First Clover Leaf Financial Corp. - FORM 10-Q

Attached files

file	filename
EX-32 - EXHIBIT 32 - First Clover Leaf Financial Corp.	ex32.htm
EX-31.2 - EXHIBIT 31.2 - First Clover Leaf Financial Corp.	ex31_2.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-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 2011

o 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 000-50820

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, IL	62025
(Address of principal executive office)	(Zip Code)

Registrant's telephone number, including area code (618) 656-6122

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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 for such shorter period that the registrant was required to submit and post such files).

Yes o No o

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 o	Accelerated filer o

	Non-accelerated filer o (do not check if smaller reporting company)	Smaller reporting company x

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

Yes o No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class	Outstanding August 11, 2011
Common Stock, par value $.10 per share	7,857,367

FIRST CLOVER LEAF FINANCIAL CORP.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2011

INDEX

		PAGE NO.


PART I - Financial Information

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets		3

Consolidated Statements of Income		4

Consolidated Statements of Comprehensive Income		5

Consolidated Statements of Cash Flows		6

Notes to Consolidated Financial Statements		8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		31

Item 3. Quantitative and Qualitative Disclosures about Market Risk		44

Item 4. Controls and Procedures		47

PART II - Other Information

Item 1. Legal Proceedings		48

Item 1A. Risk Factors		48

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		48

Item 3. Defaults Upon Senior Securities		48

Item 4. [Reserved]		48

Item 5. Other Information		48

Item 6. Exhibits		49

Signatures		50

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Balance Sheets

(Unaudited)

	June 30,			December 31,
	2011			2010
Assets

Cash and due from banks	$	12,059,698		$	11,294,266
Interest-earning deposits		11,590,704			12,773,854
Federal funds sold		31,317,517			42,184,927
Total cash and cash equivalents		54,967,919			66,253,047

Interest-earning time deposits		1,724,217			1,718,651
Securities available for sale		84,699,051			78,474,908
Federal Home Loan Bank stock		6,306,273			6,306,273
Loans, net of allowance for loan losses of $4,819,872 and $5,728,395
at June 30, 2011 and December 31, 2010, respectively		384,356,445			387,567,638
Property and equipment, net		10,367,754			10,562,321
Goodwill		11,385,323			11,385,323
Core deposit intangible		965,320			1,120,000
Foreclosed assets		4,457,982			3,844,347
Mortgage servicing rights		626,629			601,325
Accrued interest receivable		1,909,312			1,866,511
Prepaid Federal Deposit Insurance Corporation insurance premiums		1,961,586			2,301,408
Other assets		2,954,415			2,968,232
Total assets	$	566,682,226		$	574,969,984

Liabilities and Stockholders' Equity

Liabilities:
Deposits:
Non-interest-bearing	$	33,035,456		$	34,172,434
Interest-bearing		401,014,707			413,310,775
Total deposits		434,050,163			447,483,209

Federal Home Loan Bank advances		21,933,000			21,924,000
Securities sold under agreements to repurchase		25,071,309			21,457,075
Subordinated debentures		4,000,000			3,974,272
Accrued interest payable		454,602			561,687
Other liabilities		2,446,902			2,236,302
Total liabilities		487,955,976			497,636,545

Stockholders' Equity
Preferred stock, $.10 par value, 10,000,000 shares authorized,
no shares issued		-			-
Common stock, $.10 par value, 20,000,000 shares authorized,
7,864,121 and 7,887,702 shares issued and outstanding at
June 30, 2011 and December 31, 2010, respectively		786,412			788,770
Additional paid-in capital		61,958,682			62,116,845
Retained earnings		15,370,998			14,384,059
Accumulated other comprehensive income		1,159,205			614,774
Unearned Employee Stock Ownership Plan shares		(549,047	)		(571,009	)
Total stockholders' equity		78,726,250			77,333,439

Total liabilities and stockholders' equity	$	566,682,226		$	574,969,984

See Notes to Consolidated Financial Statements.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Statements of Income

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2011			2010		2011			2010
Interest and dividend income:
Interest and fees on loans	$	5,324,255		$	5,645,767	$	10,724,286		$	11,385,480
Securities:
Taxable interest income		464,847			577,578		899,278			1,224,991
Non-taxable interest income		170,104			130,246		333,716			284,521
Federal Home Loan Bank dividends		1,555			-		3,145			-
Interest-earning deposits, federal funds sold, and other		28,475			22,688		53,283			41,726
Total interest and dividend income		5,989,236			6,376,279		12,013,708			12,936,718

Interest expense:
Deposits		1,500,518			1,940,424		3,115,150			3,980,591
Federal Home Loan Bank advances		127,548			262,750		253,278			605,179
Securities sold under agreements to repurchase		2,278			5,922		7,893			12,374
Subordinated debentures		22,540			55,551		70,729			129,252
Total interest expense		1,652,884			2,264,647		3,447,050			4,727,396

Net interest income		4,336,352			4,111,632		8,566,658			8,209,322

Provision for loan losses		475,000			400,000		775,000			823,000

Net interest income after provision for loan losses		3,861,352			3,711,632		7,791,658			7,386,322

Other income:
Service fees on deposit accounts		97,992			98,649		191,742			182,270
Other service charges and fees		89,606			95,063		172,197			179,603
Loan servicing fees		40,758			49,835		87,765			98,898
Gain on sale or call of securities		105,348			463,221		106,144			463,221
Gain on sale of loans		170,697			98,236		201,461			164,997
Other		(6,973	)		4,677		(11,743	)		19,551
		497,428			809,681		747,566			1,108,540

Other expenses:
Compensation and employee benefits		1,253,760			1,164,193		2,462,507			2,329,078
Occupancy expense		305,218			338,872		628,035			693,634
Data processing services		162,456			168,688		323,815			333,813
Director fees		35,900			49,800		71,000			100,450
Professional fees		130,940			104,323		260,403			141,321
Federal Deposit Insurance Corporation insurance premiums		182,875			198,893		362,580			393,976
Real estate owned expense		139,074			48,825		326,024			98,752
Amortization of core deposit intangible		77,330			99,000		154,680			198,000
Amortization of mortgage servicing rights		24,696			22,248		62,956			48,381
Other		460,404			341,815		892,485			701,260
		2,772,653			2,536,657		5,544,485			5,038,665

Income before income taxes		1,586,127			1,984,656		2,994,739			3,456,197

Income tax expense		572,867			705,264		1,075,598			1,216,293

Net income	$	1,013,260		$	1,279,392	$	1,919,141		$	2,239,904

Basic and diluted earnings per share (see Note 6)	$	0.13		$	0.16	$	0.25		$	0.29
Dividends per share	$	0.06		$	0.06	$	0.12		$	0.12

See Notes to Consolidated Financial Statements.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010

Net income	$	1,013,260		$	1,279,392		$	1,919,141		$	2,239,904
Other comprehensive income:
Unrealized gains on securities
arising during the period, net of tax		394,949			89,468			612,894			11,980
Reclassification adjustment for realized
gains included in income, net of tax		(67,950	)		(298,778	)		(68,463	)		(298,778	)
Comprehensive income	$	1,340,259		$	1,070,082		$	2,463,572		$	1,953,106

See Notes to Consolidated Financial Statements.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
	2011			2010
Cash Flows from Operating Activities
Net income	$	1,919,141		$	2,239,904
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization (accretion) of:
Deferred loan origination costs, net		2,257			14,488
Premiums and discounts on securities		54,186			(491,960	)
Core deposit intangible		154,680			198,000
Mortgage servicing rights		62,956			48,381
Amortization of fair value adjustments on:
Loans		(28,200	)		(33,400	)
Time deposits		(15,000	)		(26,000	)
Federal Home Loan Bank advances		9,000			(6,000	)
Subordinated debt		25,728			22,032
Investment securities		(35,255	)		(26,500	)
Property and equipment		8,036			8,036
Provision for loan losses		775,000			823,000
Depreciation		283,359			307,400
ESOP expense		30,143			27,815
Gain on sale or call of securities available for sale		(106,144	)		(463,221	)
Gain on sale of loans		(201,461	)		(164,997	)
Loss on sale of property and equipment		-			2,196
Loss on sale of foreclosed assets		35,311			3,216
Proceeds from sales of loans held for sale		10,231,008			6,774,614
Originations of loans held for sale		(10,029,547	)		(5,771,217	)
Change in assets and liabilities:
Decrease in prepaid Federal Deposit Insurance Corporation
insurance premiums		339,822			357,744
Decrease (increase) in accrued interest receivable		(42,801	)		246,959
Increase in mortgage servicing rights		(88,260	)		(63,452	)
Decrease (increase) in other assets		13,817			(206,423	)
Decrease in accrued interest payable		(107,085	)		(509,484	)
Increase (decrease) in other liabilities		(109,144	)		1,246,156
Net cash flows provided by operating activities		3,181,547			4,557,287

Cash Flows from Investing Activities
Purchase of interest-earning time deposits		(5,566	)		(1,700,000	)
Available for sale securities:
Purchases		(53,453,386	)		(122,725,094	)
Proceeds from calls, maturities, and paydowns		46,075,282			118,215,779
Proceeds from sales		2,105,349			9,338,631
Decrease in loans		202,354			9,962,748
Purchase of property and equipment		(96,828	)		(61,948	)
Proceeds from the sale of foreclosed assets		1,610,836			465,797
Net cash flows provided by (used in) investing activities		(3,561,959	)		13,495,913

(Continued)

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Statements of Cash Flows (Continued)

(Unaudited)

	Six Months Ended June 30,
	2011			2010
Cash Flows from Financing Activities
Net decrease in deposit accounts	$	(13,418,046	)	$	(13,474,249	)
Net increase in securities sold under agreements to repurchase		3,614,234			2,235,787
Repayments of Federal Home Loan Bank advances		-			(12,500,000	)
Repurchase of common stock		(168,702	)		(160,398	)
Cash dividends paid		(932,202	)		(939,033	)
Net cash flows used in financing activities		(10,904,716	)		(24,837,893	)

Net decrease in cash and cash equivalents		(11,285,128	)		(6,784,693	)

Cash and cash equivalents at beginning of period		66,253,047			47,996,754

Cash and cash equivalents at end of period	$	54,967,919		$	41,212,061

Supplemental Schedule of Noncash Investing Activities
Assets acquired in settlement of loans	$	2,259,782		$	1,221,677

Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest	$	3,534,407		$	5,246,848
Income taxes, net of refunds		880,000			440,000

See Notes to Consolidated Financial Statements.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

The information contained in the accompanying consolidated financial statements is unaudited. In the opinion of management, the consolidated financial statements contain all adjustments necessary for a fair statement of the results of operations for the interim periods. All such adjustments are of a normal recurring nature. Any differences appearing between the numbers presented in the financial statements and management’s discussion and analysis are due to rounding. The results of operations for the interim periods are not necessarily indicative of the results which may be expected for the entire fiscal year. These consolidated financial statements should be read in conjunction with the consolidated financial statements of First Clover Leaf Financial Corp. (the “Company” or “First Clover Leaf”) for the year ended December 31, 2010 contained in the 2010 Annual Report to Stockholders that is filed as Exhibit 13 to the Company’s Annual Report on Form 10-K. Accordingly, footnote disclosures which would substantially duplicate the disclosures in the audited consolidated financial statements have been omitted.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the reported periods. Actual results could differ from those estimates.

The Company is a Maryland corporation that was incorporated in March 2006 as the successor corporation to First Federal Financial Services, Inc., in connection with the July 2006 “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. The accompanying interim consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, First Clover Leaf Bank (the “Bank”) and its wholly owned subsidiary, Clover Leaf Financial Services. First Clover Leaf’s common stock is traded on the NASDAQ Capital Market under the symbol “FCLF.”

Recent accounting pronouncements: The following accounting standards were recently issued relating to the financial services industry:

In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 amended prior guidance to provide a greater level of disaggregated information about the credit quality of loans and leases and the Allowance for Loan and Lease Losses (the “Allowance”). The new authoritative guidance also requires additional disclosures related to credit quality indicators, past due information, and information related to loans modified in a troubled debt restructuring. The new authoritative guidance amends only the disclosure requirements for loans and leases and the Allowance. The Company adopted the period end disclosure provisions of this new authoritative guidance in the reporting period ending December 31, 2010. Adoption of the new guidance did not have an impact on the Company’s statements of income and financial condition. The Company adopted the disclosure provisions of the new authoritative guidance about activity that occurs during a reporting period on January 1, 2011; the adoption did not have an impact on the Company’s statements of income and financial condition. The disclosures related to loans modified in a troubled debt restructuring will be effective for the reporting periods beginning after June 15, 2011 and is not expected to have a material impact on the Company’s statements of income and financial condition.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies (Continued)

In April 2011, the FASB issued ASU 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. The provisions of ASU 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, including factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibits creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and adds factors for creditors to use in determining whether a borrower is experiencing financial difficulties. The provisions of ASU 2011-02 are effective for the interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The Company is currently evaluating the provisions of ASU 2011-02 for their effect on the Company’s financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The provisions of ASU 2011-04 amend FASB ASC Topic 820, clarify the Board’s intent regarding application of existing fair value measurement guidance, and revise certain measurement and disclosure requirements to achieve convergence of U.S. GAAP and International Financial Reporting Standards (IFRS). The amendments clarify the FASB’s intent about the application of the highest-and-best-use and valuation premise and with respect to the measurement of fair value of an instrument classified as equity. The amendment also expands the information required to be disclosed with respect to fair value measurements categorized in Level 3 fair value measurements and the items not measured at fair value but for which fair value must be disclosed. The provisions of ASU 2011-04 are effective for the Company’s first reporting period beginning on January 1, 2012, with early adoption not permitted. The Company is in the process of evaluating the impact of adoption of ASU 2011-04 and does not expect it to have a material impact on the Company’s financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. The provisions of ASU 2011-05 amend FASB ASC Topic 220 “Comprehensive Income” to eliminate the current option to present the components of other comprehensive income in the statement of changes in equity, and require the presentation of net income and other comprehensive income (and their respective components) either in a single continuous statement or in two separate but consecutive statements. The amendments do not alter any current recognition or measurement requirements with respect to items of other comprehensive income. The provisions of ASU 2011-05 are effective for the Company’s first reporting period beginning on January 1, 2012, with early adoption permitted. The Company is in the process of evaluating the impact of adoption of ASU 2011-05 and does not expect it to have a material impact on the Company’s financial statements.

Reclassifications: Certain reclassifications have been made to the balances, with no effect on net income or total stockholders’ equity, for the three and six months ended June 30, 2010 and as of December 31, 2010, to be consistent with the classifications adopted as of and for the three and six months ended June 30, 2011.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 2. Securities

The amortized cost and fair values of securities available for sale, with gross unrealized gains and losses, are summarized as follows:

	June 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Investment Securities:
U.S. government agency obligations	$	40,096,633	$	746,309	$	(5,936	)	$	40,837,006
Corporate bonds		2,096,701		33,267		(11,991	)		2,117,977
State and municipal securities		19,876,265		635,764		(25,559	)		20,486,470
Other securities		3,501		-		-			3,501
Mortgage-backed securities		20,785,832		500,330		(32,065	)		21,254,097

Total Investment Securities available for sale	$	82,858,932	$	1,915,670	$	(75,551	)	$	84,699,051

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Investment Securities:
U.S. government agency obligations	$	41,856,949	$	846,029	$	(12,585	)	$	42,690,393
Corporate bonds		2,096,569		43,509		(82,439	)		2,057,639
State and municipal securities		17,803,252		358,089		(387,070	)		17,774,271
Other securities		3,501		-		-			3,501
Mortgage-backed securities		15,738,693		362,007		(151,596	)		15,949,104

Total Investment Securities available for sale	$	77,498,964	$	1,609,634	$	(633,690	)	$	78,474,908

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 2. Securities (Continued)

Unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2011 and December 31, 2010, are summarized as follows:

	June 30, 2011
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available for sale:
U.S. government agency
obligations	$	2,015,590	$	5,936	$	-	$	-	$	2,015,590	$	5,936
Corporate bonds		-		-		688,009		11,991		688,009		11,991
State and municipal securities		2,532,442		25,559		-		-		2,532,442		25,559
Mortgage-backed securities		2,752,823		32,065		-		-		2,752,823		32,065

	$	7,300,855	$	63,560	$	688,009	$	11,991	$	7,988,864	$	75,551

	December 31, 2010
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available for sale:
U.S. government agency
obligations	$	2,486,130	$	12,585	$	-	$	-	$	2,486,130	$	12,585
Corporate bonds		-		-		617,561		82,439		617,561		82,439
State and municipal securities		8,028,070		387,070		-		-		8,028,070		387,070
Mortgage-backed securities		8,437,418		151,596		-		-		8,437,418		151,596

	$	18,951,618	$	551,251	$	617,561	$	82,439	$	19,569,179	$	633,690

Management evaluates the investment portfolio on at least a quarterly basis to determine if investments have suffered an other-than-temporary decline in value. In addition, management monitors market trends, investment grades, bond defaults and other circumstances to identify trends and circumstances that might impact the carrying value of equity securities.

At June 30, 2011, the Company had 13 securities in an unrealized loss position which included: two U.S. government agency obligations, one corporate bond, seven state and municipal securities, and three mortgage-backed securities. Based on management’s quarterly evaluation, the unrealized losses resulted from changes in market interest rates and liquidity, not from changes in the probability of contractual cash flows. The Company does not intend to sell the securities, and it is not more-likely-than-not that the Company will be required to sell the securities prior to recovery of amortized cost. Full collection of the amounts due according to the contractual terms of the securities is expected; therefore, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2011.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 2. Securities (Continued)

The amortized cost and fair value at June 30, 2011, by contractual maturity, are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Other securities have no stated maturity. Therefore, stated maturities are not disclosed for these two categories.

	Available for Sale
	Amortized Cost		Fair Value
Due in one year or less	$	19,147,733	$	19,383,994
Due after one year through five years		26,477,039		27,269,106
Due after five years through ten years		7,232,691		7,428,692
Due after ten years		9,212,136		9,359,661
Mortgage-backed securities		20,785,832		21,254,097
Other securities		3,501		3,501

	$	82,858,932	$	84,699,051

Securities with a carrying amount of approximately $73,982,000 and $74,023,000 were pledged to secure deposits as required or permitted by law at June 30, 2011 and December 31, 2010, respectively.

Note 3. Loans

The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated:

	June 30, 2011						December 31, 2010
	Amount			Percent			Amount			Percent
Real estate loans:
One-to-four-family	$	116,997,364			29.8	%	$	120,609,290			29.9	%
Multi-family		31,044,160			7.9			25,320,664			6.3
Commercial		120,905,464			30.7			130,031,058			32.3
Construction and land		52,083,684			13.2			52,504,983			13.0
		321,030,672			81.6			328,465,995			81.5

Commercial business		50,412,248			12.8			51,750,005			12.9

Consumer:
Home equity		20,299,384			5.2			20,957,605			5.2
Automobile and other		1,501,430			0.4			1,655,166			0.4
		21,800,814			5.6			22,612,771			5.6

Total gross loans		393,243,734			100.0	%		402,828,771			100.0	%
Less undisbursed portion of construction loans		(4,126,324	)					(9,589,505	)
Less deferred loan origination costs, net		58,907						56,767
Less allowance for loan losses		(4,819,872	)					(5,728,395	)

Loans, net	$	384,356,445					$	387,567,638

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and presents these policies to the Board at least annually. A reporting system supplements the review process by providing management with reports related to loan production, loan quality, loan delinquencies and non-performing and potential problem loans.

Additional information regarding our accounting policies for the individual loan categories is contained in our 2010 Annual Report to Stockholders that is filed as an exhibit to the Company’s Annual Report on Form 10-K.

The following tables present our past-due loans, segregated by class, as of June 30, 2011 and December 31, 2010.

June 30, 2011

	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total		Accruing Loans 90 or More Days Past Due
Real estate loans:
One-to-four family	$	358,090	$	194,733	$	1,063,369	$	1,616,192	$	115,381,172	$	116,997,364	$	-
Multi-family		-		-		532,701		532,701		30,511,459		31,044,160		-
Commercial		3,793,105		-		347,597		4,140,702		116,764,762		120,905,464		-
Construction and land		-		-		4,708,648		4,708,648		47,375,036		52,083,684		-
		4,151,195		194,733		6,652,315		10,998,243		310,032,429		321,030,672		-

Commercial business		32,155		90,954		510,241		633,350		49,778,898		50,412,248		-

Consumer
Home equity		313,053		37,221		222,543		572,817		19,726,567		20,299,384		-
Automobile and other		9,467		-		-		9,467		1,491,963		1,501,430		-
		322,520		37,221		222,543		582,284		21,218,530		21,800,814		-

Total	$	4,505,870	$	322,908	$	7,385,099	$	12,213,877	$	381,029,857	$	393,243,734	$	-

December 31, 2010

	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total		Accruing Loans 90 or More Days Past Due
Real estate loans:
One-to-four family	$	1,720,358	$	280,962	$	1,566,637	$	3,567,957	$	117,041,333	$	120,609,290	$	80,886
Multi-family		905,719		-		505,964		1,411,683		23,908,981		25,320,664		-
Commercial		506,017		217,380		1,200,761		1,924,158		128,106,900		130,031,058		-
Construction and land		-		-		6,147,208		6,147,208		46,357,775		52,504,983		-
		3,132,094		498,342		9,420,570		13,051,006		315,414,989		328,465,995		80,886

Commercial business		-		-		43,118		43,118		51,706,887		51,750,005		11,842

Consumer:
Home equity		119,671		55,466		367,304		542,441		20,415,164		20,957,605		-
Automobile and other		-		297		-		297		1,654,869		1,655,166		-
		119,671		55,763		367,304		542,738		22,070,033		22,612,771		-
	$	3,251,765	$	554,105	$	9,830,992	$	13,636,862	$	389,191,909	$	402,828,771	$	92,728

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

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 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 collectability of the loan.

Non-accrual loans, segregated by class, are as follows:

	June 30, 2011		December 31, 2010
Real estate loans:
One-to-four family	$	2,184,292	$	2,950,416
Multi-family		1,434,545		505,964
Commercial		395,417		1,698,202
Construction and land		6,350,632		6,612,127
		10,364,886		11,766,709

Commercial business		583,593		31,277

Consumer
Home equity		236,482		451,194
Automobile and other		-		-
		236,482		451,194

Total non-accrual loans	$	11,184,961	$	12,249,180

The allowance for loan losses is a reserve established through a provision for loan losses charged to expense. The allowance for loan losses is evaluated on at least a quarterly basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical 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. The allowance is prepared in accordance with ASC Topic 310 and ASC Topic 450. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The amount of the provision reflects not only the necessary increases in the allowance for loan losses related to loans newly categorized as special mention, substandard, or doubtful, but it also reflects actions taken related to other loans including, but not limited to, any necessary increases or decreases in required allowances for specific loans or loan pools.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful or substandard and also considered to be impaired. For such loans, an allowance is established when the fair value of the collateral, less estimated costs to sell, is lower than the carrying value of that loan for collateral dependent loans. Impaired loans may also be valued based on a discounted cash flow analysis. For the quarter ended June 30, 2011, the Bank modified its general component allocation method. Prior to the quarter ended June 30, 2011, the general component was analyzed based on non-impaired credits being separated into risk categories for the purposes of estimating credit losses. Risk categories were determined using a variety of financial indicators applied consistently to all credits within the portfolio. The potential loss factor that was applied to each of the risk categories was based on historical losses sustained within those categories, weighted with generally accepted regulatory and industry averages with consideration given to current economic conditions. For all loans that were classified in the Pass category, which was the majority of our loans, we assigned a potential loss factor based on the most recent three years of loss history and utilized only three risk categories. Beginning with the June 30, 2011 quarter-end, the non-impaired portfolio that makes up the general component of the Bank’s allowance allocation was separated into homogenous loan pools according to similar risk characteristics. The following pools are currently being utilized and are considered classes of loans for disclosure purposes:

Real Estate Loans:

One-to-four family (owner occupied and non-owner occupied)

Multi-family

Commercial (owner occupied and non-owner occupied)

Construction and land

Commercial

Commercial business

Consumer

Home equity

Automobile and other

Once the non-impaired loans are separated into the specified loan pools, we analyze the pools using three criteria: historical loss data, risk migration, and qualitative adjustments. Historical data involves a three year look-back at gross charge-offs specific to each portfolio segment. We utilize a rolling 12 quarter analysis which takes into account the most recent quarter-end along with three prior quarter-ends to accumulate a full year. This new model assumes a heavier weighting on the most recent four quarters. Currently that weighting is 60% for the most recent four quarters; 30% for the next consecutive four quarters; and 10% for the last four quarters. This data is analyzed and used to arrive at a base for our reserve percentage. Risk Migration involves a similar three-year look-back at each portfolio segment by risk code mix. This mix is compared to the current period’s risk code mix in order to arrive at a numerical percentage of increase or decrease in perceived risk within each portfolio segment. The percentage difference is then weighted according to relevance of the segment, and the resulting numerical percentage is used to increase or decrease the historical base reserve percentage. The qualitative adjustments are determined based on various publications, market research, economic reports and management’s expertise and knowledge of the immediate lending market, as well as analysis of peer institutions and similar markets. The following factors were considered for accessing the need for quantitative adjustments during the most recent three years;

local, regional, and national economy

financial industry/regulation/legal

value of underlying collateral

portfolio concentrations/volume

past due, non-accrual, asset quality trending

lending policy/procedures

loan review/oversight

staff depth and experience

competition

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

The qualitative adjustments are applied to the historical loss factor which has also been adjusted to account for the risk migration analysis to arrive at a final loss factor. The combined loss factor by risk category is then applied to the non-impaired loan balance of the respective risk category to determine the general reserve. The general reserve is reduced for guaranteed loans or loans secured by liquid assets, by applying a weighted average of the general loss factor to the pool of secured loans and then subtracting that resulting figure from the loss allocation. The total amount of general reserve is then combined with the total amount of specific reserve on impaired loans to arrive at the total allowance for loan losses.

The Bank’s management has computed the prior model and the revised model in parallel for the past two quarters in order to test the integrity of the revised model. The revised model indicated a level of required reserves of approximately $90,000 more than the prior model which was still slightly less than the recorded amount. Management believes that the method of analyzing the portfolio by homogenous loan pools and considering the losses within those particular pools as well as the risk migration of the pools and reviewing more risk categories provides for a more precise calculation. Also the migration analysis allows for a smoother transition of loans through the evaluation cycle and allows for upgrades and downgrades to be captured in a timely manner, therefore allowing management to reserve for the risks in the portfolio as they occur. Management considers the allowance for loan losses at June 30, 2011 to be at an adequate level. However, changes may be necessary if further economic and other conditions differ substantially from the current environment. Although we use the most recent information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change. To the extent actual outcomes differ from the estimates, additional provision for credit losses may be required that would reduce future earnings.

Loans identified as losses by management, internal loan review and/or bank examiners are charged-off. Furthermore, consumer loan accounts are charged-off automatically based on regulatory requirements related to delinquency.

A summary analysis of the allowance for loan losses follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Balance, beginning	$	4,341,903		$	6,373,323		$	5,728,395		$	6,316,829
Charge-offs		(5,000	)		(701,011	)		(1,778,681	)		(1,136,905	)
Recoveries		7,969			1,272			95,158			70,660
Provisions		475,000			400,000			775,000			823,000

Balance, ending	$	4,819,872		$	6,073,584		$	4,819,872		$	6,073,584

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

The following tables present the activity in the allowance for loan losses and the balance in allowance for loan losses, for the three and six months ended June 30, 2011. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Three months ended June 30, 2011

	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Real estate loans:
One-to-four family	$	1,097,292	$	(5,000	)	$	4,900	$	(477,749	)	$	619,443
Multi-family		311,484		-			-		249,039			560,523
Commercial		1,266,361		-			3,069		(309,848	)		959,582
Construction and land		857,339		-			-		1,047,121			1,904,460
		3,532,476		(5,000	)		7,969		508,563			4,044,008

Commercial business		653,907		-			-		34,001			687,908

Consumer
Home equity		147,273		-			-		(81,265	)		66,008
Automobile and other		8,247		-			-		13,701			21,948
		155,520		-			-		(67,564	)		87,956

Total	$	4,341,903	$	(5,000	)	$	7,969	$	475,000		$	4,819,872


Six months ended June 30, 2011

	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Real estate loans:
One-to-four family	$	1,161,865	$	(240,204	)	$	22,937	$	(325,155	)	$	619,443
Multi-family		299,964		(171,878	)		-		432,437			560,523
Commercial		1,043,023		(275,405	)		4,430		187,534			959,582
Construction and land		2,151,810		(1,091,194	)		57,244		786,600			1,904,460
		4,656,662		(1,778,681	)		84,611		1,081,416			4,044,008

Commercial business		868,572		-			10,547		(191,211	)		687,908

Consumer
Home equity		193,756		-			-		(127,748	)		66,008
Automobile and other		9,405		-			-		12,543			21,948
		203,161		-			-		(115,205	)		87,956

Total	$	5,728,395	$	(1,778,681	)	$	95,158	$	775,000		$	4,819,872

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

The following tables separate the allocation of the allowance for loan losses and the loan balances between loans evaluated both individually and collectively as of June 30, 2011 and December 31, 2010.

June 30, 2011

	Period-end allowance allocated to loans:						Loans evaluated for impairment:
	Individually evaluated for impairment		Collectively evaluated for impairment		Ending Balance		Individually		Collectively		Ending Balance
Real estate loans:
One-to-four family	$	280,404	$	339,040	$	619,444	$	2,872,127	$	114,125,237	$	116,997,364
Multi-family		20,000		540,523		560,523		4,914,525		26,129,635		31,044,160
Commercial		84,745		874,837		959,582		2,753,215		118,152,249		120,905,464
Construction and land		397,930		1,506,529		1,904,459		6,350,631		45,733,053		52,083,684
		783,079		3,260,929		4,044,008		16,890,498		304,140,174		321,030,672

Commercial business		69,178		618,730		687,908		703,271		49,708,977		50,412,248

Consumer:
Home equity		-		66,008		66,008		553,507		19,745,877		20,299,384
Automobile and other		-		21,948		21,948		-		1,501,430		1,501,430
		-		87,956		87,956		553,507		21,247,307		21,800,814

Total	$	852,257	$	3,967,615	$	4,819,872	$	18,147,276	$	375,096,458	$	393,243,734

December 31, 2010

	Period-end allowance allocated to loans:						Loans evaluated for impairment:
	Individually evaluated for impairment		Collectively evaluated for impairment		Ending Balance		Individually		Collectively		Ending Balance
Real estate loans:
One-to-four family	$	256,336	$	905,529	$	1,161,865	$	3,911,857	$	116,697,433	$	120,609,290
Multi-family		125,604		174,361		299,965		1,864,849		23,455,815		25,320,664
Commercial		-		1,043,023		1,043,023		5,108,802		124,922,256		130,031,058
Construction and land		1,733,019		418,790		2,151,809		6,982,940		45,522,043		52,504,983
		2,114,959		2,541,703		4,656,662		17,868,448		310,597,547		328,465,995

Commercial business		12,766		855,806		868,572		635,231		51,114,774		51,750,005

Consumer:
Home equity		-		193,756		193,756		568,717		20,388,888		20,957,605
Automobile and other		-		9,405		9,405		-		1,655,166		1,655,166
		-		203,161		203,161		568,717		22,044,054		22,612,771

Total	$	2,127,725	$	3,600,670	$	5,728,395	$	19,072,396	$	383,756,375	$	402,828,771

Credit Quality Indicators. As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt and comply with various terms of their loan agreements. The Company considers current financial information, historical payment experience, credit documentation, public information and current economic trends. Generally, all sizeable credits receive a financial review no less than annually to monitor and adjust, if necessary, the credit’s risk profile. Credits classified as watch generally receive a review more frequently than annually. For special mention, substandard, and doubtful credit classifications, the frequency of review is increased to no less than quarterly in order to determine potential impact on credit loss estimates.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

The Company categorizes loans into the following risk categories based on relevant information about the ability of borrowers to service their debt:

Pass – A pass asset is well protected by the current worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner. Pass assets also include certain assets considered watch, which are still protected by the worth and paying capacity of the borrower but deserve closer attention and a higher level of credit monitoring.

Special Mention – A special mention asset has potential weaknesses that deserve management’s close attention. The asset may also be subject to a weak or speculative market or to economic conditions, which may, in the future adversely affect the obligor. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

Substandard – A substandard asset is an asset with a well-defined weakness that jeopardizes repayment, in whole or in part, of the debt. These credits are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. These assets are characterized by the distinct possibility that the institution will sustain some loss of principal and/or interest if the deficiencies are not corrected. It is not necessary for a loan to have an identifiable loss potential in order to receive this rating.

Doubtful – An asset that has all the weaknesses inherent in the substandard classification, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely likely, but it is not identified at this point due to pending factors.

Loss – An asset, or portion thereof, classified as loss is considered uncollectible and of such little value that its continuance on the Company’s books as an asset is not warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery would occur. As such, it is not practical or desirable to defer the write-off. Therefore, there is no balance to report at June 30, 2011 or December 31, 2010.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

The following tables present our credit quality indicators, segregated by class, as of June 30, 2011 and December 31, 2010.

June 30, 2011

	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
One-to-four family	$	111,654,460	$	1,827,218	$	2,600,288	$	915,398	$	116,997,364
Multi-family		26,129,635		-		4,851,304		63,221		31,044,160
Commercial		106,260,409		11,891,841		2,656,755		96,459		120,905,464
Construction and land		45,733,052		-		6,350,632		-		52,083,684
		289,777,556		13,719,059		16,458,979		1,075,078		321,030,672

Commercial business		43,551,355		6,157,622		703,271		-		50,412,248

Consumer
Home equity		19,129,540		379,855		752,768		37,221		20,299,384
Automobile and other		1,501,430		-		-		-		1,501,430
		20,630,970		379,855		752,768		37,221		21,800,814

Total	$	353,959,881	$	20,256,536	$	17,915,018	$	1,112,299	$	393,243,734

December 31, 2010

	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
One-to-four family	$	114,935,462	$	1,052,773	$	2,578,679	$	2,042,376	$	120,609,290
Multi-family		23,455,816		-		1,358,884		505,964		25,320,664
Commercial		113,169,937		11,332,714		5,458,407		70,000		130,031,058
Construction and land		45,232,786		605,162		5,094,896		1,572,139		52,504,983
		296,794,001		12,990,649		14,490,866		4,190,479		328,465,995

Commercial business		45,833,013		5,281,761		635,231		-		51,750,005

Consumer:
Home equity		19,725,070		145,534		827,396		259,605		20,957,605
Automobile and other		1,655,166		-		-		-		1,655,166
		21,380,236		145,534		827,396		259,605		22,612,771
Total	$	364,007,250	$	18,417,944	$	15,953,493	$	4,450,084	$	402,828,771

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by the fair value of the collateral if the loan is collateral dependent. The Company does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

The following tables provide details of impaired loans, segregated by class, as of June 30, 2011 and December 31, 2010. At June 30, 2011 and December 31, 2010, we had loans of approximately $4,215,000 and $250,000, respectively that were classified as troubled debt restructurings which are included in our impaired loans. At June 30, 2011, all of these loans were accruing and were in compliance with their modified terms. The unpaid contractual balance represents the recorded balance prior to any partial charge-offs. The recorded investment represents customer balances net of any partial charge-offs recognized on the loans.

June 30, 2011

	Unpaid Contractual Principal Balance		Recorded Investment with No Related Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance

Real Estate Loans:
One-to-four family	$	2,872,127	$	2,056,478	$	815,649	$	2,872,127	$	280,404
Multi-family		5,253,342		4,851,304		63,221		4,914,525		20,000
Commercial		2,753,215		2,601,534		151,681		2,753,215		84,745
Construction and land		7,659,736		3,864,780		2,485,851		6,350,631		397,930
		18,538,420		13,374,096		3,516,402		16,890,498		783,079

Commercial business		799,642		106,687		596,584		703,271		69,178

Consumer
Home equity		553,507		553,507		-		553,507		-
Automobile and other		-		-		-		-		-
		553,507		553,507		-		553,507		-

Total	$	19,891,569	$	14,034,290	$	4,112,986	$	18,147,276	$	852,257

December 31, 2010

	Unpaid Contractual Principal Balance		Recorded Investment with No Related Allowance		Recorded Investment with Allowance		Total Recorded Investment		Related Allowance

Real Estate Loans:
One-to-four family	$	4,004,279	$	2,683,571	$	1,228,286	$	3,911,857	$	256,336
Multi-family		1,864,849		1,358,885		505,964		1,864,849		125,604
Commercial		5,532,693		4,990,316		118,487		5,108,803		-
Construction and land		8,129,144		921,480		6,061,458		6,982,938		1,733,019
		19,530,965		9,954,252		7,914,195		17,868,447		2,114,959

Commercial business		731,603		520,878		114,354		635,232		12,766

Consumer:
Home equity		568,717		529,416		39,301		568,717		-
Automobile and other		-		-		-		-		-
		568,717		529,416		39,301		568,717		-
Total	$	20,831,285	$	11,004,546	$	8,067,850	$	19,072,396	$	2,127,725

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

The following tables provide the average recorded investment of impaired loans, segregated by class, for the three and six months ended June 30, 2011. The interest income recognized column represents all interest income reported either on a cash or accrued basis after the loan became impaired. The cash basis income column represents only the interest income recognized on a cash basis after the loan was classified as impaired.

Three Months Ended June 30, 2011

	Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized from Impaired Loans

Real Estate Loans:
One-to-four family	$	3,969,203	$	8,988	$	-
Multi-family		3,887,326		49,370		3,995
Commercial		2,314,104		36,802		-
Construction and land		6,572,408		-		-
		16,743,041		95,160		3,995

Commercial business		654,423		3,555		-

Consumer
Home equity		594,018		-		-
Automobile and other		1,995		6,295		-
		596,012		6,295		-

Total	$	17,993,476	$	105,010	$	3,995

Six Months Ended June 30, 2011

	Average Recorded Investment		Interest Income Recognized		Cash Basis Income Recognized from Impaired Loans

Real Estate Loans:
One-to-four family	$	2,879,468	$	12,248	$	-
Multi-family		4,078,500		52,828		3,995
Commercial		3,596,473		78,842		6,839
Construction and land		6,055,034		3,876		-
		16,609,475		147,794		10,834

Commercial business		682,784		12,416		-

Consumer
Home equity		546,815		-		-
Automobile and other		3,947		6,295		-
		550,762		6,295		-

Total	$	17,843,021	$	166,505	$	10,834

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 4. Core Deposit Intangible

The gross carrying value and accumulated amortization of the core deposit intangible is presented below:

	June 30, 2011			December 31, 2010
Core deposit intangible	$	3,258,000		$	3,258,000
Less accumulated amortization		(2,292,680	)		(2,138,000	)

	$	965,320		$	1,120,000

Amortization expense on core deposit intangible for the three and six months ended June 30, 2011 was $77,330 and $154,680, respectively and $99,000 and $198,000 for the comparable periods in 2010.

Estimated future amortization expense on core deposit intangible for the remaining six months of 2011 and each of the five succeeding fiscal years is as follows:

Period	Amount
Six months ending December 31, 2011	$	149,320
Year ending December 31, 2012		281,000
Year ending December 31, 2013		264,000
Year ending December 31, 2014		75,000
Year ending December 31, 2015		58,000
Year ending December 31, 2016		58,000

Note 5. Goodwill

The Company reported goodwill from its acquisition of Clover Leaf Financial Corp. in 2006 in the amount of $9,402,608 and its acquisition of Partners Financial Holdings, Inc. in 2008 in the amount of $11,282,715, for a total of $20,685,323 in goodwill. In June 2009, we recorded an impairment charge of $9,300,000, reducing the amount of goodwill to $11,385,323. In accordance with ASC Topic 350, Intangibles - Goodwill and Other, goodwill and intangible assets with indefinite useful lives are no longer amortized; rather they are assessed, at least annually, for impairment. The Company tests goodwill for impairment on an annual basis as of September 30, or more often if events or circumstances indicate there may be impairment. Management has determined that the Company has only one reporting unit for purposes of evaluating goodwill.

As outlined in ASC Topic 350, the goodwill impairment analysis involves a two-step test. Step one includes two valuation methodologies; (i) the comparable transactions approach, and (ii) the control premium approach. The first valuation methodology, used to identify potential impairment, involves comparing the fair value of the reporting unit to its carrying value including goodwill. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired. If the carrying value exceeds fair value, there is an indication of impairment, and the second valuation methodology is performed to measure the amount of impairment. The second valuation methodology involves calculating an implied fair value of goodwill for the reporting unit, in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first valuation methodology, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the carrying value of the reporting unit goodwill exceeds the implied fair value of the goodwill, an impairment charge is recorded against earnings for the excess.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 5. Goodwill (Continued)

Due to the current economic environment and other uncertainties, it is possible that our estimates and assumptions may adversely change in the future, and we may be required to record additional goodwill impairment losses in future periods. It is not possible at this time to determine if any such future impairment loss would result or, it if does, whether such charge would be material. However, any such future impairment loss would be limited to the remaining goodwill balance of $11,385,323 at June 30, 2011. Subsequent reversal of goodwill impairment losses is not permitted.

Note 6. Earnings per Share

Basic and diluted earnings per share represents net income available to common stockholders divided by the weighted average number of common shares outstanding. Employee stock ownership plan shares which are committed to be released are considered outstanding for basic and diluted earnings per share.

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010

Net earnings available to common stockholders	$	1,013,260		$	1,279,392		$	1,919,141		$	2,239,904
Basic potential common shares:
Weighted average shares outstanding		7,870,789			7,938,351			7,878,414			7,946,101
Weighted average unallocated Employee Stock Ownership
Plan shares		(108,398	)		(116,902	)		(109,455	)		(117,959	)
Basic weighted average shares outstanding		7,762,391			7,821,449			7,768,959			7,828,142

Dilutive potential common shares		-			-			-			-

Diluted weighted average shares outstanding		7,762,391			7,821,449			7,768,959			7,828,142

Basic and diluted earnings per share	$	0.13		$	0.16		$	0.25		$	0.29

Note 7. Employee Stock Ownership Plan

The Company has an employee stock ownership plan (ESOP) which covers substantially all employees who have attained the age of 21 and completed one year of service. In connection with its initial stock offering in 2004, the Company loaned funds to the ESOP for the purchase of its common stock at the initial public offering price. The loan is being repaid based on a variable interest rate over 20 years beginning December 31, 2004. All shares are held in a suspense account for allocation among the participants as the loan is repaid. Shares are released for allocation to participants based upon the ratio of the current year’s debt service to the sum of total principal and interest payments over the remaining life of the note. The purchase of shares by the ESOP was recorded by the Company as unearned ESOP shares in a contra equity account. As ESOP shares are committed to be released to compensate employees, the contra equity account is reduced and the Company recognizes compensation expense equal to the average fair market value of the shares committed to be released. Compensation expense of $14,925 and $30,143 was recorded for the three and six months ended June 30, 2011, respectively and $13,309 and $27,815 for the comparable periods in 2010.

Dividends on unallocated ESOP shares, together with Company contributions, are used by the ESOP to repay principal and interest on the outstanding note.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 7. Employee Stock Ownership Plan (Continued)

The following table reflects the shares held by the plan at June 30, 2011 and December 31, 2010:

	June 30, 2011		December 31, 2010
Unallocated shares (fair value at June 30, 2011 and
December 31, 2010 of $744,065 and $749,509, respectively)		106,295		110,547
Allocated shares		64,464		60,212

		170,759		170,759

Note 8. Fair Value of Financial Instruments

FASB ASC Topic 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet. Fair value is determined under the framework established by ASC Topic 820, Fair Value Measurement and Disclosures. ASC Topic 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following information presents estimated fair values of the Company’s financial instruments as of June 30, 2011 and December 31, 2010 and the methods and assumptions used to estimate those fair values.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts of cash and cash equivalents approximate fair values.

Interest-earning time deposits: Due to the short term nature of these deposits the carrying amounts of these deposits approximate fair values.

Securities available for sale: The fair value of available-for-sale securities are determined by various valuation methodologies. Where quoted market prices are available in an active market, securities are classified within Level 1. The Company has no securities classified within Level 1. If quoted market prices are not available, then fair values are estimated by using pricing models or quoted prices of securities with similar characteristics. For these investments, the pricing applications apply available information as applicable through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations. They also use model processes, such as the Option Adjusted Spread model to assess interest rate impact and develop prepayment scenarios. In the case of municipal securities, information on the Bloomberg terminal such as credit ratings, credit support, and call features are used to set the matrix values for the issues, which will be used to determine the yields from which the market values are calculated each month. Because they are not price quote valuations, the pricing methods are considered Level 2 inputs. At this time all of the Company’s securities fall within the Level 2 hierarchy for pricing. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Company currently has no securities classified within Level 3.

Federal Home Loan Bank stock: The Company is required to maintain these equity securities as a member of the Federal Home Loan Bank of Chicago and in amounts as required by this institution. These equity securities are “restricted” in that they can only be sold back to the respective institution or another member institution at par. Therefore, they are less liquid than other tradable securities and their fair value is not readily available.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 8. Fair Value of Financial Instruments (Continued)

Loans: Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segmented by type such as real estate, commercial business, and consumer loans. Each loan segment is further segregated into fixed and adjustable rate interest terms and by performing and non-performing classifications. The fair value of fixed rate loans is estimated by discounting future cash flows using discount rates that reflect the Company’s current pricing for loans with similar characteristics, such as loan type, pricing and remaining maturity. Additional factors are applied to the loan portfolio by loan quality categories.

Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value.

Deposit liabilities: The fair values disclosed for demand deposits (savings) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for fixed-term money market accounts approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal Home Loan Bank advances: The fair value of Federal Home Loan Bank advances, which are at a fixed rate, are estimated using discounted cash flow analyses based on current rates for similar advances.

Securities sold under agreements to repurchase: The carrying amounts of securities sold under agreements to repurchase approximate fair value.

Subordinated debentures: The carrying amount of variable rate trust preferred debentures approximates its fair value.

Accrued interest payable: The carrying amount of accrued interest payable approximates its fair value.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 8. Fair Value of Financial Instruments (Continued)

The estimated fair values and related carrying or notional amounts of the Company's financial instruments are as follows:

	June 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	54,967,919	$	54,967,919	$	66,253,047	$	66,253,047
Interest-earning time deposits		1,724,217		1,724,217		1,718,651		1,718,651
Securities		84,699,051		84,699,051		78,474,908		78,474,908
Federal Home Loan Bank stock		6,306,273		6,306,273		6,306,273		6,306,273
Loans, net		384,356,445		382,923,650		387,567,638		384,965,267
Accrued interest receivable		1,909,312		1,909,312		1,866,511		1,866,511

Financial liabilities:
Non-interest bearing deposits		33,035,456		33,035,456		34,172,434		34,172,434
Interest bearing deposits		401,014,707		402,388,454		413,310,775		415,075,294
Federal Home Loan Bank advances		21,933,000		22,162,156		21,924,000		22,021,145
Securities sold under agreement
to repurchase		25,071,309		25,071,309		21,457,075		21,457,075
Subordinated debentures		4,000,000		4,000,000		3,974,272		3,974,272
Accrued interest payable		454,602		454,602		561,687		561,687

In addition, other assets and liabilities of the Company that are not defined as financial instruments are not included in the above disclosures, such as property and equipment. Also, nonfinancial instruments typically not recognized in financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the trained work force, customer goodwill and similar items.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 9. Fair Value Measurements

The Company determines the fair market values of its financial instruments based on the fair value hierarchy established in ASC Topic 820, Fair Value Measurements and Disclosures, which requires an entity to maximize the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The guidance also describes three levels of inputs that may be used to measure fair value.

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included with Level 1 that are observable for the asset or liability either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived from or corroborated by market data by correlation or other means. Level 3 inputs are unobservable inputs for determining the fair value of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. During the six months ended June 30, 2011, there were no transfers between Level 1 and Level 2.

Assets and liabilities measured at fair value on a recurring basis segregated by fair value hierarchy level as of June 30, 2011 and December 31, 2010 are summarized below:

	June 30, 2011
Assets:	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Investment securities:
U.S. government agency obligations	$	-	$	40,837,006	$	-	$	40,837,006
Corporate bonds		-		2,117,977		-		2,117,977
State and municipal securities		-		20,486,470		-		20,486,470
Other securities		-		3,501		-		3,501
Mortgage-backed securities		-		21,254,097		-		21,254,097
Total investment securities available
for sale	$	-	$	84,699,051	$	-	$	84,699,051

	December 31, 2010
Assets:	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Investment securities:
U.S. government agency obligations	$	-	$	42,690,393	$	-	$	42,690,393
Corporate bonds		-		2,057,639		-		2,057,639
State and municipal securities		-		17,774,271		-		17,774,271
Other securities		-		3,501		-		3,501
Mortgage-backed securities		-		15,949,104		-		15,949,104
Total investment securities available
for sale	$	-	$	78,474,908	$	-	$	78,474,908

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 9. Fair Value Measurements (Continued)

Assets and liabilities measured at fair value on a nonrecurring basis by fair value hierarchy level as of June 30, 2011 and December 31, 2010 are summarized below:

	June 30, 2011
Assets:	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Impaired loans	$	-	$	-	$	3,260,729	$	3,260,729

	December 31, 2010
Assets:	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Impaired loans	$	-	$	-	$	5,940,125	$	5,940,125

Impaired loans that are collateral dependent have been written down to the fair value of the collateral, less estimated costs to sell, through the establishment of a specific allowance or by recording charge-offs when the carrying value exceeds the fair value of the collateral. Valuation techniques consistent with the market approach, income approach, and/or cost approach were used to measure fair value and primarily included observable inputs for the individual impaired loans being evaluated such as recent sales of similar assets or observable market data for operational or carrying costs. In cases where such inputs were unobservable, the loan balance is reflected within the Level 3 hierarchy. The calculated valuation amount does not necessarily represent the value of the loans if sold to a willing buyer. Management believes it is more likely than not that a workout solution or liquidation of the collateral is the best use of the asset and therefore has measured fair value based on the underlying collateral of the loans. If management were to sell the impaired loan portfolio to a third party instead of liquidating the collateral, the measurement of fair value could be significantly different.

Foreclosed assets are collateral dependent and are recorded at the lesser of the recorded investment in the receivable or the appraised value less estimated costs to sell. For the periods ended June 30, 2011 and December 31, 2010, no foreclosed assets were written down to fair value after acquisition.

As noted in Note 5, an implied fair value of goodwill was measured for the reporting unit, in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. For the periods ended June 30, 2011 and December 31, 2010, there were no adjustments to the valuation of goodwill.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

Note 10. Subsequent Events

Events occurring subsequent to June 30, 2011, have been evaluated as to their potential impact to the financial statements through the date of issuance of this report.

On July 26, 2011, the Board of Directors of the Company declared a cash dividend on the Company’s common stock of $0.06 per share for the quarter ended June 30, 2011. The dividend was payable to stockholders of record as of August 12, 2011 and will be paid on August 19, 2011.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

When used in this Form 10-Q, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including, but not limited to changes in general economic conditions, either nationally or in our market areas, that are worse than expected; competition among depository and other financial institutions; inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate acquired entities, if any; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; changes in our organization, compensation and benefit plans; changes in our financial condition or results of operations that reduce capital available to pay dividends; and changes in the financial condition or future prospects of issuers of securities that we own, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution you not to place undue reliance on any such forward-looking statements, which only speak as of the date made. The Company wishes to advise you that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. Management makes significant estimates and has identified the allowance for loan losses and goodwill and other intangible assets as critical accounting policies.

Allowance for loan losses. 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. Subsequent recoveries, if any, are credited to the allowance.

Our evaluation of risk in maintaining the allowance for loan losses includes the review of the specific and general allocations. The specific component relates to loans that are classified as doubtful, substandard or special mention and are also considered to be impaired. For such loans, an allowance is established when the fair value of the collateral, less estimated costs to sell, is lower than the carrying value of that loan for collateral dependent loans. Impaired loans may also be valued based on a discounted cash flow analysis. The general component is analyzed by separating the loans into homogenous loan pools according to similar risk characteristics, and analyzing the pools using the following three criteria; historical loss data, risk migration, and qualitative adjustments. After analyzing these three criteria, a loss factor is determined and applied to each loan pool. The total from each pool forms the general reserve for each non-impaired pool which is then combined with the specific reserves on impaired loans to arrive at total required reserves. As discussed in Note 3, the methodology for calculating the general component was refined during the quarter ended June 30, 2011.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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.

In addition, the Office of the Comptroller of the Currency (“OCC”), as an integral part of its examination process, periodically reviews our loan portfolio and the related allowance for loan losses. The OCC 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.

The functions of the Office of Thrift Supervision, which was our primary regulator, transferred to the OCC, our new regulator, effective July 21, 2011.

Goodwill and Other Intangible Assets. Historically, First Clover Leaf has grown through acquisitions accounted for under the purchase method of accounting in effect at the time of the acquisitions. Under the purchase method, First Clover Leaf was required to allocate the cost of an acquired company to the assets acquired, including identified intangible assets, and liabilities assumed based on their estimated fair values at the date of acquisition. The excess cost over the net assets acquired represents goodwill, which is not subject to periodic amortization.

Customer relationship intangibles are required to be amortized over their estimated useful lives. The method of amortization reflects the pattern in which the economic benefits of these intangible assets are estimated to be consumed or otherwise used up. Our customer relationship intangibles are being amortized over 7.6 and 9.7 years using the double declining balance method. Since First Clover Leaf’s acquired customer relationships are subject to routine customer attrition, the relationships are more likely to produce greater benefits in the near-term than in the long-term, which typically supports the use of an accelerated method of amortization for the related intangible assets. Management is required to evaluate the useful life of customer relationship intangibles to determine if events or circumstances warrant a change in the estimated life. Should management determine that the estimated life of any intangible asset is shorter than originally estimated, First Clover Leaf would adjust the amortization of that asset, which could increase future amortization expense.

Goodwill arising from business combinations represents the value attributable to unidentifiable intangible elements in the business acquired. Goodwill recorded by First Clover Leaf in connection with its acquisitions relates to the inherent value in the businesses acquired, and this value is dependent upon First Clover Leaf’s ability to provide quality, cost effective services in a competitive market place. The continued value of recorded goodwill is impacted by the value of our stock and continued profitability of the organization. In the event that the stock price experiences significant declines or the operations of the company lack profitability, an impairment of goodwill may need to be recognized. Any impairment recognized would adversely impact earnings in the period in which it is recognized.

First Clover Leaf utilizes a two step valuation approach to test for goodwill impairment. We estimate the fair value of our single reporting unit as of the measurement date utilizing two valuation methodologies including the comparable transactions approach, and the control premium approach which utilizes the Company’s stock price. We then compare the estimated fair value to the current carrying value of the reporting unit to determine if goodwill impairment had occurred as of the measurement date. At our annual impairment assessment date of September 30, 2010, our analysis indicated that no impairment existed. At June 30, 2011, no indications of impairment existed for which an interim assessment was considered necessary. Future events, such as adverse changes to First Clover Leaf’s business or changes in the economic market, could cause management to conclude that impairment indicators exist and require management to re-evaluate goodwill. Should such re-evaluation determine goodwill is impaired; the resulting impairment loss recognized could have a material, adverse impact on First Clover Leaf’s financial condition and results of operations. In accordance with current accounting guidance, management has determined that the Company has only one reporting unit for purposes of evaluating goodwill. See Item 1, Note 5 for additional information on goodwill impairment.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

First Clover Leaf had net income of $1.0 million for the three months ended June 30, 2011 compared to net income of $1.3 million for the same period in 2010. The decrease was primarily due to a decrease in non-interest income related to fewer sales of securities and the related gains during the three months ended June 30, 2011 compared to the same period in 2010. The Company also experienced an increase in non-interest expense partially offset by an increase in net interest income after provision for loan losses. Basic and diluted income per share was $0.13 for the three-month period ended June 30, 2011 and $0.16 for the comparable period in 2010.

Net income for the six months ended June 30, 2011 was $1.9 million compared to $2.2 million for the same period in 2010. The decrease was primarily due to a decrease in non-interest income as mentioned above. An increase in non-interest expense was partially offset by an increase in net interest income. Basic and diluted income per share was $0.25 for the six months ended June 30, 2011 and $0.29 for the same period in 2010.

Financial Condition

Total Assets. Total assets decreased to $566.7 million at June 30, 2011 from $575.0 million at December 31, 2010. Total cash and cash equivalents decreased to $55.0 million at June 30, 2011 from $66.3 million at December 31, 2010. The decrease in cash and cash equivalents was due primarily to a decrease in federal funds sold.

Securities available for sale increased to $84.7 million at June 30, 2011 from $78.5 million at December 31, 2010. The increase was due primarily to purchases of $53.5 million partially offset by calls, maturities and pay-downs of $46.1 million and sales of $2.1 million.

Net loans amounted to $384.4 million at June 30, 2011, compared to $387.6 million at December 31, 2010. This decrease was primarily due to loans of $2.3 million transferred into foreclosed assets.

Foreclosed assets increased to $4.5 million at June 30, 2011 from $3.8 million at December 31, 2010. We transferred 15 loans into foreclosed assets during the six months ended June 30, 2011. During the same time period we received proceeds of $1.6 million from the sale of 12 properties that had been classified as foreclosed assets.

Total Liabilities. Total liabilities decreased slightly to $488.0 million at June 30, 2011 from $497.6 million at December 31, 2010. Deposits decreased to $434.1 million at June 30, 2011 from $447.5 million at December 31, 2010. Non-interest bearing deposits decreased to $33.0 million at June 30, 2011 from $34.2 million at December 31, 2010. Interest bearing deposits decreased $12.3 million totaling $401.0 million at June 30, 2011 compared to $413.3 million at December 31, 2010. Securities sold under agreements to repurchase increased $3.6 million to $25.1 million at June 30, 2011 from $21.5 million at December 31, 2010. This increase was due primarily to fluctuations in customer deposits.

Stockholders’ Equity. Stockholders’ equity increased to $78.7 million at June 30, 2011 from $77.3 million at December 31, 2010, principally as a result of $1.9 million in net income and an increase in unrealized gains on securities of $544,000 partially offset by the payment of cash dividends of $932,000 and repurchases of common stock of $169,000 during the six months ended June 30, 2011.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Asset Quality

The following tables set forth information with respect to the Company’s nonperforming and impaired loans at the dates indicated:

	June 30, 2011		December 31, 2010

Loans 90 days or more past due and still accruing	$	-	$	92,728
Non-accrual loans, including $10,936,139 and $11,793,138 classified as
impaired as of June 30, 2011 and December 31, 2010, respectively		11,184,961		12,249,180
Other impaired loans		7,211,137		7,279,258
Total non-performing and impaired loans	$	18,396,098	$	19,621,166

	June 30, 2011			December 31, 2010
Non-performing and impaired loans to total loans		4.79	%	5.06	%
Allowance for loan losses to non-performing and impaired loans		26.20		29.19
Allowance for loan losses to total loans		1.25		1.48

At June 30, 2011, the Company’s non-accrual loans decreased $1.0 million to $11.2 million from $12.2 million at December 31, 2010. At June 30, 2011, First Clover Leaf Bank had five relationships classified as non-accrual with balances in excess of $500,000. The largest non-accrual relationship was a $2.8 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. A charge down of $930,000 was taken during the first quarter of 2011. The Bank continues to work with the developer on a plan to increase lot sales. The second relationship was a $2.5 million credit to a residential real estate developer who is struggling with the economic downturn; the developer is working with the Bank on a strategy to increase lot sales. We believe the collateral on this loan is sufficient to cover the majority of the outstanding balance and that sufficient allowances have been set aside for the remaining outstanding balance. The third relationship was a $1.0 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. The Bank is working with the developer on possible restructuring alternatives, as well as strategies to increase sales. Currently, we believe the collateral is sufficient to cover the outstanding balance. The fourth non-accrual relationship was a $902,000 credit to a real estate investor. The loans are secured by residential real estate. The investor is experiencing cash flow difficulties due to higher vacancies and the need for property repairs. We believe the collateral on this loan is sufficient to cover the majority of the outstanding balance and that sufficient allowances have been set aside for the remaining outstanding balance. The fifth non-accrual relationship was a $561,000 credit to a real estate developer. The primary collateral consists of 27 vacant lots. The lots are continuing to sell in a manner that is allowing the borrower to continue to make principal payments. We believe the collateral on this loan is sufficient to cover the majority of the outstanding balance and that sufficient allowances have been set aside for the remaining outstanding balance.

In addition to the non-accrual loans in the previous paragraph, at June 30, 2011, our total other impaired loans amounted to $7.2 million compared to $7.3 million at December 31, 2010. There were four impaired credits with balances in excess of $500,000 at June 30, 2011. The largest loan was a $3.7 million credit to a real estate investor. The majority of this property is residential real estate. The investor is experiencing cash flow difficulties due to higher vacancy rates and the need for property repairs. Currently, we believe the collateral is sufficient to cover the outstanding balance. The second loan was a $1.5 million credit for a hotel/condominium development. The property is located in a highly desired resort area. The Bank is a participant in this loan and is not the lead bank. Currently, we believe the

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

collateral is sufficient to cover the outstanding balance. The third credit was a $746,000 commercial real estate credit on a banquet facility struggling with decreased activity due to the economic downturn. This credit has a partial SBA guarantee and we believe the collateral is sufficient to cover the outstanding balance. The fourth credit was a $527,000 credit to a real estate investor. The collateral for this loan is a residential property with acreage. We previously had a larger relationship with this investor, but we took possession of several of the properties, totaling $367,000 in the fourth quarter of 2010, and then took possession of several additional properties, totaling $167,000 in the first quarter of 2011. Currently, we believe the collateral is sufficient to cover the outstanding balance.

At June 30, 2011, the Bank had $4.2 million of loans which were classified as Troubled Debt Restructurings. This was a $3.9 million increase over December 31, 2010. The primary reason for the increase was the restructure in the first quarter of 2011 of a credit to a real estate investor which had a remaining balance of $3.7 million as of June 30, 2011. All of these loans were in compliance with their modified terms at June 30, 2011.

The allowance for loan losses to non-performing and impaired loans decreased to 26.20% at June 30, 2011 compared to 29.19% at December 31, 2010. The decrease in this ratio was due to a decrease in the loan loss reserve balance as $1.8 million in charge-offs was recorded during the first quarter of 2011. These charge-offs were primarily all a result of special reserve allocations for various non-accrual loans being written off.

At June 30, 2011, First Clover Leaf Bank had 17 properties classified as Real Estate Owned. The collateral on these properties consisted of a commercial mobile home-site, farmland, two residential lot developments and 13 single family residences. All of these properties were transferred into Real Estate Owned at the property’s fair value, less estimated cost of disposal, at the date of foreclosure.

At June 30, 2011, we had no potential problem loans which are defined as 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.

Results of Operations

General. Net income decreased to $1.0 million for the three months ended June 30, 2011 compared to net income of $1.3 million for the same period in 2010. Net income decreased to $1.9 million for the six months ended June 30, 2011 compared to net income of $2.2 million for the same period in 2010. The decrease was primarily due to a decrease in non-interest income related to fewer sales of securities and the related gains during the six months ended June 30, 2011 compared to the same period in 2010. The Company also experienced an increase in non-interest expense partially offset by an increase in net interest income after provision for loan losses. Basic and diluted income per share was $0.25 for the six-month period ended June 30, 2011 and $0.29 for the comparable period in 2010.

The overall net interest rate spread and net interest margin increased to 3.06% from 2.75% and to 3.27% from 3.04%, respectively for the six months ended June 30, 2011 compared to the same period in 2010. Yields on loans and securities continued to decline for the six months ended June 30, 2011 compared to the same period in 2010. Our commercial loans 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. The declining rate environment has also resulted in a significant number of the bonds in our securities portfolio with higher yields being called and being replaced with lower yielding bonds. The overall yield on interest-earning assets declined to 4.58% for the six-month period ended June 30, 2011 from 4.79% for the six-month period ended June 30, 2010. The overall rate on interest-bearing liabilities declined to 1.52% for the six-month period ended June 30, 2011 from 2.04% for the same period in 2010. However, our ability to lower the rates paid on deposits is limited due to the already low deposit rates and the competitive environment in which we operate. In addition, a significant number of our interest-bearing deposits are time deposits, which are fixed-rate contracts until maturity that do not allow for immediate repricing as rates fluctuate.

Net interest income. Net interest income increased by $225,000 to $4.3 million for the three months ended June 30, 2011 from $4.1 million for the same period last year. Net interest income increased to $8.6 million for the six months ended June 30, 2011 from $8.2 million for the same period last year. Net

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

average interest-earning assets, which represent our average total interest-earning assets less our average total interest-bearing liabilities, were $71.6 million for the six months ended June 30, 2011, compared to $78.3 million for the same period in 2010. The ratio of interest-earning assets to interest-bearing liabilities decreased to 115.66% for the six months ended June 30, 2011 from 116.80% for the same period in 2010. The net interest rate spread increased to 3.06% for the six months ended June 30, 2011, compared to 2.75% for the comparable period in 2010. The average rate earned on interest-earning assets decreased by 21 basis points for the six months ended June 30, 2011 to 4.58% from 4.79% for the same period in 2010, while the average rate paid on interest-bearing liabilities decreased by 52 basis points during these periods to 1.52% from 2.04%. The increase in the interest rate spread was attributable to the cost of funds declining faster than the yield on interest-earning assets.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following tables set forth the average balance sheets, average yields and cost of funds, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred loan fees, discounts and premiums that are amortized or accreted to interest income or expense. Yields and rates have been annualized.

	Three Months Ended June 30, 2011							Three Months Ended June 30, 2010
	Average Outstanding Balance		Interest (4)		Yield/ Rate			Average Outstanding Balance		Interest (4)		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, gross	$	392,783	$	5,325		5.44	%	$	408,536	$	5,645		5.54	%
Securities		82,891		635		3.07			84,796		709		3.35
Federal Home Loan Bank stock		6,306		2		0.13			6,306		-		-
Interest-earning balances from depository institutions		43,615		28		0.26			31,468		23		0.29
Total interest-earning assets		525,595		5,990		4.57			531,106		6,377		4.82
Non-interest-earning assets		42,860							38,161
Total assets	$	568,455						$	569,267

Interest-bearing liabilities:
Interest-bearing transaction	$	200,364		484		0.97		$	187,664		564		1.21
Savings deposits		21,650		40		0.74			19,549		40		0.82
Time deposits		185,543		977		2.11			197,026		1,337		2.72
Securities sold under agreements to repurchase		20,422		2		0.04			19,714		5		0.10
Federal Home Loan Bank advances		21,931		127		2.32			29,543		263		3.57
Subordinated debentures		4,000		23		2.31			3,946		55		5.59
Total interest-bearing liabilities		453,910		1,653		1.46			457,442		2,264		1.99
Non-interest-bearing liabilities		36,096							34,093
Total liabilities		490,006							491,535
Stockholders’ equity		78,449							77,732
Total liabilities and stockholders’ equity	$	568,455						$	569,267

Net interest income			$	4,337						$	4,113
Net interest rate spread (1)						3.11	%						2.83	%
Net interest-earning assets (2)	$	71,685						$	73,664
Net interest margin (3)						3.31	%						3.11	%
Ratio of interest-earning assets to interest-bearing liabilities						115.79	%						116.10	%

(1)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(2)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3)	Net interest margin represents net interest income divided by average total interest-earning assets.

(4)	Interest on loans includes loan fees collected in the amount of $47,176 and $54,423 for the three months ended June 30, 2011 and 2010, respectively.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

	2011							2010
	Average Outstanding Balance		Interest (4)		Yield/ Rate			Average Outstanding Balance		Interest (4)		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, gross	$	394,487	$	10,725		5.48	%	$	412,298	$	11,385		5.57	%
Securities		81,890		1,233		3.04			89,749		1,510		3.39
Federal Home Loan Bank stock		6,306		3		0.10			6,306		-		-
Interest-earning balances from depository institutions		46,182		53		0.23			36,208		42		0.23
Total interest-earning assets		528,865		12,014		4.58			544,561		12,937		4.79
Non-interest-earning assets		42,006							38,857
Total assets	$	570,871						$	583,418

Interest-bearing liabilities:
Interest-bearing transaction	$	203,313		980		0.97		$	183,408		1,128		1.24
Savings deposits		21,266		77		0.73			19,205		79		0.83
Time deposits		186,319		2,058		2.23			198,672		2,774		2.82
Securities sold under agreements to repurchase		20,461		8		0.08			26,551		12		0.09
Federal Home Loan Bank advances		21,928		253		2.33			34,455		605		3.54
Subordinated debentures		3,989		71		3.59			3,940		129		6.60
Total interest-bearing liabilities		457,276		3,447		1.52			466,231		4,727		2.04
Non-interest-bearing liabilities		35,442							39,605
Total liabilities		492,718							505,836
Stockholders’ equity		78,153							77,582
Total liabilities and stockholders’ equity	$	570,871						$	583,418

Net interest income			$	8,567						$	8,210
Net interest rate spread (1)						3.06	%						2.75	%
Net interest-earning assets (2)	$	71,589						$	78,330
Net interest margin (3)						3.27	%						3.04	%
Ratio of interest-earning assets to interest-bearing liabilities						115.66	%						116.80	%

(1)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(2)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3)	Net interest margin represents net interest income divided by average total interest-earning assets.

(4)	Interest on loans includes loan fees collected in the amount of $108,775 and $91,092 for the six months ended June 30, 2011 and 2010, respectively.

Interest and fee income. Interest and fee income on loans decreased to $5.3 million for the three months ended June 30, 2011 from $5.6 million for the comparable period in 2010 primarily as a result of a lower average balance in the 2011 period. Interest and fee income on loans decreased to $10.7 million for the six months ended June 30, 2011 from $11.4 million for the comparable period in 2010. Interest income on loans decreased primarily as a result of a lower average balance. The average balance of loans was $394.5 million and $412.3 million for the six months ended June 30, 2011 and 2010, respectively. The average balance decreased primarily due to significant declines in new loan demand over the past year. The average yield on loans decreased to 5.48% for the six months ended June 30, 2011 from 5.57% for the comparable period in 2010.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Interest income on securities decreased to $635,000 for the three months ended June 30, 2011 compared to $709,000 for the same period in 2010. The decrease was due primarily to a decline in yield in addition to a lower average balance. Interest income on securities decreased to $1.2 million for the six months ended June 30, 2011 from $1.5 million for the comparable period in 2010. The decrease was due primarily to a decline in yield in addition to a lower average balance. The average balance of securities was $81.9 million and $89.7 million for the six months ended June 30, 2011 and 2010, respectively. During the six months ended June 30, 2010, we experienced large volumes of purchases and maturities of short-term securities for collateral purposes. The average yield on securities decreased to 3.04% from 3.39% for the six months ended June 30, 2011 and 2010, respectively. The declining rate environment resulted in a significant number of bonds in our securities portfolio with higher yields being called and replaced with lower yielding bonds.

Interest on other interest-earning deposits increased to $28,000 for the three months ended June 30, 2011 from $23,000 for the comparable period in 2010. The increase was due primarily to a higher average balance. Interest on other interest-earning deposits increased to $53,000 for the six months ended June 30, 2011 from $42,000 for the comparable period in 2010. The increase was due to a higher average balance. The average balance of other interest-earning deposits increased to $46.2 million from $36.2 million for the six months ended June 30, 2011 and 2010, respectively. The average yield on other interest-earning deposits remained at 0.23% for the six months ended June 30, 2011 and 2010.

Interest expense. Interest expense on deposits decreased to $1.5 million for the three months ended June 30, 2011 from $1.9 million for the comparable period in 2010. The decrease was due primarily to a decline in rate and a lower average balance in time deposits partially offset by a higher average balance in interest-bearing transaction accounts. Interest expense on deposits decreased to $3.1 million for the six months ended June 30, 2011 from $4.0 million for the comparable period in 2010. The decrease was due primarily to a decline in rate and a lower average balance in time deposits partially offset by a higher average balance in interest-bearing transaction accounts. The average balance of interest-bearing deposits, comprised of interest bearing transactions, savings deposits, and time deposits, was $410.9 million and $401.3 million for the six months ended June 30, 2011 and 2010, respectively. The rate for time deposits decreased to 2.23% from 2.82% for the six months ended June 30, 2011 and 2010, respectively. The rate for interest-bearing transaction accounts decreased to 0.97% from 1.24% for the six months ended June 30, 2011 and 2010, respectively. The rate for savings deposits decreased to 0.73% from 0.83% for the six months ended June 30, 2011 and 2010, respectively.

Interest expense on Federal Home Loan Bank advances decreased to $127,000 from $263,000 for the three months ended June 30, 2011 and 2010, respectively due primarily to a decline in rate in addition to a lower average balance. Interest expense on Federal Home Loan Bank advances decreased to $253,000 from $605,000 for the six months ended June 30, 2011 and 2010, respectively due primarily to a decline in rate in addition to a lower average balance. The average balance of Federal Home Loan Bank advances was $21.9 million and $34.5 million for the six months ended June 30, 2011 and 2010, respectively. The average rate on Federal Home Loan Bank advances decreased to 2.33% for the six months ended June 30, 2011 compared to 3.54% for the comparable period in 2010. The rate decline was primarily a result of a restructuring of the advances during the fourth quarter of 2010.

Interest expense on subordinated debentures decreased to $23,000 from $55,000 for the three months ended June 30, 2011 and 2010, respectively due to a decline in rate. Interest expense on subordinated debentures decreased to $71,000 from $129,000 for the six months ended June 30, 2011 and 2010, respectively due to a decline in rate. In accordance with the terms of our subordinated debentures, in June 2010 the rate converted from a fixed rate to a variable rate that adjusts quarterly.

Provision for loan losses. Provision for loan losses increased for the three month period ended June 30, 2011 to $475,000 from $400,000 for the comparable period in 2010. Provision for loan losses decreased for the six month period ended June 30, 2011 to $775,000 from $823,000 for the comparable period in 2010. Provisions for loan losses are made to establish an adequate allowance for loan losses,

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

which is based upon the Bank’s loan portfolio composition, risk categories, historical loss experience coupled with current market valuations on collateral, and management’s estimate of probable losses on the portfolio as well as the level of nonperforming and impaired loans. Management also reviews individual loans for which full collectibility may not be reasonably assured and considers, among other matters, the estimated fair value of the underlying collateral. This evaluation is ongoing and results in variations in the Company’s provision for loan losses. There may be other factors that may warrant our consideration in maintaining an allowance at a level sufficient to provide for probable losses. The Company is subject to periodic examination by the OCC, which may require the Company to record increases in the allowance based on its evaluation of available information. There can be no assurance that the OCC will not require further increases to the allowance.

Non-interest income. Non-interest income decreased to $497,000 for the three months ended June 30, 2011 from $810,000 for the comparable period in 2010 primarily due to a reduction in gain on sale of securities partially offset by an increase in gain on sale of loans for the three months ended June 30, 2011. Non-interest income decreased to $748,000 for the six months ended June 30, 2011 from $1.1 million for the comparable period in 2010 primarily due to a reduction in gain on sale of securities partially offset by an increase in gain on sale of loans for the six months ended June 30, 2011. During the six months ended June 30, 2010, the Company chose to sell securities as a strategic plan to restructure the portfolio. This allowed the Company to restructure the cash flows from securities into a more laddered distribution. The gain on sale of securities decreased to $106,000 for the six months ended June 30, 2011 from $463,000 for the comparable period in 2010. The gain on sale of loans increased to $201,000 for the six months ended June 30, 2011 from $165,000 for the same period in 2010. Other non-interest income decreased primarily due to a loss of $35,000 on sale of foreclosed property for the six months ended June 30, 2011 compared to a loss of $3,000 for the same period in 2010.

Non-interest expense. Non-interest expense increased to $2.8 million for the three months ended June 30, 2011 from $2.5 million for the same period in 2010. Non-interest expense increased to $5.5 million for the six months ended June 30, 2011 from $5.0 million for the same period in 2010. The increase was due primarily to an increase in compensation and employee benefits, professional fees, and real estate owned expense recorded for the six months ended June 30, 2011 compared to the same period in 2010.

Compensation and employee benefits increased to $1.3 million for the three months ended June 30, 2011 from $1.2 million for the same period in 2010. Compensation and employee benefits increased to $2.5 million for the six months ended June 30, 2011 from $2.3 million for the same period in 2010. The increase was due to standard merit increases as well as an increased staffing level over the prior year. The additional staffing was partially attributed to the opening of a Loan Processing Office in Highland, Illinois in 2011.

Professional fees increased to $131,000 for the three months ended June 30, 2011 compared to $104,000 for the comparable period in 2010. Professional fees increased to $260,000 for the six months ended June 30, 2011 from $141,000 for the comparable period in 2010. This increase was due primarily to the reversal of $150,000 during the six months ended June 30, 2010 of accrued expenses in connection with the consulting agreement entered into with the former CEO of Partners Bank which was based on certain contingencies that ultimately were not attained.

Real estate owned expense increased to $139,000 for the three months ended June 30, 2011 compared to $49,000 for the comparable period in 2010. Real estate owned expense increased to $326,000 for the six months ended June 30, 2011 compared to $99,000 for the comparable period in 2010. This increase was due primarily to additional expenses related to the increased number of foreclosed properties for the six months ended June 30, 2011 compared to the comparable period in 2010.

Income taxes. Income taxes decreased to $573,000 for the three months ended June 30, 2011 from $705,000 for the comparable period in 2010. Income taxes decreased to $1.1 million for the six months ended June 30, 2011 from $1.2 million for the comparable period in 2010. The primary reason for the change in income taxes was the lower level of pre-tax income for the 2011 period offset by an increase in the Illinois corporate income tax rate to 7.0% in 2011 from 4.8% in 2010.

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

We maintain liquid assets at levels considered adequate to meet liquidity needs. We adjust our liquidity levels to fund deposit outflows, repay our borrowings and fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives.

Our primary sources of liquidity are deposits, amortization and prepayment of loans, maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements.

A portion of our liquidity consists of cash and cash equivalents, which are a product of our operating, investing and financing activities. At June 30, 2011 and December 31, 2010, $55.0 million and $66.3 million, respectively, were invested in cash and cash equivalents. The primary sources of cash are principal repayments on loans, proceeds from the calls and maturities of investment securities, increases in deposit and securities sold under agreements to repurchase accounts, and advances from the Federal Home Loan Bank of Chicago.

Cash flows are derived from operating activities, investing activities and financing activities as reported in the Consolidated Statements of Cash Flows included with the Consolidated Financial Statements.

Our primary investing activities are the origination of loans and the purchase of investment securities. During the six months ended June 30, 2011 principal collections on loans exceeded loan originations by $202,000 compared to $10.0 million for the six months ended June 30, 2010. Cash received from calls, maturities, and paydowns of available-for-sale investment securities totaled $46.1 million and $118.2 million for the six months ended June 30, 2011 and 2010, respectively. We purchased $53.5 million and $122.7 million in available-for-sale investment securities during the six months ended June 30, 2011 and 2010, respectively. We received proceeds of $2.1 million and $9.3 million from the sale of available for sale securities for the six months ended June 30, 2011 and 2010, respectively. We received proceeds of $1.6 million from the sale of foreclosed assets for the six months ended June 30, 2011 compared to $466,000 during the same period in 2010.

Deposit flows are generally affected by interest rates as designated by management, the interest rates and products offered by local competitors, and other factors. Net deposits decreased by $13.4 million and $13.5 million for the six months ended June 30, 2011 and 2010, respectively. Securities sold under agreements to repurchase had a net increase of $3.6 million and $2.2 million for the six months ended June 30, 2011 and 2010, respectively. There were no repayments of Federal Home Loan Bank advances for the six months ended June 30, 2011 compared to $12.5 million for the six months ended June 30, 2010.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Chicago, which provides an additional source of funds. At June 30, 2011, we had $21.9 million of advances from the Federal Home Loan Bank of Chicago and additional available credit of approximately $34.1 million.

The Bank is required to maintain certain minimum capital requirements under OCC regulations. Failure by a savings institution to meet minimum capital requirements can result in certain mandatory and possible discretionary actions by regulators, which, if undertaken, could have a direct material effect on the Bank’s financial statements. The Bank was considered “well-capitalized” at June 30, 2011. Under the capital adequacy guidelines and regulatory framework for prompt corrective action, the Bank must meet

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

The Bank’s actual and required capital amounts and ratios at June 30, 2011 were as follows:

	Actual						For Capital Adequacy Purposes					To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount			Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
Stockholders' equity	$	75,282
Goodwill and core deposit intangible		(12,351	)
Disallowed servicing assets		(627	)
Unrealized gain on securities AFS, net		(1,159	)
Tangible capital to adjusted total assets	$	61,145			11.1	%	$	8,274		1.5	%		N/A		-
Allowance as limited by regulatory guidance		3,968
Deduction for low-level recourse		(1,607	)
Total capital to risk-weighted assets	$	63,506			17.4	%	$	29,163		8.0	%	$	36,454		10.0	%

Tier 1 capital to risk-weighted assets	$	61,145			16.8	%		N/A		-		$	21,872		6.0	%

Tier 1 capital to total assets	$	61,145			11.1	%	$	22,064		4.0	%	$	27,580		5.0	%

INDEX

FIRST CLOVER LEAF FINANCIAL CORP.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Off-Balance Sheet Arrangements

In the ordinary course of business, the Company is a party to credit-related financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer. Unfunded commitments under construction lines of credit for residential and multi-family properties are commitments for possible future extensions of credit to existing customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.

A summary of the notional or contractual amounts of financial instruments, with off-balance-sheet risk at June 30, 2011 follows:

	Variable Rate Commitments		Fixed Rate Commitments		Total Commitments		Range of Rates on Fixed Rate Commitments
	(Dollars in thousands)

Commitments to extend credit	$	22,055	$	24,720	$	46,775		4.00% - 18.00	%
Standby letters of credit	$	1,634	$	2,376	$	4,010		5.00% - 6.50	%

Loans sold to the Federal Home Loan Bank (“FHLB”) of Chicago under the Mortgage Partnership Finance (“MPF”) program are sold with recourse. The Bank has an agreement to sell residential loans of up to $71.0 million to the FHLB of Chicago. Approximately $65.7 million have been sold. As a part of the agreement, the Bank has a maximum credit enhancement of $1.6 million at June 30, 2011. Based upon a favorable payment history, the Bank does not anticipate recognizing any losses on these residential loans. The Company intends to continue originating mortgage loans and selling them while retaining the servicing. In addition to the FHLB of Chicago MPF program, the Company currently has a relationship to sell loans to Fannie Mae.

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FIRST CLOVER LEAF FINANCIAL CORP.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The majority of First Clover Leaf Bank’s assets and liabilities are monetary in nature. Consequently, the most significant form of market risk is interest rate risk. First Clover Leaf’s assets, consisting primarily of loans, have longer maturities than its liabilities, consisting primarily of deposits. As a result, a principal part of First Clover Leaf’s business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, the Board of Directors has established an Asset/Liability Management Committee which is responsible for evaluating the interest rate risk inherent in assets and liabilities, for determining the level of risk that is appropriate given First Clover Leaf’s business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. Senior management monitors the level of interest rate risk on a regular basis, and the Asset/Liability Management Committee meets as needed to review the asset/liability policies and interest rate risk position.

During the relatively low interest rate environment that has existed in recent years, we have implemented the following strategies to manage interest rate risk: (i) maintaining a high equity-to-assets ratio; and (ii) offering a variety of adjustable rate loan products, including adjustable rate one- to four-family, multifamily and non-residential mortgage loans, short-term consumer loans, and a variety of adjustable-rate commercial loans. By maintaining a high equity-to-assets ratio and by investing in adjustable-rate and short-term assets, we are better positioned to react to increases in market interest rates. However, maintaining high equity balances reduces the return-on-equity ratio, and investments in shorter-term assets generally bear lower yields than longer-term investments.

The Office of Thrift Supervision (“OTS”) requires the computation of amounts by which the net present value of an institution’s cash flow from assets, liabilities and off-balance sheet items (the institution’s net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. The OTS has provided all institutions that file a Consolidated Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with an interest rate sensitivity report of net portfolio value. The OTS simulation model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. Historically, the OTS model estimated the economic value of each type of asset, liability and off-balance-sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 300 basis points in 100 basis point increments. However, given the current low level of market interest rates, First Clover Leaf did not receive a NPV calculation for an interest rate decrease of greater than 100 basis points for December 2010 or March 31, 2011. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.

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FIRST CLOVER LEAF FINANCIAL CORP.

Item 3. Quantitative and Qualitative Disclosures about Market Risk (Continued)

The tables below set forth, as of March 31, 2011 and December 31, 2010, the estimated changes in the NPV that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

March 31, 2011
		NPV								Net Portfolio Value as a Percentage of Present Value of Assets
		Estimated		Estimated Increase (Decrease) in NPV						NPV Ratio
Change in Interest Rates		NPV		Amount			Percent						Change


	+300bp	$	67,685	$	(14,227	)		(17	)%		12.13	%		(202)bp
	+200bp		72,967		(8,945	)		(11	)		12.90			(124)bp
	+100bp		77,864		(4,048	)		(5	)		13.59			(55)bp
	+50bp		79,809		(2,103	)		(3	)		13.86			(28)bp
	0bp		81,912		—			—			14.14			0bp
	-50bp		82,897		986			1			14.26			12bp
	-100bp		84,742		2,831			3			14.51			37bp

December 31, 2010
		NPV								Net Portfolio Value as a Percentage of Present Value of Assets
		Estimated		Estimated Increase (Decrease) in NPV
Change in Interest Rates		NPV		Amount			Percent			NPV Ratio			Change


	+300bp	$	69,537	$	(12,789	)		(16	)%		12.26	%		(179)bp
	+200bp		74,569		(7,757	)		(9	)		12.99			(106)bp
	+100bp		78,978		(3,348	)		(4	)		13.61			(44)bp
	+50bp		80,653		(1,673	)		(2	)		13.83			(22)bp
	0bp		82,326		—			—			14.05			0bp
	-50bp		83,121		795			1			14.14			9bp
	-100bp		84,741		2,415			3			14.36			32bp

The 2011 table above indicates that at March 31, 2011, in the event of a 100 basis point decrease in interest rates, we would experience a 3% increase in the net portfolio value. In the event of a 300 basis point increase in interest rates, we would experience a 17% decrease in the net portfolio value. Management does not believe that the Company’s primary market risk exposures at June 30, 2011, and how those exposures were managed during the three months ended June 30, 2011 have changed materially when compared to the immediately preceding quarter ended March 31, 2011. However, the Company’s primary market risk exposure has not yet been quantified at June 30, 2011 as the OTS Net Portfolio Value Model is not yet available and the complexity of the model makes it difficult to accurately predict results.

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FIRST CLOVER LEAF FINANCIAL CORP.

Item 3. Quantitative and Qualitative Disclosures about Market Risk (Continued)

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in net portfolio value require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net portfolio value table presented assumes that the composition of the interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net portfolio value table provides an indication of the interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on its net interest income and will differ from actual results.

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FIRST CLOVER LEAF FINANCIAL CORP.

Item 4. Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company’s periodic SEC reports.

In addition, there have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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FIRST CLOVER LEAF FINANCIAL CORP.

PART II - Other Information

Item 1 - Legal Proceedings.

There are no material legal proceedings to which the Company or its subsidiaries is a party or of which any of its property is subject. From time to time, the Company is a party to various legal proceedings incident to its business.

Item 1A – Risk Factors.

Other than the information contained in this Quarterly Report on Form 10-Q, there are no material updates or additions to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2010, as filed with the Securities and Exchange Commission. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds.

(a)	No equity securities were sold during the quarter that were not registered under the Securities Exchange Act.

(b)	Not applicable.

(c)	The following table presents for the periods indicated a summary of the purchases made by or on behalf of the Company 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)

April 1 - 30, 2011		8,600	$	7.27		8,600		10,219
May 1 - 31, 2011		4,000	$	7.10		4,000		6,219
June 1 - 30, 2011		4,800	$	6.99		4,800		26,419
Total		17,400				17,400

(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, on December 11, 2008, they increased the number of shares that may be repurchased pursuant to that plan by an additional 382,641 shares, on April 27, 2010, August 24, 2010, November 23, 2010, and June 28, 2011 they authorized additional increases to that plan of 25,000 shares each. The plan has no expiration date.

Item 3 - Defaults upon Senior Securities.

Not applicable.

Item 4 – [Reserved].

Item 5 - Other Information.

None

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FIRST CLOVER LEAF FINANCIAL CORP.

Item 6 – Exhibits.

(a) Exhibits.

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.
32:	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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FIRST CLOVER LEAF FINANCIAL CORP.

SIGNATURES

Pursuant to the requirements 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.
	(Registrant)

DATE: August 15, 2011	BY:	/s/ Dennis M. Terry
		Dennis M. Terry,
		President and Chief Executive Officer


	BY:	/s/ Darlene F. McDonald
		Darlene F. McDonald,
		Senior Vice-President and Chief Financial Officer

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