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ILLINI CORP
10QSB, 2000-08-11
STATE COMMERCIAL BANKS

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U.S. Securities and Exchange Commission

Washington, D.C. 20549

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FORM 10-QSB

/x/	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended June 30, 2000

/ /	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

Commission file number      0-13343

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Illini Corporation

(Exact name of small business issuer as specified in its charter)

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

(217) 787-5111
(Issuer's telephone number)

    Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  No / /

    State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 571,789 shares of $10 par value common stock as of July 31, 2000

    Transitional Small Business Disclosure Format: Yes / /  No /x/

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ILLINI CORPORATION

INDEX TO FORM 10-QSB
June 30, 2000

					Page
PART I. FINANCIAL INFORMATION
	Item 1.		Financial Statements (Unaudited)
			Consolidated Balance Sheets     June 30, 2000 and December 31, 1999		3
			Consolidated Statements of Income     Three and Six Months Ended June 30, 2000 and 1999		4
			Consolidated Statements of Cash Flows     Six Months Ended June 30, 2000 and 1999		5
			Notes to Interim Consolidated Financial Statements		6
	Item 2.		Management's Discussion and Analysis of Operations		9
	Item 3.		Quantitative and Qualitative Disclosures About Market Risk		20
PART II. OTHER INFORMATION					21
SIGNATURES					25
EXHIBIT INDEX					26

Information Concerning Forward-Looking Statements

    Statements contained in this Form 10-QSB which are not historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve important known and unknown risks, uncertainties and other factors and can be identified by phrases using "estimate," "anticipate," "believe," "project," "expect," "intend," "predict," "potential," "future," "may," "should" and similar expressions or words. Such forward-looking statements are subject to risk and uncertainties which could cause actual results to differ materially from those projected. Such risks and uncertainties include potential change in interest rates, competitive factors in the financial services industry, general economic conditions, the effect of new legislation and other risks detailed in documents filed by Illini Corporation with the Securities and Exchange Commission from time to time.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ILLINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and December 31, 1999
(Unaudited)

						June 30, 2000			December 31, 1999
						(dollars in thousands)
ASSETS
	Cash and due from banks					$	5,413		$	7,383
	Interest-bearing deposits in other banks						30			28
	Federal funds sold						5,095			5,595
		Cash and cash equivalents					10,538			13,006
	Debt and marketable equity securities available for sale, at fair value						54,986			56,976
	Loans, net of the allowance for loan losses and unearned income						146,478			134,020
	Premises and equipment						7,145			7,534
	Accrued interest receivable						2,009			1,908
	Other real estate owned						508			618
	Other assets						2,654			3,033
						$	224,318		$	217,095
LIABILITIES AND SHAREHOLDERS' EQUITY
	Liabilities:
		Noninterest-bearing demand deposits					28,730			29,549
		Interest-bearing deposits:
			NOW and money market accounts				51,927			50,301
			Savings deposits				18,465			18,527
			Time deposits, $100,000 and over				25,023			23,552
			Other time deposits				79,150			73,724
				Total deposits			203,295			195,653
		Note payable					1,000			1,000
		Securities sold under agreements to repurchase					402			394
		Accrued interest payable					1,150			1,122
		Other liabilities					911			1,600
			Total liabilities				206,758			199,769
	Shareholders' equity:
		Common stock-$10 par value, authorized 800,000 shares; 571,789 shares issued and outstanding					5,718			5,718
		Capital surplus					3,358			3,358
		Retained earnings					9,116			8,825
		Accumulated other comprehensive loss					(632	)		(575	)
			Total shareholders' equity				17,560			17,326
						$	224,318		$	217,095

See accompanying notes to interim consolidated financial statements.

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ILLINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months and Six Months Ended June 30, 2000 and 1999
(Unaudited)

					Three Months Ended June 30,						Six Months Ended June 30,
					2000			1999			2000			1999
					(dollars in thousands, except per share data)
Interest income:
Interest and fees on loans					$	3,102		$	2,093		$	6,078		$	3,978
Interest on debt and marketable equity securities
	Taxable					751			647			1,509			1,301
	Tax-exempt					147			92			254			183
Interest on short term investments						195			1			235			71
		Total interest income				4,195			2,833			8,076			5,533
Interest expense:
Interest on deposits:
	NOW and money market accounts					488			323			949			664
	Savings deposits					93			87			185			179
	Time deposits, $100,000 and over					361			181			633			364
	Other time deposits					1,120			594			2,109			1,193
Interest on borrowings						29			40			59			43
		Total interest expense				2,091			1,225			3,935			2,443
		Net interest income				2,104			1,608			4,141			3,090
Provision for loan losses						135			51			270			102
		Net interest income after provision for loan losses				1,969			1,557			3,871			2,988
Noninterest income:
Service charges on deposit accounts						343			322			663			612
Other fee income						69			58			141			103
Mortgage loan servicing fees						57			52			115			116
Gain on sale of mortgage loans						10			7			11			31
Securities gains (losses)						(13	)		8			(13	)		8
Other						42			34			91			85
		Total noninterest income				508			481			1,008			955
Noninterest expense:
Salaries and employee benefits						900			730			1,803			1,516
Net occupancy expense						199			189			410			397
Equipment expense						101			98			206			208
Data processing						186			187			370			393
Supplies						42			43			79			105
Communication and transportation						118			98			233			197
Marketing and advertising						53			14			103			37
Correspondent and processing fees						65			72			127			115
Loan and other real estate owned expenses						18			25			35			42
Professional fees						185			291			379			496
Directors' and regulatory fees						71			43			125			87
Other						99			70			191			128
		Total noninterest expense				2,037			1,860			4,061			3,721
			Income before income tax expense			440			178			818			222
Income tax expense						127			39			241			42
		Net income			$	313		$	139		$	577		$	180
Basic and diluted earnings per share (based on weighted average common shares outstanding of 571,789 in 2000 and 448,456 in 1999)					$	0.55		$	0.31		$	1.01		$	0.40

See accompanying notes to interim consolidated financial statements.

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ILLINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2000 and 1999
(Unaudited)

					2000			1999
					(dollars in thousands)
Cash flows from operating activities:
	Net income				$	577		$	180
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				563			568
		Provision for loan losses				270			102
		Securities (gains) losses, net				13			(8	)
		Gain on sale of premises and equipment				(2	)		—
		(Gain) loss on sale of other real estate owned				1			(15	)
		(Increase) decrease in accrued interest receivable				(101	)		173
		Increase (decrease) in accrued interest payable				28			(28	)
		Origination of mortgage loans for sale				(3,402	)		(4,300	)
		Proceeds from the sale of mortgage loans				3,298			4,365
		Other, net				(385	)		(248	)
			Net cash provided by operating activities			860			789
Cash flows from investing activities:
	Proceeds from sales of debt securities available for sale					4,757			6,223
	Proceeds from maturities and paydowns of debt securities available for sale					3,237			7,188
	Purchases of debt and marketable equity securities available for sale					(6,144	)		(7,528	)
	Net increase in loans					(12,609	)		(15,070	)
	Purchases of premises and equipment					(59	)		(501	)
	Proceeds from sale of premises and equipment					2			—
	Proceeds from sales of other real estate owned					124			68
		Net cash used in investing activities				(10,692	)		(9,620	)
Cash flows from financing activities:
	Net decrease in non-interest bearing demand deposits					(819	)		(3,903	)
	Net increase in NOW, money market accounts and savings					1,564			3,683
	Net increase (decrease) in time deposits, $100,000 and over					1,471			(1,092	)
	Net increase in other time deposits					5,426			131
	Net increase in federal funds purchased					—			4,115
	Net increase (decrease) in securities sold under agreements to repurchase					8			(100	)
	Cash dividends paid					(286	)		(225	)
		Net cash provided by financing activities				7,364			2,609
Net decrease in cash and cash equivalents						(2,468	)		(6,222	)
Cash and cash equivalents at beginning of period						13,006			12,318
Cash and cash equivalents at end of period					$	10,538		$	6,096
Supplemental Information:
	Income taxes paid				$	448		$	146
	Interest paid				$	3,907		$	2,471
Other non-cash investing activities:
	Transfer of loans to other real estate owned				$	15		$	208

See accompanying notes to interim consolidated financial statements.

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ILLINI CORPORATION AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements (Unaudited)
June 30, 2000

(1) Basis of Presentation

    The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-QSB and, therefore, do not include all of the information and notes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes included in the Illini Corporation Annual Report on Form 10-KSB for the year ended December 31, 1999.

    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. Illini Corporation has no potential common shares which are dilutive.

    Results for the three and six months ended June 30, 2000 may not be indicative of the annual performance of Illini Corporation (or the Corporation). Management of the Corporation has made estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the interim consolidated financial statements (unaudited) in conformity with generally accepted accounting principals. Actual results could differ from those estimates.

(2) Allowance for Loan Losses and Impaired Loans

    The allowance for loan losses is increased by provisions charged to operations and is available to absorb loan losses. Illini Corporation utilizes a systematic, documented approach in determining the appropriate level of the allowance for loan losses of its subsidiary banks. 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 current recognition in estimating potential loan losses. The determination of the allowance for loan losses is one of the estimates made by management in the preparation of the consolidated financial statements.

    Loans, except large groups of smaller-balance homogeneous loans, for which the full collection of principal and interest according to the contractual terms of the loan agreement is not probable, are

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evaluated for impairment. Information regarding impaired loans at June 30, 2000 and December 31, 1999 is as follows:

(3) New Accounting Pronouncements

    In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), which establishes standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS 133 requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS 133 is effective for all fiscal periods beginning after June 15, 1999. Earlier application of SFAS 133 is encouraged but should not be applied retroactively to financial statements of prior periods. In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133, which states SFAS 133 shall be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Corporation is currently evaluating the requirements and impact of SFAS 133.

(4) Other Comprehensive Income

    For the three and six-month periods ended June 30, 2000 and 1999, unrealized gains (losses) on debt and marketable equity securities available for sale, net of tax, is the Company's only other comprehensive

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income component. Comprehensive income for the three and six-month periods ended June 30, 2000 and 1999 is summarized as follows:

				Three Months Ended June 30,						Six Months Ended June 30,
				2000			1999			2000			1999
				(dollars in thousands)
Net income				$	313		$	139		$	577		$	180
Other comprehensive income:
	Net realized and unrealized gains (losses) on securities available for sale, net				7			(422	)		(70	)		(610	)
	Less adjustment for net securities gains realized in net income, net				8			(5	)		8			(5	)
		Other comprehensive income (loss)			15			(427	)		(62	)		(615	)
Total comprehensive income (loss)				$	328		$	(288	)	$	515		$	(435	)

(5) Pending Sale of Menard County Branches

    On May 24, 2000, Illini signed a Branch Purchase and Assumption Agreement with Petefish Skiles & Company of Virginia, Illinois, to sell Illini branches located in Tallula, Greenview and Petersburg, Illinois. The sale includes real property, personal property, loans and deposit liabilities. Total loan and total deposit liabilities for these branches at June 30, 2000 were $6.2 million and $13.8 million, respectively. The sale is expected to close in the fourth quarter of 2000.

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Item 2. Management's Discussion and Analysis of Operations

    This discussion should be read in conjunction with the consolidated financial statements, notes, and tables included elsewhere in this report and in the 1999 Illini Corporation Annual Report on Form 10-KSB (1999 Form 10-KSB).

SUMMARY

		Quarter ended June 30,								Six months ended June 30,
								Percent Change								Percent Change
Earnings		2000			1999					2000			1999
		(dollars in thousands, except per share data)
Total revenue		$	4,703		$	3,314		41.94%		$	9,084		$	6,488		40.02%
Net income			313			139		126.21%			577			180		220.87%
Basic earnings (loss) per share		$	0.55		$	0.31		77.42%		$	1.01		$	0.40		151.66%

		Quarter ended June 30,						Six months ended June 30,
						Basis Point Change						Basis Point Change
Key Ratios		2000		1999				2000		1999
Return on average assets (1)		0.55	%	0.35	%	0.20	%	0.52	%	0.23%		0.29	%
Return on average equity (1)		7.03	%	3.65	%	3.38	%	6.58	%	2.37%		4.21	%
Average equity to assets		7.84	%	9.44	%	(1.60	)%	7.94	%	9.58%		(1.64	)%
Tier 1 leverage ratio		7.05	%	9.22	%	(2.17	)%
Tier 1 risk-based capital ratio		10.24	%	12.97	%	(2.73	)%
Total risk-based capital ratio		11.46	%	14.17	%	(2.71	)%
Dividend payout ratio		45.63	%	80.95	%	(35.32	)%	49.53	%	124.66%		(75.13	)
Net interest margin		4.14	%	4.54	%	(0.40	)%	4.19	%	4.42%		(0.23	)%
Efficiency ratio		75.89	%	87.06	%	(11.17	)%	76.97	%	89.87%		(12.90	)%

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(1)

Reported on an annualized basis.

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RESULTS OF OPERATION

Earning Assets

    Management is pleased with the results of our efforts to grow earning assets. Average earning assets of the Corporation for the first six months of 2000 increased 40.56% or $58.9 million to $204.1 million from $145.2 million for the first six months of 1999.

    As discussed in the asset quality section of this Form 10-QSB, management has actively pursued the improvement of the asset quality of all earning assets, loans, and investment securities.

    Average net loans increased to $140.6 million for the three months ended June 30, 2000 compared to $94.7 million for the same period in 1999. The increase of $45.9 million for the three months ended June 30, 2000 as compared to the same period for 1999 was primarily due to an increase of $29.2 million in commercial loans, including commercial real estate loans, $7.2 million in residential loans, $8.6 million in agriculture loans, including agriculture real estate, and $1.2 million in consumer loans. The acquisition of Farmers State Bank of Camp Point ("Camp Point") contributed $14.1 million to the total increase of $45.9 million in average net loans. The average yield on the loan portfolio, net of the allowance for loan losses, decreased 2 basis points to 8.87% for the three months ended June 30, 2000, due to the competitive interest rate environment and a change in loan mix for the three months ended June 30, 2000, compared to the three months ended June 30, 1999.

    Average net loans increased to $138.8 million for the six months ended June 30, 2000 compared to $90.0 million for the same period in 1999. The increase of $48.8 million for the six months ended June 30, 2000 as compared to the same period in 1999 was primarily due to an increase of $30.7 million in commercial loans, including commercial real estate loans, $8.9 million in residential loans, $8.2 million in agriculture loans, including agriculture real estate, and $1.4 million in consumer loans. The acquisition of Camp Point contributed $14.5 million to the total increase of $48.8 million in average net loans. The average yield on the loan portfolio, net of the allowance for loan losses, decreased 14 basis points to 8.80%.

    Average investment securities increased $6.2 million and $5.7 million for the three and six months ended June 30, 2000, respectively, as compared to the same periods in 1999. The average yield of the investment securities portfolio was 6.68% and 6.52% for the three and six months ended June 30, 2000, respectively, an increase of 63 and 49 basis points as compared to the same periods in 1999. The acquisition of Camp Point contributed $15.3 million to the total average investments at June 30, 2000. The decrease in investments from December 31, 1999 to June 30, 2000 is a result of the increase in loan growth. Management intends to maintain a balance in the investment portfolio to support basic surplus.

Funding

    The most important and stable source of funding is core deposits, considered by management to include non-interest bearing demand deposits, NOW and money market accounts, savings deposits and time deposits under $100,000. Average core deposits for the six months ended June 30, 2000 increased 39.53% or $50.0 million to $176.5 million from $126.5 million for the six months ended June 30, 1999. The acquisition of Camp Point contributed $24.5 million to the total increase of $50.0 million in average core deposits. The average rate paid on total interest bearing liabilities for the six months ended June 30, 2000 increased 47 basis points when compared to the six months ended June 30, 1999.

    The increase in average core deposits, including noninterest bearing demand deposits, for the six months ended June 30, 2000 as compared to the same period in 1999 has provided a low cost funding source for the growth in the loan portfolio. In addition to federal funds purchased, Illini Bank and Camp Point maintain an overnight federal funds line of credit with an unaffiliated financial institution and a line of credit with the Federal Home Loan Bank of Chicago.

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Net Interest Income/Net Interest Margin

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

    Interest income, on a fully taxable equivalent basis, was $4.3 million and $8.2 million for the three and six months ended June 30, 2000, respectively, compared to $2.9 million and $5.6 million for same periods in 1999, respectively. Interest expense was $2.1 million and $3.9 million for the three and six months ended June 30, 2000, respectively, compared to $1.2 million and $2.4 million for the same periods in 1999, respectively. An increase in interest income and interest expense resulted in a $1.1 million increase in net interest income for the six months ended June 30, 2000.

    Net interest margin for the six months ended June 30, 2000 of 4.19% was down from 4.42% reported for the same period in 1999. The decrease in the net interest margin is primarily due to increases in rates of core time deposits. Management will continue to closely monitor its funding costs to maintain an acceptable spread given the increased demand in commercial lending. Management will continue to structure the balance sheet to provide insulation for extreme interest rate changes. Management has begun to focus on increasing the loan portfolio without jeopardizing the enhanced liquidity that has been gained in prior periods.

    Net interest income is affected by the growth, pricing, mix, and maturity of interest earning-assets and interest- bearing liabilities, as well as other factors, including loan quality. Also, the Corporation's interest-rate spread is affected by regulatory, economic, and competitive factors that influence interest rates, loan demand, and deposit flow. Individual components of net interest income and net interest margin are presented in the consolidated average balances, interest income/expense and yield/rates table on page 12 and 13 and a net interest income- rate/volume variance analysis on page 14 and 15.

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

					Quarter ended June 30,
					2000										1999
					Average Balance			Percent of Total Assets		Interest Income/ Expense			Average Yield/ Rate		Average Balance			Percent of Total Assets		Interest Income/ Expense			Average Yield/ Rate
					(dollars in thousands)
ASSETS
Interest-earning assets:
	Short-term investments				$	12,637		5.5	%	$	195		6.17	%	$	96		0.1	%	$	1		4.73	%
	Investment securities (3)
		Taxable				46,904		20.6			751		6.40			44,141		27.4			647		5.86
		Tax-exempt (1)				10,827		4.7			213		7.89			7,410		4.6			133		7.16
			Total securities			57,731		25.3			964		6.68			51,551		32.0			780		6.05
	Loans
		Commercial (1)				23,379		10.3			541		9.29			12,900		8.0			297		9.24
		Agriculture				12,661		5.5			272		8.61			8,004		5.0			165		8.29
		Real estate:
			Commercial			56,229		24.7			1,223		8.72			37,497		23.3			801		8.57
			Agriculture			7,485		3.3			154		8.27			3,495		2.2			76		8.68
			Residential			31,507		13.8			648		8.25			24,262		15.0			513		8.49
	Consumer, net					10,520		4.6			241		9.20			9,290		5.7			220		9.50
	Credit card					674		0.3			29		17.21			612		0.4			27		17.77
			Total loans			142,455		62.5			3,108		8.75			96,060		59.6			2,099		8.77
	Allowance for loan losses					(1,879	)	(0.8	)							(1,357	)	(0.8	)
	Net loans (1) (2)					140,576		61.7			3,108		8.87			94,703		58.8			2,099		8.89
			Total interest-earning assets			210,944		92.5		$	4,267		8.11	%		146,350		90.9		$	2,880		7.89	%
Cash and due from banks						5,724		2.5								4,947		3.1
Premises and equipment						7,278		3.2								7,360		4.6
Other real estate owned						613		0.3								398		0.2
Other assets (3)						3,472		1.5								1,965		1.2
			Total assets		$	228,031		100.0	%						$	161,020		100.0	%
LIABILITIES AND SHAREHOLDERS' EQUITY
	Deposits:
		Noninterest-bearing demand			$	29,873		13.1	%						$	22,629		14.1	%
		Interest-bearing demand				51,457		22.6		$	488		3.80	%		41,082		25.5		$	323		3.15	%
		Savings				18,606		8.2			93		2.00			17,632		10.9			87		1.97
		Time deposits, less than $100,000				79,653		34.9			1,120		5.64			45,233		28.1			594		5.27
			Total core deposits			179,589		78.8			1,701		3.80			126,576		78.6			1,004		3.18
		Time deposits, $100,000 and over				26,911		11.8			361		5.37			13,841		8.6			181		5.23
			Total deposits			206,500		90.6			2,062		4.00			140,417		87.2			1,185		3.38
	Short-term borrowings					1,444		0.6			29		8.06			3,487		2.2			40		4.56
	Total interest-bearing liabilities					178,071		78.1			2,091		4.71			121,275		75.3			1,225		4.05
Other liabilities						2,206		1.0								1,914		1.2
	Total liabilities					210,150		92.2								145,818		90.6
Shareholders' equity						17,881		7.8								15,202		9.4
	Total liabilities and shareholders' equity				$	228,031		100.0	%						$	161,020		100.0	%
Net interest margin										$	2,176		4.14	%						$	1,655		4.54	%

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(1)

Income amounts are presented on a fully taxable equivalent basis (FTE), which is defined as income on earning assets that is subject to either a reduced rate or zero rate of income tax, adjusted to give effect to the appropriate incremental federal income tax rate and adjusted for non-deductible carrying costs, where applicable. Where appropriate, yield calculations include these adjustments. The federal statutory rate was 34% for all periods presented.

(2)

Nonaccrual loans are included in the loan balances. Interest income includes related fee income of $93,000 in 2000 and $67,000 in 1999.

(3)

Average securities balances are based on amortized historical cost, excluding SFAS 115 adjustments to fair value, which are included in other assets.

12

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

					Six months ended June 30,
					2000										1999
					Average Balance			Percent of Total Assets		Interest Income/ Expense			Average Yield/ Rate		Average Balance			Percent of Total Assets		Interest Income/ Expense			Average Yield/ Rate
					(dollars in thousands)
ASSETS
Interest-earning assets:
	Short-term investments				$	7,721		3.5	%	$	235		6.10	%	$	3,290		2.1	%	$	71		4.38	%
	Investment securities (3)
		Taxable				47,851		21.6			1,509		6.31			44,479		27.9			1,301		5.85
		Tax-exempt (1)				9,691		4.4			368		7.60			7,410		4.6			265		7.14
			Total securities			57,542		26.0			1,877		6.52			51,889		32.5			1,566		6.03
	Loans
		Commercial (1)				22,261		10.0			1,013		9.12			11,992		7.5			546		9.19
		Agriculture				12,185		5.5			525		8.64			7,757		4.9			328		8.52
		Real estate:
			Commercial			55,964		25.2			2,409		8.63			35,498		22.2			1,509		8.57
			Agriculture			7,197		3.3			303		8.43			3,381		2.1			149		8.87
			Residential			31,806		14.3			1,300		8.20			22,924		14.4			964		8.48
		Consumer, net				10,559		4.8			485		9.21			9,197		5.8			442		9.69
		Credit card				671		0.3			57		17.09			621		0.4			53		17.31
			Total loans			140,643		63.4			6,092		8.69			91,370		57.3			3,991		8.81
	Allowance for loan losses					(1,819	)	(0.8	)							(1,360	)	(0.9	)
	Net loans (1)(2)					138,824		62.6			6,092		8.80			90,010		56.4			3,991		8.94
			Total interest-earning assets			204,087		92.1		$	8,204		8.06	%		145,189		91.0		$	5,628		7.82	%
Cash and due from banks						6,058		2.7								4,695		2.9
Premises and equipment						7,374		3.3								7,330		4.6
Other real estate owned						613		0.3								372		0.2
Other assets (3)						3,602		1.6								2,127		1.3
			Total assets		$	221,734		100.0	%						$	159,713		100.0	%
LIABILITIES AND SHAREHOLDERS' EQUITY
	Deposits
		Noninterest-bearing deposits			$	29,511		13.3	%						$	22,565		14.1	%
		Interest-bearing demand				51,738		23.3		$	949		3.68	%		41,151		25.8		$	664		3.25	%
		Savings				18,639		8.4			185		2.00			17,472		10.9			179		2.06
		Time deposits, less than $100,000				76,606		34.6			2,109		5.52			45,318		28.4			1,193		5.31
			Total core deposits			176,494		79.6			3,243		3.69			126,506		79.2			2,036		3.25
		Time deposits, $100,000 and over				23,703		10.7			633		5.35			14,069		8.8			364		5.21
			Total deposits			200,197		90.3			3,876		3.88			140,575		88.0			2,400		3.44
	Short-term borrowings					1,522		0.7			59		7.79			1,908		1.2			43		4.56
	Total interest-bearing liabilities					172,208		77.7			3,935		4.58			119,918		75.1			2,443		4.11
Other liabilities						2,418		1.1								1,925		1.2
	Total liabilities					204,137		92.1								144,408		90.4
Shareholders' equity						17,597		7.9								15,305		9.6
	Total liabilities and shareholders' equity				$	221,734		100.0	%						$	159,713		100.0	%
Net interest margin										$	4,269		4.19	%						$	3,185		4.42	%

---

(1)

Income amounts are presented on a fully taxable equivalent basis (FTE), which is defined as income on earning assets that is subject to either a reduced rate or zero rate of income tax, adjusted to give effect to the appropriate incremental federal income tax rate and adjusted for non-deductible carrying costs, where applicable. Where appropriate, yield calculations include these adjustments. The federal statutory rate was 34% for all periods presented.

(2)

Nonaccrual loans are included in the loan balances. Interest income includes related fee income of $172,000 in 2000 and $119,000 in 1999.

(3)

Average securities balances are based on amortized historical cost, excluding SFAS 115 adjustments to fair value, which are included in other assets.

13

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Net Interest Income—Rate/Volume Variance Analysis(*)

				Quarter ended June 30, 2000 as compared to quarter ended June 30, 1999
				Changes in Income/Expense			Volume Effect			Rate Effect
				(dollars in thousands)
Short-term investments				$	194		$	148		$	46
Investment securities:
	Taxable				104			40			64
	Tax-exempt				80			61			19
		Total securities			184			101			83
Loans:
	Commercial				244			242			2
	Agriculture				107			96			11
	Real Estate:
		Commercial			422			400			22
		Agriculture			78			86			(8	)
		Residential			135			154			(19	)
	Consumer, net				21			29			(8	)
	Credit card				2			3			(1	)
		Total loans			1,009			1,010			(1	)
	Total interest income				1,387			1,259			128
Interest bearing demand					165			82			83
Savings					6			5			1
Time deposits, less than $100,000					526			452			74
		Total core deposits			697			539			158
Time deposits, $100,000 and over					180			170			10
		Total deposits			877			709			168
Short-term borrowings					(11	)		(23	)		12
	Total interest expense				866			686			180
		Net interest income		$	521		$	573		$	(52	)

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(*) Fully taxable equivalent basis

NOTE: The change in interest which can not be attributed to only a change in volume or a change in rate, but instead represents a combination of the two factors, has been allocated to the rate effect.

14

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Net Interest Income—Rate/Volume Variance Analysis(*)

				Six months ended June 30, 2000 as compared to six months ended June 30, 1999
				Changes in Income/Expense			Volume Effect			Rate Effect
				(dollars in thousands)
Short-term investments				$	164		$	97		$	67
Investment securities:
	Taxable				208			98			110
	Tax-exempt				103			81			22
		Total securities			311			179			132
Loans:
	Commercial				467			471			(4	)
	Agriculture				197			188			9
	Real Estate:
		Commercial			900			874			26
		Agriculture			154			169			(15	)
		Residential			336			376			(40	)
	Consumer, net				43			66			(23
	Credit card				4			4			0
		Total loans			2,101			2,148			(47	)
	Total interest income				2,576			2,424			152
Interest bearing demand					285			172			113
Savings					6			12			(6	)
Time deposits, less than $100,000					916			828			88
		Total core deposits			1,207			1,012			195
Time deposits, $100,000 and over					269			250			19
		Total deposits			1,476			1,262			214
Short-term borrowings					16			(9	)		25
	Total interest expense				1,492			1,253			239
		Net interest income		$	1,084		$	1,171		$	(87	)

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(*) Fully taxable equivalent basis

NOTE: The change in interest which can not be attributed to only a change in volume or a change in rate, but instead represents a combination of the two factors, has been allocated to the rate effect.

15

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Noninterest Income

			Three months ended June 30,						Percent Change		Six months ended June 30,						Percent Change
			2000			1999			2000/1999		2000			1999			2000/1999
			(dollars in thousands)
Service charges on deposit accounts			$	343		$	322		6.5	%	$	663		$	612		8.3	%
Other fee income				69			58		19.0			141			103		36.9
Mortgage loan servicing fees				57			52		9.6			115			116		(0.9	)
Gain on sale of mortgage loans				10			7		42.9			11			31		(64.5	)
Securities gains				(13	)		8		N.M.			(13	)		8		N.M.
Other				42			34		23.5			91			85		7.1
			$	508		$	481		5.6	%	$	1,008		$	955		5.5

    Total noninterest income increased $27,000 and $53,000 for the three and six months ended June 30, 2000, respectively, when compared to the same periods in 1999. The increase in noninterest income is reflective of management's decision to increase fees for services offered in 1999, and growth in transaction accounts.

    The decrease in the gain on sale of mortgage loans is due to softening in the real estate market caused by higher interest rates.

Noninterest Expense

			Three months ended June 30,						Percent Change		Six months ended June 30,						Percent Change
			2000			1999			2000/1999		2000			1999			2000/1999
			(dollars in thousands)
Salaries and employee benefits			$	900		$	730		23.3	%	$	1,803		$	1,516		18.9	%
Net occupancy expense				199			189		5.3			410			397		3.3
Equipment expense				101			98		3.1			206			208		(1.0	)
Data processing				186			187		(0.5	)		370			393		(5.9	)
Supplies				42			43		(2.3	)		79			105		(24.8	)
Communication and transportation				118			98		20.4			233			197		18.3
Marketing and advertising				53			14		278.6			103			37		178.4
Correspondent and processing fees				65			72		(9.7	)		127			115		10.4
Loan and other real estate owned expenses				18			25		(28.0	)		35			42		(16.7	)
Professional fees				185			291		(36.4	)		379			496		(23.6	)
Directors' and regulatory fees				71			43		65.1			125			87		43.7
Other				99			70		41.4			191			128		49.2
			$	2,037		$	1,860		9.5	%	$	4,061		$	3,721		9.1	%

    Salaries and employee benefits increased $170,000 and $287,000 for the three and six months ended June 30, 2000, respectively, when compared to the same periods in 1999. This increase is a result of the acquisition of Farmers State Bank of Camp Point, increased incentive pay, increased insurance benefits for employees, and normal cost of living increases to overall base salaries.

    Net occupancy expense increased $10,000 and $13,000 for the three and six months ended June 30, 2000 when compared to the same periods in 1999. The increase in occupancy expense is a result of facility upgrades at several older branches.

16

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    Equipment expense decreased slightly for the six months ended June 30, 2000. Data processing expense decreased $23,000 for the six months ended June 30, 2000 when compared to the same period in 1999. The decrease is related to year 2000 compliance expenditures in 1999. Supplies decreased $26,000 for the six months ended June 30, 2000, and is due to management's efforts in controlling noninterest expenses. Communication and transportation expense increased $10,000 and $36,000 for the three months and six months ended June 30, 2000, respectively, when compared to the same periods in 1999. Loan and other real estate owned expenses decreased for the three months and six months ended June 30, 2000, when compared to the same periods in 1999. Marketing and advertising expenses increased $39,000 and $66,000 for the three and six months ended June 30, 2000, respectively, when compared to the same periods in 1999. The increase is a direct result of expenses related to community enhancement activities, and increased advertising costs.

    Professional fees decreased $106,000 and $117,000 for the three and six months ended June 30, 2000. The decrease is a direct result of reduced costs associated with shareholder litigation, and reduced fees for accounting services. Directors' and regulatory fees increased $28,000 and $38,000 for the three and six months ended June 30, 2000, respectively, when compared to the same periods in 1999. The increase is due to the acquisition of Farmers State Bank of Camp Point.

    Other operating expenses increased $29,000 and $63,000 for the three and six months ended June 30, 2000, respectively, when compared to the same periods in 1999. The increase is a direct result of the acquisition of Farmers State Bank of Camp Point.

Year 2000 Issues

    During 1999, the Corporation took the necessary steps to enable both new and existing systems, applications, and equipment to effectively process transactions up to and beyond Year 2000. The Corporation upgraded or replaced all mission critical applications and equipment that were not Year 2000 compliant prior to year-end to ensure that all applications would function in the Year 2000 and beyond. All regulatory testing dates were met during the year. Operational contingency plans were developed and tested to ensure that services could still be provided to our customers in the event of Year 2000 failure or problems. The Corporation has not experienced any Year 2000 failures or disruptions in services to our customers, nor is the Corporation aware of any significant Year 2000 issues incurred by borrowers or significant vendors used by the Corporation. The Corporation will continue to monitor its information systems to assess whether its systems are at risk of misinterpreting future dates.

CREDIT QUALITY

    Gross loans totaled $148.4 million at June 30, 2000, an increase of $12.7 million, or 9.36%, from $135.7 million at December 31, 1999. The provision for loan losses has increased to $270,000 for the six months ended June 30, 2000 as compared to $102,000 for the same period in 1999. At June 30, 2000 the allowance as a percent of total loans and nonperforming loans increased to 1.29% as compared to 1.25% at

17

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December 31, 1999. The increase is a result of the growth in the loan portfolio. Management believes this percentage is adequate to support any unexpected losses, and is consistent with peer group ratios.

				Three months ended June 30,						Six months ended June 30,
				2000			1999			2000			1999
				(dollars in thousands)
Allowance for Loan Losses:
	Balance at beginning of period			$	1,824		$	1,349		$	1,696		$	1,368
	Provision charged to expense				135			51			270			102
	Charge-offs				64			58			91			140
	Less: recoveries				15			27			35			39
		Net charge-offs			49			31			56			101
	Balance at end of period			$	1,910		$	1,369		$	1,910		$	1,369
Net Charge-Off Ratios (1):
	Commercial				0.35	%		0.06	%		0.14	%		0.29	%
	Real Estate				0.10			0.17			0.05			0.12
	Installment				(0.27	)		(0.18	)		(0.04	)		0.53
	Credit Cards				0.92			3.08			2.54			2.29
	Totals				0.14	%		0.13	%		0.08	%		0.22	%

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(1)

Ratios to average loans are presented on an annualized basis

    Illini Corporation's primary business of making commercial, real estate, and consumer loans entails potential losses, the magnitude of which depends on a variety of economic factors affecting borrowers which are beyond the control of the Corporation. Accordingly, a significant factor in the Corporation's past and future operating results is the level of the provision for loan losses. The provision for loan losses is up 165% for the three and six months ended June 30, 2000, respectively, as compared to the comparable periods in the prior year. Net charge-offs increased to $49,000 and decreased to $56,000 for the three and six months ended June 30, 2000, respectively, as compared to $31,000 and $101,000 for the comparable periods in the prior year.

    Management feels that credit quality systems and controls implemented in 1996 and 1997, along with the creation of a formalized credit administration function in 1998, have resulted in significantly improved credit quality. Illini Corporation has a 1.29% allowance to ending loans ratio as of June 30, 2000 and 1.25% and 1.34% as of December 31, 1999 and June 30, 1999, respectively. The net charge-off ratio for the three and six months ended June 30, 2000 was 0.14% and 0.08% compared to 0.09% and 0.16% for years ended December 31, 1999 and 1998, respectively.

    At June 30, 2000, impaired loans totaled $862,000 compared to $559,000 at December 31, 1999. At June 30, 2000, allowance for loan losses on impaired loans totaled $69,000 compared to $18,000 at

18

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December 31, 1999. Of the total impaired loans at June 30, 2000 and December 31, 1999, there were no loans still accruing interest.

Credit Quality				June 30, 2000			December 31, 1999			June 30, 1999
				(dollars in thousands)
Nonperforming assets:
	Loans delinquent over 90 days, still accruing interest			$	0		$	1		$	0
	Nonaccrual				862			559			892
	Renegotiated				32			32			0
	Other real estate owned				508			618			507
	Total nonperforming assets			$	1,402		$	1,210		$	1,399
Key ratios:
	Nonperforming loans to ending loans				0.58	%		0.41	%		0.88	%
	90 days delinquent to ending loans				0.00			0.00			0.00
	Allowance to ending loans				1.29			1.25			1.34
	Allowance to nonperforming loans				221.58			286.58			153.48

    Illini Corporation's loan underwriting guidelines and credit review procedures and policies are designed to protect the Corporation from credit losses. Illini Corporation's process for monitoring loan quality includes detailed monthly trend analysis of delinquencies and nonperforming assets. Management and the board of directors monitor potential problem loans, changes to the watchlist, and extensions of credit outside of the loan policy. Management extensively monitors significant credit relationships through appraisals, assessment of the financial condition of borrowers, restrictions on out-of-area lending, and avoidance of loan concentrations.

    As discussed in the Corporation's 1999 Form 10-KSB and previous Form 10-QSB reports, management has implemented several initiatives to improve credit quality. These steps included a new officer driven problem loan identification system, a revamped allowance for loan losses adequacy determination process, a new loan policy, and improved reporting systems (credit quality and production). Management is committed to continuing these initiatives and has supplemented these efforts in 2000 by engaging an outside firm to perform a comprehensive review of each bank's loan portfolio to assess its credit quality and the effectiveness of management's loan quality systems and controls.

CAPITAL RESOURCES

    The current economic and regulatory environment places increased emphasis on capital strength. A strong capital position, which is vital to the continued profitability of Illini Corporation, also promotes depositor and investor confidence and provides a solid foundation for the future growth of the organization. Illini Corporation has satisfied its capital requirements principally through the retention of earnings. At June 30, 2000, Tier 1 risk-based capital, total risk-based capital and leverage capital ratios were 10.24%, 11.46% and 7.05%, respectively, as compared to 10.86%, 12.03% and 7.32% for the period ending December 31, 1999. As of June 30, 2000, the Corporation's subsidiary banks met the criteria to be classified as "well capitalized."

    Earnings retention is affected by the board of director's declaration of cash dividends. The dividend payout ratio is an indicator of the level of earnings retained. The Board of Directors of the Corporation considers the capital strength of the Corporation and the banks in determining the appropriate level of cash dividends to be paid to shareholders. The dividend payout ratio for the three and six months ended June 30, 2000 was 45.63% and 49.53%, respectively as compared to 80.95% and 124.66% for the three and six months ended June 30, 1999. The dividend per share for the three and six months ended June 30, 2000 is unchanged from the same period in 1999.

19

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LIQUIDITY

    Illini Corporation's policy is to manage interest rate risk to a level which places limits on the sensitivity of its earnings to changes in market interest rates. An explanation of the asset/liability management process is found in the Corporation's 1999 Form 10-KSB, beginning on page 15. Interest rate risk management at Illini Corporation is executed through the use of on-balance sheet investment products.

    The assets 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 side of the balance sheet provides liquidity through various customers' interest-bearing and noninterest-bearing deposit accounts. Short-term borrowings are an additional source of liquidity and represent Illini Corporation's incremental borrowing capacity.

    During the second quarter of 1998, Illini Corporation completed a comprehensive analysis of its asset/ liability function, including a review of its funds management policy and its principal measure of liquidity. The Corporation implemented a new measure of liquidity measurement, called "Basic Surplus," which redefines liquid assets as the total assets held by the Corporation which can be converted to cash in thirty days or less, reduced by short term liabilities. As of June 30, 2000, the most recent calculation, Illini Corporation's core liquidity was $22.8 million, or 10.61% of total average assets.

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

Item 3. 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 subsidiaries currently do not enter into futures, forwards, swaps, or options. However, they are a 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 generally have fixed expiration dates and require collateral from the borrower if deemed necessary by the banks. Standby letters of credit are conditional commitments issued by the banks 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 banks until and unless the instrument is exercised.

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

    The Corporation's interest rate and market risk profile has not materially changed from the year ended December 31, 1999. Please refer to the Corporation's 1999 Form 10-KSB for further discussion of the Corporation's market and interest rate risk.

20

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PART II. OTHER INFORMATION

Item 1  Legal Proceedings

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

    Illini Corporation adopted a Shareholder Rights Agreement on June 20, 1997, and named Illinois Stock Transfer Company ("ISTC") as its rights agent thereunder. Illini Corporation was notified in May 1998 of a threatened complaint against ISTC by an Illini Corporation shareholder. The shareholder, Mary K. Quinn ("Quinn"), who owns 21 shares of stock in Illini Corporation, filed suit against ISTC on June 9, 1998 in the Seventh Judicial Circuit Court, Sangamon County, Illinois. Quinn sought to compel ISTC to distribute rights certificates to Illini Corporation's shareholders and further sought to certify all Illini Corporation shareholders as a class. Quinn asserted that Ida R. Noll became an acquiring person under the Rights Agreement on April 16, 1998, and that the Rights Agreement was triggered. ISTC is being represented in the litigation by Howard & Howard, which vigorously contested Quinn's assertions that Ida R. Noll was an acquiring person, that the Rights Agreement had been triggered, and that ISTC had a duty to distribute rights certificates.

    On June 9, 1998, Quinn filed a Motion to Certify the Class, which was granted on December 29, 1998. On January 13, 1999, Quinn filed an Amended Complaint adding Illini Corporation as a defendant to her action. Illini Corporation is represented in the litigation by Howard & Howard. Both Illini Corporation and ISTC answered the Amended Complaint and denied that Ida R. Noll was an acquiring person. Quinn asserted that she was entitled to recover her attorneys' fees from Illini Corporation and ISTC.

    Quinn filed a Motion for Summary Judgment that asked the Court to determine as a matter of law that Ida R. Noll became an acquiring person on April 16, 1998, that the Rights Agreement was triggered as a result and that Illini Corporation and ISTC had a duty to distribute rights certificates to all shareholders as of April 16, 1998, except for Ida R. Noll. Illini Corporation opposed Quinn's Motion for Summary Judgment, which was heard by the Court on June 18, 1999. On June 29, 1999, the Court entered an Opinion and Order denying Quinn's Motion for Summary Judgment.

    On or about May 6, 1999, counsel for Quinn advised Illini Corporation's counsel of their intent to seek an injunction that would preclude Illini Corporation from completing its acquisition of the Farmers State Bank of Camp Point (Camp Point), pending further order of the Court. Quinn subsequently filed a Motion for Preliminary Injunction and a Memorandum of Law in Support of her Motion. Quinn argued that the class (consisting of all Illini Corporation's shareholders as of April 16, 1998, except for Ida R. Noll) would be irreparably harmed if the Camp Point merger closed prior to a determination on the merits of her suit. Illini Corporation filed extensive briefs in opposition to the Motion for Preliminary Injunction, and the Court heard the Motion on July 1, 1999. The Court entered a written Order on July 13, 1999, denying the Motion for Preliminary Injunction.

    Quinn's counsel filed a Motion for Reconsideration of the Orders denying Quinn's Motion for Summary Judgment and Motion for Preliminary Injunction. Illini Corporation and ISTC filed a Motion for Summary Judgment on August 25, 1999. At a hearing held on October 18, 1999, the Court granted Illini Corporation and ISTC's Motion for Summary Judgment and denied Quinn's Motion for Reconsideration. An Order was subsequently entered on January 12, 2000.

    Quinn's counsel announced on October 18, 1999, the intention to petition the Court for an order directing Illini Corporation and ISTC to pay Quinn's attorneys' fees pursuant to the attorney fee provision of the Rights Agreement. Quinn's fee petition was heard and denied. Quinn has filed a pending appeal as to all adverse orders. The Corporation is vigorously contesting the appeal. Oral argument was held before the Illinois Appellate Court for the Fourth District on July 18, 2000.

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

    On or about July 17, 1998, Ida R. Noll ("Noll") filed a 14 count complaint against Illini Corporation and all members of Illini Corporation's Board of Directors serving at that time, except William Walschleger, Jr., in the Seventh Judicial Circuit, Sangamon County, Illinois. On September 28, 1998, Judge Carmody dismissed the complaint and granted Noll 21 days to file an Amended Complaint. Noll filed an Amended Complaint on October 19, 1998. The Amended Complaint was also dismissed, but Noll was granted leave to file a Second Amended Complaint. Illini Corporation and the directors answered the Second Amended Complaint.

    The Second Amended Complaint arose out of Illini Corporation's adoption of a Shareholder Rights Agreement on June 20, 1997, Illini Corporation's subsequent adoption of a First Amendment to the Rights Agreement on July 1, 1998, and the Noll's assertion that she became an "acquiring person" under the Rights Agreement on April 16, 1998. Noll sought declaratory and injunctive relief from Illini Corporation and the directors regarding the alleged triggering of the Rights Agreement. Noll also challenged the enforceability and validity of the First Amendment to the Rights Agreement. Noll sought compensatory and punitive damages against the directors arising out of the directors' alleged breaches of fiduciary duty committed in connection with the Rights Agreement and the First Amendment to the Rights Agreement. Noll sought recovery of her attorneys' fees and costs in connection with her action, alleging attorneys' fees through October 23, 1998 of approximately $50,000 and expenses of approximately $5,000. Illini Corporation and the directors vigorously contested and opposed the allegations.

    On July 6, 1999, Illini Corporation adopted a Second Amendment to its Shareholder Rights Agreement. Illini Corporation moved on August 31, 1999, for summary judgment as to the counts of the Second Amended Complaint directed against it. Illini Corporation's motion argued that the adoption of the Second Amendment rendered the case against it moot. The Defendant directors also filed on or about September 15, 1999, a Joint Motion for Summary Judgment as to the counts directed against them. On October 18, 1999, after denying Noll's motion to continue the hearing, the Court granted both motions. Counsel for the Defendants submitted written orders granting the Defendants' summary judgment motions, which were entered by the Court on January 12, 2000.

    Noll's counsel filed a petition for payment of her attorneys' fees by Illini Corporation, which was heard on December 9, 1999. The Court denied Noll's fee petition. Noll filed a Motion for Reconsideration of the Orders granting the Defendants' Motions for Summary Judgment and denying attorneys' fees. Hearing on that Motion was held on April 11, 2000, and the Court denied the Motion. Noll has appealed. It is anticipated that oral argument will be heard by the Appellate Court in November of 2000 and opinion issued in the first half of 2001.

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

    On or about April 22, 1999, Ida R. Noll ("Noll") filed a new lawsuit against Illini Corporation, Illinois Stock Transfer Company, Ernest H. Huls and Farmers State Bank of Camp Point in the Seventh Judicial Circuit Court, Sangamon County, Illinois. The Complaint sought specific performance of the Rights Agreement alleging that Ernest Huls became an acquiring person under the Rights Agreement by reason of his right to receive shares of Illini Corporation common stock pursuant to an Agreement and Plan of Reorganization between Illini Corporation and the Farmers State Bank of Camp Point. Noll sought to compel Illini Corporation and ISTC to distribute rights certificates to all shareholders of Illini Corporation, except for Mr. Huls. Illini Corporation strongly disputes Noll's assertion that Ernest Huls has become an acquiring person under the Rights Agreement.

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    In June 1999, Illini Corporation and ISTC filed a joint Motion to Dismiss Noll's Complaint on the grounds that the alleged acquiring person, Ernest Huls, was not a beneficial owner of a substantial block of Illini Corporation common stock. The Motion to Dismiss was scheduled for hearing on July 20, 1999, but on July 16, 1999, Noll's counsel moved for a substitution of judges. Illini Corporation and ISTC opposed substitution, but the court granted the motion.

    The case has been reassigned to Judge Tim Olson. Briefing of the Motion to Dismiss was completed, but the Court continued the hearing on the Motion to Dismiss. Judge Olson recused himself just prior to a scheduled case management conference on March 9, 2000. The case has been reassigned to Chief Judge Thomas Russell. On June 1, 2000 Judge Russell reconsidered Judge Olson's ruling granting the Plaintiff's Motion to Continue. Judge Russell set Illini's Motion to Dismiss for hearing on July 21, 2000. On that date Judge Russell heard argument on Illini's Motion to Dismiss as well as on Plaintiff's Petition for Discovery, which had been filed on July 18, 2000. The Court took the Motion to Dismiss and Petition for Discovery under advisement. Illini Corporation anticipates receiving a decision shortly.

Item 2  Changes in Securities—none

Item 3  Defaults Upon Senior Securities—none

Item 4  Submission of Matters to a Vote of Security Holders

    The Annual Meeting of Shareholders of the Company was held on May 25, 2000, for the purpose of electing four directors each to serve a term of three years and ratifying the appointment of Olive LLP as the Company's auditors for the fiscal year ending December 31, 2000. Proxies for the meeting were solicited by management pursuant to Regulation 14A under the Securities Exchange Act of 1934, and there was no solicitation in opposition to Management's solicitation.

    All four of Management's nominees for director listed in the proxy statement were elected. The results of the vote were as follows:

    The following persons continued their terms of office as directors of the Company following the Annual Meeting: Willaim B. McCubbin, Burnard K. McHone, Robert F. Olson, N. Ronald Thunman, William G. Walschleger, Jr., Perry Williams, Charles H. Delano III, Kenneth G. Deverman, William N. Etherton, and John H. Pickrell.

    The appointment of Olive LLP as the Company's auditors for the fiscal year ending December 31, 2000, was ratified. The results of the vote were as follows:

Item 5  Other Information

    On July 31, 2000, the Illinois Appellate Court for the Fourth District rendered its opinion in the case of Mary Quinn v. Illini Corporation and Illinois Stock Transfer Company described on page 22 of this Form 10-QSB under the caption "Item 1. Legal Proceedings." The Appellate Court upheld the lower court's denial of Quinn's motion for summary judgment. The Appellate Court reversed the lower court's grant of Illini Corporation's motion for summary judgment and remanded the case back to the trial court in order to determine whether the board of directors acted in good faith (1) in determining that Ida Noll's

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acquisition of shares in excess of 10% threshold was inadvertent and in requiring divestitures within three months, and (2) in adopting the First Amendment to the Rights Agreement on June 30, 1998. The Appellate Court also reversed the lower court's determination that the Plaintiff was not entitled to costs, expenses, and attorney fees. Illini currently believes such costs, expenses and attorneys fees to be between $250,000 and $300,000, although such amounts shall be subject to further discovery. Illini Corporation intends to file a motion for reconsideration and, if Illini Corporation is unsuccessful, may appeal the Appellate Court's decision to the Illinois Supreme Court.

Item 6  Exhibits and Reports on Form 8-K

(a)

Exhibits:

    The Exhibits filed herewith are set forth in the Exhibit Index filed as a part of these Form 10-QSB.

(b)

Reports on Form 8-K:

    There were no reports on Form 8-K filed for the quarter ended June 30, 2000.

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SIGNATURES

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

ILLINI CORPORATION (Registrant)
By:		/s/ BURNARD K. MCHONE    Burnard K. McHone President		August 11, 2000 Date signed
By:		/s/ DEANN HAGER    Deann Hager Controller		August 11, 2000 Date signed

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EXHIBIT INDEX

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QuickLinks

PART I. FINANCIAL INFORMATION
ILLINI CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2000 and December 31, 1999 (Unaudited)
ILLINI CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Three Months and Six Months Ended June 30, 2000 and 1999 (Unaudited)
ILLINI CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2000 and 1999 (Unaudited)
ILLINI CORPORATION AND SUBSIDIARIES Notes to Interim Consolidated Financial Statements (Unaudited) June 30, 2000
Item 2. Management's Discussion and Analysis of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
SIGNATURES
EXHIBIT INDEX