First Clover Leaf Financial Corp. - FORM 10-Q

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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, 2014

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 offices)		(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. (Check one):

Large accelerated filer o				Accelerated filer o

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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o. No x.

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

Class		Outstanding August 1, 2014
Common Stock, par value $.10 per share		7,007,283

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FIRST CLOVER LEAF FINANCIAL CORP.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2014

INDEX

		PAGE NO.

PART I - Financial Information

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets		3

Consolidated Statements of Income		4

Consolidated Statements of Comprehensive Income		5

Consolidated Statements of Cash Flows		5

Notes to Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	48

Item 4.	Controls and Procedures	50

PART II - Other Information

Item 1. Legal Proceedings		51

Item 1A. Risk Factors		51

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		51

Item 3. Defaults Upon Senior Securities		51

Item 4. Mine Safety Disclosures		51

Item 5. Other Information		51

Item 6. Exhibits		51

Signatures		52

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FIRST CLOVER LEAF FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2014			2013
	(Unaudited)
ASSETS

Cash and due from banks	$	17,353,056		$	14,363,461
Interest-earning deposits	9,143,268			8,681,426
Federal funds sold	61,731,068			61,648,938
Total cash and cash equivalents	88,227,392			84,693,825

Interest-earning time deposits	1,770,852			1,766,493
Securities available for sale	116,632,977			117,776,982
Federal Home Loan Bank stock	2,887,763			2,887,763
Loans, net of allowance for loan losses of $5,567,909 and $5,590,668 at June 30, 2014 and December 31, 2013, respectively	382,529,539			372,568,962
Loans held for sale	260,935			—
Property and equipment, net	10,444,511			9,873,198
Goodwill	11,385,323			11,385,323
Bank-owned life insurance	14,641,923			8,497,895
Core deposit intangible	225,010			271,000
Foreclosed assets	4,289,225			5,577,481
Mortgage servicing rights	927,597			918,247
Accrued interest receivable	1,536,523			1,551,258
Other assets	3,620,076			4,276,015

Total assets	$	639,379,646		$	622,044,442

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Deposits:
Noninterest-bearing	$	57,436,700		$	55,263,604
Interest-bearing	471,136,428			447,276,088
Total deposits	528,573,128			502,539,692

Federal Home Loan Bank advances	13,983,875			13,980,005
Securities sold under agreements to repurchase	14,984,621			26,766,169
Subordinated debentures	4,000,000			4,000,000
Accrued interest payable	186,345			199,764
Other liabilities	2,255,430			1,463,182
Total liabilities	563,983,399			548,948,812

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, 7,007,283 shares issued and outstanding at June 30, 2014 and December 31, 2013	700,728			700,728
Additional paid-in capital	55,818,936			55,818,936
Retained earnings	18,914,542			18,268,454
Accumulated other comprehensive loss	(37,959		)	(1,692,488		)
Total stockholders’ equity	75,396,247			73,095,630

Total liabilities and stockholders’ equity	$	639,379,646		$	622,044,442

See Notes to Consolidated Financial Statements.

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FIRST CLOVER LEAF FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014			2013		2014			2013
Interest and dividend income:
Interest and fees on loans	$	4,102,934		$	4,403,689	$	8,135,545		$	9,059,584
Securities:
Taxable interest income	320,073			248,830		645,497			478,240
Nontaxable interest income	274,101			237,506		546,089			464,535
Interest-earning deposits, federal funds sold, and other	61,815			35,964		112,878			71,203
Total interest and dividend income	4,758,923			4,925,989		9,440,009			10,073,562

Interest expense:
Deposits	527,261			715,463		1,071,778			1,510,548
Federal Home Loan Bank advances	74,811			122,451		149,492			243,931
Securities sold under agreements to repurchase	912			3,271		3,677			8,860
Subordinated debentures	21,446			21,939		43,222			43,407
Total interest expense	624,430			863,124		1,268,169			1,806,746

Net interest income	4,134,493			4,062,865		8,171,840			8,266,816

Provision for loan losses	—			225,000		—			450,000

Net interest income after provision for loan losses	4,134,493			3,837,865		8,171,840			7,816,816

Non-interest income:
Service fees on deposit accounts	117,024			94,567		205,729			177,462
Other service charges and fees	103,861			95,101		194,221			183,536
Loan servicing fees	68,868			61,371		140,509			142,542
Gain on sale of securities	—			3,487		—			359,138
Gain on sale of loans	186,645			167,638		212,700			432,810
Loss on sale of assets, net	(75,039		)	—		(75,039		)	—
Gain (loss) on sale of foreclosed assets	(163,155		)	30,217		(197,199		)	35,767
Other	133,681			165,042		268,541			237,809
	371,885			617,423		749,462			1,569,064

Non-interest expense:
Compensation and employee benefits	1,779,872			1,561,447		3,591,032			3,106,011
Occupancy expense	424,185			337,541		827,711			659,345
Data processing services	195,467			190,240		380,840			372,888
Director fees	42,800			41,983		85,650			79,333
Professional fees	176,917			112,703		300,030			211,682
FDIC insurance premiums	120,000			129,000		237,102			246,000
Foreclosed asset related expenses	182,968			194,267		257,417			425,239
Amortization of core deposit intangible	14,505			66,001		45,990			131,998
Amortization of mortgage servicing rights	20,388			38,294		38,390			85,092
Other	652,457			537,758		1,206,889			1,018,571
	3,609,559			3,209,234		6,971,051			6,336,159

Income before income taxes	896,819			1,246,054		1,950,251			3,049,721

Income tax expense	187,010			379,680		463,289			988,285

Net income	$	709,809		$	866,374	$	1,486,962		$	2,061,436

Basic and diluted earnings per share	$	0.10		$	0.12	$	0.21		$	0.28
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 COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013

Net income	$	709,809		$	866,374		$	1,486,962		$	2,061,436
Other comprehensive income:
Unrealized gains (losses) on securities available for sale arising during the period	1,235,308			(2,535,375		)	2,626,239			(3,191,912		)
Reclassification adjustment for realized gains included in income	—			(3,487		)	—			(359,138		)
Tax effect	(457,064		)	939,379			(971,710		)	1,313,889
Net of tax	778,244			(1,599,483		)	1,654,529			(2,237,161		)
Comprehensive income (loss)	$	1,488,053		$	(733,109	)	$	3,141,491		$	(175,725	)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	June 30,
	2014			2013
Cash flows from operating activities
Net income	$	1,486,962		$	2,061,436
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization (accretion) of:
Deferred loan origination costs, net	(9,572		)	(60,471		)
Premiums and discounts on securities	498,661			489,161
Core deposit intangible	45,990			131,998
Mortgage servicing rights	38,390			85,092
Fair value adjustments	(46,357		)	(29,715		)
Provision for loan losses	—			450,000
Depreciation	286,469			277,910
Gain on sale of securities	—			(359,138		)
Gain on sale of loans	(212,700		)	(432,810		)
Loss on sale of property and equipment	75,039			—
Loss (gain) on sale of foreclosed assets	197,199			(35,767		)
Write-down on foreclosed assets	39,723			273,407
Earnings on bank-owned life insurance	(144,028		)	(112,798		)
Increase in mortgage servicing rights	(47,740		)	(141,848		)
Proceeds from sales of loans held for sale	6,221,959			18,168,949
Originations of loans held for sale	(6,270,194		)	(16,549,739		)
Change in assets and liabilities:
Accrued interest receivable and other assets	(301,036		)	(850,801		)
Accrued interest payable	(13,419		)	(42,869		)
Other liabilities	792,248			1,001,611
Net cash provided by operating activities	2,637,594			4,323,608

(Continued)

See notes to consolidated financial statements.

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FIRST CLOVER LEAF FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)

	Six Months Ended
	June 30,
	2014			2013
Cash flows from investing activities
Purchase of interest-earning time deposits	(4,359		)	(10,664		)
Available for sale securities:
Purchases	(17,864,498		)	(42,373,421		)
Proceeds from calls, maturities, and principal repayments	21,170,941			15,323,155
Proceeds from sales	—			9,025,930
Decrease (increase) in loans	(9,643,279		)	27,067,337
Purchase of property and equipment	(1,183,161		)	(147,206		)
Proceeds from the sale of property and equipment	242,304			—
Proceeds from the sale of foreclosed assets	767,011			475,690
Purchase of bank-owned life insurance	(6,000,000		)	(3,000,000		)
Net cash provided by (used in) investing activities	(12,515,041		)	6,360,821

Cash flows from financing activities
Net increase in deposit accounts	$	26,033,436		$	7,497,170
Net decrease in securities sold under agreements to repurchase	(11,781,548		)	(7,225,782		)
Repurchase of common stock	—			(1,863,278		)
Cash dividends paid	(840,874		)	(885,802		)
Net cash provided by (used in) financing activities	13,411,014			(2,477,692		)

Net increase in cash and cash equivalents	3,533,567			8,206,737

Cash and cash equivalents:
Beginning	84,693,825			71,414,598

Ending	$	88,227,392		$	79,621,335

Supplemental schedule of noncash investing and financing activities
Assets acquired in settlement of loans	$	98,907		$	944,204
Loans made to finance sales of foreclosed assets	383,230			—

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	1,277,718		$	1,842,115
Income taxes, net of refunds	675,000			1,255,000

See notes to consolidated financial statements.

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FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

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 or for any other period. 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, 2013 contained in the 2013 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 the Bank’s wholly owned inactive subsidiary, Clover Leaf Financial Services, Inc. On July 25, 2014, the inactive subsidiary was dissolved. 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 2014, the Financial Accounting Standard Board (the “FASB”) issued an update creating FASB Topic 606, Revenue from Contracts with Customers. The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides steps to follow to achieve the core principle. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

In January 2014, the FASB amended existing guidance clarifying that if an in substance repossession or foreclosure occurs, a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2)

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FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Company does not expect this amendment to have a material impact on the consolidated financial statements.

In July 2013, the FASB amended existing guidance related to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. These amendments provide that an unrecognized tax benefit, or a portion thereof, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position. Or, if the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. These amendments are effective for interim and annual reporting periods beginning after December 15, 2013. The effect of adopting this standard did not have a material effect on the Company’s operating results or financial condition.

Reclassifications: Certain reclassifications have been made to conform to the current year presentation. These reclassifications had no impact on the Company’s net income or total stockholders’ equity.

NOTE 2 — SECURITIES AVAILABLE FOR SALE

The amortized cost and fair values of securities with gross unrealized gains and losses as of the dates indicated are summarized as follows:

	June 30, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		(Losses)			Value
U.S. government agency obligations	$	35,359,461	$	44,320	$	(560,547	)	$	34,843,234
State and municipal securities	42,870,250		930,096		(508,319		)	43,292,027
Other securities(1)	248,501		—		—			248,501
Mortgage-backed: residential	38,215,018		357,033		(322,836		)	38,249,215

	$	116,693,230	$	1,331,449	$	(1,391,702	)	$	116,632,977

	December 31, 2013
U.S. government agency obligations	$	41,982,901	$	34,010	$	(1,101,316	)	$	40,915,595
U.S. treasury securities	5,000,000		—		—			5,000,000
State and municipal securities	39,827,427		439,363		(1,521,921		)	38,744,869
Other securities(1)	248,501		—		—			248,501
Mortgage-backed: residential	33,404,645		234,517		(771,145		)	32,868,017

	$	120,463,474	$	707,890	$	(3,394,382	)	$	117,776,982

(1) Includes a Certificate of Deposit in the amount of $245,000

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FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 2 — SECURITIES AVAILABLE FOR SALE (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, 2014 and December 31, 2013, are summarized as follows:

	June 30, 2014
	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	$	3,492,324	$	(13,689	)	$	15,493,982	$	(546,858	)	$	18,986,306	$	(560,547	)
State and municipal securities	4,471,009		(47,058		)	12,756,110		(461,261		)	17,227,119		(508,319		)
Mortgage-backed: residential	3,071,054		(32,473		)	18,823,722		(290,363		)	21,894,776		(322,836		)

	$	11,034,387	$	(93,220	)	$	47,073,814	$	(1,298,482	)	$	58,108,201	$	(1,391,702	)

	December 31, 2013
	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	$	32,313,881	$	(962,837	)	$	1,364,739	$	(138,479	)	$	33,678,620	$	(1,101,316	)
State and municipal securities	20,013,766		(1,112,126		)	3,322,850		(409,795		)	23,336,616		(1,521,921		)
Mortgage-backed: residential	16,485,580		(531,722		)	5,443,669		(239,423		)	21,929,249		(771,145		)

	$	68,813,227	$	(2,606,685	)	$	10,131,258	$	(787,697	)	$	78,944,485	$	(3,394,382	)

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, 2014, the Company had 72 securities in an unrealized loss position which included: 12 agency securities, 39 state and municipal securities, and 21 mortgage-backed securities. This is a decrease from 97 securities at December 31, 2013. The unrealized losses resulted from changes in market interest rates and liquidity, as opposed to changes in the probability of contractual cash flows. The Company does not intend to sell the securities, and it is not more-likely-than-not that the Company will be required to sell the securities prior to recovery of the 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, 2014.

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FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 2 — SECURITIES AVAILABLE FOR SALE (Continued)

The amortized cost and fair value at June 30, 2014, by contractual maturity, are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Additionally, an item in our “other securities” category has no stated maturity. Therefore, stated maturities are not disclosed for these items.

	Amortized		Fair
	Cost		Value
Due in one year or less	$	12,690,776	$	12,716,410
Due after one year through five years	14,993,035		14,994,116
Due after five years through ten years	33,458,583		33,250,016
Due after ten years	17,332,317		17,419,719
Other securities - non-maturing	3,501		3,501
Mortgage-backed: residential	38,215,018		38,249,215

	$	116,693,230	$	116,632,977

Securities with a carrying amount of approximately $72,539,000 and $88,180,000 were pledged to secure deposits as required or permitted by law at June 30, 2014 and December 31, 2013, respectively.

At June 30, 2014, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity. There were no sales of securities during the three and six months ended June 30, 2014. The Company received proceeds of $3,303,453 from the sale of securities during the three months ended June 30, 2013, resulting in gross realized gains of $17,838 and gross realized losses of $14,351. The Company received proceeds of $9,025,930 from the sale of securities during the six months ending June 30, 2013 resulting in gross realized gains of $373,489 and gross realized losses of $14,351.

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FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 3 - LOANS

The components of loans are as follows:

	At June 30,					At December 31,
	2014					2013
	Amount			Percent		Amount			Percent
Real estate loans:
One-to-four family	$	118,061,294		29.9	%	$	118,884,453		31.4	%
Multi-family	38,109,056			9.7		40,262,269			10.6
Commercial	122,250,575			30.8		120,839,112			31.8
Construction and land	28,432,750			7.2		13,961,068			3.7
	306,853,675			77.6		293,946,902			77.5

Commercial business	74,467,619			18.9		71,940,431			19.0

Consumer:
Home equity	12,091,430			3.1		11,712,701			3.1
Automobile and other	1,407,877			0.4		1,525,594			0.4
	13,499,307			3.5		13,238,295			3.5

Total gross loans	394,820,601			100.0	%	379,125,628			100.0	%
Undisbursed portion of construction loans	(6,880,023		)			(1,112,957		)
Deferred loan origination costs, net	156,870					146,959
Allowance for loan losses	(5,567,909		)			(5,590,668		)

Loans, net	$	382,529,539				$	372,568,962

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 of directors 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 2013 Annual Report to Stockholders that is filed as Exhibit 13 to the Company’s Annual Report on Form 10-K.

On occasion, the Company originates loans secured by single-family dwellings with loan to value ratios exceeding 90%. As of June 30, 2014 and December 31, 2013, these loans represented 1.06% and 1.07%, respectively, of our combined one-to-four family and home equity portfolios. The Company does not consider the level of such loans to be a significant concentration of credit as of June 30, 2014 or December 31, 2013.

The recorded investment in loans does not include accrued interest and loan origination fees due to immateriality. The recorded investment in construction and land includes undisbursed commitments of approximately $6,880,000 and $1,113,000 at June 30, 2014 and December 31, 2013, respectively. The allowance for loan losses does not include a component for undisbursed loan commitments; rather this amount is included in other liabilities.

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 3 - LOANS (Continued)

The following tables present our past-due loans, segregated by class, as of June 30, 2014 and December 31, 2013:

June 30, 2014

	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	$	203,943	$	310,728	$	763,519	$	1,278,190	$	116,783,104	$	118,061,294	$	—
Multi-family	—		—		—		—		38,109,056		38,109,056		—
Commercial	26,809		680,788		14,392		721,989		121,528,586		122,250,575		—
Construction and land	—		—		—		—		28,432,750		28,432,750		—
	230,752		991,516		777,911		2,000,179		304,853,496		306,853,675		—

Commercial business	12,283		—		—		12,283		74,455,336		74,467,619		—

Consumer:
Home equity	73,192		—		44,251		117,443		11,973,987		12,091,430		—
Automobile and other	—		—		—		—		1,407,877		1,407,877		—
	73,192		—		44,251		117,443		13,381,864		13,499,307		—

Total	$	316,227	$	991,516	$	822,162	$	2,129,905	$	392,690,696	$	394,820,601	$	—

December 31, 2013

	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	$	631,656	$	116,090	$	673,677	$	1,421,423	$	117,463,030	$	118,884,453	$	—
Multi-family	—		—		—		—		40,262,269		40,262,269		—
Commercial	15,162		—		30,016		45,178		120,793,934		120,839,112		—
Construction and land	—		—		—		—		13,961,068		13,961,068		—
	646,818		116,090		703,693		1,466,601		292,480,301		293,946,902		—

Commercial business	4,719		—		—		4,719		71,935,712		71,940,431		—

Consumer:
Home equity	40,473		—		30,047		70,520		11,642,181		11,712,701		—
Automobile and other	—		—		—		—		1,525,594		1,525,594		—
	40,473		—		30,047		70,520		13,167,775		13,238,295		—

Total	$	692,010	$	116,090	$	733,740	$	1,541,840	$	377,583,788	$	379,125,628	$	—

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 3 - LOANS (Continued)

All loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, there is reasonable probability of loss of principal or collection of additional interest is deemed insufficient to warrant further accrual. Generally, we place all loans 90 days or more past due on non-accrual status. However, exceptions may occur when a loan is in process of renewal, but it has not yet been completed. In addition, we may place any loan on non-accrual status if any part of it is classified as loss or if any part has been charged-off. When a loan is placed on non-accrual status, total interest accrued and unpaid to date is reversed. Subsequent payments are applied to the outstanding principal balance.

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

	June 30,		December 31,
	2014		2013
Real estate loans:
One-to-four family	$	1,112,581	$	1,671,324
Multi-family	1,841,334		2,100,064
Commercial	1,902,261		1,388,887
Construction and land	640,134		1,141,057
	5,496,310		6,301,332

Commercial business	680,000		—

Consumer:
Home equity	155,943		144,800

Total non-accrual loans	$	6,332,253	$	6,446,132

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

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, 2014 and 2013. 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, 2014

	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Real estate loans:
One-to-four family	$	1,346,963	$	(129,484	)	$	602	$	7,771		$	1,225,852
Multi-family	494,900		—			—		(56,469		)	438,431
Commercial	1,892,631		—			—		(182,816		)	1,709,815
Construction and land	641,774		—			—		369,542			1,011,316
	4,376,268		(129,484		)	602		138,028			4,385,414

Commercial business	1,157,656		—			5,302		(165,269		)	997,689

Consumer
Home equity	165,266		(22,660		)	1,017		28,414			172,037
Automobile and other	13,942		—			—		(1,173		)	12,769
	179,208		(22,660		)	1,017		27,241			184,806

Total	$	5,713,132	$	(152,144	)	$	6,921	$	—		$	5,567,909

Three months ended June 30, 2013

	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Real estate loans:
One-to-four family	$	721,179	$	(2,773	)	$	500	$	292,480		$	1,011,386
Multi-family	743,617		(482,478		)	—		298,859			559,998
Commercial	1,528,571		(134,105		)	272		(321,074		)	1,073,664
Construction and land	1,407,276		—			56,560		48,258			1,512,094
	4,400,643		(619,356		)	57,332		318,523			4,157,142

Commercial business	1,277,300		—			3,117		(84,795		)	1,195,622

Consumer
Home equity	146,285		(13,009		)	—		(12,500		)	120,776
Automobile and other	8,960		(7,574		)	—		3,772			5,158
	155,245		(20,583		)	—		(8,728		)	125,934

Total	$	5,833,188	$	(639,939	)	$	60,449	$	225,000		$	5,478,698

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 3 - LOANS (Continued)

Six months ended June 30, 2014

	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Real estate loans:
One-to-four family	$	1,424,663	$	(219,163	)	$	1,017	$	19,335		$	1,225,852
Multi-family	661,358		—			—		(222,927		)	438,431
Commercial	1,454,455		(1,876		)	—		257,236			1,709,815
Construction and land	668,085		—			230,000		113,231			1,011,316
	4,208,561		(221,039		)	231,017		166,875			4,385,414

Commercial business	1,219,080		—			8,716		(230,107		)	997,689

Consumer:
Home equity	116,478		(43,519		)	1,916		97,162			172,037
Automobile and other	46,549		—			150		(33,930		)	12,769
	163,027		(43,519		)	2,066		63,232			184,806

Total	$	5,590,668	$	(264,558	)	$	241,799	$	—		$	5,567,909

Six months ended June 30, 2013

	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Real estate loans:
One-to-four family	$	847,285	$	(303,235	)	$	16,618	$	450,718		$	1,011,386
Multi-family	958,303		(482,478		)	—		84,173			559,998
Commercial	1,268,081		(167,251		)	590		(27,756		)	1,073,664
Construction and land	1,413,002		—			157,268		(58,176		)	1,512,094
	4,486,671		(952,964		)	174,476		448,959			4,157,142

Commercial business	1,296,114		(124,786		)	7,970		16,324			1,195,622

Consumer:
Home equity	151,625		(13,009		)	—		(17,840		)	120,776
Automobile and other	10,175		(7,574		)	—		2,557			5,158
	161,800		(20,583		)	—		(15,283		)	125,934

Total	$	5,944,585	$	(1,098,333	)	$	182,446	$	450,000		$	5,478,698

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

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, 2014 and December 31, 2013:

June 30, 2014

	Period-end allowance allocated to loans:						Loans evaluated for impairment:
	Individually		Collectively
	evaluated for		evaluated for		Ending
	impairment		impairment		Balance		Individually		Collectively		Ending Balance
Real estate loans:
One-to-four family	$	71,031	$	1,154,821	$	1,225,852	$	1,160,906	$	116,900,388	$	118,061,294
Multi-family	—		438,431		438,431		1,841,334		36,267,722		38,109,056
Commercial	205,363		1,504,452		1,709,815		2,150,867		120,099,708		122,250,575
Construction and land	—		1,011,316		1,011,316		640,134		27,792,616		28,432,750
	276,394		4,109,020		4,385,414		5,793,241		301,060,434		306,853,675

Commercial business	123,875		873,814		997,689		803,875		73,663,744		74,467,619

Consumer:
Home equity	—		172,037		172,037		173,458		11,917,972		12,091,430
Automobile and other	—		12,769		12,769		—		1,407,877		1,407,877
	—		184,806		184,806		173,458		13,325,849		13,499,307

Total	$	400,269	$	5,167,640	$	5,567,909	$	6,770,574	$	388,050,027	$	394,820,601

December 31, 2013

	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	$	160,881	$	1,263,782	$	1,424,663	$	1,720,101	$	117,164,352	$	118,884,453
Multi-family	—		661,358		661,358		2,100,064		38,162,205		40,262,269
Commercial	195,103		1,259,352		1,454,455		1,978,525		118,860,587		120,839,112
Construction and land	10,315		657,770		668,085		1,141,057		12,820,011		13,961,068
	366,299		3,842,262		4,208,561		6,939,747		287,007,155		293,946,902

Commercial business	131,774		1,087,306		1,219,080		131,774		71,808,657		71,940,431

Consumer:
Home equity	8,602		107,876		116,478		162,449		11,550,252		11,712,701
Automobile and other	—		46,549		46,549		—		1,525,594		1,525,594
	8,602		154,425		163,027		162,449		13,075,846		13,238,295

Total	$	506,675	$	5,083,993	$	5,590,668	$	7,233,970	$	371,891,658	$	379,125,628

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

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 for credits categorized as loss.

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 3 - LOANS (Continued)

The following tables present our credit quality indicators, segregated by class, as of June 30, 2014 and December 31, 2013:

June 30, 2014

	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
One-to-four family	$	116,129,137	$	310,794	$	1,233,320	$	388,043	$	118,061,294
Multi-family	33,531,849		2,735,873		1,841,334		—		38,109,056
Commercial	111,870,965		5,879,146		4,500,464		—		122,250,575
Construction and land	27,514,778		217,129		700,843		—		28,432,750
	289,046,729		9,142,942		8,275,961		388,043		306,853,675

Commercial business	71,752,342		1,911,402		803,875		—		74,467,619

Consumer:
Home equity	11,904,880		30,607		152,166		3,777		12,091,430
Automobile and other	1,407,877		—		—		—		1,407,877
	13,312,757		30,607		152,166		3,777		13,499,307

Total	$	374,111,828	$	11,084,951	$	9,232,002	$	391,820	$	394,820,601

December 31, 2013

	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
One-to-four family	$	115,491,532	$	1,672,820	$	1,367,925	$	352,176	$	118,884,453
Multi-family	35,412,469		2,749,736		2,100,064		—		40,262,269
Commercial	110,571,786		5,902,447		4,334,863		30,016		120,839,112
Construction and land	12,696,737		—		1,264,331		—		13,961,068
	274,172,524		10,325,003		9,067,183		382,192		293,946,902

Commercial business	71,074,289		534,368		331,774		—		71,940,431

Consumer:
Home equity	11,518,523		31,730		132,401		30,047		11,712,701
Automobile and other	1,525,594		—		—		—		1,525,594
	13,044,117		31,730		132,401		30,047		13,238,295

Total	$	358,290,930	$	10,891,101	$	9,531,358	$	412,239	$	379,125,628

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

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, 2014						As of December 31, 2013
	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	$	627,235	$	516,868	$	—	$	1,082,196	$	899,959	$	—
Multi-family	2,475,732		1,841,334		—		2,734,462		2,100,064		—
Commercial	1,038,981		1,038,981		—		808,008		808,008		—
Construction and land	2,413,368		640,134		—		1,986,485		213,251		—
	6,555,316		4,037,317		—		6,611,151		4,021,282		—

Commercial business	680,000		680,000		—		—		—		—

Consumer:
Home equity	199,728		173,458		—		132,402		132,402		—

Subtotal	$	7,435,044	$	4,890,775	$	—	$	6,743,553	$	4,153,684	$	—

With an allowance recorded:
Real estate loans:
One-to-four family	$	868,550	$	644,038	$	71,031	$	864,017	$	820,142	$	160,881
Multi-family	—		—		—		—		—		—
Commercial	1,304,121		1,111,886		205,363		1,360,876		1,170,517		195,103
Construction and land	—		—		—		927,806		927,806		10,315
	2,172,671		1,755,924		276,394		3,152,699		2,918,465		366,299

Commercial business	123,875		123,875		123,875		131,774		131,774		131,774

Consumer:
Home equity	—		—		—		30,047		30,047		8,602

Subtotal	2,296,546		1,879,799		400,269		3,314,520		3,080,286		506,675
Total	$	9,731,590	$	6,770,574	$	400,269	$	10,058,073	$	7,233,970	$	506,675

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 3 - LOANS (Continued)

	For the three months ended June 30, 2014						For the three months ended June 30, 2013
	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	$	784,205	$	483	$	—	$	1,208,214	$	—	$	—
Multi-family	1,027,015		—		—		231,822		—		—
Commercial	933,819		3,455		—		2,902,229		—		—
Construction and land	865,655		—		—		1,686,959		—		—
	3,610,694		3,938		—		6,029,224		—		—

Commercial business	340,000		—		—		—		—		—

Consumer:
Home equity	157,501		313		—		135,984		—		—
Automobile and other	—		—		—		2,274		—		—
	157,501		313		—		138,258		—		—
Subtotal	$	4,108,195	$	4,251	$	—	$	6,167,482	$	—	$	—

With an allowance recorded:
Real estate loans:
One-to-four family	$	581,242	$	—	$	—	$	870,751	$	—	$	—
Multi-family	828,887		—		—		2,465,999		—		—
Commercial	1,223,184		—		—		359,151		—		—
Construction and land	—		—		—		—		—		—
	2,633,313		—		—		3,695,901		—		—

Commercial business	125,873		2,290		—		347,693		230		—

Consumer:
Home equity	—		—		—		35,611		—		—
Automobile and other	—		—		—		1,892		—		—
	—		—		—		37,503		—		—
Subtotal	2,759,186		2,290		—		4,081,097		230		—
Total	$	6,867,381	$	6,541	$	—	$	10,248,579	$	230	$	—

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 3 - LOANS (Continued)

	For the six months ended June 30, 2014						For the six months ended June 30, 2013
	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	$	822,790	$	963	$	—	$	970,208	$	—	$	—
Multi-family	1,384,698		—		—		226,535		—		—
Commercial	891,882		7,709		—		2,835,650		—		—
Construction and land	648,187		—		—		1,943,446		—		—
	3,747,557		8,672		—		5,975,839		—		—

Commercial business	226,667		—		—		854		—		—

Consumer:
Home equity	149,134		574		—		143,127		—		—
Automobile and other	—		—		—		1,516		—		—
	149,134		574		—		144,643		—		—
Subtotal	$	4,123,358	$	9,246	$	—	$	6,121,336	$	—	$	—

With an allowance recorded:
Real estate loans:
One-to-four family	$	660,875	$	—	$	—	$	1,102,541	$	—	$	—
Multi-family	552,591		—		—		2,573,935		—		—
Commercial	1,205,628		3,186		—		417,901		—		—
Construction and land	309,269		—		—		—		—		—
	2,728,363		3,186		—		4,094,377		—		—

Commercial business	127,840		4,725		—		317,761		230		—

Consumer:
Home equity	10,016		—		—		33,114		—		—
Automobile and other	—		—		—		4,506		—		—
	10,016		—		—		37,620		—		—
Subtotal	2,866,219		7,911		—		$	4,449,758	$	230	$	—
Total	$	6,989,577	$	17,157	$	—	$	10,571,094	$	230	$	—

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 3 - LOANS (Continued)

Troubled Debt Restructurings:

During the three and six months ending June 30, 2014, there were no loans modified as troubled debt restructurings.

The Company had allocated $342,453 of specific reserves on $5,025,071 of loans to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2014. The Company had $354,822 of allocations of specific reserves on $6,215,918 of loans to customers whose loan terms were modified in troubled debt restructurings as of December 31, 2013. The Company had no commitments to lend additional amounts as of June 30, 2014 or December 31, 2013 to customers with outstanding loans that are classified as troubled debt restructurings.

The following tables present loans, by class, modified as troubled debt restructurings that occurred during the three and six months ended June 30, 2013:

Three months ended June 30, 2013

	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
One-to-four family	4	$	85,912	$	88,012

Commercial business	1	138,002		138,002

Total	5	$	223,914	$	226,014

Six months ended June 30, 2013

	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
One-to-four family	4	$	85,912	$	88,012

Commercial business	1	138,002		138,002

Total	5	$	223,914	$	226,014

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 3 - LOANS (Continued)

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, 2014 and 2013.

The troubled debt restructurings that subsequently defaulted, described above, resulted in a net increase in the allowance for loan losses of $2,647 and resulted in charge-offs of $6,011 during the six months ended June 30, 2014.

A loan is considered to be in payment default once it is 60 days contractually past due under the modified terms.

NOTE 4 - GOODWILL

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. During 2013, at our annual impairment assessment date of September 30, our analysis indicated that no impairment existed.

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

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.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013

Net income	$	709,809	$	866,374	$	1,486,962	$	2,061,436
Basic potential common shares:
Basic weighted average shares outstanding	7,007,283		7,299,696		7,007,283		7,373,567

Dilutive potential common shares	—		—		—		—

Diluted weighted average shares outstanding	7,007,283		7,299,696		7,007,283		7,373,567

Basic and diluted earnings per share	$	0.10	$	0.12	$	0.21	$	0.28

NOTE 6 - FAIR VALUE MEASUREMENTS

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

· Level 1 - 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.

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 6 - FAIR VALUE MEASUREMENTS (Continued)

Securities: The fair value of available-for-sale securities are determined by various valuation methodologies. Where quoted market prices are available in an active market, securities are classified within Level 1. The Company has no securities classified within Level 1. If quoted market prices are not available, then fair values are estimated by using pricing models or quoted prices of securities with similar characteristics. For these investments, the pricing applications apply available information as applicable through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations. They also use model processes, such as the Option Adjusted Spread model to assess interest rate impact and develop prepayment scenarios. In the case of municipal securities, information on the Bloomberg terminal such as credit ratings, credit support, and call features are used to set the matrix values for the issues, which will be used to determine the yields from which the market values are calculated each month. Because they are not price quote valuations, the pricing methods are considered Level 2 inputs. At this time all of the Company’s securities fall within the Level 2 hierarchy for pricing. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Company currently has no securities classified within Level 3. During the six months ended June 30, 2014, there were no transfers between Level 1 and Level 2. The valuation methodology was consistent for the six months ended June 30, 2014 and the year ended December 31, 2013.

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 assets 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 which are updated no less frequently than annually. 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. Foreclosed assets are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally 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. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for both foreclosed assets and collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) 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.

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 6 - FAIR VALUE MEASUREMENTS (Continued)

Assets measured at fair value on a recurring basis segregated by fair value hierarchy level during the periods ended June 30, 2014 and December 31, 2013 are summarized below:

	Fair Value Measurements at June 30, 2014 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	$	—	$	34,843,234	$	—	$	34,843,234
State and municipal securities	—		43,292,027		—		43,292,027
Other securities	—		248,501		—		248,501
Mortgage-backed: residential	—		38,249,215		—		38,249,215
Total securities available for sale	$	—	$	116,632,977	$	—	$	116,632,977

	Fair Value Measurements at December 31, 2013 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	$	—	$	40,915,595	$	—	$	40,915,595
U.S. treasury securities	—		5,000,000		—		5,000,000
State and municipal securities	—		38,744,869		—		38,744,869
Other securities	—		248,501		—		248,501
Mortgage-backed: residential	—		32,868,017		—		32,868,017
Total securities available for sale	$	—	$	117,776,982	$	—	$	117,776,982

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 6 - FAIR VALUE MEASUREMENTS (Continued)

Assets measured at fair value on a nonrecurring basis by fair value hierarchy level during the periods ended June 30, 2014 and December 31, 2013 are summarized below:

	Fair Value Measurements at June 30, 2014 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:
Construction and land	$	—	$	—	$	301,560	$	301,560

Total foreclosed assets	$	—	$	—	$	301,560	$	301,560

Impaired loans:
Real estate loans:
One-to-four family	$	—	$	—	$	573,007	$	573,007
Commercial	—		—		906,523		906,523

Total impaired loans	$	—	$	—	$	1,479,530	$	1,479,530

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 6 - FAIR VALUE MEASUREMENTS (Continued)

	Fair Value Measurements at December 31, 2013 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:
One-to-four family	$	—	$	—	$	103,500	$	103,500
Multi-family	—		—		118,100		118,100
Commercial	—		—		692,230		692,230
Construction and land	—		—		1,901,758		1,901,758

Total foreclosed assets	$	—	$	—	$	2,815,588	$	2,815,588

Impaired loans:
Real estate loans:
One-to-four family	$	—	$	—	$	659,261	$	659,261
Commercial	—		—		975,414		975,414
Construction and land	—		—		917,491		917,491
	—		—		2,552,166		2,552,166

Consumer:
Home Equity	—		—		21,445		21,445
	—		—		21,445		21,445

Total impaired loans	$	—	$	—	$	2,573,611	$	2,573,611

Mortgage Servicing Rights	$	—	$	918,247	$	—	$	918,247

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 at June 30, 2014, had a net carrying amount of $301,560, which was made up of the outstanding balance of $607,283, net of cumulative write-downs of $305,723 which included $39,723 that occurred during the six months ended June 30, 2014. At December 31, 2013, foreclosed assets had a carrying amount of $2,815,588, which was made up of the outstanding balance of $4,123,275, net of write-downs of $1,307,687.

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $1,879,799, with a valuation allowance of $400,269 at June 30, 2014, resulting in a net decrease in provision for loan losses of $6,972 for the six months ended June 30, 2014. At December 31, 2013, impaired loans had a principal balance of $3,080,286 with a valuation allowance of $506,675.

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 6 - 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, 2014:

Fair Value

Valuation
Techniques

Unobservable Inputs

Range

Weighted
Average

Foreclosed assets:

Real estate:

Construction and land

301,560

Sales Comparison

Adjustment for difference between comparable sales

4% to 34%

16.2

Impaired loans:

Real estate loans:

One-to-four family

573,007

Sales Comparison

Adjustment for difference between comparable sales

-16% to 16%

1.0

Commercial

906,523

Income Approach

Investment Capitalization Rates

1% to 24%

11.3

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 December 31, 2013:

Fair Value

Valuation
Techniques

Unobservable Inputs

Range

Weighted
Average

Foreclosed assets:

Real estate:

One-to-four family

103,500

Sales Comparison

Adjustment for difference between comparable sales

-2% to 20%

8.3

Multi-family

118,100

Sales Comparison

Adjustment for difference between comparable sales

2% to 26%

15.5

Commercial

692,230

Sales Comparison

Adjustment for difference between comparable sales

-2% to 0%

-1.9

Construction and land

1,901,758

Sales Comparison

Adjustment for difference between comparable sales

-21% to 36%

5.5

Impaired loans:

Real estate loans:

One-to-four family

659,261

Sales Comparison

Adjustment for difference between comparable sales

-11% to 27%

2.9

Commercial

975,414

Sales Comparison

Adjustment for difference between comparable sales

-28% to 16%

-9.2

Construction and land

917,491

Sales Comparison

Adjustment for difference between comparable sales

-14% to 36%

19.1

Consumer:

Home Equity

21,445

Sales Comparison

Adjustment for difference between comparable sales

-9% to -3%

-5.6

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB ASC Topic 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet. Fair value is determined under the framework established by ASC Topic 820, Fair Value Measurement and Disclosures. ASC Topic 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

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

Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents approximate fair values 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 (“FHLB”) 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.

Loans Held for Sale: The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

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 FHLB 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.

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

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.

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, 2014 and December 31, 2013 that have not been previously presented and the methods and assumptions used to estimate those fair values.

			Fair Value Measurements at June 30, 2014 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	$	88,227,392	$	88,227,392	$	—	$	—	$	88,227,392
Interest-earning time deposits	1,770,852		—		1,770,852		—		1,770,852
Federal Home Loan Bank stock	2,887,763		—		—		—		N/A
Loans, net (excluding impaired loans at fair value)	381,050,009		—		—		381,258,185		381,258,185
Loans held for sale	260,935		—		260,935		—		260,935
Accrued interest receivable	1,536,523		—		537,635		998,888		1,536,523

Financial liabilities:
Non-interest bearing deposits	57,436,700		57,436,700		—		—		57,436,700
Interest-bearing deposits	471,136,428		342,174,142		129,633,048		—		471,807,190
Federal Home Loan Bank advances	13,983,875		—		14,075,634		—		14,075,634
Securities sold under agreement to repurchase	14,984,621		—		14,984,621		—		14,984,621
Subordinated debentures	4,000,000		—		4,000,000		—		4,000,000
Accrued interest payable	186,345		11,987		174,358		—		186,345

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

			Fair Value Measurements at December 31, 2013 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	$	84,693,825	$	84,693,825	$	—	$	—	$	84,693,825
Interest-earning time deposits	1,766,493		—		1,766,493		—		1,766,493
Federal Home Loan Bank stock	2,887,763		—		—		—		N/A
Loans, net (excluding impaired loans at fair value)	369,995,351		—		—		369,987,191		369,987,191
Accrued interest receivable	1,551,258		—		546,692		1,004,566		1,551,258

Financial liabilities:
Non-interest bearing deposits	55,263,604		55,263,604		—		—		55,263,604
Interest-bearing deposits	447,276,088		319,716,842		128,515,854		—		448,232,696
Federal Home Loan Bank advances	13,980,005		—		14,114,389		—		14,114,389
Securities sold under agreement to repurchase	26,766,169		—		26,766,169		—		26,766,169
Subordinated debentures	4,000,000		—		4,000,000		—		4,000,000
Accrued interest payable	199,764		15,233		184,531		—		199,764

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, non-financial 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, our trained work force, customer goodwill and similar items.

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 8 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables summarize the changes within each classification of accumulated other comprehensive loss, net of tax, for the three and six months ended June 30, 2014. There was no reclassification out of accumulated other comprehensive income for these periods.

Changes in Accumulated Other Comprehensive Income (Loss) by Component

For the Three Months Ended June 30, 2014(1)

	Unrealized Gains and Losses on Available-for-Sale Securities			Total
Accumulated Other Comprehensive Loss at April 1, 2014	$	(816,203	)	$	(816,203	)

Other comprehensive income before reclassifications	778,244			778,244
Amount reclassified from accumulated other comprehensive loss	—			—
Net current-period other comprehensive income	778,244			778,244

Accumulated Other Comprehensive Loss at June 30, 2014	$	(37,959	)	$	(37,959	)

(1) All amounts are net of tax.

Changes in Accumulated Other Comprehensive Income (Loss) by Component For the Six Months Ended June 30, 2014(1)

	Unrealized Gains and Losses on Available-for-Sale Securities			Total
Accumulated Other Comprehensive Loss at January 1, 2014	$	(1,692,488	)	$	(1,692,488	)

Other comprehensive income before reclassifications	1,654,529			1,654,529
Amount reclassified from accumulated other comprehensive loss	—			—
Net current-period other comprehensive income	1,654,529			1,654,529

Accumulated Other Comprehensive Loss at June 30, 2014	$	(37,959	)	$	(37,959	)

(1) All amounts are net of tax.

Table of Contents

FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Continued)

The following tables summarize the changes within each classification of accumulated other comprehensive income, net of tax, for the three and six months ended June 30, 2013, and summarize the significant amounts reclassified out of each component of accumulated other comprehensive income:

Changes in Accumulated Other Comprehensive Income (Loss) by Component

For the Three Months Ended June 30, 2013(1)

	Unrealized Gains and Losses on Available-for-Sale Securities			Total
Accumulated Other Comprehensive Income at April 1, 2013	$	558,433		$	558,433

Other comprehensive loss before reclassifications	(1,597,286		)	(1,597,286		)
Amount reclassified from accumulated other comprehensive income(2)	(2,197		)	(2,197		)
Net current-period other comprehensive loss	(1,599,483		)	(1,599,483		)

Accumulated Other Comprehensive Loss at June 30, 2013	$	(1,041,050	)	$	(1,041,050	)

(1) All amounts are net of tax.

(2) See table below for details about reclassifications.

Reclassifications out of Accumulated Other Comprehensive Income For the Three Months Ended June 30, 2013

Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities
	$	3,487		Gain on sale of securities
	(1,290		)	Tax expense
Total reclassifications for the period	$	2,197		Net of tax

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FIRST CLOVER LEAF FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND DECEMBER 31, 2013

NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Continued)

Changes in Accumulated Other Comprehensive Income (Loss) by Component

For the Six Months Ended June 30, 2013(1)

	Unrealized Gains and Losses on Available-for-Sale Securities			Total
Accumulated Other Comprehensive Income at January 1, 2013	$	1,196,111		$	1,196,111

Other comprehensive loss before reclassifications	(2,010,904		)	(2,010,904		)
Amount reclassified from accumulated other comprehensive income(2)	(226,257		)	(226,257		)
Net current-period other comprehensive loss	(2,237,161		)	(2,237,161		)

Accumulated Other Comprehensive Loss at June 30, 2013	$	(1,041,050	)	$	(1,041,050	)

(1) All amounts are net of tax.

(2) See table below for details about reclassifications.

Reclassifications out of Accumulated Other Comprehensive Income For the Six Months Ended June 30, 2013

Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities
	$	359,138		Gain on sale of securities
	(132,881		)	Tax expense
Total reclassifications for the period	$	226,257		Net of tax

NOTE 9 — SUBSEQUENT EVENTS

On July 28, 2014, 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, 2014. The dividend will be payable to stockholders of record as of August 22, 2014 and is expected to be paid on August 29, 2014.

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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 resulting from shutdowns of the federal government; 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

First Clover Leaf considers the allowance for loan losses and goodwill and other intangible assets to be its critical accounting estimates, 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 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. For each allowance portfolio class, we apply loss factors to calculate the required allowance based upon actual historical loss rates over a time period that we have determined represents the current credit cycle. The Company extended the look back period used to establish the loss history for the general reserve component of the allowance for loan losses in the first quarter of 2014 in an effort to continue to factor in the higher loss experience that resulted from the credit crisis. 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, loan portfolio composition, prevailing economic conditions such as housing trends, inflation rates and unemployment rates, and geographic concentrations of loans within the 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. There can be no assurance that the OCC will not require further increases to the allowance.

Goodwill. 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.

The goodwill impairment analysis allows the assessment of qualitative factors to determine if it is more-likely-than-not that the fair value of a reporting unit is less than the carrying value. If it is determined that we should proceed with impairment testing, we then estimate the fair value of our single reporting unit as of the measurement date utilizing two approaches 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 2013, at our annual impairment assessment date of September 30, our analysis indicated that no impairment existed. Future events, such as adverse changes to First Clover Leaf’s business or changes in the economic market, could cause management to conclude that impairment indicators exist and require management to re-evaluate goodwill. Should such re-evaluation determine goodwill is impaired; the resulting impairment loss recognized could have a material, adverse impact on First Clover Leaf’s financial condition and results of operations. In accordance with current accounting guidance, management has determined that the Company has only one reporting unit for purposes of evaluating goodwill.

Overview

First Clover Leaf had net income of $710,000 for the three months ended June 30, 2014 compared to net income of $866,000 for the same period in 2013. The decrease was primarily due to losses on sales of a non-branch building and furnishings and foreclosed assets, and higher compensation and employee benefits expense, partially offset by reductions in interest expense, provision for loan losses, and income tax expense. Basic and diluted earnings per share were $0.10 for the three-month period ended June 30, 2014 and $0.12 for the comparable period in 2013.

First Clover Leaf had net income of $1.5 million for the six months ended June 30, 2014 compared to net income of $2.1 million for the same period in 2013. The decrease was primarily due to the same factors described above for the three months ended June 30, 2014 plus decreases in gain on sales of securities. Basic and diluted earnings per share were $0.21 for the six-month period ended June 30, 2014 and $0.28 for the comparable period in 2013.

Financial Condition

Total Assets. Total assets increased to $639.4 million at June 30, 2014 from $622.0 million at December 31, 2013. The increase was primarily due to higher balances of cash and cash equivalents, loans and bank-owned life insurance, partially offset by a decrease in foreclosed assets.

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Total cash and cash equivalents increased $3.5 million to $88.2 million at June 30, 2014 from $84.7 million at December 31, 2013. The increase was primarily due to increased deposits predominately from a non-customer special purpose account that we expect to be disbursed in the coming months, partially offset by increased loan funding and the purchase of additional bank-owned life insurance.

Net loans increased $9.9 million to $382.5 million at June 30, 2014 from $372.6 million at December 31, 2013. This was primarily due to loan originations exceeding loan repayments. We experienced increased activity in construction and land loans due to the funding of several large projects during the six months ended June 30, 2014. Loans held for sale at June 30, 2014 totaled $261,000. There were no loans held for sale at December 31, 2013.

Total Liabilities. Total liabilities increased to $564.0 million at June 30, 2014 from $548.9 million at December 31, 2013. Deposits increased $26.1 million to $528.6 million at June 30, 2014 from $502.5 million at December 31, 2013. Non-interest bearing deposits increased $2.1 million to $57.4 million at June 30, 2014 from $55.3 million at December 31, 2013 due to normal fluctuations in business deposit accounts. Interest bearing deposits increased $23.8 million to $471.1 million at June 30, 2014 from $447.3 million at December 31, 2013. This increase was primarily due to deposits predominately from a non-customer special purpose account that we expect to be disbursed in the coming months. Securities sold under agreements to repurchase decreased $11.8 million to $15.0 million at June 30, 2014 from $26.8 million at December 31, 2013. This decrease was due primarily to normal fluctuations in these business accounts.

Stockholders’ Equity. Stockholders’ equity increased to $75.4 million at June 30, 2014 from $73.1 million at December 31, 2013, primarily due to net income of $1.5 million and a reduction in accumulated other comprehensive loss of $1.7 million, partially offset by the payment of cash dividends of $841,000 during the six months ended June 30, 2014.

Asset Quality

The Company has experienced a decline in non-performing assets as of June 30, 2014 compared to December 31, 2013. The decrease was primarily due to the sale of foreclosed assets of $1.3 million. The following tables set forth information with respect to the Company’s non-performing and impaired loans and other non-performing assets at the dates indicated:

	June 30,			December 31,
	2014			2013

Loans 90 days or more past due and still accruing	$	—		$	—
Non-accrual loans(1)	5,652,253			6,446,132
Other impaired loans	438,321			787,838
Total non-performing loans	6,090,574			7,233,970
Foreclosed assets	4,289,225			5,577,481
Total non-performing assets	$		10,379,799	$	12,811,451

(1) The entire balance is also classified as impaired as of June 30, 2014 and December 31, 2013.

	June 30,		December 31,
	2014		2013

Non-performing assets to total assets	1.62	%	2.06	%
Non-performing loans to total loans	1.59		1.94
Allowance for loan losses to non-performing loans	91.42		77.28
Allowance for loan losses to total loans	1.46		1.50

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Non-Performing and Impaired Loans and Other Non-Performing Assets. At June 30, 2014, our total non-performing and impaired loans and other non-performing assets were $10.4 million compared to $12.8 million at December 31, 2013. At June 30, 2014, the Company’s non-accrual loans decreased $700,000 to $5.7 million from $6.4 million at December 31, 2013.

At June 30, 2014, the Bank had one relationship classified as non-accrual with a balance in excess of $1.0 million, and one relationship classified as non-accrual with a balance slightly below $1.0 million. The largest non-accrual relationship is a $1.6 million credit to a real estate investor. This credit was placed on non-accrual status in 2012. The investor has been experiencing cash flow difficulties due to higher vacancy rates and the need for property repairs. Since being placed on nonaccrual, $800,000 in pay-downs from the sale of collateral has been received on this relationship, and a charge-off of $483,000 was recorded, all of which was previously reserved. A property manager is overseeing the daily operations, and all non-rented properties have been listed for sale. The borrower has signed a forbearance agreement with the Company to aid in selling some of the properties to further reduce the 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 credit is a $937,000 credit to a real estate investor. This relationship was also placed on non-accrual status in 2012. The collateral for this credit is primarily a mobile-home park along with several small commercial buildings. The mobile-home park has experienced high vacancies and cash flow is limited. The Bank has 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 Bank. There are two commercial buildings that are currently listed for sale making up the remainder of the collateral. We are seeing improvement in the borrower’s cash flow as the number of vacancies at the mobile-home park has decreased significantly. Sufficient reserves have been established to cover the collateral shortfall.

In addition to the non-accrual loans discussed above, we may have loans that are still accruing interest that we categorize as impaired due to observed credit deterioration. This allows us to individually evaluate them for our allowance for loan losses. At June 30, 2014, there were three credits in this classification with a total balance of $438,000. The largest loan in this classification at June 30, 2014 was a $249,000 commercial real estate loan secured by a commercial building. The Bank has not been able to obtain updated financial statements from the borrower and therefore cannot perform an adequate review of cash flow to support the debt. In comparison, there were four loans that met this classification at December 31, 2013 with a total balance of $788,000.

The following table presents a summary of our past due loans as of June 30, 2014 and December 31, 2013:

	June 30,		December 31,
	2014		2013

Loans 30-59 Days Past Due	$	316,227	$	692,010
Loans 60-89 Days Past Due	991,516		116,090
Loans 90 or more Days Past Due	822,162		733,740
Total Past Due Loans	$	2,129,905	$	1,541,840

Past due balances increased approximately $600,000 from $1.5 million at December 31, 2013 to $2.1 million at June 30, 2014. The category experiencing the largest increase was the 60-89 days past due category, increasing approximately $876,000 from year-end December 31, 2013. The increase in the 60-89 past due was primarily a result of two commercial real estate loans. The loans are in non-accrual status and the Bank is currently working on a forbearance agreement with the borrower.

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The following table presents a summary of our credit quality indicators as of June 30, 2014 and December 31, 2013:

	June 30,		December 31,
	2014		2013

Pass	$	374,111,828	$	358,290,930
Special Mention	11,084,951		10,891,101
Substandard	9,232,002		9,531,358
Doubtful	391,820		412,239
Total Loans	$	394,820,601	$	379,125,628

In addition to the decline in non-performing and impaired loans at June 30, 2014 compared to balances at December 31, 2013, there was also a decline in loans classified as substandard and doubtful. However, loans classified as special mention increased slightly from $10.9 million at December 31, 2013 to $11.1 million at June 30, 2014. The primary reason for the increase in this category was the downgrade of one relationship with four individual loans that reported a significant operating loss that resulted in insufficient debt service coverage. The loan category impacted by this relationship is commercial real estate. We are continuing to monitor this relationship and expect this to be a temporary downgrade.

At June 30, 2014, the Bank had 9 properties classified as foreclosed assets valued at $4.3 million, which is a decrease of $1.3 million from December 31, 2013. The collateral on these properties consists of farmland, two residential lot developments, a commercial development, and five single-family residences. All of these properties were transferred into foreclosed assets at cost or the property’s fair value, less estimated costs of disposal, at the date of foreclosure. Initial valuation adjustments, if any, are charged against the allowance for loan losses. The properties are evaluated on a nonrecurring basis to verify that the recorded amount is supported by its current fair value.

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Results of Operations

General. First Clover Leaf had net income of $710,000 for the three months ended June 30, 2014 compared to net income of $866,000 for the same period in 2013. The decrease was primarily due to losses on sale of assets and sale of foreclosed assets, and higher compensation and employee benefits expense, partially offset by reductions in interest expense, provision for loan losses, and income tax expense. Basic and diluted earnings per share were $0.10 for the three-month period ended June 30, 2014 and $0.12 for the comparable period in 2013.

Our net interest rate spread decreased to 2.77% from 2.92% and our net interest margin decreased to 2.84% from 3.05% for the six months ended June 30, 2014 compared to the same period in 2013. The decrease in the interest rate spread was attributable to the yield on interest-earning assets declining faster than the cost of funds. As with most financial institutions, yield on earning assets and cost of funds are largely dependent on the interest rate environment. While the decline in industry interest rates has slowed, competitive and market forces continue to pressure the yield on our earning assets. 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 relatively unchanged at $4.1 million for the three months ended June 30, 2014 and 2013. Net interest income decreased to $8.2 million for the six months ended June 30, 2014 from $8.3 million for the same period in 2013, primarily due to lower yields on, and a lower balance of, net interest-earning assets. Net average interest-earning assets, which represent our average total interest-earning assets less our average total interest-bearing liabilities, were $81.6 million for the six months ended June 30, 2014, compared to $85.1 million for the same period in 2013. The ratio of interest-earning assets to interest-bearing liabilities decreased to 116.39% for the six months ended June 30, 2014 from 118.43% for the same period in 2013. The net interest rate spread decreased to 2.77% for the six months ended June 30, 2014, compared to 2.92% for the comparable period in 2013. The average rate earned on interest-earning assets decreased by 43 basis points for the six months ended June 30, 2014 to 3.28% from 3.71% for the same period in 2013, while the average rate paid on interest-bearing liabilities decreased by 28 basis points during these periods to 0.51% from 0.79%.

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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,
	2014						2013
	Average Outstanding Balance		Interest (4)		Yield/ Rate		Average Outstanding Balance		Interest (4)		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, gross	$	376,235	$	4,103	4.37	%	$	381,170	$	4,404	4.63	%
Securities	114,240		594		2.09	%	106,361		486		1.83	%
Interest-earning balances from depository institutions	90,181		62		0.28	%	59,399		36		0.24	%
Total interest-earning assets	580,656		4,759		3.29	%	546,930		4,926		3.61	%
Non-interest-earning assets	52,326						52,303
Total assets	$	632,982					$	599,233

Interest-bearing liabilities:
Interest-bearing transaction	$	305,695	$	167	0.22	%	$	239,776	$	269	0.45	%
Savings deposits	28,682		13		0.18	%	27,416		22		0.32	%
Time deposits	128,659		347		1.08	%	140,720		425		1.21	%
Securities sold under agreements to repurchase	14,754		1		0.03	%	28,526		3		0.04	%
Federal Home Loan Bank advances	13,983		75		2.12	%	21,972		122		2.23	%
Subordinated debentures	4,000		21		2.11	%	4,000		22		2.21	%
Total interest-bearing liabilities	495,773		624		0.50	%	462,410		863		0.75	%
Non-interest-bearing liabilities	62,302						59,026
Total liabilities	558,075						521,436
Stockholders’ equity	74,908						77,477
Total liabilities and stockholders’ equity	$	632,983					$	598,913

Net interest income			$	4,135					$	4,063
Net interest rate spread (1)					2.78	%					2.86	%
Net interest-earning assets (2)	$	84,883					$	84,520
Net interest margin (3)					2.86	%					2.98	%
Ratio of interest-earning assets to interest-bearing liabilities					117.12	%					118.28	%

(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 $45,264 and $32,617 for the three months ended June 30, 2014 and 2013, respectively.

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	Six Months Ended June 30,						Six Months Ended June 30,
	2014						2013
	Average Outstanding Balance		Interest (4)		Yield/ Rate		Average Outstanding Balance		Interest (4)		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, gross	$	374,619	$	8,136	4.38	%	$	388,377	$	9,060	4.70	%
Securities	115,131		1,191		2.09	%	100,296		943		1.90	%
Interest-earning balances from depository institutions	89,855		113		0.25	%	58,373		71		0.25	%
Total interest-earning assets	579,605		9,440		3.28	%	547,046		10,074		3.71	%
Non-interest-earning assets	52,606						51,469
Total assets	$	632,211					$	598,515

Interest-bearing liabilities:
Interest-bearing transaction	$	305,356	$	347	0.23	%	$	236,290	$	565	0.48	%
Savings deposits	28,281		25		0.18	%	26,763		46		0.35	%
Time deposits	127,048		700		1.11	%	143,846		900		1.26	%
Securities sold under agreements to repurchase	19,307		4		0.04	%	29,038		9		0.06	%
Federal Home Loan Bank advances	13,982		149		2.15	%	21,970		244		2.24	%
Subordinated debentures	4,000		43		2.17	%	4,000		43		2.17	%
Total interest-bearing liabilities	497,974		1,268		0.51	%	461,907		1,807		0.79	%
Non-interest-bearing liabilities	59,802						58,590
Total liabilities	557,776						520,497
Stockholders’ equity	74,435						78,018
Total liabilities and stockholders’ equity	$	632,211					$	598,515

Net interest income			$	8,172					$	8,267
Net interest rate spread (1)					2.77	%					2.92	%
Net interest-earning assets (2)	$	81,631					$	85,139
Net interest margin (3)					2.84	%					3.05	%
Ratio of interest-earning assets to interest-bearing liabilities					116.39	%					118.43	%

(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 $57,927 and $75,072 for the six months ended June 30, 2014 and 2013, respectively.

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Interest and fee income. Interest and fee income on loans decreased to $4.1 million for the three months ended June 30, 2014 from $4.4 million for the comparable period in 2013, and decreased to $8.1 million for the six months ended June 30, 2014 from $9.1 million for the comparable period in 2013, primarily as a result of a lower average yield in addition a lower average balance in the 2014 periods. The average loan balance was $374.6 million and $388.4 million for the six months ended June 30, 2014 and 2013, respectively. The average yield on loans decreased to 4.38% for the six months ended June 30, 2014 from 4.70% for the comparable period in 2013. The decline in yield was primarily due to new loan originations having lower rates than the loans maturing or being paid off.

Interest income on securities increased to $594,000 for the three months ended June 30, 2014 compared to $486,000 for the same period in 2013. Interest income on securities increased to $1.2 million for the six months ended June 30, 2014 compared to $943,000 for the same period in 2013. These increases were due primarily to a higher average balance in addition to a higher average yield for both periods. The average balance of securities was $115.1 million and $100.3 million for the six months ended June 30, 2014 and 2013, respectively. The average yield on securities increased to 2.09% for the six months ended June 30, 2014 from 1.90% for the comparable period in 2013.

Interest on other interest-earning deposits increased to $62,000 for the three months ended June 30, 2014 from $36,000 for the comparable period in 2013. Interest on other interest-earning deposits increased to $113,000 for the six months ended June 30, 2014 from $71,000 for the comparable period in 2013. These increases were due primarily to a higher average balance for both periods. The average balance of other interest-earning deposits increased to $89.9 million for the six months ended June 30, 2014 from $58.4 million for the same period in 2013. The average yield on other interest-earning deposits remained constant at 0.25% for the six months ended June 30, 2014 and 2013.

Interest expense. Interest expense on deposits decreased to $528,000 for the three months ended June 30, 2014 from $716,000 for the comparable period in 2013. The decrease was due primarily to a decline in rate and lower average balances in time deposits, partially offset by a higher average balance in interest-bearing transaction accounts. Interest expense on deposits decreased to $1.1 million for the six months ended June 30, 2014 from $1.5 million for the comparable period in 2013. The decrease was due primarily to a decline in rate and lower average balances in time deposits, partially offset by a higher average balance in interest-bearing transaction accounts. The average balance of interest-bearing deposits, comprised of interest-bearing transaction, savings deposits, and time deposits, was $460.7 million and $406.9 million for the six months ended June 30, 2014 and 2013, respectively. The rate for time deposits decreased to 1.11% for the six months ended June 30, 2014 from 1.26% for the comparable period in 2013. The rate for interest-bearing transaction accounts for the six months ended June 30, 2014 decreased to 0.23% from 0.48% for the six months ended June 30, 2013. The rate for savings deposits decreased to 0.18% for the six months ended June 30, 2014 from 0.35% for the same period in 2013.

Interest expense on FHLB advances decreased to $75,000 for the three months ended June 30, 2014 from $122,000 for the same period in 2013, due primarily to a lower average balance and a decrease in rate. Interest expense on FHLB advances decreased to $149,000 for the six months ended June 30, 2014 from $244,000 for the same period in 2013 for the same reasons. The average balance of FHLB advances was $14.0 million and $22.0 million for the six months ended June 30, 2014 and 2013, respectively. The average rate on FHLB advances decreased to 2.15% for the six months ended June 30, 2014 compared to 2.24% for the comparable period in 2013.

Provision for loan losses. There was no additional provision for loan losses in the three- and six-month periods ended June 30, 2014 compared to $225,000 and $450,000 for the three- and six-month periods ended June 30, 2013, respectively. The decrease was primarily due to improvements in credit quality trends and a decrease in non-performing loans.

The commercial real estate category had an increase in provision expense for the period ended March 31, 2014 based on a change in historical loss factors at March 31, 2014 compared to December 31, 2013. The Company is expanding its historical loss look back period to five years, as this more accurately reflects the risk of our current portfolio. Conversely, the provision expense for the period end June 30, 2014 declined due to the continuing improvements in the overall credit quality of the commercial real estate portfolio, the improvement in the historical charge-off history, as well as the improvement in property values that serve as collateral.

There was a significant change in the reserve allocation for construction and land loans over the six months ended June 30, 2014. For the three-month period ended March 31, 2014, a $230,000 recovery was received resulting in a provision credit in this category. For the three-month period ending June 30, 2014, the volume of construction and land loans outstanding increased $7.5 million excluding the undisbursed portion resulting in a significant increase in the provision allocation for this category.

Provision for loan losses is based upon management’s consideration of current economic conditions, the Company’s loan portfolio composition and historical loss experience, and current market valuations on collateral, as well as management’s estimate of probable losses in the portfolio and the level of non-performing and impaired loans. As of June 30, 2014, our non-performing and impaired loans and the

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related specific reserves each decreased from June 30, 2013. Our ratio of non-performing loans to total loans decreased to 1.59% at June 30, 2014 from 2.65% at June 30, 2013. Charge-offs for the six months ended June 30, 2014 decreased to $265,000 from $1.1 million for the six months ended June 30, 2013. Therefore, we did not incur any provision expense for the six months ended June 30, 2014.

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 $372,000 for the three months ended June 30, 2014 from $617,000 for the comparable period in 2013, primarily due to loss on sale of assets and loss on sale of foreclosed assets. Non-interest income decreased to $749,000 for the six months ended June 30, 2014 from $1.6 million for the comparable period in 2013, primarily due to decreases in gain on sale of securities and gain on sale of loans in addition to losses on the sale of assets and on the sale of foreclosed assets. During the six months ended June 30, 2014, there was no gain on sale of securities compared to a gain on sale of securities of $359,000 for the same period in 2013. Gain on sale of loans totaled $213,000 for the six months ended June 30, 2014 compared to $433,000 for the comparable period in 2013, due to weak demand and reduced refinancing activity of home mortgages. We experienced a loss of $75,000 on the sale of a building during the six months ended June 30, 2014 compared to no such loss in the same period in 2013. We also experienced a net loss on the sale of foreclosed assets of $197,000 during the six months ended June 30, 2014 compared to a gain of $36,000 during the comparable period in 2013.

Non-interest expense. Non-interest expense increased to $3.6 million for the three months ended June 30, 2014 from $3.2 million for the same period in 2013. The increase was due primarily to an increase in compensation and employee benefits, and in occupancy expense. Non-interest expense increased to $7.0 million for the six months ended June 30, 2014 from $6.3 million for the same period in 2013. The increase was due primarily to an increase in compensation and employee benefits, and in occupancy expense, partially offset by a reduction in foreclosed asset related expenses.

Compensation and employee benefits increased to $1.8 million for the three months ended June 30, 2014 from $1.6 million for the same period in 2013. Compensation and employee benefits increased to $3.6 million for the six months ended June 30, 2014 from $3.1 million for the same period in 2013. The increases were primarily due to normal merit increases and increased staffing levels.

Occupancy expense increased to $424,000 for the three months ended June 30, 2014 compared to $338,000 for the comparable period in 2013. Occupancy expense increased to $828,000 for the six months ended June 30, 2014 compared to $659,000 for the comparable period in 2013. The increases were primarily due to incurring higher snow removal expenses, additional software expenses for new products, new rent expense for the loan production office opened in January 2014, relocation expenses, and property repairs compared to the six months ended June 30, 2013.

Foreclosed asset related expenses decreased to $183,000 for the three months ended June 30, 2014 compared to $194,000 for the comparable period in 2013. Foreclosed asset related expenses decreased to $257,000 for the six months ended June 30, 2014 compared to $425,000 for the comparable period in 2013. The decrease was due to the Company incurring less property value write-downs on foreclosed properties during the six months ended June 30, 2014.

Income taxes. Income tax expense decreased to $187,000 for the three months ended June 30, 2014 from $380,000 for the same period in 2013. Income tax expense decreased to $463,000 for the six months ended June 30, 2014 from $988,000 for the same period in 2013. The decrease was primarily due to a lower level of pre-tax income and an increased level of tax exempt income for the 2014 periods.

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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, 2014 and December 31, 2013, $88.2 million and $84.7 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 FHLB.

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 under Item 1 of Part I of this 10-Q.

Our primary investing activities are the origination of loans and the purchase of investment securities. Loan originations exceeded principal collections on loans by $9.7 million for the six months ended June 30, 2014 compared to principal collections exceeding loan originations by $27.1 million for the six months ended June 30, 2013. Cash received from calls, maturities, and principal repayments of available-for-sale investment securities totaled $21.2 million and $15.3 million for the six months ended June 30, 2014 and 2013, respectively. We purchased $17.9 million and $42.4 million of available-for-sale investment securities during the six months ended June 30, 2014 and 2013, respectively. During the six months ended June 30, 2014, we did not sell any available-for-sale investment securities. However, during the six months ended June 30, 2013, we received proceeds of $9.0 million from the sale of available-for-sale investment securities. Purchases of property and equipment totaled $1.2 million and $147,000 for the six months ended June 30, 2014 and 2013, respectively. During the six months ended June 30, 2014, we purchased $6.0 million of bank-owned life insurance compared to $3.0 million during the same period in 2013.

Deposit flows are generally affected by market interest rates, products offered by local competitors, and other factors. Net deposits increased by $26.0 million and $7.5 million for the six months ended June 30, 2014 and 2013, 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 FHLB, which provides an additional source of funds. At June 30, 2014 and December 31, 2013, we had $14.0 million of advances from the FHLB. At June 30, 2014, we had additional available credit of approximately $63.2 million. Additionally, we may sell investment securities under agreements to repurchase (commonly referred to as “repurchase agreements”) if we require additional liquidity. At June 30, 2014 our repurchase agreements totaled $15.0 million, down from $26.8 million at December 31, 2013.

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. 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. As of June 30, 2014, under regulatory standards, the Bank had capital levels in excess of the minimums necessary to be considered “well capitalized,” which is the highest regulatory designation.

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

As of June 30, 2014

									To be Well Capitalized
					For Capital				Under Prompt Corrective
	Actual				Adequacy Purposes				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier I Capital to Adjusted Total Assets	$	66,497,000	10.60	%	$	25,102,000	4.00	%	$	31,378,000	5.00	%

Tier I Capital to Risk Weighted Assets	66,497,000		15.87	%	15,757,000		4.00	%	25,136,000		6.00	%

Total Capital to Risk Weighted Assets	70,350,000		16.79	%	33,514,000		8.00	%	41,893,000		10.00	%

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

As of June 30, 2014

	Actual
	Amount		Ratio

Tier I Capital to Adjusted Total Assets	$	63,731,000	9.79	%

Tier I Capital to Risk Weighted Assets	63,731,000		15.20	%

Total Capital to Risk Weighted Assets	71,584,000		17.07	%

In July 2013, the U.S. federal banking authorities approved the implementation of the Basel III regulatory capital reforms and issued rules effecting certain changes required by the Dodd-Frank Act (the “Basel III Rules”). The Basel III Rules are applicable to all U.S. banks that are subject to minimum capital requirements, as well as to bank and savings and loan holding companies other than “small bank holding companies” (generally bank holding companies with consolidated assets of less than $500 million). The Basel III Rules not only increase most of the required minimum regulatory capital ratios, but they introduce a new common equity Tier 1 capital ratio and the concept of a capital conservation buffer. The Basel III Rules also expand the definition of capital as in effect currently by establishing criteria that instruments must meet to be considered additional Tier 1 capital (Tier 1 capital in addition to common equity) and Tier 2 capital. A number of instruments that now generally qualify as Tier 1 capital will not qualify, or their qualifications will change when the Basel III rules are fully implemented. The Basel III Rules also permit banking organizations with less than $15.0 billion in assets to retain, through a one-time election, the existing treatment for accumulated other comprehensive income, which currently does not affect regulatory capital. The Basel III Rules have maintained the general structure of the current prompt corrective action framework, while incorporating the increased requirements. The prompt corrective action guidelines were also revised to add the common equity Tier 1 capital ratio. In order to be a “well-capitalized” depository institution under the new regime, a bank and holding company must maintain a common equity Tier 1 capital ratio of 6.5% or more; a Tier 1 capital ratio of 8% or more; a total capital ratio of 10% or more; and a leverage ratio of 5% or more. Generally, financial institutions become subject to the new Basel III Rules on January 1, 2015, with phase-in periods for many of the changes. Management is continuing to assess the effect the Basel III Rules may have on the Company’s and the Bank’s capital positions and will monitor developments in this area. At present, management believes that its current capital structure and the execution of its existing capital plan will be sufficient to meet and exceed the revised regulatory capital ratios as required by the new Basel III Rules.

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

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include commitments to extend credit. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

Unfunded commitments under construction lines of credit for residential and multi-family properties are commitments for possible future extensions of credit to existing customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.

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

A summary of the notional or contractual amounts of financial instruments, with off-balance-sheet risk at June 30, 2014 follows:

							Range of Rates
	Variable Rate		Fixed Rate		Total		on Fixed Rate
	Commitments		Commitments		Commitments		Commitments

Commitments to extend credit	$	19,870,206	$	53,432,503	$	73,302,709	1.85% - 18.00%
Standby letters of credit	2,317,772		256,640		2,574,412		3.50% - 5.75%

Loans sold to the FHLB under the Mortgage Partnership Finance (“MPF”) program are sold with recourse. The Bank has an agreement to sell residential loans of up to $131.0 million to the FHLB, of which approximately $72.2 million had been sold as of June 30, 2014. As a part of the agreement, the Bank had a maximum credit enhancement of $1.2 million at June 30, 2014. The Company intends to continue originating and selling mortgage loans while retaining the servicing of the loans. In addition to the FHLB of Chicago MPF program, the Company currently has a relationship to sell loans to Fannie Mae. These loans are also sold with recourse. The Company has a recourse liability reserve established. Since the Company has no loss experience at this time, we utilized the current Fannie Mae loss history rates in the calculation of our reserve.

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 Bank’s 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

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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, 2014. The model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value (“NPV”). 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 400 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 Interest” column.

The tables below set forth, as March 31, 2014 and December 31, 2013, 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, 2014

		NPV							Net Portfolio Value as a Percentage of Present Value of Assets
		Estimated		Estimated Increase (Decrease) in NPV
Change in Interest		NPV		Amount			Percent		NPV Ratio		Change
+400	bp	$	63,461	$	(17,386	)	(22	)%	11.09	%	(164	)bp
+300	bp	70,893		(9,954		)	(12	)	12.07		(66	)bp
+200	bp	76,127		(4,720		)	(6	)	12.61		(12	)bp
+100	bp	80,241		(606		)	(1	)	12.95		22	bp
0	bp	80,847		—			—		12.73		0	bp
-100	bp	85,396		4,549			6		13.21		48	bp

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December 31, 2013

		NPV							Net Portfolio Value as a Percentage of Present Value of Assets
		Estimated		Estimated Increase (Decrease) in NPV
Change in Interest		NPV		Amount			Percent		NPV Ratio		Change
+400	bp	$	59,863	$	(19,708	)	(25	)%	10.68	%	(208	)bp
+300	bp	67,556		(12,015		)	(15	)	11.73		(103	)bp
+200	bp	73,434		(6,137		)	(8	)	12.39		(37	)bp
+100	bp	78,174		(1,397		)	(2	)	12.84		8	bp
—	bp	79,571		—			—		12.76		—	bp
-100	bp	84,224		4,653			6		13.25		49	bp

The 2014 table above indicates that at March 31, 2014 in the event of a 100 basis point decrease in interest rates, we would experience a 6% increase in the net portfolio value. In the event of a 400 basis point increase in interest rates, we would experience a 22% decrease in the net portfolio value. Management does not believe that the Company’s primary market risk exposures at June 30, 2014, and how those exposures were managed during the three months ended June 30, 2014, have changed materially when compared to the immediately preceding quarter ended March 31, 2014. However, the Company’s primary market risk exposure has not yet been quantified at June 30, 2014 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 were effective as of the end of the period covered by this report.

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 any of its subsidiaries is a party or of which any of their properties is subject other than ordinary routine litigation incidental to their respective businesses.

Item 1A — Risk Factors.

Not required.

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

(a) None.

(b) Not applicable.

Item 3 - Defaults upon Senior Securities.

Not applicable.

Item 4 — Mine Safety Disclosures.

Not applicable.

Item 5 - Other Information.

None.

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 as of and for the quarter ended June 30, 2014, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Net Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements.

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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, 2014		BY:	/s/ P. David Kuhl

				P. David Kuhl,
				President and Chief Executive Officer


		BY:		/s/ Darlene F. McDonald

				Darlene F. McDonald,
				Executive Vice-President and Chief Financial Officer

Three and six months
ended June 30, 2014

Number of
Contracts

Recorded Investment
(as of period end)

Real estate loans:

One-to-four family