UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





(Mark
One)


xQUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly
period ended June 30,
2010





OR





oTRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition
period from ______________ to ____________





Commission
file number 000-50820





FIRST
CLOVER LEAF FINANCIAL CORP.


(Exact
name of registrant as specified in its charter)





Maryland
            
            20-4797391(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)





6814 Goshen Road, Edwardsville,
      IL
            
            62025(Address
      of principal executive office)
            
            (Zip
      Code)





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





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes  x  No o





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





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





Large
      accelerated filer o
            
            Accelerated
      filer oNon-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). Yeso  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 12,
  2010Common
      Stock, par value $.10 per share
            
            7,912,702












FIRST CLOVER LEAF FINANCIAL CORP.


FORM
10-Q





FOR THE
QUARTER ENDED JUNE 30, 2010





INDEX





PAGE
      NO.PART
      I - Financial InformationItem
      1.  Financial
      Statements(Unaudited)Consolidated Balance Sheets
            
            3Consolidated Statements of Operations
            
            4Consolidated Statements of Comprehensive Income
      (Loss)
            
            5Consolidated Statements of Cash Flows
            
            6Notes to Consolidated Financial Statements
            
            8Item
      2.  Management's Discussion and Analysis of
      Financial Condition and Results of Operations
            
            23Item
      3.  Quantitative and Qualitative Disclosures about
      Market Risk
            
            37Item
      4.  Controls and Procedures
            
            40PART
      II - Other InformationItem
      1.  Legal Proceedings
            
            41Item
      1A.  Risk Factors
            
            41Item
      2.  Unregistered Sales of Equity Securities and Use
      of Proceeds
            
            43Item
      3.  Defaults Upon Senior
    Securities
            
            43Item
      4.  [Reserved]
            
            43Item
      5.  Other Information
            
            43Item
      6.  Exhibits
            
            43Signatures
            
            44


Index


FIRST CLOVER LEAF FINANCIAL CORP.




Consolidated Balance Sheets


(Unaudited)





June
      30,
            
            
            December
      31,Assets
            
            2010
            
            
            2009Cash
      and due from banks
            
            $
            13,800,510
            
            
            $
            14,104,442Interest-earning
      deposits
            
            
            11,908,023
            
            
            
            14,306,726Federal
      funds sold
            
            
            15,503,528
            
            
            
            19,585,586Total
      cash and cash equivalents
            
            
            41,212,061
            
            
            
            47,996,754Interest-earning
      time deposits
            
            
            1,700,000
            
            
            
            -Securities
      available for sale
            
            
            82,104,113
            
            
            
            86,407,138Federal
      Home Loan Bank stock
            
            
            6,306,273
            
            
            
            6,306,273Loans,
      net of allowance for loan lossesof
      $6,073,584 and $6,316,829, respectively
            
            
            398,122,410
            
            
            
            410,110,923Loans
      held for sale
            
            
            949,500
            
            
            
            1,787,900Property
      and equipment, net
            
            
            10,841,064
            
            
            
            11,096,748Accrued
      interest receivable
            
            
            1,936,561
            
            
            
            2,183,520Prepaid
      Federal Deposit Insurance Corporation insurance premiums
            
            
            2,636,251
            
            
            
            2,993,995Goodwill
            
            
            11,385,323
            
            
            
            11,385,323Core
      deposit intangible
            
            
            1,282,001
            
            
            
            1,480,001Foreclosed
      assets
            
            
            1,837,212
            
            
            
            1,084,548Mortgage
      servicing rights
            
            
            695,847
            
            
            
            680,776Other
      assets
            
            
            2,219,138
            
            
            
            2,012,715Total
      assets
            
            $
            563,227,754
            
            
            $
            585,526,614Liabilities
      and Stockholders' EquityLiabilities:Deposits:Non-interest
      bearing deposits
            
            $
            28,515,158
            
            
            $
            49,533,776Interest
      bearing deposits
            
            
            400,539,061
            
            
            
            393,020,692Total
      deposits
            
            
            429,054,219
            
            
            
            442,554,468Federal
      Home Loan Bank advances
            
            
            27,418,000
            
            
            
            39,924,000Securities
      sold under agreements to repurchase
            
            
            21,171,955
            
            
            
            18,936,168Subordinated
      debentures
            
            
            3,952,240
            
            
            
            3,930,208Accrued
      interest payable
            
            
            702,068
            
            
            
            1,211,552Other
      liabilities
            
            
            3,119,505
            
            
            
            2,041,941Total
      liabilities
            
            
            485,417,987
            
            
            
            508,598,337Stockholders'
      Equity:Preferred
      stock, $.10 par value; 10,000,000 sharesauthorized;
      no shares issued
            
            
            -
            
            
            
            -Common
      stock, $.10 par value; 20,000,000 shares authorized;10,142,123
      shares issued; 7,937,702 and 7,960,523 shares outstandingat
      June 30, 2010 and December 31, 2009, respectively
            
            
            1,014,212
            
            
            
            1,014,212Additional
      paid-in capital
            
            
            81,366,602
            
            
            
            81,360,749Retained
      earnings
            
            
            13,751,940
            
            
            
            12,451,069Accumulated
      other comprehensive income
            
            
            1,439,636
            
            
            
            1,726,434Unearned
      Employee Stock Ownership Plan shares
            
            
            (592,970
            )
            
            
            (614,932
            )Treasury
      Stock, at cost; 2,204,421 and 2,181,600 shares atJune
      30, 2010 and December 31, 2009, respectively
            
            
            (19,169,653
            )
            
            
            (19,009,255
            )Total
      stockholders' equity
            
            
            77,809,767
            
            
            
            76,928,277Total
      liabilities and stockholders' equity
            
            $
            563,227,754
            
            
            $
            585,526,614See
      Accompanying Notes to Consolidated Financial Statements.


3
 Index


FIRST
CLOVER LEAF FINANCIAL CORP.





Consolidated Statementsof Operations


(Unaudited)





Three
      Months Ended
            
            
            Six
      Months EndedJune
      30,
            
            
            June
      30,2010
            
            
            2009
            
            
            2010
            
            
            2009Interest
      income:Interest
      and fees on loans
            
            $
            5,645,767
            
            
            $
            5,936,659
            
            
            $
            11,385,480
            
            
            
            12,073,566Securities:Taxable
      interest income
            
            
            577,578
            
            
            
            874,432
            
            
            
            1,224,991
            
            
            
            1,814,808Non-taxable
      interest income
            
            
            130,246
            
            
            
            144,277
            
            
            
            284,521
            
            
            
            275,382Interest-earning
      deposits, federal funds sold, and other
            
            
            22,688
            
            
            
            36,560
            
            
            
            41,726
            
            
            
            96,588Total
      interest income
            
            
            6,376,279
            
            
            
            6,991,928
            
            
            
            12,936,718
            
            
            
            14,260,344Interest
      expense:Deposits
            
            
            1,940,424
            
            
            
            2,708,641
            
            
            
            3,980,591
            
            
            
            5,301,707Federal
      Home Loan Bank advances
            
            
            262,750
            
            
            
            455,510
            
            
            
            605,179
            
            
            
            924,876Securities
      sold under agreements to repurchase
            
            
            5,922
            
            
            
            17,460
            
            
            
            12,374
            
            
            
            37,699Subordinated
      debentures
            
            
            55,551
            
            
            
            74,397
            
            
            
            129,252
            
            
            
            148,098Total
      interest expense
            
            
            2,264,647
            
            
            
            3,256,008
            
            
            
            4,727,396
            
            
            
            6,412,380Net
      interest income
            
            
            4,111,632
            
            
            
            3,735,920
            
            
            
            8,209,322
            
            
            
            7,847,964Provision
      for loan losses
            
            
            400,000
            
            
            
            428,720
            
            
            
            823,000
            
            
            
            668,990Net
      interest income after provision for loan losses
            
            
            3,711,632
            
            
            
            3,307,200
            
            
            
            7,386,322
            
            
            
            7,178,974Non-interest
      income:Service
      fees on deposit accounts
            
            
            98,649
            
            
            
            69,805
            
            
            
            182,270
            
            
            
            135,546Other
      service charges and fees
            
            
            95,063
            
            
            
            64,360
            
            
            
            179,603
            
            
            
            123,259Loan
      servicing fees
            
            
            49,835
            
            
            
            37,230
            
            
            
            98,898
            
            
            
            80,482Gain
      on sale of securities, net
            
            
            463,221
            
            
            
            -
            
            
            
            463,221
            
            
            
            -Gain
      on sale of loans
            
            
            98,236
            
            
            
            172,260
            
            
            
            164,997
            
            
            
            386,275Other
            
            
            4,677
            
            
            
            4,096
            
            
            
            19,551
            
            
            
            25,123Total
      non-interest income
            
            
            809,681
            
            
            
            347,751
            
            
            
            1,108,540
            
            
            
            750,685Non-interest
      expense:Compensation
      and employee benefits
            
            
            1,164,193
            
            
            
            1,141,993
            
            
            
            2,329,078
            
            
            
            2,275,956Occupancy
      expense
            
            
            338,872
            
            
            
            344,627
            
            
            
            693,634
            
            
            
            717,384Data
      processing services
            
            
            168,688
            
            
            
            144,496
            
            
            
            333,813
            
            
            
            277,091Director
      fees
            
            
            49,800
            
            
            
            53,850
            
            
            
            100,450
            
            
            
            108,950Professional
      fees
            
            
            104,323
            
            
            
            190,357
            
            
            
            141,321
            
            
            
            393,188Federal
      Deposit Insurance Corporation insurance premiums
            
            
            198,893
            
            
            
            374,565
            
            
            
            393,976
            
            
            
            429,416Amortization
      of core deposit intangible
            
            
            99,000
            
            
            
            130,000
            
            
            
            198,000
            
            
            
            261,000Amortization
      of mortgage servicing rights
            
            
            22,248
            
            
            
            73,477
            
            
            
            48,381
            
            
            
            164,699Goodwill
      Impairment
            
            
            -
            
            
            
            9,300,000
            
            
            
            -
            
            
            
            9,300,000Other
            
            
            390,640
            
            
            
            402,250
            
            
            
            800,012
            
            
            
            837,248Total
      non-interest expense
            
            
            2,536,657
            
            
            
            12,155,615
            
            
            
            5,038,665
            
            
            
            14,764,932Income
      (loss) before income taxes
            
            
            1,984,656
            
            
            
            (8,500,664
            )
            
            
            3,456,197
            
            
            
            (6,835,273
            )Income
      taxes
            
            
            705,264
            
            
            
            292,900
            
            
            
            1,216,293
            
            
            
            904,396Net
      income (loss)
            
            $
            1,279,392
            
            
            $
            (8,793,564
            )
            
            $
            2,239,904
            
            
            $
            (7,739,669
            )Basic
      and diluted income (loss) per share (see Note 6)
            
            $
            0.16
            
            
            $
            (1.08
            )
            
            $
            0.29
            
            
            $
            (0.93
            )Dividends
      per share
            
            $
            0.06
            
            
            $
            0.06
            
            
            $
            0.12
            
            
            $
            0.12See
      Accompanying Notes to Consolidated Financial Statements.


4
 Index




FIRST
CLOVER LEAF FINANCIAL CORP.


Consolidated Statements of Comprehensive Income (Loss)


(Unaudited)





Three
      Months Ended
            
            
            Six
      Months EndedJune
      30,
            
            
            June
      30,2010
            
            
            2009
            
            
            2010
            
            
            2009Net
      income (loss)
            
            $
            1,279,392
            
            
            $
            (8,793,564
            )
            
            $
            2,239,904
            
            
            $
            (7,739,669
            )Other
      comprehensive income (loss):Unrealized
      gains (losses) on securitiesarising
      during the period, net of tax
            
            
            89,468
            
            
            
            (13,617
            )
            
            
            11,980
            
            
            
            227,140Reclassification
      adjustment for realizedgains
      included in income, net of tax
            
            
            (298,778
            )
            
            
            -
            
            
            
            (298,778
            )
            
            
            -Comprehensive
      income (loss)
            
            $
            1,070,082
            
            
            $
            (8,807,181
            )
            
            $
            1,953,106
            
            
            $
            (7,512,529
            )See
      Accompanying Notes to Consolidated Financial Statements.




5
 Index




FIRST
CLOVER LEAF FINANCIAL CORP.
  Consolidated
Statementsof Cash Flows


(Unaudited)





Six
      Months EndedJune
      30,2010
            
            
            2009Cash
      flows from operating activities:Net
      income (loss)
            
            $
            2,239,904
            
            
            $
            (7,739,669
            )Adjustments
      to reconcile net income (loss) to net cash provided byoperating
      activities:Amortization
      of:Deferred
      loan origination costs, net
            
            
            14,488
            
            
            
            35,146Premiums
      and discounts on securities
            
            
            (491,960
            )
            
            
            (115,574
            )Core
      deposit intangible
            
            
            198,000
            
            
            
            261,000Mortgage
      servicing rights
            
            
            48,381
            
            
            
            164,699Amortization
      of fair value adjustments on:Loans
            
            
            (33,400
            )
            
            
            (47,000
            )Time
      deposits
            
            
            (26,000
            )
            
            
            (100,334
            )Federal
      Home Loan Bank advances
            
            
            (6,000
            )
            
            
            (21,999
            )Subordinated
      debentures
            
            
            22,032
            
            
            
            22,032Investment
      securities
            
            
            (26,500
            )
            
            
            (29,100
            )Property
      and equipment
            
            
            8,036
            
            
            
            8,036Goodwill
      impairment
            
            
            -
            
            
            
            9,300,000Provision
      for loan losses
            
            
            823,000
            
            
            
            668,990Depreciation
      expense
            
            
            307,400
            
            
            
            358,461ESOP
      expense
            
            
            27,815
            
            
            
            33,165Gain
      on sale of securities available for sale
            
            
            463,221
            
            
            
            -Gain
      on sale of loans
            
            
            (164,997
            )
            
            
            (386,275
            )Loss
      on sale of property and equipment
            
            
            2,196
            
            
            
            -Loss
      (gain) on sale of foreclosed real estate
            
            
            3,216
            
            
            
            (3,700
            )Proceeds
      from sales of loans held for sale
            
            
            6,774,614
            
            
            
            18,879,857Originations
      of loans held for sale
            
            
            (5,771,217
            )
            
            
            (19,975,107
            )Change
      in assets and liabilities:Decrease
      in prepaid Federal Deposit InsuranceCorporation
      insurance premiums
            
            
            357,744
            
            
            
            161,676Decrease
      in accrued interest receivable
            
            
            246,959
            
            
            
            165,815Increase
      in mortgage servicing rights
            
            
            (63,452
            )
            
            
            (197,627
            )Increase
      in other assets
            
            
            (206,423
            )
            
            
            (213,843
            )(Decrease)
      increase in accrued interest payable
            
            
            (509,484
            )
            
            
            151,862Increase
      in other liabilities
            
            
            1,246,156
            
            
            
            18,990Net
      cash flows provided by operating activities
            
            
            5,483,729
            
            
            
            1,399,501Cash
      flows from investing activities:Proceeds
      from maturity of interest-earning time deposits
            
            
            -
            
            
            
            20,847,832Purchase
      of interest-earning time deposits
            
            
            (1,700,000
            )
            
            
            (20,638,152
            )Available
      for sale securities:Purchases
            
            
            (122,725,094
            )
            
            
            (47,950,000
            )Proceeds
      from calls, maturities and paydowns
            
            
            118,215,779
            
            
            
            57,804,339Proceeds
      from sales
            
            
            8,412,189
            
            
            
            -Decrease
      in loans; principal collections, net of loan originations
            
            
            9,962,748
            
            
            
            12,527,434Purchase
      of property and equipment
            
            
            (61,948
            )
            
            
            (444,170
            )Proceeds
      from the sale of foreclosed real estate
            
            
            465,797
            
            
            
            681,259Net
      cash flows provided by investing activities
            
            $
            12,569,471
            
            
            $
            22,828,542(Continued)




6
 Index




FIRST
CLOVER LEAF FINANCIAL CORP.
  Consolidated
Statements of Cash Flows (Continued)


(Unaudited)





Six
      Months EndedJune
      30,2010
            
            
            2009Cash
      flows from financing activities:Net
      decrease in deposits
            
            $
            (13,474,249
            )
            
            $
            (14,714,497
            )Net
      increase (decrease) in securities sold under agreementsto
      repurchase
            
            
            2,235,787
            
            
            
            (20,068,176
            )Proceeds
      from Federal Home Loan Bank advances
            
            
            -
            
            
            
            5,000,000Repayment
      of Federal Home Loan Bank advances
            
            
            (12,500,000
            )
            
            
            (6,454,920
            )Repurchase
      of Common Stock
            
            
            (160,398
            )
            
            
            (5,095,190
            )Cash
      dividends
            
            
            (939,033
            )
            
            
            (1,004,302
            )Net
      cash flows used in financing activities
            
            
            (24,837,893
            )
            
            
            (42,337,085
            )Net
      decrease in cash and cash equivalents
            
            
            (6,784,693
            )
            
            
            (18,109,042
            )Cash
      and cash equivalents at beginning of period
            
            
            47,996,754
            
            
            
            67,135,384Cash
      and cash equivalents at end of period
            
            $
            41,212,061
            
            
            $
            49,026,342Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
            
            $
            5,246,848
            
            
            $
            6,360,819Income
      tax payments, net
            
            
            440,000
            
            
            
            1,233,593Non-cash
      transactionsLoans
      transferred to foreclosed assets
            
            
            1,221,677
            
            
            
            1,114,303See
      Accompanying Notes to Consolidated Financial Statements.


7
 Index




FIRST
CLOVER LEAF FINANCIAL CORP.
  Notes to Consolidated Financial Statements


(1)
            Summary of Significant
      Accounting Policies:





The
information contained in the accompanying consolidated financial statements is
unaudited.  In the opinion of management, the consolidated financial
statements contain all adjustments necessary for a fair statement of the results
of operations for the interim periods. All such adjustments are of a normal
recurring nature.  Any differences appearing between the numbers
presented in the financial statements and management’s discussion and analysis
are due to rounding.  The results of operations for the interim
periods are not necessarily indicative of the results which may be expected for
the entire fiscal year.  These consolidated financial statements
should be read in conjunction with the consolidated financial statements of
First Clover Leaf Financial Corp. (the “Company” or “First Clover Leaf”) for the
year ended December 31, 2009 contained in the 2009 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
Company is a Maryland corporation that was incorporated in March 2006 as the
successor corporation to First Federal Financial Services, Inc., in connection
with the July 2006 “second-step” conversion of First Federal Financial Services,
MHC and the simultaneous acquisition of Clover Leaf Financial Corp. and its
wholly owned savings bank subsidiary, Clover Leaf Bank.  The
accompanying interim consolidated financial statements include the accounts of
the Company, its wholly owned subsidiary, First Clover Leaf Bank (the “Bank”)
and its wholly owned subsidiary, Clover Leaf Financial
Services.  First Clover Leaf’s common stock is traded on the NASDAQ
Capital Market under the symbol “FCLF.”





Reclassifications
have been made to certain balances, with no effect on net income or
stockholders’ equity, for the three and six months ended June 30, 2009, to be
consistent with the classifications adopted for the three and six months ended
June 30, 2010.


8
 Index




FIRST
CLOVER LEAF FINANCIAL CORP.
  Notes
to Consolidated Financial Statements


(2)
            Intangible
      Assets:





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





June
      30,
            
            
            December
      31,2010
            
            
            2009Core
      deposit intangible
            
            $
            3,258,000
            
            
            $
            3,258,000Accumulated
      amortization
            
            
            1,975,999
            
            
            
            1,777,999Total
            
            $
            1,282,001
            
            
            $
            1,480,001





Amortization
expense on the core deposit intangible for the three and six months ended June
30, 2010 was $99,000 and $198,000, respectively and $130,000 and $261,000 for
the comparable periods in 2009.





Estimated
future amortization expense on the core deposit intangible for the remaining six
months of 2010 and each of the five succeeding fiscal years is as
follows:





Period
            
            AmountSix
      months ending December 31, 2010
            
            $
            162,000Year
      ending December 31, 2011
            
            
            304,000Year
      ending December 31, 2012
            
            
            281,000Year
      ending December 31, 2013
            
            
            223,000Year
      ending December 31, 2014
            
            
            116,001Year
      ending December 31, 2015
            
            
            58,000




9
 Index




FIRST
CLOVER LEAF FINANCIAL CORP.
  Notes
to Consolidated Financial Statements


(3)
            Investment
      Securities:





The
following tables set forth the composition of our available for sale securities
portfolio at the dates indicated:





June
      30, 2010Gross
            
            
            GrossAmortized
            
            
            Unrealized
            
            
            Unrealized
            
            
            FairCost
            
            
            Gains
            
            
            (Losses)
            
            
            ValueInvestment
      Securities:U.S.
      government agency obligations
            
            $
            50,608,122
            
            
            $
            1,030,048
            
            
            $
            -
            
            
            $
            51,638,170Corporate
      bonds
            
            
            2,096,439
            
            
            
            54,047
            
            
            
            (30,030
            )
            
            
            2,120,456State
      and municipal securities
            
            
            15,328,942
            
            
            
            554,521
            
            
            
            (28,316
            )
            
            
            15,855,147Other
      Securities
            
            
            3,501
            
            
            
            -
            
            
            
            -
            
            
            
            3,501Mortgage-backed
      securities
            
            
            11,781,862
            
            
            
            705,683
            
            
            
            (706
            )
            
            
            12,486,839Total
      Investment Securities available for sale
            
            $
            79,818,866
            
            
            $
            2,344,299
            
            
            $
            (59,052
            )
            
            $
            82,104,113








December
      31, 2009Gross
            
            
            GrossAmortized
            
            
            Unrealized
            
            
            Unrealized
            
            
            FairCost
            
            
            Gains
            
            
            (Losses)
            
            
            ValueInvestment
      Securities:U.S.
      government agency obligations
            
            $
            47,783,283
            
            
            $
            770,854
            
            
            $
            (39,618
            )
            
            $
            48,514,519Corporate
      bonds
            
            
            2,596,146
            
            
            
            45,710
            
            
            
            (95,938
            )
            
            
            2,545,918State
      and municipal securities
            
            
            14,468,352
            
            
            
            910,564
            
            
            
            -
            
            
            
            15,378,916Other
      Securities
            
            
            3,501
            
            
            
            -
            
            
            
            -
            
            
            
            3,501Mortgage-backed
      securities
            
            
            18,815,746
            
            
            
            1,148,552
            
            
            
            (14
            )
            
            
            19,964,284Total
      Investment Securities available for sale
            
            $
            83,667,028
            
            
            $
            2,875,680
            
            
            $
            (135,570
            )
            
            $
            86,407,138


10
 Index




FIRST
CLOVER LEAF FINANCIAL CORP.
  Notes
to Consolidated Financial Statements


(3)
            Investment Securities
      (Continued):





Unrealized
losses and fair value, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, as of
June 30, 2010 and December 31, 2009, are summarized as follows:





June
      30, 2010Less
      than 12 Months
            
            
            12
      Months or More
            
            
            TotalFair
            
            
            Unrealized
            
            
            Fair
            
            
            Unrealized
            
            
            Fair
            
            
            UnrealizedValue
            
            
            loss
            
            
            Value
            
            
            loss
            
            
            Value
            
            
            lossCorporate
      bonds
            
            $
            -
            
            
            $
            -
            
            
            $
            669,970
            
            
            $
            30,030
            
            
            $
            669,970
            
            
            $
            30,030State
      and municipal securities
            
            
            2,173,600
            
            
            
            28,316
            
            
            
            -
            
            
            
            -
            
            
            
            2,173,600
            
            
            
            28,316Mortgage-backed
      securities
            
            
            1,042,056
            
            
            
            706
            
            
            
            -
            
            
            
            -
            
            
            
            1,042,056
            
            
            
            706$
            3,215,656
            
            
            $
            29,022
            
            
            $
            669,970
            
            
            $
            30,030
            
            
            $
            3,885,626
            
            
            $
            59,052








December
      31, 2009Less
      than 12 Months
            
            
            12
      Months or More
            
            
            TotalFair
            
            
            Unrealized
            
            
            Fair
            
            
            Unrealized
            
            
            Fair
            
            
            UnrealizedValue
            
            
            loss
            
            
            Value
            
            
            loss
            
            
            Value
            
            
            lossU.S.
      government agency obligations
            
            $
            8,469,750
            
            
            $
            37,800
            
            
            $
            1,995,000
            
            
            $
            1,818
            
            
            $
            10,464,750
            
            
            $
            39,618Corporate
      bonds
            
            
            -
            
            
            
            -
            
            
            
            751,062
            
            
            
            95,938
            
            
            
            751,062
            
            
            
            95,938State
      and municipal securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Mortgage-backed
      securities
            
            
            8,254
            
            
            
            14
            
            
            
            -
            
            
            
            -
            
            
            
            8,254
            
            
            
            14$
            8,478,004
            
            
            $
            37,814
            
            
            $
            2,746,062
            
            
            $
            97,756
            
            
            $
            11,224,066
            
            
            $
            135,570





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, 2010, the Company had nine securities in an unrealized loss position which
included: six state and municipal securities, one corporate bond, and two
mortgaged-backed securities.  The unrealized losses resulted from
changes in market interest rates and liquidity, not from changes in the
probability of contractual cash flows.  The Company does not intend to
sell the securities, and it is not more-likely-than-not that the Company will be
required to sell the securities prior to recovery of amortized
cost.  Full collection of the amounts due according to the contractual
terms of the securities is expected; therefore, the Company does not consider
these investments to be other-than-temporarily impaired at June 30,
2010.


11
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




Notes
to Consolidated Financial Statements


(3)
            Investment Securities
      (Continued):





The
amortized cost and fair value at June 30, 2010, 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.  Therefore, stated
maturities are not disclosed.





Available
      for SaleAmortized
            
            
            FairCost
            
            
            ValueDue
      in one year or less
            
            $
            3,936,743
            
            
            $
            4,015,370Due
      after one year through five years
            
            
            41,724,672
            
            
            
            42,798,024Due
      after five years through ten years
            
            
            14,637,429
            
            
            
            15,022,873Due
      after ten years
            
            
            7,734,659
            
            
            
            7,777,506Mortgage-backed
      securities
            
            
            11,781,862
            
            
            
            12,486,839Other
      securities
            
            
            3,501
            
            
            
            3,501$
            79,818,866
            
            
            $
            82,104,113





Securities
with a carrying amount of approximately $73,500,000 and $78,977,000 were pledged
to secure deposits as required or permitted by law at June 30, 2010 and December
31, 2009, respectively.


12
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




Notes
to Consolidated Financial Statements


(4)
            Loans:





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




At
      June 30,
            
            
            At
      December 31,2010
            
            
            2009Amount
            
            
            Percent
            
            
            Amount
            
            
            PercentReal
      Estate LoansOne-
      to four-family residential loans(1)
            
            $
            92,584,415
            
            
            
            22.7
            %
            
            $
            98,080,406
            
            
            
            23.4
            %Multi-family
            
            
            17,987,061
            
            
            
            4.4
            
            
            
            20,946,534
            
            
            
            5.0Commercial
            
            
            183,022,869
            
            
            
            45.0
            
            
            
            179,923,276
            
            
            
            42.8Construction
      and land
            
            
            42,261,317
            
            
            
            10.4
            
            
            
            45,447,453
            
            
            
            10.8Total
      real estate loans
            
            
            335,855,662
            
            
            
            82.5
            
            
            
            344,397,669
            
            
            
            82.0Commercial
      business
            
            
            57,933,450
            
            
            
            14.2
            
            
            
            63,134,579
            
            
            
            15.0Consumer
      Loans
            
            
            13,378,955
            
            
            
            3.3
            
            
            
            12,477,438
            
            
            
            3.0Total
      loans and loans held for sale
            
            
            407,168,067
            
            
            
            100.0
            %
            
            
            420,009,686
            
            
            
            100.0
            %Less:Undisbursed
      portion of construction loans
            
            
            2,001,718
            
            
            
            
            
            
            
            1,772,947Deferred
      loan origination fees, net
            
            
            20,855
            
            
            
            
            
            
            
            21,087Allowance
      for loan losses
            
            
            6,073,584
            
            
            
            
            
            
            
            6,316,829Total
      loans and loans held for sale, net
            
            $
            399,071,910
            
            
            
            
            
            
            $
            411,898,823(1)
      Includes loans held for sale of $949,500 and $1,787,900 at June 30, 2010
      and December 31, 2009, respectively.


13
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




Notes
to Consolidated Financial Statements


(5)
            Asset
      Quality:





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





June
      30,
            
            
            December
      31,2010
            
            
            2009Loans
      90 days or more past due and still accruing
            
            $
            1,089,673
            
            
            $
            2,580,077Nonaccrual
      loans, including $14,485,298 and $10,689,777 classified asimpaired
      as of June 30, 2010 and December 31, 2009, respectively
            
            
            14,887,457
            
            
            
            11,733,209Other
      impaired loans
            
            
            9,440,185
            
            
            
            14,818,500Total
      nonperforming and impaired loans
            
            $
            25,417,315
            
            
            $
            29,131,786Specific
      allowance for loan losses on nonperforming and impaired
    loans
            
            $
            2,179,325
            
            
            $
            1,909,854





Asset
Quality Ratios:





Non-performing
      assets and impaired loans to total assets
            
            
            4.84
            %
            
            
            5.16
            %Non-performing
      and impaired loans to total loans
            
            
            6.37
            
            
            
            7.07Allowance
      for loan losses to non-performing and impaired loans
            
            
            23.90
            
            
            
            21.68Allowance
      for loan losses to total loans
            
            
            1.52
            
            
            
            1.53





Following
is a summary of the activity in the allowance for loan losses:





Six
      Months EndedJune
      30,2010
            
            
            2009Balance
      at beginning of period
            
            $
            6,316,829
            
            
            $
            3,895,246Charge-offs
            
            
            (1,136,905
            )
            
            
            (267,284
            )Recoveries
            
            
            70,660
            
            
            
            -Provision
      charged to expense
            
            
            823,000
            
            
            
            668,990Balance
      at end of period
            
            $
            6,073,584
            
            
            $
            4,296,952





Further
discussion of asset quality and of the adequacy of the allowance for loan losses
at June 30, 2010 is included in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”


14
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




Notes
to Consolidated Financial Statements


(6)
            Earnings (losses) per
      Share:





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





Three
      Months Ended
            
            
            Six
      Months EndedJune
      30,
            
            
            June
      30,2010
            
            
            2009
            
            
            2010
            
            
            2009Net
      earnings available to common stockholders
            
            $
            1,279,392
            
            
            $
            (8,793,564
            )
            
            $
            2,239,904
            
            
            $
            (7,739,669
            )Basic
      potential common shares:Weighted
      average shares outstanding
            
            
            7,938,351
            
            
            
            8,271,143
            
            
            
            7,946,101
            
            
            
            8,492,394Weighted
      average unallocated Employee StockOwnership
      Plan shares
            
            
            (116,902
            )
            
            
            (125,406
            )
            
            
            (117,959
            )
            
            
            (126,463
            )Basic
      weighted average shares outstanding
            
            
            7,821,449
            
            
            
            8,145,737
            
            
            
            7,828,142
            
            
            
            8,365,931Dilutive
      potential common shares
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Dilutive
      weighted average shares outstanding
            
            
            7,821,449
            
            
            
            8,145,737
            
            
            
            7,828,142
            
            
            
            8,365,931Basic
      and diluted earnings per share
            
            $
            0.16
            
            
            $
            (1.08
            )
            
            $
            0.29
            
            
            $
            (0.93
            )








(7)
            Employee Stock Ownership
      Plan:





The
Company has an employee stock ownership plan (ESOP) which covers substantially
all employees who have attained the age of 21 and completed one year of
service.  In connection with its initial stock offering in 2004, the
Company loaned funds to the ESOP for the purchase of its common stock at the
initial public offering price.  The loan is being repaid based on a
variable interest rate over 20 years beginning December 31, 2004.  All
shares are held in a suspense account for allocation among the participants as
the loan is repaid.  Shares are released for allocation to
participants based upon the ratio of the current year’s debt service to the sum
of total principal and interest payments over the remaining life of the
note.  Shares released from the suspense account are allocated among
the participants based upon their pro rata annual compensation.  The
purchase of shares by the ESOP was recorded by the Company as unearned ESOP
shares in a contra equity account.  As ESOP shares are committed to be
released to compensate employees, the contra equity account is reduced and the
Company recognizes compensation expense equal to the average fair market value
of the shares committed to be released.  Compensation expense of
$13,309 and $27,815 was incurred for the three and six months ended June 30,
2010, respectively and $17,489 and $33,165 for the comparable periods in
2009.


15
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




Notes
to Consolidated Financial Statements


(7)
            Employee Stock Ownership Plan
      (Continued):





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





The
following table reflects the shares held by the plan at June 30, 2010 and
December 31, 2009:




June
      30,
            
            
            December
      31,2010
            
            
            2009Unallocated
      shares (fair value at June 30, 2010 andDecember
      31, 2009 of $747,341 and $875,025, respectively)
            
            
            114,799
            
            
            
            119,051Allocated
      Shares
            
            
            55,960
            
            
            
            51,708Total
      ESOP Shares
            
            
            170,759
            
            
            
            170,759








(8)
            Recent Accounting
      Pronouncements:





In
January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820); Improving Disclosures about Fair Value
Measurements.  ASU 2010-06 requires new disclosures on transfers into
and out of Level 1 and 2 measurements of the fair value hierarchy and requires
separate disclosures about purchases, sales, issuances, and settlements relating
to the level of disaggregation and inputs and valuation techniques used to
measure fair value.  It is effective for the first reporting period
(including interim periods) beginning after December 15, 2009, except for the
requirement to provide the Level 3 activity of purchase, sales, issuances, and
settlements on a growth basis, which will be effective for fiscal years
beginning after December 15, 2010.  The adoption of this pronouncement
did not have a material impact on the Company’s consolidated financial
statements.





In July
2010, the FASB issued ASU 2010-20, Receivables (Topic 310); Disclosures about
the Credit Quality of Financing Receivables and the Allowance for Credit
Losses.  ASU 2010-20 requires new disclosures that facilitate
financial statement users’ evaluation of the following:


(1) the
nature of credit risk inherent in the entity’s portfolio of financing
receivables; (2) how that risk is analyzed and assessed in arriving at the
allowance for credit losses; and (3) the changes and reasons for those changes
in the allowance for credit losses.  The disclosures as of the end of
a reporting period are effective for interim and annual reporting periods ending
on or after December 15, 2010. The disclosures about activity that occurs during
a reporting period are effective for interim and annual reporting periods
beginning on or after December 15, 2010.


16
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




Notes
to Consolidated Financial Statements
  (9)
            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
Measurements and Disclosures.ASC Topic 825 excludes certain
financial instruments and all non-financial instruments from its disclosure
requirement.  Accordingly, the aggregate fair value amounts presented
may not necessarily represent the underlying fair value of the
Company.  The following information presents estimated fair values of
the Company’s financial instruments as of June 30, 2010 and December 31, 2009
and the methods and assumptions used to estimate those fair values.





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





Cash and cash
equivalents:  The carrying amounts of cash and cash equivalents
approximate fair values.Interest-earning time deposits:  Due to the
short term nature of these deposits, generally 12 months or less, the carrying
amounts of these deposits approximate fair values.





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





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





Loans:  Fair
values are estimated for portfolios of loans with similar financial
characteristics.  Loans are segregated by type such as commercial,
commercial real estate, residential mortgage, indirect and other consumer
loans.  Each loan category is further segmented into fixed and
adjustable rate interest terms and by performing and non-performing
categories.  The fair value of fixed rate loans and non-performing
loans is estimated by discounting future cash flows using discount rates that
reflect the Company’s current pricing for loans with similar characteristics,
such as loan type, credit risk, pricing and remaining maturity.


17
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




Notes
to Consolidated Financial Statements


(9)
            Fair Value of Financial
      Instruments (Continued):





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





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





Federal Home Loan Bank
advances:  The fair value of variable rate Federal Home Loan
Bank advances approximate carrying value. The fair value of fixed rate Federal
Home Loan Bank advances are estimated using discounted cash flow analyses based
on current rates for similar advances.





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





Subordinated
debentures:  This debenture was a fixed/floating rate
instrument.  It was at a fixed rate for the first five years, and then
it converted to a floating or variable rate as of June 2010. The fair value of
variable rate trust preferred debentures approximate carrying
value.  Prior to June 2010, the trust preferred debentures had a fixed
rate and the fair value was estimated using discounted cash flow analyses based
on current rates for similar advances.





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


18
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




Notes
to Consolidated Financial Statements


(9)
            Fair Value of Financial
      Instruments (Continued):





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





June
      30, 2010
            
            
            December
      31, 2009Carrying
            
            
            Fair
            
            
            Carrying
            
            
            FairAmount
            
            
            Value
            
            
            Amount
            
            
            ValueFinancial
      assets:Cash
      and cash equivalents
            
            $
            41,212,061
            
            
            $
            41,212,061
            
            
            $
            47,996,754
            
            
            $
            47,996,754Interest-earning
      time deposits
            
            
            1,700,000
            
            
            
            1,700,000
            
            
            
            -
            
            
            
            -Securities
      available for sale
            
            
            82,104,113
            
            
            
            82,104,113
            
            
            
            86,407,138
            
            
            
            86,407,138Federal
      Home Loan Bank stock
            
            
            6,306,273
            
            
            
            6,306,273
            
            
            
            6,306,273
            
            
            
            6,306,273Loans,
      net
            
            
            399,071,910
            
            
            
            401,531,341
            
            
            
            411,898,823
            
            
            
            412,792,748Accrued
      interest receivable
            
            
            1,936,561
            
            
            
            1,936,561
            
            
            
            2,183,520
            
            
            
            2,183,520Financial
      liabilities:Non-interest
      bearing deposits
            
            
            28,515,158
            
            
            
            28,515,158
            
            
            
            49,533,776
            
            
            
            49,533,776Interest
      bearing deposits
            
            
            400,539,061
            
            
            
            402,666,088
            
            
            
            393,020,692
            
            
            
            395,518,484Federal
      Home Loan Bank advances
            
            
            27,418,000
            
            
            
            27,996,751
            
            
            
            39,924,000
            
            
            
            40,471,672Securities
      sold under agreementto
      repurchase
            
            
            21,171,955
            
            
            
            21,171,955
            
            
            
            18,936,168
            
            
            
            18,936,168Subordinated
      debentures
            
            
            3,952,240
            
            
            
            3,952,240
            
            
            
            3,930,208
            
            
            
            3,992,868Accrued
      interest payable
            
            
            702,068
            
            
            
            702,068
            
            
            
            1,211,552
            
            
            
            1,211,552





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





(10)
            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 minimize the use of unobservable inputs when measuring fair
value.  The guidance describes three levels of inputs that may be used
to measure fair value.




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


19
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




Notes
to Consolidated Financial Statements


(10)
            Fair Value Measurements
      (Continued):





Assets
and liabilities measured at fair value on a recurring basis segregated by fair
value hierarchy level during the periods ended June 30, 2010 and December 31,
2009 are summarized below:





June
      30, 2010Quoted
      Prices in Active Markets for Identical Assets
            
            
            Significant
      Other Observable Inputs
            
            
            Significant
      Unobservable InputsAssets:
            
            (Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)
            
            
            TotalInvestment
      Securities:U.S.
      government agency obligations
            
            $
            -
            
            
            $
            51,638,170
            
            
            $
            -
            
            
            $
            51,638,170Corporate
      bonds
            
            
            -
            
            
            
            2,120,456
            
            
            
            -
            
            
            
            2,120,456State
      and municipal securities
            
            
            -
            
            
            
            15,855,147
            
            
            
            -
            
            
            
            15,855,147Other
      securities
            
            
            -
            
            
            
            3,501
            
            
            
            -
            
            
            
            3,501Mortgage-backed
      securities
            
            
            -
            
            
            
            12,486,839
            
            
            
            -
            
            
            
            12,486,839Total
      Investment Securites available for sale
            
            $
            -
            
            
            $
            82,104,113
            
            
            $
            -
            
            
            $
            82,104,113








December
      31, 2009Quoted
      Prices in Active Markets for Identical Assets
            
            
            Significant
      Other Observable Inputs
            
            
            Significant
      Unobservable InputsAssets:
            
            (Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)
            
            
            TotalInvestment
      Securities:U.S.
      government agency obligations
            
            $
            -
            
            
            $
            48,514,519
            
            
            $
            -
            
            
            $
            48,514,519Corporate
      bonds
            
            
            -
            
            
            
            2,545,918
            
            
            
            -
            
            
            
            2,545,918State
      and municipal securities
            
            
            -
            
            
            
            15,378,916
            
            
            
            -
            
            
            
            15,378,916Other
      securities
            
            
            -
            
            
            
            3,501
            
            
            
            -
            
            
            
            3,501Mortgage-backed
      securities
            
            
            -
            
            
            
            19,964,284
            
            
            
            -
            
            
            
            19,964,284Total
      Investment Securites available for sale
            
            $
            -
            
            
            $
            86,407,138
            
            
            $
            -
            
            
            $
            86,407,138


20
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




Notes
to Consolidated Financial Statements


(10)
            Fair Value Measurements
      (Continued):





Assets
and liabilities measured at fair value on a nonrecurring basis by fair value
hierarchy level during the periods ended June 30, 2010 and December 31, 2009 are
summarized below:





June
      30, 2010Quoted
      Prices in Active Markets for Identical Assets
            
            
            Significant
      Other Observable Inputs
            
            
            Significant
      Unobservable Inputs(Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)
            
            
            TotalImpaired
      loans
            
            $
            -
            
            
            $
            21,586,781
            
            
            $
            159,377
            
            
            
            21,746,158Foreclosed
      assets
            
            
            -
            
            
            
            1,837,212
            
            
            
            -
            
            
            
            1,837,212Goodwill
            
            
            -
            
            
            
            11,385,323
            
            
            
            -
            
            
            
            11,385,323





December
      31, 2009Quoted
      Prices in Active Markets for Identical Assets
            
            
            Significant
      Other Observable Inputs
            
            
            Significant
      Unobservable Inputs(Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)
            
            
            TotalImpaired
      loans
            
            $
            -
            
            
            $
            23,360,155
            
            
            $
            238,268
            
            
            $
            23,598,423Foreclosed
      assets
            
            
            -
            
            
            
            1,084,548
            
            
            
            -
            
            
            
            1,084,548Goodwill
            
            
            -
            
            
            
            11,385,323
            
            
            
            -
            
            
            
            11,385,323





Impaired
loans that are collateral dependent have been written down to the fair value of
the collateral, less estimated costs to sell, through the establishment of a
specific allowance or by recording charge-offs when the carrying value exceeds
the fair value of the collateral.  As of June 30, 2010, these loans
totaled approximately $21.7 million.  Valuation techniques consistent
with the market approach, income approach, and/or cost approach were used to
measure fair value and primarily included observable inputs for the individual
impaired loans being evaluated such as recent sales of similar assets or
observable market data for operational or carrying costs.  In cases
where such inputs were unobservable, the loan balance is reflected within the
Level 3 hierarchy.  The calculated valuation amount does not
necessarily represent the value of the loan if sold to a willing
buyer.  Management believes it is more likely than not that a workout
solution or liquidation of the collateral is the best use of the asset and
therefore has measured fair value based on the underlying collateral of the
loans.  If management were to sell the impaired loan portfolio to a
third party instead of liquidating the collateral, the measurement of fair value
could be significantly different.





As noted
in Note 11, an implied fair value of goodwill was measured for the reporting
unit, in the same manner as the amount of goodwill recognized in a business
combination, which is the excess of the fair value of the reporting unit, as
determined in the first step, over the aggregate fair values of the individual
assets, liabilities and identifiable intangibles as if the reporting unit was
being acquired in a business combination.  The fair values disclosed
in Note 9 reflect the estimated fair values of the assets and liabilities
assuming the sale of those assets and liabilities to a willing third
party.


21
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




Notes
to Consolidated Financial Statements


(11)
            Goodwill
      Impairment:





The
Company reported goodwill from its acquisition of Clover Leaf Bank in 2006 in
the amount of $9.4 million and its acquisition of Partners Bank in 2008 in the
amount of $11.3 million, for a total of $20.7 million in goodwill.  In
June 2009, we recorded an impairment charge of $9.3 million, reducing the amount
of goodwill to $11.4 million.  In accordance with ASC Topic 350,Intangibles-Goodwill and
Other, goodwill and intangible assets with indefinite useful lives are no
longer amortized; rather they are assessed, at least annually, for
impairment.  The Company tests goodwill for impairment on an annual
basis as of September 30, or more often if events or circumstances indicate
there may be impairment.  Management has determined that the Company
has only one reporting unit for purposes of evaluating goodwill.





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




Due to
the current economic environment and other uncertainties, it is possible that
our estimates and assumptions may adversely change in the future, and we may be
required to record additional goodwill impairment losses in future
periods.  It is not possible at this time to determine if any such
future impairment loss would result or, it if does, whether such charge would be
material.  However, any such future impairment loss would be limited
to the remaining goodwill balance of $11.4 million at June 30,
2010.  Subsequent reversal of goodwill impairment losses is not
permitted.





(12)
            Subsequent
      Events:





On July
28, 2010, 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, 2010.
The dividend will be payable to stockholders of record as of August 13, 2010 and
is expected to be paid on August 20, 2010.


22
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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





Forward-Looking
Statements





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





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




Critical Accounting
Policies





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





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


23
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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


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, peer group information and
prevailing economic conditions.  Management evaluates the total
balance of the allowance for loan losses based on several factors that are not
loan specific but are reflective of the losses inherent in the loan portfolio,
including management’s periodic review of loan collectibility in light of
historical experience, the nature and volume of the loan portfolio, prevailing
economic conditions such as housing trends, inflation rates and unemployment
rates, geographic concentrations of loans within First Clover Leaf Bank’s
immediate market area, and both peer financial institution historic loan loss
experience and allowance for loan loss levels.





There may
be other factors that may warrant our consideration in maintaining an allowance
at a level sufficient to provide for probable losses.  This evaluation
is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available or as future events
change.  During 2009, management increased the general allocation
percentages used in the calculation of our allowance for loan
losses.  Management evaluated several factors in determining the need
to increase these percentages.  The loss history that was previously
used in the calculation was comprised of the previous nine years of historical
losses.  Management revised the percentage allocation to be comprised
of the previous three years of historical losses as this more accurately
reflects the risk in our current portfolio.  Management also reviewed
the current economic conditions and determined that the general allocation
percentages should be increased to take into account the increased unemployment
rate, the declining market value of collateral, and the increase in our past due
and non-accrual loan ratios.  Although we believe that we have
established and maintained the allowance for loan losses at adequate levels,
future additions may be necessary if economic and other conditions in the future
differ substantially from the current operating environment.





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





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




Customer
relationship intangibles are required to be amortized over their estimated
useful lives.  The method of amortization reflects the pattern in
which the economic benefits of these intangible assets are estimated to be
consumed or otherwise used up.  Our customer relationship intangibles
are being amortized over 7.6 and 9.7 years using the double declining balance
method.  Since First Clover Leaf’s acquired customer relationships are
subject to routine customer attrition, the relationships are more likely to
produce greater benefits in the


24
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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




near-term
than in the long-term, which typically supports the use of an accelerated method
of amortization for the related intangible assets.  Management is
required to evaluate the useful life of customer relationship intangibles to
determine if events or circumstances warrant a change in the estimated
life.  Should management determine that the estimated life of any
intangible asset is shorter than originally estimated, First Clover Leaf would
adjust the amortization of that asset, which could increase future amortization
expense.





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





First
Clover Leaf utilizes a two step valuation approach to test for goodwill
impairment.  We estimate the fair value of our single reporting unit
as of the measurement date utilizing two valuation methodologies including the
comparable transactions approach, and the control premium approach which
utilizes the Company’s stock price.  We then compare the estimated
fair value to the current carrying value of the reporting unit to determine if
goodwill impairment had occurred as of the measurement date.  At our
annual impairment assessment date of September 30, 2009, no impairment
existed.  At June 30, 2010, no event or circumstance existed that
would more likely than not reduce the fair value of the reporting unit below its
carrying amount, and therefore, an interim goodwill impairment test was not
considered necessary. Future events, such as adverse changes to First Clover
Leaf’s business or changes in the economic market, could cause management to
conclude that impairment indicators exist and require management to re-evaluate
goodwill.  Should such re-evaluation determine goodwill is impaired;
the resulting impairment loss recognized could have a material, adverse impact
on First Clover Leaf’s financial condition and results of
operations.  In accordance with current accounting guidance,
management has determined that the Company has only one reporting unit for
purposes of evaluating goodwill.  See Item 1, Note 11 for additional
information on goodwill impairment.





Overview





First
Clover Leaf reported net income of $1.3 million for the three months ended June
30, 2010 compared to a net loss of $8.8 million for the same period in
2009.  The increase of $10.1 million was primarily due to the $9.3
million, non-cash goodwill impairment charge recorded in June 2009 with no
additional impairment charge recorded for the quarter ended June 30, 2010 in
addition to an increase in net interest income, an increase in non-interest
income due to a gain on the sale of securities, and a decrease in non-interest
expense.





Net
income increased to $2.2 million for the six months ended June 30, 2010 from a
net loss of $7.7 million for the same period last year.  The $9.9
million increase in net income was again due primarily to the goodwill
impairment charge recorded in June 2009 with no additional impairment charge
recorded for the quarter ended June 30, 2010 in addition to an increase in net
interest income, an increase in non-interest income due to a gain on the sale of
securities, and a decrease in non-interest expense.  Basic and diluted
income (loss) per share was $0.29 and


25
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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


$(0.93)
for the six-month periods ended June 30, 2010, and 2009,
respectively.





Financial
Condition





Total
Assets.  Total assets decreased to $563.2 million at June 30,
2010 from $585.5 million at December 31, 2009.  Total cash and cash
equivalents decreased to $41.2 million at June 30, 2010 from $48.0 million at
December 31, 2009.  The decrease in cash and cash equivalents was due
primarily to a decrease in interest-earning deposits and federal funds
sold.





Securities
available for sale decreased to $82.1 million at June 30, 2010 from $86.4
million at December 31, 2009.  The decrease was due primarily to
calls, maturities and pay-downs of $118.2 million and sales of $8.9 million
partially offset by purchases of $122.7 million.





Loans,
net amounted to $399.1 million at June 30, 2010, compared to $411.9 million at
December 31, 2009.  This decrease was a result of loan paydowns and
maturities exceeding new loan originations.  Due to the current
economic environment, new loan demand has significantly declined in the one- to
four-family residential loan, construction and land, and commercial business
loan categories.





Foreclosed
assets increased to $1.8 million at June 30, 2010 from $1.1 million at December
31, 2009.  We reclassified four loans into foreclosed assets during
the six months ended June 30, 2010.  During the same time period we
sold two properties that had been classified as foreclosed assets.





Total
Liabilities.  Total liabilities decreased to $485.4 million at
June 30, 2010 from $508.6 million at December 31, 2009.  Deposits
decreased to $429.1 million at June 30, 2010 from $442.6 million at December 31,
2009.  Non-interest bearing deposits decreased $21.0 million to $28.5
million at June 30, 2010 from $49.5 million at December 31, 2009.  The
decrease was partially offset by an increase of $7.5 million in interest bearing
deposits totaling $400.5 million at June 30, 2010 compared to $393.0 million at
December 31, 2009.  Federal Home Loan Bank advances at June 30, 2010
were $27.4 million compared to $39.9 million at December 31,
2009.  Advances of $12.5 million were repaid during the six months
ended June 30, 2010.  Securities sold under agreements to repurchase
increased to $21.2 million at June 30, 2010 from $18.9 million at December 31,
2009.  This increase was due primarily to fluctuations in customer
deposits.





Stockholders’
Equity.  Stockholders’ equity increased to $77.8 million at
June 30, 2010 from $76.9 million at December 31, 2009, principally as a result
of $2.2 million in net income partially offset by the payment of cash dividends
of $939,000, unrealized losses on securities of $287,000, and repurchases of
common stock of $160,000 during the six months ended June 30, 2010.





Asset
Quality





The
Company has experienced an increase in non-performing loans due to the current
economic slowdown.  Detailed information concerning the Company’s
non-accrual and impaired loans is described in the paragraphs that
follow.  Overall, the Company has a very limited number and value of
what would be classified as high risk loans.  The Company does not
originate subprime loans and holds a very small number and dollar value of ARM
products.  The Company does hold some junior lien mortgages and high
loan-to-value ratio mortgages;


26
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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




however,
they total an immaterial portion of our loan portfolio.  The Company
reviews these loans regularly and has not seen any increase in the delinquency
trends for these products.  As commercial loans mature and requests
for renewals are processed, either a new appraisal is obtained or the Company
performs an internal valuation of the collateral based on comparable
sales.  Additionally, the original appraisal is discounted if the
Company believes it is warranted.





At June
30, 2010, the Company’s non-accrual loans increased $3.2 million to $14.9
million from $11.7 million at December 31, 2009. At June 30, 2010, First Clover
Leaf Bank had eight relationships classified as non-accrual with balances in
excess of $500,000.  The largest non-accrual relationship is a $3.9
million development loan to a subdivision developer with excess inventory that
is selling slowly due to the economic slowdown.  The loan is secured
by the residential property, and an updated appraisal was obtained in the first
quarter of 2010. The loan is currently being re-evaluated on a quarterly basis
under a discounted cash flow analysis. The second non-accrual relationship is a
$2.0 million group of loans to a real estate investor, who is experiencing high
vacancy rates and property repairs resulting in decreased cash flows due to the
economic slowdown.  The borrower and the Bank are currently working
with a management company and vacancy rates are decreasing.  Property
repairs are continuing to be made as cash flows allow. The third non-accrual
relationship is a $1.6 million commercial land loan to a
developer.  The borrower in this relationship has failed to make
payments and has not provided the Bank with updated financial
information.  The Bank is in the process of foreclosing on this
property.  The fourth non-accrual relationship is a $1.4 million loan
for a commercial investment property.  This credit was reviewed at
year end 2009, and a $600,000 charge-off was recorded at that time.  A
sales contract is currently pending on the property.   The fifth
non-accrual relationship is a $1.3 million credit to a real estate
investor.  This relationship consists of several credits which are all
related by common ownership.  Most of the credits are single family
residential properties, but some are related to commercial
property.  We re-assessed the values of these properties in the fourth
quarter of 2009, and a charge-off was taken at December 31, 2009 for the
collateral shortfall.  The sixth non-accrual relationship is a
$712,000 loan on a commercial property.  The property is currently
listed for sale.  A new appraisal was ordered on the property and the
Bank has started foreclosure proceedings.  The seventh non-accrual
relationship is a $691,000 loan to a real estate developer.  The
primary collateral consists of vacant lots, and the collateral is sufficient to
cover the loan balance.  The lots are continuing to sell in a manner
that is allowing the borrower to continue to make principal
payments.  The eighth non-accrual relationship is a $640,000 loan to a
commercial contractor, the contractor has the property listed for sale, and the
Bank believes the collateral value is sufficient to cover the loan
balance.





At June
30, 2010, our total other impaired loans amounted to $9.4 million compared to
$14.8 million at December 31, 2009.  The decrease was primarily due to
a $1.9 million loan that was upgraded and is no longer consider impaired, a $1.3
million loan that was moved to non-accrual status, and charge-offs of
approximately $796,000.  There were two impaired loans with balances
in excess of $1 million at June 30, 2010.  The largest loan was a $6.4
million credit to a builder with excess inventory.  This loan is
secured by residential investment property for which updated appraisals have
been obtained.  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
loan was restructured into three separate notes, with one note allowing for a
period of interest only payments.  The borrower is in compliance with
the modified terms.  The second loan was a $1.6 million loan to a
residential real estate developer who is struggling with the economic
downturn.  The loan is currently secured by single family
residences.  The Company is currently working with the developer
on


27
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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


possible
restructuring alternatives.





The
allowance for loan losses to non-performing and impaired loans, which is listed
in the “Asset Quality Ratios” table in Item 1, Note 5, increased to 23.90% at
June 30, 2010, compared to 21.68% at December 31, 2009.  While the
change in the ratio as of June 30, 2010 compared to December 31, 2009 is not
significantly different, the ratio did experience a significant decline during
2009.  This decline was due to the large increase in non-performing
loans during 2009 that did not require proportionate reserves under our
allowance methodology, as the loans had sufficient collateral value to cover the
outstanding loan balance.





Results of
Operations





General.  Net
income increased $9.9 million to $2.2 million for the six months ended June 30,
2010 from a net loss of $7.7 million for the same period last
year.  The increase in net income was primarily due to the $9.3
million, non-cash goodwill impairment charge recorded in June 2009 with no
additional impairment charge recorded for the six months ended June 30, 2010 in
addition to an increase in net interest income, an increase in non-interest
income due to a gain on the sale of securities, and a decrease in non-interest
expense.  Basic and diluted income (loss) per share was $0.29 for the
six months ended June 30, 2010, and $(0.93) for the same period in
2009.





Yields on
all interest-earning asset classes continued to decline for the six months ended
June 30, 2010 compared to the same period in 2009. Our commercial loans are more
sensitive to changes in market interest rates because they often have shorter
terms to maturity, and therefore, the interest rates adjust more
frequently.  The declining rate environment also impacted our
interest-earning balances from depository institutions as those assets have
adjustable rates.  The decline in rates has also resulted in a
significant number of the bonds in our securities portfolio being called and
being replaced with lower yielding bonds.  The overall yield on
interest-earning assets, however, improved slightly due to loans, which has the
highest yield, representing a larger percentage of total interest-earning assets
at June 30, 2010 compared to the same period in 2009.  In addition,
our overall net interest rate spread and net interest margin increased due to
the decline in the rate paid on interest-bearing liabilities.  We
continue to attempt to absorb the effects of the interest rate cuts through
lowering the rates we pay on deposits.  However, our ability to lower
rates paid on deposits is limited due to the already low deposit rates and the
competitive environment in which we operate.  In addition, a
significant number of our interest-bearing deposits are time deposits, which are
fixed-rate contracts until maturity that do not allow for immediate repricing as
rates fluctuate.





Net interest
income.  Net interest income increased by $377,000 to $4.1
million for the three months ended June 30, 2010 from $3.7 million for the same
period last year.  Net interest income increased to $8.2 million for
the six months ended June 30, 2010 from $7.8 million for the same period last
year.  Net average interest-earning assets, which represent our
average total interest-earning assets less our average total interest-bearing
liabilities, were $72.0 million for the six months ended June 30, 2010, compared
to $63.4 million for the same period in 2009.  The ratio of
interest-earning assets to interest-bearing liabilities increased to 115.45% for
the six months ended June 30, 2010 from 111.88% for the same period in
2009.  The net interest rate spread increased to 3.08% for the six
months ended June 30, 2010, compared to 2.65% for the comparable period in
2009.  The average rate earned on interest-earning assets increased by
three basis points for the six months ended June 30, 2010 to 4.85% from 4.82%
for the same period in 2009, while the average rate paid on interest-bearing
liabilities decreased by 38 basis


28
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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


points
during these periods to 2.04% from 2.42%.  The increase in the
interest rate spread was attributable to the cost of funds declining faster than
the yield on interest-earning assets.





The
following tables set forth the average balance sheets, average yields and costs,
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 30,2010
            
            
            2009Average
      Outstanding Balance
            
            
            Interest
      (4)
            
            
            Yield/
      Rate
            
            
            Average
      Outstanding Balance
            
            
            Interest(4)
            
            
            Yield/
      Rate(Dollars
      in thousands)Interest-earning
      assets:Loans,
      gross
            
            $
            408,536
            
            
            $
            5,644
            
            
            
            5.54
            %
            
            $
            421,819
            
            
            $
            5,937
            
            
            
            5.65
            %Securities
            
            
            84,796
            
            
            
            709
            
            
            
            3.35
            
            
            
            98,233
            
            
            
            1,019
            
            
            
            4.16Interest-earning
      balances from depository institutions
            
            
            31,468
            
            
            
            23
            
            
            
            0.29
            
            
            
            69,309
            
            
            
            36
            
            
            
            0.21Total
      interest-earning assets
            
            
            524,800
            
            
            
            6,376
            
            
            
            4.87
            
            
            
            589,361
            
            
            
            6,992
            
            
            
            4.76Non-interest-earning
      assets
            
            
            44,467
            
            
            
            
            
            
            
            
            
            
            
            57,815Total
      assets
            
            $
            569,267
            
            
            
            
            
            
            
            
            
            
            $
            647,176Interest-bearing
      liabilities:Interest-bearing
      transaction
            
            $
            187,664
            
            
            
            564
            
            
            
            1.21
            
            
            $
            182,786
            
            
            
            764
            
            
            
            1.68Savings
      deposits
            
            
            19,549
            
            
            
            40
            
            
            
            0.82
            
            
            
            18,880
            
            
            
            56
            
            
            
            1.19Time
      deposits
            
            
            197,026
            
            
            
            1,337
            
            
            
            2.72
            
            
            
            220,207
            
            
            
            1,889
            
            
            
            3.44Securities
      sold under agreements to repurchase
            
            
            19,714
            
            
            
            5
            
            
            
            0.10
            
            
            
            49,871
            
            
            
            17
            
            
            
            0.14Federal
      Home Loan Bank advances
            
            
            29,543
            
            
            
            263
            
            
            
            3.57
            
            
            
            48,494
            
            
            
            456
            
            
            
            3.77Subordinated
      debentures
            
            
            3,946
            
            
            
            55
            
            
            
            5.59
            
            
            
            3,902
            
            
            
            74
            
            
            
            7.61Total
      interest-bearing liabilities
            
            
            457,442
            
            
            
            2,264
            
            
            
            1.99
            
            
            
            524,140
            
            
            
            3,256
            
            
            
            2.49Non-interest-bearing
      liabilities
            
            
            34,093
            
            
            
            
            
            
            
            
            
            
            
            32,185Total
      liabilities
            
            
            491,535
            
            
            
            
            
            
            
            
            
            
            
            556,325Stockholders’
      equity
            
            
            77,732
            
            
            
            
            
            
            
            
            
            
            
            90,851Total
      liabilities and stockholders’ equity
            
            $
            569,267
            
            
            
            
            
            
            
            
            
            
            $
            647,176Net
      interest income
            
            
            
            
            
            $
            4,112
            
            
            
            
            
            
            
            
            
            
            $
            3,736Net
      interest rate spread (1)
            
            
            
            
            
            
            
            
            
            
            2.89
            %
            
            
            
            
            
            
            
            
            
            
            2.27
            %Net
      interest-earning assets (2)
            
            $
            67,358
            
            
            
            
            
            
            
            
            
            
            $
            65,221Net
      interest margin (3)
            
            
            
            
            
            
            
            
            
            
            3.14
            %
            
            
            
            
            
            
            
            
            
            
            2.54
            %Ratio
      of interest-earning assets to interest-bearing liabilities
            
            
            
            
            
            
            
            
            
            
            114.73
            %
            
            
            
            
            
            
            
            
            
            
            112.44
            %(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 $54,423
      and $67,463 for the three months ended June 30, 2010 and 2009,
      respectively.




29
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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


Six
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2010
            
            
            2009Average
      Outstanding Balance
            
            
            Interest
      (4)
            
            
            Yield/
      Rate
            
            
            Average
      Outstanding Balance
            
            
            Interest(4)
            
            
            Yield/
      Rate(Dollars
      in thousands)Interest-earning
      assets:Loans,
      gross
            
            $
            412,298
            
            
            $
            11,384
            
            
            
            5.57
            %
            
            $
            425,540
            
            
            $
            12,074
            
            
            
            5.72
            %Securities
            
            
            89,749
            
            
            
            1,510
            
            
            
            3.39
            
            
            
            98,686
            
            
            
            2,090
            
            
            
            4.27Interest-earning
      balances from depository institutions
            
            
            36,208
            
            
            
            42
            
            
            
            0.23
            
            
            
            72,844
            
            
            
            96
            
            
            
            0.27Total
      interest-earning assets
            
            
            538,255
            
            
            
            12,936
            
            
            
            4.85
            
            
            
            597,070
            
            
            
            14,260
            
            
            
            4.82Non-interest-earning
      assets
            
            
            45,163
            
            
            
            
            
            
            
            
            
            
            
            59,124Total
      assets
            
            $
            583,418
            
            
            
            
            
            
            
            
            
            
            $
            656,194Interest-bearing
      liabilities:Interest-bearing
      transaction
            
            $
            183,408
            
            
            
            1,128
            
            
            
            1.24
            
            
            $
            197,889
            
            
            
            1,454
            
            
            
            1.48Savings
      deposits
            
            
            19,205
            
            
            
            79
            
            
            
            0.83
            
            
            
            18,609
            
            
            
            123
            
            
            
            1.33Time
      deposits
            
            
            198,672
            
            
            
            2,774
            
            
            
            2.82
            
            
            
            215,118
            
            
            
            3,724
            
            
            
            3.49Securities
      sold under agreements to repurchase
            
            
            26,551
            
            
            
            12
            
            
            
            0.09
            
            
            
            49,089
            
            
            
            38
            
            
            
            0.16Federal
      Home Loan Bank advances
            
            
            34,455
            
            
            
            605
            
            
            
            3.54
            
            
            
            49,072
            
            
            
            925
            
            
            
            3.80Subordinated
      debentures
            
            
            3,940
            
            
            
            129
            
            
            
            6.60
            
            
            
            3,896
            
            
            
            148
            
            
            
            7.66Total
      interest-bearing liabilities
            
            
            466,231
            
            
            
            4,727
            
            
            
            2.04
            
            
            
            533,673
            
            
            
            6,412
            
            
            
            2.42Non-interest-bearing
      liabilities
            
            
            39,605
            
            
            
            
            
            
            
            
            
            
            
            30,212Total
      liabilities
            
            
            505,836
            
            
            
            
            
            
            
            
            
            
            
            563,885Stockholders’
      equity
            
            
            77,582
            
            
            
            
            
            
            
            
            
            
            
            92,309Total
      liabilities and stockholders’ equity
            
            $
            583,418
            
            
            
            
            
            
            
            
            
            
            $
            656,194Net
      interest income
            
            
            
            
            
            $
            8,209
            
            
            
            
            
            
            
            
            
            
            $
            7,848Net
      interest rate spread (1)
            
            
            
            
            
            
            
            
            
            
            2.80
            %
            
            
            
            
            
            
            
            
            
            
            2.39
            %Net
      interest-earning assets (2)
            
            $
            72,024
            
            
            
            
            
            
            
            
            
            
            $
            63,397Net
      interest margin (3)
            
            
            
            
            
            
            
            
            
            
            3.08
            %
            
            
            
            
            
            
            
            
            
            
            2.65
            %Ratio
      of interest-earning assets to interest-bearing liabilities
            
            
            
            
            
            
            
            
            
            
            115.45
            %
            
            
            
            
            
            
            
            
            
            
            111.88
            %(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 $91,092
      and $119,361 for the six months ended June 30, 2010 and 2009,
      respectively.





Interest and fee
income.  Interest and fee income on loans decreased to $5.6
million for the three months ended June 30, 2010 from $5.9 million for the
comparable period in 2009.  Interest income on loans decreased
primarily as a result of a lower average balance in addition to a lower
yield.  Interest and fee income on loans decreased to $11.4 million
for the six months ended June 30, 2010 from $12.1 million for the comparable
period in 2009.  Interest income on loans decreased primarily as a
result of a lower average balance in addition to a lower yield.  The
average balance of loans was $412.3 million and $425.5 million for the six
months ended June 30, 2010 and 2009, respectively. The average balance decreased
primarily due to significant declines in new loan demand in the one- to
four-family residential loan, construction and land, and


30
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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


commercial
business loan categories due to the current economic environment.  The
average yield on loans decreased to 5.57% for the six months ended June 30, 2010
from 5.72% for the comparable period in 2009.





Interest
income on securities decreased to $708,000 for the three months ended June 30,
2010 compared to $1.0 million for the same period in 2009.  The
decrease was due primarily to a lower average balance in addition to a decline
in yield.  Interest income on securities decreased to $1.5 million for
the six months ended June 30, 2010 from $2.1 million for the comparable period
in 2009.  The decrease was due primarily to a lower average balance in
addition to a decline in yield. The average balance of securities was $89.7
million and $98.7 million for the six months ended June 30, 2010 and 2009,
respectively.  Available for sale securities of $8.9 million were sold
during the second quarter.  The declining rate environment also
resulted in a significant number of bonds in our securities portfolio being
called and being replaced with lower yielding bonds.  The average
yield on securities decreased to 3.39% from 4.27% for the six months ended June
30, 2010 and 2009, respectively.





Interest
on other interest-earning deposits decreased to $23,000 for the three months
ended June 30, 2010 from $36,000 for the comparable period in
2009.  The decrease was due primarily to a lower average balance
partially offset by an increase in yield.  Interest on other
interest-earning deposits decreased to $42,000 for the six months ended June 30,
2010 from $96,000 for the comparable period in 2009.  The decrease was
due primarily to a lower average balance in addition to a decline in
yield.  The average balance of other interest-earning deposits
decreased to $36.2 million from $72.8 million for the six months ended June 30,
2010 and 2009, respectively. The average yield on other interest-earning
deposits decreased to 0.23% for the six months ended June 30, 2010 from 0.27%
for the comparable period in 2009.





Interest
expense.  Interest expense on deposits decreased to $1.9
million for the three months ended June 30, 2010 from $2.7 million for the
comparable period in 2009.  The decrease was due primarily to a
decline in yield and a lower average balance in time
deposits.  Interest expense on deposits decreased to $4.0 million for
the six months ended June 30, 2010 from $5.3 million for the comparable period
in 2009.  The decrease was due primarily to a lower average balance in
addition to a decline in yield.  The average balance of
interest-bearing deposits, comprised of interest bearing transactions, savings
deposits, and time deposits, was $401.3 million and $431.6 million for the six
months ended June 30, 2010 and 2009, respectively.  The largest yield
decline for the six months ended June 30, 2010 compared to the same period in
2009 was in time deposits which declined 67 basis points, while savings deposits
and interest-bearing transactions experienced a yield decline of 50 and 24 basis
points, respectively.





Interest
expense on securities sold under agreements to repurchase decreased to $5,000
for the three months ended June 30, 2010 from $17,000 for the three months ended
June 30, 2009.  The decrease was primarily due to a lower average
balance in addition to a decline in yield. Interest expense on securities sold
under agreements to repurchase decreased to $12,000 for the six months ended
June 30, 2010 from $38,000 for the six months ended June 30,
2009.  The decrease was primarily due to a lower average balance in
addition to a decline in yield.  The average balance decreased to
$26.6 million from $49.1 million for the six months ended June 30, 2010 and
2009, respectively.  The yield decreased to 0.09% for the six months
ended June 30, 2010 from 0.16% for the comparable period in 2009.





Interest
expense on Federal Home Loan Bank advances decreased to $263,000 from $456,000
for the three months ended June 30, 2010 and 2009, respectively due primarily to
a


31
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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


lower
average balance in addition to a decline in yield.  Interest expense
on Federal Home Loan Bank advances decreased to $605,000 from $925,000 for the
six months ended June 30, 2010 and 2009, respectively due primarily to a lower
average balance in addition to a decline in yield.  The average
balance of Federal Home Loan Bank advances was $34.5 million and $49.1 million
for the six months ended June 30, 2010 and 2009, respectively.  The
average yield on Federal Home Loan Bank advances decreased to 3.54% for the six
months ended June 30, 2010 compared to 3.80% for the comparable period in
2009.





Interest
expense on subordinated debentures decreased to $55,000 from $74,000 for the
three months ended June 30, 2010 and 2009, respectively.  In
accordance with the terms of our subordinated debentures the rate has converted
from a fixed rate to a variable rate that adjusts quarterly; therefore, for the
remainder of 2010 this expense should be lower than the prior
year.  Interest expense on subordinated debentures decreased to
$129,000 from $148,000 for the six months ended June 30, 2010 and 2009,
respectively.





Provision for
loan losses.  Provision for loan losses decreased slightly for
the three month period ended June 30, 2010 to $400,000 from $429,000 for the
comparable period in 2009. Provision for loan losses increased to $823,000 from
$669,000 for the six months ended June 30, 2010 and 2009,
respectively.  The increase was primarily due to an increase in the
general allocation percentage as previously discussed in the critical accounting
policy disclosure.  The provision for loan losses is based upon
management’s consideration of current economic conditions, the Company’s loan
portfolio composition and historical loss experience coupled with current market
valuations on collateral, used to estimate probable losses as well as the level
of nonperforming assets and classified assets.  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.  The Company is subject to
periodic examination by the Office of Thrift Supervision, 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 Office of
Thrift Supervision will not require further increases to the
allowance.





Non-interest
income.  Non-interest income increased to $810,000 for the
three months ended June 30, 2010 from $348,000 for the comparable period in 2009
primarily due to a gain on sale of securities of $463,000 for the three months
ended June 30, 2010.  Non-interest income increased to $1.1 million
for the six months ended June 30, 2010 from $751,000 for the comparable period
in 2009.  The increase was due primarily to a gain on sale of
securities of $463,000.  The Company chose to sell securities as a
strategic plan to restructure the portfolio.  Selling these securities
and using the proceeds to purchase both tax-exempt and taxable municipal
securities, as well as mortgage backed securities will allow over time for a
higher yield.  This also allowed the Company to restructure the cash
flows from securities into a more laddered distribution.  These
security sales allowed the Company to capture some of the gain in the portfolio
that existed and would diminish if interest rates were to rise, or the
securities were called or matured.  Also increasing were service fees
on deposit accounts and other service fees.  These increases were the
result of increased usage of debit cards which increases interchange fees, and
the increased number of non-sufficient funds charges due primarily to the
increased activity and increased number of demand deposit
accounts.  These increases were partially offset by a decline in gain
on sale of loans due to decreased loan sales volume.





Non-interest
expense.  Non-interest expense decreased $9.7 million to $2.5
million for the three months ended June 30, 2010 from $12.2 million for the same
period in 2009.  Non-


32
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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


interest
expense decreased $9.8 million to $5.0 million for the six months ended June 30,
2010 from $14.8 million for the same period in 2009. The primary reason for the
decrease in non-interest expense in 2010 compared to 2009 was a $9.3 million
goodwill impairment charge recorded as of June 30, 2009.





Professional
fees decreased to $104,000 for the three months ended June 30, 2010 compared to
$190,000 for the comparable period in 2009.  Professional fees
decreased to $141,000 for the six months ended June 30, 2010 compared to
$393,000 for the comparable period in 2009.  This decrease was due
primarily to the completion of a consulting agreement with the former CEO of
Partners Bank and the reversal of $150,000 of accrued expenses in connection
with the consulting agreement entered into with the former CEO of Partners Bank
which was based on certain contingencies that ultimately were not
attained.





FDIC
insurance premium expense decreased to $199,000 for the three months ended June
30, 2010 compared to $375,000 for the comparable period in 2009.  FDIC
insurance premium expense decreased to $394,000 for the six months ended June
30, 2010 compared to $429,000 for the comparable period in 2009.  The
decrease was due to a $280,000 special assessment by the FDIC recorded in June
2009 partially offset by increased insurance assessment rates.





Amortization
of mortgage servicing rights totaled $22,000 for the three months ended June 30,
2010 compared to $73,000 for the same period in 2009.  Amortization of
mortgage servicing rights totaled $48,000 for the six months ended June 30, 2010
compared to $165,000 for the same period in 2009.  The decrease was
due to the reduced number of loans sold, as well as the number of previously
sold loans that refinanced in 2009 causing accelerated
amortization.





Income
taxes.  Income taxes increased to $705,000 for the three months
ended June 30, 2010 from $293,000 for the comparable period in
2009.  Income taxes increased to $1.2 million for the six months ended
June 30, 2010 from $904,000 for the comparable period in 2009.  The
primary reason for the change in income taxes was the higher level of pre-tax
income for the 2010 period.  The $9.3 million non-cash expense
recorded for goodwill impairment in 2009 was not tax deductible, and therefore,
the goodwill impairment expense was not tax effected.





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




33
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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


our
operating, investing and financing activities.  At June 30, 2010 and
December 31, 2009, $41.2 million and $48.0 million, respectively, were invested
in cash and cash equivalents. The primary sources of cash are principal
repayments on loans, proceeds from the calls and maturities of investment
securities, increases in deposit and securities sold under agreements to
repurchase accounts, and advances from the Federal Home Loan Bank of
Chicago.




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




Our
primary investing activities are the origination of loans and the purchase of
investment securities.  During the six months ended June 30, 2010
principal collections on loans, net of originations totaled $9.9 million
compared to $12.5 million for the six months ended June 30,
2009.  Cash received from calls, maturities, and paydowns of
available-for-sale investment securities totaled $118.2 million and $57.8
million for the six months ended June 30, 2010 and 2009,
respectively.  We sold $8.9 million of available-for-sale investment
securities during the six months ended June 30, 2010.  We purchased
$122.7 million and $48.0 million in available-for-sale investment securities
during the six months ended June 30, 2010 and 2009, respectively.  We
did not receive any proceeds from the maturities of interest-earning time
deposits during the six months ended June 30, 2010 compared to $20.8 million
received for the same period in 2009.  We invested $1.7 million in
interest-earning time deposits for the six months ended June 30, 2010 compared
to $20.6 million invested during the same period in 2009.





Deposit
flows are generally affected by interest rates as designated by management, the
interest rates and products offered by local competitors, and other
factors.  Net deposits decreased by $13.5 million for the six months
ended June 30, 2010.  During the comparable period in 2009 the net
decrease in deposits was $14.7 million.  Securities sold under
agreements to repurchase had a net increase of $2.2 million and a net decrease
of $20.1 million for the six months ended June 30, 2010 and 2009,
respectively.  There were no proceeds from Federal Home Loan Bank
advances for the six months ended June 30, 2010 compared to proceeds of $5.0
million for the six months ended June 30, 2009.  Repayments of such
advances totaled $12.5 million for the six months ended June 30, 2010 compared
to $6.5 million for the same period in 2009.  Repurchases of the
Company’s common stock were $160,000 and $5.1 million for the six months ended
June 30, 2010 and 2009, respectively.





Liquidity
management is both a daily and long-term function of business
management.  If we require funds beyond our ability to generate them
internally, borrowing agreements exist with the Federal Home Loan Bank of
Chicago, which provides an additional source of funds.  At June 30,
2010, we had $27.4 million of advances from the Federal Home Loan Bank of
Chicago and additional available credit of approximately $28.0
million.





The Bank
is required to maintain certain minimum capital requirements under Office of
Thrift Supervision regulations.  Failure by a savings institution to
meet minimum capital requirements can result in certain mandatory and possible
discretionary actions by regulators, which, if undertaken, could have a direct
material effect on the Bank’s financial statements.  The Bank was
considered “well-capitalized” at June 30, 2010.  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-




34
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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


balance
sheet items as calculated under regulatory accounting practices.




The
Bank’s actual and required capital amounts and ratios at June 30, 2010 were as
follows:




Minimum
      Requiredfor
      Capital
            
            
            to
      be "WellActual
            
            
            Adequacy
            
            
            Capitalized"Amount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio(Dollars
      in Thousands)Stockholders'
      equity
            
            $
            71,759Goodwill
      and core deposit intangible
            
            
            (12,667
            )Disallowed
      servicing assets
            
            
            (696
            )Unrealized
      gain on securities AFS, net
            
            
            (1,440
            )Tangible
      capital to adjusted total assets
            
            $
            56,956
            
            
            
            10.4
            %
            
            $
            8,207
            
            
            
            1.5
            %
            
            
            N/A
            
            
            
            -Allowance
      as limited by regulatory guidance
            
            
            5,003Deduction
      for low-level recourse
            
            
            (1,607
            )Total
      capital to risk-weighted assets
            
            $
            60,352
            
            
            
            15.1
            %
            
            $
            32,021
            
            
            
            8.0
            %
            
            $
            40,026
            
            
            
            10.0
            %Tier
      1 capital to risk-weighted assets
            
            $
            56,956
            
            
            
            14.2
            %
            
            $
            N/A
            
            
            
            -
            
            
            $
            24,016
            
            
            
            6.0
            %Tier
      1 capital to total assets
            
            $
            56,956
            
            
            
            10.4
            %
            
            $
            21,885
            
            
            
            4.0
            %
            
            $
            27,357
            
            
            
            5.0
            %







Off-Balance Sheet
Arrangements




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




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




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


35
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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


A summary
of the notional or contractual amounts of financial instruments, with
off-balance-sheet risk at June 30, 2010 follows:





Range
      ofVariable
            
            
            Fixed
            
            
            
            
            
            Rates
      onRate
            
            
            Rate
            
            
            Total
            
            
            Fixed
      RateCommitments
            
            
            Commitments
            
            
            Commitments
            
            
            Commitments(Dollars
      in thousands)Commitments
      to extend credit
            
            $
            23,188
            
            
            $
            19,975
            
            
            $
            43,163
            
            
            
            3.25%-18.00
            %Standby
      letters of credit
            
            $
            1,785
            
            
            $
            3,397
            
            
            $
            5,182
            
            
            
            4.00%-9.25
            %





Loans
sold to the Federal Home Loan Bank (“FHLB”) of Chicago under the Mortgage
Partnership Finance (“MPF”) program were sold with recourse.  The Bank
has an agreement to sell residential loans of up to $71.0 million to the FHLB of
Chicago.  Approximately $65.7 million have been sold.  As a
part of the agreement, the Bank has a maximum credit enhancement of $1.6 million
at June 30, 2010.  Based upon a favorable payment history, the Bank
does not anticipate recognizing any losses on these residential
loans.  The Company intends to continue originating mortgage loans and
selling them while retaining the servicing.  In addition to the FHLB
of Chicago MPF program, the Company currently has a relationship to sell loans
to Fannie Mae.


36
 Index





FIRST CLOVERLEAF FINANCIAL CORP.


Item
3.     Quantitative and Qualitative Disclosures about Market
Risk





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





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





The
Office of Thrift Supervision requires the computation of amounts by which the
net present value of an institution’s cash flow from assets, liabilities and
off-balance sheet items (the institution’s net portfolio value or “NPV”) would
change in the event of a range of assumed changes in market interest
rates.  The Office of Thrift Supervision provides all institutions
that file a Consolidated Maturity/Rate Schedule as a part of their quarterly
Thrift Financial Report with an interest rate sensitivity report of net
portfolio value.  The Office of Thrift Supervision simulation model
uses a discounted cash flow analysis and an option-based pricing approach to
measure the interest rate sensitivity of net portfolio
value.  Historically, the Office of Thrift Supervision model estimated
the economic value of each type of asset, liability and off-balance-sheet
contract under the assumption that the United States Treasury yield curve
increases or decreases instantaneously by 100 to 300 basis points in 100 basis
point increments.  However, given the current low level of market
interest rates, First Clover Leaf did not receive a NPV calculation for an
interest rate decrease of greater than 100 basis points for December 2009 or
March 2010.  A basis point equals one-hundredth of one percent, and
100 basis points equals one percent.  An increase in interest rates
from 3% to 4% would mean, for example, a 100 basis point increase in the “Change
in Interest Rates” column below.


37
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.


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





The
tables below set forth, as of March 31, 2010 and December 31, 2009, 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, 2010NPV
            
            
            Net
      Portfolio Value as a Percentage of Present Value of AssetsEstimated
              NPV
            
            Estimated
      Increase
              (Decrease)
      in NPV
            
            
            NPV
      RatioChange
      in Interest Rates
            Amount
            
            
            Percent
            
            
            Change(Dollars
      in thousands)+300
      bp
            
            $
            67,760
            
            
            $
            (14,004
            )
            
            
            (17
            )
      %
            
            
            11.73
            %
            
            
            (193
            )
      bp+200
      bp
            
            
            73,258
            
            
            
            (8,506
            )
            
            
            (10
            )
            
            
            12.51
            
            
            
            (114
            )
      bp+100
      bp
            
            
            77,966
            
            
            
            (3,799
            )
            
            
            (5
            )
            
            
            13.16
            
            
            
            (50
            )
      bp+50
      bp
            
            
            79,452
            
            
            
            (2,312
            )
            
            
            (3
            )
            
            
            13.35
            
            
            
            (31
            )
      bp0
      bp
            
            
            81,764
            
            
            
            —
            
            
            
            —
            
            
            
            13.66
            
            
            
            0
            bp-50
      bp
            
            
            82,208
            
            
            
            443
            
            
            
            1
            
            
            
            13.69
            
            
            
            4
            bp-100
      bp
            
            
            83,231
            
            
            
            1,466
            
            
            
            2
            
            
            
            13.82
            
            
            
            16
            bp





December
      31, 2009NPV
            
            
            Net
      Portfolio Value as a Percentage of Present Value of AssetsEstimated
              NPV
            
            Estimated
      Increase
              (Decrease)
      in NPV
            
            
            NPV
      RatioChange
      in Interest Rates
            Amount
            
            
            Percent
            
            
            Change(Dollars
      in thousands)+300
      bp
            
            $
            61,633
            
            
            $
            (14,434
            )
            
            
            (19
            )
      %
            
            
            9.05
            %
            
            
            (202
            )
      bp+200
      bp
            
            
            67,256
            
            
            
            (8,811
            )
            
            
            (12
            )
            
            
            11.51
            
            
            
            (121
            )
      bp+100
      bp
            
            
            73,007
            
            
            
            (3,060
            )
            
            
            (4
            )
            
            
            12.32
            
            
            
            (40
            )
      bp+50
      bp
            
            
            73,964
            
            
            
            (2,102
            )
            
            
            (3
            )
            
            
            12.44
            
            
            
            (28
            )
      bp0
      bp
            
            
            76,067
            
            
            
            —
            
            
            
            —
            
            
            
            12.72
            
            
            
            0
            bp-50
      bp
            
            
            76,961
            
            
            
            895
            
            
            
            1
            
            
            
            12.82
            
            
            
            10
            bp-100
      bp
            
            
            77,806
            
            
            
            1,739
            
            
            
            2
            
            
            
            12.92
            
            
            
            20
            bp





The 2010
table above indicates that at March 31, 2010, in the event of a 100 basis point
decrease in interest rates, we would experience a 2% increase in the net
portfolio value.  In the event of a 300 basis point increase in
interest rates, we would experience a 17% decrease in the net portfolio
value.  Management does not believe that the Company’s primary market
risk exposures at June 30, 2010, and how those exposures were managed during the
three months ended June 30, 2010 have changed significantly when compared to the
immediately preceding


38
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.




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


quarter
ended March 31, 2010.  However, the Company’s primary market risk
exposure has not yet been quantified at June 30, 2010 as the Office of Thrift
Supervision Net Portfolio Value Model 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 repricing of
specific assets and liabilities.  Accordingly, although the net
portfolio value table provides an indication of the interest rate risk exposure
at a particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
its net interest income and will differ from actual results.


39
 Index





FIRST CLOVERLEAF FINANCIAL CORP.





Item
4.     Controls and Procedures





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





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


40
 Index





FIRST
CLOVER LEAFFINANCIAL CORP.


PART
II - Other Information





Item
1 - Legal Proceedings.





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








Item
1A – Risk Factors.





In
addition to the other information contained this Quarterly Report on Form 10-Q,
the following risk factors represent material updates and additions to the risk
factors previously disclosed in the Company’s Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 2009, as filed with the Securities and Exchange
Commission.  Additional risks not presently known to us, or that we
currently deem immaterial, may also adversely affect our business, financial
condition or results of operations.  Further, to the extent that any
of the information contained in this Quarterly Report on Form 10-Q constitutes
forward-looking statements, the risk factors set forth below also are cautionary
statements identifying important factors that could cause our actual results to
differ materially from those expressed in any forward-looking statements made by
or on behalf of us.





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




Congress
recently enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act
(the “Dodd-Frank Act”). This new law will significantly change the current bank
regulatory structure and affect the lending, deposit, investment, trading and
operating activities of financial institutions and their holding companies. The
Dodd-Frank Act requires various federal agencies to adopt a broad range of new
implementing rules and regulations, and to prepare numerous studies and reports
for Congress. The federal agencies are given significant discretion in drafting
the implementing rules and regulations, and consequently, many of the details
and much of the impact of the Dodd-Frank Act may not be known for many months or
years.




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




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




The
Dodd-Frank Act also broadens the base for Federal Deposit Insurance Corporation
insurance assessments. Assessments will now be based on the average consolidated
total assets less tangible equity capital of a financial institution. The
Dodd-Frank Act also permanently increases the maximum amount of deposit
insurance for banks, savings institutions and credit unions to $250,000 per
depositor, retroactive to January 1, 2009, and non-interest bearing transaction
accounts have unlimited deposit insurance through December 31,
2013.


41
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.


Item
1A – Risk Factors (Continued).





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




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




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




Although
we believe our current level of trust preferred securities are grandfathered in
as Tier 1 capital based upon asset size limitations, provisions in the
legislation that revoke the Tier 1 capital treatment of trust preferred
securities and otherwise require revisions to the capital requirements of the
Company and the Bank could require us to seek other sources of capital in the
future.


42
 Index





FIRST CLOVERLEAF FINANCIAL CORP.


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





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


(b)
            Not
      applicable.


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





Period
            
            Total
      Number of Shares Purchased
            
            
            Average
      Price Paid per Share
            
            
            Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
            
            
            Maximum
      Number of Shares That May Yet Be Purchased Under the Plans or
      Programs(1)April
      1 - 30, 2010
            
            
            14,222
            
            
            $
            7.02
            
            
            
            14,222
            
            
            
            25,000May
      1 - 31, 2010
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            
            25,000June
      1 - 30, 2010
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            
            25,000Total
            
            
            14,222
            
            
            
            
            
            
            
            14,222




(1)
            The Company’s board of
      directors approved a stock repurchase program on November 12, 2008 for the
      repurchase of up to 924,480 shares of common stock, and on December 11,
      2008, they increased the number of shares that may be repurchased pursuant
      to that plan by an additional 382,641 shares.  The plan has no
      expiration date.





On April
27, 2010, the Board of Directors of the Company authorized an increase in the
number of shares that may be repurchased pursuant to the Company’s current stock
repurchase plan that was previously announced on November 12, 2008 and expanded
on December 12, 2008.  Under the newly expanded repurchase plan, the
Company is authorized to repurchase an additional 25,000 shares, representing
approximately 0.31% of the Company’s issued and outstanding shares of common
stock as of April 28, 2010.  As of April 27, 2010, the Company had
repurchased all of the 1,307,121 shares of its common stock that had been
previously authorized for repurchase.








Item3 - Defaults upon Senior Securities.





Not
applicable.





Item 4 – [Reserved].





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.


43
 Index





FIRST
CLOVER LEAF FINANCIAL CORP.


SIGNATURES








Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.





FIRST CLOVER LEAF FINANCIAL
CORP.


(Registrant)





DATE:   August 16,
      2010
            BY:
            /s/ Dennis M. TerryDennis
      M. Terry, President and Chief Executive OfficerBY:
            /s/ Darlene F. McDonaldDarlene
      F. McDonald, Senior Vice-President and Chief Financial
    Officer






44