First Clover Leaf Financial Corp. - FORM 10-Q

Attached files

file	filename
EX-32 - EX-32 - First Clover Leaf Financial Corp.	a12-14595_1ex32.htm
EX-31.1 - EX-31.1 - First Clover Leaf Financial Corp.	a12-14595_1ex31d1.htm
EX-31.2 - EX-31.2 - First Clover Leaf Financial Corp.	a12-14595_1ex31d2.htm

Table of Contents

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, 2012

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		(I.R.S. Employer Identification No.)
incorporation or organization)

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 x. 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		Smaller reporting company x
(do not check if smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes 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 6, 2012
Common Stock, par value $.10 per share		7,635,113

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2012

INDEX

		PAGE NO.

PART I - Financial Information

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets		3

Consolidated Statements of Net Income and Comprehensive Income		4

Consolidated Statements of Cash Flows		5

Notes to Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		34

Item 3. Quantitative and Qualitative Disclosures about Market Risk		47

Item 4. Controls and Procedures		48

PART II - Other Information

Item 1. Legal Proceedings		49

Item 1A. Risk Factors		49

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		49

Item 3. Defaults Upon Senior Securities		49

Item 4. Mine Safety Disclosures		49

Item 5. Other Information		49

Item 6. Exhibits		50

Signatures		51

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Balance Sheets

	June 30,		December 31,
	2012		2011
	(Unaudited)
ASSETS

Cash and due from banks	$	10,674,815	$	10,336,923
Interest-earning deposits	6,864,813		7,083,526
Federal funds sold	2,445,266		21,940,960
Total cash and cash equivalents	19,984,894		39,361,409

Interest-earning time deposits	1,745,769		1,738,498
Securities available for sale	79,349,440		85,575,351
Federal Home Loan Bank stock	3,657,366		6,306,273
Loans, net of allowance for loan losses of $5,865,022 and $7,789,262 at June 30, 2012 and December 31, 2011, respectively	390,803,945		387,634,646
Loans held for sale	1,161,960		1,661,750
Property and equipment, net	10,347,483		10,088,154
Goodwill	11,385,323		11,385,323
Bank-owned life insurance	5,154,531		5,067,935
Core deposit intangible	675,498		816,000
Foreclosed assets	6,854,051		5,822,864
Mortgage servicing rights	705,145		651,409
Accrued interest receivable	1,615,461		1,726,319
Prepaid FDIC insurance premiums	1,216,437		1,439,197
Other assets	3,289,749		3,449,851
Total assets	$	537,947,052	$	562,724,979

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Deposits:
Noninterest bearing	$	45,945,421	$	39,256,851
Interest bearing	359,115,913		375,501,432
Total deposits	405,061,334		414,758,283

Federal Home Loan Bank advances	26,956,670		26,944,000
Securities sold under agreements to repurchase	21,612,960		36,874,298
Subordinated debentures	4,000,000		4,000,000
Accrued interest payable	311,007		417,828
Other liabilities	1,793,983		2,016,445
Total liabilities	459,735,954		485,010,854

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, 7,660,401 and 7,727,756 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively	766,040		772,776
Additional paid-in capital	60,830,045		61,230,512
Retained earnings	15,206,500		14,418,656
Accumulated other comprehensive income	1,408,513		1,292,181
Total stockholders’ equity	78,211,098		77,714,125

Total liabilities and stockholders’ equity	$	537,947,052	$	562,724,979

See Notes to Consolidated Financial Statements.

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FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Statements of Net Income and Comprehensive Income

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

2012

2011

2012

2011

Interest and dividend income:

Interest and fees on loans

4,945,388

5,324,255

9,958,627

10,724,286

Securities:

Taxable interest income

302,990

464,847

650,190

899,278

Nontaxable interest income

202,855

170,104

404,240

333,716

Federal Home Loan Bank dividends

3,272

1,555

3,272

3,145

Interest-earning deposits, federal funds sold, and other

13,142

28,475

30,832

53,283

Total interest and dividend income

5,467,647

5,989,236

11,047,161

12,013,708

Interest expense:

Deposits

965,127

1,500,518

2,032,487

3,115,150

Federal Home Loan Bank advances

130,750

127,548

260,764

253,278

Securities sold under agreements to repurchase

4,239

2,278

7,383

7,893

Subordinated debentures

25,046

22,540

49,652

70,729

Total interest expense

1,125,162

1,652,884

2,350,286

3,447,050

Net interest income

4,342,485

4,336,352

8,696,875

8,566,658

Provision for loan losses

350,000

475,000

800,000

775,000

Net interest income after provision for loan losses

3,992,485

3,861,352

7,896,875

7,791,658

Other income:

Service fees on deposit accounts

93,694

97,992

185,997

191,742

Other service charges and fees

93,448

89,606

182,768

172,197

Loan servicing fees

50,115

40,758

98,831

87,765

Gain on sale of securities

—

105,348

—

106,144

Gain on sale of loans

269,511

170,697

521,078

201,461

Other

(13,511

)

(6,973

)

9,607

(11,743

)

493,257

497,428

998,281

747,566

Other expenses:

Compensation and employee benefits

1,546,636

1,253,760

2,990,255

2,462,507

Occupancy expense

292,379

305,218

621,381

628,035

Data processing services

171,238

162,456

351,732

323,815

Director fees

39,650

35,900

81,000

71,000

Professional fees

113,515

130,940

290,810

260,403

FDIC insurance premiums

122,504

182,875

245,008

362,580

Foreclosed asset related expenses

359,562

139,074

444,597

326,024

Amortization of core deposit intangible

70,249

77,330

140,502

154,680

Amortization of mortgage servicing rights

46,302

24,696

105,395

62,956

Other

561,739

460,404

1,086,145

892,485

3,323,774

2,772,653

6,356,825

5,544,485

Income before income taxes

1,161,968

1,586,127

2,538,331

2,994,739

Income tax expense

373,463

572,867

827,290

1,075,598

Net income

788,505

1,013,260

1,711,041

1,919,141

Net income

788,505

1,013,260

1,711,041

1,919,141

Other comprehensive income:

Change in unrealized gains on securities available for sale, net of reclassifications and taxes

174,866

326,999

116,332

544,431

Comprehensive income

963,371

1,340,259

1,827,373

2,463,572

Basic and diluted earnings per share (see Note 5)

0.10

0.13

0.22

0.25

Dividends per share

0.06

0.06

0.12

0.12

See Notes to Consolidated Financial Statements.

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FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
	2012			2011
Cash flows from operating activities
Net income	$	1,711,041		$	1,919,141
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization (accretion) of:
Deferred loan origination costs, net	(42,338		)	2,257
Premiums and discounts on securities	(169,616		)	54,186
Core deposit intangible	140,502			154,680
Mortgage servicing rights	105,395			62,956
Amortization of fair value adjustments	(28,351		)	(35,691		)
Provision for loan losses	800,000			775,000
Depreciation	281,322			283,359
ESOP expense	—			30,143
Gain on sale of securities available for sale	—			(106,144		)
Gain on sale of loans	(521,078		)	(201,461		)
Loss on sale of foreclosed assets	99,416			35,311
Write-down on foreclosed assets	329,500			—
Earnings on bank-owned life insurance	(86,596		)	—
Proceeds from sales of loans held for sale	19,897,942			10,231,008
Originations of loans held for sale	(18,877,074		)	(10,029,547		)
Change in assets and liabilities:
Mortgage servicing rights	(159,131		)	(88,260		)
Accrued interest receivable and other assets	493,720			310,838
Accrued interest payable	(106,821		)	(107,085		)
Other liabilities	(290,783		)	(109,144		)
Net cash provided by operating activities	3,577,050			3,181,547

Cash flows from investing activities
Purchase of interest-earning time deposits	(7,271		)	(5,566		)
Available for sale securities:
Purchases	(21,771,639		)	(53,453,386		)
Proceeds from calls, maturities, and paydowns	28,384,011			46,075,282
Proceeds from sales	—			2,105,349
Redemption of FHLB stock	2,648,907			—
(Increase) decrease in loans	(5,898,444		)	202,354
Purchase of property and equipment	(548,687		)	(96,828		)
Proceeds from the sale of foreclosed assets	525,245			1,610,836
Net cash provided by (used in) investing activities	3,332,122			(3,561,959		)

(Continued)

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FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Statements of Cash Flows (Continued)

(Unaudited)

	Six Months Ended June 30,
	Six Months Ended June 30,
	2012			2011
Cash flows from financing activities
Net decrease in deposit accounts	$	(9,693,949	)	$	(13,418,046	)
Net (decrease) increase in securities sold under agreements to repurchase	(15,261,338		)	3,614,234
Repurchase of common stock	(407,203		)	(168,702		)
Cash dividends paid	(923,197		)	(932,202		)
Net cash used in financing activities	(26,285,687		)	(10,904,716		)

Net decrease in cash and cash equivalents	(19,376,515		)	(11,285,128		)

Cash and cash equivalents:
Beginning	39,361,409			66,253,047

Ending	$	19,984,894		$	54,967,919

Supplemental schedule of noncash investing activities
Assets acquired in settlement of loans	$	2,165,848		$	2,259,782
Loans made to finance sales of foreclosed assets	181,500			145,000

Supplemental disclosures of cash flow information Cash paid during the period for:
Interest	$	2,447,437		$	3,534,407
Income taxes, net of refunds	675,000			880,000

See Notes to Consolidated Financial Statements.

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

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 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, 2011 contained in the 2011 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 May 2011, the Financial Accounting Standards Board (“FASB”) issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective for interim and annual reporting periods beginning after December 15, 2011. The effect of adopting this standard did not have a material effect on the Company’s operating results or financial condition. The additional disclosures are included in Notes 7 and 8.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. The adoption of this amendment changed the presentation of the statement of comprehensive income for the Company to one continuous statement instead of being presented separately.

In September 2011, the FASB amended existing guidance relating to goodwill impairment testing. The amendment permits an assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing these events or circumstances, it is concluded that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The amendments in this guidance are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Adoption of this guidance is not expected to have a material impact on the Company’s assessment of goodwill impairment.

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 1. Summary of Significant Accounting Policies (Continued)

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, 2011, to be consistent with the classifications adopted for the three and six months ended June 30, 2012.

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, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		(Losses)			Value
U.S. government agency obligations	$	23,279,761	$	393,381	$	(1	)	$	23,673,141
Corporate bonds	1,199,960		1,421		(18,452		)	1,182,929
State and municipal securities	26,136,789		1,487,294		(1,772		)	27,622,311
Other securities	3,501		—		—			3,501
Mortgage-backed: residential	26,493,584		415,499		(41,525		)	26,867,558

	$	77,113,595	$	2,297,595	$	(61,750	)	$	79,349,440

	December 31, 2011
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		(Losses)			Value
U.S. government agency obligations	$	31,226,753	$	517,236	$	—		$	31,743,989
Corporate bonds	1,949,836		12,444		(123,956		)	1,838,324
State and municipal securities	25,063,842		1,329,567		(17,291		)	26,376,118
Other securities	3,501		—		—			3,501
Mortgage-backed: residential	25,280,227		425,272		(92,080		)	25,613,419

	$	83,524,159	$	2,284,519	$	(233,327	)	$	85,575,351

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

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, 2012 and December 31, 2011, are summarized as follows:

	June 30, 2012
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. government agency obligations	$	999,000	$	(1	)	$	—	$	—		$	999,000	$	(1	)
Corporate bonds	—		—			681,548		(18,452		)	681,548		(18,452		)
State and municipal securities	997,857		(1,772		)	—		—			997,857		(1,772		)
Mortgage-backed: residential	8,744,408		(41,525		)	—		—			8,744,408		(41,525		)

	$	10,741,265	$	(43,298	)	$	681,548	$	(18,452	)	$	11,422,813	$	(61,750	)

	December 31, 2011
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Corporate bonds	$	—	$	—		$	576,044	$	(123,956	)	$	576,044	$	(123,956	)
State and municipal securities	1,448,738		(17,291		)	—		—			1,448,738		(17,291		)
Mortgage-backed: residential	9,805,765		(92,080		)	—		—			9,805,765		(92,080		)

	$	11,254,503	$	(109,371	)	$	576,044	$	(123,956	)	$	11,830,547	$	(233,327	)

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, 2012, the Company had 12 securities in an unrealized loss position which included: one U.S. government agency obligation, one corporate bond, two state and municipal securities, and eight mortgage-backed securities. The unrealized losses resulted from changes in market interest rates and liquidity, not from changes in the probability of contractual cash flows. While our one corporate bond has been in an unrealized loss position for more than 12 months and is currently at a 3% unrealized loss position, which we believe is interest rate driven, there have been no defaults by the bond issuer to date, and the bond remains above investment grade. The unrealized loss on this corporate bond has improved during the quarter, from an 18% unrealized loss position at December 31, 2011. 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, 2012.

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 2. Securities (Continued)

The amortized cost and fair value at June 30, 2012, by contractual maturity, is 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		Fair
	Cost		Value
Due in one year or less	$	12,324,839	$	12,469,150
Due after one year through five years	15,047,630		15,534,183
Due after five years through ten years	8,522,229		9,029,726
Due after ten years	14,721,812		15,445,322
Mortgage-backed: residential	26,493,584		26,867,558
Other securities	3,501		3,501

	$	77,113,595	$	79,349,440

Securities with a carrying amount of approximately $69,641,000 and $76,501,000 were pledged to secure deposits as required or permitted by law at June 30, 2012 and December 31, 2011, respectively.

Note 3. Loans

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

	At June 30, 2012					At December 31, 2011
	At June 30, 2012					At December 31, 2011
	Amount			Percent		Amount			Percent
Real estate loans:
One-to-four family	$	115,879,692		28.8	%	$	115,540,320		29.1	%
Multi-family	38,084,491			9.4		39,481,726			9.9
Commercial	135,353,843			33.6		128,656,804			32.4
Construction and land	39,472,500			9.8		44,192,020			11.1
	328,790,526			81.6		327,870,870			82.5

Commercial business	59,046,703			14.7		48,676,963			12.3

Consumer:
Home equity	13,668,948			3.4		19,139,850			4.8
Automobile and other	1,286,175			0.3		1,414,711			0.4
	14,955,123			3.7		20,554,561			5.2

Total gross loans	402,792,352			100.0	%	397,102,394			100.0	%
Undisbursed portion of construction loans	(6,127,110		)			(1,725,311		)
Deferred loan origination costs (fees), net	3,725					46,825
Allowance for loan losses	(5,865,022		)			(7,789,262		)

Loans, net	$	390,803,945				$	387,634,646

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

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 2011 Annual Report to Stockholders that is filed as an exhibit to the Company’s Annual Report on Form 10-K.

The loan portfolio includes a concentration of loans in commercial real estate amounting to approximately $135,354,000 and $128,657,000 as of June 30, 2012 and December 31, 2011, respectively. The loans are expected to be repaid from cash flows or from proceeds from the sale of selected assets of the borrowers. The concentration of credit within commercial real estate is taken into consideration by management in determining the allowance for loan losses. The Company’s opinion as to the ultimate collectibility of these loans is subject to estimates regarding future cash flows from operations and the value of the property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers.

On occasion, the Company originates loans secured by single-family dwellings with loan to value ratios exceeding 90%. The Company does not consider the level of such loans to be a significant concentration of credit as of June 30, 2012 or December 31, 2011.

The recorded investment in loans does not include accrued interest and loan origination fees due to immateriality.

The following tables present our past-due loans, segregated by class, as of June 30, 2012 and December 31, 2011.

	June 30, 2012
	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	$	376,937	$	338,888	$	1,338,268	$	2,054,093	$	113,825,599	$	115,879,692	$	—
Multi-family	—		3,379,747		—		3,379,747		34,704,744		38,084,491		—
Commercial	994,075		—		642,807		1,636,882		133,716,961		135,353,843		97,379
Construction and land	371,777		—		2,688,578		3,060,355		36,412,145		39,472,500		—
	1,742,789		3,718,635		4,669,653		10,131,077		318,659,449		328,790,526		97,379

Commercial business	28,128		46,624		806,855		881,607		58,165,096		59,046,703		28,566

Consumer:
Home equity	124,325		—		194,125		318,450		13,350,498		13,668,948		—
Automobile and other	3,442		—		5,426		8,868		1,277,307		1,286,175		5,426
	127,767		—		199,551		327,318		14,627,805		14,955,123		5,426

Total	$	1,898,684	$	3,765,259	$	5,676,059	$	11,340,002	$	391,452,350	$	402,792,352	$	131,371

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 3. Loans (Continued)

	December 31, 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	$	679,214	$	49,977	$	946,915	$	1,676,106	$	113,864,214	$	115,540,320	$	404,984
Multi-family	—		—		235,837		235,837			39,245,889	39,481,726		—
Commercial	—		1,745,863		762,168		2,508,031			126,148,773	128,656,804		—
Construction and land	155,125		229,500		7,130,658		7,515,283			36,676,737	44,192,020		—
	834,339		2,025,340		9,075,578		11,935,257		315,935,613		327,870,870		404,984

Commercial business	202,874		126,674		193,697		523,245		48,153,718		48,676,963		—

Consumer:
Home equity	109,795		123,527		141,777		375,099		18,764,751		19,139,850		—
Automobile and other	—		—		—		—		1,414,711		1,414,711		—
	109,795		123,527		141,777		375,099		20,179,462		20,554,561		—
	$	1,147,008	$	2,275,541	$	9,411,052	$	12,833,601	$	384,268,793	$	397,102,394	$	404,984

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,		December 31,
	2012		2011
Real estate loans:
One-to-four family	$	1,667,783	$	1,203,351
Multi-family	3,602,782		1,119,696
Commercial	3,343,112		762,168
Construction and land	3,112,296		7,690,156
	11,725,973		10,775,371

Commercial business	810,608		249,695

Consumer:
Home equity	194,125		141,777

Total non-accrual loans	$	12,730,706	$	11,166,843

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 3. Loans (Continued)

The following tables present the activity in the allowance for loan losses for the three and six months ended June 30, 2012 and 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, 2012
	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Real estate loans:
One-to-four family	$	324,966	$	(4,900	)	$	668	$	308,449		$	629,183
Multi-family	704,320		—			34,312		(47,646		)	690,986
Commercial	1,639,089		(163,037		)	216,069		(575,092		)	1,117,029
Construction and land	2,073,420		(27,287		)	1,239		207,560			2,254,932
	4,741,795		(195,224		)	252,288		(106,729		)	4,692,130

Commercial business	668,974		(14,647		)	—		314,502			968,829

Consumer:
Home equity	134,771		(92,056		)	—		146,376			189,091
Automobile and other	19,121		—			—		(4,149		)	14,972
	153,892		(92,056		)	—		142,227			204,063

Total	$	5,564,661	$	(301,927	)	$	252,288	$	350,000		$	5,865,022

	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

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 3. Loans (Continued)

	Six months ended June 30, 2012
	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Real estate loans:
One-to-four family	$	777,470	$	(208,362	)	$	668	$	59,407		$	629,183
Multi-family	779,680		—			34,312		(123,006		)	690,986
Commercial	1,157,114		(397,265		)	216,341		140,839			1,117,029
Construction and land	3,934,573		(2,123,047		)	9,147		434,259			2,254,932
	6,648,837		(2,728,674		)	260,468		511,499			4,692,130

Commercial business	969,669		(166,174		)	2,196		163,138			968,829

Consumer:
Home equity	133,234		(92,056		)	—		147,913			189,091
Automobile and other	37,522		—			—		(22,550		)	14,972
	170,756		(92,056		)	—		125,363			204,063

Total	$	7,789,262	$	(2,986,904	)	$	262,664	$	800,000		$	5,865,022

	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

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

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, 2012, and December 31, 2011.

	June 30, 2012
	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	$	70,183	$	559,000	$	629,183	$	1,667,783	$	114,211,909	$	115,879,692
Multi-family	396,085		294,901		690,986		3,602,782		34,481,709		38,084,491
Commercial	135,269		981,760		1,117,029		3,343,112		132,010,731		135,353,843
Construction and land	138,165		2,116,767		2,254,932		3,616,721		35,855,779		39,472,500
	739,702		3,952,428		4,692,130		12,230,398		316,560,128		328,790,526

Commercial business	253,826		715,003		968,829		920,299		58,126,404		59,046,703

Consumer:
Home equity	52,348		136,743		189,091		194,125		13,474,823		13,668,948
Automobile and other	—		14,972		14,972		—		1,286,175		1,286,175
	52,348		151,715		204,063		194,125		14,760,998		14,955,123

Total	$	1,045,876	$	4,819,146	$	5,865,022	$	13,344,822	$	389,447,530	$	402,792,352

	December 31, 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	$	383,825	$	393,645	$	777,470	$	2,531,092	$	113,009,228	$	115,540,320
Multi-family	356,260		423,420		779,680		3,640,570		35,841,156		39,481,726
Commercial	98,754		1,058,360		1,157,114		3,357,048		125,299,756		128,656,804
Construction and land	2,080,706		1,853,867		3,934,573		7,845,281		36,346,739		44,192,020
	2,919,545		3,729,292		6,648,837		17,373,991		310,496,879		327,870,870

Commercial business	161,786		807,883		969,669		1,563,746		47,113,217		48,676,963

Consumer:
Home equity	13,814		119,420		133,234		651,248		18,488,602		19,139,850
Automobile and other	—		37,522		37,522		—		1,414,711		1,414,711
	13,814		156,942		170,756		651,248		19,903,313		20,554,561

Total	$	3,095,145	$	4,694,117	$	7,789,262	$	19,588,985	$	377,513,409	$	397,102,394

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 3. Loans (Continued)

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. The risk category of homogeneous loans such as consumer loans and smaller balance loans is evaluated when the loan becomes delinquent. 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.

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, 2012 or December 31, 2011.

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 3. Loans (Continued)

The following tables present our credit quality indicators, segregated by class, as of June 30, 2012 and December 31, 2011.

	June 30, 2012
	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
One-to-four family	$	112,591,881	$	1,208,929	$	1,883,606	$	195,276	$	115,879,692
Multi-family	34,147,236		334,473		3,602,782		—		38,084,491
Commercial	122,229,326		5,392,107		7,732,410		—		135,353,843
Construction and land	20,703,224		6,796,290		11,062,322		910,664		39,472,500
	289,671,667		13,731,799		24,281,120		1,105,940		328,790,526

Commercial business	56,366,808		481,917		2,133,934		64,044		59,046,703

Consumer:
Home equity	13,437,289		37,534		194,125		—		13,668,948
Automobile and other	1,284,462		—		1,713		—		1,286,175
	14,721,751		37,534		195,838		—		14,955,123

Total	$	360,760,226	$	14,251,250	$	26,610,892	$	1,169,984	$	402,792,352

	December 31, 2011
	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
One-to-four family	$	111,752,817	$	1,245,332	$	2,126,651	$	415,520	$	115,540,320
Multi-family	35,841,156		—		3,640,570		—		39,481,726
Commercial	117,634,711		3,856,453		7,061,405		104,235		128,656,804
Construction and land	25,903,980		950,000		17,338,040		—		44,192,020
	291,132,664		6,051,785		30,166,666		519,755		327,870,870

Commercial business	44,805,581		474,961		3,396,421		—		48,676,963

Consumer:
Home equity	17,980,458		471,386		688,006		—		19,139,850
Automobile and other	1,411,319		—		3,392		—		1,414,711
	19,391,777		471,386		691,398		—		20,554,561
Total	$	355,330,022	$	6,998,132	$	34,254,485	$	519,755	$	397,102,394

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 3. Loans (Continued)

The following tables provide details of impaired loans, segregated by class, as of and for the periods indicated. 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.

	As of June 30, 2012						As of December 31, 2011
	Unpaid Contractual Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Contractual Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Real estate loans:
One-to-four family	$	940,757	$	884,400	$	—	$	799,309	$	799,309	$	—
Multi-family	—		—		—		387,757		235,837		—
Commercial	2,941,082		2,797,684		—		1,954,587		1,954,587		—
Construction and land	1,739,708		1,461,421		—		2,227,340		1,976,340		—
	5,621,547		5,143,505		—		5,368,993		4,966,073		—

Commercial business	168,726		67,045		—		270,304		270,304		—

Consumer:
Home equity	141,777		141,777		—		637,433		637,434		—
Automobile and other	—		—		—		—		—		—
	141,777		141,777		—		637,433		637,434		—
Subtotal	$	5,932,050	$	5,352,327	$	—	$	6,276,730	$	5,873,811	$	—

With an allowance recorded:
Real estate loans:
One-to-four family	$	783,383	$	783,383	$	70,183	$	1,731,783	$	1,731,783	$	383,825
Multi-family	3,754,702		3,602,782		396,085		3,404,733		3,404,733		356,260
Commercial	545,428		545,428		135,269		1,402,461		1,402,461		98,754
Construction and land	3,928,535		2,155,300		138,165		6,799,046		5,868,941		2,080,706
	9,012,048		7,086,893		739,702		13,338,023		12,407,918		2,919,545

Commercial business	853,254		853,254		253,826		1,293,442		1,293,442		161,786

Consumer:
Home equity	52,348		52,348		52,348		13,814		13,814		13,814
Automobile and other	—		—		—		—		—		—
	52,348		52,348		52,348		13,814		13,814		13,814
Subtotal	$	9,917,650	$	7,992,495	$	1,045,876	$	14,645,279	$	13,715,174	$	3,095,145
Total	$	15,849,700	$	13,344,822	$	1,045,876	$	20,922,009	$	19,588,985	$	3,095,145

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 3. Loans (Continued)

	For the three months ended June 30, 2012						For the three months ended June 30, 2011
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
With no related allowance recorded:
Real estate loans:
One-to-four family	$	975,901	$	—	$	—	$	1,709,651	$	8,988	$	—
Multi-family	115,143		—				2,695,753		49,370		3,995
Commercial	1,409,148		—				2,666,344		36,802		—
Construction and land	1,934,694		—				4,047,361		—		—
	4,434,886		—		—		11,119,109		95,160		3,995

Commercial business	114,799		47		—		109,827		129		—

Consumer:
Home equity	134,870		—		—		535,864		6,295		—
Automobile and other	—		—		—		—		—		—
	134,870		—		—		535,864		6,295		—
Subtotal	$	4,684,555	$	47	$	—	$	11,764,800	$	101,584	$	3,995

With an allowance recorded:
Real estate loans:
One-to-four family	$	608,986	$	604	$	—	$	653,622	$	—	$	—
Multi-family	3,502,070		—		—		2,489,574		—		—
Commercial	2,274,354		—		—		173,963		—		—
Construction and land	2,930,413		3,746		—		1,543,719		—		—
	9,315,823		4,350		—		4,860,878		—		—

Commercial business	578,144		557		—		596,734		3,426		—

Consumer:
Home equity	97,940		—		—		—		—		—
Automobile and other	—		—		—		5,921		—		—
	97,940		—		—		5,921		—		—
Subtotal	9,991,907		4,907		—		5,463,533		3,426		—
Total	$	14,676,462	$	4,954	$	—	$	17,228,333	$	105,010	$	3,995

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 3. Loans (Continued)

	For the six months ended June 30, 2012						For the six months ended June 30, 2011
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
With no related allowance recorded:
Real estate loans:
One-to-four family	$	917,037	$	8,634	$	—	$	2,047,293	$	12,248	$	—
Multi-family	155,375		—		—		210,950		52,828		3,995
Commercial	1,590,961		—		—		3,441,001		78,842		2,012
Construction and land	1,948,576		4,422		—		3,005,401		3,876		—
	4,611,949		13,056		—		8,704,645		147,794		6,007

Commercial business	166,634		356		—		249,129		129		—

Consumer:
Home equity	302,391		—		—		546,815		6,295		—
Automobile and other	—		—		—		—		—		—
	302,391		—		—		546,815		6,295		—
Subtotal	$	5,080,974	$	13,412	$	—	$	9,500,589	$	154,218	$	6,007

With an allowance recorded:
Real estate loans:
One-to-four family	$	983,252	$	604	$	—	$	832,175	$	—	$	—
Multi-family	3,469,625		27,971		—		1,828,371		—		—
Commercial	1,983,723		8,000		—		155,471		—		4,827
Construction and land	3,909,922		3,746		—		3,049,632		—		—
	10,346,522		40,321		—		5,865,649		—		4,827

Commercial business	816,577		1,132		—		435,941		12,287		—

Consumer:
Home equity	69,898		—		—		—		—		—
Automobile and other	—		—		—		3,947		—		—
	69,898		—		—		3,947		—		—
Subtotal	$	11,232,997	$	41,453	$	—	$	6,305,537	$	12,287	$	4,827
Total	$	16,313,971	$	54,865	$	—	$	15,806,126	$	166,505	$	10,834

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 3. Loans (Continued)

Troubled Debt Restructurings:

The Company has allocated $640,940 of specific reserves on $9,728,816 of loans to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2012. The Company had $1,275,718 of allocations of specific reserves on $9,349,510 of loans to customers whose loan terms were modified in troubled debt restructurings as of December 31, 2011. The Company had no commitments to lend additional amounts as of June 30, 2012 or December 31, 2011 to customers with outstanding loans that are classified as troubled debt restructurings.

During the three months ended June 30, 2012, five loans totaling $3.7 million were modified as troubled debt restructurings. The one-to-four family loan modification was classified as a TDR due to a reduction of the stated interest rate of the loan. The multi-family loan modification was classified as a TDR due to payment and maturity changes not available in the market. The commercial real estate loan modifications were classified as TDRs due to forbearance agreements.

During the six months ended June 30, 2012, six loans totaling $4.2 million were modified as a troubled debt restructuring. The troubled debt restructuring were the result of the five modifications described in the paragraph above in addition to a construction and land loan modification during the first quarter which was due to a reduction of the stated interest rate of the loan.

The following table presents loans by class that were modified as troubled debt restructurings that occurred during the three and six months ended June 30, 2012 and 2011:

	Three months ended June 30, 2012
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
One-to-four family	1	$	306,794	$	306,794
Multi-family	1	449,055		223,035
Commercial	3	2,978,384		2,797,684

Total	5	$	3,734,233	$	3,327,513

	Three months ended June 30, 2011
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
Multi-family	1	$	912,345	$	901,844
Construction and land	2	3,413,137		3,275,559

Total	3	$	4,325,482	$	4,177,403

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 3. Loans (Continued)

	Six months ended June 30, 2012
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
One-to-four family	1	$	306,794	$	306,794
Multi-family	1	449,055		223,035
Commercial	3	2,978,384		2,797,684
Construction and land	1	499,175		504,426

Total	6	$	4,233,408	$	3,831,939

	Six months ended June 30, 2011
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
One-to-four family	1	$	530,000	$	526,621
Multi-family	2	5,894,771		4,381,824
Construction and land	2	3,413,137		3,275,559
	5	9,837,908		8,184,004

Consumer:
Home equity	1	209,994		208,058

Total	6	$	10,047,902	$	8,392,062

The troubled debt restructurings described above resulted in a net increase of $42,000 in the allowance for loan losses and charge-offs of $143,000 during the six months ended June 30, 2012.

The following table presents the troubled debt restructurings for which there was a payment default within twelve months following the modification during the three and six months ended June 30, 2012.

	Three and six months ended June 30, 2012
	Number of Contracts	Recorded Investment (as of period end)
Real estate loans:
One-to-four family	1	$	306,794

Consumer:
Home equity	1	127,962

Total	2	$	434,756

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 3. Loans (Continued)

The troubled debt restructurings described above resulted in no net increases in the allowance for loan losses and no charge-offs during the three or six months ended June 30, 2012.

There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the three and six months ended June 30, 2011.

Note 4. Goodwill

The Company reported goodwill from its acquisition of Clover Leaf Bank in 2006 in the amount of $9,402,608 and its acquisition of Partners Bank 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. If the fair value has been substantially greater than the carrying value a qualitative assessment may also be performed. The first step, 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 step is performed to measure the amount of impairment. The second step 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. 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.

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, 2012. Subsequent reversal of goodwill impairment losses is not permitted.

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 5. 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					Six Months Ended
	June 30,					June 30,
	2012		2011			2012		2011

Net income	$	788,505	$	1,013,260		$	1,711,041	$	1,919,141
Basic potential common shares:
Weighted average shares outstanding	7,680,721		7,870,789			7,692,347		7,878,414
Weighted average unallocated Employee Stock Ownership Plan shares	—		(108,398		)	—		(109,455		)
Basic weighted average shares outstanding	7,680,721		7,762,391			7,692,347		7,768,959

Dilutive potential common shares	—		—			—		—

Diluted weighted average shares outstanding	7,680,721		7,762,391			7,692,347		7,768,959

Basic and diluted earnings per share	$	0.10	$	0.13		$	0.22	$	0.25

Note 6. Employee Stock Ownership Plan

The Company had an employee stock ownership plan (ESOP) that covered substantially all employees who had attained the age of 21 and completed one year of service. The Company terminated the ESOP effective December 31, 2011. The Company loaned funds to the ESOP for the purchase of its common stock. The loan was being repaid based on a variable interest rate over 20 years beginning December 31, 2004. All shares were held in a suspense account for allocation among the participants as the loan was repaid. Shares were 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. Shares released from the suspense account were allocated among the participants based upon their pro rata annual compensation. The purchase of shares by the ESOP was recorded by the Company as unearned ESOP shares in a contra equity account. As ESOP shares were committed to be released to compensate employees, the contra equity account was reduced and the Company recognized 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 incurred for the three and six months ended June 30, 2011. There was no compensation expense incurred for the three or six months ended June 30, 2012.

Dividends on unallocated ESOP shares, together with Company contributions, were used by the ESOP in 2011 to repay principal and interest on the outstanding note.

In conjunction with the termination of the ESOP, 100,453 shares with a value of $6.10 per share were cancelled and applied as repayment of the ESOP loan. The remaining 1,591 unallocated shares were then allocated to the participants based on their pro-rata share. As of June 30, 2012 and December 31, 2011 there were 74,866 allocated shares held by the ESOP. These allocated shares will be distributed to the participants prior to December 31, 2012. In July, 2012 the Company received the final IRS determination letter that the ESOP has been officially terminated.

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 7. 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. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

· Level 1 - 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 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 - 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.

The Company used the following methods and significant assumptions to estimate fair value.

Available-for-sale securities: The fair value of available-for-sale securities is 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. During the six months ended June 30, 2012, there were no transfers between Level 1 and Level 2. The valuation methodology was consistent for the six months ended June 30, 2012 and the year ended December 31, 2011. At least annually, a third party is engaged to validate the discounted cash flows and resulting fair value.

Foreclosed assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These amounts are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 7. Fair Value Measurements (Continued)

Impaired loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification.

Appraisals for both foreclosed assets and collateral-dependent impaired loans are performed by certified general appraisers (for commercial property) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Loan Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value. The most recent analysis performed indicated that a discount of 8% to 20% should be applied to appraisals based on property type. An additional discount is applied if the appraisal was performed more than 12 months ago.

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 7. Fair Value Measurements (Continued)

Assets measured at fair value on a recurring basis segregated by fair value hierarchy level as of June 30, 2012 and December 31, 2011 are summarized below:

	Fair Value Measurements at June 30, 2012 Using:
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:	(Level 1)		(Level 2)		(Level 3)		Total
Securities:
U.S. government agency obligations	$	—	$	23,673,141	$	—	$	23,673,141
Corporate bonds	—		1,182,929		—		1,182,929
State and municipal securities	—		27,622,311		—		27,622,311
Other securities	—		3,501		—		3,501
Mortgage-backed: residential	—		26,867,558		—		26,867,558
Total securities available for sale	$	—	$	79,349,440	$	—	$	79,349,440

	Fair Value Measurements at December 31, 2011 Using:
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:	(Level 1)		(Level 2)		(Level 3)		Total
Securities:
U.S. government agency obligations	$	—	$	31,743,989	$	—	$	31,743,989
Corporate bonds	—		1,838,324		—		1,838,324
State and municipal securities	—		26,376,118		—		26,376,118
Other securities	—		3,501		—		3,501
Mortgage-backed: residential	—		25,613,419		—		25,613,419
Total securities available for sale	$	—	$	85,575,351	$	—	$	85,575,351

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 7. Fair Value Measurements (Continued)

Assets measured at fair value on a nonrecurring basis by fair value hierarchy level as of June 30, 2012 and December 31, 2011 are summarized below:

	Fair Value Measurements at June 30, 2012 Using:
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:	(Level 1)		(Level 2)		(Level 3)		Total
Foreclosed assets:
Real estate loans:
One-to-four family	$	—	$	—	$	46,728	$	46,728
Commercial	—		—		755,000		755,000
Construction and land	—		—		3,327,751		3,327,751

Total foreclosed assets	$	—	$	—	$	4,129,479	$	4,129,479

Impaired loans:
Real estate loans:
One-to-four family	$	—	$	—	$	713,200	$	713,200
Multi-family	—		—		3,206,697		3,206,697
Commercial	—		—		410,159		410,158
Construction and land	—		—		2,017,135		2,017,136
	—		—		6,347,191		6,347,191

Commercial business	—		—		599,428		599,428

Total impaired loans	$	—	$	—	$	6,946,619	$	6,946,619

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 7. Fair Value Measurements (Continued)

	Fair Value Measurements at December 31, 2011 Using:
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:	(Level 1)		(Level 2)		(Level 3)		Total
Foreclosed assets:
Real estate loans:
One-to-four family	$	—	$	—	$	224,060	$	224,060
Commercial	—		—		755,000		755,000
Construction and land	—		—		407,193		407,193

Total foreclosed assets	$	—	$	—	$	1,386,253	$	1,386,253

Impaired loans:
Real estate loans:
One-to-four family	$	—	$	—	$	1,347,958	$	1,347,958
Multi-family	—		—		3,048,473		3,048,473
Commercial	—		—		1,303,707		1,303,707
Construction and land	—		—		3,788,235		3,788,235
	—		—		9,488,373		9,488,373

Commercial business	—		—		1,131,656		1,131,656

Total impaired loans	$	—	$	—	$	10,620,029	$	10,620,029

Foreclosed assets are collateral dependent and are recorded at the lesser of the recorded investment in the receivable or the appraised value less costs to sell and may be revalued on a nonrecurring basis. Foreclosed assets measured at fair value less costs to sell on a nonrecurring basis as of June 30, 2012, had a net carrying amount of $4,129,479, which is made up of the outstanding balance of $4,781,178, net of cumulative write-downs of $651,699 which includes $315,000 that occurred during the six months ended June 30, 2012. For the year ended December 31, 2011, foreclosed assets measured at fair value less costs to sell on a nonrecurring basis had a net carrying amount of $1,386,253, which was made up of the outstanding balance of $1,835,527, net of write-downs of $449,274.

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $7,992,495, with a valuation allowance of $1,045,876 at June 30, 2012. Additional provisions for loan losses on impaired loans during the three and six months ended June 30, 2012 were $126,000 and $938,000, respectively. At December 31, 2011, impaired loans had a principal balance of $13,715,174, with a valuation allowance of $3,095,145, resulting in a net increase in provision for loan losses of $967,420 for the year ended December 31, 2011.

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 7. Fair Value Measurements (Continued)

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2012:

	Fair Value		Valuation Techniques	Unobservable Inputs	Range		Weighted Average

Foreclosed assets:
Real estate loans:
One-to-four family	$	46,728	Sales Comparison	Adjustment for difference between comparable sales	3-8	%	5.0	%
Commercial	755,000		Sales Comparison	Adjustment for difference between comparable sales	1-24	%	10.5	%
Construction and land	3,327,751		Sales Comparison	Adjustment for difference between comparable sales	0-47	%	19.3	%

Impaired loans:
Real estate loans:
One-to-four family	713,200		Sales Comparison	Adjustment for difference between comparable sales	0-12	%	5.7	%
Multi-family	3,206,697		Sales Comparison	Adjustment for difference between comparable sales	1-18	%	10.0	%
Commercial	410,159		Sales Comparison	Adjustment for difference between comparable sales	5-17	%	12.3	%
Construction and land	2,017,135		Sales Comparison	Adjustment for difference between comparable sales	2-12	%	6.3	%

Commercial business	599,428		Sales Comparison	Adjustment for difference between comparable sales	4-50	%	22.8	%

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

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 methods and assumptions, not previously presented, used to estimate fair value are described as follows:

Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents approximate fair values given the short-term nature and active market for U.S. currency and are classified as Level 1.

Interest-Earning Time Deposits: Due to the short-term nature of these deposits, the carrying amounts of these deposits approximate fair values. However, since it is unusual to observe a quoted price in an active market during the outstanding term these deposits are classified as Level 2.

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.

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 either observable market prices or 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 resulting in a Level 3 classification. Impaired loans that have no specific reserve are classified as Level 3. Impaired loans that have been written down to the fair value of the corresponding collateral, less estimated costs to sell, are not included in this table as those amounts were presented previously. The fair value computed is not necessarily an exit price.

Accrued Interest Receivable: The carrying amount of accrued interest receivable approximates its fair value. Accrued interest receivable related to interest-earning time deposits and securities is classified as Level 2. Accrued interest receivable related to loans is classified as Level 3.

Deposits: The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts) and are classified as Level 1. The carrying amounts for interest-bearing money market and savings accounts approximate their fair values at the reporting date and are classified as Level 1. 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 resulting in a Level 2 classification.

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 resulting in a Level 2 classification.

Securities Sold Under Agreements to Repurchase: The carrying amounts of securities sold under agreements to repurchase approximate fair value resulting in a Level 2 classification.

Subordinated debentures: This debenture is a floating rate instrument which re-prices quarterly. The fair value of variable rate trust preferred debentures approximate carrying value resulting in a Level 2 classification.

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 8. Fair Value of Financial Instruments (Continued)

Accrued Interest Payable: The carrying amount of accrued interest payable approximates its fair value. Accrued interest payable related to interest-bearing money market and savings accounts is classified as Level 1. All other accrued interest payable is classified as Level 2,

The following information presents estimated fair values of the Company’s financial instruments as of June 30, 2012 and December 31, 2011 that have not been presented in prior tables.

			Fair Value Measurements at June 30, 2012 Using:
	Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair
	Amount		(Level 1)		(Level 2)		(Level 3)		Value
Financial assets:
Cash and cash equivalents	$	19,984,894	$	19,984,894	$	—	$	—	$	19,984,894
Interest-earning time deposits	1,745,769		—		1,745,769		—		1,745,769
Federal Home Loan Bank stock	3,657,366		—		—		—		N/A
Loans, net (excluding impaired loans with a reserve allocation)	383,857,326		—		—		393,200,920		393,200,920
Accrued interest receivable	1,615,461		—		452,830		1,162,631		1,615,461

Financial liabilities:
Non-interest bearing deposits	45,945,421		45,945,421		—		—		45,945,421
Interest-bearing deposits	359,115,913		212,276,191		147,669,973		—		359,946,164
Federal Home Loan Bank advances	26,956,670		—		27,210,378		—		27,210,378
Securities sold under agreement to repurchase	21,612,960		—		21,612,960		—		21,612,960
Subordinated debentures	4,000,000		—		4,000,000		—		4,000,000
Accrued interest payable	311,007		24,353		286,654		—		311,007

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FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

June 30, 2012 and December 31, 2011

Note 8. Fair Value of Financial Instruments (Continued)

	December 31, 2011
	Carrying		Fair
	Amount		Value
Financial assets:
Cash and cash equivalents	$	39,361,409	$	39,361,409
Interest-earning time deposits	1,738,498		1,738,498
Federal Home Loan Bank stock	6,306,273		N/A
Loans, net (excluding impaired loans with a reserve allocation)	377,014,617		388,315,138
Accrued interest receivable	1,726,319		1,726,319

Financial liabilities:
Non-interest bearing deposits	39,256,851		39,256,851
Interest-bearing deposits	375,501,432		376,697,157
Federal Home Loan Bank advances	26,944,000		27,208,915
Securities sold under agreement to repurchase	36,874,298		36,874,298
Subordinated debentures	4,000,000		4,000,000
Accrued interest payable	417,828		417,828

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.

Note 9. Subsequent Events

Events occurring subsequent to June 30, 2012, have been evaluated as to their potential impact to the financial statements through the date of issuance of this report.

On July 24, 2012, 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, 2012. The dividend will be payable to stockholders of record as of August 17, 2012 and will be paid on August 24, 2012.

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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, capital requirements and allowance for loan losses 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 due to the higher degree of judgment and complexity than its other significant accounting estimates.

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

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There may be other factors that may warrant our consideration in maintaining an allowance at a level sufficient to provide for probable incurred 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.

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 under the guidance of ASU 2011-08, Topic 350. This guidance also allows for a qualitative assessment of the reporting unit. A qualitative assessment may be performed if in the prior period two-step impairment test the fair value was greater than the carrying value by a substantial margin. If in the prior period two-step test goodwill was impaired or fair value was not greater than the carrying amount by a substantial margin, First Clover Leaf would go straight to the two-step impairment test. In step one, 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 of the reporting unit to the current carrying value of the reporting unit to determine if goodwill impairment had occurred as of the measurement date. During 2011, at our annual impairment assessment date of September 30, our analysis indicated that no impairment existed. At June 30, 2012, 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

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guidance, management has determined that the Company has only one reporting unit for purposes of evaluating goodwill. See Item 1, Note 4 for additional information on goodwill impairment.

Overview

First Clover Leaf had net income of $789,000 for the three months ended June 30, 2012 compared to net income of $1.0 million for the same period in 2011. The decrease was due to an increase in other expenses partially offset by a reduction in provision for loan losses. Basic and diluted income per share was $0.10 for the three-month period ended June 30, 2012 and $0.13 for the comparable period in 2011.

Net income for the six months ended June 30, 2012 was $1.7 million compared to $1.9 million for the same period in 2011. The decrease was primarily due to increased operating expenses partially offset by an increase in net interest income and reduced income tax expense. Basic and diluted income per share was $0.22 for the six months ended June 30, 2012 and $0.25 for the same period in 2011.

Financial Condition

Total Assets. Total assets decreased to $537.9 million at June 30, 2012 from $562.7 million at December 31, 2011. Total cash and cash equivalents decreased to $20.0 million at June 30, 2012 from $39.4 million at December 31, 2011. The decrease in cash and cash equivalents was due to a decrease in federal funds sold. Federal funds sold primarily decreased due to lower balances in brokered deposits and to a decline in securities sold under agreements to repurchase which occurred as a normal fluctuation in one customer’s account. Due to the nature of this customer’s business, large fluctuations in its deposit accounts are a normal occurrence.

Securities available for sale decreased to $79.3 million at June 30, 2012 from $85.6 million at December 31, 2011. The decrease was due primarily to calls, maturities and pay-downs of $28.4 million partially offset by purchases of $21.8 million.

Federal Home Loan Bank stock decreased to $3.7 million at June 30, 2012 from $6.3 million at December 31, 2011. The Federal Home Loan Bank redeemed $2.6 million of excess voluntary stock during the first and second quarters of 2012. The Company is required to hold $2.0 million in Federal Home Loan Bank stock in order to be a member bank. Prior to the first quarter of 2012 the Federal Home Loan Bank was prohibited from redeeming excess voluntary stock. They have since started a program to redeem the stock in increments.

Net loans amounted to $390.8 million at June 30, 2012, compared to $387.6 million at December 31, 2011. This increase was a result of new loan originations exceeding loan paydowns and maturities.

Foreclosed assets increased to $6.9 million at June 30, 2012 from $5.8 million at December 31, 2011. During the three months ended June 30, 2012, we transferred four loans totaling $2.0 million into foreclosed assets and incurred a write-off of $300,000. We transferred five loans into foreclosed assets during the six months ended June 30, 2012. During the same time period we received proceeds of $525,000 from the sale of six properties that had been classified as foreclosed assets.

Total Liabilities. Total liabilities decreased to $459.7 million at June 30, 2012 from 485.0 million at December 31, 2011. Deposits decreased to $405.1 million at June 30, 2012 from $414.8 million at December 31, 2011. Non-interest bearing deposits increased $6.6 million to $45.9 million at June 30, 2012 from $39.3 million at December 31, 2011. Interest bearing deposits decreased $16.4 million, totaling $359.1 million at June 30, 2012 compared to $375.5 million at December 31, 2011. This decrease was primarily due to a decrease of $17.2 million in brokered deposits as we were able to reduce our reliance on higher rate deposits due to reduced loan demand. Securities sold under agreements to repurchase decreased $15.3 million to $21.6 million at June 30, 2012 from $36.9 million at December 31, 2011. This decrease was due primarily to normal fluctuations in one customer’s account as noted above.

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Stockholders’ Equity. Stockholders’ equity increased to $78.2 million at June 30, 2012 from $77.7 million at December 31, 2011, principally as a result of $1.7 million in net income partially offset by the payment of cash dividends of $923,000 and repurchases of common stock of $407,000 during the six months ended June 30, 2012.

Asset Quality

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

	June 30,		December 31,
	2012		2011

Loans 90 days or more past due and still accruing	$	131,371	$	404,984
Non-accrual loans(1)	12,730,706		11,166,843
Other impaired loans	614,116		8,017,158
Total non-performing loans	13,476,193		19,588,985
Foreclosed assets	6,854,051		5,822,864
Total non-performing assets	$	20,330,244	$	25,411,849

(1) The entire balance is also classified as impaired as of June 30, 2012 and December 31, 2011, respectively.

	June 30,		December 31,
	2012		2011
Non-performing assets to total assets	3.78	%	4.52	%
Non-performing loans to total loans	3.45		5.05
Allowance for loan losses to non-performing loans	43.52		39.76
Allowance for loan losses to total loans	1.50		2.01

Non-Performing, Impaired Loans and Non-Performing Assets. As of June 30, 2012, our total non-performing and impaired loans and non-performing assets were $20.3 million compared to $25.4 million at December 31, 2011.

At June 30 2012, the Company’s non-accrual loans increased $1.5 million to $12.7 million from $11.2 million at December 31, 2011. At June 30, 2012, First Clover Leaf Bank had four relationships classified as non-accrual with balances in excess of $1.0 million. The largest non-accrual relationship is a $3.4 million credit to a real estate investor. This credit was placed in non-accrual status during the three months ended June 30, 2012. The investor is experiencing cash flow difficulties due to higher vacancy rates and the need for property repairs. An $800,000 payment is expected on this loan during the third quarter of 2012, and the Company intends to then restructure the remaining debt. 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 second relationship is a $1.7 million commercial credit secured by a retail strip center. The investor is experiencing cash flow difficulties due to high vacancy rates as the center recently experienced a great deal of tenant turnover. The building is currently attracting new tenants. A restructuring of the loan is in process which will allow a portion of the loan to resume performing status after an acceptable period of payment performance. A deficiency note will be signed for the remaining balance. The third credit is a $1.7 million development credit for a subdivision with excess inventory that is selling slowly due to the economic slowdown. A charge-off of $843,000 of specific reserves was recorded on this relationship during the first quarter of 2012. The credit is secured by the residential property. The borrower recently signed a forbearance

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agreement on this credit. The fourth relationship is a $1.1 million credit to a real estate investor. The collateral for this credit is primarily a mobile home park along with several small commercial buildings. Currently the mobile home park is struggling with vacancies and cash flow is tight. The Company has recently restructured this loan into a two-note structure with the requirement that all rents from the mobile home park are deposited directly into an account at the Company. The two commercial buildings making up the remainder of the collateral are currently listed for sale.

In addition to the non-accrual loans in the previous paragraph, we have loans that are still accruing interest that we categorize as impaired due to observed credit deterioration that we believe in the future may impact our ability to collect all principal and interest according to the current contractual terms. We have elected to downgrade these loans to impaired status and will individually evaluate them for our allowance for loan losses. At June 30, 2012, our total other impaired loans amounted to $614,000 compared to $8.0 million at December 31, 2011. The decrease in other impaired loans is primarily due to $4.5 million in credits moving to non-accrual status and $2.5 million in credits with an improved status which are no longer considered impaired. There is one credit in this category with an outstanding balance greater than $500,000. The largest impaired relationship is a $504,000 credit to a residential builder. The collateral for this loan is a residential home which is currently under contract and expected to close in the third quarter.

Overall, non-performing loans have improved since December 31, 2011. The largest changes have occurred in the construction and land portfolio. As of June 30, 2012 the total of substandard and doubtful loans in the construction and land portfolio was $11.8 million, or 30% of the portfolio. As of December 31, 2011 the total of substandard and doubtful loans in the construction and land portfolio was $17.3 million or 39% of the portfolio. The decrease in substandard loans was due in-part to charge-offs of $3.4 million and a $1.8 million credit which moved to foreclosed property.

Another event impacting the construction and land portfolio at June 30, 2012 was the downgrade of a $6.3 million credit to special mention from being categorized as a pass credit at December 31, 2011. This credit is categorized as special mention while it is being restructured to include additional collateral. The Company expects the credit to return to pass status before year-end. The overall total of the construction and land portfolio has declined to $39.5 million at June 30, 2012, compared to $44.2 million at December 31, 2011 as a result of the above mentioned charge-offs and the increase to foreclosed property.

The allowance for loan losses to non-performing loans increased to 43.52% at June 30, 2012 compared to 39.76% at December 31, 2011. The increase in this ratio is primarily the result of a decline of $6.1 million of non-performing loans to $13.5 million at June 30, 2012 compared to $19.6 million at December 31, 2011. The allowance for loan losses to total loans decreased to 1.50% at June 30, 2012 compared to 2.01% at December 31, 2011. The primary reason for the decline in this percentage was a directive by the Office of the Comptroller of the Currency which required all specific valuation allowances on collateral-dependent loans (valuation allowances established when the recorded investment in an impaired loan exceeded the measured value of the collateral) maintained by savings institutions to be charged-off by March 31, 2012. The Company adopted this methodology effective for the quarter ended March 31, 2012. As a result, reported loan charge-offs of $2.7 million for the quarter ended March 31, 2012 were impacted by the charge-off of specific valuation allowances of $2.4 million on these collateral-dependent loans. This one time charge-off has decreased the amount of our specific reserves which total $1.1 million at June 30, 2012, compared to $3.1 million at December 31, 2011. The general allocation was not impacted by the charge-offs and totals $4.8 million at June 30, 2012 compared to $4.7 million at December 31, 2011. These charge-offs resulted in the decline in the allowance for loan losses to total loans at June 30, 2012.

At June 30, 2012, First Clover Leaf Bank had 17 properties classified as foreclosed assets with a value of $6.9 million. The collateral on these properties consisted of a commercial mobile-home site, a commercial development site, farmland, three residential lot developments, and 11 single-family

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residences. All of these properties were transferred into foreclosed assets at the property’s fair value, less estimated costs of disposal, at the date of foreclosure.

Results of Operations

General. Net income decreased to $789,000 for the three months ended June 30, 2012 compared to $1.0 million for the same period in 2011. Net income for the six months ended June 30, 2012 was $1.7 million compared to $1.9 million for the same period in 2011. The decrease was primarily due to increased operating expenses partially offset by an increase in net interest income and reduced income tax expense. Basic and diluted income per share was $0.22 for the six months ended June 30, 2012 and $0.25 for the same period in 2011.

The overall net interest rate spread and net interest margin increased to 3.28% from 3.06% and to 3.46% from 3.27%, respectively for the six months ended June 30, 2012 compared to the same period in 2011. Yields on loans and securities continued to decline for the six months ended June 30, 2012 compared to the same period in 2011. The increase in the interest rate spread was attributable to the cost of funds declining faster than the yield on interest-earning assets. However, our ability to lower 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 re-pricing as rates fluctuate.

Net interest income. Net interest income remained at $4.3 million for the three months ended June 30, 2012 and 2011. Net interest income increased to $8.7 million for the six months ended June 30, 2012 from $8.6 million for the same period last year. Net average interest-earning assets, which represent our average total interest-earning assets less our average total interest-bearing liabilities, were $80.6 million for the six months ended June 30, 2012, compared to $71.6 million for the same period in 2011. The ratio of interest-earning assets to interest-bearing liabilities increased to 118.99% for the six months ended June 30, 2012 from 115.66% for the same period in 2011. The net interest rate spread increased to 3.28% for the six months ended June 30, 2012, compared to 3.06% for the comparable period in 2011. The average rate earned on interest-earning assets decreased by 18 basis points for the six months ended June 30, 2012 to 4.40% from 4.58% for the same period in 2011, while the average rate paid on interest-bearing liabilities decreased by 41 basis points during these periods to 1.11% from 1.52%.

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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,						Three Months Ended June 30,
	2012						2011
	Average Outstanding Balance		Interest (4)		Yield/ Rate		Average Outstanding Balance		Interest (4)		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, gross	$	398,539	$	4,945	4.99	%	$	392,783	$	5,325	5.44	%
Securities	81,779		506		2.48		82,891		635		3.07
Federal Home Loan Bank stock	3,949		3		0.31		6,306		2		0.13
Interest-earning balances from depository institutions	15,270		13		0.34		43,615		28		0.26
Total interest-earning assets	499,537		5,467		4.40		525,595		5,990		4.57
Non-interest-earning assets	45,181						42,860
Total assets	$	544,718					$	568,455

Interest-bearing liabilities:
Interest-bearing transaction	$	191,534	303		0.64		$	200,364	484		0.97
Savings deposits	23,536		31		0.53		21,650		40		0.74
Time deposits	146,318		631		1.73		185,543		977		2.11
Securities sold under agreements to repurchase	25,015		4		0.06		20,422		2		0.04
Federal Home Loan Bank advances	26,954		131		1.95		21,931		127		2.32
Subordinated debentures	4,000		25		2.51		4,000		23		2.31
Total interest-bearing liabilities	417,357		1,125		1.08		453,910		1,653		1.46
Non-interest-bearing liabilities	48,828						36,096
Total liabilities	466,185						490,006
Stockholders’ equity	78,533						78,449
Total liabilities and stockholders’ equity	$	544,718					$	568,455

Net interest income			$	4,342					$	4,337
Net interest rate spread (1)					3.32	%					3.11	%
Net interest-earning assets (2)	$	82,180					$	71,685
Net interest margin (3)					3.50	%					3.31	%
Ratio of interest-earning assets to interest-bearing liabilities					119.69	%					115.79	%

(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 $45,600 and $47,176 for the three months ended June 30, 2012 and 2011, respectively.

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	Six Months Ended June 30,						Six Months Ended June 30,
	2012						2011
	Average Outstanding Balance		Interest (4)		Yield/ Rate		Average Outstanding Balance		Interest (4)		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, gross	$	399,572	$	9,959	5.01	%	$	394,487	$	10,725	5.48	%
Securities	82,914		1,054		2.56		81,890		1,233		3.04
Federal Home Loan Bank stock	4,618		3		0.13		6,306		3		0.10
Interest-earning balances from depository institutions	18,010		31		0.35		46,182		53		0.23
Total interest-earning assets	505,114		11,047		4.40		528,865		12,014		4.58
Non-interest-earning assets	44,213						42,006
Total assets	$	549,327					$	570,871

Interest-bearing liabilities:
Interest-bearing transaction	$	195,772	615		0.63		$	203,313	980		0.97
Savings deposits	23,113		62		0.54		21,266		77		0.73
Time deposits	148,553		1,355		1.83		186,319		2,058		2.23
Securities sold under agreements to repurchase	26,123		7		0.05		20,461		8		0.08
Federal Home Loan Bank advances	26,950		261		1.95		21,928		253		2.33
Subordinated debentures	4,000		50		2.51		3,989		71		3.59
Total interest-bearing liabilities	424,511		2,350		1.11		457,276		3,447		1.52
Non-interest-bearing liabilities	46,389						35,442
Total liabilities	470,900						492,718
Stockholders’ equity	78,427						78,153
Total liabilities and stockholders’ equity	$	549,327					$	570,871

Net interest income			$	8,697					$	8,567
Net interest rate spread (1)					3.28	%					3.06	%
Net interest-earning assets (2)	$	80,603					$	71,589
Net interest margin (3)					3.46	%					3.27	%
Ratio of interest-earning assets to interest-bearing liabilities					118.99	%					115.66	%

(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 $79,527 and $108,775 for the six months ended June 30, 2012 and 2011, respectively.

Interest and fee income. Interest and fee income on loans decreased to $4.9 million for the three months ended June 30, 2012 from $5.3 million for the comparable period in 2011 primarily as a result of a lower average yield in the 2012 period despite a higher average balance. Interest and fee income on loans decreased to $10.0 million for the six months ended June 30, 2012 from $10.7 million for the comparable period in 2011 primarily as a result of a lower average yield in the 2012 period despite a higher average balance. The average balance of loans was $399.6 million and $394.5 million for the six months ended June 30, 2012 and 2011, respectively. The average yield on loans decreased to 5.01% for the six months ended June 30, 2012 from 5.48% for the comparable period in 2011.

Interest income on securities decreased to $506,000 for the three months ended June 30, 2012 compared to $635,000 for the same period in 2011. The decrease was due primarily to a lower average

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yield partially offset by a higher average balance. Interest income on securities decreased to $1.1 million for the six months ended June 30, 2012 from $1.2 million for the comparable period in 2011. The decrease was due primarily to a decline in yield. The average balance of securities was $82.9 million and $81.9 million for the six months ended June 30, 2012 and 2011, respectively. The average yield on securities decreased to 2.56% from 3.04% for the six months ended June 30, 2012 and 2011, respectively.

Interest on other interest-earning deposits decreased to $13,000 for the three months ended June 30, 2012 from $28,000 for the comparable period in 2011. The decrease was due primarily to a lower average balance. Interest on other interest-earning deposits increased to $31,000 for the six months ended June 30, 2012 from $53,000 for the comparable period in 2011. The decrease was primarily due to a lower average balance. The average balance of other interest-earning deposits decreased to $18.0 million from $46.2 million for the six months ended June 30, 2012 and 2011, respectively. The average yield on other interest-earning deposits increased to 0.35% for the six months ended June 30, 2012 from 0.23% for the comparable period in 2011.

Interest expense. Interest expense on deposits decreased to $965,000 for the three months ended June 30, 2012 from $1.5 million for the comparable period in 2011. The decrease was due primarily to a decline in rate and lower average balances in time deposits and in interest-bearing transaction accounts. Interest expense on deposits decreased to $2.0 million for the six months ended June 30, 2012 from $3.1 million for the comparable period in 2011. The decrease was due primarily to a decline in rate and a lower average balance in time deposits and in interest-bearing transaction accounts. The average balance of interest-bearing deposits, comprised of interest bearing transaction, savings deposits, and time deposits, was $367.4 million and $410.9 million for the six months ended June 30, 2012 and 2011, respectively. Reduced loan demand has led to a reduced need for cash; therefore, we were able to reduce our reliance on higher yielding time deposits. The rate for time deposits decreased to 1.83% from 2.23% for the six months ended June 30, 2012 and 2011, respectively. The rate for interest-bearing transaction accounts decreased to 0.63% from 0.97% for the six months ended June 30, 2012 and 2011, respectively. The rate for savings deposits decreased to 0.54% from 0.73% for the six months ended June 30, 2012 and 2011, respectively.

Interest expense on Federal Home Loan Bank advances increased to $131,000 from $128,000 for the three months ended June 30, 2012 and 2011, respectively, due primarily to a higher average balance partially offset by a decline in rate. Interest expense on Federal Home Loan Bank advances increased to $261,000 from $253,000 for the six months ended June 30, 2012 and 2011, respectively, due primarily to a lower average balance partially offset by a decline in rate. The average balance of Federal Home Loan Bank advances was $27.0 million and $21.9 million for the six months ended June 30, 2012 and 2011, respectively. The average rate on Federal Home Loan Bank advances decreased to 1.95% for the six months ended June 30, 2012 compared to 2.33% for the comparable period in 2011.

Interest expense on subordinated debentures increased to $25,000 from $23,000 for the three months ended June 30, 2012 and 2011, respectively. Interest expense on subordinated debentures decreased to $50,000 from $71,000 for the six months ended June 30, 2012 and 2011, respectively, due to a decline in rate. The average rate on subordinated debentures declined to 2.51% for the six months ended June 30, 2012 compared to 3.59% for the comparable period in 2011.

Provision for loan losses. Provision for loan losses decreased for the three-month period ended June 30, 2012 to $350,000 from $475,000 for the comparable period in 2011. The decrease in provision for loan losses of $575,000 within the commercial real estate portfolio for the three months ended June 30, 2012 was due to a reduction in specific reserves as the Company acquired additional collateral to secure the credits. Provision for loan losses increased for the six-month period ended June 30, 2012 to $800,000 from $775,000 for the comparable period in 2011.

Provision for loan losses is based upon management’s consideration of current economic conditions, the Company’s loan portfolio composition and historical loss experience coupled with current

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market valuations on collateral, and management’s estimate of probable losses in the portfolio as well as the level of non-performing 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 $493,000 for the three months ended June 30, 2012 from $497,000 for the comparable period in 2011 primarily due to a $105,000 decrease in gain on sale of securities for the three months ended June 30, 2012. This decrease was substantially offset by a $99,000 increase in gain on sale of loans. During the three months ended June 30 2012, we sold $10.0 million of loans compared to $8.5 million of loan sales for the comparable period in 2011. Non-interest income increased to $998,000 for the six months ended June 30, 2012 from $748,000 for the comparable period in 2011 primarily due to a $320,000 increase in gain on sale of loans for the six months ended June 30, 2012. The increase was partially offset by a $106,000 decrease in gain on sale of securities.

Non-interest expense. Non-interest expense increased to $3.3 million for the three months ended June 30, 2012 from $2.8 million for the same period in 2011. Non-interest expense increased to $6.4 million for the six months ended June 30, 2012 from $5.5 million for the same period in 2011. The increase in these two time periods was due primarily to an increase in compensation and employee benefits and foreclosed asset related expense, partially offset by a decrease in FDIC insurance premiums.

Compensation and employee benefits increased to $1.5 million for the three months ended June 30, 2012 from $1.3 million for the same period in 2011. Compensation and employee benefits increased to $3.0 million for the six months ended June 30, 2012 from $2.5 million for the same period in 2011. The increase was due to standard merit increases as well as an increased staffing level over the prior year.

FDIC premiums decreased to $123,000 for the three months ended June 30, 2012 compared to $183,000 for the comparable period in 2011. FDIC premiums decreased to $245,000 for the six months ended June 30, 2012 compared to $363,000 for the comparable period in 2011. The decrease is due to a decline in the volume of the base used for the calculation. The FDIC also changed the base that is used for this calculation. For the six months ended June 30, 2012 the base was total assets. The prior period calculation was based on total deposits. Both the total assets and total deposits of the Bank declined at June 30, 2012 compared to the comparable period in 2011.

Foreclosed asset related expenses increased to $360,000 for the three months ended June 30, 2012 compared to $139,000 for the comparable period in 2011. During the three months ended June 30, 2012, we incurred a $300,000 write-down on a foreclosed asset. Foreclosed asset related expenses increased to $445,000 for the six months ended June 30, 2012 compared to $326,000 for the comparable period in 2011. The increase is due to an increased number of properties being held during the six months ended June 30, 2012 as compared to the same period in 2011. In addition, the properties that were being held during the six months ended June 30, 2012 required an increased number of repairs as compared to the properties held during the six months ended June 30, 2011.

Income taxes. Income taxes decreased to $373,000 for the three months ended June 30, 2012 from $573,000 for the comparable period in 2011. Income taxes decreased to $827,000 for the six months ended June 30, 2012 from $1.1 million for the comparable period in 2011. The primary reason for the change in income taxes was the lower level of pre-tax income and an increased level of tax exempt income for the 2012 period.

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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, 2012 and December 31, 2011, $20.0 million and $39.4 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. Loan originations exceeded principal collections on loans by $5.9 million for the six months ended June 30, 2012 and loan principal collections exceeded loan originations by $202,000 for the six months ended June 30, 2011. Cash received from calls, maturities, and paydowns of available-for-sale investment securities totaled $28.4 million and $46.1 million for the six months ended June 30, 2012 and 2011, respectively. We purchased $21.8 million and $53.5 million in available-for-sale investment securities during the six months ended June 30, 2012 and 2011, respectively. We received proceeds of $525,000 and $1.6 million from the sale of foreclosed assets for the six months ended June 30, 2012 and 2011, respectively. During the six months ended June 30, 2012, the Federal Home Loan Bank redeemed $2.6 million of excess voluntary stock. There were no redemptions of Federal Home Loan Bank stock for the six months ended June 30, 2011.

Deposit flows are generally affected by market interest rates, the products offered by local competitors, and other factors. Net deposits decreased by $9.7 million and $13.4 million for the six months ended June 30, 2012 and 2011, respectively. Securities sold under agreements to repurchase had a net decrease of $15.3 million for the six months ended June 30, 2012 and a net increase of $3.6 million for the six months ended June 30, 2011, respectively.

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, 2012, we had $27.0 million of advances from the Federal Home Loan Bank of Chicago and additional available credit of approximately $23.8 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, 2012. Under the capital adequacy guidelines and regulatory framework for prompt corrective action, the Bank must meet 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.

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The Bank’s actual capital amounts and ratios are presented in the following table.

	As of June 30, 2012
									To be Well Capitalized
					For Capital				Under Prompt Corrective
	Actual				Adequacy Purposes				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
Tangible Capital to Tangible Assets	$	64,606	12.34	%	$	7,851	1.50	%	N/A		N/A

Tier I Capital to Adjusted Total Assets	64,606		12.34	%	20,935		4.00	%	$	26,169	5.00	%

Tier I Capital to Risk Weighted Assets	64,606		17.67	%	14,627		4.00	%	21,940		6.00	%

Total Capital to Risk Weighted Assets	67,585		18.48	%	29,254		8.00	%	36,567		10.00	%

The Company’s actual capital amounts and ratios are presented in the following table:

	As of June 30, 2012
	Actual				For Capital Adequacy Purposes				To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount	Ratio
	(Dollars in Thousands)
Tangible Capital to Tangible Assets	$	64,670	11.79	%	$	8,230	1.50	%	N/A	N/A

Tier I Capital to Adjusted Total Assets	64,670		11.79	%	29,351		4.00	%	N/A	N/A

Tier I Capital to Risk Weighted Assets	64,670		17.63	%	14,676		4.00	%	N/A	N/A

Total Capital to Risk Weighted Assets	71,649		19.53	%	21,947		8.00	%	N/A	N/A

On June 6, 2012, the OCC and the other federal bank regulatory agencies issued a series of proposed rules to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (“Basel III”). The proposed rules would apply to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more, and top-tier savings and loan holding companies (“banking organizations”). Among other things, the proposed rules establish a new common equity tier 1 minimum capital requirement and a higher minimum tier 1 capital requirement, and assign higher risk weightings (150%) to exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property. The proposed rules also limit a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of a specified amount of common equity tier 1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rules will become effective on January 1, 2013, and the changes set forth in the final rules will be phased in from January 1, 2013 through January 1, 2019.

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.

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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, 2012 follows:

							Range of Rates
	Variable Rate		Fixed Rate		Total		on Fixed Rate
	Commitments		Commitments		Commitments		Commitments
	(Dollars in thousands)
Commitments to extend credit	$	24,337	$	30,097	$	54,434	1.85% - 18.00%
Standby letters of credit	$	72	$	2,549	$	2,621	3.50% - 9.25%

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 $81.0 million to the FHLB of Chicago. Approximately $72.2 million have been sold. As a part of the agreement, the Bank has a maximum credit enhancement of $1.6 million at June 30, 2012. 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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Item 3. Quantitative and Qualitative Disclosures about Market Risk

The majority of First Clover Leaf’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, the 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 at least quarterly 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, multi-family 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.

First Clover Leaf utilized an independent third party to analyze interest rate risk sensitivity as of March 31, 2012. The model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance-sheet contract under the assumption of instantaneous rate increases of up to 300 basis points or decreases of 100 points in 100 basis point increments. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change In Rates” column.

The tables below set forth, as of March 31, 2012 and December 31, 2011, 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, 2012
		NPV
		Estimated		Estimated Increase (Decrease) in NPV					Net Portfolio Value as a Percentage of Present Value of Assets
Change in Interest		NPV		Amount			Percent		NPV Ratio		Change
+300	bp	$	62,712	$	(16,889	)	(21	)%	12.00	%	(229	)bp
+200	bp	69,384		(10,217		)	(13	)	12.97		(132	)bp
+100	bp	75,696		(3,905		)	(5	)	13.84		(45	)bp
0	bp	79,601		—			—		14.29		0	bp
-100	bp	82,098		2,497			3		14.55		26	bp

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

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

+300	bp	$	60,442	$	(17,906	)	(23	)%	11.37	%	(247	)bp
+200	bp	67,778		(10,570		)	(13	)	12.45		(139	)bp
+100	bp	74,290		(4,058		)	(5	)	13.36		(48	)bp
0	bp	78,348		—			—		13.84		0	bp
-100	bp	81,292		2,944			4		14.17		33	bp

The 2012 table above indicates that at March 31, 2012 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 21% decrease in the net portfolio value. Management does not believe that the Company’s primary market risk exposures at June 30, 2012, and how those exposures were managed during the three months ended June 30, 2012 have changed materially when compared to the immediately preceding quarter ended March 31, 2012. However, the Company’s primary market risk exposure has not yet been quantified at June 30, 2012 as it is not yet available, and the complexity of the model makes it difficult to accurately predict results.

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 re-pricing 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.

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 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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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, 2011, 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, 2012	3,587	$	6.05	3,587	95,974
May 1 - 31, 2012	832	$	5.92	832	95,142
June 1 - 30, 2012	21,990	$	6.03	21,990	73,152
Total	26,409			26,409

(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, the Board 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 the Board authorized additional increases to that plan of 25,000 shares each, and on August 23, 2011 the Board authorized an additional increase to that plan of 150,000 shares. The plan has no expiration date.

Item 3 - Defaults upon Senior Securities.

Not applicable.

Item 4 — Mine Safety Disclosures.

Not applicable.

Item 5 - Other Information.

None

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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.

101: The following financial statements for the quarter ended June 30, 2012, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Net Income and Comprehensive Income, (iii) Consolidated Statements of Cash Flows, and (iv) the Notes to Consolidated Financial Statements. (1)

(1) The Company will furnish the XBRL Interactive Data Files with detailed tagging in an amendment to this Form 10-Q within 30 days of the filing date of this report, as permitted by Rule 405(a)(2) of Regulation S-T.

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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 14, 2012	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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