First Clover Leaf Financial Corp. - FORM 10-K

Attached files

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EX-32 - EXHIBIT 32 - First Clover Leaf Financial Corp.	ex32.htm
EX-21 - EXHIBIT 21 - First Clover Leaf Financial Corp.	ex21.htm
EX-13 - EXHIBIT 13 - First Clover Leaf Financial Corp.	ex13.htm
EX-31.2 - EXHIBIT 31.2 - First Clover Leaf Financial Corp.	ex31_2.htm
EX-10.8 - EXHIBIT 10.8 - First Clover Leaf Financial Corp.	ex10_8.htm
EX-31.1 - EXHIBIT 31.1 - First Clover Leaf Financial Corp.	ex31_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

T	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2010

£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ______________________

Commission File Number: 0-50820

First Clover Leaf Financial Corp.

(Exact Name of Registrant as Specified in its Charter)

Maryland		20-4797391
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

6814 Goshen Road, Edwardsville, Illinois		62025
(Address of Principal Executive Offices)		(Zip Code)

	(618) 656-6122
	(Issuer’s Telephone Number including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

		Name of Each Exchange
Title of Each Class		On Which Registered

Common Stock, par value $0.10 per share		The NASDAQ Stock Market, LLC

Securities Registered Pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES £ NO T.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

YES £ NO T.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such requirements for the past 90 days.

(1) YES T NO £

(2) YES T NO £

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files). YES £ NO £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not 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-K or any amendment to this Form 10-K. T

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	£	Accelerated filer	£
Non-accelerated filer	£	Smaller reporting company	T
(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES £ NO T

As of June 30, 2010 the aggregate market value of the voting and non-voting common stock held by non-affiliates of the Registrant, computed by reference to the closing price of the common stock as of June 30, 2010 ($6.51 per share) was $40.6 million.

As of March 28, 2011, there were approximately 7,882,500 shares issued and outstanding of the Registrant’s Common Stock, par value $0.10 per share.

DOCUMENTS INCORPORATED BY REFERENCE

1.	Proxy Statement for the 2011 Annual Meeting of Stockholders (Parts II and III).

2.	Annual Report to Stockholders for the year ended December 31, 2010 (Part II).

PART I

ITEM 1. BUSINESS

Forward-Looking Statements

This Annual Report contains certain “forward-looking statements” which may be identified by the use of words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates and most other statements that are not historical in nature. These factors include, but are not limited to, general and local economic conditions, changes in interest rates, deposit flows, demand for mortgage, commercial and other loans, real estate values, competition, changes in accounting principles, policies, or guidelines, changes in legislation or regulation, and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing products and services. These risks and uncertainties, as well as the Risk Factors set forth in Item 1A below, should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We do not undertake any obligation to update any forward-looking statement in the future, or to reflect circumstances and events that occur after the date on which the forward-looking statement was made.

General

First Clover Leaf Financial Corp. (“First Clover Leaf”) is a Maryland corporation that was incorporated in March 2006 and was formed by our predecessor company, First Federal Financial Services, Inc., in connection with the “second-step” conversion of First Federal Financial Services, MHC and the simultaneous acquisition of Clover Leaf Financial Corp. and its wholly owned savings bank subsidiary, Clover Leaf Bank, a former Illinois bank headquartered in Edwardsville, Illinois. The second-step conversion and stock offering and the simultaneous acquisition of Clover Leaf Financial Corp. were consummated in July 2006. As a result of these transactions, Clover Leaf Financial Corp. was merged with and into First Clover Leaf and Clover Leaf Bank was merged with and into our wholly owned subsidiary, First Federal Savings and Loan Association of Edwardsville, which was renamed First Clover Leaf Bank.

In October 2008 we completed our acquisition of Partners Financial Holdings Inc. (“Partners”), the holding company of Partners Bank (“Partners Bank”), an Illinois state bank located in Glen Carbon, Illinois. In the acquisition, Partners was merged with and into First Clover Leaf with First Clover Leaf being the surviving corporation in the merger, and Partners Bank was merged with and into First Clover Leaf Bank, with First Clover Leaf Bank as the surviving institution.

Our principal asset is our ownership of 100% of the outstanding common stock of First Clover Leaf Bank, a federal savings bank.

At December 31, 2010, we had total consolidated assets of $575.0 million, net loans of $387.6 million, total deposits of $447.5 million and stockholders’ equity of $77.3 million. We had net income of $3.8 million for the year ended December 31, 2010.

Our headquarters are located at 6814 Goshen Road, Edwardsville, Illinois 62025, and our telephone number is (618) 656-6122.

Our website address is www.firstcloverleafbank.com. Information on our website is not and should not be considered a part of this Annual Report on Form 10-K. Our website contains a direct link to

our filings with the Securities and Exchange Commission, including copies of annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these filings, if any. Copies may also be obtained, without charge, by written request to Secretary, 6814 Goshen Road, Edwardsville, Illinois 62025.

First Clover Leaf Bank

General

We conduct our business through our four branch offices located in Edwardsville and Wood River, Illinois. Our principal business consists of attracting retail deposits from the general public in the areas surrounding our office locations and investing those deposits, together with funds generated from operations, primarily in one- to four-family residential real estate loans, multi-family real estate loans, commercial real estate loans, construction and land loans, commercial business loans and consumer loans, and in investment securities. Our revenues are derived principally from interest on loans and securities. Our primary sources of funds are deposits and principal and interest payments on loans and securities.

Competition

We face intense competition within our market area both in making loans and attracting deposits. The City of Edwardsville and the surrounding area have a high concentration of financial institutions, including large commercial banks, community banks and credit unions. We face additional competition for deposits from short-term money market funds, brokerage firms, mutual funds and insurance companies. Some of our competitors offer products and services that we currently do not offer, such as trust services. Based on Federal Deposit Insurance Corporation data as of June 30, 2010 (the latest date for which information is available), our market share of deposits was 10.1% of all deposits in Madison County making us the fourth largest institution out of 26 institutions located in Madison County as of that date. Our primary focus is to build and develop profitable customer relationships across all lines of business while maintaining our role as a community bank.

Market Area

We operate in a primarily suburban market area that has a stable population and household base. The 2010 U.S. Census Report indicates that the population of Madison County increased 0.4% to 269,282, from 2005 until 2010 while the population of the City of Edwardsville increased 7.6% to 24,293. During the same period, the number of households in Madison County and in the City of Edwardsville increased 1.0% and 7.7%, respectively. The latest information available for 2009 indicates that the median household income for Madison County was $50,628. This compares to a median household income of $53,974 and $50,221 for the state of Illinois and the United States, respectively.

Our primary lending area is concentrated in Madison County and the southern portion of Macoupin County, Illinois. The City of Edwardsville is the County Seat of Madison County and is considered a “bedroom community” for St. Louis, Missouri, which is approximately 20 miles southwest of Edwardsville. The economy of our market area is characterized by a large number of small retail establishments and small industry. Additionally, major employers in our immediate market area include Southern Illinois University-Edwardsville, ConocoPhillips, the local school district and the Madison County government. Our customer base is comprised primarily of middle-income families. We believe that our local market has not experienced as severe of a downturn as certain other areas of the country, such as coastal states. While, in general, property values in our market area have fallen, homes continue to sell, but, in many cases, at a slower pace. As indicated above, the local area is not heavily reliant on any one industry.

Lending Activities

Our principal lending activity includes the origination of first mortgage loans for the purchase or refinancing of one- to four-family residential property, the origination of multi-family and commercial real estate loans, construction and land loans, commercial business loans, as well as home equity loans.

One- to four-family residential real estate mortgage loans represented $99.2 million, or 24.6%, of our loan portfolio at December 31, 2010, and multi-family loans represented $26.5 million, or 6.6% of our loan portfolio at December 31, 2010. Commercial real estate loans represented $160.8 million, or 39.9% of our loan portfolio at December 31, 2010. We also offer construction and land loans secured by single-family properties and residential subdivisions. Construction and land loans represented $53.6 million, or 13.3%, of our loan portfolio at December 31, 2010. We offer commercial business loans, and these loans represented $51.7 million, or 12.8% of our loan portfolio, at December 31, 2010. We originate consumer loans, including home equity loans and automobile loans, which totaled $10.9 million, or 2.8% of our loan portfolio at December 31, 2010.

In an effort to reduce the risk to our net income from changes in market interest rates, in recent years we have emphasized the origination of commercial real estate and commercial business loans. Compared to our residential mortgage loans, commercial real estate and commercial business loans generally have higher interest rates and are more sensitive to changes in market interest rates because they often have shorter terms to maturity, and therefore, the interest rates adjust more frequently. Our acquisition of Partners Bank further increased our commercial real estate and commercial business loans, as those types of loans represented the primary lending focus of Partners Bank.

Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated.

	At December 31,
	2010						2009						2008						2007						2006
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)

Real Estate Loans:
One- to four-family residential loans(1)	$	99,187			24.6	%	$	98,080			23.4	%	$	110,925			25.3	%	$	112,764			39.2	%	$	120,355			48.5	%
Multi-family		26,543			6.6			20,947			5.0			18,150			4.2			13,931			4.8			8,895			3.6
Commercial		160,799			39.9			179,923			42.8			168,432			38.4			97,810			34.0			68,577			27.7
Construction and land		53,647			13.3			45,448			10.8			52,338			11.9			20,776			7.2			17,181			6.9
Total real estate loans		340,176			84.4			344,398			82.0			349,845			79.8			245,281			85.2			215,008			86.7

Commercial business		51,738			12.8			63,135			15.0			78,160			17.8			34,783			12.1			25,907			10.4

Consumer Loans:
Automobile		1,079			0.3			1,383			0.3			1,318			0.3			1,355			0.5			2,028			0.8
Home equity		9,170			2.3			9,871			2.4			7,145			1.7			5,119			1.8			3,364			1.4
Other		666			0.2			1,223			0.3			1,807			0.4			1,296			0.5			1,733			0.7
Total consumer loans		10,915			2.8			12,477			3.0			10,270			2.4			7,770			2.7			7,125			2.9

Total loans		402,829			100.0	%		420,010			100.0	%		438,275			100.0	%		287,834			100.0	%		248,040			100.0	%

Less undisbursed portion of construction loans		(9,590	)					(1,773	)					(3,402	)					(860	)					(1,257	)
Less deferred loan origination costs (fees), net		57						(21	)					(59	)					(157	)					(48	)
Less allowance for loan losses		(5,728	)					(6,317	)					(3,895	)					(1,898	)					(1,710	)

Total loans, net	$	387,568					$	411,899					$	430,919					$	284,919					$	245,025

___________________

(1) At December 31, 2009, 2008, and 2006 there were $1.8 million, $240,000, and $1.0 million respectively, in loans held for sale. At December 31, 2010 and 2007 there were no loans held for sale.

Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2010.

	One- to Four-Family					Multi-Family					Commercial Real Estate					Construction and Land(2)
	Amount		Weighted Average Yield			Amount		Weighted Average Yield			Amount		Weighted Average Yield			Amount		Weighted Average Yield
	(Dollars in thousands)
Due During the Years Ending December 31,
2011 (1)	$	4,462		5.54	%	$	6,320		6.22	%	$	33,880		6.03	%	$	14,353		5.52	%
2012 to 2015		24,441		4.92			16,945		5.73			113,729		6.02			38,923		4.18
2016 and beyond		70,284		4.96			3,278		5.26			13,190		5.79			371		6.02

Total	$	99,187		4.99	%	$	26,543		5.79	%	$	160,799		6.00	%	$	53,647		4.55	%

	Commercial Business					Consumer Loans					Total
	Amount		Weighted Average Yield			Amount		Weighted Average Yield			Amount		Weighted Average Yield
	(Dollars in thousands)
Due During the Years Ending December 31,
2011 (1)	$	26,291		5.37	%	$	3,913		5.47	%	$	89,219		5.72	%
2012 to 2015		20,815		6.23			4,826		5.92			219,679		5.57
2016 and beyond		4,632		5.10			2,176		6.64			93,931		5.14

Total	$	51,738		5.69	%	$	10,915		5.90	%	$	402,829		5.50	%

___________________

(1)	Includes demand loans, loans having no stated repayment schedule or maturity, overdraft loans and loans in process of renewal.

(2)	Includes land acquisition loans.

The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at December 31, 2010 that are contractually due after December 31, 2011.

	Due After December 31, 2011
	Fixed		Adjustable		Total
	(In thousands)

One- to four-family residential loans	$	81,962	$	12,763	$	94,725
Multi-family		17,048		3,175		20,223
Commercial real estate		113,114		13,805		126,919
Construction and land		36,151		3,143		39,294
Total real estate loans		248,275		32,886		281,161

Commercial business		21,585		3,862		25,447
Consumer loans		6,735		267		7,002

Total loans	$	276,595	$	37,015	$	313,610

One- to Four-Family Residential Real Estate Loans. As of December 31, 2010, one- to four-family residential loans totaled $99.2 million, or 24.6% of our total loan portfolio. These loans are predominately collateralized by properties located in our market area. Virtually all of our residential real estate loans have fixed rates of interest primarily because our customers prefer fixed-rate mortgage loans in the relatively low interest rate environment that currently exists. We generally sell most of the conforming, fixed-rate loans that we originate, but we generally retain the servicing rights on these loans. At December 31, 2010, we were servicing $68.3 million in loans for others. In 2010, we originated $20.3 million and sold $22.6 million in single family residential mortgage loans to Fannie Mae.

We currently offer one- to four-family residential mortgage loans with terms of five, seven, 10, 15, 20, 30 and 40 years. Our five and seven-year loans provide for principal and interest amortization of up to 30 years with a balloon payment at the end of the five or seven-year term. All of our loans with terms of 10 years or greater amortize over the term of the loan.

For one- to four-family residential real estate loans, we may lend up to 80% of the property’s appraised value, or up to 100% of the property’s appraised value if the borrower obtains private mortgage insurance. We require title insurance on all of our one- to four-family mortgage loans, and we also require that fire and extended coverage casualty insurance (and, if appropriate, flood insurance) be maintained in an amount equal to at least the lesser of the loan balance or the replacement cost of the improvements on the property. We require a property appraisal for all mortgage loans that are underwritten to comply with secondary market standards. Appraisals are conducted by independent appraisers from a list approved by our board of directors. Our residential real estate loans include “due-on-sale” clauses.

As a result of our conservative underwriting standards, we do not originate, sell, or place any loans in our loan portfolio that are considered sub-prime or Alt-A.

Multi-Family Real Estate Loans. Loans secured by multi-family real estate totaled $26.5 million, or 6.6%, of our total loan portfolio at December 31, 2010. Multi-family real estate loans generally are secured by apartment buildings and rental properties. All of our multi-family real estate loans are secured by properties located within our lending area. At December 31, 2010, our largest multi-family real estate loan had a principal balance of $2.8 million and was secured by apartment buildings. At December 31, 2010 the loan was performing in accordance with its repayment terms. Multi-family real estate loans generally are offered with interest rates that adjust after one, three or five years. The interest rate adjustments are tied to either a Treasury Bill Index tied to the adjustment period, or to a Cost of Funds Index.

We consider a number of factors in originating multi-family real estate loans. We evaluate the qualifications and financial condition of the borrower (including credit history), profitability and expertise, as well as the value and condition of the mortgaged property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the debt service coverage ratio (the ratio of net operating income to debt service), and the ratio of the loan amount to the appraised value of the mortgaged property. Multi-family real estate loans are originated in amounts up to 80% of the lower of the sale price or the appraised value of the mortgaged property securing the loan. All multi-family real estate loans over $250,000 are appraised by outside independent appraisers approved by the board of directors. All multi-family real estate loans below $250,000 must either have an independent appraisal or an opinion of value, which, generally, is the property’s tax bill. Borrowers are required to sign multi-family notes in their individual (not corporate) capacity.

Loans secured by multi-family real estate generally involve a greater degree of credit risk than one- to four-family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family real estate typically depends upon the successful operation of the real estate property securing the loan. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

Commercial Real Estate Loans. Loans secured by commercial real estate totaled $160.8 million, or 39.9% of our total loan portfolio as of December 31, 2010. Our commercial real estate loans are secured predominately by office buildings, and to a lesser extent warehouse properties, and more specialized properties such as churches. We originate commercial real estate loans with a typical term of five years with balloon payments. These loans generally amortize over 15 to 20 years. We offer both adjustable and fixed rates of interest on commercial real estate loans, with the interest rate for adjustable rate loans tied to the prime interest rate. Our largest commercial real estate loan at December 31, 2010 had a principal balance of $4.6 million and was collateralized primarily by the land and building of a car dealership. This loan was performing in accordance with its repayment terms as of December 31, 2010.

Commercial real estate loans generally have higher interest rates than the interest rates on residential mortgage loans, and are more sensitive to changes in market interest rates because they often have shorter terms to maturity, and therefore, the interest rates adjust more frequently. Commercial real estate loans often have significant additional risk compared to one- to four-family residential mortgage loans, as they typically involve large loan balances concentrated with single borrowers or groups of related borrowers. In addition, the repayment of commercial real estate loans typically depends on the successful operation of the related real estate project, and thus may be subject to a greater extent than residential mortgage loans to adverse conditions in the real estate market or in the economy generally.

In our underwriting of commercial real estate loans, we may lend up to 80% of the property’s appraised value in the case of loans secured by multi-family real estate, and up to 75% of the property’s appraised value on loans secured by other commercial properties. We require independent appraisals for all commercial real estate loans in excess of $250,000. For loans that do not exceed this amount, we require that one of our officers prepare a memorandum of value detailing comparable values based upon tax bills, prior appraisals, and income information on revenue-producing property. Decisions to lend are based on the economic viability of the property and the creditworthiness of the borrower. Creditworthiness is determined by considering the character, experience, management and financial strength of the borrower, and the ability of the property to generate adequate funds to cover both operating expenses and debt service. In evaluating whether to make a commercial real estate loan, we place primary emphasis on the ratio of net cash flow to debt service on the property, and we generally require a ratio of cash flow to debt service of at least 120%, computed after deduction for a vacancy factor and property expenses we deem appropriate.

We require title insurance on all of our commercial real estate loans, and we also require that fire and extended coverage casualty insurance (and, if appropriate, flood insurance) be maintained. In addition, we generally require that the borrower personally guarantee the repayment of the loan.

Construction and Land Loans. As of December 31, 2010, construction and land loans totaled $53.6 million, or 13.3%, of our total loan portfolio. This portfolio consists of construction/speculative loans and construction/permanent loans.

Construction/speculative loans are made to area homebuilders who do not have, at the time the loan is originated, a signed contract with a homebuyer who has a commitment for permanent financing with either First Clover Leaf Bank or another lender. The homebuyer may enter into a purchase contract

either during or after the construction period. These loans have the risk that the builder will have to make interest and principal payments on the loan, and finance real estate taxes and other holding costs of the completed home for a significant time after the completion of construction. Funds are disbursed in phases as construction is completed. All construction/speculative loans require that the builder-borrower personally guarantee the full repayment of the principal and interest on the loan and make interest payments during the construction phase. These loans are generally originated for a term of 12 months, with interest rates that are tied to the prime lending rate. First Clover Leaf Bank recognizes the relative increased risk element for these types of loans, particularly in the current real estate market, and therefore generally observes a loan-to-value ratio of no more than 75% of the lower of cost or the estimated value of the completed property. In addition, we generally limit our construction/speculative loans to one property per borrower at any given time, and the largest number of construction/speculative loans we have originated to a single borrower at any given time was for four properties. At December 31, 2010, the largest outstanding concentration of credit to one builder consisted of a mixed use development loan with an aggregate balance of $6.6 million, which was performing in accordance with its repayment terms at that date.

Construction/permanent loans are made to either a homebuilder or a homeowner who, at the time of construction, has a signed contract together with a commitment for permanent financing from First Clover Leaf Bank or another lender for the finished home. The construction phase of a loan generally lasts up to six months, and the interest rate charged generally corresponds to the rate of the committed permanent loan, with loan-to-value ratios of up to 80% (or up to 100% if the borrower obtains private mortgage insurance) of the appraised estimated value of the completed property or cost, whichever is less. Following the initial six-month period, construction/permanent loans convert to permanent loans, regardless of whether the construction phase has been completed. At December 31, 2010 the largest single outstanding construction loan of this type had an outstanding balance of approximately $450,000. At December 31, 2010, the loan was performing in accordance with its repayment terms.

Construction lending generally involves a greater degree of risk than our other one- to four-family mortgage lending. The repayment of the construction loan is, to a great degree, dependent upon the successful and timely completion of the home construction. Construction delays or the financial impairment of the builder may further impair the borrower’s ability to repay the loan.

Our procedures for underwriting construction/speculative loans include an assessment of the borrower’s credit history and the borrower’s ability to meet other existing debt obligations, as well as payment of principal and interest on the proposed loan. We use the same underwriting standards and procedures for construction/permanent lending as we do for one- to four-family residential real estate lending.

We also originate land development loans to area homebuilders that are secured by individual unimproved or improved residential building lots. Land loans are generally offered with variable prime-based interest rates with terms of up to two years. The general loan-to-value ratio is 75% of the lower of cost or appraised value of the property.

Commercial Business Loans. We offer commercial business loans to existing and new customers in our market area. Some of these loans are secured in part by additional real estate collateral. We make various types of secured and unsecured commercial business loans for the purpose of financing equipment acquisition, expansion, working capital and other general business purposes. The terms of these loans are generally for less than five years. Equipment loans usually involve a one-time disbursement of funds, with repayment over the term of the loan, while operating lines of credit involve multiple disbursements and revolving notes that can be renewed annually. The loans are either negotiated on a fixed-rate basis or carry variable interest rates indexed to the prime rate. At December 31, 2010, we had commercial business loans outstanding with an aggregate balance of $51.7 million, or 12.8%, of the total loan portfolio. As of December 31, 2010, our largest commercial business loan relationship consisted of a $8.5 million line of credit with no outstanding balance, and a term loan of $4.2 million,

both of which were secured primarily by accounts receivable and corporate assets, and were performing in accordance with their terms. An additional $5.1 million of this relationship was participated to another financial institution.

We have continued our emphasis on commercial business lending. These loans tend to have higher rates of interest than residential mortgage loans, and are more sensitive to changes in market interest rates because they often have shorter terms to maturity, and therefore, the interest rates adjust more frequently. In addition, commercial business lending gives us greater access to commercial borrowers that may open transactional checking accounts with First Clover Leaf Bank.

Commercial credit decisions are based upon a complete credit review of the borrower. A determination is made as to the borrower’s ability to repay in accordance with the proposed terms as well as an overall assessment of the credit risks involved. Personal guarantees of borrowers are generally required. In evaluating a commercial business loan, we consider debt service capabilities, actual and projected cash flows and the borrower’s inherent industry risks. Credit agency reports of the borrower’s credit history as well as bank checks and trade investigations supplement the analysis of the borrower’s creditworthiness. Collateral supporting a secured transaction is also analyzed to determine its marketability and liquidity. Commercial business loans generally bear higher interest rates than residential loans, but they also may involve a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business.

Repayment of our commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value. Our commercial business loans are originated primarily based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Most often, this collateral consists of accounts receivable, inventory, equipment or real estate. Credit support provided by the borrower for most of these loans and the probability of repayment is based on the projected cash flow of the company or liquidation of the pledged collateral and enforcement of a personal guarantee, if any. As a result, in the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The collateral securing other loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.

Consumer Loans. Our consumer loans consist primarily of home equity lines of credit, automobile loans and overdraft loans, loans secured by deposits and securities, and unsecured personal loans. As of December 31, 2010, consumer loans totaled $10.9 million, or 2.8%, of our total loan portfolio.

At December 31, 2010, home equity lines of credit totaled $9.2 million, or 2.3%, of total loans. Home equity lines of credit are generally made for owner-occupied homes, and are secured by first or second mortgages on residential properties. We generally offer home equity lines of credit with a maximum loan to appraised value ratio of 90% (including senior liens on the subject property). We currently offer these loans for terms of up to five years and with adjustable rates that are tied to the prime lending rate. Clover Leaf Bank previously offered these products with a maximum loan to appraised value of 85% with terms of up to 10 years, and we still retain some of these longer-term loans. To date, we are seeing minimal stress in our home equity portfolio or signs of material default risks. We do review reports periodically of the higher advanced credit lines and look at payment patterns and advance patterns in an effort to detect potential problems.

Automobile loans are generally offered with maturities of up to 60 months for new automobiles, while loans secured by used automobiles have maximum terms that vary depending on the age of the automobile. We require all borrowers to maintain collision insurance on automobiles securing loans in excess of $1,000, with First Clover Leaf Bank listed as loss payee. In those instances where the borrower fails to maintain adequate insurance coverage, we are further protected against loss through a third-party

policy insurance coverage. Our automobile loan portfolio totaled $1.1 million, or 0.3%, of total loans at December 31, 2010.

Consumer loans generally entail greater credit risk than residential mortgage loans, particularly in the case of loans that are unsecured or are secured by assets that tend to depreciate in value, such as automobiles. In these cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining value often does not warrant further substantial collection efforts against the borrower. Further, consumer loan collections depend on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Our procedures for underwriting consumer loans include an assessment of the borrower’s credit history and ability to meet other existing debt obligations, as well as payments of principal and interest on the proposed loans. The stability of the borrower’s monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income. Although the borrower’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral security, if any, to the proposed loan amount. We require independent appraisals for all consumer loans in excess of $50,000 if secured by real estate. For loans that do not exceed this amount, we require that an officer prepare a memorandum of value detailing comparable values based upon tax bills for real estate loans and National Automobile Dealers Association values for automobile loans.

Loan Originations, Purchases, Sales and Servicing. Although we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon borrower demand, market interest rates, borrower preference for fixed- versus adjustable-rate loans, and the interest rates offered on each type of loan by competing lenders in our market area. This includes banks, savings institutions, credit unions, mortgage banking companies, and life insurance companies. Loan originations are derived from a number of sources, including existing or prior customers and walk-in customers.

Loan originations are adversely affected by rising interest rates, which typically result in decreased loan demand. Accordingly, the volume of our loan originations and the interest rates we can charge on loans vary from period to period. One- to four-family residential mortgage loans are generally underwritten to conform to Fannie Mae and Freddie Mac seller/servicer guidelines, and are currently originated on a fixed interest rate basis only. We generally sell most of our conforming, fixed-rate, one- to four-family loans but retain the servicing rights on loans that we originate, which means that we will continue to collect payments on the loans and supervise foreclosure proceedings, if necessary. We retain a portion of the interest paid by the borrower on the loans, generally 25 basis points, as consideration for our services. We currently service $68.3 million of loans for others. In 2010, we originated $20.3 million in single family residential mortgage loans held for sale and sold $22.6 million of such loans to Fannie Mae.

Loan Approval Procedures and Authority. Our lending activities are subject to written underwriting standards and loan origination procedures adopted by management and the board of directors. For single family, owner-occupied real estate loans, the President of First Clover Leaf Bank and the Senior Vice President – Chief Lending Officer are authorized to approve loans up to $500,000. For secured commercial real estate loans and construction and land loans, these officers are authorized to approve loans up to $750,000; for secured consumer loans, these officers may approve loans up to $250,000; and for overdrafts and unsecured credits, these officers may approve loans up to $100,000. They may approve renewals of commercial business and commercial real estate loans by a total of their combined lending limits where there has been no deterioration in either the payment pattern or financial strength of the borrower. However, the entire board of directors must approve all loans in excess of $4.0 million. In addition, a list of all preauthorized loans is presented to the board of directors’ loan committee on a monthly basis.

Loans to One Borrower. At December 31, 2010, the maximum amount that First Clover Leaf Bank could have loaned to any one borrower under the 15% limit of risk-based capital was approximately $9.6 million. At that date, the largest lending relationship with First Clover Leaf Bank totaled $21.5 million and consisted of two loans secured primarily by accounts receivable, real estate and corporate assets. First Clover Leaf Bank also has an agreement in place with another financial institution to participate in this loan and had participated $12.5 million to this financial institution at year end. First Clover Leaf Bank’s remaining outstanding balance on this loan at year end was $4.2 million.

Appraisal Policies. We obtain appraisals on property for all new loan originations secured by real estate. Appraisals are completed prior to the closing of the new loan. We will also request a new appraisal on a renewing loan if the credit appears to be distressed and we do not feel that we can properly assess the value from our own resources. The bank also subscribes to a service that provides access to current property listings and sales on single family residences which allows access to comparative sales prices. We will obtain a new appraisal on a commercial property when a borrower is experiencing cash flow difficulties which appear to be more than temporarily impaired and we do not feel that we have the resources necessary to properly assess the situation. In addition, if we have determined that it is necessary to foreclose on a property, we will obtain a new appraisal.

Asset Quality

Loan Delinquencies and Collection Procedures. When a borrower fails to make required payments on a loan, we take a number of steps to induce the borrower to correct the delinquency and restore the loan to a current status. We will send a borrower a reminder notice 15 days after an account becomes delinquent, and our employees are authorized to use their discretion whether direct telephone contact is required at that time. If the borrower does not remit the entire payment due by the end of the month, we try to make direct contact with the borrower to arrange a payment plan. If a satisfactory payment plan is not established within 50 days of a delinquency, we will send a demand letter to the borrower. If a satisfactory payment plan has not been arranged within 60 days following a delinquency, we may instruct our attorneys to institute foreclosure proceedings depending on the loan-to-value ratio or our relationship with the borrower. Foreclosed property is held as other real estate owned.

Our policies require that management continuously monitor the status of the loan portfolio and report to the board of directors on a monthly basis. These reports include information on delinquent loans and foreclosed real estate and our actions and plans to cure the delinquent status of the loans and to dispose of any real estate acquired through foreclosure.

The Company has experienced a decrease in our non-performing and impaired loans, and an increase in our non-performing assets. Detailed information concerning the Company’s non-performing and impaired loans is described in the paragraphs that follow. Overall, the loans that would be classified as high risk loans by the Company are very limited in number and in value. The Company does not originate subprime loans and holds a very small number and dollar value of ARM products. The Company does hold some junior lien mortgages and high loan-to-value ratio mortgages; however, they total an immaterial portion of our loan portfolio. The Company is reviewing these loans regularly and has not seen any increase in the delinquency trends for these products. Our allowance for loan loss methodology has remained consistent. As commercial loans mature and requests for renewals are processed, either a new appraisal is obtained or the Company performs an internal valuation of the collateral based on comparable sales. Additionally, the original appraisal is discounted if the Company believes it is warranted.

Non-Accrual Loans. All loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, there is reasonable probability of loss of principal or the collection of additional interest is deemed insufficient to warrant further accrual. Generally, we place all loans 90 days or more past due on non-accrual status. However, exceptions may occur when a loan is in process of renewal, but it has not yet been completed. In addition, we may place any loan on non-accrual status if any part of it is classified as loss or if any part has been charged-off. When a loan is placed on non-accrual status, total interest accrued and unpaid to date is reversed. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectibility of the loan. Loans are charged-off no later than 120 days following their delinquency, unless the loans are well-collateralized or in the process of collection.

As of December 31, 2010, our total non-accrual loans amounted to $12.2 million compared to $11.7 million at December 31, 2009. Details of the largest non-accrual relationships are included below.

Non-Performing and Impaired Loans and Non-Performing Assets. As of December 31, 2010, our total non-performing and impaired loans and non-performing assets were $23.5 million compared to $30.2 million at December 31, 2009.

At December 31, 2010, First Clover Leaf Bank had seven relationships classified as non-accrual with balances in excess of $500,000. The largest non-accrual relationship is a $3.8 million development credit to a subdivision with excess inventory that is selling slowly due to the economic slowdown. The credit is secured by the residential property and an updated appraisal was obtained in the first quarter of 2010. The note is currently being re-evaluated on a quarterly basis under a discounted cash flow analysis. We are currently working with the developer on a plan to increase lot sales. The second non-accrual relationship is a $1.5 million group of credits to a real estate investor, who is experiencing high vacancy rates and property repairs resulting in decreased cash flows due to the economic slowdown. A charge-off of $464,000 was recorded on this loan during the third quarter of 2010. We are working with a management company to continue leasing the properties. During the fourth quarter of 2010, we began foreclosure procedures on most of the properties. The third relationship is a $1.5 million credit to a residential real estate developer who is struggling with the economic downturn. The credit is currently secured by single family residences and some farm land. We are working with the developer on possible restructuring alternatives. Currently the collateral is sufficient to cover the outstanding balance. The fourth non-accrual relationship is a $1.2 million credit for a mobile home park. A $600,000 charge-off was recorded for this property in 2010. There was a pending contract on this property at September 30, 2010, which has since been rescinded. We began foreclosure proceedings late in the fourth quarter of 2010, and we acquired possession of this property in the first quarter of 2011. The fifth non-accrual relationship is a $900,000 credit to a real estate investor. The majority of this borrower’s property is residential real estate. The investor is experiencing cash flow difficulties due to higher vacancy rates and the need for property repairs. Currently the collateral is sufficient to cover the outstanding balance. The sixth non-accrual relationship is a $704,000 credit to a real estate investor. This relationship relates to several credits which are all related by common ownership. Most of the credits are single family residential properties, but some are related to commercial property. We have recently re-assessed the values of most of these properties. We began taking possession of several of the properties, totaling $367,000 in the fourth quarter of 2010. The seventh non-accrual relationship is a $661,000 credit to a real estate developer. The primary collateral consists of 30 vacant lots. The lots are continuing to sell in a manner that is allowing the borrower to continue to make principal payments. Two of these lots were under contract at December 31, 2010, and the sales were finalized in the first quarter of 2011.

In addition to the non-accrual loans in the previous paragraph, at December 31, 2010, our total other impaired loans amounted to $7.3 million compared to $14.8 million at December 31, 2009. There

are three impaired credits with balances in excess of $500,000 at December 31, 2010. The largest loan is a $3.7 million credit to a real estate investor. The majority of this borrower’s property is residential real estate. The investor is experiencing cash flow difficulties due to higher vacancy rates and the need for property repairs. Currently the collateral is sufficient to cover the outstanding balance. The second loan is a $1.6 million credit for a hotel/condominium development in a resort area. Currently the collateral is sufficient to cover the outstanding balance. The third credit is a $1.0 million credit to an investor who holds real estate and financial institution stock. The collateral for this credit is stock in a financial institution and multi-family real estate. The investor paid this credit down by $500,000 since the third quarter of 2010. Currently, the collateral is sufficient to cover the outstanding balance.

At December 31 2010, First Clover Leaf Bank had 13 properties classified as Real Estate Owned. The collateral on these properties consisted of a commercial building, a commercial land site with an outbuilding, farmland, two residential lot developments and eight single family residences. All of these properties were transferred into Real Estate Owned at the property’s fair value, less cost of disposal, at the date of foreclosure.

The table below sets forth the amount and categories of our non-performing and impaired loans and non-performing assets at the dates indicated. At each date presented, we had an insignificant amount of troubled debt restructurings, (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates) which are considered to be impaired loans. At December 31, 2010, we had loans of approximately $250,000 that were classified as troubled debt restructurings.

	At December 31,
	2010			2009			2008			2007			2006
	(Dollars in thousands)
Non-accrual loans:
One- to four-family	$	1,856		$	2,260		$	1,598		$	1,269		$	579
Multi-family		2,435			2,324			556			412			395
Commercial real estate		1,290			1,346			3,463			977			396
Construction and land		6,177			5,410			―			―			―
Commercial business		109			293			―			―			―
Consumer		382			100			1			11			1
Total non-accrual loans		12,249			11,733			5,618			2,669			1,371

Accruing loans delinquent 90 days or more:
One- to four-family		81			107			764			285			16
Construction and land		―			1,600			―			―			―
Commercial business		12			873			—			—			―
Total accruing loans delinquent 90 days or more		93			2,580			764			285			16

Total non-performing loans		12,342			14,313			6,382			2,954			1,387

Other impaired loans:
One- to four-family		80			—			—			—			—
Multi-family		653			6,122			—			—			—
Commercial real estate		5,407			4,932			1,037			1,198			918
Construction and land		55			2,407			—			—			1,467
Commercial business		604			1,357			114			133			149
Consumer		480			—			—			—			—
Total other impaired loans		7,279			14,818			1,151			1,331			2,534

Total non-performing and impaired loans		19,621			29,131			7,533			4,285			3,921

Real estate owned:
One- to four-family		440			200			408			―			―
Commercial real estate		854			230			225			―			―
Construction and land		2,550			655			—			—			―
Total real estate owned		3,844			1,085			633			—			―

Total non-performing and impaired assets	$	23,465		$	30,216		$	8,166		$	4,285		$	3,921
Allowance for loan losses attributable to non-performing and impaired loans	$	2,186		$	2,126		$	553		$	307		$	396

Ratios:
Non-performing and impaired loans to total loans		5.06	%		7.07	%		1.75	%		1.50	%		1.60	%
Non-performing and impaired assets to total assets		4.08	%		5.16	%		1.25	%		1.04	%		0.96	%

For the year ended December 31, 2010, $754,361 of gross interest income would have been recorded had our non-accruing loans been current in accordance with their original terms. We recorded $562,527 of income on such loans for the year ended December 31, 2010.

At December 31, 2010, we had no loans which were not currently classified as non-accrual, 90 days past due or impaired, but where known information about possible credit problems of the borrower caused management to have serious concerns as to the ability of the borrower to comply with present loan repayment terms and would result in disclosure as non-accrual, 90 days past due or impaired.

Real Estate Owned. Real estate owned consists of property acquired through formal foreclosure or by deed in lieu of foreclosure and is recorded at the lower of recorded investment or fair value. Write-downs from recorded investment to fair value which are required at the time of foreclosure are charged to the allowance for loan losses. After transfer, the property is carried at the lower of recorded investment or fair value, less estimated selling expenses. Adjustments to the carrying value of the properties that result from subsequent declines in value are charged to operations in the period in which the declines occur. At December 31, 2010, we held 13 properties as real estate owned with a total value of $3.8 million.

Classification of Assets. Our policies, consistent with regulatory guidelines, require that we classify loans and other assets, such as securities, that are considered to be of lesser quality, as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that First Clover Leaf Bank will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as loss are those considered uncollectable and of such little value that their continuance as assets is not warranted. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess some weaknesses, are required to be designated as special mention by management.

General allowances represent loss allowances that have been established to recognize the probable risk associated with lending activities, but which have not been allocated to particular problem assets. When we classify problem assets as loss, we are required either to establish a specific allowance for losses equal to 100% of the amount of the assets so classified, or to charge-off the amount of the assets. Our determination as to the classification of assets and the amount of valuation allowances is subject to review by regulatory agencies, which can order the establishment of additional loss allowances. All loans classified as doubtful are also classified as impaired. As a general rule, loans classified as substandard are also classified as impaired. The loans that are an exception to this classification are generally mortgage and consumer loans, and they represent a small amount and percentage of the substandard category. Management regularly reviews our asset portfolio to determine whether any assets require classification in accordance with applicable regulatory guidelines and accounting principles generally accepted in the United States of America.

On the basis of management’s review of our assets, at December 31, 2010, we had classified $16.0 million of our assets as substandard and $4.4 million as doubtful.

The following table sets forth certain information with respect to our loan portfolio delinquencies at the dates indicated.

	Loans Delinquent For
	60-89 Days				90 Days or Over				Total
	Number		Amount		Number		Amount		Number		Amount
	(Dollars in thousands)
At December 31, 2010
One- to four-family residential		4	$	296		11	$	818		15	$	1,114
Multi-family		―		―		8		2,435		8		2,435
Commercial real estate		3		162		3		1,240		6		1,402
Construction and land		―		―		6		4,928		6		4,928
Commercial business		―		―		2		43		2		43
Consumer		3		96		3		367		6		463
Total		10	$	554		33	$	9,831		43	$	10,385

At December 31, 2009
One- to four-family residential		3	$	178		5	$	734		8	$	912
Multi-family		―		―		3		585		3		585
Commercial real estate		1		56		17		1,890		18		1,946
Construction and land		―		―		3		1,462		3		1,462
Commercial business		1		43		5		1,155		6		1,198
Consumer		1		12		1		100		2		112
Total		6	$	289		34	$	5,926		40	$	6,215

At December 31, 2008
One- to four-family residential		8	$	683		12	$	1,267		20	$	1,950
Multi-family		―		―		3		555		3		555
Commercial real estate		4		487		29		1,528		33		2,015
Construction and land		―		―		4		2,535		4		2,535
Commercial business		3		225		1		495		4		720
Consumer		4		67		1		1		5		68
Total (1)		19	$	1,462		50	$	6,381		69	$	7,843

At December 31, 2007
One- to four-family residential		4	$	249		14	$	1,554		18	$	1,803
Multi-family		―		―		1		412		1		412
Commercial real estate		1		304		5		977		6		1,281
Construction and land		1		985		―		―		1		985
Commercial business		2		1,280		―		―		2		1,280
Consumer		—		—		2		11		2		11
Total (1)		8	$	2,818		22	$	2,954		30	$	5,772

At December 31, 2006
One- to four-family residential		2	$	94		4	$	102		6	$	196
Multi-family		―		―		1		395		1		395
Commercial business		2		147		1		18		3		165
Consumer		2		28		―		―		2		28
Total		6		269		6		515		12		784

___________________

(1)	The category of 90 Days or Over includes all non-accrual loans.

Allowance for Loan Losses. The following table sets forth activity in our allowance for loan losses for the years indicated.

	At or For the Years Ended December 31,
	2010			2009			2008			2007			2006
	(Dollars in thousands)

Balance at beginning of year	$	6,317		$	3,895		$	1,898		$	1,710		$	428

Charge-offs:
One-to-four family residential		(268	)		(244	)		―			―			―
Commercial real estate		(1,936	)		(832	)		(56	)		―			―
Construction and land		―			(1,644	)		(124	)		(142	)		―
Commercial Business		(1,020	)		(414	)		―			(15	)		―
Consumer		(86	)		―			(91	)		(7	)		(1	)
Total charge-offs		(3,310	)		(3,134	)		(271	)		(164	)		(1	)

Recoveries:
Commercial real estate		148			―			―			―			―
Commercial Business		―			2			―			―			―
Consumer		―			―			16			5			5
Total recoveries		148			2			16			5			5

Net (charge-offs) recoveries		(3,162	)		(3,132	)		(255	)		(159	)		4
Allowance acquired		—			—			1,476			—			911
Provision for loan losses		2,573			5,554			776			347			367

Balance at end of year	$	5,728		$	6,317		$	3,895		$	1,898		$	1,710

Ratios:
Net charge-offs (recoveries) to average loans outstanding		0.78	%		0.74	%		0.07	%		0.06	%		0.00	%
Allowance for loan losses to non-performing and impaired loans		29.19	%		21.68	%		51.71	%		44.27	%		43.61	%
Allowance for loan losses to total loans		1.48	%		1.53	%		0.90	%		0.67	%		0.70	%

The allowance for loan losses is a valuation account that reflects our evaluation of the credit losses inherent in our loan portfolio. We maintain the allowance through provisions for loan losses that we charge to income. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely.

Our evaluation of risk in maintaining the allowance for loan losses includes the review of all loans on which the collectibility of principal may not be reasonably assured. We consider the following factors as part of this evaluation: our historical loan loss experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. Management evaluates the total balance of the allowance for loan losses based on several factors that are not loan specific but are reflective of the losses inherent in the loan portfolio, including management’s periodic review of loan collectibility in light of historical experience, the nature and volume of the loan portfolio, prevailing economic conditions such as housing trends, inflation rates and unemployment rates, and geographic concentrations of loans within First Clover Leaf Bank’s immediate market area.

There may be other factors that may warrant our consideration in maintaining an allowance at a level sufficient to provide for probable losses. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. During 2010, management increased the general allocation percentages used in the calculation of our allowance for loan losses. Management evaluated several factors in determining the need to increase these percentages. The loss history was the primary reason the general allocation was increased. Management also revised the watch and criticized/non-impaired allocation percentages to more accurately reflect the risk of our current portfolio. Management also reviewed the current economic conditions and determined that no adjustment was necessary to any of the qualitative factors during 2010.

In addition, the Office of Thrift Supervision, as an integral part of its examination process, periodically reviews our loan portfolio and the related allowance for loan losses. The Office of Thrift Supervision may require us to increase the allowance for loan losses based on its judgments of information available to it at the time of its examination, thereby adversely affecting our results of operations.

Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category, the total loan balances by category, and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

	At December 31,
	2010							2009							2008
	Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)

Real Estate Loans:
One- to four-family	$	731	$	99,186		24.6	%	$	1,517	$	98,080		23.4	%	$	758	$	110,925		25.3	%
Multi-family		179		26,543		6.6			745		20,947		5.0			479		18,150		4.2
Commercial		1,714		160,799		39.9			2,402		179,923		42.8			1,453		168,432		38.4
Construction and land		2119		53,647		13.3			883		45,448		10.8			529		52,338		11.9
Commercial business		868		51,738		12.8			760		63,135		15.0			624		78,160		17.8
Consumer		117		10,915		2.8			10		12,477		3.0			52		10,270		2.4
Total	$	5,728	$	402,829		100.0	%	$	6,317	$	420,010		100.0	%	$	3,895	$	438,275		100.0	%

	At December 31,
	2007							2006
	Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)

Real Estate Loans:
One- to four-family	$	532	$	112,764		39.2	%	$	400	$	120,355		48.5	%
Multi-family		84		13,931		4.8			65		8,895		3.6
Commercial		832		97,810		34.0			753		68,577		27.7
Construction and land		290		20,776		7.2			324		17,181		6.9
Commercial business		114		34,783		12.1			145		25,907		10.4
Consumer		46		7,770		2.7			23		7,125		2.9
Total	$	1,898	$	287,834		100.0	%	$	1,710	$	248,040		100.0	%

Investment Activities

We are permitted under federal law to invest in various types of liquid assets, including U.S. Government obligations, securities of various federal agencies and of state and municipal governments, deposits at the Federal Home Loan Bank of Chicago, certificates of deposit of federally insured institutions, certain bankers’ acceptances and federal funds. Within certain regulatory limits, we may also invest a portion of our assets in commercial paper and corporate debt securities. First Clover Leaf Bank is also required to invest in Federal Home Loan Bank stock.

The Financial Accounting Standards Board’s guidance regarding the accounting for certain investments in debt and equity securities requires that securities be categorized as “held to maturity,” “trading securities” or “available for sale,” based on management’s intent as to the ultimate disposition of each security. We have classified all of our securities as available for sale at December 31, 2010.

The guidance allows debt securities to be classified as “held to maturity” and reported in financial statements at amortized cost only if the reporting entity has the positive intent and ability to hold those securities to maturity. Securities that might be sold in response to changes in market interest rates, changes in the security’s prepayment risk, increases in loan demand, or other similar factors cannot be classified as “held to maturity.”

Debt and equity securities held for current resale are classified as “trading securities.” These securities are reported at fair value, and unrealized gains and losses on the securities are included in earnings. We do not currently use or maintain a trading account. Debt and equity securities not classified as either “held to maturity” or “trading securities” are classified as “available for sale.” These securities are reported at fair value, and unrealized gains and losses on the securities are excluded from earnings and reported, net of deferred taxes, as a separate component of equity.

All of our securities carry market risk insofar as increases in market interest rates may cause a decrease in their market value. Many also carry prepayment risk insofar as they may be called prior to maturity in times of low market interest rates, so that we may have to reinvest the funds at a lower interest rate. Investments in securities are made based on certain considerations, which include the interest rate, tax considerations, yield, settlement date and maturity of the security, our liquidity position, and anticipated cash needs and sources. The effect that the proposed security would have on our credit and interest rate risk and risk-based capital is also considered. We purchase securities to provide necessary liquidity for day-to-day operations, and when investable funds exceed loan demand.

Generally, our investment policy, as established by the board of directors, is to invest funds among various categories of investments and maturities based upon our liquidity needs, asset/liability management policies, investment quality, marketability and performance objectives.

Our investment policy does not permit engaging directly in hedging activities or purchasing high-risk mortgage derivative products.

Our debt securities are mainly composed of securities issued by the U.S. Government, government agencies and government-sponsored enterprises (primarily the Federal Home Loan Bank, Fannie Mae and Freddie Mac) and investment grade corporate debt securities, although from time to time we make other investments as permitted by applicable laws and regulations.

First Clover Leaf Financial Corp. utilizes a third party vendor for investment portfolio accounting. The vendor provides a monthly report indicating by individual bond the gain or loss position of the security, as well as any downgrades that have occurred. When a bond is downgraded, we contact a broker to gain a better understanding of the reason for the downgrade and any known or anticipated defaults by the issuer. We consider the grade of the bond and the payment history when determining if a bond should be classified as other than temporarily impaired and if a write down of the security is necessary. The board of directors is informed monthly of any bond downgrades and the overall gain or loss position of the investment portfolio. As of December 31, 2010, we had no securities considered to be other-than-temporarily impaired.

Available for Sale Portfolio. The following table sets forth the composition of our available for sale portfolio at the dates indicated. For further information see Notes 1 and 2 of the Notes to our Consolidated Financial Statements.

	At December 31,
	2010				2009				2008
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Investment Securities:
U.S. government agency obligations	$	41,857	$	42,690	$	47,783	$	48,514	$	58,414	$	59,346
Corporate bonds		2,096		2,058		2,596		2,546		3,094		2,829
State and municipal securities		17,803		17,774		14,468		15,379		12,238		12,451
Other securities		4		4		4		4		75		75
Mortgage-backed securities		15,739		15,949		18,816		19,964		27,849		28,866

Total investment securities available for sale	$	77,499	$	78,475	$	83,667	$	86,407	$	101,670	$	103,567

At December 31, 2010, we held 33 available-for-sale securities that had been in a loss position for less than twelve months, and one available-for-sale security that had been in a loss position for twelve months or more. Included in the 33 securities in the less-than-twelve month position are (a) two U.S. government agency obligations, both of which have been in a loss position for two months (b) 10 Mortgage-backed securities, five of which have been in a loss position for one month, three have been in a loss position for two months, one has been in a loss position for three months, and one has been in a loss position for four months (c) 21 state and municipal securities, two of which have been in a loss position for one month, 17 have been in a loss position for two months, one has been in a loss position for three months, and one has been in a loss position for four months. The security in the twelve-months-or-more position is a corporate bond.

As of December 31, 2010, management believes that the estimated fair values of the securities noted above are primarily dependent on movements in market interest rates. These investment securities are comprised of securities that are rated investment grade by at least one bond credit rating service. Management believes that these fair values will recover as the underlying portfolios mature. We do not intend to sell or expect that it is more likely than not that we will be required to sell these investment securities prior to the anticipated recovery in fair value. Accordingly, management does not believe any individual unrealized loss as of December 31, 2010, represents an other-than-temporary impairment.

Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio and the mortgage-backed securities portfolio at December 31, 2010 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. State and municipal securities yields have not been adjusted to a tax-equivalent basis.

	One Year or Less					More than One Year through Five Years					More than Five Years through Ten Years					More than Ten Years					Total Securities
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)

Available for Sale:
Investment Securities
U.S. Government agency obligations	$	16,521		2.43	%	$	25,336		2.80	%	$	---		---	%	$	---		---	%	$	41,857	$	42,690		2.66	%
Corporate bonds		146		5.39			1,250		4.71			---		---			700		5.05			2,096		2,058		4.87
State and municipal securities		1,066		5.43			4,810		5.86			3,657		5.02			8,270		5.33			17,803		17,774		5.42
Other securities		4		---			---		---			---		---			---		---			4		4		---
Mortgage-backed securities		380		3.20			15,104		3.23			255		3.78			---		---			15,739		15,949		3.24

Total debt securities available for sale	$	18,117		2.65	%	$	46,500		3.31	%	$	3,912		4.94	%	$	8,970		5.31	%	$	77,499	$	78,475		3.47	%

Sources of Funds

General. Deposits are our primary source of funds for lending and other investment purposes. In addition to deposits, we derive funds primarily from principal and interest payments on loans. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by market interest rates. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds from other sources, and may be used on a longer-term basis for general business purposes.

Deposits. Residents of our primary market area are our main source of deposits. Deposit account terms vary, with the principal differences being the minimum balance required, the time periods the funds must remain on deposit, and the interest rate. From time to time, we supplement our funding with brokered deposits. At December 31, 2010 we had $70.3 million in brokered deposits, which includes $44.0 million of deposits generated from our local customer base that utilize the Certificate of Deposit Account Registry Service (CDARS) in order to obtain full FDIC insurance coverage. We have several additional sources for obtaining wholesale and brokered deposits if needed in the future. Our deposit products include demand and NOW, money market, savings, and term certificate accounts. Interest rates paid, maturity terms, service fees and withdrawal penalties are established by First Clover Leaf Bank on a periodic basis. Management determines the rates and terms based on competitive market rates, our needs for funds or liquidity, growth goals and federal and state regulations.

Noninterest-Bearing Deposits. The balances of our noninterest-bearing deposits at December 31, 2010 and 2009 were $ 34.2 million and $49.5 million, respectively.

Interest-Bearing Deposit Accounts by Type. The following table sets forth the average balances of our interest-bearing deposits in the various types of deposit programs for the years indicated.

	Years Ended December 31,
	2010								2009								2008
	Average Balance		Percent			Weighted Average Rate			Average Balance		Percent			Weighted Average Rate			Average Balance		Percent			Weighted Average Rate
	(Dollars in Thousands)

Interest-bearing transaction	$	190,368		46.8	%		1.20	%	$	180,606		42.8	%		1.60	%	$	107,054		34.9	%		2.53	%
Savings deposits		21,475		5.3			0.71			28,267		6.7			0.77			18,203		5.9			1.65
		211,843		52.1						208,873		49.5						125,257		40.8

Certificates of deposit		194,688		47.9			2.72			212,782		50.5			3.36			181,851		59.2			4.29

Total interest-bearing deposits	$	406,531		100.0	%		1.90	%	$	421,655		100.0	%		2.43	%	$	307,108		100.0	%		3.52	%

Time Deposit Balances and Maturities. The following table sets forth certificates of deposit by time remaining until maturity as of December 31, 2010.

	Maturity
	3 Months or Less		Over 3 to 6 Months		Over 6 to 12 Months		Over 12 Months		Total
	(In thousands)

Certificates of deposit less than $100,000	$	21,915	$	20,073	$	18,441	$	42,242	$	102,671
Certificates of deposit of $100,000 or more (1)		24,669		15,759		24,686		15,697		80,811
Total of certificates of deposit	$	46,584	$	35,832	$	43,127	$	57,939	$	183,482

___________________

(1)	The weighted average interest rates for these accounts, by maturity period, were: 1.65% for 3 months or less; 1.75% for over 3 to 6 months; 1.49% for over 6 to 12 months; and 3.31% for over 12 months. The overall weighted average interest rate for accounts of $100,000 or more was 1.94%.

Borrowings. Our borrowings consist of Federal Home Loan Bank advances, reverse repurchase agreements and subordinated debentures. At December 31, 2010, we had $21.9 million in advances and access to additional Federal Home Loan Bank advances of up to $33.0 million, and we had $21.5 million in securities sold under agreements to repurchase. For additional information on our subordinated debentures, please see note 11 to our Consolidated Financial Statements, contained within our Annual Report to Stockholders.

The following table sets forth information concerning balances and interest rates on all of our borrowings at and for the periods shown:

	At or For the Years Ended December 31,
	2010			2009			2008
	(Dollars in thousands)

Balance at end of year	$	47,355		$	62,790		$	108,957
Average balance during year		59,292			93,479			66,505
Maximum outstanding at any month end		88,292			97,776			152,376
Weighted average interest rate at end of year		0.86	%		2.64	%		1.51	%
Average interest rate during year		2.03	%		2.15	%		2.45	%

Subsidiary Activities

First Clover Leaf Financial Corp.’s only subsidiary is First Clover Leaf Bank. First Clover Leaf Bank’s only subsidiary is Clover Leaf Financial Services, an insurance agency that sells credit life and disability insurance policies.

Personnel

As of December 31, 2010, we had 71 full-time employees and 16 part-time employees. Our employees are not represented by any collective bargaining group. Management believes that we have good working relations with our employees.

SUPERVISION AND REGULATION

General

First Clover Leaf Bank is a federally chartered savings association, and as such is regulated and supervised by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. This regulation and supervision establishes a comprehensive framework of activities in which a financial institution may engage and is intended primarily for the protection of the Federal Deposit Insurance Corporation’s deposit insurance funds and depositors. Under this system of federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. After completing an examination, the federal agency critiques the financial institution’s operations and assigns its rating (known as an institution’s CAMELS). Under federal law, an institution may not disclose its CAMELS rating to the public. First Clover Leaf Bank also is a member of, and owns stock in, the Federal Home Loan Bank of Chicago, which is one of the twelve regional banks in the Federal Home Loan Bank System. First Clover Leaf Bank also is regulated to a lesser extent by the Board of Governors of the Federal Reserve System, governing reserves to be maintained against deposits and other matters. The Office of Thrift Supervision examines First Clover Leaf Bank and prepares reports for the consideration of its board of directors on any operating deficiencies.

Any change in these laws or regulations, whether by the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, or Congress, could have a material adverse impact on us and our operations.

As a savings and loan holding company, First Clover Leaf Financial Corp. is required to comply with the rules and regulations of the Office of Thrift Supervision and to file certain reports with and is subject to examination by the Office of Thrift Supervision. First Clover Leaf Financial Corp. is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act’) made extensive changes in the regulation of federal savings banks such First Clover Leaf Bank. Under the Dodd-Frank Act, the Office of Thrift Supervision will be eliminated. Responsibility for the supervision and regulation of federal savings banks will be transferred to the Office of the Comptroller of the Currency, which is the agency that is currently primarily responsible for the regulation and supervision of national banks. The Office of the Comptroller of the Currency will assume responsibility for implementing and enforcing many of the laws and regulations applicable to federal savings banks. The transfer of regulatory functions will take place over a transition period of up to one year from the Dodd-Frank Act enactment date of July 21, 2010, subject to a possible six-month extension. At the same time, responsibility for the regulation and supervision of savings and loan holding companies, such as First Clover Leaf Financial Corp., will be transferred to the Federal Reserve Board, which currently supervises bank holding companies. Additionally, the Dodd-Frank Act creates a new Consumer Financial Protection Bureau as an independent bureau of the Federal Reserve Board. The Consumer Financial Protection Bureau will assume responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations, a function currently assigned to prudential regulators, and will have authority to impose new requirements. However, institutions of less than $10 billion in assets, such as First Clover Leaf Bank, will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the primary enforcement authority of, their prudential regulator rather than the Consumer Financial Protection Bureau.

New Federal Legislation

The recently enacted Dodd-Frank Act will significantly change the current bank regulatory structure and affect the lending, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act will eliminate our current primary federal regulator, the Office of Thrift Supervision, and will require First Clover Leaf Bank to be regulated by the Office of the Comptroller of the Currency (the primary federal regulator for national banks). The Dodd-Frank Act also authorizes the Board of Governors of the Federal Reserve System to supervise and regulate all savings and loan holding companies like First Clover Leaf Financial Corp., in addition to bank holding companies which it currently regulates. As a result, the Federal Reserve Board’s current regulations applicable to bank holding companies, including holding company capital requirements, will apply to savings and loan holding companies like First Clover Leaf Financial Corp., unless an exemption exists. These capital requirements are substantially similar to the capital requirements currently applicable to First Clover Leaf Bank, as described in “—Federal Banking Regulation—Capital Requirements.” The Dodd-Frank Act also requires the Federal Reserve Board to set minimum capital levels for bank holding companies that are as stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital are restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. Bank holding companies with assets of less than $500 million are exempt from these capital requirements. Under the Dodd-Frank Act, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets. The legislation also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect today, and directs the federal banking regulators to implement new leverage and capital requirements within 18 months that take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives.

The Dodd-Frank Act also creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as First Clover Leaf Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets will be examined by their applicable bank regulators. The new legislation also weakens the federal preemption available for national banks and federal savings associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws.

The legislation also broadens the base for Federal Deposit Insurance Corporation insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2012. Lastly, the Dodd-Frank Act will increase stockholder influence over boards of directors by requiring companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and authorizing the Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate and solicit votes for their own candidates using a company’s proxy materials. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not.

Federal Banking Regulation

Business Activities. A federal savings association derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and the regulations of the Office of Thrift Supervision. Under these laws and regulations, First Clover Leaf Bank may invest in mortgage loans secured by residential and commercial real estate, commercial business and consumer loans, certain types of debt securities and certain other loans and assets. First Clover Leaf Bank also may establish subsidiaries that may engage in activities not otherwise permissible for First Clover Leaf Bank directly, including real estate investment, securities brokerage and insurance agency. The Dodd-Frank Act authorizes the payment of interest on commercial checking accounts, effective July 21, 2011.

Capital Requirements. The Office of Thrift Supervision regulations require savings associations to meet three minimum capital standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS rating system) and an 8% risk-based capital ratio. The prompt corrective action standards discussed below, in effect, establish a minimum 2% tangible capital standard.

The risk-based capital standard for savings associations requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to adjusted total assets of at least 4% and to risk-weighted assets of at least 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision capital regulation based on the risks inherent in the type of asset. Core capital is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, allowance for loan and lease losses up to a maximum of 1.25% of risk-weighted assets, and up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

At December 31, 2010, First Clover Leaf Bank’s capital exceeded all applicable requirements.

Loans to One Borrower. A federal savings association generally may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of risk-based capital on an unsecured basis. An additional amount may be loaned, equal to 10% of risk-based capital, if the loan is secured by readily marketable collateral, which generally does not include real estate. At December 31, 2010, the maximum amount that First Clover Leaf Bank could have loaned to any one borrower under the 15% limit of risk-based capital was approximately $9.6 million. At that date, the largest lending relationship with First Clover Leaf Bank totaled $21.5 million and consisted of two loans secured primarily by accounts receivable, real estate and corporate assets. First Clover Leaf Bank also has an agreement in place with another financial institution to participate in this loan and had participated $12.5 million to this financial institution at year end. First Clover Leaf Bank’s remaining outstanding balance on this loan at year end was $4.2 million.

Qualified Thrift Lender Test. As a federal savings association, First Clover Leaf Bank is subject to a qualified thrift lender, or “QTL,” test. Under the QTL test, First Clover Leaf Bank must maintain at

least 65% of its “portfolio assets” in “qualified thrift investments” in at least nine months of the most recent 12-month period.

A savings association that fails the QTL test must operate under specified restrictions. The Dodd-Frank Act made noncompliance with the QTL test potentially subject to agency enforcement action for a violation of law. At December 31, 2010, First Clover Leaf Bank maintained portfolio assets in qualified thrift investments in excess of the percentage required to qualify it under the QTL test.

Capital Distributions. Office of Thrift Supervision regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the institution’s capital account. A savings association must file an application for approval of a capital distribution if:

the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus the savings association’s retained net income for the preceding two years;

the savings association would not be at least adequately capitalized following the distribution;

the distribution would violate any applicable statute, regulation, agreement or Office of Thrift Supervision-imposed condition; or

the savings association is not eligible for expedited treatment of its filings.

Even if an application is not otherwise required, every savings association that is a subsidiary of a holding company must still file a notice with the Office of Thrift Supervision at least 30 days before the board of directors declares a dividend or approves a capital distribution.

The Office of Thrift Supervision may disapprove a notice or application if:

the savings association would be undercapitalized following the distribution;

the proposed capital distribution raises safety and soundness concerns; or

the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

Liquidity. A federal savings association is required to maintain a sufficient amount of liquid assets to ensure its safe and sound operation.

Community Reinvestment Act and Fair Lending Laws. All savings associations have a responsibility under the Community Reinvestment Act and related regulations of the Office of Thrift Supervision to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In connection with its examination of a federal savings association, the Office of Thrift Supervision is required to assess the savings association’s record of compliance with the Community Reinvestment Act. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in regulatory restrictions on its activities. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of Thrift Supervision, as well as other federal regulatory agencies and the Department of Justice. First Clover Leaf Bank received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.

Transactions with Related Parties. A federal savings association’s authority to engage in transactions with its “affiliates” is limited by Office of Thrift Supervision regulations and by Sections 23A and 23B of the Federal Reserve Act. The term “affiliates” for these purposes generally means any company that controls or is under common control with an institution. First Clover Leaf Financial Corp. will be an affiliate of First Clover Leaf Bank. In general, transactions with affiliates must be on terms that are as favorable to the savings association as comparable transactions with non-affiliates. In addition, certain types of these transactions are restricted to an aggregate percentage of the savings association’s capital. Collateral in specified amounts must usually be provided by affiliates in order to receive loans from the savings association. In addition, Office of Thrift Supervision regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary.

First Clover Leaf Bank’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features, and (ii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of First Clover Leaf Bank’s capital. In addition, extensions of credit in excess of certain limits must be approved by First Clover Leaf Bank’s board of directors.

Enforcement. The Office of Thrift Supervision has primary enforcement responsibility over federal savings institutions and has the authority to bring enforcement action against all “institution-affiliated parties,” including stockholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution, receivership, conservatorship or the termination of deposit insurance. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The Federal Deposit Insurance Corporation also has the authority to recommend to the Director of the Office of Thrift Supervision that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take action under specified circumstances.

The Comptroller of the Currency will assume the Office of Thrift Supervision’s enforcement authority under the Dodd-Frank Act regulatory restructuring.

Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate. The federal banking agencies adopted Interagency Guidelines Prescribing Standards for Safety and Soundness to implement the safety and soundness standards required under federal law. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit systems, credit

underwriting, loan documentation, interest rate risk exposure, asset growth, compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan.

Prompt Corrective Action Regulations. Under the prompt corrective action regulations, the Office of Thrift Supervision is required and authorized to take supervisory actions against undercapitalized savings associations. For this purpose, a savings association is placed in one of the following five categories based on the savings association’s capital:

well-capitalized (at least 5% leverage capital, 6% tier 1 risk-based capital and 10% total risk-based capital);

adequately capitalized (at least 4% leverage capital (3% for savings banks with a composite examination rating of 1), 4% tier 1 risk-based capital and 8% total risk-based capital);

undercapitalized (less than 4% leverage capital (3% for savings banks with a composite examination rating of 1), 4% tier 1 risk-based capital or 8% total risk-based capital);

significantly undercapitalized (less than 3% leverage capital, 3% tier 1 risk-based capital or 6% total risk-based capital); and

critically undercapitalized (less than 2% tangible capital).

Generally, the banking regulator is required to appoint a receiver or conservator for a savings association that is “critically undercapitalized.” The regulation also provides that a capital restoration plan must be filed with the Office of Thrift Supervision within 45 days of the date a bank receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” In addition, numerous mandatory supervisory actions become immediately applicable to the savings association, including, but not limited to, restrictions on growth, investment activities, capital distributions and affiliate transactions. The Office of Thrift Supervision may also take any one of a number of discretionary supervisory actions against undercapitalized savings associations, including the issuance of a capital directive and the replacement of senior executive officers and directors.

At December 31, 2010, First Clover Leaf Bank met the criteria for being considered “well-capitalized.”

Insurance of Deposit Accounts. First Clover Leaf Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation.

Under the Federal Deposit Insurance Corporation’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors, with less risky institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned, and certain adjustments specified by Federal Deposit Insurance Corporation regulations. Assessment rates currently range from seven to 77.5 basis points of assessable deposits. The Federal Deposit Insurance Corporation may adjust the scale uniformly, except that no adjustment can deviate more than three basis points from the base scale without notice and comment. No institution may pay a dividend if in default of the federal deposit insurance assessment.

The Dodd-Frank Act requires the Federal Deposit Insurance Corporation to revise its procedures to base its assessments upon total assets less tangible equity instead of deposits. The Federal Deposit Insurance Corporation recently finalized a rule that would implement that change, effective April 1, 2011. Among other things, the final rule changes the assessment range.

The Federal Deposit Insurance Corporation imposed on all insured institutions a special emergency assessment of five basis points of total assets minus Tier 1 capital (as of June 30, 2009), capped at ten basis points of an institution’s deposit assessment base, in order to cover losses to the Deposit Insurance Fund. That special assessment was collected on September 30, 2009. The Federal Deposit Insurance Corporation provided for similar assessments during the final two quarters of 2009, if deemed necessary. In lieu of further special assessments, however, the Federal Deposit Insurance Corporation required insured institutions to prepay estimated quarterly risk-based assessments for the fourth quarter of 2009 through the fourth quarter of 2012. The estimated assessments, which included an assumed annual assessment base increase of 5%, were recorded as a prepaid expense asset as of December 30, 2009. As of December 31, 2009, and each quarter thereafter, a charge to earnings is recorded for each regular assessment with an offsetting credit to the prepaid asset.

Due to the recent difficult economic conditions, deposit insurance per account owner has been raised to $250,000. That coverage was made permanent by the Dodd-Frank Act. In addition, the Federal Deposit Insurance Corporation adopted an optional Temporary Liquidity Guarantee Program by which, for a fee, noninterest-bearing transaction accounts would receive unlimited insurance coverage until June 30, 2010, subsequently extended to December 31, 2010, and certain senior unsecured debt issued by institutions and their holding companies between October 13, 2008 and October 31, 2009 would be guaranteed by the Federal Deposit Insurance Corporation through June 30, 2012, or in some cases, December 31, 2012. First Clover Leaf Bank opted not to participate in the unlimited noninterest-bearing transaction account coverage and opted not to participate in the unsecured debt guarantee program. The Dodd-Frank Act extended the unlimited coverage for certain noninterest-bearing transaction accounts from January 1, 2011 until December 31, 2012 without the opportunity for opt out.

In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. That payment is established quarterly and during the four quarters ended December 31, 2010 averaged 1.045 basis points of assessable deposits.

The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The Federal Deposit Insurance Corporation must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the Federal Deposit Insurance Corporation and the Federal Deposit Insurance Corporation has recently exercised that discretion by establishing a long range fund ratio of 2%.

The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of First Clover Leaf Bank. We cannot predict what insurance assessment rates will be in the future.

Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or regulatory

condition imposed in writing. We do not know of any practice, condition or violation that might lead to termination of deposit insurance.

Prohibitions Against Tying Arrangements. Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

Federal Home Loan Bank System. First Clover Leaf Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions. As a member of the Federal Home Loan Bank of Chicago, First Clover Leaf Bank is required to acquire and hold shares of capital stock in the Federal Home Loan Bank in an amount at least equal to 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or 1/20th of its borrowings from the Federal Home Loan Bank, whichever is greater. As of December 31, 2010, First Clover Leaf Bank was in compliance with this requirement and held $4.3 million of excess stock in the Federal Home Loan Bank of Chicago.

Federal Reserve System

Federal Reserve Board regulations require savings associations to maintain non-interest-earning reserves against their transaction accounts, such as negotiable order of withdrawal and regular checking accounts. As of December 31, 2010, First Clover Leaf Bank was in compliance with these reserve requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements imposed by the Office of Thrift Supervision.

The USA PATRIOT Act

The USA PATRIOT Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. The Act also requires the federal banking regulators to take into consideration the effectiveness of controls designed to combat money-laundering activities in determining whether to approve a merger or other acquisition application of an FDIC-insured institution. As such, if we or First Clover Leaf Bank were to engage in a merger or other acquisition, the effectiveness of its anti-money-laundering controls would be considered as part of the application process. First Clover Leaf Bank believes it has established policies, procedures and systems that comply with the applicable requirements of the law.

Holding Company Regulation

General. First Clover Leaf Financial Corp. is a unitary savings and loan holding company, subject to regulation and supervision by the Office of Thrift Supervision. The Office of Thrift Supervision has enforcement authority over First Clover Leaf Financial Corp. and its non-savings institution subsidiaries. Among other things, this authority permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a risk to First Clover Leaf Bank. The Dodd-Frank Act regulatory restructuring transfers to the Federal Reserve Board the responsibility for regulating and supervising savings and loan holding companies. That will occur one year from the July 21, 2010 effective date of the Dodd-Frank Act, subject to a possible six-month extension.

First Clover Leaf Financial Corp. is limited to the activities permissible for financial holding companies or for multiple savings and loan holding companies. A financial holding company may engage in activities that are financial in nature, including underwriting equity securities and insurance, incidental to financial activities or complementary to a financial activity. The Dodd-Frank Act added that any savings and loan holding company that engages in activities permissible for a financial holding company must meet the qualitative requirements for a bank holding company to be a financial holding company and conduct the activities in accordance with the requirements that would apply to a financial holding company’s conduct of the activity. A multiple savings and loan holding company is generally limited to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the Office of Thrift Supervision, and certain additional activities authorized by Office of Thrift Supervision regulations.

Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring control of another savings institution or holding company thereof, without prior written approval of the Office of Thrift Supervision. It also prohibits the acquisition or retention of, with specified exceptions, more than 5% of the equity securities of a company engaged in activities that are not closely related to banking or financial in nature or acquiring or retaining control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings institutions, the Office of Thrift Supervision must consider the financial and managerial resources and future prospects of the savings institution involved, the effect of the acquisition on the risk to the insurance fund, the convenience and needs of the community and competitive factors.

Savings and loan holding companies are not currently subject to specific regulatory capital requirements. The Dodd-Frank Act, however, requires the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. Instruments such as cumulative preferred stock and trust preferred securities will no longer be includable as Tier 1 capital, as is currently the case with bank holding companies. Instruments issued by May 19, 2010 will be grandfathered for companies with consolidated assets of $15 billion or less. There is a five-year transition period (from the July 21, 2010 effective date of the Dodd-Frank Act) before the capital requirements will apply to savings and loan holding companies.

The Dodd-Frank Act also extends the “source of strength” doctrine to savings and loan holding companies. The regulatory agencies must issue regulations requiring that all bank and savings and loan holding companies serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

Federal Securities Laws

First Clover Leaf Financial Corp.’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. First Clover Leaf Financial Corp. is subject to the information, proxy solicitation, insider trader restrictions and other requirements under the Securities Exchange Act of 1934.

First Clover Leaf Financial Corp. common stock held by persons who are affiliates (generally officers, directors and principal stockholders) of First Clover Leaf Financial Corp. may not be resold without registration or unless sold in accordance with certain resale restrictions. If First Clover Leaf Financial Corp. meets specified current public information requirements, each affiliate of First Clover

Leaf Financial Corp. is able to sell in the public market, without registration, a limited number of shares in any three-month period.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act of 2002, our Chief Executive Officer and Chief Financial Officer each are required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the Sarbanes-Oxley Act of 2002 have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal controls; they have made certain disclosures to our auditors and the audit committee of the board of directors about our internal controls; and they have included information in our quarterly and annual reports about their evaluation and whether there have been significant changes in our internal controls or in other factors that could significantly affect internal controls.

TAXATION

Federal Taxation

General. First Clover Leaf Financial Corp. and First Clover Leaf Bank file a consolidated tax return and are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. First Clover Leaf Financial Corp.’s and First Clover Leaf Bank’s tax returns have not been audited during the past five years. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to First Clover Leaf Financial Corp. or First Clover Leaf Bank.

Method of Accounting. For federal income tax purposes, First Clover Leaf Financial Corp. and First Clover Leaf Bank currently report their income and expenses on the accrual method of accounting and use a tax year ending December 31 for filing their federal income tax returns.

Bad Debt Reserves. Prior to the Small Business Protection Act of 1996 (the “1996 Act”), we were permitted to establish a reserve for bad debts and to make annual additions to the reserve. These additions could, within specified formula limits, be deducted in arriving at our taxable income. We were required to use the specific charge off method in computing our bad debt deduction beginning with our 1996 federal tax return. Savings institutions were required to recapture any excess reserves over those established as of December 31, 1987 (base year reserve). At December 31, 2010, First Clover Leaf Bank had no reserves subject to recapture.

Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt reserves created prior to January 1, 1988 were subject to recapture into taxable income if First Clover Leaf Bank failed to meet certain thrift asset and definitional tests. Federal legislation has eliminated these thrift related recapture rules. At December 31, 2010, our total federal pre-1988 base year reserve was approximately $3.0 million. However, under current law, pre-1988 base year reserves remain subject to recapture if First Clover Leaf Bank makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter.

Alternative Minimum Tax. The Internal Revenue Code of 1986, as amended (the “Code”) imposes an alternative minimum tax (“AMT”) at a rate of 20% on a base of regular taxable income plus certain tax preferences (“alternative minimum taxable income” or “AMTI”). The AMT is payable to the extent such AMTI is in excess of an exemption amount and the AMT exceeds the regular income tax. Net operating losses can offset no more than 90% of AMTI. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. First Clover Leaf Bank has not been subject to the alternative minimum tax and has no such amounts available as credits for carryover.

Net Operating Loss Carryovers. A financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. At December 31, 2010, First Clover Leaf Bank had no net operating loss carryforwards for federal income tax purposes.

Corporate Dividends-Received Deduction. First Clover Leaf Financial Corp. may exclude from its income 100% of dividends received from First Clover Leaf Bank as a member of the same affiliated group of corporations. The corporate dividends-received deduction is 80% in the case of dividends received from corporations with which a corporate recipient does not file a consolidated return, and corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct only 70% of dividends received or accrued on their behalf.

State Taxation

Illinois State Taxation. First Clover Leaf Financial Corp. is required to file Illinois income tax returns and pay tax at a stated tax rate of 7.30% of Illinois taxable income. For these purposes, Illinois taxable income generally means federal taxable income subject to certain modifications, primarily the exclusion of interest income on United States obligations. Effective January 1, 2011 the stated Illinois income tax rate increased to 9.50%.

ITEM 1A. RISK FACTORS

The risks set forth below, in addition to the other risks described in this Annual Report on Form 10-K, may adversely affect our business, financial condition and operating results. In addition to the risks set forth below and the other risks described in this annual report, there may also be additional risks and uncertainties that are not currently known to us or that we currently deem to be immaterial that could materially and adversely affect our business, financial condition or operating results. As a result, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. Further, to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

Financial reform legislation recently enacted by Congress will, among other things, tighten capital standards, create a new Consumer Financial Protection Bureau and result in new laws and regulations that are expected to increase our costs of operations.

Congress recently enacted the Dodd-Frank Act. This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare

numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years.

Certain provisions of the Dodd-Frank Act are expected to have a near term effect on us. For example, the new law provides that the Office of Thrift Supervision, which is the current primary federal regulator for First Clover Leaf Bank, will cease to exist one year from the date of the new law’s enactment. The Office of the Comptroller of the Currency, which is currently the primary federal regulator for national banks, will become the primary federal regulator for federal thrifts. Moreover, the Board of Governors of the Federal Reserve System will supervise and regulate all savings and loan holding companies that were formerly regulated by the Office of Thrift Supervision, including First Clover Leaf Financial Corp.

Also effective one year after the date of enactment is a provision of the Dodd-Frank Act that eliminates the federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. Depending on competitive responses, this significant change to existing law could have an adverse effect on our interest expense.

The Dodd-Frank Act also broadens the base for Federal Deposit Insurance Corporation insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2012.

The Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and authorizes the Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not.

The Dodd-Frank Act creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets will be examined by their applicable bank regulators. The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national banks and federal savings associations, and gives state attorneys general the ability to enforce federal consumer protection laws.

It is difficult to predict at this time what specific impact the Dodd-Frank Act and the yet to be written implementing rules and regulations will have on community banks. However, it is expected that at a minimum they will increase our operating and compliance costs and could increase our interest expense.

Future legislative or regulatory actions responding to perceived financial and market problems could impair our ability to collect our loans and foreclose on collateral.

There have been proposals made by members of Congress and others that would reduce the amount distressed borrowers are otherwise contractually obligated to pay under their mortgage loans and limit an institution’s ability to foreclose on mortgage collateral. Were proposals such as these, or other proposals limiting our rights as a creditor, to be implemented, we could experience increased credit losses or increased expense in pursuing our remedies as a creditor. In addition, there have been legislative proposals to create a federal consumer protection agency that may, among other powers, have the ability to limit our rights as a creditor.

Concentration of loans in our primary market area, which has recently experienced an economic downturn, may increase risk.

Our success depends primarily on the general economic conditions in the St. Louis metropolitan area, as nearly all of our loans are to customers in this market. Accordingly, the local economic conditions in this market have a significant impact on the ability of borrowers to repay loans as well as our ability to originate new loans. As such, a continuation of the weakness in real estate values in this market would also lower the value of the collateral securing loans on properties in our market. In addition, a continued weakening in general economic conditions caused by inflation, recession, unemployment or other factors beyond our control could negatively affect our financial results.

Risks Related to Recent Economic Conditions and Governmental Response Efforts

Our business has been and may continue to be adversely affected by current conditions in the financial markets and economic conditions generally. The global, United States and St. Louis economies are experiencing significantly reduced business activity and consumer spending as a result of, among other factors, disruptions in the capital and credit markets. Dramatic declines in the housing market, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. A sustained weakness or weakening in business and economic conditions generally or specifically in the principal markets in which we do business could have one or more of the following adverse effects on our business:

• a decrease in the demand for loans or other products and services offered by us;

• a decrease in the value of our loans or other assets secured by residential or commercial real estate;

• a decrease in deposit balances due to overall reductions in the accounts of customers;

• an impairment of our investment securities;

• an increase in the number of borrowers who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to us. An increase in the number of delinquencies, bankruptcies or defaults could result in a higher level of nonperforming assets, net charge-offs and provision for credit losses, which would reduce our earnings.

Any future Federal Deposit Insurance Corporation insurance premium increases will adversely affect our earnings.

On May 22, 2009, the Federal Deposit Insurance Corporation adopted a final rule levying a five basis point special assessment on each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009. We recorded an expense of $280,000 during the quarter ended June 30, 2009, to reflect the special assessment. Any further special assessments that the Federal Deposit Insurance Corporation levies will be recorded as an expense during the appropriate period. In addition, the Federal Deposit Insurance Corporation increased the general assessment rate and our prior credits for federal deposit insurance were fully utilized during the quarter ended June 30, 2009.

Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and our income.

In response to the developments described above, Congress has taken actions that are intended to strengthen confidence and encourage liquidity in financial institutions, and the Federal Deposit Insurance Corporation has taken actions to increase insurance coverage on deposit accounts.

The potential exists for additional federal or state laws and regulations, or changes in policy, regarding lending and funding practices and liquidity standards, and bank regulatory agencies have been active in responding to concerns and trends identified in examinations, and have issued many formal enforcement orders. Bank regulatory agencies, such as the Office of Thrift Supervision and the Federal Deposit Insurance Corporation, govern the activities in which we may engage, primarily for the protection of depositors, and not for the protection or benefit of potential investors. In addition, new laws, regulations, and other regulatory changes may increase our costs of regulatory compliance and of doing business, and otherwise affect our operations. New laws, regulations, and other regulatory changes may significantly affect the markets in which we do business, the markets for and value of our loans and investments, and our ongoing operations, costs and profitability. Proposals limiting our rights as a creditor could result in credit losses or increased expense in pursuing our remedies as a creditor.

If our investment in the common stock of the Federal Home Loan Bank of Chicago is classified as other-than-temporarily impaired or as permanently impaired, our earnings and stockholders’ equity could decrease.

We own common stock of the Federal Home Loan Bank of Chicago. We hold this stock to qualify for membership in the Federal Home Loan Bank System and to be eligible to borrow funds under the Federal Home Loan Bank of Chicago’s advance program. The aggregate cost and fair value of our Federal Home Loan Bank of Chicago common stock as of December 31, 2010 was $6.3 million based on its par value. Federal Home Loan Bank common stock is not a marketable security and can only be redeemed by the Federal Home Loan Bank. However, the Federal Home Loan Bank of Chicago is currently not repurchasing excess stock outstanding.

In addition, Federal Home Loan Banks may be subject to accounting rules and asset quality risks that could materially lower their regulatory capital. In an extreme situation, it is possible that the capitalization of a Federal Home Loan Bank, including the Federal Home Loan Bank of Chicago, could be substantially diminished or reduced to zero. Consequently, we believe that there is a risk that our investment in Federal Home Loan Bank of Chicago common stock could be deemed impaired at some time in the future, and if this occurs, it would cause our earnings and stockholders’ equity to decrease by the after-tax amount of the impairment charge.

Our earnings have been negatively affected by the suspension of dividends by the Federal Home Loan Bank of Chicago since the fourth quarter of 2007 on its common stock.

The Federal Home Loan Bank of Chicago suspended dividend payments beginning with the fourth quarter of 2007. They did reinstate their dividend payments in the first quarter of 2011, paying a dividend of 0.10%. However, there is no guarantee that we will continue to receive dividends from the Federal Home Loan Bank of Chicago in the near future. We received $129,000 in total dividends from the Federal Home Loan Bank of Chicago during fiscal 2007, and the failure of the Federal Home Loan Bank of Chicago to pay dividends for any quarter will reduce our earnings during that quarter. In addition, the Federal Home Loan Bank of Chicago is an important source of liquidity for us, and any restrictions on their operations may hinder our ability to use it as a liquidity source.

We may face increasing deposit-pricing pressures, which may, among other things, reduce our profitability.

Checking and savings account balances and other forms of deposits can decrease when our deposit customers perceive alternative investments, such as the stock market or other non-depository investments, as providing superior expected returns or seek to spread their deposits over several banks to maximize FDIC insurance coverage. Furthermore, technology and other changes have made it more convenient for bank customers to transfer funds into alternative investments, including products offered by other financial institutions or non-bank service providers. Additional increases in short-term interest rates could increase transfers of deposits to higher yielding deposits. Efforts and initiatives we undertake to retain and increase deposits, including deposit pricing, can increase our costs. When bank customers move money out of bank deposits in favor of alternative investments or into higher yielding deposits, or spread their accounts over several banks, we can lose a relatively inexpensive source of funds, thus increasing our funding costs.

An Inadequate Allowance for Loan Losses Would Negatively Impact Our Results of Operations.

We are exposed to the risk that our customers will be unable to repay their loans according to their terms and that any collateral securing the payment of their loans will not be sufficient to avoid losses. Credit losses are inherent in the lending business and could have a material adverse effect on our operating results. Volatility and deterioration in the broader economy may also increase our risk of credit losses. The determination of an appropriate level of allowance for loan losses is an inherently uncertain process and is based on numerous assumptions. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, that may be beyond our control, and charge-offs may exceed current estimates. We evaluate the collectability of our loan portfolio and provide an allowance for loan losses that we believe is adequate based upon such factors as, including, but not limited to: the risk characteristics of various classifications of loans; previous loan loss experience; specific loans that have loss potential; delinquency trends; the estimated fair market value of the collateral; current economic conditions; the views of our regulators; and geographic and industry loan concentrations. If any of our evaluations are incorrect and borrower defaults result in losses exceeding our allowance for loan losses, our results of operations could be significantly and adversely affected. We cannot assure you that our allowance will be adequate to cover probable loan losses inherent in our portfolio.

The Need to Account for Assets at Market Prices May Adversely Affect Our Results of Operations.

We report certain assets, including investments and securities, at fair value. Generally, for assets that are reported at fair value we use quoted market prices or valuation models that utilize market data inputs to estimate fair value. Because we carry these assets on our books at their fair value, we may incur losses even if the asset in question presents minimal credit risk. Given the continued disruption in the capital markets, we may be required to recognize other-than-temporary impairments in future periods with respect to securities in our portfolio. The amount and timing of any impairment recognized will depend on the severity and duration of the decline in fair value of the securities and our estimation of the anticipated recovery period.

Our Commercial Real Estate, Commercial Business and Construction Loans Expose Us to Increased Credit Risks.

At December 31, 2010, our portfolio of commercial real estate loans totaled $160.8 million, or 39.9% of total loans, our commercial business loan portfolio totaled $51.7 million, or 12.8% of total loans, and our portfolio of construction and land loans totaled $53.6 million, or 13.3% of total loans. We plan to continue to emphasize the origination of these types of loans. Commercial real estate, commercial business and construction loans generally have greater credit risk than one- to four-family residential mortgage loans because repayment of these loans often depends on the successful business operations of the borrowers. These loans typically have larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Many of our borrowers also have more than one commercial real estate, commercial business or construction loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship may expose us to significantly greater risk of loss, compared to an adverse development with respect to a one- to four-family residential mortgage loan.

Changes in the Value of Goodwill and Intangible Assets Could Reduce Our Earnings and Stockholders’ Equity.

We are required by U.S. generally accepted accounting principles to test goodwill and other intangible assets for impairment at least annually. Testing for impairment of goodwill and intangible assets involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used. As of December 31, 2010, if our goodwill and intangible assets were fully impaired and we were required to charge-off all of our goodwill and intangible assets, the pro forma reduction to our stockholders’ equity would be approximately $1.60 per share. However, we performed our annual evaluation for impairment of goodwill and intangible assets as of September 30, 2010, and it is management’s opinion that we were not impaired at that time.

Our ability to originate mortgage loans for portfolio has been adversely affected by the increased competition resulting from the unprecedented involvement of the U.S. government and GSEs in the residential mortgage market.

Over the past few years, we have faced increased competition for mortgage loans due to the unprecedented involvement of government-sponsored entities (“GSEs”) in the mortgage market. This involvement is a result of the recent economic crisis and has caused the interest rate for thirty year fixed-rate mortgage loans that conform to the GSEs’ loan purchase guidelines to remain exceptionally low. We

originate and purchase such conforming loans and retain them for portfolio. In addition, the U.S. Congress recently extended through September 2011 the expanded GSE conforming loan limits in many of our operating markets, allowing larger balance loans to be acquired by the GSEs, and more loans in our portfolio qualified under the expanding conforming loan limits and were refinanced into fixed-rate mortgages. As a result of these factors, we expect that our one-to four-family loan repayments will remain at elevated levels, making it difficult for us to grow our mortgage loan portfolio. Accordingly, we are likely to experience a decrease in the size of our balance sheet while current economic conditions prevail.

Both Fannie Mae and Freddie Mac are under conservatorship with the Federal Housing Finance Agency, an agency of the U.S. government. On February 11, 2011, the Obama administration presented the U.S. Congress with a report of its proposals for reforming America’s housing finance market with the goal of scaling back the role of the U.S. government in, and promoting the return of private capital to, the mortgage markets and ultimately winding down Fannie Mae and Freddie Mac. Without mentioning a specific time frame, the report calls for the reduction of the role of Fannie Mae and Freddie Mac in the mortgage markets by, among other things, reducing conforming loan limits, increasing guarantee fees and requiring larger down payments by borrowers. The report presents three options for the long-term structure of housing finance, all of which call for the unwinding of Fannie Mae and Freddie Mac and a reduced role of the government in the mortgage market: (i) a system with U.S. government insurance limited to a narrowly targeted group of lower- and moderate-income borrowers; (ii) a system similar to (i) above except with an expanded guarantee during times of crisis; and (iii) a system where the U.S. government offers reinsurance for the securities of a broad range of mortgages behind significant private capital. We cannot be certain if or when Fannie Mae and Freddie Mac will be wound down, if or when reform of the housing finance market will be implemented or what the future role of the U.S. government will be in the mortgage market, and, accordingly, we will not be able to determine the impact that any such reform may have on us until a definitive reform plan is adopted.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

The following table provides certain information with respect to our offices as of December 31, 2010:

Location	Leased or Owned	Year Acquired	Net Book Value of Real Property
			(In thousands)
Main Office 6814 Goshen Road Edwardsville, Illinois 62025	Owned	2006	$ 2,381

2143 Route 157 Edwardsville, Illinois 62025	Owned	2006	954

300 St. Louis Street Edwardsville, Illinois 62025	Owned	1964	1,656

1046 E. Madison St Wood River, Illinois 62095	Owned	2008	1,898

The net book value of our premises, land and equipment was approximately $10.6 million at December 31, 2010. In 2008, we purchased land in Highland, Illinois for possible future branch expansion. First Clover Leaf Bank continues to pursue other expansion opportunities.

ITEM 3. LEGAL PROCEEDINGS

We are involved, from time to time, as plaintiff or defendant in various legal actions arising in the normal course of our business. At December 31, 2010, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations.

ITEM 4. [REMOVED AND RESERVED]

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED

STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY

SECURITIES

(a)

The information required by this item is incorporated by reference to our Annual Report to Stockholders which is attached as Exhibit 13 hereto. No equity securities were sold during the year ended December 31, 2010 that were not registered under the Securities Act.

(b)

Not applicable.

(c)

The following table presents for the periods indicated a summary of the purchases made by or on behalf of First Clover Leaf Financial Corp. of shares of its common stock.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)
October 1, 2010 through October 31, 2010		1,637	$	5.77		1,637		21,863
November 1, 2010 through November 30, 2010		20,619	$	6.43		20,619		26,244
December 1, 2010 through December 31, 2010		1,244	$	6.17		1,244		25,000
Total		23,500				23,500

___________________

(1)

The Company’s board of directors approved a stock repurchase program on November 12, 2008 for the repurchase of up to 924,480 shares of common stock, and on December 11, 2008, they increased the number of shares that may be repurchased pursuant to that plan by an additional 382,641 shares. Additional increases to that plan were made on April 27, 2010 and November 23, 2010 for 25,000 shares, respectively.

ITEM 6. SELECTED FINANCIAL DATA

Incorporated by reference to our Annual Report to Stockholders included as Exhibit 13 to this Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The information contained in the section captioned “Management’s Discussion and Analysis of First Clover Leaf Financial Corp.’s Financial Condition and Results of Operations” is incorporated herein by reference to our Annual Report to Stockholders included as Exhibit 13 to this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Incorporated by reference to the Annual Report to Stockholders included as Exhibit 13 to this Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements included in our Annual Report to Stockholders included as Exhibit 13 to this Form 10-K are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in timely alerting them to the material information relating to us (or our consolidated subsidiaries) required to be included in our periodic SEC filings.

There were no significant changes made in our internal controls during the period covered by this report or, to our knowledge, in other factors that could significantly affect these controls subsequent to the date of their evaluation.

(b) Management’s annual report on internal control over financial reporting.

Management of First Clover Leaf Financial Corp. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control-Integrated Framework.” Based on the assessment, management determined that, as of December 31, 2010, the Company’s internal control over financial reporting is effective, based on those criteria.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to provisions of the Dodd-Frank Act that permit the Company to provide only the management’s report in this annual report.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information concerning directors and executive officers of First Clover Leaf Financial Corp. is incorporated herein by reference from the Proxy Statement, specifically the section captioned “Proposal I—Election of Directors.”

ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive compensation is incorporated herein by reference from the Proxy Statement; specifically the section captioned “Executive Compensation.”

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information concerning security ownership of certain owners and management is incorporated herein by reference from the Proxy Statement, specifically the section captioned “Voting Securities and Principal Holder Thereof.”

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND

DIRECTOR INDEPENDENCE

Information concerning relationships and transactions is incorporated herein by reference from the Proxy Statement, specifically the section captioned “Transactions with Certain Related Persons.”

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information concerning principal accountant fees and services is incorporated herein by reference from the Proxy Statement; specifically the section captioned “Proposal II-Ratification of Appointment of Auditors.”

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following exhibits are either filed or attached as part of this report or are incorporated herein by reference:

3.1

Articles of Incorporation of First Clover Leaf Financial Corp. (1)

3.2

Bylaws of First Clover Leaf Financial Corp. (1)

Form of common stock certificate of First Clover Leaf Financial Corp. (1)

10.1

Employee Stock Ownership Plan (2)

10.2

Description of Bonus Plan (2)

10.3

[Reserved]

10.4

Amended and Restated Employment Agreement of Dennis M. Terry (4)

10.5

Amended and Restated Employment Agreement of Lisa M. Fowler (4)

10.6

Amended and Restated Employment Agreement of Darlene F. McDonald (4)

10.7

Employment Agreement of Brad S. Rench (5)

10.8

Amendment to Amended and Restated Employment Agreement of Dennis M. Terry

Portions of Annual Report to Stockholders

Code of Conduct (3)

Subsidiaries of the Registrant

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

______________________________

(1)	Incorporated by reference to the Registration Statement on Form SB-2 of First Clover Leaf Financial Corp. (File No. 333-132423), originally filed with the Securities and Exchange Commission on March 14, 2006.

(2)	Incorporated by reference to the Registration Statement on Form SB-2 of First Federal Financial Services, Inc. (File No. 333- 113615), originally filed with the Securities and Exchange Commission on March 15, 2004.

(3)	Incorporated by reference to the Annual Report on Form 10-KSB of First Federal Financial Services, Inc for the year ended December 31, 2004, filed with the Commission on March 31, 2005.

(4)	Incorporated by reference to the Annual Report on Form 10-KSB of First Clover Leaf Financial Corp. for the year ended December 31, 2006, filed with the Commission on April 2, 2007.

(5)	Incorporated by reference to the Annual Report on Form 10-K of First Clover Leaf Financial Corp. for the year ended December 31, 2009, filed with the Commission on March 31, 2010.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	First Clover Leaf Financial Corp.

Date: March 31, 2011	By:	/s/ Dennis M. Terry
		Dennis M. Terry, President and
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ Dennis M. Terry	By:	/s/ Joseph Helms
	Dennis M. Terry, President, and Chief		Joseph Helms
	Executive Officer and Director		Chairman of the Board
	(Principal Executive Officer)

Date: March 31, 2011		Date: March 31, 2011

By:	/s/ Darlene F. McDonald	By:	/s/ Nina Baird
	Darlene F. McDonald, Senior Vice President		Nina Baird
	and Chief Financial Officer		Director
	(Principal Financial and Accounting Officer)

Date: March 31, 2011		Date: March 31, 2011

By:	/s/ Joseph J. Gugger	By:	/s/ Kenneth Highlander
	Joseph J. Gugger		Kenneth Highlander
	Director		Director

Date: March 31, 2011		Date: March 31, 2011

By:	/s/ Gary Niebur	By:	/s/ Gerard Schuetzenhofer
	Gary Niebur		Gerard Schuetzenhofer
	Director		Director

Date: March 31, 2011		Date: March 31, 2011


By:	/s/ Robert W. Schwartz	By:	/s/ Joseph Stevens
	Robert W. Schwartz		Joseph Stevens
	Director		Director

Date: March 31, 2011		Date: March 31, 2011

By:	/s/ Dennis Ulrich
	Dennis Ulrich
	Director

Date: March 31, 2011

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