UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)


x           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 2010





OR





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





Commission file number 000-50820





FIRST CLOVER LEAF FINANCIAL CORP.


(Exact name of registrant as specified in its charter)





Maryland

20-4797391(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)





6814 Goshen Road, Edwardsville, IL

62025(Address of principal executive office)

(Zip Code)





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





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





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes  o  Noo





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).


Yes o  No  x





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





Class

Outstanding May 13, 2010Common Stock, par value $.10 per share

7,937,702










FIRSTCLOVER LEAF FINANCIAL CORP.





FORM 10-Q





FOR THE QUARTER ENDED MARCH 31, 2010





INDEX





PAGE NO.PART I - Financial InformationItem 1.
Financial Statements (Unaudited)Consolidated Balance Sheets
3Consolidated Statements of Income
4Consolidated Statements of Comprehensive Income
5Consolidated Statements of Cash Flows
6Notes to Consolidated Financial Statements
8Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
24Item 3.
Quantitative and Qualitative Disclosures about Market Risk
36Item 4.
Controls and Procedures
38PART II - Other InformationItem 1.
Legal Proceedings
39Item 1A.
Risk Factors
39Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
39Item 3.
Defaults Upon Senior Securities
40Item 4.
[Reserved]
40Item 5.
Other Information
40Item 6.
Exhibits
40Signatures
41


Index


FIRSTCLOVER LEAF FINANCIAL CORP.





Consolidated Balance Sheets


(Unaudited)





March 31,


December 31,Assets

2010


2009Cash and due from banks

$
7,388,243


$
14,104,442Interest-earning deposits


11,855,216



14,306,726Federal funds sold


29,294,461



19,585,586Total cash and cash equivalents


48,537,920



47,996,754Securities available for sale


96,204,300



86,407,138Federal Home Loan Bank stock


6,306,273



6,306,273Loans, net of allowance for loan lossesof $6,373,323 and $6,316,829, respectively


405,685,741



410,110,923Loans held for sale


1,033,000



1,787,900Property and equipment, net


10,949,909



11,096,748Accrued interest receivable


2,057,150



2,183,520Prepaid Federal Deposit Insurance Corporation insurance premiums


2,823,552



2,993,995Goodwill


11,385,323



11,385,323Core deposit intangible


1,381,001



1,480,001Foreclosed assets


2,044,827



1,084,548Mortgage servicing rights


683,794



680,776Other assets


2,094,863



2,012,715Total assets

$
591,187,653


$
585,526,614Liabilities and Stockholders' EquityLiabilities:Deposits:Non-interest bearing deposits

$
31,767,667


$
49,533,776Interest bearing deposits


411,495,421



393,020,692Total deposits


443,263,088



442,554,468Federal Home Loan Bank advances


38,419,000



39,924,000Securities sold under agreements to repurchase


24,790,299



18,936,168Subordinated debentures


3,941,224



3,930,208Accrued interest payable


904,492



1,211,552Other liabilities


2,570,954



2,041,941Total liabilities


513,889,057



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; 7,951,924 and 7,960,523 shares outstandingat March 31, 2010 and December 31, 2009, respectively


1,014,212



1,014,212Additional paid-in capital


81,364,274



81,360,749Retained earnings


12,944,937



12,451,069Accumulated other comprehensive income


1,648,946



1,726,434Unearned Employee Stock Ownership Plan shares


(603,951
)


(614,932
)Treasury Stock, at cost; 2,190,199 and 2,181,600 shares atMarch 31, 2010 and December 31, 2009, respectively


(19,069,822
)


(19,009,255
)Total stockholders' equity


77,298,596



76,928,277Total liabilities and stockholders' equity

$
591,187,653


$
585,526,614





See Accompanying Notes to Consolidated Financial Statements.


3
 Index


FIRSTCLOVER LEAF FINANCIAL CORP.





Consolidated Statements of Income


(Unaudited)





Three Months EndedMarch 31,2010


2009Interest income:Interest and fees on loans

$
5,739,713


$
6,136,907Securities:Taxable interest income


647,413



940,376Non-taxable interest income


154,275



131,105Interest-earning deposits, federal funds sold, and other


19,038



60,028Total interest income


6,560,439



7,268,416Interest expense:Deposits


2,040,167



2,593,066Federal Home Loan Bank advances


342,429



469,366Securities sold under agreements to repurchase


6,452



20,239Subordinated debentures


73,701



73,701Total interest expense


2,462,749



3,156,372Net interest income


4,097,690



4,112,044Provision for loan losses


423,000



240,270Net interest income after provision for loan losses


3,674,690



3,871,774Non-interest income:Service fees on deposit accounts


83,621



65,741Other service charges and fees


84,540



58,899Loan servicing fees


49,063



43,252Gain on sale of loans


66,761



214,015Other


14,874



21,027Total non-interest income


298,859



402,934Non-interest expense:Compensation and employee benefits


1,164,885



1,133,963Occupancy expense


354,762



372,757Data processing services


165,125



132,595Director fees


50,650



55,100Professional fees


36,998



202,831Federal Deposit Insurance Corporation insurance premiums


195,083



54,851Amortization of core deposit intangible


99,000



131,000Amortization of mortgage servicing rights


26,133



91,222Other


409,372



434,998Total non-interest expense


2,502,008



2,609,317Income before income taxes


1,471,541



1,665,391Income taxes


511,029



611,496Net income

$
960,512


$
1,053,895Basic and diluted income per share (see Note 6)

$
0.12


$
0.12Dividends per share

$
0.06


$
0.06





See Accompanying Notes to Consolidated Financial Statements.


4
 Index


FIRSTCLOVER LEAF FINANCIAL CORP.





Consolidated Statements of Comprehensive Income


(Unaudited)





Three Months EndedMarch 31,2010


2009Net income

$
960,512


$
1,053,895Other comprehensive income (loss):Unrealized gains (losses) on securitiesarising during the period, net of tax


(77,488
)


240,757Comprehensive income

$
883,024


$
1,294,652





See Accompanying Notes to Consolidated Financial Statements.


5
 Index


FIRSTCLOVER LEAF FINANCIAL CORP.





Consolidated Statements of Cash Flows


(Unaudited)





Three Months EndedMarch 31,2010


2009Cash flows from operating activities:Net income

$
960,512


$
1,053,895Adjustments to reconcile net income to net cash provided by(used in) operating activities:Amortization of:Deferred loan origination costs, net


7,616



22,783Premiums and discounts on securities


(186,262
)


(71,500
)Core deposit intangible


99,000



131,000Mortgage servicing rights


26,133



91,222Amortization of fair value adjustments on:Loans


(14,200
)


(31,000
)Time deposits


(15,000
)


(64,168
)Federal Home Loan Bank advances


(5,000
)


(8,999
)Subordinated debentures


11,016



11,016Investment securities


(12,750
)


(14,700
)Property and equipment


4,018



4,018Provision for loan losses


423,000



240,270Depreciation expense


157,322



178,546ESOP expense


14,506



15,676Gain on sale of loans


(66,761
)


(214,015
)Loss on sale of property and equipment


2,196



-Gain on sale of foreclosed real estate


(14,400
)


(3,700
)Proceeds from sales of loans held for sale


3,103,317



10,451,491Originations of loans held for sale


(2,281,656
)


(16,235,260
)Change in assets and liabilities:Decrease (increase) in prepaid Federal Deposit InsuranceCorporation insurance premiums


170,443



(39,714
)Decrease (increase) in accrued interest receivable


126,370



(50,157
)Increase in mortgage servicing rights


(29,151
)


(108,517
)Increase in other assets


(82,148
)


(265,184
)Decrease in accrued interest payable


(307,060
)


(42,264
)Increase in other liabilities


574,632



915,541Net cash flows provided by (used in) operating activities


2,665,693



(4,033,720
)Cash flows from investing activities:Proceeds from maturity of interest-earning time deposits


-



5,210,461Purchase of interest-earning time deposits


-



(15,634,230
)Available for sale securities:Purchases


(109,605,000
)


(11,000,000
)Proceeds from calls, maturities and paydowns


99,883,743



15,693,843Decrease in loans; principal collections, net of loan originations


2,787,089



13,400,710Purchase of property and equipment


(16,697
)


(402,741
)Proceeds from the sale of foreclosed real estate


275,798



531,979Net cash flows provided by (used in) investing activities

$
(6,675,067
)

$
7,800,022(Continued)





6
 Index


FIRST CLOVER LEAF FINANCIAL CORP.





Consolidated Statements of Cash Flows (Continued)


(Unaudited)





Three Months EndedMarch 31,2010


2009Cash flows from financing activities:Net increase in deposits

$
723,620


$
11,386,895Net (decrease) increase in securities sold under agreementsto repurchase


5,854,131



(24,314,147
)Proceeds from Federal Home Loan Bank advances


-



5,000,000Repayment of Federal Home Loan Bank advances


(1,500,000
)


(6,454,920
)Repurchase of Common Stock


(60,567
)


(1,778,551
)Cash dividends


(466,644
)


(516,989
)Net cash flows provided by (used in) financing activities


4,550,540



(16,677,712
)Net increase (decrease) in cash and cash equivalents


541,166



(12,911,410
)Cash and cash equivalents at beginning of period


47,996,754



67,135,384Cash and cash equivalents at end of period

$
48,537,920


$
54,223,974Supplemental disclosures of cash flow information:Cash paid during the period for:Interest

$
2,778,793


$
3,260,787Income tax payments, net


-



(112,407
)Non-cash transactionsLoans transferred to foreclosed assets


1,221,677



931,882





See Accompanying Notes to Consolidated Financial Statements.


7
 Index


FIRSTCLOVER 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 an exhibit 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 months ended March 31, 2009, to be consistent with the classifications adopted for the three months ended March 31, 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:





March 31,


December 31,2010


2009Core deposit intangible

$
3,258,000


$
3,258,000Accumulated amortization


1,876,999



1,777,999Total

$
1,381,001


$
1,480,001




Amortization expense on the core deposit intangible for the three months ended March 31, 2010 and 2009 was $99,000 and $131,000, respectively.





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





CoreDepositIntangibleNine months ending December 31, 2010

$
260,000Year 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 table sets forth the composition of our available for sale securities portfolio at the dates indicated:





March 31, 2010Gross


GrossAmortized


Unrealized


Unrealized


FairCost


Gains


(Losses)


ValueInvestment Securities:U.S. government sponsored agency obligations

$
62,137,024


$
718,150


$
(74,174
)

$
62,781,000Corporate bonds


2,596,319



48,592



(71,395
)


2,573,516State and municipal securities


12,016,685



860,800



-



12,877,485Other Securities


3,501



-



-



3,501Mortgage-backed securities


16,833,373



1,135,608



(183
)


17,968,798Total Investment Securities available for sale

$
93,586,902


$
2,763,150


$
(145,752
)

$
96,204,300





December 31, 2009Gross


GrossAmortized


Unrealized


Unrealized


FairCost


Gains


(Losses)


ValueInvestment Securities:U.S. government sponsored 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 March 31, 2010 and December 31, 2009, are summarized as follows:





March 31, 2010Less than 12 Months


12 Months or More


TotalFair


Unrealized


Fair


Unrealized


Fair


UnrealizedValue


loss


Value


loss


Value


lossU.S. government sponsoredagency obligations

$
20,040,650


$
74,174


$
-


$
-


$
20,040,650


$
74,174Corporate bonds


-



-



775,605



71,395



775,605



71,395Mortgage-backed securities


8,085



183



-



-



8,085



183$
20,048,735


$
74,357


$
775,605


$
71,395


$
20,824,340


$
145,752





December 31, 2009Less than 12 Months


12 Months or More


TotalFair


Unrealized


Fair


Unrealized


Fair


UnrealizedValue


loss


Value


loss


Value


lossU.S. government sponsoredagency 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 March 31, 2010, the Company had 17 securities in an unrealized loss position which included: 14 U.S. government sponsored agency obligations, two corporate bonds, and one mortgaged-backed security.  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 March 31, 2010.


11
 Index


FIRST CLOVER LEAF FINANCIAL CORP.
 
 Notes to Consolidated Financial Statements


(3)
Investment Securities (Continued):





The amortized cost and fair value at March 31, 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

$
11,194,573


$
11,271,045Due after one year through five years


45,890,512



46,864,755Due after five years through ten years


17,649,804



18,026,274Due after ten years


2,015,139



2,069,927Mortgage-backed securities


16,833,373



17,968,798Other securities


3,501



3,501$
93,586,902


$
96,204,300





Securities with a carrying amount of approximately $83,240,000 and $78,977,000 were pledged to secure deposits as required or permitted by law at March 31, 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 March 31,


At December 31,2010


2009Amount


Percent


Amount


PercentReal Estate LoansOne- to four-family residential loans(1)

$
93,139,835



22.5
%

$
98,080,406



23.4
%Multi-family


21,298,082



5.1



20,946,534



5.0Commercial


181,039,942



43.6



179,923,276



42.8Construction and land


44,070,043



10.6



45,447,453



10.8Total real estate loans


339,547,902



81.8



344,397,669



82.0Commercial business


62,298,748



15.0



63,134,579



15.0Consumer Loans


13,424,584



3.2



12,477,438



3.0Total loans and loans held for sale


415,271,234



100.0
%


420,009,686



100.0
%Less:Undisbursed portion of construction loans


2,151,495







1,772,947Deferred loan origination fees, net


27,675







21,087Allowance for loan losses


6,373,323







6,316,829Total loans and loans held for sale, net

$
406,718,741






$
411,898,823





(1) Includes loans held for sale of $1,033,000 and $1,787,900 at March 31, 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:





March 31,


December 31,2010


2009Loans 90 days or more past due and still accruing

$
1,232,812


$
2,580,077Nonaccrual loans, including $12,773,465 and $10,689,777 classified asimpaired as of March 31, 2010 and December 31, 2009, respectively


13,838,514



11,733,209Other impaired loans


13,512,348



14,818,500Total nonperforming and impaired loans

$
28,583,674


$
29,131,786Specific allowance for loan losses on nonperforming and impaired loans

$
2,032,759


$
1,909,854





Asset Quality Ratios:





Non-performing assets and impaired loans to total assets


5.18
%


5.16
%Non-performing and impaired loans to total loans


7.03



7.07Allowance for loan losses to non-performing and impaired loans


22.30



21.68Allowance for loan losses to total loans


1.57



1.53





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





Three Months EndedMarch 31,2010


2009Balance at beginning of period

$
6,316,829


$
3,895,246Charge-offs


(435,894
)


(82,284
)Recoveries


69,388



-Provision charged to expense


423,000



240,270Balance at end of period

$
6,373,323


$
4,053,232





Further discussion of asset quality and of the adequacy of the allowance for loan losses at March 31, 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 per Share:





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





Three Months EndedMarch 31,2010


2009Net earnings available to common stockholders

$
960,512


$
1,053,895Basic potential common shares:Weighted average shares outstanding


7,953,937



8,716,104Weighted average unallocated Employee StockOwnership Plan shares


(119,027
)


(127,531
)Basic weighted average shares outstanding


7,834,910



8,588,573Dilutive potential common shares


-



-Dilutive weighted average shares outstanding


7,834,910



8,588,573Basic and diluted earnings per share

$
0.12


$
0.12





(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 $14,506 and $15,676 was incurred for the three months ended March 31, 2010 and 2009, respectively.


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 March 31, 2010 and December 31, 2009:





March 31,


December 31,2010


2009Unallocated shares (fair value at March 31, 2010 andDecember 31, 2009 of $814,969 and $875,025, respectively)


116,925



119,051Allocated Shares


53,834



51,708Total ESOP Shares


170,759



170,759





(8)
Recent Accounting Pronouncements:





In June 2009, the FASB issued revised guidance for accounting for the transfers of financial assets.  The guidance removes the concept of a qualifying special-purpose entity.  This guidance also clarifies the requirements for isolation and limitations on portions of financial assets eligible for sale accounting.  This guidance is effective for fiscal years beginning after November 15, 2009.  The Company adopted this standard for the interim reporting period ending March 31, 2010.  The adoption of the statement did not have a material impact on the company’s financial position, results of operations or cash flows.





In August 2009, the FASB issued ASU 2009-05, Fair Value Measurements and Disclosures (Topic 820)—Measuring Liabilities at Fair Value.  ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value of such liability using one or more of the techniques prescribed by the update.  The Company is currently evaluating the impact that adoption of this accounting guidance will have on the Company’s consolidated financial statements.





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.


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 March 31, 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.





Securities available for sale:  When available, quoted market prices are used to determine the fair value of investment securities and such items are classified within Level 1 of the fair value hierarchy.  An example is U.S. Treasury securities.  For other securities, the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar bonds where a price for the identical bond is not observable.  Securities measured at fair value by such methods are classified as Level 2.




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





Loans:  Fair values are estimated for portfolios of loans with similar financial characteristics.  Loans are 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.





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


17
 Index


FIRST CLOVER LEAF FINANCIAL CORP.
 
 Notes to Consolidated Financial Statements


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





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:  The fair value of fixed rate trust preferred debentures are 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:





March 31, 2010


December 31, 2009Carrying


Fair


Carrying


FairAmount


Value


Amount


ValueFinancial assets:Cash and cash equivalents

$
48,537,920


$
48,537,920


$
47,996,754


$
47,996,754Securities available for sale


96,204,300



96,204,300



86,407,138



86,407,138Federal Home Loan Bank stock


6,306,273



6,306,273



6,306,273



6,306,273Loans, net


406,718,741



403,540,435



411,898,823



412,792,748Accrued interest receivable


2,057,150



2,057,150



2,183,520



2,183,520Financial liabilities:Non-interest bearing deposits


31,767,667



31,767,667



49,533,776



49,533,776Interest bearing deposits


411,495,421



413,634,028



393,020,692



395,518,484Federal Home Loan Bank advances


38,419,000



39,032,705



39,924,000



40,471,672Securities sold under agreementto repurchase


24,790,299



24,790,299



18,936,168



18,936,168Subordinated debentures


3,941,224



4,003,884



3,930,208



3,992,868Accrued interest payable


904,492



904,492



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,


19
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FIRST CLOVER LEAF FINANCIAL CORP.
 
 Notes to Consolidated Financial Statements


(10)
Fair Value Measurements (Continued):





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.





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





March 31, 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 sponsored agency obligations

$
-


$
62,781,000


$
-


$
62,781,000Corporate bonds


-



2,573,516



-



2,573,516State and municipal securities


-



12,877,485



-



12,877,485Other securities


-



3,501



-



3,501Mortgage-backed securities


-



17,968,798



-



17,968,798Total Investment Securites available for sale

$
-


$
96,204,300


$
-


$
96,204,300





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 sponsored 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
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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 March 31, 2010 and December 31, 2009 are summarized below:





March 31, 2010Quoted Prices in Active Markets for Identical Assets


Significant Other Observable Inputs


Significant Unobservable Inputs(Level 1)


(Level 2)


(Level 3)


TotalImpaired loans

$
-


$
24,045,161


$
207,893


$
24,253,054Foreclosed assets


-



2,044,827



-



2,044,827Goodwill


-



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 specific reserves or by recording charge-offs when the carrying value exceeds the fair value of the collateral.  As of March 31, 2010, these loans totaled $24.3 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 March 31, 2010.  Subsequent reversal of goodwill impairment losses is not permitted.


22
 Index


FIRST CLOVER LEAF FINANCIAL CORP.
 
 Notes to Consolidated Financial Statements


(12)
Subsequent Events:





On April 27, 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 March 31, 2010. The dividend will be payable to stockholders of record as of May 14, 2010 and is expected to be paid on May 21, 2010.





Also 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.


23
 Index


FIRSTCLOVER LEAF FINANCIAL CORP.


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.


24
 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


25
 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 March 31, 2010, no indications of impairment existed for which an interim assessment was considered necessary.  Future events, such as adverse changes to First Clover Leaf’s business or changes in the economic market, could cause management to conclude that impairment indicators exist and require management to re-evaluate goodwill.  Should such re-evaluation determine goodwill is impaired; the resulting impairment loss recognized could have a material, adverse impact on First Clover Leaf’s financial condition and results of operations.  In accordance with current accounting guidance, management has determined that the Company has only one reporting unit for purposes of evaluating goodwill.  See Item 1 Note 11 for additional information on goodwill impairment.





Overview





Net income decreased to $961,000 for the three months ended March 31, 2010 from $1.1 million for the same period last year.  The decrease in net income was due primarily to an increase in provision for loan losses and a decrease in non-interest income, resulting primarily from a decrease in gains on loan sales.  We experienced a decrease in interest income which was offset by a decrease in interest expense as well as a decrease in non-interest income which was offset by a decrease in non-interest expense.  Basic and diluted income per share was $0.12 for each of the three month periods ended March 31, 2010, and 2009 due to the decrease in outstanding shares.





Financial Condition





Total Assets.  Total assets increased to $591.2 million at March 31, 2010 from $585.5 million at December 31, 2009.  Total cash and cash equivalents increased slightly to $48.5 million at March 31, 2010 from $48.0 million at December 31, 2009.  The increase in cash and cash


26
 Index


FIRST CLOVER LEAF FINANCIAL CORP.





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





equivalents was due primarily to an increase in federal funds sold offset by decreases in cash and due from banks and in interest-earning deposits.





Securities available for sale increased to $96.2 million at March 31, 2010 from $86.4 million at December 31, 2009.  The increase was due primarily to purchases of $109.6 million partially offset by calls, maturities and pay-downs of $99.9 million.





Loans, net amounted to $406.7 million at March 31, 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 in the construction and land, and commercial business categories has significantly declined.





Foreclosed assets increased to $2.0 million at March 31, 2010 from $1.1 million at December 31, 2009.  We reclassified four loans into foreclosed assets during the three months ended March 31, 2010.  During the same time period we sold one property that had been classified as a foreclosed asset.





Total Liabilities.  Deposits increased slightly to $443.3 million at March 31, 2010 from $442.6 million at December 31, 2009.  Federal Home Loan Bank advances at March 31, 2010 were $38.4 million compared to $39.9 million at December 31, 2009.  Securities sold under agreements to repurchase increased to $24.8 million at March 31, 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 $77.3 million at March 31, 2010 from $76.9 million at December 31, 2009, principally as a result of $961,000 in net income partially offset by the payment of cash dividends of $467,000.





Asset Quality





The Company has experienced an increased level of 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; however, they total an immaterial portion of our loan portfolio.  The Company is reviewing these loans regularly and has not seen any significant 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 March 31, 2010, the Company’s non-accrual loans increased $2.1 million to $13.8 million from $11.7 million at December 31, 2009.  At March 31, 2010, First Clover Leaf Bank had seven relationships classified as non-accrual with balances in excess of $500,000.  The largest non-accrual relationship is a $3.9 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 a new appraisal was obtained in the first quarter of 2010. The loan is being re-evaluated on a quarterly basis.  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. The borrower and the Bank are currently working with a


27
 Index


FIRST CLOVER LEAF FINANCIAL CORP.





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





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 $1.2 million loan for a mobile home park.  This credit was reviewed at year end 2009, and a $600,000 charge-off was recorded.  A new appraisal was ordered on this property in March 2010, and the results of that appraisal have not yet been received.  The fifth non-accrual relationship is a $1.3 million loan to a real estate investor.  This relationship relates to several loans which are all related by common ownership.  These loans are primarily secured by single-family residential properties, along with one multi-family property and one 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 $723,000 loan to a real estate developer.  The primary collateral consists of 32 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 seventh non-accrual relationship is a $707,000 loan on a commercial property.  The property is currently listed for sale.  If the property does not sell in a timely manner, we will proceed with foreclosure.   A new appraisal was ordered on the property and the Bank is awaiting the results.  The Bank believes the collateral is sufficient to cover the loan balance.





At March 31, 2010, our other impaired loans amounted to $13.5 million compared to $14.8 million at December 31, 2009.  There are three other impaired loans with balances in excess of $1.0 million at March 31, 2010.  The largest loan is a $6.7 million loan to a builder with excess inventory.  This loan is secured by residential investment property for which updated appraisals have been obtained.  Currently the collateral on this loan is sufficient to cover the majority of the outstanding balance, and we believe sufficient reserves were set aside in 2009 for the remaining outstanding balance.  The loan was restructured to allow for a period of interest only payments.  The borrower is in compliance with the modified terms.  The second loan is a $1.9 million credit on a commercial real estate property.  This loan was downgraded because the borrower was struggling with cash flow during a slow period in the business cycle.  A new appraisal was obtained in the first quarter of 2010, and the collateral is sufficient to cover the loan balance.  The third loan is 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 Bank is currently working with the developer on 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 22.30% at March 31, 2010 compared to 21.68% at December 31, 2009.  While the change in the ratio for the period ended March 31, 2010 compared to the period ended December 31, 2009 is not significantly different, the ratio did experience a significant decline during the year 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.


28
 Index


FIRST CLOVER LEAF FINANCIAL CORP.





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





Results of Operations





General.  Net income decreased to $961,000 for the three months ended March 31, 2010 from $1.1 million for the same period last year.  The decrease in net income was due primarily to an increase in provision for loan losses.  We experienced a decrease in interest income which was offset by a decrease in interest expense as well as a decrease in non-interest income which was offset by a decrease in non-interest expense.  Basic and diluted income per share was $0.12 for each of the three month periods ended March 31, 2010, and 2009.





Yields on all interest-earning assets continued to decline for the three months ended March 31, 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.  Despite the decline in our interest-earning asset yield, 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 remained at $4.1 million for the three months ended March 31, 2010 and 2009.  Net average interest-earning assets, which represents our average total interest-earning assets less our average total interest-bearing liabilities, were $83.0 million for the three months ended March 31, 2010, compared to $67.9 million for the same period in 2009.  The ratio of interest-earning assets to interest-bearing liabilities increased to 117.48% for the three months ended March 31, 2010 from 112.50% for the same period in 2009.  The net interest rate spread increased to 2.67% for the three months ended March 31, 2010, compared to 2.46% for the comparable period in 2009.  The average rate earned on interest-earning assets decreased by five basis points for the three months ended March 31, 2010 to 4.77% from 4.82% for the same period in 2009, while the average rate paid on interest-bearing liabilities decreased by 26 basis points during these periods.  The increase in the interest rate spread was attributable to the cost of funds declining faster than the yield on interest-earning assets.


29
 Index


FIRST CLOVER LEAF FINANCIAL CORP.





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





The following tables set forth the average balance sheets, average yields and 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 March 31,


Three Months Ended March 31,2010


2009Average Outstanding Balance


Interest (4)


Yield/ Rate


Average Outstanding Balance


Interest(4)


Yield/ Rate(Dollars in thousands)Interest-earning assets:Loans, gross

$
416,101


$
5,740



5.59
%

$
429,261


$
6,137



5.80
%Securities


94,757



801



3.43



99,139



1,071



4.38Federal Home Loan Bank stock


6,306



-



-



6,306



-



-Interest-earning balances from depository institutions


41,001



19



0.19



76,379



60



0.32Total interest-earning assets


558,165



6,560



4.77



611,085



7,268



4.82Non-interest-earning assets


39,561











54,127Total assets

$
597,726










$
665,212Interest-bearing liabilities:Interest-bearing transaction

$
179,105



564



1.28


$
212,992



690



1.31Savings deposits


18,857



39



0.84



18,338



67



1.48Time deposits


200,336



1,437



2.91



210,029



1,837



3.55Securities sold under agreements to repurchase


33,464



7



0.08



48,307



20



0.17Federal Home Loan Bank advances


39,422



342



3.52



49,650



469



3.83Subordinated debentures


3,934



74



7.63



3,890



74



7.71Total interest-bearing liabilities


475,118



2,463



2.10



543,206



3,157



2.36Non-interest-bearing liabilities


45,178











28,239Total liabilities


520,296











571,445Stockholders’ equity


77,430











93,767Total liabilities and stockholders’ equity

$
597,726










$
665,212Net interest income





$
4,097










$
4,111Net interest rate spread (1)










2.67
%










2.46
%Net interest-earning assets (2)

$
83,047










$
67,879Net interest margin (3)










2.98
%










2.73
%Ratio of interest-earning assets to interest-bearing liabilities










117.48
%










112.50
%





(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 represents 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 $36,669 and $51,898 for the three months ended March 31, 2010 and 2009, respectively.


30
 Index


FIRST CLOVER LEAF FINANCIAL CORP.





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





Interest and fee income.  Interest and fee income on loans decreased to $5.7 million for the three months ended March 31, 2010 from $6.1 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 $416.1 million and $429.3 million for the three months ended March 31, 2010 and 2009, respectively. The average balance decreased primarily due to declines in new loan demand in the construction and land, and commercial business categories due to the current economic environment.  The average yield on loans decreased to 5.59% for the three months ended March 31, 2010 from 5.80% for the comparable period in 2009.





Interest income on securities decreased to $801,000 for the three months ended March 31, 2010 from $1.1 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 $94.8 million and $99.1 million for the three months ended March 31, 2010 and 2009, respectively.  The declining rate environment 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 3.43% from 4.38% for the three months ended March 31, 2010 and 2009, respectively.





Interest on other interest-earning deposits decreased to $19,000 for the three months ended March 31, 2010 from $60,000 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 $41.0 million from $76.4 million for the three months ended March 31, 2010 and 2009, respectively.  The average yield on other interest-earning deposits decreased to 0.19% for the three months ended March 31, 2010 from 0.32% for the comparable period in 2009.




Interest expense.  Interest expense on deposits decreased to $2.0 million for the three months ended March 31, 2010 and 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 $398.3 million and $441.4 million for the three months ended March 31, 2010 and 2009, respectively.  The largest yield decline for the three months ended March 31, 2010 compared to the same period in 2009 was in time deposits and savings deposits which experienced a yield decline of 64 basis points each, followed by the yield on interest-bearing transactions which declined only three basis points.





Interest expense on securities sold under agreements to repurchase decreased to $7,000 for the three months ended March 31, 2010 from $20,000 for the three months ended March 31, 2009.  The decrease was due to a decline in yield in addition to a lower average balance.  The average balance decreased to $33.5 million from $48.3 million for the three months ended March 31, 2010 and 2009, respectively.  The yield decreased to 0.08% for the three months ended March 31, 2010 from 0.17% for the comparable period in 2009.





Interest expense on Federal Home Loan Bank advances decreased to $342,000 from $469,000 for the three months ended March 31, 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 $39.4 million and $49.7 million for the three months ended March 31, 2010 and 2009, respectively.  The average yield on Federal Home Loan Bank advances decreased to 3.52% for the three months ended March 31, 2010 compared to 3.83% for the comparable period in 2009.


31
 Index


FIRST CLOVER LEAF FINANCIAL CORP.





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





Provision for loan losses.  Provision for loan losses increased to $423,000 from $240,000 for the three months ended March 31, 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 decreased to $299,000 for the three months ended March 31, 2010 from $403,000 for the comparable period in 2009.  While service fees on deposit accounts and other service charges and fees did increase, these increases were offset by a significant decrease in gain on sale of loans.  This income category decreased $147,000 to $67,000 for the three months ended March 31, 2010 compared to $214,000 for the same period in 2009.  This was partially due to the high level of refinancing activity in 2009 related to record low mortgage rates, as we sold newly-originated, longer-term loans to manage interest rate risk.





Non-interest expense.  Non-interest expense decreased $107,000 to $2.5 million for the three months ended March 31, 2010 from $2.6 million for the same period in 2009.





Professional fees decreased to $37,000 for the three months ended March 31, 2010 compared to $203,000 for the comparable period in 2009.  This decrease was due primarily to 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 increased to $195,000 for the three months ended March 31, 2010 compared to $55,000 for the comparable period in 2009.  The increase was due to increased insurance assessment rates.





Amortization of mortgage servicing rights totaled $26,000 for the three months ended March 31, 2010 compared to $91,000 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 causing accelerated amortization.





Income taxes.  Income taxes decreased to $511,000 for the three months ended March 31, 2010 from $611,000 for the comparable period in 2009.  The primary reason for the change in income taxes was the lower level of pre-tax income for the 2010 period.


32
 Index


FIRST CLOVER LEAF FINANCIAL CORP.





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





Liquidity and Capital Resources





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




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




A portion of our liquidity consists of cash and cash equivalents, which are a product of our operating, investing and financing activities.  At March 31, 2010 and December 31, 2009, $48.5 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 three months ended March 31, 2010 principal collections on loans, net of originations totaled $2.8 million compared to $13.4 million for the three months ended March 31, 2009.  Cash received from calls, maturities, and paydowns of available-for-sale investment securities totaled $99.9 million and $15.7 million for the three months ended March 31, 2010 and 2009, respectively.  We purchased $109.6 million and $11.0 million in available-for-sale investment securities during the three months ended March 31, 2010 and 2009, respectively.  We did not receive any proceeds from the maturities of interest-earning time deposits during the three months ended March 31, 2010 compared to $5.2 million received for the same period in 2009.  We did not invest in interest-earning time deposits for the three months ended March 31, 2010 compared to $15.6 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 increased by $724,000 for the three months ended March 31, 2010.  During the comparable period in 2009 the net increase in deposits was $11.4 million.  Securities sold under agreements to repurchase had a net increase of $5.9 million and a net decrease of $24.3 million for the three months ended March 31, 2010 and 2009, respectively.  There were no proceeds from Federal Home Loan Bank advances for the three months ended March 31, 2010 compared to proceeds of $5.0 million for the three months ended March 31, 2009.  Repayments of such advances totaled $1.5 million for the three months ended March 31, 2010 compared to $6.5 million for the same period in 2009.  Repurchases of the Company’s common


33
 Index


FIRST CLOVER LEAF FINANCIAL CORP.





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





stock were $61,000 and $1.8 million for the three months ended March 31, 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 March 31, 2010, we had $38.4 million of advances from the Federal Home Loan Bank of Chicago and additional available credit of approximately $16.3 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 March 31, 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-balance sheet items as calculated under regulatory accounting practices.




The Bank’s actual and required capital amounts and ratios at March 31, 2010 were as follows:





Minimum Requiredfor Capital


to be "WellActual


Adequacy


Capitalized"Amount


Ratio


Amount


Ratio


Amount


Ratio(Dollars in Thousands)Stockholders' equity

$
70,592Goodwill and core deposit intangible


(12,766
)Disallowed servicing assets


(684
)Unrealized gain on securities AFS, net


(1,648
)Tangible capital to adjusted total assets

$
55,494



9.8
%

$
8,518



1.5
%


N/A



-Allowance as limited by regulatory guidance


5,184Deduction for low-level recourse


(1,607
)Total capital to risk-weighted assets

$
59,071



14.2
%

$
33,177



8.0
%

$
41,471



10.0
%Tier 1 capital to risk-weighted assets

$
55,494



13.4
%

$
N/A



-


$
24,882



6.0
%Tier 1 capital to total assets

$
55,494



9.8
%

$
22,714



4.0
%

$
28,393



5.0
%


34
 Index


FIRST CLOVER LEAF FINANCIAL CORP.





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





Off-Balance Sheet Arrangements




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




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




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





A summary of the notional or contractual amounts of financial instruments, with off-balance-sheet risk at March 31, 2010 follows:





Range ofVariable


Fixed





Rates onRate


Rate


Total


Fixed RateCommitments


Commitments


Commitments


CommitmentsCommitments to extend credit

$
35,492,891


$
9,910,618


$
45,403,509



3.25%-18.00
%Standby letters of credit

$
1,785,058


$
4,081,414


$
5,866,472



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 March 31, 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.


35
 Index


FIRSTCLOVER LEAF FINANCIAL CORP.





Item 3.   Quantitative and Qualitative Disclosures about Market Risk





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





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





The Office of Thrift Supervision 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.  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.


36
 Index


FIRST CLOVER LEAF FINANCIAL CORP.





The table below sets forth, as of 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.





December 31, 2009NPV


Net Portfolio Value as a Percentage of Present Value of AssetsEstimated Increase (Decrease) in NPVChange in Interest Rates

Estimated NPV

Amount


Percent


NPV Ratio


Change(Dollars in thousands)+300
bp

$
61,633


$
(14,434
)


(19
)%


10.70
%


(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 table above indicates that at December 31, 2009, 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 19% decrease in the net portfolio value.  Management does not believe that the Company’s primary market risk exposures at March 31, 2010, and how those exposures were managed during the three months ended March 31, 2010 have changed significantly when compared to the immediately preceding quarter ended December 31, 2009.  However, the Company’s primary market risk exposure has not yet been quantified at March 31, 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.


37
 Index


FIRSTCLOVER LEAF FINANCIAL CORP.





Item 4.  Controls and Procedures





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





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


38
 Index


FIRSTCLOVER LEAF FINANCIAL CORP.





PART II - Other Information





Item 1 - Legal Proceedings.





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





Item1A – Risk Factors.





There are no material  changes 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.





Item2 – 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)January 1 - 31, 2010


6,349


$
7.06



6,349



16,472February 1 - 28, 2010


2,250


$
7.00



2,250



14,222March 1 - 31, 2010


-


$
-



-



14,222Total


8,599







8,599




(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.


39
 Index


FIRSTCLOVER LEAF FINANCIAL CORP.





Item 3 - Defaults upon Senior Securities.





Not applicable.





Item4 – [Reserved].






Item5 - Other Information.





None





Item6 – 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.


40
 Index


FIRSTCLOVER 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:   May 17, 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






41