinated debentures, which will require deferral of distribution onthe preferred securities, for a period not exceeding 10 consecutive semi-annualperiods, provided, that such deferral may not extend beyond the stated maturityof the junior subordinated debentures. The preferred securities are subject to mandatory redemption, in wholeor in part, upon repayment of the junior subordinated debentures at maturity ortheir earlier redemption.

 

The obligation withrespect to the holders of the preferred securities, is recorded as a liabilityin the accompanying consolidated balance sheets as “preferred securities ofsubsidiary trust".  The relateddividend expense is reported as interest expense in the accompanyingconsolidated statements of income.

 

The accounting andreporting policies of Illini Corporation conform to accounting principlesgenerally accepted in the United States of America.  The preparation of the consolidated financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions, including thedetermination of the allowance for loan losses, that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

Following is adescription of the more significant of these policies:

 

***(a)           Principlesof Consolidation***

 

Theconsolidated financial statements include the accounts of Illini Corporation,Illini, Camp Point, and IST after elimination of all significant intercompanyaccounts and transactions.

 

***(b)           Cash andCash Equivalents***

 

Forpurposes of the consolidated statements of cash flows, cash and cashequivalents include cash and due from banks, interest-bearing deposits in otherbanks, and federal funds sold, all of which are considered to be highly liquidassets.

 

34

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***(c)           Investmentsecurities***

 

Investmentsecurities designated as available for sale, which include any security whichIllini Corporation has no immediate plan to sell but which may be sold in thenear future under different circumstances, are stated at fair value.  Amortization of premiums and accretion ofdiscounts on securities available for sale are recorded using the interestmethod over the period to maturity of the respective security.  Unrealized holding gains and losses foravailable for sale securities are excluded from earnings and reported as a netamount in a separate component of shareholders’ equity until realized.

 

Realizedgains and losses for securities are included in earnings using the specificidentification method for determining the cost basis of securities sold.  Interest and dividends on investments indebt and equity securities are included in income when earned.

*** ***

***(d)           Loans***

 

Loansthat management has the intent and ability to hold for the foreseeable futureor until maturity or payoffs are reported at their outstanding principalbalances adjusted for any charge-offs, the allowance for loan losses anydeferred fees or costs on originated loans.

 

It isthe policy of Illini Corporation to discontinue, generally when a loan becomesninety days past due, the accrual of interest when full collectibility ofprincipal or interest on any loan is in doubt. Subsequent interest paymentsreceived on such loans are applied to principal if there is any doubt as to thecollectibility of such principal. Otherwise, these receipts are recorded as interest income.  Accrual of interest may be resumed on a loanwhen performance is in accordance with the contract, and the borrowerdemonstrates the ability to pay and remain current.

 

Loanorigination fees and certain direct loan origination costs are deferred andrecognized over the lives of the related loans as an adjustment of the loanyield using a method approximating the interest method on a loan-by-loan basis.

 

***(e)           Allowancefor Loan Losses***

 

Theallowance for loan losses is increased by provisions charged to operations andis available to absorb loan losses. Illini Corporation utilizes a systematic, documented approach indetermining the appropriate level of the allowance for loan losses.  Management’s approach, which provides forgeneral and specific allowances, is based on current economic conditions, pastloan losses, collection experience, risk characteristics of the portfolio,assessing collateral values by obtaining independent appraisals for significantproperties, and such other factors which, in management’s judgment, deserverecognition in estimating loan losses.

 

Managementbelieves the allowance for loan losses is adequate to absorb losses in the loanportfolio.  While management usesavailable information to recognize losses on loans, future additions to theallowance for loan losses may be necessary based on changes in economicconditions. 

 

A loanis considered impaired when it is probable Illini Corporation will be unable tocollect all amounts due, both principal and interest, according to thecontractual terms of the loan agreement. When measuring impairment, the expected future cash flows of an impairedloan are discounted at the loan’s effective interest rate.  Alternatively, impairment is measured on aloan by loan basis for non-homogenous loans by either the present value ofexpected future cash flows discounted at the loan's effective interest rate, orreference to an observable market price, if one exists, or the fair value ofthe collateral for a collateral-dependent loan.  Large groups of smaller balance homogenous loans are collectivelyevaluated for impairment.  Accordingly,Illini Corporation does not separately identify individual consumer andresidential loans for impairment disclosures. Illini Corporation uses its existing nonaccrual methods for recognizinginterest on impaired loans.

 

***(f)            MortgageLoans Held For Sale***

 

Mortgageloans held for sale are recorded at the lower of cost or market value on anaggregate basis.  Deferred fees on loansheld for sale are not amortized.  Gainsand losses on the sale of these loans and loan origination fees are recognizedupon sale of the related loans and included in the consolidated statements ofincome as noninterest income. Additionally, loan administration fees,representing income earned from servicing these loans sold in the secondarymarket, are calculated on the outstanding principal balances of the loansserviced and recorded as noninterest income as earned.

 

35

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***(g)           LoanServicing***

 

Thecost of mortgage-servicing rights acquired is amortized in proportion to, andover the period of, estimated net servicing revenues.  Impairment of mortgage-servicing rights is assessed based on thefair value of those rights.  Fair valuesare estimated using discounted cash flows based on a current market interestrate.  For purposes of measuringimpairment, the rights are stratified based on the predominant riskcharacteristics of the underlying loans. The predominant characteristic currently used for stratification is typeof loan.  The amount of impairmentrecognized is the amount by which the capitalized mortgage servicing rights fora stratum exceed their fair value.

 

***(h)           Premisesand Equipment***

 

Premisesand equipment are stated at cost less accumulated depreciation. Depreciation iscomputed using primarily the straight-line method.  The estimated useful lives are 40 years for bank premises, 7 to40 years for improvements to bank premises, and 3 to 20 years for furniture andequipment.  Costs for maintenance andrepairs are expensed as incurred.

 

***(i)            FederalHome Loan Bank Stock***

 

FederalHome Loan Bank Stock is a required investment for institutions that are membersof the Federal Home Loan Bank system. The required investment in the common stock is based on a predeterminedformula.

 

***(j)            IncomeTaxes***

 

IlliniCorporation and its subsidiaries file a consolidated federal income tax return.

 

Deferred tax assets and liabilities are recognized forthe future tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and theirrespective tax bases.  Deferred taxassets and liabilities are measured using enacted tax rates expected to applyto taxable income in the years in which those temporary differences are expectedto be recovered or settled.  The effecton deferred tax assets and liabilities of a change in tax rates is recognizedin income in the period that includes the enactment date.

 

***(k)           Goodwilland Other Intangibles***

 

IlliniCorporation recognized goodwill with the purchase of banks in Camp Point,Auburn and McLean County.  Goodwill isbeing amortized on a straight-line basis over various periods not exceeding 25years.  Other intangible assets consistof non-compete agreements that are being amortized on a straight-line basisover three to four years and stock issuance costs for the preferred securitiesof subsidiary trust that are being amortized over the estimated life of thepreferred securities of the subsidiary trust using a method that approximatesthe effective interest method.  Theassets are periodically evaluated as to the recoverability of the carryingvalue.

 

***(l)            OtherReal Estate Owned***

 

Otherreal estate owned (“OREO”) represents property acquired through foreclosure ordeeded to Illini Corporation in lieu of foreclosure on loans on which theborrowers have defaulted.  OREO alsoincludes former bank premises that management no longer intends to use asbanking facilities.

 

OREOis recorded on an individual asset basis at the lower of fair value lessestimated disposal costs or cost.  Ifthe fair value less estimated disposal costs is less than cost, the deficiencyis recorded by a direct write down of the individual OREO asset.  Any subsequent write downs to reflectcurrent fair value are charged to noninterest expense.

 

***(m)          EarningsPer Share***

 

Basicearnings per share is computed by dividing income available to commonshareholders by the weighted-average number of common shares outstanding forthe period.  Diluted earnings per sharegives effect to potential common stock, such as stock options or convertiblenotes.  Illini Corporation has noinstruments which are dilutive.

 

36

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***(n)           FinancialInstruments***

 

Financialinstruments are defined as cash, evidence of an ownership interest in anentity, a contract that both imposes on one entity a contractual obligation todeliver cash or another financial instrument to a second entity, to exchangeother financial instruments on potentially unfavorable terms with the secondentity and conveys to that second entity a contractual right to receive cash oranother financial instrument from the first entity or to exchange otherfinancial instruments on potentially favorable terms with the first entity.

 

**(o)           *Treasury Stock***

 

Treasurystock is stated at cost.  Cost isdetermined by the first-in, first-out (FIFO) method.

 

***(p)           NewAccounting Pronouncements***

 

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

 

In2000, the FASB issued Statement of Financial Accounting Standards No. 140, *Accountingfor Transfers and Servicing of Financial*Assets*and Extinguishments ofLiabilities. *This Statementreplaces Statement of Financial Accounting Standards No. 125.  This Statement is also effective for therecognition and reclassification of collateral and for disclosures relating tosecuritization transactions.  ThisStatement is effective for fiscal years ending after December 15, 2000.  The adoption of this Statement did not haveany impact on Illini Corporation's financial condition or results ofoperations. 

 

InJuly 2001, the Financial Accounting Standards Board issued SFAS No. 141,"Business Combinations" and SFAS No. 142,  "Goodwill and OtherIntangible Assets." SFAS No. 141 requires that all business combinationsbe accounted for using the purchase method of accounting and requires separaterecognition of intangible assets that meet certain criteria.  This statement applies to all businesscombinations after June 30, 2001.

 

SFASNo.  142 requires that an intangibleasset that is acquired shall be initially recognized and measured based on itsfair value.  This statement alsoprovides that goodwill should not be amortized, but shall be tested forimpairment annually, or more frequently if circumstances indicate potentialimpairment, through a comparison of fair value to its carrying amount. SFAS No.142 is effective for fiscal periods beginning after December 15, 2001.  Illini Corporation has goodwill of$1,600,000 as of December 31, 2001 related to the Camp Point acquisition.  The Company continued to amortize theexisting goodwill through the remainder of fiscal 2001.  As of January 1, 2002, identifiableintangible assets if any will continue to be amortized while the amortizationof goodwill will cease and will be reviewed for impairment. The ultimate impactof the new accounting standards has not yet been determined.  Goodwill amortization expense for the yearended December 30, 2001 was $162,000.

 

InJuly 2001, SFAS No. 143, “Accounting for Asset Retirement Obligations” wasissued.  SFAS No. 143 establishesstandards for accounting and reporting of obligations associated with theretirement of tangible long-lived assets and associated asset retirement costs.  SFAS No. 143 is effective beginning June 15,2002.  The adoption of this statement isnot expected to have an impact on Illini Corporation.

 

InOctober 2001, SFAS No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets,” was issued.  UnderSFAS No. 144, long-lived assets to be sold within one year must be separatelyidentified and carried at the lower of carrying value or fair value less coststo sell.  Long-lived assets expected tobe held longer than one year are subject to depreciation and must be writtendown to fair value upon impairment. Long-lived assets no longer expected to be sold within one year, such assome foreclosed real estate, must be written down to the lower of current fairvalue or fair value at the date of foreclosure adjusted to reflect depreciationsince acquisition.  SFAS No. 144 must

 

37

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be implemented by January1, 2002.  The adoption of this statementis not expected to have an impact on Illini Corporation.

 

***(q)           Reclassifications***

 

Certainamounts in the 2000 consolidated financial statements have been reclassified toconform to the 2001 presentation.  Suchreclassifications have no effect on previously reported consolidated net incomeor shareholders’ equity.

 

**(2)           PendingAcquisition**

 

Illini Corporation hasexecuted a definitive agreement and plan of merger to acquire all of theoutstanding stock of Illinois Community Bancorp, Inc (“ICBI”) through themerger of ICBI with a wholly owned subsidiary of Illini Corporation.

 

Under the terms of themerger agreement, ICBI’s shareholders will receive .2126 shares of common stockof the Illini Corporation in exchange for each share of ICBI common stock.  In the event that certain loan contingenciesare resolved prior to closing, the exchange ratio may be increased to up to..2472 shares of Illini Corporation in exchange for each share of ICBI stock.

 

As of December 31, 2001,ICBI had total assets of $57,040,000, total liabilities of $53,728,000 andtotal equity of $3,312,000.  For theyear ended December 31, 2001, ICBI had a net loss of $1,804,000.

 

**(3)           Sale ofBranch Facility**

 

In October 2000, theCompany sold certain fixed assets of two branches located in Menard County anddeposit liabilities of three branches. Total deposits for the Menard County branches were approximately $11,832,000and fixed assets were approximately $174,000. The Company recognized a before tax gain on the sale of the deposits of$695,000 and a gain on the sale of fixed assets of $376,000.

 

**(4)           Investment Securities**

 

The amortized cost andfair value of investment securities classified as available for sale atDecember 31, 2001 and 2000 are presented below:

 
|                                               |                | **December  31, 2001**     |                         |
|----------------------------------------------------|---------------------|----------------------------|------------------------------|
|                                               | **Amortized  cost** |                       | **Gross  unrealized  gains** |   | **Gross  unrealized  losses** |   | **Fair  value** |   |
|                                               |                | **(dollars  in thousand)** |                         |
| United  States Treasury and United States agencies |                | **$**                      | **4,250**                    |   | **$** | **101** |   | **$** | **—** |   | **$** | **4,351** |   |
| Mortgage-backed  securities                        |                | **13,405**                 | ** **                   | **218** | ** ** | **3** | ** ** | **13,620** | ** ** |
| Collateralized  mortgage obligations               |                | **15,395**                 | ** **                   | **177** | ** ** | **49** | ** ** | **15,523** | ** ** |
| Obligations  of state and political subdivisions   |                | **13,905**                 |                         | **1,079** | ** ** | **38** | ** ** | **14,946** |   |
| Federal  Home Loan Bank stock                      |                | **716**                    | ** **                   | **—** | ** ** | **—** | ** ** | **716** | ** ** |
|                                               |                | **$**                      | **47,671**                   |   | **$** | **1,575** | ** ** | **$** | **90** | ** ** | **$** | **49,156** | ** ** |

 

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|                                               |                | **December  31, 2000**      |                         |
|----------------------------------------------------|---------------------|-----------------------------|------------------------------|
|                                               | **Amortized  cost** |                        | **Gross  unrealized  gains** |   | **Gross  unrealized  losses** |   | **Fair  value** |  

  |
|                                               |                | **(dollars  in thousands)** |                         |
| United  States Treasury and United States agencies |                | $                           | 12,510                       |   | $ | 69 |   | $ | 27 |   | $ | 12,552 |   |
| Mortgage-backed  securities                        |                | 15,672                      |                         | 77 |   | 127 |   | 15,622 |   |
| Collateralized  mortgage obligations               |                | 11,829                      |                         | 13 |   | 161 |   | 11,681 |   |
| Obligations  of state and political subdivisions   |                | 13,400                      |                         | 711 |   | 33 |   | 14,078 |   |
| Corporate  Bonds                                   |                | —                      |                         | — |   | — |   | — |   |
| Federal  Home Loan Bank stock                      |                | 669                         |                         | — |   | — |   | 669 |   |
|                                               |                | $                           | 54,080                       |   | $ | 870 |   | $ | 348 |   | $ | 54,602 |   |

 

The amortized cost andfair value of debt securities classified as available for sale atDecember 31, 2001, by contractual maturity, are shown below. Expectedmaturities may differ from contractual maturities because certain issuers havethe right to call or prepay obligations with or without call or prepayment penalties.

 
|                                    |   | **Amortized  cost**         | ** ** | **Fair  value** | ** ** |
|-----------------------------------------|--------|-----------------------------|------------|-----------------|------------|
|                                    |   | **(dollars  in thousands)** |       |
| Due  in one year or less                |   | **$**                       | **3,848**  | ** **      | **$**      | **3,907** | ** ** |
| Due  after one year through five years  |   | **3,594**                   | ** ** | **3,826**       | ** ** |
| Due  after five years through ten years |   | **7,245**                   | ** ** | **7,742**       | ** ** |
| Due  after ten years                    |   | **3,468**                   | ** ** | **3,822**       | ** ** |
|                                    |   | **18,155**                  | ** ** | **19,297**      | ** ** |
| Mortgage-backed  securities             |   | **13,405**                  | ** ** | **13,620**      | ** ** |
| Collateralized  mortgage obligations    |   | **15,395**                  | ** ** | **15,523**      | ** ** |
|                                    |   | **$**                       | **46,955** | ** **      | **$**      | **48,440** | ** ** |

 

Proceeds from sales ofinvestment securities during 2001 and 2000 were $1.0 million and $4.8 million,respectively.  Gross gains of $136,000and $1,000 and gross losses of $0 and $14,000 for 2001 and 2000, respectively,were realized on those sales.  The taxexpense (benefit) recognized from these sales was $51,000 and $(5,000) for 2001and 2000.

 

The market value ofsecurities pledged to secure United States Government and other publicdeposits, securities sold under agreements to repurchase, and for otherpurposes as required by law was approximately $24.5 million and $25.8 millionat December 31, 2001 and 2000, respectively.

 

39

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**(5)           Loans**

 

The loan portfolio atDecember 31, 2001 and 2000 is composed of the following loan types:

 
|                                     |                        | **2001**    |        | **2000** |   |
|------------------------------------------|-----------------------------|-------------|-------------|----------|--------|
|                                     | **(dollars  in thousands)** |        |
| Commercial,  financial, and agricultural |                        | **$**       | **54,326**  |     | $      | 40,598 |   |
| Real  estate:                            |                        |        |        |     |   |
| Construction                             |                        | **15,030**  |        | 12,349   |   |
| Mortgage  loans held for investment      |                        | **116,740** |        | 103,553  |   |
| Mortgage  loans held for sale            |                        | **37**      |        | 183      |   |
| Consumer                                 |                        | **12,883**  |        | 12,286   |   |
| Total  loans                             |                        | **199,016** |        | 168,969  |   |
| Allowance  for loan losses               |                        | **(2,103**  | **)**       | (2,188   | )      |
| Net  loans                               |                        | **$**       | **196,913** |     | $      | 166,781 |   |

 

Illini Corporation grantscommercial, industrial, residential, and consumer loans to customers in centralIllinois through its network of banking offices.  Illini Corporation does not have any particular concentration ofcredit in any one economic sector; however, a majority of Illini Corporation’slending occurs in and around Springfield, Illinois, with a substantial portionof such loans secured by real estate. As such, Illini Corporation is susceptible to changes in the economicenvironment in the Springfield, Illinois area.

 

A summary of impairedloans, which includes nonaccrual loans, at December 31, 2001 and 2000 is asfollows:

 
|                                                                |                        | **2001**  |      | **2000** |   |
|---------------------------------------------------------------------|-----------------------------|-----------|-----------|----------|--------|
|                                                                | **(dollars  in thousands)** |      |
| Nonaccrual  loans                                                   |                        | **$**     | **4,920** |     | $      | 772 |   |
| Impaired  loans continuing to accrue interest                       |                        | **212**   |      | —   |   |
| Total  impaired loans                                               |                        | **$**     | **5,132** |     | $      | 772 |   |
|                                                                |                        |      |      |     |   |
| Allowance  for losses on specific impaired loans                    |                        | **$**     | **354**   |     | $      | 115 |   |
| Impaired  loans with no specific related allowance  for loan losses |                        | **4,669** |      | 614      |   |
| Average  balance of impaired loans during the year                  |                        | **3,882** |      | 714      |   |

 

Interest income of$344,000 in 2001 and $106,000 in 2000 would have been recognized had nonaccrualloans remained current.  The amountrecognized as interest income on other impaired loans continuing to accrueinterest was $16,000 in 2001 and $0 in 2000. The amount recognized as interest income on nonaccrual loans was$247,384 and $28,905 for the years ended December 31, 2001 and 2000,respectively.

 

A summary of changes inthe allowance for loan losses for the years ended December 31, 2001 and 2000 isas follows:

 

40

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|                                        |                        | **2001** |      | **2000** |   |
|---------------------------------------------|-----------------------------|----------|-----------|----------|--------|
|                                        | **(dollars  in thousands)** |     |
| Balance  at beginning of year               |                        | **$**    | **2,188** |     | $      | 1,696 |   |
| Provision  charged to expense               |                        | **605**  |      | 540      |   |
|                                        |                        |     |      |     |   |
| Loans  charged off                          |                        | **(740** | **)**     | (192     | )      |
| Recoveries  of loans previously charged off |                        | **50**   |      | 144      |   |
| Net  loan charge-offs                       |                        | **(690** | **)**     | (48      | )      |
| Balance  at end of year                     |                        | **$**    | **2,103** |     | $      | 2,188 |   |

 

The following tablerecaps the 2001 activity for loans made by Illini and Camp Point to executiveofficers, directors, and principal shareholders (insiders) of IlliniCorporation and subsidiaries and/or their related interests.  Such loans were made in the normal course ofbusiness on substantially the same terms, including interest rates andcollateral requirements, as those prevailing at the same time for comparabletransactions with other persons and did not involve more than normal creditrisk or present other unfavorable features.

 
|                                       |   | **Insider loans**           |       |
|--------------------------------------------|--------|-----------------------------|------------|
|                                       |   | **(dollars  in thousands)** | ** ** |
| Balance  at December 31, 2000              |   | **$**                       | **821**    | ** ** |
| Advances  on existing loans                |   | **862**                     | ** ** |
| Changes  in composition of related parties |   | **28**                      | ** ** |
| Payments  received                         |   | **(1,260**                  | **)**      |
| Balance  at December 31, 2001              |   | **$**                       | **451**    | ** ** |

 

**(6)  Premises andEquipment**

 

A summary of premises andequipment at December 31, 2001 and 2000 by major category is as follows:

 
|                           |   | **2001**                    |      | **2000** |   |
|--------------------------------|--------|-----------------------------|-----------|----------|--------|
|                           |   | **(dollars  in thousands)** |      |
| Land                           |   | **$**                       | **1,013** |     | $      | 1,013 |   |
| Bank  premises                 |   | **6,935**                   |      | 6,855    |   |
| Furniture  and equipment       |   | **6,185**                   |      | 5,027    |   |
|                           |   | **14,133**                  |      | 12,895   |   |
| Less  accumulated depreciation |   | **7,187**                   |      | 6,340    |   |
|                           |   | **$**                       | **6,946** |     | $      | 6,555 |   |

 

**(7)           LoansServicing**

 

Mortgage loans servicedfor others are not included in the accompanying consolidated balancesheets.  The unpaid principal balancesof mortgage loans serviced for others totaled approximately  $83.8 million and $75.7 million at December31, 2001 and 2000, respectively.

 

Mortgage servicing rightsof $168,124 and $23,975 were capitalized in 2001 and 2000, respectively.  Mortgage servicing rights have been writtendown to their fair values of $429,550 and $285,401 at December 31, 2001 and2000, respectively.  Amortization ofmortgage servicing rights was $23,975 and $20,950 in 2001 and 2000,respectively.

 

41

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**(8)           Deposits**

 

At December 31, 2001, thescheduled maturities of time deposits are as follows:

 

| **Year**   |   | **Amount**                  |    |
|------------|--------|-----------------------------|---------|
|       |   | **(dollars  in thousands)** |    |
| 2002       |   | $                           | 80,606  |   |
| 2003       |   | 34,289                      |    |
| 2004       |   | 10,288                      |    |
| 2005       |   | 1,066                       |    |
| 2006       |   | 384                         |    |
| Thereafter |   | 2                           |    |
|       |   | $                           | 126,635 |   |

** **

**(9)           Short-termdebt**

 

A summary of short-termdebt at December 31, 2001 and 2000 is as follows:

 
|                                         |                        | **2001**   |      | **2000** |   |
|----------------------------------------------|-----------------------------|------------|-----------|----------|--------|
|                                         | **(dollars  in thousands)** |       |
| Federal  funds purchased                     |                        | **$**      | **1,200** |     | $      | 7,110 |   |
| Securities  sold under repurchase agreements |                        | **413**    |      | 371      |   |
| Operating  line of credit                    |                        | **—** |      | 1,000    |   |
| Total  short-term debt                       |                        | **$**      | **1,613** |     | $      | 8,481 |   |

 

Securities sold underagreements to repurchase consist of obligations of the Company to otherparties.  The obligations are secured byvarious securities and such collateral is held by Commerce Bank.  The maximum amount of outstanding agreementsat any month end during 2001 and 2000 totaled $450,000 and $402,000 and themonthly average of such agreements totaled $379,000 and $384,000.  The agreements at December 31, 2001 maturewithin 17 months.  At December 31, 2001,Illini Corporation maintains a line of credit with a financial institution at arate to be determined by the lender when the funds are borrowed.  At December 31, 2001, Illini Corporation hadno outstanding balance on the line of credit but could borrow up to $7.5million.  The line of credit iscollateralized by subsidiary bank stock. 

 

**(10)         Long-TermDebt**

 

The following summarizeslong-term debt at December 31, 2001 and 2000.

 
|                                                                                                                     |   | **2001**                    |      | **2000**   |   |
|--------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|------------|--------|
|                                                                                                                     |   | **(dollars  in thousands)** |      |
| Note  payable                                                                                                            |   | **$**                       | **2,471** | ** ** | **$**  | — | ** ** |
| Federal  Home Loan Bank advances, due at various dates through August 28, 2003, fixed  rates ranging from 6.28% to 6.83% |   | **$**                       | **6,000** |       | $      |  6,000 |   |
| Total  long-term debt                                                                                                    |   | **$**                       | **8,471** |       | $      | 6,000 |   |

 

The note payable is toformer stockholders as a result of a stock purchase agreement in which IlliniCorporation purchased 160,688 shares of stock with one-third of the purchaseprice paid by Illini Corporation in cash at closing on June 14, 2001.  The balance of unpaid principal is due inthree equal installments on March 31 of 2002, 2003 and 2004.  Illini Corporation has prepaid a majority ofthe note with the remaining amount expected to be paid in 2002.  Interest will be paid quarterly on theunpaid principal balance at seven percent (7%) per annum.  The Company provided a letter of credit tothe sellers in lieu of pledging the purchased shares.

 

The agreement alsoprovides for a contingency in the case that Illini Corporation were to beacquired or

 

42

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issue shares of commonstock at a price in excess of $45.00 per share at any time prior to the secondanniversary date of April 12, 2003. During the first six months all of such difference would be payable;during the second six months 75% of such difference would be payable; andduring the last six months 25% of such difference would be payable.

 

The Federal Home LoanBank advances are secured by first-mortgage loans totaling $12.2 million.  Advances are subject to restrictions orpenalties in the event of repayment.

 

At December 31, 2001, thescheduled maturities, including expected prepayments, of long-term debt are asfollows:

 

| **Year** |   | **Amount**                  |   |
|----------|--------|-----------------------------|--------|
|     |   | **(dollars  in thousands)** |   |
| 2002     |   | $                           | 6,471  |   |
| 2003     |   | 2,000                       |   |
|     |   | $                           | 8,471  |   |

 

**(11)         IncomeTaxes**

 

Thecomponents of income tax expense (benefit) for the years ended December 31,2001 and 2000 are as follows:

 
|                   |                        | **2001** |    | **2000** |   |
|------------------------|-----------------------------|----------|---------|----------|--------|
|                   | **(dollars  in thousands)** |     |
| Current  income taxes: |                        |     |    |     |   |
| Federal                |                        | **$**    | **436** |     | $      | 996 |   |
| State                  |                        | **83**   |    | 49       |   |
| Deferred  income taxes |                        | **(48**  | **)**   | (371     | )      |
|                   |                        | **$**    | **471** |     | $      | 674 |   |

 

A reconciliation ofexpected income tax expense to federal income tax expense, computed by applyingthe federal statutory rate of 34% to income before income tax expense for theyears ended December 31, 2001 and 2000 to reported income tax expense, isas follows:

 
|                                                 |   | **2001**                    |    | **2000** |   |
|------------------------------------------------------|--------|-----------------------------|---------|----------|--------|
|                                                 |   | **(dollars  in thousands)** |    |
| Income  tax expense at statutory rate                |   | **$**                       | **595** |     | $      | 805 |   |
| Increase  (decrease) in income taxes resulting from: |   |                        |    |     |   |
| Tax-exempt  income                                   |   | **(249**                    | )       | (204     | )      |
| Goodwill  amortization                               |   | **55**                      |    | 56       |   |
| State  income taxes                                  |   | **55**                      |    | (32      | )      |
| Other,  net                                          |   | **15**                      |    | 49       |   |
| Income  tax expense                                  |   | **$**                       | **471** |     | $      | 674 |   |

 

The tax effect oftemporary differences that give rise to significant portions of the deferredtax assets and deferred tax liabilities at December 31, 2001 and 2000 arepresented below:

 

43

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|                                                 |                        | **2001** |       | **2000** |   |
|------------------------------------------------------|-----------------------------|----------|------------|----------|--------|
|                                                 | **(dollars  in thousands)** |     |
| Deferred  tax assets:                                |                        |     |       |     |   |
| Loans,  principally due to allowance for loan losses |                        | **$**    | **530**    |     | $      | 468 |   |
| Intangible  assets                                   |                        | **92**   |       | —   |   |
| Legal  fees                                          |                        | **147**  |       | 85       |   |
| Other                                                |                        | **18**   |       | —   |   |
|                                                 |                        | **787**  | ** ** | **553**  |   |
| Deferred  tax liabilities:                           |                        |     |       |     |   |
| Available-for-sale  securities market valuation      |                        | **542**  |       | 188      |   |
| Investment  securities, basis differences            |                        | **3**    |       | 6        |   |
| Mortgage  servicing rights                           |                        | **167**  |       | —   |   |
| Premises  and equipment, basis differences           |                        | **25**   |       | 1        |   |
| Cash  to accrual conversion                          |                        | **20**   |       | 40       |   |
| Federal  Home Loan Bank stock                        |                        | **35**   |       | 17       |   |
|                                                 |                        | **792**  |       | 252      |   |
| Net  deferred tax asset (liability)                  |                        | **$**    | **(5**     | **)**    | $      | 301 |   |
|                                                      |                             |          |            |          |        |  |  |  |  |

 

**(12)         EmployeeBenefits**

 

Illini Corporation has adefined contribution 401(k) plan that covers substantially all employees.  Employees may contribute up to 6% ofeligible compensation to the plan. Illini Corporation’s contributions arevoluntary and at the discretion of the Board of Directors.  All contributions are subject to statutoryrestrictions.  Employer contributionscharged to expense were $61,000 and $44,000 in 2001 and 2000, respectively.

 

During 2001, Camp Pointemployees became eligible for the Illini Corporation defined contributions401(k) plan.  Prior to 2001, Camp Pointmaintained its own Profit Sharing Plan for all employees meeting certaineligibility requirements.  In December2000, the plan was terminated with proceeds being distributed to the planparticipants.  Camp Point madecontributions of $21,200 to the plan for 2000.

 

**(13)         OtherComprehensive Income**

 

Illini Corporation’sother comprehensive income for the years ended December 31, 2001 and 2000included the following components:

 
|                                                                    |                   | **2001** |                        |
|-------------------------------------------------------------------------|------------------------|----------|-----------------------------|
|                                                                    | **Before-Tax  Amount** |     | **Tax  (Expense)  Benefit** | ** ** | **Net-of-Tax  Amount** |   |
| **Net realized and unrealized gains on securities available  for sale** |                   | **$**    | **1,099**                   |   | **$** | **(405** | **)** | **$** | **694** |   |
| **Less adjustment for net securities losses realized in net  income**   |                   | **136**  |                        | **(51** | **)** | **85** |   |
| **Other comprehensive income**                                          |                   | **$**    | **963**                     | ** ** | **$** | **(354** | **)** | **$** | **609** |   |

 
|                                                                |                   | **2000** |                        |
|---------------------------------------------------------------------|------------------------|----------|-----------------------------|
|                                                                | **Before-Tax  Amount** |     | **Tax  (Expense)  Benefit** | ** ** | **Net-of-Tax  Amount** |   |
| Net  realized and unrealized gains on securities available for sale |                   | $        | 1,419                       |   | $ | (518 | ) | $ | 901 |   |
| Less  adjustment for net securities losses realized in net income   |                   | (13      | )                           | 5 |   | (8 | ) |
| Other  comprehensive income                                         |                   | $        | 1,432                       |   | $ | (523 | ) | $ | 909 |   |

 

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** **

**(14)         CondensedFinancial Information of Parent Company**

 

Following are condensedbalance sheets as of December 31, 2001 and 2000 and the related condensedschedules of income and cash flows for each of the years in the three-yearperiod ended December 31, 2001 of Illini Corporation (parent company only):

 

**Condensed Balance Sheets**

**December 31, 2001 and 2000**

 
|                                                   |                        | **2001**   |       | **2000** |   |
|--------------------------------------------------------|-----------------------------|------------|------------|----------|--------|
|                                                   | **(dollars  in thousands)** |       |
| ASSETS:                                                |                        |       |       |     |   |
| Cash                                                   |                        | **$**      | **760**    |     | $      | 956 |   |
| Investment  in subsidiaries                            |                        | **24,212** |       | 18,937   |   |
| Loans                                                  |                        | **397**    |       | —   |   |
| Excess  of cost over fair value of net assets acquired |                        | **377**    |       | 284      |   |
| Other  assets                                          |                        | **483**    |       | 697      |   |
|                                                   |                        | **$**      | **26,229** |     | $      | 20,874 |   |
| LIABILITIES  AND SHAREHOLDER'S EQUITY:                 |                        |       |       |     |   |
| Junior  subordinated debt to subsidiary                |                        | **$**      | **9,279**  |     | $      | — |   |
| Short-term  debt                                       |                        | —     |       | 1,000    |   |
| Long-term  debt                                        |                        | **2,471**  |       | —   |   |
| Other  liabilities                                     |                        | **889**    |       | 516      |   |
| Shareholders’  equity                             |                        | **13,590** |       | 19,358   |   |
|                                                   |                        | **$**      | **26,229** |     | $      | 20,874 |   |

 

**Condensed Schedules of Income**

**Years Ended December 31, 2001 and2000**

 
|                                                                                                |                        | **2001**  |      | **2000** |   |
|-----------------------------------------------------------------------------------------------------|-----------------------------|-----------|-----------|----------|--------|
|                                                                                                | **(dollars  in thousands)** |      |
| REVENUE:                                                                                            |                        |      |      |     |   |
| Dividends  received from subsidiaries                                                               |                        | **$**     | **1,400** |     | $      | 2,900 |   |
| Other                                                                                               |                        | **103**   |      | —   |   |
|                                                                                                |                        | **1,503** |      | 2,900    |   |
| EXPENSES:                                                                                           |                        |      |      |     |   |
| Interest  expense                                                                                   |                        | **1,013** |      | 93       |   |
| Professional  fees                                                                                  |                        | **726**   |      | 838      |   |
| Other                                                                                               |                        | **367**   |      | 244      |   |
|                                                                                                |                        | **2,106** |      | 1,175    |   |
| Income  before income tax benefit and equity in undistributed (distributed) income of  subsidiaries |                        | **(603**  | **)**     | 1,725    |   |
| Income  tax benefit                                                                                 |                        | **766**   |      | 391      |   |
| Equity  in undistributed (distributed) income of subsidiaries                                       |                        | **1,116** |      | (421     | )      |
| Net  income                                                                                         |                        | $         | **1,279** |     | $      | 1,695 |   |

 

45

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**Condensed Schedules of Cash Flows**

**Years Ended December 31, 2001 and2000**

 
|                                                                                          |                        | **2001**   |      | **2000** |   |
|-----------------------------------------------------------------------------------------------|-----------------------------|------------|-----------|----------|--------|
|                                                                                          | **(dollars  in thousands)** |       |
| Cash  flows from operating activities:                                                        |                        |       |      |     |   |   |   |
| Net  income                                                                                   |                        | **$**      | **1,279** |     | $      | 1,695 |   |
| Adjustments  to reconcile net income to net cash provided by (used in) operating  activities: |                        |       |      |     |   |   |   |
| Depreciation  and amortization                                                                |                        | **57**     |      | 27       |   |
| Equity  in (undistributed) distributed income of subsidiaries                                 |                        | **(1,116** | **)**     | 421      |   |
| Other,  net                                                                                   |                        | **858**    |      | (151     | )      |
| Net  cash provided by operating activities                                                    |                        | **1,078**  |      | 1,992    |   |
| Cash  flows from investing activities:                                                        |                        |       |      |     |   |
| Equity  investment in subsidiary                                                              |                        | —     |      | (750     | )      |
| Purchase  of investment securities available for sale                                         |                        | **(1,020** | **)**     | —   |   |
| Proceeds  from sales of investment securities available for sale                              |                        | **1,020**  |      | —   |   |
| Payments  for investment in and advances to subsidiaries                                      |                        | **(3,550** | **)**     | —   |   |
| Net  increase in loans                                                                        |                        | **(397**   | **)**     | —   |   |
| Net  cash used in investing activities                                                        |                        | **(3,947** | **)**     | (750     | )      |
| Cash  flows from financing activities:                                                        |                        |       |      |     |   |
| Repayment  of short-term debt                                                                 |                        | **(1,000** | **)**     | —   |   |
| Repayment  of long-term debt                                                                  |                        | **(2,239** | **)**     | —   |   |
| Purchase  of treasury shares                                                                  |                        | **(2,494** | **)**     | —   |   |
| Cash  paid for other intangibles                                                              |                        | **(421**   | **)**     | —   |   |
| Proceeds  from junior subordinated debt to subsidiary                                         |                        | **9,279**  |      | —   |   |
| Cash  dividends paid                                                                          |                        | **(452**   | **)**     | (572     | )      |
| Net cash  provided by (used in) financing activities                                          |                        | **2,673**  |      | (572     | )      |
| Net  increase (decrease) in cash                                                              |                        | **(196**   | **)**     | 670      |   |
|                                                                                          |                        |       |      |     |   |
| Cash  at beginning of year                                                                    |                        | **956**    |      | 286      |   |
| Cash  at end of year                                                                          |                        | **$**      | **760**   |     | $      | 956 |   |
| Supplemental  information:                                                                    |                        |       |      |     |   |   |   |
| Income  taxes paid                                                                            |                        | **$**      | **1,025** |     | $      | 448 |   |
| Interest  paid                                                                                |                        | **709**    |      | 92       |   |
| Purchase  of treasury shares with note payable                                                |                        | **4,710**  |      | —   |   |

 

46

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**(15)         DisclosuresAbout Financial Instruments**

 

Illini Corporation isparty to financial instruments with off-balance-sheet risk in the normal courseof business to meet the financing needs of its customers. These financialinstruments include commitments to extend credit and standby letters of credit.Such instruments may involve, to varying degrees, elements of credit risk inexcess of the amounts recognized in the consolidated balance sheets.  The contractual amounts of these instrumentsreflect the extent of involvement Illini Corporation has in particular classesof financial instruments.

 

Illini Corporation’sexposure to credit loss in the event of nonperformance by the other party tothe financial instrument for commitments to extend credit and standby lettersof credit is represented by the contractual amount of these instruments.  Illini Corporation uses the same creditpolicies in making commitments and conditional obligations as it does forfinancial instruments recorded in the consolidated balance sheets.  The off-balance-sheet financial instrumentsof Illini Corporation at December 31, 2001 and 2000 are presented below:

 
|                                                                    |                        | **2001**  |       | **2000** |   |
|-------------------------------------------------------------------------|-----------------------------|-----------|------------|----------|--------|
|                                                                    | **(dollars  in thousands)** |      |
| Financial  instruments whose contractual amounts represent credit risk: |                        |      |       |     |   |   |   |
| Commitments  to extend credit                                           |                        | **$**     | **36,863** |     | $      | 28,905 |   |
| Letters  of credit                                                      |                        | **2,500** |       | 764      |   |
|                                                                    |                        | **$**     | **39,363** |     | $      | 29,669 |   |

 

Commitmentsto extend credit, which include lines of credits, are agreements to lend to acustomer as long as there is no violation of any condition established in thecontract.  Of the total commitments toextend credit at December 31, 2001 and 2000, approximately $26.0 million and$14.9 million, respectively, represent fixed-rate loan commitments.  Commitments generally have fixed expirationdates or other termination clauses and may require payment of a fee.  Since certain of the commitments are expectedto expire without being drawn upon, the total commitment amounts do notnecessarily represent future cash requirements.  Illini Corporation evaluates each customer’s creditworthiness ona case-by-case basis.  The amount ofcollateral obtained upon extension of credit is based on management’s creditevaluation of the counterparty. Collateral held varies, but generally includes residential orincome-producing commercial property, inventory, accounts receivable, and/orequipment.

 

Standby letters of creditare conditional commitments issued by Illini Corporation to guarantee theperformance of a customer to a third party. The credit risk involved in issuing such letters of credit isessentially the same as that involved in extending other financing arrangementswith customers.  Illini Corporationholds collateral to support such commitments for which collateral is deemednecessary.

 

Following is a summary ofthe carrying amounts and fair values of Illini Corporation’s financialinstruments at December 31, 2001 and 2000:

 

47

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|                                          |               | **December  31, 2001**      |            |
|-----------------------------------------------|--------------------|-----------------------------|-----------------|
|                                          | **Carryingamount** |                        | **Fair  value** | ** ** |
|                                          |               | **(dollars  in thousands)** | ** **      |
| **Balance  sheet assets:**                    |               |                        | ** **      |   | ** ** |
| **Cash and cash equivalents**                 |               | **$**                       | **15,585**      |   | **$** | **15,585** |   |
| **Investment  securities**                    |               | **49,156**                  | ** **      | **49,156** | ** ** |
| **Loans,  net**                               |               | **196,913**                 | ** **      | **198,882** | ** ** |
| **Accrued  interest receivable**              |               | **2,549**                   | ** **      | **2,549** | ** ** |
|                                          |               | **$**                       | **264,203**     | ** ** | **$** | **266,172** | ** ** |
| **Balance  sheet liabilities:**               |               |                        | ** **      |   | ** ** |
| **Deposits**                                  |               | **$**                       | **238,827**     | ** ** | **$** | **240,056** | ** ** |
| **Short-term  debt**                          |               | **1,613**                   | ** **      | **1,613** | ** ** |
| **Long-term  debt**                           |               | **8,471**                   | ** **      | **8,471** | ** ** |
| **Preferred  securities of subsidiary trust** |               | **9,000**                   | ** **      | **9,969** | ** ** |
| **Accrued  interest payable**                 |               | **1,414**                   | ** **      | **1,414** | ** ** |
|                                          |               | **$**                       | **259,325**     | ** ** | **$** | **261,523** |   |

 
|                         |               | **December  31, 2000** |            |
|------------------------------|--------------------|------------------------|-----------------|
|                         | **Carryingamount** |                   | **Fair  value** | ** ** |
| Balance  sheet assets:       |               |                   |            |   |   |
| Cash  and cash equivalents   |               | $                      | 7,023           |   | $ | 7,023 |   |
| Investment  securities       |               | 54,602                 |            | 54,602 |   |
| Loans,  net                  |               | 166,781                |            | 168,449 |   |
| Accrued  interest receivable |               | 2,395                  |            | 2,395 |   |
|                         |               | $                      | 230,801         |   | $ | 232,469 |   |
| Balance  sheet liabilities:  |               |                   |            |   |   |
| Deposits                     |               | $                      | 203,292         |   | $ | 203,292 |   |
| Short-term  debt             |               | 8,481                  |            | 8,481 |   |
| Long-term  debt              |               | 6,000                  |            | 6,000 |   |
| Accrued  interest payable    |               | 1,181                  |            | 1,181 |   |
|                         |               | $                      | 218,954         |   | $ | 218,954 |   |

 

The following methods andassumptions were used to estimate the fair value of each class of financialinstruments for which it is practicable to estimate such value:

 

***Cash and Cash Equivalents***

 

Forcash and cash equivalents the carrying amount is a reasonable estimate of fairvalue, as such instruments reprice in a short time period.

 

***Investment securities***

 

Fair values of investmentsecurities are based on quoted market prices or dealer quotes.

 

***Loans***

 

Fair values are estimatedfor portfolios of loans with similar financial characteristics.  Loans are segregated by type such ascommercial, commercial real estate, residential mortgage, and installment.  Each loan category is further segmented intofixed-rate and adjustable-rate interest terms and by performing andnonperforming categories.

 

For certain homogeneouscategories of performing loans, such as certain residential mortgages and otherconsumer loans, fair value is estimated using the quoted market prices forsecurities backed by similar loans, adjusted for differences in loancharacteristics.  The fair value ofother types of loans is estimated by discounting the future cash flows usingthe current rates at which similar loans would be made to borrowers withsimilar credit ratings and for the same remaining maturities.

 

48

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Fair value fornonperforming loans is based on recent external appraisals.  If appraisals are not available, estimatedcash flows are discounted using a rate commensurate with the risk associatedwith the estimated cash flows. Assumptions regarding credit risk, cash flows,and discount rates are judgmentally determined using available marketinformation and specific borrower information.

* *

***Accrued Interest Receivable and Payable***

 

For accrued interestreceivable and payable, the carrying amount is a reasonable estimate of fairvalue because of the short maturity for this financial instrument.

 

***Deposits***

 

The fair value ofdeposits with no stated maturity, such as noninterest-bearing demand deposits,NOW and money market accounts, and savings accounts is equal to the amountspayable on demand.  The fair value oftime deposits is based on the discounted value of contractual cash flows.  The discount rate is estimated using therates currently offered for deposits of similar remaining maturities.

 

***Short-term Debt***

 

Short-term debt consistsof short-term borrowing arrangements. The rates approximate market rates, thus the fair value approximatescarrying value.

 

***Long-term Debt***

 

The fair values of theseborrowings are estimated using a discounted cash flow calculation, based oncurrent rates for similar debt.

 

***Preferred Securities of Subsidiary Trust***

 

The fair values ofpreferred securities of subsidiary trust are estimated using a discounted cashflow calculation, based on current rates for similar securities.

 

***Commitments to Extend Credit and Standby Letters of Credit***

 

The fair value ofcommitments to extend credit and standby letters of credit are estimated usingthe fees currently charged to enter into similar agreements, taking intoaccount the remaining terms of the agreements, the likelihood of thecounterparties drawing on such financial instruments, and the presentcreditworthiness of such counterparties. Illini Corporation believes such commitments have been made on termswhich are competitive in the markets in which it operates; however, no premiumor discount is offered thereon, and accordingly, Illini Corporation has notassigned a value to such instruments for purposes of this disclosure.

 

**(16)         Litigation**

 

Various legal claims havearisen against Illini Corporation in the normal course of business, which, inthe opinion of Illini Corporation management, will not result in any materialliability to Illini Corporation.  Two(2) additional cases remain pending.

 

The first case was filedin 1998 by a shareholder of Illini Corporation against Illinois Stock TransferCompany, as Rights Agent for Illini Corporation under Illini Corporation’sShareholder Rights Agreement (the “Rights Agreement”), for specific performanceof the Rights Agreement, both individually and on behalf of a class of IlliniCorporation shareholders.  The complaintalleges that the Rights Agreement was triggered in April of 1998, and that theRights Agent has a duty under the Rights Agreement to distribute RightsCertificates to the shareholders of Illini Corporation.  Illini Corporation was added as a Defendantin 1999, and the class has been certified. Plaintiff seeks to recover her attorneys’ fees from Illini Corporationin addition to the other relief sought. In January of 2000, the trial court entered Summary Judgement in favorof Illini Corporation and Illinois Stock Transfer Company.  Plaintiff appealed this ruling denyingPlaintiff’s summary judgement motion to the Illinois Appellate Court.  The Appellate Court reversed the SummaryJudgement for Defendants and remanded the case for trial on the issue of whetherthe Illini Corporation Board of Directors acted in good faith in determiningthat a shareholder’s acceptance of a gift of Illini Corporation Stock did nottrigger the Rights Amendment and later, in Illini Corporation’s later amendmentof the Rights Agreement.  The AppellateCourt further ruled the Plaintiff’s attorneys’ fees were recoverable under theRights Agreement.  As of December 31,2001, Illini Corporation has accrued its best

 

49

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estimate as a contingencyreserve for this litigation.  IlliniCorporation anticipates the case will be tried in 2002.

 

The second case was filedin august of 2001 by a shareholder against a former shareholder and severalpresent and former directors of Illini Corporation.  The complaint purports to bring a derivative cause of actionarising out of the redemption of the shares of the former shareholder, which isalleged to have caused the defendants to breach the Shareholder RightsAgreement.  The complaint seeks rescissionof the stock redemption and recover of attorneys' fees.

 

**(17)         RegulatoryRestrictions**

 

Illini Corporation,Illini, and Camp Point are subject to various regulatory capital requirementsadministered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certainmandatory and possibly additional discretionary actions by regulators that, ifundertaken, could have a direct material effect on Illini Corporation’sconsolidated financial statements. Under capital adequacy guidelines and the regulatory framework forprompt corrective action, Illini Corporation, Illini, and Camp Point must meetspecific capital guidelines that involve quantitative measures of IlliniCorporation, Illini, and Camp Point’s assets, liabilities, and certainoff-balance-sheet items as calculated under regulatory accountingprinciples.  Illini Corporation, Illini,and Camp Point capital amounts and classifications are also subject toqualitative judgments by the regulators about components, risk-weightings, andother factors.

 

Quantitative measuresestablished by regulations to ensure capital adequacy require IlliniCorporation, Illini, and Camp Point to maintain minimum amounts and ratios (setforth in the table below) of total and Tier I capital (as defined in theregulations) to risk-weighted assets (as defined), and of Tier I capital toaverage assets (as defined).  Managementbelieves, as of December 31, 2001, Illini Corporation, Illini, and Camp Pointmeet all capital adequacy requirements to which they are subject.

 

As of September 30, 2000,the most recent notification from regulatory agencies categorized Illini asadequately capitalized under the regulatory framework for prompt correctiveaction.  As of December 31, 2000 CampPoint is categorized as well capitalized under the regulatory framework forprompt corrective action.  To becategorized as adequately or well capitalized, each bank must maintain minimumtotal risk-based, Tier I risk-based, and Tier I leverage ratios as set forth inthe table.  There are no conditions orevents since that notification that management believes have changed Illini’sor Camp Point’s category.

 

Illini Corporation’s,Illini’s, and Camp Point’s actual and required capital amounts and ratios as ofDecember 31, 2001 and 2000 are as follows:

 
|                                           |       | **December  31, 2001** |                      |
|------------------------------------------------|------------|------------------------|---------------------------|
|                                           | **Actual** |                   | **Capital  requirements** |   | **To be well  capitalized  under prompt corrective  action provisions** | ** ** |
|                                           |       | **Amount**             |                      | **Ratio** |   | **Amount** |   | **Ratio** |   | **Amount** |   | **Ratio** | ** ** |
|                                           |       |                   |                      |   | **(dollars  in thousands)** |   |   |   |   |   |
| Total  capital (to risk-weighted assets):      |       |                   |                      |   |   |   |   |   |   |   |   |   |   |
| Illini  Corporation                            |       | **$**                  | **21,501**                | ** ** | **10.04** | **%** | **$** | **17,140** | ** ** | **8.00** | **%** | **—** | ** ** | **—** | ** ** |
| Illini                                         |       | **19,495**             | ** **                | **10.27** | ** ** | **15,181** | ** ** | **8.00** | ** ** | **$** | **18,976** | ** ** | **10.00** | **%** |
| Camp  Point                                    |       | **3,726**              | ** **                | **14.69** | ** ** | **2,029** | ** ** | **8.00** | ** ** | **2,536** | ** ** | **10.00** | ** ** |
| Tier  I capital (to risk-weighted assets):     |       |                   |                      |   |   |   |   |   |   |   |   |   |   |
| Illini  Corporation                            |       | **14,634**             | ** **                | **6.75** | ** ** | **8,570** | ** ** | **4.00** | ** ** | **—** | ** ** | **—** | ** ** |
| Illini                                         |       | **17,634**             | ** **                | **9.29** | ** ** | **7,590** | ** ** | **4.00** | ** ** | **11,386** | ** ** | **6.00** | ** ** |
| Camp  Point                                    |       | **3,484**              | ** **                | **13.74** | ** ** | **1,014** | ** ** | **4.00** | ** ** | **1,522** | ** ** | **6.00** | ** ** |
| Tier  I capital (to quarterly average assets): |       |                   |                      |   |   |   |   |   |   |   |   |   |   |
| Illini  Corporation                            |       | **14,467**             | ** **                | **5.35** | ** ** | **10,809** | ** ** | **4.00** | ** ** | **—** | ** ** | **—** | ** ** |
| Illini                                         |       | **17,634**             | ** **                | **7.51** | ** ** | **9,395** | ** ** | **4.00** | ** ** | **11,744** | ** ** | **5.00** | ** ** |
| Camp  Point                                    |       | **3,484**              | ** **                | **9.94** | ** ** | **1,403** | ** ** | **4.00** | ** ** | **1,753** | ** ** | **5.00** | ** ** |
|                                                |            |                        |                           |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

50

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|                                           |       | **December  31, 2000** |                      |
|------------------------------------------------|------------|------------------------|---------------------------|
|                                           | **Actual** |                   | **Capital  requirements** |   | **To be well  capitalized  under prompt corrective  action provisions** |   |
|                                           |       | **Amount**             | ** **                | **Ratio** |   | **Amount** | ** ** | **Ratio** |   | **Amount** | ** ** | **Ratio** |   |
|                                           |       |                   |                      |   | **(dollars  in thousands)** |   |   |   |   |   |
| Total  capital (to risk-weighted assets):      |       |                   |                      |   |   |   |   |   |   |   |   |   |   |
| Illini  Corporation                            |       | $                      | 19,190                    |   | 10.87 | % | $ | 14,120 |   | 8.00 | % | — |   | — |   |
| Illini                                         |       | 15,572                 |                      | 9.94 |   | 12,529 |   | 8.00 |   | $ | 15,661 |   | 10.00 | % |
| Camp  Point                                    |       | 3,481                  |                      | 16.49 |   | 1,689 |   | 8.00 |   | 2,111 |   | 10.00 |   |
| Tier  I capital (to risk-weighted assets):     |       |                   |                      |   |   |   |   |   |   |   |   |   |   |
| Illini  Corporation                            |       | 17,001                 |                      | 9.63 |   | 7,060 |   | 4.00 |   | — |   | — |   |
| Illini                                         |       | 13,609                 |                      | 8.69 |   | 6,265 |   | 4.00 |   | 9,397 |   | 6.00 |   |
| Camp  Point                                    |       | 3,255                  |                      | 15.42 |   | 844 |   | 4.00 |   | 1,267 |   | 6.00 |   |
| Tier  I capital (to quarterly average assets): |       |                   |                      |   |   |   |   |   |   |   |   |   |   |
| Illini  Corporation                            |       | 17,001                 |                      | 7.27 |   | 9,355 |   | 4.00 |   | — |   | — |   |
| Illini                                         |       | 13,609                 |                      | 6.78 |   | 8,032 |   | 4.00 |   | 10,041 |   | 5.00 |   |
| Camp  Point                                    |       | 3,255                  |                      | 10.02 |   | 1,300 |   | 4.00 |   | 1,625 |   | 5.00 |   |
|                                                |            |                        |                           |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Dividends from itssubsidiaries are the principal source of funds for payment of dividends byIllini Corporation to its shareholders.

 

Illini and Camp Point aresubject to certain restrictions on the amount of dividends that may be declaredwithout prior regulatory approval.  AtDecember 31, 2001, Illini had $3.4 million of retained earnings available fordividends without prior regulatory approval. At December 31, 2001, Camp Point had $199,000 of retained earningsavailable for dividends without prior regulatory approval.

 

At December 31, 2001 and2000, approximately $1,552,000 and $1,162,000, respectively, of cash and duefrom banks represented required reserves on deposits maintained by IlliniCorporation in accordance with Federal Reserve Bank requirements.

 

**ITEM 8. - CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**PARTIII.**

 

**ITEM 9. - DIRECTORS,EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION16(A) OF THE EXCHANGE ACT**

 

***Directors and Executive Officers***

 

UnderIllini's Articles of Incorporation, as amended, the Board of Directors isdivided into three classes.  The Boardof Directors presently consists of eleven (11) members.  Each year, the shareholders are asked toelect the members of a class for a term of three years.   The information below is provided withrespect to each nominee for Director and each Director whose term of officeextends beyond the date of the Annual Meeting and who will continue in officefor their existing terms.  On November4, 1993, Illini Bank East, Illini Bank Menard County, and Illini Bank Northwere merged with, into, and under the charter of Illini Bank, a wholly-ownedsubsidiary of Illini (the "Illini Banks Merger").  As discussed herein, certain of theDirectors were directors of the Illini Banks prior to the Illini Banks Merger.

 

51

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***Nominees for the term ending in 2004***

 
| **Name, Age, Principal Occupation  and other Directorships**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | **Director  of  Illini Since** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|
| William  B. McCubbin - 64,  Farmer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 1983                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                           |
| Mr.  McCubbin has engaged in farming in Sangamon County since 1961.  He served as a director of Citizen State  Bank of Mechanicsburg, Illini Bank of Sangamon County and Illini Bank-Coffeen  until their consolidation with Illini Bank.   Mr. McCubbin has served as a director of Illini Bank since 1994 and with  Illini since 1983.  Mr. McCubbin has  also served as corporate secretary since 1998.                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                           |
| Burnard  K. McHone - 62, Banking  Executive                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 1992                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                           |
| Mr.  McHone assumed the position of President of Illini on January 1, 1992, and  was subsequently elected a director at the 1992 Annual Meeting.  Prior to accepting these positions, Mr.  McHone had over 15 years of bank management experience as President, Chairman  and Controller of Farmers National Bank of Geneseo and Farmers National  Bancorp, Inc. Effective with the merger of Illini Bank, Mr. McHone was  elected as a Director of Illini Bank and appointed its President in  1994.  Mr. McHone was elected a  director of Farmers State Bank of Camp Point in November 1999. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                           |
| Robert  F. Olson - 71, Retired  State Representative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 1988                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                           |
| Mr.  Olson has been retired as State Representative from the Illinois General  Assembly since 1994.  He is also a  retired farmer.  He currently operates  a Farm Management Service for out of state landowners.  He served as a director and Chairman of  the Board of Illini Bank-North until the Illini Banks Merger.  Mr. Olson also serves as a director of  Illini Bank.                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                           |
| N.  Ronald Thunman – 69,  President of CAE Electronics                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 1997                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                           |
| Mr.  Thunman is the President of CAE Electronics Corporation in Leesburg, Virginia  since March 1995 and recently named Chairman of the Board of Pinkerton  Government Services.  Previously, Mr.  Thunman was Chairman of the Board of Directors of ABB Government Services  Corporation from 1990 through 1995.   Mr. Thunman is a retired Vice Admiral from the United States  Navy.  Mr. Thunman also serves as a  director of Illini Bank.                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                           |
| Dr.  Jane Schachtsiek – 54,  Chancellor, Dept. of Nursing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 1997                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                           |
| Dr.  Schachtsiek has served as Chancellor at St. Johns College, Department of  Nursing since 1990. Previously, Dr. Schachtsiek earned her Doctorate of  Philosophy from Southern Illinois University in Carbondale and is a member of  the Board of St. John’s College. She was elected a director of Illini Bank in  1997 and has served in that capacity since then.                                                                                                                                                                                                                               |

 

**ContinuingDirectors for the term ending in 2003**

 
| **Name, Age, Principal Occupation  and other Directorships**                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | **Director of  Illini Since** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|
| Thomas  A. Black - 64,  Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 1983                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                          |
| Mr.  Black was employed by Caterpillar Tractor Company since 1956 and held a  management position from 1973 until his retirement in December 2000.  He served as a director of Stonington  Community Bank & Trust Co. and Illini Bank-East until the merger of  Illini Bank was completed in 1994.   Mr. Black was elected to the Board of Directors of Illini Bank in 1994  and has served as its Chairman since 1996.   Mr. Black also serves as Chairman of the Board of Illini and has held  such position since |

 

52

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| 1983.  Mr. Black was elected to the Board of Directors of Farmers State Bank of Camp  Point in 1999 and has served at its Chairman since then.                                                                                                                                                                                                                                                             |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| Lawrence  B. Curtin - 75, Farmer                                                                                                                                                                                                                                                                                                                                                                           |   | 1983 |
|                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| Mr.  Curtin owns and operates a large corn and soybean farm and has been in  farming his entire life.  He served as  a director and Chairman of the Board of Illini Bank-East until the Illini  Banks Merger was completed.  He also  serves as a director of Illini Bank.                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| Dr.  Anthony F. Liberatore –  55, Professor of Economics                                                                                                                                                                                                                                                                                                                                              |   | 1997 |
|                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| Dr.  Liberatore has been a fully tenured Professor of Economics at Millikin  University since 1985 and is currently Hermann Chair of Management  Development and director of MBA Program with the Tabor School of  Business.  He founded Quality By  Design, a private consulting firm, in 1990.   He was elected a director of Illini Bank in 1997 and has served in  that capacity since then. |

 

**ContinuingDirectors for the term ending in 2002**

 
| **Name, Age, Principal Occupation  and other Directorships**                                                                                                                                                                                                                                                                                                                                                                                       |   | **Director of  Illini Since** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|
| William  N. Etherton  - 75, Farmer                                                                                                                                                                                                                                                                                                                                                                                                            |   | 1994                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                          |
| Mr.  Etherton has been engaged in farming and the livestock business in the  Mechanicsburg vicinity all of his life time.   He remains active in Etherton Stock Farms, an 2500 acre farm  operation.  He previously served as a  director of Citizens State Bank of Mechanicsburg and Illini Bank of Sangamon  County before being elected to the Board of Illini Bank in 1994.  He has served as a director of Illini  since 1994. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                          |
| John  H. Pickrell - 82, Farm  Manager                                                                                                                                                                                                                                                                                                                                                                                                              |   | 1983                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                          |
| Mr.  Pickrell has operated a farm and has been engaged in farm management since  1978.  He was appointed as a director  and Treasurer of Illini Bank upon consummation of the Illini Banks  Merger.  Mr. Pickrell is also  Treasurer of Illini and has held such position since 1983.                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                          |
| Jesse  Werner, Jr. – 65,  President of Champion Gas & Oil                                                                                                                                                                                                                                                                                                                                                                                 |   |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                          |
| Mr.  Werner is President of Champion Gas & Oil Company, Vice President of  Arrow Trailer & Equipment Company and Vice President of Waco Leasing  Company.  Mr. Werner served on the  Board of American Bank & Trust Co. until 1994, and was a director of  Illini Bank.  He previously served as  a director of Illini from 1983 until 1996.                                                                                 |

 

Messrs.McCubbin, Pickrell, Black, and Curtin have each held the position indicatedsince Illini was chartered in 1983.  Mr.Olson was added to the Board in 1988 upon consummation of Illini's acquisitionof Elkhart Banc Shares, Inc.  Messrs.McHone and Etherton were added to the Board in 1992 and 1994, respectively,upon reorganization of Illini's corporate structure.  Mr. Thunman was added to the Board of Directors of Illini in 1997to replace the seat vacated by the death of Robert Goldman.

 

During2001, the Board of Directors of Illini held eight meetings.  Each of the current Directors attended morethan 75% of the total number of meetings of the Board of Directors and of allCommittees of which they were members. On December 21, 2000 the Board of Directors recommended the drafting ofa resolution to amend the Bylaws of Illini Corporation to reduce the number ofregular meetings from four per year to one per year and to provide for specialmeetings that may be necessary to adequately conduct corporate business.  By limiting the number of meetings, it willreduce expenses and control liability. The Board of Directors passed the resolution on February 15, 2001.

 

53

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TheBoard of Directors has established Committees to assist in the discharge of itsresponsibilities.

 

In2001, the Board established an Executive Committee, which met six timesthroughout the year.  The ExecutiveCommittee is comprised of Mssrs. Thunman, Black, Curtin, Etherton, McCubbin,McHone, Olson and Pickrell.  TheExecutive Committee was established to act directly on behalf of the Boardduring interim periods between Board meetings and during emergencies.  The Executive Committee is also responsiblefor reviewing all litigation pending or threatened by or against Illini, or itssubsidiaries, and except where settlement of any such litigation will involvean aggregate expenditure in excess of $1 million, the Executive Committee hasauthority to authorize settlement or compromise of any such litigation.

 

TheCompensation Committee met three times during 2001 and consists of Messrs.Black, Liberatore, Olson and Thunman. This Committee was created by Illini tooversee and control all administration of employee compensation and benefitmatters for Illini and its subsidiary banks.

 

TheNominating Committee met once during 2001 and consists of Messrs. Black, Etherton,McCubbin, McHone, Olson, Pickrell and Thunman. The Nominating Committee was created by Illini to oversee the duties ofnominating a slate for election to the Board of Directors and with reviewingand determining the qualifications and eligibility of any nominee.

 

In1989, the Board of Directors established an Audit Committee to oversee theexternal and internal audit functions of Illini and its subsidiaries.  Only outside directors are eligible to serveon the Audit Committee.  During 2001,the Audit Committee consisted of Messrs. Curtin, Black, Etherton, Liberatoreand McCubbin and met five times.

 

***Executive Officers***

 

Thefollowing table provides information with respect to the executive officers ofIllini as of December 31, 2001 including all positions and offices with Illini.

 
| **Name**            |   | **Age** |   | **Office**                             |
|---------------------|--------|---------|--------|----------------------------------------|
| Thomas A. Black     |   | 64      |   | Chairman  of the Board                 |
| N. Ronald Thunman   |   | 69      |   | Vice  Chairman of the Board            |
| Burnard K. McHone   |   | 62      |   | President                              |
| William B. McCubbin |   | 64      |   | Secretary                              |
| John H. Pickrell    |   | 82      |   | Treasurer                              |
| James L. Adkins     |   | 54      |   | Chief  Operating Officer               |
| Douglas F. Finn     |   | 45      |   | Vice  President of Sales & Service |
| William B. Glaze    |   | 58      |   | Vice  President of Operations          |
| Daniel R. Haider    |   | 44      |   | Senior  Vice President of              |
|                |   |    |   | Safety  and Soundness                  |
| Ronald E. Wenger    |   | 47      |   | Senior  Vice President of              |
|                |   |    |   | Credit  Administration                 |

 

***Business Experience of Non-DirectorExecutive Officers***

 
| James  L. Adkins – 54                                                                                                                                                                                                                                                                                                                                                                                                                |   | Chief  Operating Officer |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     |
| Mr.  Adkins joined Illini and Illini Bank in February 1999 as Vice President of  Commercial Lending.  In September 1999  his duties were expanded and he was named Senior Vice President and Chief  Operating Officer of Illini Bank.   Prior to accepting this position, Mr. Adkins had over 31 years of bank  management experience, the most recent as Vice President of Central Illinois  bank located in Normal, Illinois. |

 

54

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| Douglas  F. Finn - 45                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | Vice  President of Sales & Service          |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                            |
| Mr. Finn joined Illini  Bank in October 1997 as Banking Center Manager of the main banking facility  located at Iles & Koke Mill in Springfield, IL.  In February 1999, he was promoted to Vice President of Sales  & Service.  From 1981 to 1997, Mr.  Finn was employed by Bank One and held the title of Assistant Vice President  from 1995 to 1997.                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                            |
| William  B. Glaze - 58                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Vice  President of Operations                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                            |
| Mr. Glaze joined Illini  Bank in January 2001 as Vice President of Operations.  Mr. Glaze has over thirty years management  experience in the banking industry and most recently was an independent  contractor for his financial consulting firm the Glaze Group.                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                            |
| Daniel  R. Haider, Jr. - 44                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | Senior  Vice President of Safety and Soundness  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                            |
| Mr.  Haider joined Illini Corporation in July 2000 as Sr. Vice President of Safety  and Soundness.  His primary  responsibility will be to maintain bank safety and soundness.  From 1998 to 2000 Mr. Haider served as CEO  and Chairman of the Board of First National Bank of Newton.  Mr. Haider was Regional President of  Community Banks of Colorado from 1997 through 1998 and served as  President/CEO of First State Bank of Eldorado from 1994 through 1997. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                            |
| Ronald  W. Wenger - 47                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Senior  Vice President of Credit Administration |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                            |
| Mr.  Wenger joined Illini Bank in  August of 1978.  He worked for First  State Bank until the Illini Banks Merger when he was named Vice President of  Commercial Loans.  In June 1998, Mr.  Wenger was named Vice President of Credit Administration for Illini and  Illini Bank and was promoted to Senior Vice President in February 1999.                                                                                                                               |

 

***Section 16(a) Beneficial OwnershipReporting Compliance***

 

Section16(a) of the Securities Exchange Act of 1934 requires Illini's executiveofficers and Directors, and persons who own more than ten percent of aregistered class of Illini's equity securities, to file reports of ownership onForm 3 and changes in ownership on Form 4 or 5 with the Securities and ExchangeCommission (the "SEC").  Suchexecutive officers, Directors and ten percent shareholders are also required bySEC rules to furnish the Company with copies of all Section 16(a) forms thatthey file.

 

Basedsolely on a review of the copies of such forms received by Illini, Illinibelieves that, during the period from January 1, 2001 until December 31, 2001,all Section 16(a) filing requirements applicable to its executive officers,Directors and ten percent shareholders were met to the best of our knowledge.

 

**ITEM 10. - EXECUTIVE COMPENSATION**

 

The following table setsforth the compensation for 2001 awarded to or earned by the Chief ExecutiveOfficer of the Company.

 
| **Summary  Compensation Table  Annual Compensation** |   |
|------------------------------------------------------|--------|
| **Name and Principal Position**                      |   | **Year** |   | **Salary($)** |   | **Bonus($)** |   |
| Burnard McHone  President                            |   | 2001 |   | $ | 114,500 |   | $ | 0 |   |
|                                                 | 2000   |   | $ | 113,000 |   | $ | 0 |   |
|                                                 | 1999   |   | $ | 111,500 |   | $ | 0 |   |

 

No other executiveofficer of Illini received compensation in 2001 in excess of $100,000.

 

55

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**EmploymentAgreement**

 

Illiniand Illini Bank have entered into employment agreements with Burnard K. McHone,James L. Adkins, Douglas F. Finn, William B. Glaze, Daniel R. Haider, Jr. andRonald Wenger.  Mr. McHone, and Mr.Wenger’s employment agreements were effective as of November 24, 1998, andprovide that they shall be employed until December 31, 2003.  Mr. Adkins’ employment agreement waseffective as of February 5, 1999, and Mr. Finn’s as of March 2, 1999, andprovide that they shall be employed until December 31, 2002.  Mr. Haider’s employment agreement waseffective as of July 3, 2000 and provides he shall be employed until July2003.  Mr. Glaze’s employment agreementwas effective as of January 1, 2001 and provides he shall be employed untilDecember 31, 2004.

 

Unlesssooner terminated in accordance with the terms outlined in the employmentagreements, all obligations shall terminate after the expiration of theemployment terms of the respective employment agreements.  The Officers may, with the consent of theCompany, continue to be employed by Illini and Illini Bank after the expirationof the employment term of the respective employment agreements on such termsand conditions as may be agreed upon by Illini and the Officers.  These Officers may terminate the employmentagreements at any time upon 30 days’ prior notice to Illini.

 

Illinimay terminate the Agreements without cause prior to the Term, by providingthirty days notice to the Officer.  Insuch event the Officer shall have no further obligation to Illini, except theduty to not disclose confidential information outlined in the Agreement, andIllini shall have no further obligation to the Officer from the date of suchtermination except (a) to pay to the Officer the salary payment in the amountin effect on the date of termination, for a period of six months from the dateof termination, (b) to pay to the Officer any other benefits due under Illini’scompensation and benefit plans for a period of six months from the date oftermination, and (c) to pay to the Officer reasonable expenses of out placementservices within the financial institutions industry during the six month periodfollowing the date of termination; provided, however, out placement expensesshall be paid only upon actually incurring such expenses and the Officer’sfurnishing of evidence thereof to Illini and shall not include moving orrelocation expenses.

 

Inthe event there is a “Change in Control” of the Company during the employmentterm, and (a) within the period commencing three months prior to the date of aChange in Control and ending six months following the date of the Change inControl, the Officer’s employment hereunder is terminated by Illini other thanfor Cause; or (b) within the employment term, the Officer resigns from hisemployment upon thirty days written notice given to the Company within thirtydays following a material change in the Officer’s title, authorities of duties,in effect immediately prior to the Change in Control, a reduction in thecompensation or a reduction in benefits or compensation and benefit plans fromthe amount of compensation and benefits in effect immediately prior to theChange in Control, or a change of the Officer’s principal place of employmentwithout his consent to a city more than 25 miles from Springfield, Illinois,then the Officer shall have no further obligation to Illini, except the dutynot to disclose confidential information in accordance with the employmentagreement.  Illini shall have no furtherobligation to the Officer from the date of termination except to pay theOfficer the salary amount in effect on the date of termination for a period oftwelve months from the date of termination. 

 

**Compensationof Directors**

 

Directorsof Illini receive an annual retainer of $2,000 paid quarterly. Executive andAudit Committee members receive an annual retainer of $400 paid quarterly.  Compensation and Nominating Committeemembers receive an annual retainer of $200 paid quarterly.  Chairmen are paid at 150% of the normalfee.  Certain Directors also receivefees as a director of Illini's subsidiary, which is an annual retainer of$4,800 paid quarterly.  Loan Committeemembers rotate every six months and receive an annual retainer of $600 paidquarterly.  Marketing Committee membersreceive an annual retainer of $200 paid quarterly.  The Chairmen are paid at 150% of the normal fee.

 

56

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**ITEM 11. - SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT**

 

***Security Ownership of Certain BeneficialOwners and Management***

 

Thefollowing table sets forth information as of December 31, 2001, with respect toall shareholders known to Illini to have been the beneficial owners of morethan five percent of its Common Stock, and the shares of Common Stock of Illinibeneficially owned by each Director, Nominee, and by all Directors andexecutive officers of Illini as a group based upon information received fromsuch persons.  Beneficial ownership ofsecurities generally means the power to vote or dispose of securities,regardless of any economic interest. Unless otherwise indicated, all persons shown in the table below havesole voting and dispositive power or share voting and dispositive power withmembers of their immediate families with respect to the number of shares listednext to their names.

 
|                                                           |   | **Common Stock Beneficially  Owned** | ** ** |
|----------------------------------------------------------------|--------|--------------------------------------|------------|
| **Name of Beneficial OwnerAddress (3)**                        |   | **Number of  Shares**                |       | **Percentage  of Total** | ** ** |
| D. Marlene H. Huls                                             |   | P.O.  Box 579                        |       | 103,756 |   | 18.15 | % |
| Gifford, Illinois 61847                                        |   |                                 |       |   |   |   |   |
|                                                           |   |                                 |       |   |   |   |   |
| D. Marlene H. Huls,                                            |   | P.O.  Box 579                        |       | 19,577 |   | 3.42 | % |
| TR UW, Ernest H. Huls                                          |   | Gifford,  Illinois 61847             |       |   |   |   |   |
| Family Trust                                                   |   |                                 |       |   |   |   |   |
|                                                           |   |                                 |       |   |   |   |   |
| Thomas A. Black                                                |   |                                 |       | 12,314 |   | 2.15 | % |
| Lawrence B. Curtin                                             |   |                                 |       | 3,007 |   | 0.53 | % |
| William N. Etherton                                            |   |                                 |       | 8,110 |   | 1.42 | % |
| Anthony Liberatore                                             |   |                                 |       | 556 |   | 0.10 | % |
| William B. McCubbin                                            |   |                                 |       | 2,930 |   | 0.51 | % |
| Burnard K. McHone                                              |   |                                 |       | 8,237 |   | 1.44 | % |
| Robert F. Olson                                                |   |                                 |       | 2,835 |   | 0.50 | % |
| John H. Pickrell                                               |   |                                 |       | 2,007 |   | 0.35 | % |
| Jane A. Schachtsiek                                            |   |                                 |       | 255 |   | 0.04 | % |
| N. Ronald Thunman                                              |   |                                 |       | 3,614 |   | 0.63 | % |
| Jesse A. Werner                                                |   |                                 |       | 8,134 |   | 1.42 | % |
|                                                           |   |                                 |       |   |   |   |   |
| All 11 Directors, Nominees, and  Executive Officers as a group |   | 175,322                              |       | 30.66 | % |

 

**ITEM 12. - CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

 

***Transactions with Directors, ExecutiveOfficers and Associates***

 

During2001, some of the Directors and executive officers of Illini (and members oftheir immediate families and corporations, organizations and trusts with whichthese individuals are associated) have been indebted to one or more of thesubsidiary banks in amounts of $60,000 or more. All such loans were made in theordinary course of business, did not involve more than normal risk ofcollectibility or present other unfavorable features, and were made onsubstantially the same terms, including interest rates and collateralrequirements, as those prevailing at the same time for comparable loantransactions with unaffiliated persons. No such loan was classified by any of the subsidiary banks as ofDecember 31, 2001 as a non-accrual, past due, restructured or potential problemloan.

 

Outsideof normal customer relations, none of the Directors, executive officers, or 5%shareholders of Illini (or members of their immediate families) currentlymaintains or has maintained during 2001 any significant

 

57

----

 

businessor personal relationship with Illini or any of its subsidiaries other than suchas might arise by virtue of such person's ownership interest in, or positionwith, Illini.

 

**ITEM 13. - EXHIBITS LIST AND REPORTS ON FORM 8-K**

 

(a) The followingexhibits have been filed with the Securities and Exchange Commission asrequired:

 

| (3)    |   | (1) Articles of  Incorporation (incorporated by reference to Illini’s Form 10-K for the year  ended December 31, 1984).                                                                                                                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | (2) Amended and  Restated Bylaws of Illini Corporation, effective February 15, 2001.                                                                                                                                                          |
|   |   | (3) Amended and  Restated Bylaws of Illini Corporation, effective October 28, 2001.                                                                                                                                                           |
| (4)    |   | (1) Rights Agreement by  and between Illini Corporation and Illinois Stock Transfer Company, as rights  agent  (incorporated by reference to Illini’s Form 8-K filed on June 25, 1997).                                                  |
|   |   | (2) First Amendment to  Rights Agreement dated July 1, 1998 (incorporated by reference to Illini’s  Form 8-K filed on July  13, 1998).                                                                                                   |
|   |   | (3) Second Amendment to  Rights Agreement dated July 6, 1999 (incorporated by reference to Illini  Corporation’s  Form 8 - K filed on July 12, 1999).                                                                                    |
|   |   | (4) Third Amendment to  Rights Agreement dated November 18, 1999 (incorporated by reference to Illini  Corporation’s  Form 8-K filed on November 26, 1999).                                                                              |
| (9)    |   | Not applicable.                                                                                                                                                                                                                               |
| (10)   |   | (1) Form of data  processing agreement (incorporated by reference to Illini’s Form 10- KSB for  the year ended December  31, 1996).                                                                                                      |
|   |   | (2) Employment  agreement by and between Illini Corporation and Burnard K. McHone dated  November 24, 1998  (incorporated by reference to Illini Corporation’s Form 10-KSB for the year  ended December 31, 1998).                       |
|   |   | (3) Employment  agreement by and between Illini Corporation and William B. Littreal dated  November 24, 1998  (incorporated by reference to Illini Corporation’s Form 10-KSB for the year  ended December 31, 1998).                     |
|   |   | (4) Employment  agreement by and between Illini Corporation and Ronald W. Wenger dated  November 24, 1998  (incorporated by reference to Illini Corporation’s Form 10-KSB for the year  ended December 31, 1998).                        |
|   |   | (5) Employment  agreement by and between Illini Corporation and James L. Adkins dated  February 5, 1999.                                                                                                                                      |
|   |   | (6) Employment  agreement by and between Illini Corporation and Douglas F. Finn dated March  2, 1999.                                                                                                                                         |
|   |   | (7) Non-Compete,  Standstill and Sale of Personal Goodwill Agreement dated November 19, 1999 by  and between Illini  Corporation and Ernest H. Huls (incorporated by reference to Illini  Corporation's Form 8-K filed on November 26, 2000). |
|   |   | (8) Employment  agreement by and between Illini Corporation and Daniel R. Haider, Jr. dated  June 1, 2000.                                                                                                                                    |
| (11)   |   | Statement regarding  computation of earnings per share is included in "Item 7. Financial  Statements-Note 1(*l*)" which is  incorporated by reference herein.                                                                       |
| (13)   |   | Not applicable.                                                                                                                                                                                                                               |
| (16)   |   | Letter from KPMG LLP  regarding its concurrence with Illini Corporation's statement regarding  change of accountants  (incorporated by reference to Illini Corporation's Form 8-K filed on February  24, 2000).                               |
| (18)   |   | Not applicable.                                                                                                                                                                                                                               |
| (21)   |   | Subsidiaries of the  Registrant: Illini Bank, an Illinois state chartered bank, Farmers State Bank  of Camp Point, an Illinois  state chartered bank, and Illini Statutory Trust I, a special purpose trust  subsidiary.                      |
| (22)   |   | Not applicable.                                                                                                                                                                                                                               |
| (23)   |   | Not applicable.                                                                                                                                                                                                                               |
| (24)   |   | Not applicable.                                                                                                                                                                                                                               |
| (99)   |   | Not applicable.                                                                                                                                                                                                                               |

 

(b)  The Corporation filed a Form 8-K datedOctober 28, 2001 amending and restating the Company's Bylaws.

 

The Corporation filed aForm 8-K dated November 28, 2001 executing a definitive Agreement and Plan ofMerger by and among the Corporation, Effingham Merger Corporation and IllinoisCommunity Bancorp, Inc.  

 

58

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**SIGNATURES**

 

In accordance withSection 13 or 15(d) of the Exchange Act, the registrant has caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

 
| Dated:                              | March 26, 2002 |   |   |
|-------------------------------------|----------------|--------|--------|
|                                |           |
| Illini Corporation,  Registrant, by |           |
|                                |           |
| /s/ Burnard K. McHone               |           |   |
| Burnard K. McHone,  President       |           |

 

In accordance with theExchange Act, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated.

 
| **/s/ Thomas A. Black**        | **March 26, 2002** |   | **/s/ Burnard K. McHone**                     | **March 26, 2002** |
|--------------------------------|--------------------|--------|-----------------------------------------------|--------------------|
| Thomas A. Black, Chairman      | Date               |   | Burnard K. McHone,  Director & Pres       | Date               |
|                           |               |   | (Principal Executive  Officer)                |               |
|                           |               |   |                                          |               |
| **/s/ Lawrence B. Curtin**     | **March 26, 2002** |   | **/s/ Robert F. Olson**                       | **March 26, 2002** |
| Lawrence B. Curtin, Director   | Date               |   | Robert F. Olson,  Director                    | Date               |
|                           |               |   |                                          |               |
| **/s/ William N. Etherton**    | **March 26, 2002** |   | **/s/ John H. Pickrell**                      | **March 26, 2002** |
| William N. Etherton,  Director | Date               |   | John H. Pickrell,  Director                   | Date               |
|                           |               |   |                                          |               |
| **/s/ William B. McCubbin**    | **March 26 2002**  |   | **/s/ N. Ronald Thunman**                     | **March 26, 2002** |
| William B. McCubbin,  Director | Date               |   | N. Ronald Thunman,  Director                  | Date               |
|                           |               |   |                                          |               |
| **/s/ Anthony F. Liberatore**  | **March 26, 2002** |   | **/s/ C. Deann Hager**                        | **March 26, 2002** |
| Anthony F. Liberatore          | Date               |   | C. Deann Hager, Finance  Manager              | Date               |
|                           |               |   | (Principal Financial  and Accounting Officer) |
| **/s/ Jane A. Schachtsiek**    | **March 26, 2002** |   |                                          |
| Jane A. Schachtsiek            | Date               |   |                                          |               |
|                           |               |   |                                          |               |
| **/s/ Jesse A. Werner, Jr.**   | **March 26, 2002** |   |                                          |               |
| Jesse A. Werner, Jr.           | Date               |   |                                          |               |
|                                |                    |        |                                               |                    |  |

 

59

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**EXHIBIT INDEX**

 
| **Number** |   | **Description** |
|------------|--------|-----------------|
| (none)     |   | (none)          |

 

60

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| **Illini Corporation, Illini Bank  and**********Farmers  State Bank of Camp Point Officers** |   | **Illini  Bank Locations**                    |   |
|----------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
| **Illini Corporation**                                                                       |   | 3200 West Iles Avenue                         |   | West Main St. |   |
|                                                                                         |   | Springfield                                   |   | Mechanicsburg |   |
| Burnard K. McHone                                                                            |   | *Jean Jachino, Bank Manager I*                |   | *Lori Jarrett, Bank Manager I* |   |
| President                                                                                    |   | *Jim McGuire, Corporate Banking*              |   |   |   |
|                                                                                         |   |                                          |   |   |   |
|                                                                                         |   | 120 South Chatham Road                        |   | 2201 Woodlawn, Ste. 100 |   |
| James L. Adkins                                                                              |   | Springfield                                   |   | Lincoln |   |
| Sr. Vice President /  Chief Operating Officer                                                |   | *Ann Cowhick, Bank Manager I*                 |   | *Sharon Awe, Bank Manager I* |   |
|                                                                                         |   |                                          |   |   |   |
| Daniel R. Haider, Jr.                                                                        |   | 615 West Jefferson St.                        |   | 120 Governor Oglesby |   |
| Sr. Vice President /  Safety and Soundness                                                   |   | Springfield                                   |   | Elkhart |   |
|                                                                                         |   | *Mary Abbott, Bank Manager I*                 |   | *Sharon Awe, Bank Manager I* |   |
| Ronald Wenger                                                                                |   |                                          |   |   |   |
| Sr. Vice President /  Credit Administration                                                  |   | 2120 Peoria Road                              |   | 116 East Exchange |   |
|                                                                                         |   | Springfield                                   |   | Danvers |   |
| Doug F. Finn                                                                                 |   | *Kathy Carl, Bank Manager I*                  |   | *Tom Caisley, Bank Manager II* |   |
| Vice President / Sales  & Service                                                        |   |                                          |   |   |   |
|                                                                                         |   | 375 West Andrew Road                          |   | 103 Franklin |   |
| C. Deann Hager                                                                               |   | Sherman                                       |   | Hudson |   |
| Finance Manager                                                                              |   | *Steve Tate, Bank Manager I*                  |   | *Greg Birky, Corporate Banking* |   |
|                                                                                         |   |                                          |   |   |   |
| **Illini Bank**                                                                              |   | 133 Dodds Street                              |   | 100 East Third St |   |
|                                                                                         |   | Divernon                                      |   | Stonington |   |
| Burnard K. McHone                                                                            |   | *Vickie Bly, Corporate Banking*               |   | *Carolyn Winn, Bank Manager I* |   |
| President                                                                                    |   |                                          |   |   |   |
|                                                                                         |   | Route 4 and Jefferson                         |   |   |   |
| James L. Adkins                                                                              |   | Auburn                                        |   |   |   |
| Sr. Vice President /  Chief Operating Officer                                                |   | *Molly Appelt, Bank Manager II*               |   |   |   |
|                                                                                         |   |                                          |   |   |   |
| Ronald Wenger                                                                                |   |                                          |   |   |   |
| Sr. Vice President /  Credit Administration                                                  |   | **Farmers State Bank of Camp Point Location** |   |   |
|                                                                                         |   | 206 E. Wood Street                            |   |   |   |
| Doug F. Finn                                                                                 |   | Camp Point                                    |   |   |   |
| Vice President / Sales  & Service                                                        |   | *Jeffrey S. Mefford, President*               |   |   |   |
|                                                                                         |   |                                          |   |   |   |
| C. Deann Hager                                                                               |   |                                          |   |   |   |
| Finance Manager                                                                              |   |                                          |   |   |   |
|                                                                                         |   |                                          |   |   |   |
| Juanita L. Mathis                                                                            |   |                                          |   |   |   |
| Vice  President/Operations                                                                   |   |                                          |   |   |   |
|                                                                                         |   |                                          |   |   |   |
| Nancy Richards                                                                               |   |                                          |   |   |   |
| Vice President /  Corporate Banking                                                          |   |                                          |   |   |   |
|                                                                                         |   |                                          |   |   |   |
| Terry Lock                                                                                   |   |                                          |   |   |   |
| Vice President /  Corporate Banking                                                          |   |                                          |   |   |   |
|                                                                                         |   |                                          |   |   |   |
| **Farmers State Bank of Camp Point**                                                         |   | **Stock Transfer Agent**                      |   |   |
|                                                                                         |   | Illinois Stock Transfer                       |   |   |   |
| Jeffrey S. Mefford                                                                           |   | 209 West Jackson Blvd.                        |   |   |   |
| President                                                                                    |   | Suite 903                                     |   |   |   |
|                                                                                         |   | Chicago, IL 60606                             |   |   |   |
| Terry Reuschel                                                                               |   | 1-800-757-5755                                |   |   |   |
| Vice President                                                                               |   |                                          |   |   |   |
|                                                                                         |   |                                          |   |   |   |
| Anne Hunsaker                                                                                |   |                                          |   |   |   |
| Vice President / Cashier                                                                     |   |                                          |   |   |   |
|                                                                                              |        |                                               |        |  |  |  |  |

 

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