ILLINI CORP, 10KSB, 1998-03-20

ILLINI CORP
10KSB, 1998-03-20
STATE COMMERCIAL BANKS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB
/X/ Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (FEE REQUIRED)

/ / Transition Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934 (NO FEE REQUIRED)

For the fiscal year ended December 31, 1997
Commission file number 0-13343

ILLINI CORPORATION
(Name of small business issuer in its charter)

Illinois
(State of Incorporation)
(I.R.S. Employer I.D. No.)
37-1135429

3200 West Iles Avenue
Springfield, Illinois 62707
(Address of principal executive offices and zip code)

Issuer's telephone number
(217) 787-5111

Securities registered pursuant to Section 12(b) of
the Exchange Act:
None

Securities registered pursuant to Section 12(g) of
the Exchange Act:
Common Stock, par value $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 the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
-------

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
------

The Registrant's revenues for fiscal year 1997 were $12,705,000.

On March 1, 1998, 448,456 shares of common stock were outstanding. The
aggregate market value of such shares held by non-affiliates of the registrant
was approximately $12,781,000 (based on the average of the bid and asked prices
of securities traded by Robert W. Baird & Co. Incorporated, Peoria, Illinois on
March 2, 1998).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Corporation's definitive proxy statement dated March 20, 1998,
are incorporated by reference into Part III, hereof.

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1
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>

PART I Page
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<S> <C>
1. Description of Business . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . 7

PART II
5. Market for Common Equity and Related Stockholder Matters. . . . . . . . 7
6. Management's Discussion and Analysis of Financial Condition & Results
of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . .28
8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. . . . . . . . . . . . . . . . .49

PART III
9. Directors and Executive Officers of the Registrant. . . . . . . . . . .49
10. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . .49
11. Security Ownership of Certain Beneficial Owners and Management. . . . .49
12. Certain Relationships and Related Transactions. . . . . . . . . . . . .49
13. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . .50

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
</TABLE>

PART I
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ITEM 1. - DESCRIPTION OF BUSINESS

Illini Corporation ("Illini" or "Corporation"), a bank holding company as
defined in the Bank Holding Company Act of 1956, as amended, was incorporated
under the laws of the State of Illinois in 1983. Illini presently operates one
wholly owned subsidiary bank, Illini Bank, with 18 locations throughout five
counties in central Illinois. Illini's executive offices are located at 3200
West Iles Avenue, Springfield, Illinois 62707, and its telephone number is
217/787-5111.
Illini's management philosophy is to centralize overall corporate policies,
procedures, and administrative functions and provide operational support for the
subsidiary bank. Within these parameters, each location is allowed flexibility
in responding to local market conditions and customer and community needs.
Illini is committed to being a well managed, profitable financial institution
providing a broad range of financial services and products and contributing to
the economic and social environment of its communities.
Illini Bank ("the Bank") is an Illinois state bank, which had total
assets of $154.7 million at December 31, 1997. The Bank maintains 18 banking
facilities in the following Illinois communities: Springfield, Lincoln,
Petersburg, Auburn, Danvers, Dawson, Divernon, Elkhart, Greenview, Hudson,
Mechanicsburg, Owaneco, Sherman, Stonington, and Tallula.
The Bank offers its customers a wide variety of financial services and
products. Deposit products include a variety of checking, NOW, money market,
savings, investment sweep accounts, and certificates of deposit. Lending
products include short, intermediate, and long-term business and agricultural
loans, commercial and residential real estate loans, personal and consumer
purchase loans, home equity, and personal secured and unsecured lines of
credit. Additional product offerings include letters of credit, credit cards,
notary services, safe deposit boxes, and check imaging.
The Bank's deposit accounts are insured by the Federal Deposit Insurance
Corporation ("the FDIC") under the Bank Insurance Fund ("BIF") to the maximum
amount allowed by law. Illini is supervised and

2
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regulated by the Board of Governors of the Federal Reserve (FRB) and the
Bank is supervised and regulated by the FDIC and the Office of Banks and Real
Estate of the State of Illinois.

- - COMPETITION

The activities and geographic markets in which Illini is engaged are highly
competitive. Competition among financial institutions is based upon interest
rates offered on deposit accounts, interest rates charged on loans and other
credit and service charges, the quality of services rendered, the convenience of
banking facilities and, in the case of loans to large commercial borrowers,
relative lending limits.
The Bank competes with other banks, savings and loan associations, credit
unions, industrial loan associations, securities firms, insurance companies,
small loan companies, finance companies, mortgage companies, certain
governmental agencies, and credit organizations.

- - SUPERVISION AND REGULATION - GENERAL

Various federal and state banking laws and regulations affect the
business of Illini and the Bank. They are subject to supervision,
regulation, and periodic examination by the Board of Governors of the Federal
Reserve System (the "FRB") and the Commissioner and the FDIC, respectively.
The following is a summary of certain statutes and regulations affecting
Illini and the Bank. This summary is qualified in its entirety by such
statutes and regulations, which are subject to change based on pending and
future legislation and action by regulatory agencies. Proposals to change
the laws and regulations governing the operation of banks and companies which
control banks and other financial institutions are frequently raised in
Congress. The likelihood of any major legislation and the impact such
legislation might have on Illini or the Bank are, however, impossible to
predict.

- - THE BANK HOLDING COMPANY ACT

As a bank holding company, Illini is subject to regulation by the FRB
under the Bank Holding Company Act of 1956, as amended (the "BHCA"). The
BHCA restricts the product range of a bank holding company by circumscribing
the types of businesses it may own or acquire. The BHCA limits a bank
holding company to owning and managing banks or companies engaged in
activities determined by the FRB to be closely related to banking.
Among the activities that the FRB has determined are closely related to
banking are activities that are usual in connection with making, acquiring,
brokering or servicing loans, leasing personal or real property, engaging in
trust company functions, acting as investment or financial advisor, providing
securities brokerage services, certain management consulting and counseling
services, engaging in certain insurance agency activities and providing data
processing services.
The BHCA requires a bank holding company to obtain the prior approval of
the FRB before acquiring substantially all of the assets or direct or
indirect ownership or control of more than five percent of the voting shares
of a bank or a bank holding company or merging or consolidating with any
other bank holding company.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal Act"), since September 29, 1995, the FRB is permitted,
under specified circumstances, to approve the acquisition by a bank holding
company located in one state of a bank or a bank holding company located in
another state, without regard to any prohibition contained in state law.
The Riegle-Neal Act permits states to require that a target bank have
been in operation for a minimum period, up to five years, and to impose
non-discriminatory limits on the percentage of the total amount of deposits
with insured depository institutions in the state which may be controlled by
a single bank or bank holding company. In addition, the Riegle-Neal Act
imposes federal deposit concentration limits (10% of nationwide total
deposits, and 30% of total deposits in the host state on applications
subsequent to the applicant's initial entry to the host state), and adds new
statutory conditions to FRB approval, i.e., the applicant meets or exceeds
all applicable federal regulatory capital standards and is "adequately
managed."

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The Riegle-Neal Act also authorized, effective June 1, 1997, the
responsible federal banking agency to approve applications for mergers of
depository institutions across state lines without regard to whether such
activity is contrary to state law. Any state could, however, by adoption of
a non-discriminatory law after September 29, 1994 and before June 1, 1997,
either elect to have this provision take effect before June 1, 1997 or
opt-out of the provision. The effect of opting out is to prevent banks
chartered by, or having their main office located in, such state from
participating in any interstate branch merger. Each state is permitted to
retain a minimum age requirement of up to five years, a non-discriminatory
deposit cap, and non-discriminatory notice or filing requirements. The
responsible federal agency will apply the same federal concentration limits
and capital management adequacy requirements noted above with respect to BHCA
applications. Only Texas opted-out of the interstate merger provision.
While Illinois adopted legislation to opt-in to the interstate merger
provision, unlike some states and as permitted by federal law, Illinois law
does not authorize the establishment of de novo branches or the purchase by
an out-of-state bank of one or more branches of a bank with its main office
in Illinois. Since the laws of the various states which do authorize de novo
branches or branch purchases normally have reciprocity provisions, Illinois
state-chartered banks generally are not able to establish or acquire branches
in other states except through the merger with a bank in another state.
Branches acquired in a host state by both out-of-state state-chartered
and national banks will be subject to community reinvestment, consumer
protection, fair lending, and interstate branching laws of the host state to
the same extent as branches of a national bank having its main office in the
host state. Among other things, the Riegle-Neal Act also preserves state
taxation authority, prohibits the operation by out-of-state banks of
interstate branches as deposit production office, imposes additional notice
requirements upon interstate banks proposing to close branch offices in a low
or moderate-income area, and creates new Community Reinvestment Act
evaluation requirements for interstate depository institutions.

- - DIVIDEND RESTRICTIONS

Illini's principal source of income is the Bank's payment of dividends on
the stock of the Bank owned by Illini. Illinois law restricts the Bank's
ability to pay these dividends. Under the Illinois Banking Act, no dividend may
be declared by an Illinois 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 net profits since the date of the declaration of the last preceding
dividend, until the amount of its surplus is at least equal to its capital. Net
profits under the Illinois Banking Act must be adjusted for losses and bad debts
(i.e. debts owing to the bank on which interest is past due and unpaid for a
period of six months or more unless such debts are secured and in the process of
collection).
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), no insured depository institution may declare any dividend if,
following the payment of such dividend, the institution would be under
capitalized.

- - TRANSACTIONS WILL AFFILIATES AND INSIDERS

The Bank and Illini are affiliates of each other and, as such, are
subject to certain federal restrictions on loans and extensions of credit to
Illini, on investments in Illini's and its affiliates' securities, on
acceptance of such securities as collateral for loans to any borrower and on
leases and services and other contracts between the Bank and Illini.
Additionally, regulations allow the Bank to extend credit to the Bank's and
its affiliates' executive officers, directors, and principal shareholders or
their related interests only if the loan is made on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with non-insiders. Moreover, loans to
insiders must not involve more than the normal risk or repayment or present
other unfavorable features and must, in certain circumstances, be approved in
advance by a majority of the entire board of directors of the Bank. The
aggregate amount that can be lent to all insiders is limited to the Bank's
unimpaired capital surplus.

4
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- - DEPOSIT INSURANCE

Deposits held by the Bank are insured, to the extent permitted by law, by
the Bank Insurance Fund ("BIF") administered by the FDIC. A minimum designated
reserve ratio of 1.25 percent of insured deposits has been established for the
BIF. However, the FDIC may set a higher designated reserve ratio if
circumstances raise a significant risk of substantial future losses to the BIF.
Assessment rates are established sufficient to maintain reserves at the
designated reserve ratio or, if the ratio is less than the designated ratio, to
increase the ratio to the designated ratio within a reasonable period of time.
As required under FDICIA, the FDIC has established a system or risk-based
deposit insurance premiums. Under this system each insured institution's
assessment is based on 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 risk-based assessment system, currently, a depository institution
pays an assessment of between 0 cents and 27 cents per $100 of insured deposits
based on its capital level and risk classification. To arrive at a risk-based
assessment for an insured institution, the FDIC places it in one of nine risk
categories using a two step analysis based first on capital ratios and then on
relevant supervisory information. In addition, in 1996, pursuant to the Deposit
Insurance Funds Act, enacted by Congress in September, the FDIC imposed a
special assessment on bank deposits at a rate not tied to risk classification in
order to service debt on the Financing Corporation (FICO) bonds issued in
connection with the federal government's bail out of the thrift industry. Any
further significant changes in the deposit insurance assessment rate imposed by
the FDIC could have a material effect on the earnings of Illini.

- - CAPITAL REQUIREMENTS

The FRB has imposed risk-based capital guidelines applicable to Illini.
These guidelines require that bank holding companies maintain capital
commensurate with both on and off balance sheet credit and other risks of their
operations. Under the guidelines, a bank holding company must have a minimum
ratio of total capital to risk-weighted assets of 8 percent. In addition, a
bank holding company must maintain a minimum ratio of Tier 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 equity
accounts of consolidated subsidiaries, less goodwill. As a supplement to
risk-based capital requirements, the FRB has also imposed leverage capital ratio
requirements. The leverage ratio requirements establish a minimum required
ratio of Tier 1 capital to total assets less goodwill of 3 percent for the most
highly rated bank holding companies. All other bank holding companies are
required to maintain additional Tier 1 capital yielding a leverage ratio of 4
percent to 5 percent, depending on the particular circumstances and risk profile
of the institution. Refer to the Capital Resources Section of Item 6 and Note
12 included under Item 7 for a summary of Illini's capital ratios as of December
31, 1997 and 1996.
The Bank is also subject to risk-weighted capital standards and leverage
measures which are similar, but in some cases not identical, to the requirements
for bank holding companies which apply to Illini. At December 31, 1997, the
Bank met all applicable capital requirements. Under FDICIA, the federal bank
regulators must take various specified prompt corrective actions based on levels
of an insured depository institution's capital that are below the adequately
capitalized level. These prescribed actions increase restrictions on the
institution as its capital declines.

- - SAFETY AND SOUNDNESS GUIDELINES

As required by federal law, the federal banking regulators have adopted
interagency guidelines (the "Guidelines") establishing standards for safety and
soundness for depository institutions on matters such as internal controls,
internal audit systems, loan documentation, credit underwriting, interest rate
risk exposure, asset growth and quality, earnings, and compensation and other
benefits. In general, the Guidelines prescribe the goals to be achieved in each
area, and each institution will be responsible for establishing its own
procedures to achieve these goals. If an institution fails to comply with any
of the standards set forth in the Guidelines, the institution's primary federal
regulator may require the institution to submit a plan for achieving and
maintaining compliance. The preamble to the Guidelines states that an

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agency expects to require a compliance plan from an institution whose failure
to meet one or more standards is of such severity that it would threaten the
safe and sound operation of the institution. Failure to submit an acceptable
compliance plan, or failure to adhere to a compliance plan that has been
accepted by the appropriate regulator, would constitute grounds for further
enforcement action.
FDIC regulations also require all depository institutions to be examined
annually by the banking regulators and require insured depository
institutions having $500 million or more in total assets to prepare annual
financial statements which are audited by an independent public accountant,
to have an audit committee comprised solely of outside directors, and to hire
outside auditors to evaluate the institution's internal control structure and
procedures and compliance with laws and regulations relating to safety and
soundness. For institutions that are subsidiaries of bank holding companies,
the financial statement requirement can be satisfied by audited financial
statements of the consolidated bank holding company. Other audit related
requirements for subsidiary institutions that have total assets of less than
$5 billion or assets of $5 billion or more and a composite CAMEL rating of 1
or 2 also may be satisfied by the parent bank holding company. The FDIC, in
adopting the regulations, reiterated its belief that every depository
institution, regardless of size, should have an annual independent audit and
an independent audit committee.

- - MONETARY POLICY AND ECONOMIC CONDITIONS

The business of commercial banks, such as the Bank is affected by
monetary and fiscal policies of various regulatory agencies, including the
FRB. Among the regulatory techniques available to the FRB are open market
operations in United States Government securities, changing the discount rate
for member bank borrowings, and imposing and changing the reserve
requirements applicable to member bank deposits and to certain borrowings by
member banks and their affiliates (including parent companies). These
policies influence to a significant extent the overall growth and
distribution of bank loans, investments and deposits and the interest rates
charged on loans, as well as the interest rates paid on savings and time
deposits.
The monetary policies of the FRB have had a significant effect on the
operating results of commercial banks in the past and are expected to
continue to do so in the future. In view of constantly changing conditions
in the national economy and the money market, as well as the effect of acts
by the monetary and fiscal authorities, including the FRB, no definitive
predictions can be made by Illini or the Bank as to future changes in
interest rates, credit availability, deposit levels, or the effect of any
such changes on Illini's or the Bank's operations and financial condition.

- - EMPLOYEES

As of December 31, 1997, Illini and the Bank had 132 total employees and
97 full-time employees.

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- - STATISTICAL DISCLOSURE
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
Consolidated Average Balances, Interest
Income/Expense and Yields/Rates . . . . . . . . . . . . . . . . . 19 & 20
Rate/Volume Variance Analysis. . . . . . . . . . . . . . . . . . . . . . . .18
Investment Securities Available for Sale . . . . . . . . . . . . . . . . . . 9
Investment Securities Available for Sale Maturity Schedule . . . . . . . . .11
Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Selected Loan Maturity and Interest Rate Sensitivity . . . . . . . . . . . .12
Nonperforming Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Summary of Loan Loss Experience. . . . . . . . . . . . . . . . . . . . . . .22
Allocation of Allowance for Loan Losses. . . . . . . . . . . . . . . . . . .22
Maturities of Time Deposits. . . . . . . . . . . . . . . . . . . . . . . . .13
Return on Equity and Assets. . . . . . . . . . . . . . . . . . . . . . . . .13
Interest Rate Sensitivity Analysis . . . . . . . . . . . . . . . . . . . . .14
Noninterest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Noninterest Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
</TABLE>

ITEM 2. - PROPERTIES

Illini's corporate offices are located at 3200 West Iles Avenue,
Springfield, Illinois. The Bank owns 16 and leases two of the banking
offices at which it operates. Operating leases are further discussed in Note
5 in Item 7. The Bank operates four banking offices in Springfield, Illinois
and one each in the following Illinois communities: Auburn, Danvers, Dawson,
Divernon, Elkhart, Greenview, Hudson, Lincoln, Mechanicsburg, Owaneco,
Petersburg, Sherman, Stonington, and Tallula. The Bank leases space for the
banking offices in Lincoln and Petersburg.
The Bank owns one property in the Bloomington-Normal, Illinois market
acquired for future expansion. In 1998, management will decide whether to go
forward with expansion plans into this market. If expansion plans are halted,
management will make efforts to aggressively dispose of the property.
Management feels that disposal of this property will not have a material effect
on the financial position of Illini.

ITEM 3. - LEGAL PROCEEDINGS

Management believes that neither Illini nor the Bank is a party to any
pending legal proceedings other than ordinary routine litigation incidental
to its business. Routine litigation is not expected to materially affect
Illini's stockholders' equity or financial position.

ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 1997.

PART II.
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ITEM 5. - MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The common stock of Illini is traded on the Nasdaq over the counter
market. The following table sets forth the high and low bid prices of the
common stock of Illini as reported by Dean Witter Reynolds, Inc.,
Springfield, Illinois in 1996 and R.W. Baird, Peoria, Illinois in 1997. The
prices shown do not reflect retail mark-ups, markdowns, or commissions and
may not represent actual transactions.

7
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<TABLE>
<CAPTION>
CASH
DIVIDENDS
1997 HIGH LOW DECLARED
-------------------------------------------------------
<S> <C> <C> <C>
1ST QUARTER $ 25.50 $ 25.50 $.25
2ND QUARTER 27.00 25.50 .25
3RD QUARTER 27.00 27.00 .25
4TH QUARTER 28.00 27.00 .25
<CAPTION>
Cash
Dividends
1996 High Low Declared
-------------------------------------------------------
<S> <C> <C> <C>
1st Quarter $25.50 $25.00 $.22 1/2
2nd Quarter 25.50 25.50 .22 1/2
3rd Quarter 25.50 25.50 .22 1/2
4th Quarter 25.50 25.50 .27 1/2
</TABLE>

As of December 31, 1997, there were 1,538 shareholders of record of Illini
common stock.

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ITEM 6. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

- - INTRODUCTION

The following discussion highlights the significant factors affecting the
operations and financial condition of Illini for the two years ended December
31, 1997. The discussion should be read in conjunction with the consolidated
financial statements, accompanying notes, and selected financial data appearing
elsewhere within this report.
Illini cautions that any forward looking statements contained in this
report, in a report incorporated by reference to this report, or made by
management involve estimates and uncertainties and are subject to change
based upon various important factors. Actual results for 1998 and beyond
could differ materially from results expressed or implied by forward looking
statements in this report.

- - SUMMARY

Net income for 1997 was $650,000 or $1.45 per share. This represents
39.8% increase from 1996's net income of $465,000. In 1996, a high level of
loan losses and resulting increased provision expense significantly impacted
earnings.
Credit quality improved throughout 1997. The level of nonperforming
loans, net charge-offs, and other asset quality indicators all improved in
1997. Consequently, provision for loan losses expense declined 73.5% from
$1,130,000 in 1996 to $300,000 in 1997. Management feels that improved
credit quality is the result of several credit risk management initiatives
instituted in 1995 and 1996 and maintained throughout 1997. These
initiatives included a new credit policy, centralized commercial loan
underwriting, new problem loan identification and grading processes, and a
change in executive management responsibility for the loan portfolio in late
1996. Further discussion of credit quality is presented on page 21.
Although the provision for loan losses declined $830,000, net income
increased only $185,000 or 39.8% from 1996 to 1997. Improved earnings
resulting from lower provision expense were offset by $581,000 increase in
noninterest expense. The increase in operating expenses was primarily in
four areas.

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Increased occupancy and equipment expense relating to the opening of a new
main banking facility in December 1997, increased loan collection expense
resulting from more aggressive problem loan management efforts, increased
data processing costs, and a large increase in fees paid to outside
consultants and attorneys to assist management in strategic planning and
shareholder related activities.
Net interest income and noninterest income held steady in 1997. Net
interest income totaled $6.29 million in 1997 and $6.35 million in 1996.
Noninterest income was $1.62 million in 1997 and $1.59 million in 1996.
Management will focus on maintaining improved credit quality,
controlling operating costs, and increasing the Bank's revenues through
improved sales efforts in 1998 and beyond. In late 1997, Illini concluded a
strategic plan and decided to:

- Engage a consulting firm to reengineer the Bank's operations;
- Franchise its present banking offices;
- Redesign the Bank's retail facilities; and
- Evaluate the appropriateness of selling commercial properties no
longer needed in its operation.

The following table details changes in Illini's net income per share over
the last two fiscal years.
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CHANGE IN EARNINGS PER SHARE (EPS)
FOR 1997 AND 1996
<TABLE>
<CAPTION>
1997-96 1996-95
------- -------
<S> <C> <C>
PER SHARE
Net income prior period $ 1.04 $ 3.07
Change in EPS attributable to:
Net interest income (0.12) (0.30)
Provision for loan losses 1.85 (1.39)
Noninterest income 0.08 (1.70)
Noninterest expense (1.30) (0.02)
Income tax expense (0.10) 1.38
------ ------
Net increase (decrease) 0.41 (2.03)
------ ------
Net income current period $ 1.45 $ 1.04
------ ------
------ ------
</TABLE>
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- - OVERVIEW-BALANCE SHEET REVIEW

Average assets were $146.7 million in 1997, a decline of $2.8 million or
1.9% from 1996. Average loans were $87.5 million in 1997, a decline of $8.4
million or 8.7% from 1996. The decrease in average total loans was primarily
the result of management's emphasis on evaluating and managing the credit risk
within existing loan relationships. Efforts to aggressively pursue new loan
relationships were put on hold until credit quality procedures and controls were
fully implemented and tested. New business development efforts that were
initiated in late 1997 have not yet resulted in increased loan or other
financial product activity. Average deposits were $128.4 million in 1997, a
decline of $2.6 million or 2% from 1996.

- - SECURITIES

Total securities as of December 31, 1997 were $46.8 million, an increase of
$6.4 million or 15.8% over the prior year-end. At December 31, 1997 and 1996,
the total securities portfolio comprised 30.2% and 27.6%, respectively, of total
assets. In December 1995, all securities classified as held to maturity were

9
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reclassified into the available for sale category. The transfer was in response
to the Financial Accounting Standards Board's (FASB) decision to allow companies
a one-time opportunity to reclassify their investment portfolios. This
reclassification significantly improved Illini's ability to manage interest rate
and liquidity risk. This may cause additional fluctuations in the unrealized
gain or loss component of total stockholders' equity. However, federal banking
regulations exclude this component from regulatory risk-based capital
calculations.
Illini's investment strategy is to maximize portfolio yields commensurate
with credit risk and liquidity considerations. The decision to purchase or sell
securities is based upon the current assessment of economic and financial
conditions, including the interest rate environment. Approximately $3.3 million
or 7.1% of the securities portfolio matures or reprices within one year.
Scheduled maturities and the prepayment of mortgage-backed securities represent
a source of liquidity for the Bank as well as federal funds sold, federal funds
purchased lines, and lines of credit established at other banks which are
discussed further in the Liquidity section of this report.
Mortgage-backed securities as of December 31, 1997 totaled $10.4 million
and represent 22.2% of total securities. The distribution of mortgage-backed
securities include $7.8 million of U.S. government agency mortgage-backed pass
through securities and $2.6 million of private issue collateral mortgage
obligations, all of which are rated AAA.
At December 31, 1997, securities available for sale totaled $46.8 million.
There were no securities classified as held to maturity or trading at the end of
1997 or 1996. The securities available for sale portfolio at the end of 1997
included gross unrealized gains of $339,000 and gross unrealized losses of
$88,000, of which the combined effect, net of tax, is included as an unrealized
gain in stockholders' equity. For comparative purposes, at December 31, 1996,
gross unrealized gains of $208,000 and gross unrealized losses of $377,000 were
included in the securities available for sale portfolio. For further analysis
of the securities portfolio, see Note 3 in Item 7.

- - MATURITIES AND DURATION

The maturities and weighted average yields of the investment portfolio at
the end of 1997 are presented in the following table. Maturities of private
mortgage-backed securities are based on their average expected lives and include
the effects of anticipated prepayments. All other securities are listed at
their actual maturity or contractual repricing interval. The amounts and yields
disclosed reflect the net carrying value, which is the same as market value.
Taxable equivalent adjustments, using a 34% tax rate, have been made in
calculating yields on tax-exempt obligations.
The securities portfolio at December 31, 1997 contained no securities of
any issuer with an aggregate book or market value in excess of 10% of Illini's
shareholders' equity, excluding those issued by the United States government, or
its agencies or corporations.

10
<PAGE>

- -------------------------------------------------------------------------------

MATURITIES AND YIELD OF SECURITIES
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
TOTAL TAX EQUIVALENT YIELD
-------- ---------------------
(dollars in thousands)
<S> <C> <C>
U.S. Treasury securities:
0 to 1 year $ 751 5.77%
1 to 5 years 1,255 5.89
--------
Total $ 2,006 5.84%
-------- ------
-------- ------
U.S. government agencies:
1 to 5 years $18,113 6.25%
5 to 10 years 5,998 6.62
Over 10 years 493 7.00
--------
Total $24,604 6.36%
-------- ------
-------- ------
Mortgage-backed securities and
Collateralized mortgage obligations:
1 to 5 years $ 624 6.65%
5 to 10 years 6,220 6.57
Over 10 years 3,565 6.81
--------
Total $10,409 6.66%
-------- ------
-------- ------
States of the U.S. and political
subdivisions:
0 to 1 year $ 1,099 6.81%
1 to 5 years 2,381 6.84
5 to 10 years 1,744 7.17
Over 10 years 4,146 7.23
--------
Total $ 9,370 7.07%
-------- ------
-------- ------
FHLB stock and other
equity securities, no
stated maturity $ 445 ----

Total securities:
0 to 1 year $ 1,850 6.39%
1 to 5 years 22,373 6.31
5 to 10 years 13,962 6.67
Over 10 years 8,204 7.04
No stated maturity 445
--------
Total $46,834 6.55%
-------- ------
-------- ------
</TABLE>
- -------------------------------------------------------------------------------

- - LOANS

Illini's loan portfolio consists of a diverse variety of loan types within
the following major categories: commercial real estate, residential real estate,
consumer, commercial, and agricultural loans.
Average total loans declined $8.4 million from $95.9 million in 1996 to
$87.5 million in 1997. Contraction in the loan portfolio resulted primarily
from management's priority on evaluating and managing credit risk in existing
loan relationships over new business development.
The largest contraction was in consumer loans for which the average balance
declined $3.4 million to

11
<PAGE>

$14.4 million in 1997. Commercial business loans declined $2.5 million to $11.3
million and residential real estate loans declined $2.2 million to $24.7
million. Commercial real estate loans at $28.3 million, agricultural loans at
$5.7 million, and agricultural real estate loans at $2.4 million, all remained
relatively stable in 1997.
All of Illini's loans are domestic. Illini does not currently engage in
foreign loans, lease financing, or loans to financial institutions.
Additionally, Illini does not have any concentration of loans exceeding 10% of
total loans, which are not otherwise disclosed under "types of loans."
Each major type of loan will normally have different risk elements
associated with it. Real estate loans and installment loans to individuals
can be affected by the general strength of the economy in a given
geographical area. A wide range of economic and other factors can impact the
businesses to which commercial loans are extended. Such things as drought,
floods, U.S. and foreign market prices, and federal government subsidies and
programs can affect agricultural loans. Illini's susceptibility to these
risk elements has diminished as prior deficiencies in overall loan portfolio
management and credit risk management systems and controls have been
corrected.

- - TYPES OF LOANS

A summary of loans by type as of December 31, 1997 and 1996 is set forth in
Note 4 in Item 7.

- - MATURITIES AND INTEREST RATE SENSITIVITY OF LOANS

$22.9 million or 26.5% of the Bank's loan portfolio reprices within one
year. $81.1 million or 93.9% of the portfolio reprices within five years. The
relatively short duration of the loan portfolio requires diligence on the part
of management to replace and/or renew maturing loans more frequently. However,
it benefits the Bank by decreasing its susceptibility to rising interest rates
and by allowing management more frequent opportunities to reassess and adjust
loan agreements with borrowers and to exit deteriorating loan relationships.
54.8% of commercial and agricultural loans mature within one year.

LOANS

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
MATURITY
-----------------------------------------------------
ONE YEAR ONE TO AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural $9,079 $6,420 $1,066 $16,565
Real estate construction 3,321 2,603 613 6,537
------- ------- ------- -------
$12,400 $9,023 $1,679 $23,102
------- ------- ------- -------
------- ------- ------- -------
<CAPTION>
INTEREST SENSITIVITY
--------------------------------------
FIXED FLOATING OR
INTEREST ADJUSTABLE
RATES INTEREST RATES TOTAL
-------- -------------- -------
(dollars in thousands)
<S> <C> <C> <C>
Loans due after one but within five years $5,667 $3,356 $9,023
Loans due after five years 516 1,163 1,679
------- ------- -------
$6,183 $4,519 $10,702
------- ------- -------
------- ------- -------
- -----------------------------------------------------------------------------------------------------------
</TABLE>

12
<PAGE>

DEPOSITS

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AVERAGE BALANCES OF DEPOSITS AND
COST OF FUNDS
-------------------------------------------------------
1997 1996
AVERAGE AVERAGE
------------------------- -------------------------
BALANCE RATE BALANCE RATE
-------- -------- --------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Noninterest bearing demand deposits $20,246 --- $18,965 ---
NOW and money market deposit accounts 27,311 2.92% 27,678 2.65%
Savings deposits 18,287 2.47 19,802 2.49
Time deposits 62,533 5.46 64,547 5.55
------- -------
$128,377 3.63% $130,992 3.67%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------

MATURITY OF TIME DEPOSITS GREATER THAN $100,000
AT DECEMBER 31, 1997
-----------------------------------------------
TIME OTHER
CERTIFICATES TIME
OF DEPOSIT DEPOSITS TOTAL
-------------- ----------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Three months or less $6,129 $1,050 $ 7,179
Three to six months 6,037 ---- 6,037
Six to twelve months 2,600 950 3,550
Over twelve months 1,893 ---- 1,893
------- ------ -------
$16,659 $2,000 $18,659
------- ------ -------
------- ------ -------
- -----------------------------------------------------------------------------------------------------------
</TABLE>

Average deposits decreased $2.6 million or 2.0% to $128.4 million in 1997.
Due to the reduction in deposits required to fund loan growth, management was
able to hold deposit rates steady. The Bank's overall cost of funds fell four
basis points to 3.63% in 1997.
Even though average deposit balances were down, year-end total deposits
reflected a healthy increase. Total deposits were up $11.8 million or 9.4% to
$137.6 million in 1997. A newly priced money market deposit product and the
Bank's Check Smart Check imaging products introduced in 1997 contributed to the
increase.
Noninterest bearing accounts increased $4.3 million to $25.1 million, NOW
and Money Market accounts were up $5.5 million to $30.6 million, and Time
Deposits increased $2.3 million to $64.1 million in 1997.
Total deposits had declined $7.5 million or 6.0% to $125.8 million in 1996.

- - LIQUIDITY

Liquidity represents the availability of funding to meet obligations to
depositors, borrowers, and creditors at a reasonable cost without adverse
consequences. Accordingly, the liquidity position is influenced by the funding
base and asset mix.
Illini requires adequate liquidity to pay its expenses and pay stockholder
dividends. Liquidity is provided to Illini from the Bank in the form of
dividends. In 1997, dividends from the Bank amounted to $0.9 million compared
to $0.6 million in 1996. The Bank's liquidity is provided by bank cash
balances,

13
<PAGE>

liquidation of short-term investments, loan payments, an overnight federal funds
line of credit, and borrowings on a line of credit available with the Federal
Home Loan Bank of Chicago. While the Bank is limited in the amount of dividends
it pays, as of December 31, 1997, approximately $0.6 million was available for
payment to Illini in the form of dividends without prior regulatory approval.
Cash and cash equivalents which includes federal funds sold increased $6.7
million from December 31, 1996 to December 31, 1997. The $6.7 million increase
resulted from net cash provided by financing activities of $7.4 million and $1.0
million from operations offset by $1.7 million used in investing activities.
The majority of the increase in cash and cash equivalents was in federal funds
sold which ended 1997 at $6.8 million. This balance represents funds awaiting
investment from sales of investment securities which occurred late in 1997 and,
to a lesser extent, funds held in anticipation of first quarter 1998 loan
activity.
The asset portion of the balance sheet provides liquidity primarily through
loan principal repayments, maturities of investment securities, and sales of
investment securities available for sale.
The liability portion of the balance sheet provides liquidity through
federal funds purchased, securities sold under agreements to repurchase, and
other short-term borrowings. As of December 31, 1997, Illini has established an
overnight federal funds line of credit with an unaffiliated financial
institution in the amount of $3.5 million, with the entire amount available for
borrowing. The Bank is also a member of the Federal Home Loan Bank of Chicago
and has established a line of credit of approximately $4.0 million as of
December 31, 1997, with the entire amount available for additional borrowings.
The various sources of liquidity available to the Bank provide ample long-term
as well as short-term funding alternatives.

- - INTEREST RATE SENSITIVITY

In conjunction with maintaining a satisfactory level of liquidity,
management monitors the degree of interest rate risk assumed on the balance
sheet. Illini monitors its interest rate risk by the use of static and dynamic
gap models at the one-year interval. The static gap model monitors the
difference in interest rate sensitive assets and interest rate sensitive
liabilities as a percentage of total assets that mature within the specified
time frame. The dynamic gap model goes further in that it assumes that interest
rate sensitive assets and liabilities will be reinvested. Illini uses the
Profit Star system to monitor its interest rate risk. Illini desires an
interest sensitivity gap of not more than 15% of total earning assets at the
one-year interval.
The Bank's static interest rate gap position as of December 31, 1997 is
presented below.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY ANALYSIS
--------------------------------------------------------------------
UP TO 3 4 TO TOTAL OVER
MONTHS 12 MONTHS 1 YEAR 1 YEAR TOTAL
--------- ------------ -------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 12,872 $ 9,996 $ 22,868 $ 63,518 $ 86,386
Debt and marketable equity securities 838 2,478 3,316 43,518 46,834
Federal funds sold 6,755 --- 6,755 --- 6,755
-------- -------- -------- -------- --------
Total interest-earning assets $ 20,465 12,474 32,939 107,036 139,975
Interest-bearing liabilities:
Savings, NOW, and money market $ 24,208 --- 24,208 24,208 48,416
Time deposits 19,005 30,983 49,988 14,089 64,077
Federal funds purchased and securities
sold under agreements to repurchase 615 --- 615 100 715
-------- -------- -------- -------- --------
Total interest-bearing
liabilities $ 43,828 30,983 74,811 38,397 113,208

Gap by period $(23,363) (18,509) (41,872) 68,639 26,767

Cumulative gap $(23,363) (41,872) (41,872) 26,767 26,767

Cumulative gap as a percent of earning
assets -16.69% -29.91% -29.91% 19.12% 19.12%
- --------------------------------------------------------------------------------------------------------------
</TABLE>

14
<PAGE>

In late 1996 and early 1997, management extended the duration of the Bank's
investment portfolio. Although this resulted in a 35 basis points increase in
the investment portfolio yield for 1997, it also increased the Bank's interest
rate sensitivity. Given the Bank's negative gap, a sharp rise in interest rates
would decrease net income. Management has taken steps to shorten the duration
of the investment portfolio and bring its interest sensitivity gap back down to
within its stated guidelines. There can be no assurance, however, that such
steps will have the desired result.

- - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative financial instruments include futures, forwards, interest rate
swaps, option contracts, and other financial instruments with similar
characteristics. The Bank currently does not enter into futures, forwards,
swaps, or options. However, the Bank is party to financial instruments with
off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit and standby letters of credit. These instruments involve to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets. Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed
expiration dates and require collateral from the borrower if deemed necessary by
the Bank. Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party up to a
stipulated amount and within specified terms and conditions.
Commitments to extend credit and standby letters of credit are not
recorded as an asset or liability by the Bank until and unless the instrument
is exercised.
The Bank's exposure to market risk is reviewed by the Asset/Liability
Committee. Interest rate risk is the potential of economic losses due to
future interest rate changes. These economic losses can be reflected as a
loss of future net interest income and/or a loss of current fair market
values. The objective is to measure the effect on net interest income and to
adjust the balance sheet to minimize the inherent risk while at the same time
maximize income. Management realizes certain risks are inherent, such as the
uncertainty of market interest rates, and that its goal is to identify and
minimize the risks. The primary tool management uses to monitor and manage
interest rate risk is a static gap report. The Bank has no market risk
sensitive instruments held for trading purposes.

15
<PAGE>

The condensed gap report summarizing the Bank's interest rate sensitivity is as
follows:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------

MARKET RISK SENSITIVE INSTRUMENTS
--------------------------------------------------------------------
OVER 1 OVER 3
YEAR THROUGH YEARS THROUGH OVER
1 YEAR 3 YEARS 5 YEARS 5 YEARS TOTAL
--------- -------------- --------------- --------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Debt and marketable equity securities $ 3,316 9,114 13,259 21,145 46,834
Loans 22,868 45,982 12,257 5,279 86,386
Federal funds sold 6,755 --- --- --- 6,755
-------- -------- -------- -------- --------
Total assets $ 32,939 55,096 25,516 26,424 139,975
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Liabilities:
Savings, NOW and money market (1) $ 24,208 24,208 --- --- 48,416
Time deposits 49,988 13,717 370 2 64,077
Federal funds purchased and securities
sold under agreements to repurchase 615 100 --- --- 715
-------- -------- -------- -------- --------
Total liabilities $ 74,811 38,025 370 2 113,208
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------

<CAPTION>
AVERAGE ESTIMATED
TOTAL INTEREST RATE FAIR VALUE
------ ------------- ----------
<S> <C> <C> <C>
Assets:
Debt and marketable equity securities (2) $ 46,834 6.85% $46,384
Loans (2) 86,386 9.42 86,024
Federal funds sold 6,755 5.32 6,755

Liabilities:
Savings, NOW and money market $ 48,416 2.74% $48,416
Time deposits 64,077 5.46 64,475
Federal funds purchased and securities
sold under agreements to repurchase 715 5.46 715

</TABLE>

(1) Management's experience with interest bearing checking accounts, money
market and savings deposits has been that, although these deposits are
subject to immediate withdrawal or repricing, a portion of the balances has
remained relatively constant in periods of both rising and falling rates.
Therefore, a portion of these deposits is included in the over 1 year
through 3 years.
(2) Interest rates are presented on a fully taxable equivalent basis.

- -------------------------------------------------------------------------------

- - CAPITAL RESOURCES

Total shareholders' equity increased from $14.5 million at December 31,
1996 to $15.0 million at December 31, 1997. The primary source of capital of
Illini is retained earnings. Cash dividends per share were $1.00 for 1997 and
$0.95 for 1996. Illini retained 31.0% of its earnings for 1997 and 8.4% for
1996. 1996's retained earnings as a percentage of net income was unusually low
because loan losses depressed 1996's net income.
Regulatory guidelines require bank holding companies, commercial banks, and
thrifts to maintain certain minimum ratios and define companies as "well
capitalized" that sufficiently exceed the minimum ratios. The banking
regulators may alter minimum capital requirements as a result of revising their
internal policies and their ratings of individual institutions. To be "well
capitalized," banks must maintain a Tier 1 leverage ratio of no less than 5.0%,
a Tier 1 risk based ratio of no less than 6.0%, and a total risk based ratio of
no less than 10.0%. The Bank's ratios as of December 31, 1997 were 9.59%,
14.11%, and 15.39%, respectively, which meet the criteria for "well
capitalized." The Corporation's ratios as of December 31, 1997 were 9.78%,
14.40%, and 15.67%, respectively.

16
<PAGE>

As of December 31, 1997, management is not aware of any current
recommendations by banking regulatory authorities which, if they were to be
implemented, would have, or are reasonably likely to have, a material adverse
impact on the Corporation's liquidity, capital resources, or operations.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------

KEY RATIOS
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Return on average assets 0.44% 0.31% 0.89% 0.86% 0.76%
Return on average equity 4.44 3.25 10.08 10.77 10.25
Dividend payout ratio 69.00 91.17 29.29 26.23 24.91
Average equity to assets ratio 9.98 9.58 8.87 7.94 7.42

- ---------------------------------------------------------------------------------------------------------
</TABLE>

- - NET INTEREST INCOME

Net interest income is the principal component of Illini's net income
stream and represents the difference between interest and fee income generated
from earning assets and interest expense paid on deposits and borrowed funds.
Fluctuations in interest rates as well as volume and mix changes in earning
assets and interest bearing liabilities can materially impact net interest
income. The discussion of net interest income is presented on a taxable
equivalent basis to facilitate performance comparisons among various taxable and
tax-exempt assets.
Interest income and interest expense were both down $0.2 million from 1996
to 1997, which allowed net interest income to hold steady at $6.3 million.
Illini's net interest margin has been consistent over the last three years
increasing from 4.75% in 1995, to 4.88% in 1996, and 4.96% in 1997.
The slight decline in interest income was primarily the result of a decline
of $8.4 million in average loans from 1996 to 1997, which was offset by the
average yield earned on loans that increased 15 basis points in 1997 to 9.42%.
The $0.6 million decrease in interest and fees on loans in 1997 was offset
by an increase of $0.4 million in interest income on investments. Average
investment securities increased $2.0 million in 1997 to $43.5 million. The
average yield on investment securities increased 35 basis points to 6.85% in
1997. The increase in the yield in 1997 was due primarily to extending the
effective duration of the investment portfolio. In late 1997, in order to
decrease the Bank's overall interest rate risk, management adjusted the
investment portfolio to decrease this duration. This is expected to result in
lower overall investment portfolio yields in 1998. The adjustments to the
investment portfolio resulted in an increase in short term investments in 1997.
Average short-term investments were $3.1 million in 1997 compared to $0.7
million in 1996.
The slight decline in interest expense was primarily the result of a
decline of $4.2 million in average interest bearing liabilities from $114.5
million in 1996 to $110.3 million in 1997. Most of this decline was in time
deposits less than $100,000, which decreased $2.7 million to $46.2 million in
1997. The average rate paid on interest bearing liabilities held steady from
1996 to 1997.
Net interest income declined $0.1 million to $6.3 million from 1995 to
1996. Interest income decreased 2% to $11.6 million and interest expense
decreased 3% to $4.9 million from 1995 to 1996. The decline in interest income
in 1996 was due primarily to a reduction in average loans of $7.8 million of
which the 1995 sale of one of Illini's rural branches contributed $5.6 million.
The decline in interest expense in 1996 was primarily due to a reduction of $4.6
million in average interest bearing liabilities. The branch that was sold in
1995 had contributed $10.7 million to 1995's average interest bearing
liabilities.

17
<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME - RATE/VOLUME VARIANCE ANALYSIS

1997-96 1996-95
------------------------------------------ -----------------------------------------
CHANGES IN VOLUME RATE Changes in Volume Rate
INCOME/EXPENSE EFFECT EFFECT Income/Expense Effect Effect
---------------- -------- ------ ---------------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Short-term investments $ 126 $ 127 $ (1) $ (153) $ (145) $ (8)
Investment securities:
Taxable 454 322 132 299 92 207
Nontaxable (171) (220) 49 276 267 9
Loans (652) (787) 135 (641) (701) 60
----- ----- ----- ----- ----- -----
Total interest income (243) (558) 315 (219) (487) 268
----- ----- ----- ----- ----- -----
Savings and NOW accounts 22 (47) 69 (65) (71) 6
Time deposits (167) (107) (60) (169) (171) 2
Short-term borrowings (14) (21) 7 68 72 (4)
Long-term borrowings 0 0 0 (9) (4) (5)
----- ----- ----- ----- ----- -----
Total interest expense (159) (175) 16 (175) (174) (1)
----- ----- ----- ----- ----- -----
Net interest income $ (84) $(383) $ 299 $ (44) $ (313) $ 269
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----

- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

18
<PAGE>

CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELD/RATES
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------------------------
1997 1996
----------------------------------------------- --------------------------------------------
PERCENT INTEREST AVERAGE Percent Interest Average
AVERAGE OF TOTAL INCOME/ YIELD/ Average of Total Income/ Yield/
BALANCE ASSETS EXPENSE RATE Balance Assets Expense Rate
---------- --------- ----------- ---------- --------- --------- ------------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Short-term investments $ 3,067 2.1% $ 163 5.32% $ 679 0.5% $ 37 5.52%
Investment securities (3)
Taxable 32,161 21.9 2,138 6.65 27,217 18.2 1,684 6.19
Tax-exempt (1) 11,357 7.8 843 7.43 14,282 9.6 1,014 7.10
-------- ----- -------- ----- -------- ----- -------- -----
Total securities 43,518 29.7 2,981 6.85 41,499 27.8 2,698 6.50
Loans
Commercial (1) 15,089 10.3 1,466 9.72 13,885 9.3 1,224 8.81
Agriculture 5,716 3.9 526 9.20 5,510 3.7 465 8.45
Real estate
Commercial 24,554 16.7 2,251 9.17 28,586 19.2 2,650 9.27
Agriculture 2,370 1.6 217 9.14 2,567 1.7 235 9.14
Residential 24,680 16.8 2,267 9.19 26,877 18.0 2,503 9.31
Consumer, net 14,439 9.9 1,404 9.73 17,792 11.9 1,717 9.65
Credit card 637 0.4 106 16.60 634 0.4 95 15.00
-------- -------- -------- --------
Total loans 87,485 59.6 8,237 9.42 95,851 64.2 8,889 9.27
Allowance for loan losses (1,246) (0.8) (1,162) (0. 8)
-------- -------- --------
Net loans (1) (2) 86,239 58.8 8,237 9.55 94,689 63.4 8,889 9.39
-------- ----- -------- -------- ----- --------
Total interest 132,824 90.6 11,381 8.57 136,867 91.7 11,624 8.49
earning assets -------- -------- -------- --------
Cash and due from banks 4,570 3.1 4,856 3.2
Premises and equipment 6,512 4.4 4,983 3.3
Other real estate owned 583 0.4 573 0.4
Other assets (3) 2,183 1.5 2,151 1.4
-------- ----- -------- -----
TOTAL ASSETS $146,672 100.0% $149,430 100.0%
-------- ----- -------- -----
-------- ----- -------- -----
LIABILITIES
Deposits:
Non interest bearing deposits $ 20,246 13.8 $ 18,965 12.7%
Interest bearing demand 27,311 18.6 $ 798 2.92% 27,678 18.5 $ 734 2.65%
Savings 18,287 12.5 451 2.47 19,802 13.3 493 2.49
Time deposits less
than $100,000 46,206 31.5 2,479 5.36 48,919 32.7 2,700 5.52
--------- ------- -------- -------
Total core deposits 112,050 76.4 3,728 3.33 115,364 77.2 3,927 3.40
Time deposits $100,000
and over 16,327 11.1 936 5.74 15,628 10.5 882 5.65
--------- ------- -------- -------
Total deposits 128,377 87.5 4,664 3.63 130,992 87.7 4,809 3.67
Short-term borrowings 2,103 1.4 124 5.89 2,454 1.6 138 5.61
Total interest bearing
liabilities 110,234 75.1 4,788 4.34 114,481 76.6 4,947 4.32
Other liabilities 1,556 1.1 1,664 1.1
-------- ---- --------- -----
Total liabilities 132,036 90.0 135,110 90.4
Shareholders' Equity 14,636 10.0 14,320 9.6
-------- ---- --------- -----
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $146,672 100.0% $149,430 100.0%
-------- ---- --------- -----
-------- ---- --------- -----
NET INTEREST MARGIN $ 6,593 4.96% $ 6,677 4.88%
------- ----- ------- ----
------- ----- ------- ----
</TABLE>

(1) Income amounts are presented on a fully taxable equivalent basis (FTE),
which is defined as income on earning assets that is subject to either a
reduced rate or zero rate of income tax, adjusted to give effect to the
appropriate incremental federal income tax rate and adjusted for
non-deductible carrying costs, where applicable. Where appropriate, yield
calculations include these adjustments. The federal statutory rate was 34%
for all years presented.
(2) Nonaccrual loans are included in the loan balances. Interest income
includes related fee income of $242,000 in 1997 and $244,000 in 1996.
(3) Average securities balances are based on amortized historical cost,
excluding SFAS 115 adjustments to fair value, which are included in other
assets.

19
<PAGE>

CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELD/RATES

<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------
1995
----------------------------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
------- --------- --------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Short-term investments $ 3,331 2.2% $ 190 5.72%
Investment securities (3)
Taxable 25,600 16.6 1,385 5.41
Tax-exempt (1) 10,514 6.8 738 7.02
-------- ----- ------ -------
Total securities 36,114 23.4 2,123 5.88
Loans
Commercial (1) 15,823 10.3 1,424 9.00
Agriculture 5,036 3.3 462 9.17
Real estate
Commercial 29,921 19.4 2,751 9.20
Agriculture 3,415 2.2 296 8.67
Residential 30,790 20.0 2,830 9.19
Consumer, net 18,360 11.9 1,733 9.44
Credit card 261 0.2 34 12.87
-------- -------
Total loans 103,606 67.3 9,530 9.20
Allowance for loan losses (1,450) (0.9)
-------- -------
Net loans (1) (2) 102,156 66.4 9,530 9.33
-------- -------
Total interest earning assets 141,601 92.0 11,843 8.36
Cash and due from banks 5,296 3.4
Premises and equipment 4,339 2.8
Other real estate owned 454 0.3
Other assets (3) 2,262 1.5
--------- -----
TOTAL ASSETS $153,952 100.0%
--------- -----
--------- -----
LIABILITIES
Deposits:
Non interest bearing deposits $ 19,449 12.6% $ %
Interest bearing demand 28,924 18.8 764 2.64
Savings 21,308 13.9 528 2.48
Time deposits less than $100,000 52,957 34.4 2,923 5.52
-------- ------
Total core deposits 122,638 79.7 4,215 3.44
Time deposits $100,000 and over 14,667 9.5 828 5.64
-------- ------
Total deposits 137,305 89.2 5,043 3.67
Borrowed funds:
Short-term 1,186 0.7 70 5.90
Long-term 100 0.1 9 9.00
-------- ----- ------
Total borrowed funds 1,286 0.8 79 6.14
Total interest bearing liabilities 119,142 77.4 5,122 4.30
Other liabilities 1,701 1.1
-------- -----
Total liabilities 140,292 91.2
Shareholders' Equity 13,660 8.9
-------- -----
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $153,952 100.0%
-------- -----
-------- -----
NET INTEREST MARGIN 6,721 4.75%
------ ------
------ ------

</TABLE>

(1) Income amounts are presented on a fully taxable equivalent basis (FTE),
which is defined as income on earning assets that is subject to either a
reduced rate or zero rate of income tax, adjusted to give effect to the
appropriate incremental federal income tax rate and adjusted for
non-deductible carrying costs, where applicable. Where appropriate, yield
calculations include these adjustments. The federal statutory rate was 34%
for all years presented.
(2) Nonaccrual loans are included in the loan balances. Interest income
includes related fee income of $245,000 in 1995.
(3) Average securities balances are based on amortized historical cost,
excluding SFAS 115 adjustments to fair value, which are included in other
assets.

20
<PAGE>

- - PROVISION FOR LOAN LOSSES, NET CHARGE-OFFS AND ALLOWANCE FOR LOAN LOSSES

The provision for loan losses charged to earnings was $0.3 million for
1997, a decrease of $0.8 million or 72.7% from the $1.1 million in 1996. During
1996, the provision for loan losses increased $0.6 million from the $0.5 million
recorded in 1995. Provision expense was reduced in 1997 as net loan losses and
other asset quality indicators reflected continued improvement in the overall
quality of the loan portfolio. The large provision expense in 1996 had a
significant affect on Illini's net income. Management had detected deficiencies
in asset quality and credit processes in late 1995 and took steps to improve
asset quality. Initiatives including a new loan policy, centralization of
commercial loan underwriting, and a more proactive approach to identifying and
resolving problem loans were undertaken in late 1996 and have subsequently
resulted in improved loan loss experience and lower provision expense.
The management of Illini considers a number of factors in determining the
amount of the allowance for loan losses. These factors include, but are not
limited to, the following:

- Historical data and trends relating to net charge-offs, average loans,
and the level of the allowance for loan losses;
- Other historical data and trends, including the allowance as a
percentage of total loans outstanding and loan volume;
- Borrowers identified on the Bank's watch list, borrowers with
significant credit exposure, and loans that are past due or on
nonaccrual status;
- The capability of management's credit risk management processes to
successfully underwrite credit and identify and resolve problem loans
on an ongoing basis;
- Results of continuing reviews of individual higher risk loans by
management personnel; and
- Consideration as to the impact of present economic conditions on the
loan portfolio.

As of December 31, 1997, the allowance for loan losses as a percent of
total loans and nonperforming loans was 1.51% and 204.72%, respectively. Both
ratios are improved when compared to the same ratios for the prior year of 1.35%
and 144.60%. After full consideration of these factors, with particular
emphasis on review of potential problem loans identified by management, Illini's
management concluded the allowance for loan losses was adequate as of December
31, 1997.

21
<PAGE>

SUMMARY OF LOAN LOSS EXPERIENCE

The following summary presents the changes in the allowance for loan losses
for the years ended December 31, 1997, 1996, and 1995:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------

1997 1996 1995
---- ----- -----
(dollars in thousands)
<S> <C> <C> <C>
Average loans outstanding $ 87,485 $ 95,851 $ 103,606
-------- -------- ----------
-------- -------- ----------
Allowance for loan losses:
Balance at beginning of year $ 1,258 $ 1,247 $ 1,547
-------- -------- ----------
Loans charged-off:
Commercial, financial, and agricultural (48) (736) (484)
Real estate (136) (163) (104)
Consumer (180) (290) (285)
-------- -------- ----------
Total (364) (1,189) (873)
Recoveries of loans
previously charged-off:
Commercial, financial, and agricultural 61 37 34
Real estate 8 11 1
Consumer 39 22 33
-------- -------- ----------
Total 108 70 68
-------- -------- ----------
Net charge-offs (256) (1,119) (805)
-------- -------- ----------
Provision charged to expense 300 1,130 505
-------- -------- ----------
Balance at end of year $ 1,302 $ 1,258 $ 1,247
-------- -------- ----------
-------- -------- ----------
Ratio of net charge-offs to average loans
outstanding during the period 0.29% 1.17% 0.78%
-------- -------- ----------
-------- -------- ----------
- ------------------------------------------------------------------------------------------
</TABLE>

In 1997, as illustrated in the preceding chart, loan losses decreased
significantly in all areas. Commercial, financial and agricultural loans ended
the year with net recoveries. Net loan losses as a percent of average loans was
0.29% in 1997 compared to 1.17% in 1996. This decrease reflects improvement in
the overall quality of the loan portfolio resulting from decisive action
Illini's management has taken to improve credit quality over the last two years.
Efforts continue to maintain this improved quality, and to enhance credit
quality processes and controls in the Bank's retail lending functions. Although
net losses in the consumer and real estate portfolios declined in 1997,
management will intensify efforts to improve the quality and production of
retail loans going forward.
A single, large agricultural credit identified by management as a potential
problem loan in December 1995 contributed to the elevated net charge-offs in
1996. This loan, now in bankruptcy proceedings, contributed $0.5 million to
commercial, financial and agricultural charge-offs in 1996.

- - ALLOWANCE ALLOCATION

Management views the allowance for loan losses as being available for all
potential or presently unidentified loan losses which may occur in the future.
The risk of future losses that is inherent in the loan portfolio is not
precisely attributable to a particular loan or category of loans. However,
based on its review for adequacy, management has estimated those portions of the
allowance that could be attributable to major categories of loans as follows:

22
<PAGE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------

1997 1996
-------------------------- -------------------------
% OF TOTAL % of Total
LOANS, NET Loans, net
AMOUNT OF UED Amount of UED
-------- --------------- --------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial, and agriculture $ 124 19.20% $ 626 19.20%
Real estate 323 65.94 223 61.94
Consumer 421 14.86 306 18.86
Unallocated 434 ---- 103 ----
------- ------- ------- -------
Total allowance for loan losses $1,302 100.00% $ 1,258 100.00%
------- ------- ------- -------
------- ------- ------- -------
- ----------------------------------------------------------------------------------------------------
</TABLE>

These allocation estimates do not specifically represent that loan charge-
offs of that magnitude will be incurred, nor do these allocations restrict
future loan losses attributable to a particular category from being absorbed by
the allowance attributable to other categories or the unallocated portion of the
allowance. The risk factors considered when estimating the allocations for
major loan categories are the same as the factors considered when determining
the adequacy of the overall allowance as specified in the allowance summary.

- - NONPERFORMING ASSETS

Nonperforming assets consist of nonaccrual loans, loans with restructured
terms and other real estate owned. Loans are generally classified as nonaccrual
when there are reasonable doubts as to the collectibility of principal and
interest or when payment becomes 90 days past due, except loans which are well
secured and in the process of collection. Interest collection on nonaccrual
loans for which the ultimate collectibility of principal is uncertain is applied
as principal reduction. Otherwise, such collections are applied to interest
when received. The following table presents information concerning the
aggregate amount of nonperforming assets and loans 90 days or more past due but
still accruing interest.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------

December 31,
---------------------------
1997 1996
---------- ------------
(dollars in thousands)
<S> <C> <C>
Nonaccrual $ 636 $ 870
Renegotiated 0 0
Other real estate owned 551 728
------- --------
Nonperforming assets $1,187 $ 1,598
------- --------
------- --------
Accruing loans past due 90 days $ 0 $ 151
------- --------
------- --------
Nonperforming loans to total loans 0.74% 0.93%
------- --------
------- --------
Nonperforming assets to total assets 0.77% 1.09%
------- --------
------- --------
Accruing loans past due 90 days to total loans 0.00% 0.16%
------- --------
------- --------

- -------------------------------------------------------------------------------
</TABLE>

Nonperforming assets totaled $1,187,000 as of year-end 1997, a decline of
$411,000 or 25.7% from the $1,598,000 at year-end 1996. Total nonperforming
assets represent 0.77% of total assets at December 31, 1997, compared to 1.09%
at December 31, 1996.
Nonperforming loans declined $234,000 or 26.9% to a total of $636,000 at
year-end 1997. As of

23
<PAGE>

December 31, 1997, nonperforming loans to total loans were 0.74% compared to
0.93 % at year-end 1996. The Bank did not carry any loans past due more than 90
days and still accruing interest as of December 31, 1997. Individual nonaccrual
loans are written down to management's estimate of the net realizable value of
collateral and/or realistic estimates of other payments from the borrower.
Additionally, specific allocations to the allowance for loan losses are made on
loans where there may be uncertainties as to the collection of the estimated
value of collateral. Because these loans have been written down and/or
allocated for, the potential impact on future net income is minimized.
Additional interest income of $35,000 in 1997 and $71,000 in 1996 would have
been recognized had these nonaccrual loans remained current.
Other real estate owned declined $177,000 or 24.3% to $551,000 at
December 31, 1997, when compared to year-end 1996. One former bank premises
property which the Bank has entered into an option agreement to sell in 1998
comprised $298,000 or 54.1% of the total Other Real Estate Owned. Another
$140,000 or 25.4% represents one property which has been sold on contract but
does not meet accounting requirements necessary to transfer it out of Other
Real Estate Owned. As of December 31, 1997, this contract was performing
according to its original terms. The remaining $113,000 or 20.5% represents
real estate acquired in satisfaction of debts. Other Real Estate Owned is
carried on the Bank's books at the lower of cost or net realizable fair
market value. Management is actively marketing these properties to minimize
the potential affects of market fluctuations and so that proceeds can be
deployed to earning assets as soon as possible.
As previously discussed, management has taken steps to improve credit
quality. In addition to the specific actions discussed in the PROVISION FOR
LOAN LOSSES section, in late 1996, executive management empowered the credit
administration function (developed in 1995) to monitor and enforce loan
policy compliance, to proactively identify and resolve problem loans, and to
perform detailed credit analyses on all significant loan relationships.
These efforts have improved the Bank's ability to identify problem and
potential problem loans, and has allowed management opportunities to resolve
problem loans while minimizing the potential loss to the Bank.

- - POTENTIAL PROBLEM LOANS

As of December 31, 1997, approximately $353,000 of loans not included in
the above table were identified by management as having potential weaknesses
which, if not corrected, could affect the borrower's ability to comply with the
current loan repayment terms. Of the eleven loans that make up this total, one
exceeds $100,000, one is greater than $50,000, and the rest are less than
$50,000. These borrowers are currently meeting all of the terms of their loan
agreements. However, if weaknesses are not promptly addressed, management
believes that these loans may result in disclosure at some future time as
nonaccrual, past due or restructured. All significant potential problem loans
are analyzed on a periodic basis to ensure that adequate reserves have been
allocated to the allowance for loan losses to cover management's estimate of the
inherent loss.

24
<PAGE>

- - NONINTEREST INCOME

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

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------

Year Ended December 31, Percent Change
---------------------------------------- ------------------------------
1997 1996 1995 1997/1996 1996/1995
---- ----- ---- ----------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>

Service charges on deposit accounts $ 1,054 $ 981 $ 979 7.4% 0.2%
Other fee income 162 216 233 (25.0) (7.3)
Mortgage loan servicing fees 198 183 161 8.2 13.7
Gain on sale of mortgage loans 105 64 103 64.1 (37.9)
Gain on sale of branch office --- --- 870 --- (100.0)
Securities gains (losses), net 50 1 (45) 4,900.0 102.2
Other income 54 144 49 (62.5) 193.9
------- ------- -------
$ 1,623 $ 1,589 $ 2,350 2.1 (32.4)
------- ------- -------
------- ------- -------

- -----------------------------------------------------------------------------------------------------------------
</TABLE>

Total noninterest income remained steady at $1.6 million from 1996 to 1997.
Service charges on deposit accounts increased 7.4% to $1.1 million as the
Bank's volume of deposits increased in 1997. Other fee income declined 25.0% to
$162,000 in 1997 primarily because the Bank discontinued account research fees
as a part of promoting its new check imaging service. Mortgage loan servicing
fees increased $15,000 or 8.2% in 1997 due to a $7.6 million increase in the
total portfolio serviced to $71.2 million at year end 1997. Gains on the sale
of mortgage loans also increased $41,000 or 64.1%, to $105,000 in 1997 primarily
due to a $1.1 million increase in secondary market loan originations which
totaled $18.7 million in 1997.
Net security gains of $50,000 were reported in 1997 compared to net
security gains of $1,000 in 1996. The security gains in 1997 resulted from the
adjustments in the investment securities portfolio previously discussed.
The decrease in other noninterest income for 1997 was primarily due to a
$105,000 gain on the disposal of property held for future expansion which
occurred in 1996.
Total noninterest income declined $0.8 million from $2.4 million at year
end 1995 to $1.6 million at year end 1996. A nonrecurring gain on the sale of
the branch in Coffeen, Illinois of $0.9 million recorded in 1995 was primarily
responsible for the decline in noninterest income in 1996.

25
<PAGE>

- - NONINTEREST EXPENSE

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

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------

Salaries and employee benefits $ 3,246 $ 3,281 $ 3,111 (1.1) % 5.5 %
Net occupancy expense 666 540 504 23.3 7.1
Equipment expense 300 306 307 (2.0) (0.3)
Data processing 614 559 550 9.8 1.6
Supplies 131 143 185 (8.4) (22.7)
Communication and transportation 347 298 324 16.4 (8.0)
Marketing and advertising 253 238 193 6.3 23.3
Correspondent and processing fees 132 127 91 3.9 39.6
Loan and other real estate owned expenses 163 51 (12) 219.6 525.0
Professional fees 573 348 307 64.7 13.4
Directors and regulatory fees 163 156 346 4.5 (54.9)
Other operating expenses 341 301 432 13.3 (30.3)
------- ------- -------
Total noninterest expense $ 6,929 $ 6,348 $ 6,338 9.2 0.2
------- ------- ------- ----- -----
-------- -------- -------- ----- -----
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

Total noninterest expense increased $0.6 million or 9.5% to $6.9 million in
1997 as compared to $6.3 million in 1996. The increase in noninterest expense
was primarily the result of increases in four areas. Occupancy expense
increased $126,000 or 23.3% to $666,000 in 1997 primarily due to expense
relating to the opening of a new main bank facility and the relocation of the
Bank's Lincoln, Illinois banking facility. Data Processing, communication, and
transportation expense increased $104,000 or 12.1% as the Bank converted to an
in-house data processing center in 1997. Loan collection and other real estate
expenses increased $112,000 or 219.6% to $163,000 in 1997 as management
aggressively collected and liquidated problem loans and improved the Bank's
overall asset quality. Lastly, professional fees increased $225,000 or 64.7% to
$573,000 in 1997. This increase resulted from a large increase in fees paid to
outside consultants and attorneys to assist management in strategic planning and
shareholder related activities.
Total noninterest expense for 1996 was $6.3 million which was unchanged
from 1995.

- - YEAR 2000 ISSUES

In 1998, Illini will complete a comprehensive review of its computer
systems to identify those systems that could be affected by the "Year 2000"
issue and is developing an implementation plan to resolve any potential problems
revealed. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
Illini's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a major
system failure or miscalculations. Management presently believes that, with
modifications to existing software and by converting to new software, the Year
2000 problem will not pose significant operational problems for the Bank's
computer systems as so modified and converted. However, if such modifications
and conversions are not completed timely, the Year 2000 problem may have a
material impact on the operations of Illini.

- - NEW ACCOUNTING PRONOUNCEMENTS

Statement of financial accounting standards (SFAS) 130, REPORTING
COMPREHENSIVE INCOME, was issued in June 1997. Comprehensive income is defined
as net income plus certain items that are recorded

26
<PAGE>

directly to shareholders' equity, such as unrealized gains and losses on
available-for-sale securities. Components of Illini's comprehensive income will
be included in a financial statement that has the same prominence as other
financial statements starting in the first quarter of 1998. SFAS 130's
disclosure requirements will have no impact on Illini's financial condition or
results of operations.
SFAS 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, is effective for financial statements for periods beginning after
December 15, 1997, but interim period reporting is not required in 1998. An
operating segment is defined under SFAS 131 as a component of an enterprise that
engages in business activities that generate revenue and expense for which
operating results are reviewed by the chief operating decision maker in the
determination of resource allocation and performance. Illini is currently
evaluating the impact of SFAS 131 on future financial statement disclosures.

- - EFFECTS OF INFLATION

The effects of inflation on financial institutions are different from the
effects on other commercial enterprises since financial institutions make few
significant capital or inventory expenditures which are directly affected by
changing prices. Because bank assets and liabilities are virtually all monetary
in nature, inflation does not affect a financial institution as much as do
changes in interest rates. The general level of inflation does, in fact,
underlie the general level of most interest rates; however, interest rates do
not increase at the rate of inflation as do the prices of goods and services.
Rather, interest rates react more to the changes in the expected rate of
inflation and to changes in monetary and fiscal policy.
Inflation, however, does have an impact on the growth of total assets
in the banking industry, often resulting in a need to increase capital at higher
than normal rates to maintain an appropriate capital-to-asset ratio.

<PAGE>

ITEM 7. - FINANCIAL STATEMENTS

Index to Illini's Consolidated Financial Statements.

<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Consolidated Balance Sheets as of December 31, 1997 and 1996 . . . . . . . . . . . 30
Consolidated Statements of Income for the three years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 31
Consolidated Statements of Changes in Shareholders' Equity for the
three years ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . 32
Consolidated Statements of Cash Flows for the three years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 33
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . .34-48
</TABLE>

28
<PAGE>

[Letterhead]

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Illini Corporation:

We have audited the consolidated balance sheets of Illini Corporation and
subsidiary (the Company) as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Illini
Corporation and subsidiary as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

St. Louis, Missouri
March 4, 1998

29
<PAGE>

ILLINI CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996

- -------------------------------------------------------------------------------

1997 1996
---- ----
(dollars in thousands)

<S> <C> <C>
ASSETS:
Cash and due from banks $ 5,361 $ 5,473
Interest bearing deposits in other banks 77 40
Federal funds sold 6,755 ---
Debt and marketable equity securities
available for sale, at estimated market value 46,834 40,386
Loans, net of allowance for loan losses and
unearned income 84,987 92,133
Premises and equipment 8,077 5,369
Accrued interest receivable 1,500 1,494
Other real estate owned 551 728
Other assets 772 860
---------- ----------
$ 154,914 $ 146,483
---------- ----------
---------- ----------

LIABILITIES AND SHAREHOLDERS' EQUITY:
Non-interest bearing demand deposits $ 25,083 $ 20,752
Interest bearing deposits:
NOW and money market accounts 30,596 25,115
Savings deposits 17,820 18,160
Time deposits, $100,000 and over 18,659 14,921
Other time deposits 45,418 46,822
---------- ----------
Total deposits 137,576 125,770

Federal funds purchased --- 1,130
Securities sold under agreements to repurchase 715 500
Other short-term borrowings --- 3,000
Accrued interest payable 784 693
Other liabilities 861 877
---------- ----------
Total liabilities 139,936 131,970
---------- ----------
Shareholders' equity:
Common stock-authorized 800,000 shares of $10
par value; 448,456 shares issued and outstanding 4,485 4,485
Capital surplus 1,886 1,886
Retained earnings 8,450 8,248
Net unrealized gains (losses) on securities
available for sale, net 157 (106)
---------- ----------
Total shareholders' equity 14,978 14,513
---------- ----------
$ 154,914 $ 146,483
---------- ----------
---------- ----------
</TABLE>

See accompanying notes to consolidated financial statements.

- --------------------------------------------------------------------------------

<PAGE>

ILLINI CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

- --------------------------------------------------------------------------------

1997 1996 1995
---- ---- ----
(dollars in thousands)

<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 8,200 $ 8,871 $ 9,516
Interest on debt and marketable equity securities:
Taxable 2,137 1,685 1,385
Exempt from federal income taxes 582 700 509
Interest on short term investments 163 36 191
---------- ---------- ----------
Total interest income 11,082 11,292 11,601
---------- ---------- ----------
Interest expense:
Interest on deposits:
NOW and money market accounts 798 734 764
Savings deposits 451 493 528
Time deposits, $100,000 and over 936 882 828
Other time deposits 2,479 2,700 2,923
Interest on borrowings 124 138 79
---------- ---------- ----------
Total interest expense 4,788 4,947 5,122
---------- ---------- ----------

Net interest income 6,294 6,345 6,479
Provision for loan losses 300 1,130 505
---------- ---------- ----------
Net interest income after provision for loan losses 5,994 5,215 5,974

Noninterest income:
Service charge on deposit accounts 1,054 981 979
Other fee income 162 216 233
Mortgage loan servicing fees 198 183 161
Gain on sale of mortgage loans 105 64 103
Gain on sale of branch office --- --- 870
Securities gains (losses) 50 1 (45)
Other 54 144 49
---------- ---------- ----------
Total noninterest income 1,623 1,589 2,350
---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 3,246 3,281 3,111
Net occupancy expense 666 540 504
Equipment expense 300 306 307
Data processing 614 559 550
Supplies 131 143 185
Communication and transportation 347 298 324
Marketing and advertising 253 238 193
Correspondent and processing fees 132 127 91
Loan and other real estate owned expenses 163 51 (12)
Professional fees 573 348 307
Directors' and regulatory fees 163 156 346
Other operating expenses 341 301 432
---------- ---------- ----------
Total noninterest expense 6,929 6,348 6,338

Income before income tax expense (benefit) 688 456 1,986
Income tax expense (benefit) 38 (9) 608
---------- ---------- ----------
Net income $ 650 $ 465 $ 1,378
---------- ---------- ----------
---------- ---------- ----------
Basic earnings per share
(based on weighted average common
shares outstanding of 448,456 in 1997, 1996, and 1995) $ 1.45 $ 1.04 $ 3.07
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

See accompanying notes to consolidated financial statements.

- --------------------------------------------------------------------------------

31
<PAGE>

ILLINI CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

- --------------------------------------------------------------------------------

UNREALIZED
HOLDING GAINS
(LOSSES) ON
SECURITIES
COMMON CAPITAL RETAINED AVAILABLE
STOCK SURPLUS EARNINGS FOR SALE TOTAL
---------- ---------- ---------- ---------- -----------
(dollars in thousands)

<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 4,485 $ 1,886 $ 7,235 $ (1,073) $ 12,533

Net income ---- ---- 1,378 ---- 1,378
Cash dividends paid $.90 per share ---- ---- (404) ---- (404)
Unrealized gains (losses) on investment
securities transferred from held to
maturity to available for sale, net ---- ---- ---- 105 105
Change in unrealized gains (losses)
on securities available for sale, net ---- ---- ---- 994 994
---------- ---------- ---------- ---------- -----------

Balance at December 31, 1995 $ 4,485 $ 1,886 $ 8,209 $ 26 $ 14,606

Net income ---- ---- 465 ---- 465
Cash dividends paid $.95 per share ---- ---- (426) ---- (426)
Change in unrealized gains (losses)
on securities available for sale, net ---- ---- ---- (132) (132)
---------- ---------- ---------- ---------- -----------

Balance at December 31, 1996 4,485 1,886 8,248 (106) 14,513

Net income ---- ---- 650 ---- 650
Cash dividends paid $1.00 per share ---- ---- (448) ---- (448)
Change in unrealized gains (losses)
on securities available for sale, net ---- ---- ---- 263 263
---------- ---------- ---------- ---------- -----------

Balance at December 31, 1997 $ 4,485 $ 1,886 $ 8,450 $ 157 $ 14,978
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

- --------------------------------------------------------------------------------

<PAGE>

ILLINI CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

- --------------------------------------------------------------------------------

1997 1996 1995
----------------------------------------
(dollars in thousands)

<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 650 $ 465 $ 1,378
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 738 543 585
Provision for loan losses 300 1,130 505
Securities (gains) losses, net (50) (1) 45
Gain on sale of branch office ---- ---- (870)
Gain on sale of premises and equipment ---- (108) ----
Deferred tax expense (benefit) (78) (1) 130
(Increase) decrease in accrued interest receivable (6) 48 (79)
Increase (decrease) in accrued interest payable 91 (187) 253
Origination of secondary market mortgage loans (18,740) (17,629) (10,593)
Proceeds from the sale of secondary market mortgage loans 18,446 17,255 10,528
Other, net (369) (585) (385)
---------- ---------- ----------
Net cash provided by operating activities 982 930 1,497
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sales of debt and marketable equity securities
available for sale 20,530 13,064 17,249
Proceeds from maturities and paydowns of debt securities
available for sale 12,764 10,037 4,325
Proceeds from maturities and paydowns of debt securities held to maturity ---- ---- 588
Purchases of debt and marketable equity securities available for sale (39,318) (28,814) (10,443)
Purchases of debt and marketable equity securities held to maturity ---- ---- (1,345)
Net decrease (increase) in loans 7,295 6,995 (9,075)
Purchases of premises and equipment (3,346) (1,287) (1,186)
Proceeds from sale of premises and equipment ---- 491 ----
Proceeds from sales of other real estate 331 5 362
Cash paid upon sale of branch ---- ---- (5,311)
---------- ---------- ----------
Net cash (used in) provided by investing activities (1,744) 491 (4,836)
---------- ---------- ----------
Cash flows from financing activities:
Net increase in non-interest bearing deposit accounts 4,330 239 183
Net increase (decrease) in savings, NOW and money market accounts 5,141 (4,267) (2,624)
Net increase in time deposits $100,000 and over 3,738 171 666
Net (decrease) increase in other time deposits (1,404) (3,659) 10,466
Net (decrease) increase in federal funds purchased (1,130) 1,130 (4,165)
Net increase (decrease) in securities sold under agreements to repurchase 215 (175) 34
Net (decrease) increase in other short-term borrowings (3,000) 3,000 ----
Principal payments on note payable ---- ---- (500)
Cash dividends paid (448) (426) (404)
---------- ---------- ----------
Net cash provided by (used in) financing activities 7,442 (3,987) 3,656
---------- ---------- ----------

Net increase (decrease) in cash and cash equivalents 6,680 (2,566) 317

Cash and cash equivalents at beginning of period 5,513 8,079 7,762
---------- ---------- ----------

Cash and cash equivalents at end of period $ 12,193 $ 5,513 $ 8,079
---------- ---------- ----------
---------- ---------- ----------
Supplemental Information:
Interest paid $ 4,697 $ 5,134 $ 4,958
Income taxes paid $ 112 $ 145 $ 246
---------- ---------- ----------
---------- ---------- ----------
Other non-cash investing activities:
Transfer of debt securities held to
maturity to debt securities available for sale ---- ---- 11,440
Transfer of loans to other real estate $ 154 $ 260 $ 43
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

See accompanying notes to consolidated financial statements.

- --------------------------------------------------------------------------------

33
<PAGE>

ILLINI CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Illini Corporation ("Illini") provides a full range of banking services to
individual, corporate, and institutional customers through its 18 locations
throughout central Illinois. Illini and its banking subsidiary, Illini Bank,
are subject to competition from other financial and nonfinancial institutions
providing financial products in central Illinois. Additionally, Illini and
Illini Bank are subject to the regulations of certain federal and state agencies
and undergo periodic examinations by those regulatory authorities.
The accounting and reporting policies of Illini conform to generally
accepted accounting principles within the banking industry. The preparation of
the consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions,
including the determination of the allowance for loan losses, that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Following is a description of the more significant of these policies:

(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Illini
and Illini Bank after elimination of all significant intercompany accounts
and transactions.

(b) CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, cash and
cash equivalents include cash and due from banks, interest-bearing deposits
in financial institutions, and federal funds sold, all of which are
considered to be highly liquid assets.

(c) DEBT AND MARKETABLE EQUITY SECURITIES
At the time of purchase, debt and equity securities are classified
into one of three categories: held to maturity, available for sale, or
trading.
Investments in debt securities classified as held to maturity are
stated at cost, adjusted for amortization of premiums and accretion of
discounts, using the interest method, over the period to maturity of the
respective securities.
Investment securities designated as available for sale, which include
any security which Illini has no immediate plan to sell but which may be
sold in the near future under different circumstances, are stated at fair
value. Amortization of premiums and accretion of discounts on securities
available for sale are recorded using the interest method over the period
to maturity of the respective security. Unrealized holding gains and
losses for available-for-sale securities are excluded from earnings and
reported as a net amount in a separate component of shareholders' equity
until realized.
Securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities and are
stated at fair value. Unrealized holding gains and losses are included in
earnings. Illini did not engage in the trading of investment securities
during the years ended December 31, 1997, 1996, and 1995.
Mortgage-backed securities represent a significant portion of the debt
security portfolio. Amortization of premiums and accretion of discounts on
mortgage-backed securities are analyzed in relation to the corresponding
prepayment rates, both historical and estimated, using a method which
approximates the interest method.
Transfers of securities between categories are recorded at fair value
at the date of transfer. Unrealized gains and losses associated with
transfers of securities from held to maturity to available for sale are
recorded as a separate component of shareholders' equity. The unrealized
gains or losses included in the separate component of shareholders' equity
for securities transferred from available for sale to held for maturity are
maintained and amortized into earnings over the remaining life of the

34
<PAGE>

security as an adjustment to yield in a manner consistent with the
amortization or accretion of premium or discount on the associated
security.

(d) LOAN INCOME
Interest income on certain installment loans is recognized using the
sum-of-the-years' digits method.
Interest on commercial, financial, agricultural, real estate, and all
other installment loans is recognized based on the principal amounts
outstanding using the simple-interest method. It is the policy of Illini
to discontinue the accrual of interest when full collectibility of
principal or interest on any loan is in doubt. Subsequent interest payments
received on such loans are applied to principal if there is any doubt as to
the collectibility of such principal. Otherwise, these receipts are
recorded as interest income. Accrual of interest may be resumed on a loan
when performance is in accordance with the contract and the borrower
demonstrates the ability to pay and remain current.
Loan origination fees and certain direct loan origination costs are
deferred and recognized over the lives of the related loans as an
adjustment of the loan yield using a method approximating the interest
method on a loan-by-loan basis.

(e) ACCOUNTING FOR IMPAIRED LOANS
A loan is considered impaired when it is probable Illini will be
unable to collect all amounts due, both principal and interest, according
to the contractual terms of the loan agreement. When measuring impairment,
the expected future cash flows of an impaired loan are discounted at the
loan's effective interest rate. Alternatively, impairment is measured by
reference to an observable market price, if one exists, or the fair value
of the collateral for a collateral-dependent loan. Regardless of the
measurement method used historically, Illini measures impairment based on
the fair value of the collateral when foreclosure is probable.
Additionally, impairment of a restructured loan is measured by discounting
the total expected future cash flow at the loan's effective rate of
interest as stated in the original loan agreement.
Illini uses its existing nonaccrual methods for recognizing interest
on impaired loans.

(f) ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to
operations and is available to absorb loan losses. Illini utilizes a
systematic, documented approach in determining the appropriate level of the
allowance for loan losses. Management's approach, which provides for
general and specific allowances, is based on current economic conditions,
past loan losses, collection experience, risk characteristics of the
portfolio, assessing collateral values by obtaining independent appraisals
for significant properties, and such other factors which, in management's
judgment, deserve recognition in estimating loan losses.
Management believes the allowance for loan losses is adequate to
absorb losses in the loan portfolio. While management uses available
information to recognize losses on loans, future additions to the allowance
for loan losses may be necessary based on changes in economic conditions.
In addition, various regulatory agencies, as an integral part of the
examination process, periodically review Illini's allowance for loan
losses. Such agencies may require Illini to increase the allowance for
loan losses based on their judgment about and interpretation of information
available to them at the time of their examinations.

(g) SECONDARY MORTGAGE MARKET OPERATIONS
Illini originates Federal National Mortgage Association (FNMA)
mortgage loans for sale in the secondary market to FNMA. Any such mortgage
loans held for sale are maintained on Illini's consolidated balance sheets
at the market value as determined by outstanding commitments from FNMA to
purchase such loans. Gains and losses on the sale of these loans and loan
origination fees are recognized upon sale of the related loans and included
in the consolidated statements of income as noninterest income.
Additionally, loan administration fees, representing income earned from
servicing these loans sold in the secondary market to FNMA, are calculated
on the outstanding principal

35
<PAGE>

balances of the loans serviced and recorded as noninterest income as
earned.
Statement of financial accounting standards (SFAS) No. 122, ACCOUNTING
FOR MORTGAGE SERVICING RIGHTS, requires a mortgage banking enterprise to
recognize as separate assets rights to service mortgage loans for others at
the origination or purchase date of the loans when the enterprise has
definitive plans to sell or securitize the loans and retain the mortgage
servicing rights, assuming the fair value of the loans and servicing rights
may be practically estimated. SFAS No. 122, which was required to be
applied prospectively in fiscal years beginning after December 31, 1995,
did not have a material impact on Illini's financial position, results of
operations, or liquidity.

(h) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using primarily the straight-line
method. The estimated useful lives are 40 years for premises and 5 to 7
years for furniture and equipment. Costs for maintenance and repairs are
expensed as incurred.

(i) INCOME TAXES
Illini and Illini Bank file a consolidated federal income tax return.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

(j) INTANGIBLE ASSETS
The fair value of the individual assets acquired and liabilities
assumed through acquisitions accounted for under the purchase method of
accounting is recorded as an investment by Illini. The excess of cash or
market value of Illini's common stock over the fair value of the net assets
acquired is recorded as the excess of cost over fair value of net assets
acquired and is included in other assets on the consolidated balance
sheets. This amount is amortized on a straight-line basis over various
periods not exceeding 25 years. The premiums paid to acquire the deposits
of certain subsidiaries are being amortized over a 15-year period.
Illini assesses the recoverability of intangible assets by determining
whether the amortization of the balance over its remaining life can be
recovered through undiscounted future operation cash flows of the acquired
operation or deposits. The amount of impairment, if any, is measured based
on projected discounted future operating cash flows using a discount rate
reflecting the Illini's average cost of funds. The assessment of the
recoverability of intangibles will be impacted if estimated future
operating cash flows are not achieved.

(k) OTHER REAL ESTATE OWNED
Other real estate owned (OREO) represents property acquired through
foreclosure or deeded to the Bank in lieu of foreclosure on loans on which
the borrowers have defaulted. OREO also includes former bank premises that
management no longer intends to use as banking facilities. OREO is
recorded on an individual asset basis at the lower of fair market value
less estimated disposal costs or the Bank's recorded investment in the
loan. If the fair value minus disposal costs is less than the investment
in the loan, the deficiency is recorded by a direct write down of the
individual OREO asset. Any subsequent write downs to reflect current fair
market value are charged to noninterest expense.

(l) EARNINGS PER SHARE
SFAS 128, EARNINGS PER SHARE, was issued February 1997 and became
effective in the fourth quarter of 1997. SFAS 128 replaces the
presentation of primary earnings per share with a presentation of basic
earnings per share and replaces fully diluted earnings per share with
diluted earnings per share.
Diluted earnings per share gives effect to dilutive common share
equivalents such as stock options or convertible notes. Illini has no
instruments which are dilutive. Therefore, Illini is subject to SFAS

36
<PAGE>

128's requirement for computing basic earnings per share. Basic earnings
per share is computed by dividing income available to common stockholders
by the weighted-average number of common shares outstanding for the period.

(m) FINANCIAL INSTRUMENTS
Financial instruments are defined as cash, evidence of an ownership
interest in an entity, or a contract that both imposes on one entity a
contractual obligation to deliver cash or another financial instrument to a
second entity or to exchange other financial instruments on potentially
unfavorable terms with the second entity, and conveys to that second entity
a contractual right to receive cash or another financial instrument from
the first entity or to exchange other financial instruments on potentially
favorable terms with the first entity.

(n) RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 consolidated financial statements
have been reclassified to conform to the 1997 presentation. Such
reclassifications have no effect on previously reported consolidated net
income or shareholders' equity.

(2) SALE OF THE COFFEEN BRANCH
On November 16, 1995, Illini completed the sale of its Coffeen, Illinois
branch (Coffeen) to an independent third party. In connection with the sale,
Illini sold assets totaling $6.5 million, and the buyer assumed liabilities
totaling $12.7 million. A gain of $0.9 million was realized on the sale of the
loans, deposits, and premises and equipment of the Coffeen branch.

37
<PAGE>

(3) DEBT AND MARKETABLE EQUITY SECURITIES
The amortized cost and estimated market values of debt and marketable
equity securities classified as available for sale at December 31, 1997 and 1996
are presented below.

- --------------------------------------------------------------------------------

DECEMBER 31, 1997
--------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
(dollars in thousands)

<S> <C> <C> <C> <C>
United States Treasury and
United States agencies $ 26,516 $ 121 $ 27 $ 26,610
Mortgage-backed securities 7,829 38 24 7,843
Collateralized mortgage obligations 2,565 3 2 2,566
Obligations of state and
political subdivisions 9,231 174 35 9,370
FHLB stock and other
equity securities 442 3 ---- 445
--------- ------ ------- ---------
$ 46,583 $ 339 $ 88 $ 46,834
--------- ------ ------- ---------
--------- ------ ------- ---------
<CAPTION>

December 31, 1996
------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
--------- ---------- ---------- ---------
(dollars in thousands)
United States Treasury and
United States agencies $ 17,088 $ 20 $ 89 $ 17,019
Mortgage-backed securities 9,501 84 64 9,521
Collateralized mortgage obligations 222 ---- 2 220
Obligations of state and
political subdivisions 13,283 102 222 13,163
FHLB stock and other
equity securities 461 2 ---- 463
--------- ------ ------- ---------
$ 40,555 $ 208 $ 377 $ 40,386
--------- ------ ------- ---------
--------- ------ ------- ---------
</TABLE>

- --------------------------------------------------------------------------------

As a member of the Federal Home Loan Bank System administered by the
Federal Housing Finance Board, Illini Bank is required to maintain an investment
in the capital stock of the Federal Home Loan Bank of Chicago (FHLB) in an
amount equal to the greater of 1% of the aggregate outstanding balance of loans
secured by dwelling units at the beginning of each year or 0.3% of the total
assets of Illini Bank. The stock is recorded at cost which represents
redemption value. Illini Bank's portfolio of residential real estate loans,
subject to minor adjustments, is available to secure advances from the FHLB. As
of December 31, 1997, the Bank did not have any borrowings outstanding from the
FHLB.
The amortized cost and estimated market value of debt and marketable equity
securities classified as available for sale at December 31, 1997, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because certain issuers have the right to call or prepay obligations
with or without call or prepayment penalties.

<PAGE>

- --------------------------------------------------------------------------------

ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- -----------
(dollars in thousands)

<S> <C> <C>
Due in one year or less $ 1,844 $ 1,850
Due after one year through five years 21,631 21,749
Due after five years through ten years 7,714 7,742
Due after ten years 4,558 4,639
--------- ---------
35,747 35,980
Mortgage-backed securities 7,829 7,843
Collateralized mortgage obligations 2,565 2,566
FHLB stock and other equity
securities, no stated maturity 442 445
--------- ---------
$ 46,583 $ 46,834
--------- ---------
--------- ---------
</TABLE>

- --------------------------------------------------------------------------------

Proceeds from sales of debt and marketable equity securities during 1997,
1996 and 1995 were $20.5 million, $13.0 million, and $17.2 million,
respectively. Gross gains of $109,000, $51,000, and $37,000 and gross losses of
$59,000, $50,000, and $82,000 for 1997, 1996 and 1995, respectively, were
realized on those sales. All sales during 1997, 1996 and 1995 were from the
available-for-sale category.
The market value of debt securities pledged to secure United States
government and other public deposits, securities sold under agreements to
repurchase, and for other purposes as required by law was approximately $19.0
million and $14.9 million at december 31, 1997 and 1996, respectively.

(4) LOANS
The loan portfolio at December 31, 1997 and 1996 is composed of the
following loan types:

- --------------------------------------------------------------------------------

1997 1996
--------- ---------
(dollars in thousands)

<S> <C> <C>
Commercial, financial, and
agricultural $ 16,565 $ 17,931
Real estate:
Construction 6,537 6,271
Mortgage held for investment 50,069 51,207
Mortgage available for sale 295 373
Consumer, net of unearned income 12,823 17,609
--------- ---------
Total loans 86,289 93,391
--------- ---------
Allowance for loan losses (1,302) (1,258)
--------- ---------
Net loans $ 84,987 $ 92,133
--------- ---------
--------- ---------
</TABLE>

- --------------------------------------------------------------------------------

Loans serviced for others totaled approximately $71.7 million and $64.3
million at December 31, 1997 and 1996, respectively.
Illini grants commercial, industrial, residential, and consumer loans to
customers in central Illinois through its network of banking offices. Illini
does not have any particular concentration of credit in any one economic sector;
however, a majority of Illini's lending occurs in and around Springfield,
Illinois, with a substantial portion of such loans secured by real estate. As
such, Illini is susceptible to changes in the economic environment in the
Springfield, Illinois area.

<PAGE>

A summary of impaired loans, which includes nonaccrual loans, at December
31, 1997 and 1996 follows:

- --------------------------------------------------------------------------------

1997 1996 1995
---- ---- ----
(dollars in thousands)

<S> <C> <C> <C>
Nonaccrual loans $ 636 $ 869 $ 708
Impaired loans continuing to accrue interest 50 309 901
------- ------ -------
Total impaired loans $ 686 $1,178 $ 1,609
------- ------ -------
------- ------ -------

Allowance for losses on specific impaired loans $ 26 $ 435 $398
------- ------ -------
Impaired loans with no specific related allowance
for loan losses 595 69 906
Average balance of impaired loans during the year 977 1,665 1,137
------- ------ -------
------- ------ -------

</TABLE>

- --------------------------------------------------------------------------------

Additional interest income of $35,000 in 1997, $71,000 in 1996, and $88,000
in 1995 would have been recognized had nonaccrual loans remained current. The
amount recognized as interest income on other impaired loans continuing to
accrue interest was $5,000 in 1997, $29,000 in 1996, and $66,000 in 1995. The
amount recognized as interest income on nonaccrual loans was $13,300, $19,491,
and $31,911 for the years ended December 31, 1997, 1996 and 1995, respectively.
A summary of changes in the allowance for loan losses for the years ended
December 31, 1997, 1996, and 1995 is as follows:

- --------------------------------------------------------------------------------

1997 1996 1995
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 1,258 $ 1,247 $ 1,547
Provision charged to expense 300 1,130 505

Loans charged off (364) (1,189) (873)
Recoveries of loans previously charged off 108 70 68
-------- -------- --------
Net loan charge-offs (256) (1,119) (805)
-------- -------- --------
Balance at end of year $ 1,302 $ 1,258 $ 1,247
-------- -------- --------
-------- -------- --------
</TABLE>

- --------------------------------------------------------------------------------

The following table recaps the 1997 activity for loans made by Illini Bank
to executive officers, directors, and principal shareholders (insiders) of
Illini and Illini Bank and/or their related interests. Such loans were made in
the normal course of business on substantially the same terms, including
interest rates and collateral requirements, as those prevailing at the same time
for comparable transactions with other persons and did not involve more than
normal credit risk or present other unfavorable features.

- --------------------------------------------------------------------------------

INSIDER LOANS:
-------------
(dollars in thousands)

<S> <C>
Balance at December 31, 1996 $ 587
New loans 221
Advances on existing loans 62
Payments received (364)
Changes in insiders' status (215)
--------
Balance at December 31, 1997 $291
--------
--------
</TABLE>

- --------------------------------------------------------------------------------

40
<PAGE>

(5) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1997 and 1996 by major
category follows:

- --------------------------------------------------------------------------------

1997 1996
-------- ---------
(dollars in thousands)

<S> <C> <C>
Land $ 1,812 $ 1,817
Bank premises 7,417 4,641
Furniture and equipment 3,695 3,198
-------- --------
12,924 9,656
Less accumulated depreciation (4,847) (4,287)
-------- --------
$ 8,077 $ 5,369
-------- --------
-------- --------
</TABLE>

- --------------------------------------------------------------------------------

Depreciation charged to noninterest expense amounted to $638,000, $406,000,
and $394,000 in 1997, 1996, and 1995, respectively.
Illini leases certain premises and equipment under noncancellable operating
leases which expire at various dates through December 2001. Such noncancellable
operating leases also include options to renew on an annual basis. Minimum
rental commitments under all noncancellable operating leases at December 31,
1997 are as follows:

Year Amount
---- ------
(dollars in thousands)
<S> <C>
1998 $ 104
1999 54
2000 49
2001 45
-------
$ 252
-------
-------
</TABLE>

Illini leases certain premises to unaffiliated third parties which expire
at various dates through June 30, 1998. These noncancellable operating leases
also include options to renew. Minimum rental income commitments under these
noncancellable operating leases at December 31, 1997 total $70,000 for 1998.
Total rental income received in 1997, 1996, and 1995 was $177,000,
$182,000, and $190,000, respectively. Illini also leases certain equipment
under agreements which are cancellable with 30-to-90 days' notice to the lessor.
Total rent expense charged to noninterest expense in 1997, 1996, and 1995 was
$213,000, $222,000, and $203,000, respectively.

(6) DEPOSITS
At December 31,1997, the scheduled maturities of time deposits are as
follows:

Year Amount
---- -------
(dollars in thousands)
<S> <C>
1998 $ 49,553
1999 11,275
2000 2,893
2001 278
2002 and thereafter 78
--------
$ 64,077
--------
-------

</TABLE>

41
<PAGE>

(7) INCOME TAXES
The components of income tax expense (benefit) for the years ended December
31, 1997, 1996, and 1995 are as follows:

- --------------------------------------------------------------------------------

1997 1996 1995
-------- -------- --------
(dollars in thousands)

<S> <C> <C> <C>
Current income taxes:
Federal $ 167 $ 25 $ 378
State (51) (33) 100
Deferred income taxes (78) (1) 130
------- ------- -------
$ 38 $ (9) $ 608
------- ------- -------
------- ------- -------
</TABLE>

- --------------------------------------------------------------------------------

A reconciliation of expected income tax expense to federal income tax
expense, computed by applying the federal statutory rate of 34% to income before
income tax expense for the years ended December 31, 1997, 1996, and 1995 to
reported income tax expense, is as follows:

- --------------------------------------------------------------------------------

1997 1996 1995
------- ------- -------
(dollars in thousands)

<S> <C> <C> <C>
Income tax expense at statutory rate $ 234 $ 155 $ 675
Increase (decrease) in income taxes
resulting from:
Tax-exempt income (195) (215) (153)
Goodwill amortization 4 4 1
State income taxes, net of federal
income tax benefit (34) (22) 66
Alternative minimum tax ---- 60 ----
Other, net 29 9 19
------ ------- -------
Income tax expense $ 38 $ (9) $ 608
------ ------- -------
------ ------- -------

</TABLE>

- --------------------------------------------------------------------------------

The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are presented below:

- --------------------------------------------------------------------------------

1997 1996
-------- ---------
<S> <C> <C>
Deferred tax assets: (dollars in thousands)
Available-for-sale securities market valuation $ ---- $ 63
Loans, principally due to allowance for loan losses 224 207
Deferred expenses ---- 25
Alternative minimum tax carryforward 140 60
Other 35 32
-------- --------
Gross deferred tax assets 399 387
Less valuation allowance (60) (60)
-------- --------
Deferred tax assets, net 339 327
Deferred tax liabilities:
Available-for-sale securities market valuation 94 ----
Premises and equipment, basis differences 31 32
Intangible assets 1 3
-------- --------
Total gross deferred tax liabilities 126 35
-------- --------
Net deferred tax asset $ 213 $ 292
-------- --------
-------- --------
</TABLE>

- --------------------------------------------------------------------------------

42
<PAGE>

The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. A valuation allowance is provided on
deferred tax assets when it is more likely than not that some portion of the
assets will not be realized. Illini has established a valuation allowance in
the amount of $60,114 for deferred tax assets at December 31, 1997 and 1996.

(8) EMPLOYEE BENEFITS
Illini has a defined contribution 401(k) plan that covers substantially all
employees. Both Illini and the employee may contribute to the plan. Illini's
contributions are voluntary and at the discretion of the Board of Directors. All
contributions are subject to statutory restrictions. Illini made contributions
of $48,000, $40,000, and $41,000 to the plan in 1997, 1996, and 1995,
respectively.

(9) CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Following are condensed balance sheets as of December 31, 1997 and 1996 and
the related condensed schedules of income and cash flows for each of the years
in the three-year period ended December 31, 1997 of Illini (parent company
only):

- --------------------------------------------------------------------------------

CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996

1997 1996
--------- ---------
(dollars in thousands)

<S> <C> <C>
ASSETS:
Cash $ 186 $ 69
Investment in Illini Bank 14,535 14,223
Other investments 4 2
Premises and equipment, net --- 21
Excess of cost over fair value
of net assets acquired 160 214
Other assets 133 83
--------- ---------
$ 15,018 $ 14,612
--------- ---------
--------- ---------

LIABILITIES AND
SHAREHOLDERS' EQUITY
Other liabilities $ 40 $ 99
Shareholders' equity 14,978 14,513
--------- ---------
$ 15,018 $ 14,612
--------- ---------
--------- ---------
</TABLE>

- --------------------------------------------------------------------------------

43
<PAGE>

- --------------------------------------------------------------------------------

CONDENSED SCHEDULES OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

1997 1996 1995
------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
REVENUE:
Dividends received from Illini Bank $ 900 $ 601 $ 968

EXPENSES:
Interest expense --- --- 9
Other 454 223 278
------- ------- -------
Total expenses 454 223 287
------- ------- -------
Income before applicable
income tax benefit and
equity in undistributed
income of Illini Bank 446 378 681
Income tax benefit 154 92 100
Equity in undistributed (distributed)
income of Illini Bank 50 (5) 597
------- ------- -------
Net income $ 650 $ 465 $ 1,378
------- ------- -------
------- ------- -------

- --------------------------------------------------------------------------------

CONDENSED SCHEDULES OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

1997 1996 1995
------ ------- --------
(dollars in thousands)

Cash flows from operating activities:
Net income $ 650 $ 465 $ 1,378
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 75 67 229
Equity in (undistributed)
distributed income of
Illini Bank (50) 5 (597)
Other, net (110) (114) (66)
------- ------- -------
Net cash provided by
operating activities 565 423 944
Cash flows from financing activities:
Principal payments on note payable ---- ---- (500)
Dividends paid (448) (426) (404)
------- ------- -------
Net cash used in financing
activities (448) (426) (904)
Net increase (decrease) in cash 117 (3) 40

Cash at beginning of year 69 72 32
------- ------- -------
Cash at end of year $ 186 $ 69 $ 72
------- ------- -------
------- ------- -------

Supplemental information:
Income taxes paid $ 112 $ 145 $ 246
Interest paid ---- ---- 9
------- ------- -------
------- ------- -------
</TABLE>

- ------------------------------------------------------------------------------

44
<PAGE>

(10) DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
Illini is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of their customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Such instruments may involve, to varying degrees, elements of credit
risk in excess of the amounts recognized in the consolidated balance sheets.
The contractual amounts of these instruments reflect the extent of involvement
Illini has in particular classes of financial instruments.
Illini's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of these
instruments. Illini uses the same credit policies in making commitments and
conditional obligations as it does for financial instruments recorded in the
consolidated balance sheets. The off-balance-sheet financial instruments of
Illini at December 31, 1997 and 1996 are presented below.

- --------------------------------------------------------------------------------

1997 1996
--------- -----------
<S> <C> <C>
Financial instruments whose contractual (dollars in thousands)
amounts represent credit risk:
Commitments to extend credit $ 11,588 $ 10,664
Standby letters of credit 1,223 1,877
--------- -----------
$ 12,811 $ 12,541
--------- -----------
--------- -----------
</TABLE>

- --------------------------------------------------------------------------------

Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract. Of the
total commitments to extend credit at December 31, 1997 and 1996, approximately
$6.5 million and $5.7 million, respectively, represent fixed-rate loan
commitments. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since certain of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Illini evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained upon extension of credit is based on management's
credit evaluation of the counterparty. Collateral held varies, but generally
includes residential or income-producing commercial property, inventory,
accounts receivable, and/or equipment.
Standby letters of credit are conditional commitments issued by Illini to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing such letters of credit is essentially the same as that
involved in extending other financing arrangements with customers. Illini holds
collateral to support such commitments for which collateral is deemed necessary.
Illini has established overnight federal funds lines of credit of $3.5
million with an unaffiliated bank. As a member of the FHLB, Illini has a line of
credit of approximately $4.0 million.

45
<PAGE>

Following is a summary of the carrying amounts and fair values of Illini's
financial instruments at December 31, 1997 and 1996.

- --------------------------------------------------------------------------------

DECEMBER 31, 1997 CARRYING FAIR
AMOUNT VALUE
---------- ----------
(dollars in thousands)

<S> <C> <C>
Balance sheet assets:
Cash and due from banks $ 5,361 $ 5,361
Interest bearing deposits in other banks 77 77
Federal funds sold 6,755 6,755
Debt and marketable equity securities 46,834 46,834
Loans 84,987 86,024
Accrued interest receivable 1,500 1,500
---------- ----------
$ 145,514 $ 146,551
---------- ----------
---------- ----------

Balance sheet liabilities:
Deposits $ 137,576 $ 137,974
Securities sold under agreements to repurchase 715 715
Accrued interest payable 784 784
---------- ----------
$ 139,075 $ 139,473
---------- ----------
---------- ----------

DECEMBER 31, 1996 Carrying Fair
Amount Value
---------- ----------
Balance sheet assets:
Cash and due from banks $ 5,473 $ 5,473
Interest bearing deposits in other banks 40 40
Debt and marketable equity securities 40,386 40,386
Loans, net 92,133 92,910
Accrued interest receivable 1,494 1,494
---------- ----------
$ 139,526 $ 140,303
---------- ----------
---------- ----------
Balance sheet liabilities:
Deposits $ 125,770 $ 125,882
Federal funds purchased 1,130 1,130
Securities sold under agreements to repurchase 500 500
Other short-term borrowings 3,000 3,000
Accrued interest payable 693 693
---------- ----------
$ 131,093 $ 131,205
---------- ----------
---------- ----------
</TABLE>

- -------------------------------------------------------------------------------

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
such value:

CASH AND OTHER SHORT-TERM INSTRUMENTS
For cash and due from banks, federal funds sold, federal funds purchased,
and securities sold under agreements to repurchase, the carrying amount is a
reasonable estimate of fair value, as such instruments reprice in a short time
period.

DEBT AND MARKETABLE EQUITY SECURITIES
Fair values of debt and marketable equity securities are based on quoted
market prices or dealer quotes.

LOANS
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage, and installment.

46
<PAGE>

Each loan category is further segmented into fixed- and adjustable-rate interest
terms and by performing and nonperforming categories.
For certain homogeneous categories of performing loans, such as certain
residential mortgages and other consumer loans, fair value is estimated using
the quoted market prices for securities backed by similar loans, adjusted for
differences in loan characteristics. The fair value of other types of loans is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.
Fair value for nonperforming loans is based on recent external appraisals.
If appraisals are not available, estimated cash flows are discounted using a
rate commensurate with the risk associated with the estimated cash flows.
Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific borrower
information.

ACCRUED INTEREST RECEIVABLE AND PAYABLE
For accrued interest receivable and payable, the carrying amount is a
reasonable estimate of fair value because of the short maturity for this
financial instrument.

DEPOSITS
The fair value of deposits with no stated maturity, such as
non-interest-bearing demand deposits, NOW and money market accounts, and savings
accounts is equal to the amounts payable on demand. The fair value of time
deposits is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for deposits of
similar remaining maturities.

COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit and standby letters of
credit are estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements, the
likelihood of the counterparties drawing on such financial instruments, and the
present creditworthiness of such counterparties. Illini believes such
commitments have been made on terms which are competitive in the markets in
which it operates; however, no premium or discount is offered thereon and,
accordingly, Illini has not assigned a value to such instruments for purposes of
this disclosure.

(11) LITIGATION
Various legal claims have arisen in the normal course of business, which,
in the opinion of Illini management, will not result in any material liability
to Illini.

(12) REGULATORY RESTRICTIONS
Illini and Illini Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could have
a direct material effect on Illini's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, Illini and Illini Bank must meet specific capital guidelines that
involve quantitative measures of Illini and Illini Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
principals. Illini and Illini Bank capital amounts and classification are also
subject to qualitative judgments by the regulators about components,
risk-weightings, and other factors.
Quantitative measures established by regulations to ensure capital adequacy
require Illini and Illini Bank to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital to average assets
(as defined). Management believes, as of December 31, 1997, Illini and Illini
Bank meet all capital adequacy requirements to which they are subject.
As of September 30, 1997, the most recent notification from regulatory
agencies categorized Illini Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
Illini Bank must maintain minimum total risk-based, Tier I risk-based, and Tier
I leverage ratios as set forth in the table. There are no conditions or events
since that notification that

47
<PAGE>

management believes have changed Illini Bank's category.
Illini and Illini Bank actual and required capital amounts and ratios
as of December 31, 1997 and 1996 are as follows:

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------------------------------------------
TO BE WELL CAPITALIZED
UNDER PROMPT CORRECTIVE
ACTUAL CAPITAL REQUIREMENTS ACTION PROVISIONS
------ -------------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk- (dollars in thousands)
weighted assets):
Illini $ 15,985 15.67% $ 8,159 8.00% ---- ----
Illini Bank 15,681 15.39 8,151 8.00 $ 10,188 10.00%
Tier I capital (to risk-
weighted assets):
Illini 14,683 14.40% 4,080 4.00% ---- ----
Illini Bank 14,379 14.11 4,075 4.00 6,113 6.00%
Tier I capital (to quarterly
average assets):
Illini 14,683 9.78% 4,506 3.00% ---- ----
Illini Bank 14,379 9.59 4,498 3.00 7,497 5.00%

December 31, 1996
--------------------------------------------------------------------------------------
To be well capitalized
under prompt corrective
Actual Capital Requirements action provisions
------ -------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ ------
Total capital (to risk- (dollars in thousands)
weighted assets):
Illini $ 15,854 15.91% $ 7,970 8.00% ---- ----
Illini Bank 15,564 15.69 7,936 8.00 $ 9,920 10.00%
Tier I capital (to risk-
weighted assets):
Illini 14,596 14.65% 3,985 4.00% ---- ----
Illini Bank 14,329 14.45 3,967 4.00 5,951 6.00%
Tier I capital (to quarterly
average assets):
Illini 14,596 9.88% 4,431 3.00% ---- ----
Illini Bank 14,329 9.71 4,428 3.00 7,381 5.00%
</TABLE>

- --------------------------------------------------------------------------------

Dividends from Illini Bank are the principal source of funds for payment of
dividends by Illini to its shareholders.
Illini Bank is subject to certain restrictions on the amount of dividends
that may be declared without prior regulatory approval. At December 31, 1997,
approximately $642,000 of retained earnings were available for dividends without
prior regulatory approval.
At December 31, 1997 and 1996, approximately $1,053,000 and 1,065,000,
respectively, of cash and due from banks represented required reserves on
deposits maintained by Illini in accordance with Federal Reserve Bank
requirements.

48
<PAGE>

ITEM 8. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III.

- --------------------------------------------------------------------------------

ITEM 9. - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

Information required by this item is incorporated by reference from the
sections entitled "Election of Directors" and "Executive Officers" in the proxy
statement for the Annual Meeting of Shareholders to be held on April 16, 1998
(the "Proxy Statement").

ITEM 10. - EXECUTIVE COMPENSATION

Information required by this item is incorporated by reference from the
section entitled "Executive Compensation" in the Proxy Statement.

ITEM 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this item is incorporated by reference from the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.

ITEM 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item is incorporated by reference from the
section titled "Certain Relationships and Related Transactions" in the Proxy
Statement.

49
<PAGE>

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

(a) The following exhibits have been filed with the Securities and Exchange
Commission as required:

(2) Not applicable.
(3) Articles of Incorporation. Incorporated by reference to Illini's
Form 10-KSB for the year ended December 31, 1984, Commission File
No. 0-13343. Amended and Restated Bylaws of Illini Corporation,
effective June 20, 1997 (Incorporated by reference to Exhibit 3
to Registrant's Report on Form 8-K dated June 20, 1997).
(4) 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, Commission
File No. 0-13343.
(9) Not applicable.
(10) Form of data processing agreement. Incorporated by reference to
Illini's Form 10-KSB for the year ended December 31, 1996,
Commission File No. 0-13343.
Employment agreement by and between Illini Corporation and
Burnard K. McHone dated October 30, 1996.
Employment agreement by and between Illini Corporation and Gary
W. Boblett dated October 30, 1996.
(11) Statement regarding computation of earnings per share is included
in note 1(L) to the financial statements which is part of this
Form 10-KSB.
(13) Not applicable.
(16) Not applicable.
(18) Not applicable.
(21) Subsidiaries of the Registrant: Illini Bank, an Illinois state
chartered bank.
(22) Not applicable.
(23) Not applicable.
(24) Not applicable.
(27) Financial data schedule.
(99) Not applicable.

(b) There were no reports on Form 8-K filed for the quarter ended December 31,
1997.

50
<PAGE>

SIGNATURES

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

Dated: March 20, 1998
---------------------------

Illini Corporation, Registrant, by

/s/ Burnard K. McHone
- --------------------------------------------------------------------------------
Burnard K. McHone, President

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

/s/ THOMAS A. BLACK MARCH 20, 1998
- --------------------------------------------
Thomas A. Black, Chairman Date

/s/ ROBERT F. OLSON MARCH 20, 1998
- --------------------------------------------
Robert F. Olson, Director Date

/s/ RONALD E. CRAMER MARCH 20, 1998
- --------------------------------------------
Ronald E. Cramer, Director Date

/s/ JOHN H. PICKRELL MARCH 20, 1998
- --------------------------------------------
John H. Pickrell, Director Date

/s/ LAWRENCE B. CURTIN MARCH 20, 1998
- --------------------------------------------
Lawrence B. Curtin, Director Date

/s/ N. RONALD THUNMAN MARCH 20, 1998
- --------------------------------------------
N. Ronald Thunman, Director Date

/s/ KENNETH G. DEVERMAN MARCH 20, 1998
- --------------------------------------------
Kenneth G. Deverman, Director Date

/s/ WILLIAM G. WALSCHLEGER MARCH 20, 1998
- ---------------------------------------------
William G. Walschleger, Director Date

/s/ WILLIAM N. ETHERTON MARCH 20, 1998
- --------------------------------------------
William N. Etherton, Director Date

/s/ PERRY WILLIAMS MARCH 20, 1998
- --------------------------------------------
Perry Williams, Director Date

/s/ WILLIAM B. MCCUBBIN MARCH 20, 1998
- --------------------------------------------
William B. Mccubbin, Director Date

/s/ C. DEANN HAGER MARCH 20, 1998
- --------------------------------------------
C. Deann Hager, Controller Date
(Principal Financial and Accounting Officer)

/s/ BURNARD K. MCHONE MARCH 20, 1998
- --------------------------------------------
Burnard K. Mchone, Director & Date
Pres.(Principal Executive Officer)

51
<PAGE>

EXHIBIT INDEX

(27) Financial data schedules.

52
<PAGE>

ILLINI CORPORATION AND ILLINI BANK OFFICERS ILLINI BANK LOCATIONS
- ------------------------------------------- ------------------------------------------------------------

<S> <C> <C>
ILLINI CORPORATION 3200 West Iles Avenue 2201 Woodlawn, Ste. 100
Springfield Lincoln
Burnard K. McHone DOUG FINN, BANK MANAGER HAROLD BOYER, BANK MANAGER
President
120 South Chatham Road 120 Governor Oglesby
Gary W. Boblett Springfield Elkhart
Chief Operating Officer PAT EDWARDS, BANK MANAGER HAROLD BOYER, BANK MANAGER

Tony W. McLain 615 West Jefferson St. 116 East Exchange
Vice President / Sales Springfield Danvers
NANCY MANNING, BANK MANAGER GREG BIRKY, BANK MANAGER
David J. Schwemmer
Vice President / Operations 2120 Peoria Road 103 Franklin
Springfield Hudson
C. Deann Hager PAT DUNN, BANK MANAGER GREG BIRKY, BANK MANAGER
Controller
375 West Andrew Road 100 East Third St.
ILLINI BANK Sherman Stonington
PAT DUNN, BANK MANAGER SCOTT EMMETT, BANK MANAGER
Burnard K. McHone
President 133 Dodds Street 130 Main St.
Divernon Dawson
Gary W. Boblett VICKIE BLY, BANK MANAGER ROBIN RUSHING, BANK MANAGER
Chief Operating Officer
Route 4 and Jefferson 101 Main St.
Tony W. McLain Auburn Tallula
Vice President / Sales BRUCE BRAUER, BANK MANAGER PAT RATLIFF, BANK MANAGER

David J. Schwemmer West Main St. Lincoln & Douglas
Vice President / Operations Mechanicsburg Owaneco
ROBIN RUSHING, BANK MANAGER SCOTT EMMETT, BANK MANAGER
Ronald Wenger
Vice President / Commercial Banking Services 420 East Sangamon
Petersburg
Nancy Richards DIANE HOPP, BANK MANAGER
Vice President / Credit Administration
106 East Washington
C. Deann Hager Greenview
Controller PAT RATLIFF, BANK MANAGER

Alan D. Fulk
Senior Farm Lender

Nancy A. Sutzer
Mortgage Sales Manager
</TABLE>

STOCK TRANSFER AGENT
- -----------------------------------

Illinois Stock Transfer
223 West Jackson Blvd.
Suite 1210
Chicago, IL 60606
1-800-757-5755

<PAGE>

PERSONAL SERVICE CONTRACT

This agreement is made and entered into as of October 30, 1996, by and
between Illini Corporation and Illini Bank and Burnard K. McHone.

RECITALS. Whereas, Illini Corporation and Illini Bank is a banking holding
company chartered under the laws of the State of Illinois, as amended, Illini
Corporation and Illini Bank is a commercial banking corporation chartered under
the laws of the State of Illinois, and, whereas, Burnard K. McHone (hereafter
referred to as "McHone") is interested in being employed as President of Illini
Corporation and Illini Bank, and, whereas, Illini Corporation and Illini Bank
and McHone, parties to this agreement, desire to make certain agreements between
themselves relating to personal services to be rendered by McHone to Illini
Corporation and Illini Bank.

AGREEMENT. Now therefore, in consideration of the premises and the mutual
promises and covenants contained herein, the above named parties agree as
follows:

1. EFFECTIVE DATE AND TERM. This contract shall be effective as of the date
of this contract and shall continue and remain in effect until December 31,
1999, unless earlier terminated as provided herein.

Upon the expiration of the stated term, if this contract has not been
sooner terminated, it shall continue on an indefinite term until it is replaced
in writing or until it is terminated as provided hereunder, except that the
severance provisions of paragraph 5 shall not apply after the above date.

2. SERVICES TO BE PERFORMED.

McHone shall hold the position of President of Illini Corporation and of
Illini Bank and in such capacity shall have the authority, duties and
responsibilities as set forth in governing banking regulations, in Illini
Corporation's and Illini Bank's Bylaws, and in the table of organization of
Illini Corporation and Illini Bank. Such duties may be modified from time to
time in accordance with the by-laws of Illini Corporation and Illini Bank,
unless otherwise prohibited by this agreement.

It is expressly understood that McHone shall perform his services for
corporate business purposes and in strict accordance with prevailing law and
banking regulations.

3. COMPENSATION FOR SERVICES.

McHone's annual initial base salary shall be $107,000. In addition to said
compensation, McHone will be a participant in Illini Corporation and Illini
Bank's Performance Compensation for Stakeholders program for as long as such
program is in effect. McHone will also receive and participate in such other
benefits as are made available to employees of Illini Corporation and Illini
Bank. McHone's compensation may be, from time to time, adjusted by the Board of
Directors of Illini Corporation and Illini Bank or by any other Committee of
Illini Corporation and Illini Bank authorized to act for the Board of Directors
in this regard.

<PAGE>

4. TERMINATION.

It is the intent of the parties that this contract run its stated length.
Notwithstanding that intent, Illini Corporation and Illini Bank may terminate
McHone's employment for (a) substantial violation of Illini Corporation and
Illini Bank's Code of Conduct or its personnel policies in effect from time to
time; (b) substantial violation of laws and regulations applicable to banking,
or (c) failure to maintain and perform the personal services herein agreed in
accordance with professional standards of skill, care or prudence.

This contract may also be canceled without cause by either party upon
giving thirty (30) days, written notice.

5. SEVERANCE PAY FOR EARLY TERMINATION.

In the event McHone's employment is terminated prior to the date set forth
in paragraph 1, McHone shall be entitled to severance pay only under the
following circumstances:

(a) If Illini Corporation or Illini Bank terminate McHone's employment,
except for cause as set forth in paragraph 4;

(b) McHone terminates his employment for "good reason" within 6 months of
the date of a change of control of Illini Corporation and/or Illini
Bank as defined in the Change in Bank Control Act of 1978, as amended.
For the purpose of this subparagraph, "good reason" is defined as a
decrease in his annual base salary or a substantial change in his job
description or actual duties of employment by Illini Corporation or
Illini Bank.

Severance pay under the foregoing circumstances shall be equal to 6 months
of annual base pay, plus any and all benefits to which he may be entitled, any
compensation earned under any compensation program, any employee benefits for
which he is qualified at the time of termination, and reasonable expenses of
out-placement and reemployment within the financial institutions industry.
Outplacement expenses shall be paid only upon actually incurring such expenses
and his furnishing of evidence thereof to the obligated party, and shall not
include moving or relocation expenses. For the purposes of this paragraph, said
6 month period shall begin on the date of the notice of termination by either
party. Under no circumstances shall the total severance amount paid under this
paragraph exceed the amount which McHone would have received under this
contract, had it continued until its termination under paragraph 1 of this
contract.

6. PERSONNEL POLICY.

The personnel policy of Illini Corporation and Illini Bank in effect at the
date of the signing of this contract, and as may be amended or otherwise changed
in the sole discretion of the Compensation Committee of the Board of Directors
of Illini Corporation and Illini Bank or by any other authorized act as the
Board of Directors of Illini Corporation and Illini Bank shall approve from time
to time, shall be incorporated in its entirety by this reference and remain in
full force and effect.

<PAGE>

7. CONFIDENTIAL AND PROPRIETARY INFORMATION.

Confidential and proprietary is defined as any information, date, figures,
sales, projections, estimates, customer lists, tax records, personnel history,
accounting procedures, equipment, designs, processes, dealings, trade secrets,
trademarks, business plans, studies, business procedures, computer programs in
any form, computer services in any form, training, economic policies, operating
methods, finances, books, records and accounts relating in any manner to Illini
Corporation and Illini Bank Is customers and its subsidiaries, whether prepared
by McHone or otherwise coming into McHone's possession, or which may be
entrusted to McHone or come known to McHone during his employment with Illini
Corporation and Illini Bank, and which are not generally available to the
public. Such confidential and proprietary information shall not include any
copyright over intellectual property created by McHone, except to the extent
specifically created for use by Illini Corporation or Illini Bank.

(a) During and after employment, McHone will not directly or indirectly
use or disclose to others, including subsequent employers, any confidential or
proprietary information.

(b) Information furnished by Illini Corporation and Illini Bank to McHone
with respect to the projects and services of Illini Corporation and Illini Bank
and any related confidential or proprietary information, shall be held by McHone
in confidence and used only for the purposes set forth in this agreement during
employment with Illini Corporation and Illini Bank and thereafter. McHone
covenants that he will take all steps necessary to protect and preserve the
confidentiality of such information.

(c) The provisions of this section 7 shall survive termination of McHone's
employment, regardless of the reason therefore. In addition to any damages
which Illini Corporation and Illini Bank may be able to show, Illini Corporation
and Illini Bank shall be entitled to specific performance or other relief,
including, without limitation, a temporary restraining order, preliminary and
permanent injunctions by a court of competent jurisdiction to enjoin and
restrain the unauthorized disclosure of such information, the parties hereto
acknowledging that Illini Corporation and Illini Bank has no adequate remedy at
law with respect to such disclosures.

8. TERMINATION OF RELATED OFFICES.

It is mutually understood by the parties herein that in the event McHone's
employment with Illini Corporation and Illini Bank is terminated for any reason,
McHone will also resign from all other positions or offices held with Illini
Corporation and Illini Bank contemporaneously thereto; except a directorship
during its term.

9. NONCOMPETITION AGREEMENT.

For and in consideration of execution of this agreement, McHone agrees not
to obtain employment, do any work, perform any services or engage in any
financial services business or any other business during the course of his
employment which competes in any way or manner with the performance of his
duties with Illini Corporation and Illini Bank and it subsidiaries without the
prior written consent of Illini Corporation and Illini Bank. Illini Corporation
and Illini Bank agrees, within generally accepted customs and practices of the
financial institutions industry, to not withhold such consent unreasonably.

<PAGE>

10. AMENDMENT.

This agreement may be amended by an instrument in writing signed on behalf
of all parties thereto.

11. CONFORMANCE TO BANKING REGULATIONS.

Notwithstanding any other provision of this agreement, no part or
obligation of the above agreement shall be binding upon either party to the
extent such provision violates Banking Statutes of the Federal Government or the
Illinois Banking Act or Regulations of the Federal Deposit Insurance Corporation
or the Federal Reserve Board.

12. BINDING ON SUCCESSORS.

This agreement shall be binding upon the parties, their heirs, successors
and assigns.

13. MISCELLANEOUS.

This document constitutes the entire agreement and supercedes all other
prior agreements and undertakings of like nature, both written and oral, between
the parties, with respect to the subject matter thereof, and shall be governed
by and construed in accordance with the laws of the State of Illinois.

This agreement does not become effective until it is reviewed and approved by
the Board of Directors of Illini Corporation and Illini Bank.

In witness hereof, Burnard K. McHone has caused this agreement to be signed, all
as of the date first written above.

/s/ Burnard K. Mchone /s/ Thomas A. Black
- --------------------------- ----------------------------------
Burnard K. McHone Thomas A. Black, Chairman
Illini Corporation & Illini Bank

<PAGE>

PERSONAL SERVICE CONTRACT

This agreement is made and entered into as of October 30, 1996, by and between
Illini Corporation and Illini Bank and Gary Boblett.

RECITALS. Whereas, Illini Corporation and Illini Bank is a banking holding
company chartered under the laws of the State of Illinois, as amended, Illini
Corporation and Illini Bank is a commercial banking corporation chartered under
the laws of the State of Illinois, and, whereas, Gary Boblett (hereafter
referred to as "Boblett") is interested in being employed as Senior Vice
President - Commercial Banking Services of Illini Corporation and Illini Bank,
and, whereas, Illini Corporation and Illini Bank and Boblett, parties to this
agreement, desire to make certain agreements between themselves relating to
personal services to be rendered by Boblett to Illini Corporation and Illini
Bank.

AGREEMENT. Now therefore, in consideration of the premises and the mutual
promises and covenants contained herein, the above named parties agree as
follows:

1. EFFECTIVE DATE AND TERM. This contract shall be effective as of the date
of this contract and shall continue and remain in effect until December 31,
2001, unless earlier terminated as provided herein.

Upon the expiration of the stated term, if this contract has not been
sooner terminated, it shall continue on an indefinite term until it is
replaced in writing or until it is terminated as provided hereunder, except
that the severance provisions of paragraph 5 shall not apply after the
above date.

2. SERVICES TO BE PERFORMED.

Boblett shall hold the position of Senior vice President Commercial Banking
Services of Illini Corporation and of Illini Bank and in such capacity shall
have the authority, duties and responsibilities as set forth in governing
banking regulations, in Illini Corporation's and Illini Bank's Bylaws, and in
the table of organization of Illini Corporation and Illini Bank. Such duties
may be modified from time to time in accordance with the by-laws of Illini
Corporation and Illini Bank, unless otherwise prohibited by this agreement.

It is expressly understood that Boblett shall perform his services for
corporate business purposes and in strict accordance with prevailing law and
banking regulations.

3. COMPENSATION FOR SERVICES.

Boblett's annual initial base salary shall be $75,000. In addition to said
compensation, Boblett will be a participant in Illini Corporation and Illini
Bank's Performance Compensation for Stakeholders program for as long as such
program is in effect. Boblett will also receive and participate in such other
benefits as are made available to employees of Illini Corporation and Illini
Bank. Boblett's compensation may be, from time to time, adjusted by the Board
of Directors of Illini Corporation and Illini Bank or by any other Committee of
Illini Corporation and Illini Bank authorized to act for the Board of Directors
in this regard.

<PAGE>

4. TERMINATION.

It is the intent of the parties that this contract run its stated length.
Notwithstanding that intent, Illini Corporation and Illini Bank may terminate
Boblett's employment for (a) substantial violation of Illini Corporation and
Illini Bank's Code of Conduct or its personnel policies in effect from time to
time; (b) substantial violation of laws and regulations applicable to banking,
or (c) failure to maintain and perform the personal services herein agreed in
accordance with professional standards of skill, care or prudence.

This contract may also be canceled without cause by either party upon
giving thirty (30) days, written notice.

5. SEVERANCE PAY FOR EARLY TERMINATION.

In the event Boblett's employment is terminated prior to the date set forth
in paragraph 1, Boblett shall be entitled to severance pay only under the
following circumstances:

(a) If Illini Corporation or Illini Bank terminate Boblett's employment,
except for cause as set forth in paragraph 4;

(b) Boblett terminates his employment for "good reason" within 6 months of
the date of a change of control of Illini Corporation and/or Illini
Bank as defined in the Change in Bank Control Act of 1978, as amended.
For the purpose of this subparagraph, "good reason" is defined as a
decrease in his annual base salary or a substantial change in his job
description or actual duties of employment by Illini Corporation or
Illini Bank.

Severance pay under the foregoing circumstances shall be equal to 6 months
of annual base pay, plus any and all benefits to which he may be entitled, any
compensation earned under any compensation program, any employee benefits for
which he is qualified at the time of termination, and reasonable expenses of
out-placement and reemployment within the financial institutions industry.
Outplacement expenses shall be paid only upon actually incurring such expenses
and his furnishing of evidence thereof to the obligated party, and shall not
include moving or relocation expenses. For the purposes of this paragraph, said
6 month period shall begin on the date of the notice of termination by either
party. Under no circumstances shall the total severance amount paid under this
paragraph exceed the amount which Boblett would have received under this
contract, had it continued until its termination under paragraph I of this
contract.

6. PERSONNEL POLICY.

<PAGE>

7. CONFIDENTIAL AND PROPRIETARY INFORMATION.

Confidential and proprietary is defined as any information, date, figures,
sales, projections, estimates, customer lists, tax records, personnel history,
accounting procedures, equipment, designs, processes, dealings, trade secrets,
trademarks, business plans, studies, business procedures, computer programs in
any form, computer services in any form, training, economic policies, operating
methods, finances, books, records and accounts relating in any manner to Illini
Corporation and Illini Bank Is customers and its subsidiaries, whether prepared
by Boblett or otherwise coming into Boblett's possession, or which may be
entrusted to Boblett or come known to Boblett during his employment with Illini
Corporation and Illini Bank, and which are not generally available to the
public.

(a) During and after employment, Boblett will not directly or indirectly use
or disclose to others, including subsequent employers, any confidential or
proprietary information.

(b) Information furnished by Illini Corporation and Illini Bank to Boblett
with respect to the projects and services of Illini Corporation and Illini
Bank and any related confidential or proprietary information, shall be held
by Boblett in confidence and used only for the purposes set forth int his
agreement during employment with Illini Corporation and Illini Bank and
thereafter. Boblett covenants that he will take all steps necessary to
protect and preserve the confidentiality of such information.

(c) The provisions of this section 7 shall survive termination of Boblett's
employment, regardless of the reason therefore. In addition to any damages
which Illini Corporation and Illini Bank may be able to show, Illini
Corporation and Illini Bank shall be entitled to specific performance or
other relief, including, without limitation, a temporary restraining order,
preliminary and permanent injunctions by a court of competent jurisdiction to
enjoin and restrain the unauthorized disclosure of such information, the
parties hereto acknowledging that Illini Corporation and Illini Bank has no
adequate remedy at law with respect to such disclosures.

8. TERMINATION OF RELATED OFFICES.

It is mutually understood by the parties herein that in the event Boblett's
employment with Illini Corporation and Illini Bank is terminated for any reason,
Boblett will also resign from all other positions or offices held with Illini
Corporation and Illini Bank contemporaneously thereto; except a directorship
during its term.

9. NONCOMPETITION AGREEMENT.

For and in consideration of execution of this agreement, Boblett agrees not
to obtain employment, do any work, perform any services or engage in any
financial services business or any other business during the course of his
employment which competes in any way or manner with the performance of his
duties with Illini Corporation and Illini Bank and it subsidiaries without the
prior written consent of Illini Corporation and Illini Bank. Illini Corporation
and Illini Bank agrees, within generally accepted customs and practices of the
financial institutions industry, to not withhold such consent unreasonably.

<PAGE>

10. AMENDMENT.

This agreement may be amended by an instrument in writing signed on behalf
of all parties thereto.

11. CONFORMANCE TO BANKING REGULATIONS.

12. BINDING ON SUCCESSORS.

This agreement shall be binding upon the parties, their heirs, successors
and assigns.

13. MISCELLANEOUS.

This agreement does not become effective until it is reviewed and approved
by the board of directors of Illini Corporation and Illini Bank.

In witness hereof, Gary W. Boblett has caused this agreement to be signed,
all as of the date first written above.

/s/ Gary W. Boblett /s/ Thomas A. Black
- -------------------------- -----------------------------------
Gary W. Boblett Thomas A. Black, Chairman
Illini Corporation and Illini Bank

<PAGE>
<ARTICLE> 9
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