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 September 30,
2008





OR





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








Commission
file number 000-50820





FIRST CLOVER LEAF FINANCIAL
CORP.


(Exact
name of registrant as specified in its charter)





Maryland
            
            20-4797391(State
      or other jurisdiction of
            
            (I.R.S.
      Employer Identification No.)incorporation
      or organization)6814 Goshen Road,
      Edwardsville, IL
            
            62025(Address
      of principal executive office)
            
            (Zip
      Code)





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





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





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





Large
      accelerated filer o
            Accelerated
      filer  ýNon-accelerated
      filer o    (do
      not check if smaller reporting company)
            Smaller
      reporting company o








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


Yes o   No
ý.





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








Class
            Outstanding November
      6, 2008Common
      Stock, par value $.10 per share
            9,244,823








FIRST
CLOVER LEAF FINANCIAL CORP.





FORM
10-Q





FOR THE
QUARTER ENDED SEPTEMBER 30, 2008





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
            16Item 3.  Quantitative and Qualitative Disclosures
      about Market Risk
            26Item 4.  Controls and Procedures
            29PART II - Other InformationItem 1.  Legal Proceedings
            30Item 1A.  Risk Factors
            30Item 2.  Unregistered Sales of Equity Securities and
      Use of Proceeds
            31Item 3.  Defaults Upon Senior
      Securities
            31Item 4. Submission of Matters to a Vote of Security
      Holders
            31Item 5.  Other Information
            31Item 6.  Exhibits
            31Signatures
            32











FIRST
CLOVERLEAF FINANCIAL CORP.





Consolidated Balance Sheets


(Unaudited)




September
      30,
              
              
              December
      31,Assets
              
              2008
              
              
              2007Cash
      and due from banks
              
              $
              7,620,097
              
              
              $
              8,927,314Interest-earning
      deposits
              
              
              7,639,320
              
              
              
              2,431,724Federal
      funds sold
              
              
              27,349,625
              
              
              
              25,725,537Total
      cash and cash equivalents
              
              
              42,609,042
              
              
              
              37,084,575Interest-earning
      time deposits
              
              
              5,280,966
              
              
              
              10,048,058Securities
      available for sale
              
              
              77,667,111
              
              
              
              54,150,008Federal
      Home Loan Bank stock
              
              
              5,603,773
              
              
              
              5,603,773Loans,
      net of allowance for loan lossesof
      $2,319,151 and $1,897,945, respectively
              
              
              325,930,828
              
              
              
              284,919,446Loans
      held for sale
              
              
              609,400
              
              
              
              -Property
      and equipment, net
              
              
              10,395,996
              
              
              
              7,396,104Accrued
      interest receivable
              
              
              1,832,535
              
              
              
              1,756,954Mortgage
      servicing rights
              
              
              477,720
              
              
              
              404,441Goodwill
              
              
              9,402,608
              
              
              
              9,402,608Core
      deposit intangible
              
              
              1,211,001
              
              
              
              1,528,001Other
      assets
              
              
              1,489,740
              
              
              
              957,858Total
      assets
              
              $
              482,510,720
              
              
              $
              413,251,826Liabilities
      and Stockholders' EquityLiabilities:Deposits:Non-interest
      bearing deposits
              
              $
              18,421,305
              
              
              $
              14,799,051Interest
      bearing deposits
              
              
              313,719,650
              
              
              
              276,395,967Total
      deposits
              
              
              332,140,955
              
              
              
              291,195,018Federal
      Home Loan Bank advances
              
              
              17,447,919
              
              
              
              10,431,919Securities
      sold under agreements to repurchase
              
              
              41,421,370
              
              
              
              15,893,350Subordinated
      debentures
              
              
              3,875,128
              
              
              
              3,842,080Accrued
      interest payable
              
              
              813,232
              
              
              
              1,107,781Other
      liabilities
              
              
              2,186,484
              
              
              
              2,100,275Total
      liabilities
              
              
              397,885,088
              
              
              
              324,570,423Stockholders'
      Equity:Preferred
      stock, $.10 par value; 10,000,000 sharesauthorized;
      no shares issued
              
              
              -
              
              
              
              -Common
      stock, $.10 par value; 20,000,000 shares authorized;9,074,031
      shares issued; 8,176,731 and 8,582,831 shares outstandingat
      September 30, 2008 and December 31, 2007, respectively
              
              
              907,403
              
              
              
              907,403Additional
      paid-in capital
              
              
              71,124,538
              
              
              
              71,039,791Retained
      earnings
              
              
              22,888,714
              
              
              
              22,522,223Accumulated
      other comprehensive income (loss)
              
              
              (46,911
              )
              
              
              242,750Unearned
      Employee Stock Ownership Plan shares
              
              
              (669,836
              )
              
              
              (645,318
              )Treasury
      Stock, at cost; 897,300 and 491,200 shares atSeptember
      30, 2008 and December 31, 2007, respectively
              
              
              (9,578,276
              )
              
              
              (5,385,446
              )Total
      stockholders' equity
              
              
              84,625,632
              
              
              
              88,681,403Total
      liabilities and stockholders' equity
              
              $
              482,510,720
              
              
              $
              413,251,826See
      Accompanying Notes to Consolidated Financial Statements.


3


FIRST
CLOVER LEAF FINANCIAL CORP.





ConsolidatedStatements of Income


(Unaudited)




Three
      Months Ended
              
              
              Nine
      Months EndedSeptember
      30,
              
              
              September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Interest
      and dividend income:Interest
      and fees on loans
              
              $
              5,018,585
              
              
              $
              4,550,662
              
              
              $
              14,700,713
              
              
              $
              13,094,127Securities:Taxable
      interest income
              
              
              548,579
              
              
              
              677,516
              
              
              
              1,826,602
              
              
              
              1,928,903Non-taxable
      interest income
              
              
              48,728
              
              
              
              38,800
              
              
              
              145,707
              
              
              
              115,244Federal
      Home Loan Bank dividends
              
              
              -
              
              
              
              39,119
              
              
              
              -
              
              
              
              129,158Interest-earning
      deposits, federal funds sold, and other
              
              
              160,558
              
              
              
              342,313
              
              
              
              611,894
              
              
              
              1,424,102Total
      interest and dividend income
              
              
              5,776,450
              
              
              
              5,648,410
              
              
              
              17,284,916
              
              
              
              16,691,534Interest
      Expense:Deposits
              
              
              2,556,489
              
              
              
              2,682,261
              
              
              
              7,927,332
              
              
              
              7,589,713Federal
      Home Loan Bank advances
              
              
              188,139
              
              
              
              151,544
              
              
              
              519,224
              
              
              
              432,668Securities
      sold under agreements to repurchase
              
              
              104,151
              
              
              
              177,088
              
              
              
              310,863
              
              
              
              601,541Subordinated
      debentures
              
              
              75,093
              
              
              
              75,094
              
              
              
              223,888
              
              
              
              222,935Total
      interest expense
              
              
              2,923,872
              
              
              
              3,085,987
              
              
              
              8,981,307
              
              
              
              8,846,857Net
      interest income
              
              
              2,852,578
              
              
              
              2,562,423
              
              
              
              8,303,609
              
              
              
              7,844,677Provision
      for loan losses
              
              
              145,000
              
              
              
              134,000
              
              
              
              501,866
              
              
              
              255,000Net
      interest income after provision for loan losses
              
              
              2,707,578
              
              
              
              2,428,423
              
              
              
              7,801,743
              
              
              
              7,589,677Noninterest
      income:Service
      fees on deposit accounts
              
              
              64,319
              
              
              
              48,805
              
              
              
              170,742
              
              
              
              137,176Other
      service charges and fees
              
              
              55,456
              
              
              
              35,108
              
              
              
              130,050
              
              
              
              104,578Loan
      servicing fees
              
              
              18,126
              
              
              
              18,943
              
              
              
              68,378
              
              
              
              76,889Gain
      on sale of loans
              
              
              87,512
              
              
              
              25,019
              
              
              
              214,117
              
              
              
              68,570Gain
      on sale of assets
              
              
              -
              
              
              
              64,126
              
              
              
              -
              
              
              
              64,126Other
              
              
              2,802
              
              
              
              3,496
              
              
              
              10,060
              
              
              
              6,645Total
      noninterest income
              
              
              228,215
              
              
              
              195,497
              
              
              
              593,347
              
              
              
              457,984Noninterest
      expense:Compensation
      and employee benefits
              
              
              901,479
              
              
              
              700,980
              
              
              
              2,529,982
              
              
              
              2,115,082Occupancy
      expense
              
              
              286,214
              
              
              
              239,316
              
              
              
              769,753
              
              
              
              651,252Data
      processing services
              
              
              114,294
              
              
              
              100,628
              
              
              
              338,873
              
              
              
              310,438Director
      fees
              
              
              56,000
              
              
              
              59,550
              
              
              
              188,850
              
              
              
              178,150Professional
      fees
              
              
              111,053
              
              
              
              122,649
              
              
              
              354,328
              
              
              
              370,190Amortization
      of core deposit intangible
              
              
              85,000
              
              
              
              117,000
              
              
              
              317,000
              
              
              
              430,999Amortization
      of mortgage servicing rights
              
              
              14,052
              
              
              
              20,543
              
              
              
              68,929
              
              
              
              61,628Other
              
              
              354,941
              
              
              
              334,252
              
              
              
              986,738
              
              
              
              943,166Total
      noninterest expense
              
              
              1,923,033
              
              
              
              1,694,918
              
              
              
              5,554,453
              
              
              
              5,060,905Income
      before income taxes
              
              
              1,012,760
              
              
              
              929,002
              
              
              
              2,840,637
              
              
              
              2,986,756Income
      taxes
              
              
              367,300
              
              
              
              339,400
              
              
              
              1,026,825
              
              
              
              1,093,950Net
      income
              
              $
              645,460
              
              
              $
              589,602
              
              
              $
              1,813,812
              
              
              $
              1,892,806Basic
      and diluted income per share (see Note 6)
              
              $
              0.08
              
              
              $
              0.07
              
              
              $
              0.22
              
              
              $
              0.21Dividends
      per share
              
              $
              0.06
              
              
              $
              0.06
              
              
              $
              0.18
              
              
              $
              0.18See
      Accompanying Notes to Consolidated Financial Statements.


4


FIRST
CLOVER LEAF FINANCIAL CORP.





Consolidated
Statements ofComprehensive Income


(Unaudited)





Three
      Months Ended
              
              
              Nine
      Months EndedSeptember
      30,
              
              
              September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      income
              
              $
              645,460
              
              
              $
              589,602
              
              
              $
              1,813,812
              
              
              $
              1,892,806Other
      comprehensive income:Unrealized
      gains (losses) on securitiesarising
      during the period, net of tax
              
              
              (297,963
              )
              
              
              271,007
              
              
              
              (289,661
              )
              
              
              135,309Comprehensive
      income
              
              $
              347,497
              
              
              $
              860,609
              
              
              $
              1,524,151
              
              
              $
              2,028,115See
      Accompanying Notes to Consolidated Financial Statements.








5


FIRST
CLOVER LEAF FINANCIAL CORP.





Consolidated
Statements of Cash Flows


(Unaudited)





Nine
      Months EndedSeptember
      30,2008
              
              
              2007Cash
      flows from operating activities:Net
      income
              
              $
              1,813,812
              
              
              $
              1,892,806Adjustments
      to reconcile net income to netcash
      provided by operating activities:Amortization
      of:Deferred
      loan origination (fees) costs, net
              
              
              57,904
              
              
              
              (53,496
              )Premiums
      and discounts on securities
              
              
              (146,824
              )
              
              
              155,675Core
      deposit intangible
              
              
              317,000
              
              
              
              430,999Mortgage
      servicing rights
              
              
              68,929
              
              
              
              61,628Amortization
      of fair value adjustments on:Loans
              
              
              (227,000
              )
              
              
              (397,000
              )Time
      deposits
              
              
              15,000
              
              
              
              2,500Federal
      Home Loan Bank advances
              
              
              16,000
              
              
              
              93,999Subordinated
      debentures
              
              
              33,048
              
              
              
              33,048Investment
      securities
              
              
              (86,200
              )
              
              
              (177,424
              )Provision
      for loan losses
              
              
              501,866
              
              
              
              255,000Depreciation
      expense
              
              
              385,467
              
              
              
              326,101ESOP
      expense
              
              
              60,229
              
              
              
              70,983Gain
      on sale of loans
              
              
              (214,117
              )
              
              
              (68,570
              )Gain
      on sale of property and equipment
              
              
              -
              
              
              
              (64,126
              )Loss
      on sale of foreclosed real estate
              
              
              15,000
              
              
              
              -Proceeds
      from sales of loans held for sale
              
              
              13,747,635
              
              
              
              3,389,952Originations
      of loans held for sale
              
              
              (14,142,918
              )
              
              
              (4,315,256
              )Change
      in assets and liabilities:Increase
      in accrued interest receivable
              
              
              (75,581
              )
              
              
              (378,684
              )Increase
      in mortgage servicing rights
              
              
              (142,208
              )
              
              
              (58,082
              )Increase
      in other assets
              
              
              (531,882
              )
              
              
              (437,297
              )Increase
      (decrease) in accrued interest payable
              
              
              (294,549
              )
              
              
              292,887Increase
      (decrease) in other liabilities
              
              
              258,885
              
              
              
              (214,390
              )Net
      cash flows from operating activities
              
              
              1,429,496
              
              
              
              841,253Cash
      flows from investing activities:Proceeds
      from maturity of interest-earning time deposits
              
              
              17,619,286
              
              
              
              -Purchase
      of interest-earning time deposits
              
              
              (12,852,194
              )
              
              
              (49,994
              )Available
      for sale securities:Purchases
              
              
              (119,740,000
              )
              
              
              (15,811,337
              )Proceeds
      from calls, maturities and paydowns
              
              
              95,993,584
              
              
              
              6,249,040Loan
      originations, net of principal collected
              
              
              (41,644,152
              )
              
              
              (26,602,297
              )Purchase
      of property and equipment
              
              
              (3,385,359
              )
              
              
              (1,380,013
              )Proceeds
      from the sale of property and equipment
              
              
              -
              
              
              
              600,133Proceeds
      from the sale of foreclosed real estate
              
              
              285,000
              
              
              
              -Net
      cash flows from investing activities
              
              $
              (63,723,835
              )
              
              $
              (36,994,468
              )(Continued)


6


FIRST
CLOVER LEAF FINANCIAL CORP.





Consolidated
Statements of Cash Flows


(Unaudited)





(Continued)Nine
      Months EndedSeptember
      30,2008
              
              
              2007Cash
      flows from financing activities:Net
      increase (decrease) in deposits
              
              $
              40,930,937
              
              
              $
              (14,377,724
              )Net
      increase (decrease) in securities sold under agreements to
      repurchase
              
              
              25,528,020
              
              
              
              (13,722,334
              )Proceeds
      from Federal Home Loan Bank advances
              
              
              10,000,000
              
              
              
              -Repayment
      of Federal Home Loan Bank advances
              
              
              (3,000,000
              )
              
              
              -Repurchase
      of Common Stock
              
              
              (4,192,830
              )
              
              
              (4,609,961
              )Cash dividends
              
              
              (1,447,321
              )
              
              
              (1,588,238
              )Net
      cash flows from financing activities
              
              
              67,818,806
              
              
              
              (34,298,257
              )Net
      increase (decrease) in cash and cash equivalents
              
              
              5,524,467
              
              
              
              (70,451,472
              )Cash
      and cash equivalents at beginning of period
              
              
              37,084,575
              
              
              
              92,664,953Cash
      and cash equivalents at end of period
              
              $
              42,609,042
              
              
              $
              22,213,481Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
              
              $
              9,211,808
              
              
              $
              8,472,799Income
      taxes, net of refunds
              
              
              940,071
              
              
              
              1,593,542
  See
      Accompanying Notes to Consolidated Financial Statements.








7


FIRST CLOVER LEAFFINANCIAL
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 (none of which were other than normal
recurring entries) necessary for a fair statement of the results of operations
for the interim periods.  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”) for the year ended December
31, 2007 contained in the 2007 Annual Report to Stockholders that is filed as an
exhibit to the Company’s Annual Report on Form 10-KSB.





First
Clover Leaf Financial Corp. (“First Clover Leaf”) is a Maryland corporation that
was incorporated on March 17, 2006 and was formed by our predecessor company,
First Federal Financial Services, Inc., in connection with the “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, a former Illinois bank headquartered in
Edwardsville, Illinois. The second-step conversion and stock offering and the
simultaneous acquisition of Clover Leaf Financial Corp. were consummated on July
10, 2006. As a result of these transactions, Clover Leaf Financial Corp. was
merged with and into First Clover Leaf and Clover Leaf Bank was merged with and
into our wholly owned subsidiary, First Federal Savings and Loan Association of
Edwardsville, which was renamed First Clover Leaf Bank. The accompanying interim
consolidated financial statements include the accounts of First Clover Leaf
Financial Corp., 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, as of and for the three and nine months ended September
30, 2007, to be consistent with the classifications adopted as of and for the
three and nine months ended September 30, 2008.











8


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:




September
      30,
              
              
              December
      31,2008
              
              
              2007Core
      deposit intangible
              
              $
              2,391,000
              
              
              $
              2,391,000Accumulated
      amortization
              
              
              (1,179,999
              )
              
              
              (862,999
              )Total
              
              $
              1,211,001
              
              
              $
              1,528,001





Amortization
expense on core deposit intangible for the three and nine months ended September
30, 2008 was $85,000 and $317,000, respectively and $117,000 and $430,999 for
the comparable periods in 2007.





Estimated
amortization expense on core deposit intangible for the three months ending
December 31, 2008 and each of the five succeeding fiscal years is as
follows:





CoreDepositIntangibleThree
      months ending December 31, 2008
              
              $
              85,000Year
      ending December 31, 2009
              
              
              297,000Year
      ending December 31, 2010
              
              
              224,000Year
      ending December 31, 2011
              
              
              196,000Year
      ending December 31, 2012
              
              
              196,000Year
      ending December 31, 2013
              
              
              196,000





(3)
            Investment
      Securities:





The
following table sets forth the composition of our available-for-sale securities
portfolio at the dates indicated:





September
      30,
              
              
              December
      31,2008
              
              
              2007Amortized
              
              
              Fair
              
              
              Amortized
              
              
              FairCost
              
              
              Value
              
              
              Cost
              
              
              ValueInvestment
      Securities:Federal
      agency obligations
              
              $
              65,213,270
              
              
              $
              65,358,237
              
              
              $
              40,466,021
              
              
              $
              40,882,870Corporate
              
              
              3,093,888
              
              
              
              2,734,665
              
              
              
              3,594,044
              
              
              
              3,491,186State
      and municipal securities
              
              
              3,934,462
              
              
              
              3,972,983
              
              
              
              3,132,417
              
              
              
              3,143,041Mortgage-backed
      securities
              
              
              5,501,406
              
              
              
              5,601,226
              
              
              
              6,571,557
              
              
              
              6,632,911Total
      Investment Securites available for sale
              
              $
              77,743,026
              
              
              $
              77,667,111
              
              
              $
              53,764,039
              
              
              $
              54,150,008





9





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
September 30, 2008, are summarized as follows:




Less
      than 12 Months
              
              
              12
      Months or More
              
              
              TotalFair
              
              
              Unrealized
              
              
              Fair
              
              
              Unrealized
              
              
              Fair
              
              
              UnrealizedValue
              
              
              loss
              
              
              Value
              
              
              loss
              
              
              Value
              
              
              lossFederal
      agency obligations
              
              $
              36,426,405
              
              
              $
              64,119
              
              
              $
              -
              
              
              $
              -
              
              
              $
              36,426,405
              
              
              $
              64,119Corporate
      bonds
              
              
              2,089,489
              
              
              
              157,399
              
              
              
              645,176
              
              
              
              201,824
              
              
              
              2,734,665
              
              
              
              359,223Mortgage-backed
      securities
              
              
              7,879
              
              
              
              389
              
              
              
              -
              
              
              
              -
              
              
              
              7,879
              
              
              
              389$
              38,523,773
              
              
              $
              221,907
              
              
              $
              645,176
              
              
              $
              201,824
              
              
              $
              39,168,949
              
              
              $
              423,731





For all
of the above securities, the unrealized losses are primarily due to changes in
interest rates and, as such, are considered to be temporary by the
Company.  The Company currently has sufficient liquidity and therefore
has the intent and ability to continue to hold the securities.





(4)
            Loans:





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




At
      September 30,
              
              
              At
      December 31,2008
              
              
              2007Amount
              
              
              Percent
              
              
              Amount
              
              
              PercentReal
      Estate LoansOne-
      to four-family residential loans(1)
              
              $
              104,947,192
              
              
              
              31.5
              %
              
              $
              112,764,226
              
              
              
              39.2
              %Multi-family
              
              
              17,638,793
              
              
              
              5.3
              
              
              
              13,930,737
              
              
              
              4.8Commercial
              
              
              118,804,980
              
              
              
              35.7
              
              
              
              97,809,933
              
              
              
              34.0Construction
      and land
              
              
              41,068,487
              
              
              
              12.3
              
              
              
              20,775,576
              
              
              
              7.2Total
      real estate loans
              
              
              282,459,452
              
              
              
              84.8
              
              
              
              245,280,472
              
              
              
              85.2Commercial
      business
              
              
              42,120,737
              
              
              
              12.7
              
              
              
              34,782,808
              
              
              
              12.1Consumer
      Loans
              
              
              8,449,566
              
              
              
              2.5
              
              
              
              7,770,555
              
              
              
              2.7Total
      loans and loans held for sale
              
              
              333,029,755
              
              
              
              100.0
              %
              
              
              287,833,835
              
              
              
              100.0
              %Less:Undisbursed
      portion of construction loans
              
              
              4,071,317
              
              
              
              
              
              
              
              859,504Deferred
      loan origination fees, net
              
              
              99,059
              
              
              
              
              
              
              
              156,940Allowance
      for loan losses
              
              
              2,319,151
              
              
              
              
              
              
              
              1,897,945Total
      loans and loans held for sale, net
              
              $
              326,540,228
              
              
              
              
              
              
              $
              284,919,446(1)
      Includes loans held for sale of approximately $609,000 and $0 at
      September 30, 2008 and December 31, 2007, respectively.




10





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:





September
      30,
              
              
              December
      31,2008
              
              
              2007Loans
      90 days or more past due and still accruing
              
              $
              767,709
              
              
              $
              285,459Nonaccrual
      loans
              
              
              3,312,782
              
              
              
              2,669,455Other
      impaired loans
              
              
              9,814,583
              
              
              
              1,331,979Total
      nonperforming and impaired loans
              
              $
              13,895,074
              
              
              $
              4,286,893Allowance
      for losses on nonperforming and impaired loans
              
              $
              379,180
              
              
              $
              306,589




Asset
Quality Ratios:




Non-performing
      assets and impaired loans to total assets
              
              
              2.88
              %
              
              
              1.04
              %Non-performing
      and impaired loans to total loans
              
              
              4.26
              
              
              
              1.50Allowance
      for loan losses to non-performing and impaired loans
              
              
              16.69
              
              
              
              44.29Allowance
      for loan losses to total loans
              
              
              0.71
              
              
              
              0.67




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





Nine
      Months EndedSeptember
      30,2008
              
              
              2007Balance
      at beginning of period
              
              $
              1,897,945
              
              
              $
              1,710,247Charge-offs
              
              
              (96,177
              )
              
              
              -Recoveries
              
              
              15,517
              
              
              
              4,224Provision
      charged to expense
              
              
              501,866
              
              
              
              255,000Balance
      at end of period
              
              $
              2,319,151
              
              
              $
              1,969,471


11





FIRST
CLOVER LEAF FINANCIAL CORP.





Notes
to Consolidated Financial Statements





(6)
            Earnings Per
      Share:





Basic and
diluted income per share (EPS) represents 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 income per
share.





Three
      Months Ended
                
                
                Nine
      Months EndedSeptember
      30,
                
                
                September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      income available to common stockholders
                
                $
                645,460
                
                
                $
                589,602
                
                
                $
                1,813,812
                
                
                $
                1,892,806Basic
      potential common shares:Weighted
      average shares outstanding
                
                
                8,176,731
                
                
                
                8,832,363
                
                
                
                8,229,111
                
                
                
                8,992,590Weighted
      average unallocated Employee StockOwnership
      Plan shares
                
                
                (131,784
                )
                
                
                (140,288
                )
                
                
                (133,902
                )
                
                
                (142,398
                )Basic
      weighted average shares outstanding
                
                
                8,044,947
                
                
                
                8,692,075
                
                
                
                8,095,209
                
                
                
                8,850,192Dilutive
      potential common shares
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Dilutive
      weighted average shares outstanding
                
                
                8,044,947
                
                
                
                8,692,075
                
                
                
                8,095,209
                
                
                
                8,850,192Basic
      and diluted income per share
                
                $
                0.08
                
                
                $
                0.07
                
                
                $
                0.22
                
                
                $
                0.21





(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, First
Federal Financial Services, Inc. loaned funds to the ESOP for the purchase of
its common stock at the initial public offering price.  The loan is
being repaid with level annual payments of $70,318 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
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
First Federal Financial Services, Inc. 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 $18,927 and
$60,229 was incurred for the three and nine months ended September 30, 2008,
respectively and $23,003 and $70,983 for the comparable periods in
2007.











12





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 September 30, 2008 and
December 31, 2007:





September
      30,
              
              
              December
      31,2008
              
              
              2007Unallocated
      shares (fair value at September 30, 2008 andDecember
      31, 2007 of $1,102,289 and $1,380,999, respectively)
              
              
              129,681
              
              
              
              136,059Allocated
      Shares
              
              
              41,078
              
              
              
              34,700Total
      ESOP Shares
              
              
              170,759
              
              
              
              170,759





(8)
            Recent Accounting
      Pronouncements:





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





Effective
January 1, 2008, the Company partially adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements,which defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements.  It
clarifies that fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants in the market in which the reporting entity
transacts.  This Statement does not require any new fair value
measurements, but rather, it provides enhanced guidance to other pronouncements
that require or permit assets or liabilities to be measured at fair
value.  The standard describes three levels of inputs that may be used
to measure fair value.  Delayed application of this statement is
permitted for nonfinancial assets and nonfinancial liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually), until fiscal years beginning after November
15, 2008, and interim periods within those fiscal years.  Refer to
Note 9 of the unaudited consolidated financial statements for additional
disclosures.





Effective
January 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of the Financial
Accounting Standards Board (FASB) Statement No. 115, which provides all
entities with an option to report selected financial assets and liabilities at
fair value.  The objective of the Statement is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
earnings caused by measuring related assets and liabilities differently without
having to apply the complex provisions of hedge accounting.  Certain
specified items are eligible for the irrevocable fair value measurement option
as established by Statement No. 159. Adoption of Statement No. 159 did not have
a significant impact on the Company’s financial
statements.








13





FIRST
CLOVER LEAF FINANCIAL CORP.





Notes
to Consolidated Financial Statements





(8)
            Recent Accounting
      Pronouncements (Continued):





In
December 2007, FASB issued SFAS No. 141(revised), Business Combinations. 
The Statement establishes principles and requirements for how an acquirer
recognizes and measures tangible assets acquired, liabilities assumed, goodwill
and any noncontrolling interests and identifies related disclosure requirements
for business combinations.  Measurement requirements will result in all
assets, liabilities, contingencies and contingent consideration being recorded
at fair value on the acquisition date, with limited exceptions. 
Acquisition costs and restructuring costs will generally be expensed as
incurred.  This Statement is effective for business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.





(9)
            Fair Value
      Disclosures





Effective
January 1, 2008, the Company determines the fair market values of its financial
instruments based on the fair value hierarchy established in SFAS No. 157, which
requires an entity to maximize the use of observable inputs and minimizes the
use of unobservable inputs when measuring fair value.  The standard
describes three levels of inputs that may be used to measure fair
value.  The Company carries its available-for-sale securities and its
loans held-for-sale at fair value.





Level 1
inputs are unadjusted quoted prices in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement
date.  Level 2 inputs are inputs other than quoted prices included
with Level 1 that are observable for the asset or liability either directly or
indirectly.  These might include quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar assets or
liabilities in markets that are not active, inputs other than quoted prices that
are observable for the asset or liability (such as interest rates, volatilities,
prepayment speeds, credit risks, etc.) or inputs that are derived from or
corroborated by market data by correlation or other means.  Level 3
inputs are unobservable inputs for determining the fair value of assets or
liabilities that reflect an entity’s own assumptions about the assumptions that
market participants would use in pricing the assets or liabilities.





Assets
and liabilities measured at fair value on a recurring basis segregated by fair
value hierarchy level during the period ended September 30, 2008 are summarized
below:





Quoted
      Prices in Active Markets forIdentical Assets
              
              
              Significant
      OtherObservable Inputs
              
              
              Significant
      UnobservableInputsAssets:
              
              (Level
      1)
              
              
              (Level
      2)
              
              
              (Level
      3)
              
              
              TotalSecurities
      available-for-sale
              
              $
              -
              
              
              $
              77,667,111
              
              
              $
              -
              
              
              $
              77,667,111Loans
      held-for-sale
              
              $
              -
              
              
              $
              609,400
              
              
              $
              -
              
              
              $
              609,400


14





FIRST
CLOVER LEAF FINANCIAL CORP.





Notes
to Consolidated Financial Statements





(9)
            Fair Value
      Disclosures(Continued):





Assets
and liabilities measured at fair value on a nonrecurring basis by fair value
hierarchy level during the period ended September 30, 2008 are summarized
below:





Quoted
      Prices in Active Markets forIdentical Assets
              
              
              Significant
      Other Observable Inputs
              
              
              Significant
      Unobservable Inputs(Level
      1)
              
              
              (Level
      2)
              
              
              (Level
      3)
              
              
              TotalImpaired
      loans
              
              $
              -
              
              
              $
              13,895,074
              
              
              $
              -
              
              
              $
              13,895,074





Impaired
loans that are collateral dependent have been written down to their fair value,
less costs to sell, of $13.9 million through the establishment of specific
reserves or by recording charge-offs when the carrying value exceeds the fair
value.  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.





(10)
            Subsequent
      Events:





On April
30, 2008, the Company entered into a definitive merger agreement to acquire
Partners Financial Holdings, Inc. (“Partners”), the holding company of Partners
Bank, an Illinois-chartered bank headquartered in Glen Carbon,
Illinois.





The
merger has been approved by the Boards of Directors of Partners and First Clover
Leaf.  The required regulatory approvals were obtained, and the
shareholders of Partners Bank approved the merger on September 26,
2008.  The merger closed on October 10, 2008.  The combined
institution is currently serving customers from the current locations of both
banks under the name “First Clover Leaf Bank”.  The one facility
operated by the former Partners Bank will close effective November 15,
2008.





The
aggregate purchase price for the acquisition of Partners was approximately $20.7
million, comprised of shares of First Clover Leaf common stock and cash, plus
approximately $1.5 million in cash payments for outstanding Partners options and
warrants.  Under the terms of the merger agreement, each share of
Partners common stock has been converted into either 5.7971 shares of First
Clover Leaf stock or cash of $56. Shareholders of Partners elected to receive
First Clover Leaf common stock, cash, or a combination of stock and cash, for
their shares of Partners common stock, subject to possible re-allocation of
their elections in order to ensure that the total mix of consideration in the
transaction was 50% stock and 50% cash.





On
October 28, 2008, the Board of Directors of the Company declared a cash dividend
on the Company’s common stock of $.06 per share for the quarter ended September
30, 2008.  The dividend will be payable to stockholders of record as
of November 14, 2008 and is expected to be paid on November 21,
2008.


15





FIRST CLOVER LEAF FINANCIAL
CORP.





Item
2.   Management’s Discussion and Analysis of Financial
Condition and Resultsof 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 Act of 1995.  Such statements are
subject to certain risks and uncertainties including changes in economic
conditions in our market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in our market area, and
competition 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 as a critical accounting policy.





The
allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.





The
allowance for loan losses is evaluated on a regular basis by management and is
based upon management’s periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower’s ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes
available.





The
allowance consists of specific, general and unallocated components. The specific
component relates to loans that are classified as doubtful, substandard or
special mention. For such loans that are also classified as impaired, an
allowance is established when the discounted cash flows (or collateral value or
observable market price) of the impaired loan is lower than the carrying value
of that loan. The general component covers non-classified loans and is based on
historical loss experience adjusted for qualitative factors. An unallocated
component is maintained to cover uncertainties that could affect management’s
estimate of probable losses. The unallocated component of the allowance reflects
the margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating specific and general losses in the
portfolio.


16





FIRST
CLOVER LEAF FINANCIAL CORP.





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





A loan is
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower’s prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial and construction loans by either
the present value of expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market price, or the fair value
of the collateral if the loan is collateral dependent.





Large
groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Company does not separately identify individual
consumer and residential loans for impairment disclosures, unless such loans are
the subject of a restructuring agreement.





Overview





Net
income increased to $645,000 for the three months ended September 30, 2008 from
$590,000 for the same period last year.  Net income decreased $79,000
to $1.8 million for the nine months ended September 30, 2008 from $1.9 million
for the same period last year.  The decrease in year to date net
income was due primarily to an increase in provision for loan losses of $247,000
for the nine months ended September 30, 2008.  Basic and diluted
income per share was $.08 and $.07 for the three months ended September 30, 2008
and 2007, respectively and $.22 and $.21 for the nine months ended September 30,
2008 and 2007, respectively.





Financial
Condition





Total
Assets.  Total assets increased to $482.5 million at September
30, 2008 from $413.3 million at December 31, 2007.  Total cash and
cash equivalents increased to $42.6 million at September 30, 2008 from $37.1
million at December 31, 2007.  The increase in cash and cash
equivalents was due primarily to an increase in interest-earning
deposits.  These represent deposits held at correspondent
banks.  In contrast, the Bank’s interest-earning time deposits
decreased to $5.3 million at September 30, 2008 from $10.0 million at December
31, 2007.  Securities available for sale increased to $77.7 million at
September 30, 2008 from $54.2 million at December 31, 2007.  The
increase was due primarily to purchases of $119.7 million partially offset by
calls, maturities and pay-downs of $96.0 million.  Loans, net amounted
to $325.9 million at September 30, 2008, compared to $284.9 million at December
31, 2007.  The increase was due primarily to $41.6 million in new loan
originations net of principal collected.  Loans held for sale
increased to $609,000 at September 30, 2008.  There were no loans held
for sale at December 31, 2007.  Property and equipment, net increased
to $10.4 million at September 30, 2008 from $7.4 million at December 31, 2007
primarily due to the construction of a new branch facility in Wood River,
Illinois, and the current expansion project of the Bank’s main facility and
operation center.





17





FIRST
CLOVER LEAF FINANCIAL CORP.





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





Total
Liabilities.  Deposits increased to $332.1 million at September
30, 2008 from $291.2 million at December 31, 2007.  Securities sold
under agreements to repurchase increased to $41.4 million at September 30, 2008
from $15.9 million at December 31, 2007.  The change in the deposit
accounts and securities sold under agreements to repurchase accounts were due
primarily to fluctuations by one significant customer.  Federal Home
Loan Bank advances at September 30, 2008 were $17.4 million compared to $10.4
million at December 31, 2007.  The increase was primarily due to the
increase in loan fundings.  Other liabilities increased to $2.2
million at September 30, 2008 from $2.1 million at December 31,
2007.





Stockholders’
Equity.  Stockholders’ equity decreased to $84.6 million at
September 30, 2008 from $88.7 million at December 31, 2007, principally as a
result of the repurchase of $4.2 million of the Company’s common stock, and the
payment of cash dividends of $1.5 million.  The decrease in equity was
partially offset by $1.8 million in net income.








Asset
Quality





At
September 30, 2008, the Company’s nonaccrual loans increased $643,000 from
December 31, 2007, while other impaired loans increased $8.5 million from
December 31, 2007.  The increase in other impaired loans is due to the
addition of three loans that had not previously been classified as
impaired.  All three of these loans are real estate development
loans.  Two of the loans are secured by developed lots, while the
other one is secured by condos; furniture, fixtures, and equipment; and notes
receivable.  Currently the collateral on each of the loans is
sufficient to cover the outstanding loan balance.  Management performs
periodic reviews of the collateral to ensure adequate debt
coverage.





Under the
Company’s internal review policy, loans classified as substandard totaled $5.8
million at September 30, 2008 and $4.7 million at December 31,
2007.  This increase is due primarily to the reclassification of one
loan.  This loan is a real estate development loan secured by
developed lots.  Currently the collateral on this loan is sufficient
to cover the outstanding loan balance.





At
September 30, 2008, the Company had no loans where known information about
possible credit problems of borrowers caused management to have serious concerns
as to the ability of the borrowers to comply with present loan repayment terms
and which may result in disclosure as nonaccrual, 90 days past due or
restructured which were not currently classified as nonaccrual, 90 days or more
past due or restructured.





Results of
Operations





General.  Net
income increased by $55,000 to $645,000 for the three months ended September 30,
2008 from $590,000 for the same period last year.  Net income
decreased by $79,000 to $1.8 million for the nine months ended September 30,
2008 from $1.9 million for the same period last year.  The decrease in
net income was due primarily to an increase of $247,000 for the nine months
ended September 30, 2008 in provision for loan losses due primarily to the
continued growth of the loan portfolio.





Yields on
all interest-earning assets have declined due to the 200 basis points of
interest rate cuts from the first quarter of 2008 and the 25 basis point
interest rate cut in April 2008.  These rate cuts were instituted by
the Federal Reserve.  In October 2008, the Federal Reserve instituted
another 50 basis point rate cut, which has yet to be reflected in our September
30, 2008 yields.  These rate cuts have resulted in declining yields in
our loan portfolio where a significant number of our loans are floating rate
loans that reprice immediately.  The rate cuts have also impacted our
interest earning balances from depository institutions as those rates are also
floating rates versus fixed rates.  The declining rate environment has
resulted in a significant number of the bonds in our


18


FIRST
CLOVER LEAF FINANCIAL CORP.





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





security
portfolio being called and therefore replaced with lower yielding
bonds.  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 competitive environment.  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.  Overall, further downward pressure on interest rates
is unlikely to benefit our net interest margin.





Net interest
income.  Net interest income before provision for loan losses
increased to $2.9 million for the three months ended September 30, 2008 from
$2.6 million for the comparable period in 2007.  Net interest income
before provision for loan losses increased to $8.3 million from $7.8 million for
the nine months ended September 30, 2008 and 2007, respectively.  Net
average interest-earning assets were $76.3 million for the nine months ended
September 30, 2008, compared to $83.3 million for the same period in 2007. The
ratio of interest-earning assets to interest-bearing liabilities decreased to
123.63% for the nine months ended September 30, 2008 from 131.14% for the same
period in 2007.  For the nine months ended September 30, 2008, the
average rate on interest-earning assets decreased by 56 basis points from 6.34%
to 5.78%, and the average rate on interest-bearing liabilities decreased by 69
basis points from 4.41% to 3.72%.


19





FIRST
CLOVER LEAF FINANCIAL CORP.





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





The
following table sets forth 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
                  September
      30,
                
                
                Three
      Months Ended
                  September
      30,
                
                
                Nine
      Months Ended
                  September
      30,
                
                
                Nine
      Months Ended
                  September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Average
      Outstanding Balance
                
                
                Interest
                  (4)
                
                
                Yield/
      Rate
                
                
                Average
      Outstanding Balance
                
                
                Interest(4)
                
                
                Yield/Rate
                
                
                Average
      Outstanding Balance
                
                
                Interest
      (4)
                
                
                Yield/
      Rate
                
                
                Average
      OutstandingBalance
                
                
                Interest
                  (4)
                
                
                Yield/Rate(Dollars
      in thousands)
                
                (Dollars
      in thousands)Interest-earning
      assets:Loans,
      gross
                
                $
                327,564
                
                
                $
                5,019
                
                
                
                6.10
                %
                
                $
                265,552
                
                
                $
                4,551
                
                
                
                6.80
                %
                
                $
                313,564
                
                
                $
                14,701
                
                
                
                6.26
                %
                
                $
                255,788
                
                
                $
                13,094
                
                
                
                6.83
                %Securities
                
                
                53,182
                
                
                
                597
                
                
                
                4.47
                
                
                
                54,900
                
                
                
                716
                
                
                
                5.17
                
                
                
                53,542
                
                
                
                1,972
                
                
                
                4.92
                
                
                
                52,647
                
                
                
                2,045
                
                
                
                5.18Federal
      Home Loan Bank stock
                
                
                5,604
                
                
                
                -
                
                
                
                -
                
                
                
                5,598
                
                
                
                39
                
                
                
                2.76
                
                
                
                5,604
                
                
                
                -
                
                
                
                -
                
                
                
                5,598
                
                
                
                129
                
                
                
                3.07Interest-earning
      balances from depository institutions
                
                
                26,920
                
                
                
                161
                
                
                
                2.38
                
                
                
                26,302
                
                
                
                342
                
                
                
                5.16
                
                
                
                26,501
                
                
                
                612
                
                
                
                3.08
                
                
                
                36,796
                
                
                
                1,424
                
                
                
                5.16Total
      interest-earning assets
                
                
                413,270
                
                
                
                5,777
                
                
                
                5.56
                
                
                
                352,352
                
                
                
                5,648
                
                
                
                6.36
                
                
                
                399,211
                
                
                
                17,285
                
                
                
                5.78
                
                
                
                350,829
                
                
                
                16,692
                
                
                
                6.34Non-interest-earning
      assets
                
                
                30,725
                
                
                
                
                
                
                
                
                
                
                
                26,639
                
                
                
                
                
                
                
                
                
                
                
                28,529
                
                
                
                
                
                
                
                
                
                
                
                25,878Total
      assets
                
                $
                443,995
                
                
                
                
                
                
                
                
                
                
                $
                378,991
                
                
                
                
                
                
                
                
                
                
                $
                427,740
                
                
                
                
                
                
                
                
                
                
                $
                376,707Interest-bearing
      liabilities:Interest-bearing
      transaction
                
                $
                111,237
                
                
                
                728
                
                
                
                2.60
                
                
                $
                53,466
                
                
                
                503
                
                
                
                3.73
                
                
                $
                93,221
                
                
                
                1,931
                
                
                
                2.77
                
                
                $
                55,130
                
                
                
                1,557
                
                
                
                3.77Savings
      deposits
                
                
                18,029
                
                
                
                102
                
                
                
                2.25
                
                
                
                19,950
                
                
                
                135
                
                
                
                2.68
                
                
                
                18,347
                
                
                
                317
                
                
                
                2.31
                
                
                
                21,357
                
                
                
                410
                
                
                
                2.56Time
      deposits
                
                
                157,131
                
                
                
                1,727
                
                
                
                4.37
                
                
                
                164,969
                
                
                
                2,044
                
                
                
                4.92
                
                
                
                163,204
                
                
                
                5,679
                
                
                
                4.65
                
                
                
                156,194
                
                
                
                5,623
                
                
                
                4.80Securities
      sold under agreements to repurchase
                
                
                31,142
                
                
                
                104
                
                
                
                1.33
                
                
                
                19,246
                
                
                
                177
                
                
                
                3.65
                
                
                
                27,700
                
                
                
                311
                
                
                
                1.50
                
                
                
                20,659
                
                
                
                601
                
                
                
                3.88Federal
      Home Loan Bank advances
                
                
                17,447
                
                
                
                188
                
                
                
                4.29
                
                
                
                10,218
                
                
                
                152
                
                
                
                5.90
                
                
                
                16,567
                
                
                
                519
                
                
                
                4.18
                
                
                
                10,375
                
                
                
                433
                
                
                
                5.56Subordinated
      debentures
                
                
                3,869
                
                
                
                75
                
                
                
                7.71
                
                
                
                4,016
                
                
                
                75
                
                
                
                7.41
                
                
                
                3,857
                
                
                
                224
                
                
                
                7.76
                
                
                
                3,813
                
                
                
                223
                
                
                
                7.80Total
      interest-bearing liabilities
                
                
                338,855
                
                
                
                2,924
                
                
                
                3.43
                
                
                
                271,865
                
                
                
                3,086
                
                
                
                4.50
                
                
                
                322,896
                
                
                
                8,981
                
                
                
                3.72
                
                
                
                267,528
                
                
                
                8,847
                
                
                
                4.41Non-interest-bearing
      liabilities
                
                
                20,002
                
                
                
                
                
                
                
                
                
                
                
                15,960
                
                
                
                
                
                
                
                
                
                
                
                19,275
                
                
                
                
                
                
                
                
                
                
                
                16,392Total
      liabilities
                
                
                358,857
                
                
                
                
                
                
                
                
                
                
                
                287,825
                
                
                
                
                
                
                
                
                
                
                
                342,171
                
                
                
                
                
                
                
                
                
                
                
                283,920Stockholders’
      equity
                
                
                85,138
                
                
                
                
                
                
                
                
                
                
                
                91,166
                
                
                
                
                
                
                
                
                
                
                
                85,569
                
                
                
                
                
                
                
                
                
                
                
                92,787Total
      liabilities and stockholders’ equity
                
                $
                443,995
                
                
                
                
                
                
                
                
                
                
                $
                378,991
                
                
                
                
                
                
                
                
                
                
                $
                427,740
                
                
                
                
                
                
                
                
                
                
                $
                376,707Net
      interest income
                
                
                
                
                
                $
                2,853
                
                
                
                
                
                
                
                
                
                
                $
                2,562
                
                
                
                
                
                
                
                
                
                
                $
                8,304
                
                
                
                
                
                
                
                
                
                
                $
                7,845Net
      interest rate spread (1)
                
                
                
                
                
                
                
                
                
                
                2.13
                %
                
                
                
                
                
                
                
                
                
                
                1.86
                %
                
                
                
                
                
                
                
                
                
                
                2.06
                %
                
                
                
                
                
                
                
                
                
                
                1.93
                %Net
      interest-earning assets (2)
                
                $
                74,415
                
                
                
                
                
                
                
                
                
                
                $
                80,487
                
                
                
                
                
                
                
                
                
                
                $
                76,315
                
                
                
                
                
                
                
                
                
                
                $
                83,301Net
      interest margin (3)
                
                
                
                
                
                
                
                
                
                
                2.75
                %
                
                
                
                
                
                
                
                
                
                
                2.88
                %
                
                
                
                
                
                
                
                
                
                
                2.78
                %
                
                
                
                
                
                
                
                
                
                
                2.98
                %Ratio
      of interest-earning assets tointerest-bearing
    liabilities
                
                
                
                121.96
                %
                
                
                
                
                
                
                
                
                
                
                129.61
                %
                
                
                
                
                
                
                
                
                
                
                123.63
                %
                
                
                
                
                
                
                
                
                
                
                131.14
                %
 (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 $28,066
      and $31,062 for the three months ended September 30, 2008 and 2007,
      respectively and $143,561 and $112,946 for the nine months ended September
      30, 2008 and 2007,
respectively.


20





FIRST
CLOVER LEAF FINANCIAL CORP.





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





Interest
income.  Interest and fee income on loans increased to $5.0
million for the three months ended September 30, 2008 from $4.6 million for the
comparable period in 2007.  Interest income on loans increased
primarily as a result of a higher average balance offset by a lower
yield.  Interest and fee income on loans increased $1.6 million to
$14.7 million for the nine months ended September 30, 2008 from $13.1 million
for the comparable period in 2007.  Interest income on loans increased
primarily as a result of a higher average balance offset by a lower
yield.  The average balance of loans was $313.6 million and $255.8
million for the nine months ended September 30, 2008 and 2007, respectively. The
average yield on loans decreased to 6.26% for the nine months ended September
30, 2008 from 6.83% for the comparable period in 2007.





Interest
income on securities decreased to $597,000 for the three months ended September
30, 2008 from $716,000 for the comparable period in 2007.  The
decrease was due primarily to a decline in yield.  The average yield
on securities decreased to 4.47% from 5.17% for the three months ended September
30, 2008 and 2007, respectively.  Interest income on securities
decreased by $72,000 for the nine months ended September 30,
2008.  The decrease was due to a decline in yield.  The
average yield on securities decreased to 4.92% from 5.18% for the nine months
ended September 30, 2008 and 2007, respectively.





Due to
substantial rate cuts in the federal funds rate, the Company has had a
significant number of higher yielding bonds called.  The Company must
maintain an investment portfolio that meets its pledging and collateral needs.
Therefore, the called bonds were replaced with current market yielding
securities which had lower yields than the securities called.





Interest
income on other interest-earning deposits decreased to $161,000 for the three
months ended September 30, 2008 from $342,000 for the comparable period in
2007.  The average balance of other interest-earning deposits
increased to $26.9 million from $26.3 million for the three months ended
September 30, 2008 and 2007, respectively, however, the average yield on other
interest-earning deposits decreased to 2.38% from 5.16% for the three months
ended September 30, 2008 and 2007, respectively.  Interest income on
other interest-earning deposits decreased to $612,000 for the nine months ended
September 30, 2008 from $1.4 million for the same comparable period in
2007.  The average balance of other interest-earning deposits was
$26.5 million and $36.8 million for the nine months ended September 30, 2008 and
2007, respectively.  The average yield on other interest-earning
deposits decreased to 3.08% for the nine months ended September 30, 2008
compared to 5.16% for the nine months ended September 30, 2007.





Interest
expense.  Interest expense on deposits decreased to $2.6
million for the three months ended September 30, 2008 from $2.7 million for the
comparable period in 2007.  The decrease was due primarily to a
decline in yield offset by an increase in average interest-bearing
deposits.  The average balance of interest-bearing deposits was $286.4
million and $238.4 million for the three months ended September 30, 2008 and
2007, respectively.  Interest expense on deposits increased by
$338,000 to $7.9 million for the nine months ended September 30, 2008 from $7.6
million for the comparable period in 2007.  This increase was due
primarily to an increase in average-interest bearing deposits offset by a lower
yield. The average balance of interest-bearing deposits was $274.8 million and
$232.7 million for the nine months ended September 30, 2008 and 2007,
respectively.





Interest
expense on securities sold under agreements to repurchase decreased to $104,000
for the three months ended September 30, 2008 from $177,000 for the three months
ended September 30, 2007.  Although the average balance of securities
increased to $31.1 million from $19.2 million for the three months ended
September 30, 2008 and 2007, respectively, the yield decreased to 1.33% for the
three months ended September 30, 2008 from 3.65% for the comparable period in
2007.  Interest expense on securities sold under agreements to
repurchase decreased by $290,000 to $311,000 for the nine months ended September
30, 2008 from $601,000 for the comparable period in 2007 despite a higher
average balance.  The interest rate for


21


FIRST
CLOVER LEAF FINANCIAL CORP.





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





securities
sold under agreements to repurchase is tied to the three-month treasury bill
index and declined to 1.50% for
the nine months ended September 30, 2008 compared to 3.88% for the nine months
ended September 30, 2007.





Provision for
loan losses.  Provision for loan losses was $145,000 and
$134,000 for the three months ended September 30, 2008 and 2007,
respectively.  Provision for loan losses was $502,000 and $255,000 for
the nine months ended September 30, 2008 and 2007,
respectively.  Provision for loan losses is based upon management’s
consideration of current economic conditions, the Company’s loan portfolio
composition and historical loss experience 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 increase for the nine months ended September 30,
2008 compared to the same period in 2007 was primarily due to the overall
increase in the loan portfolio, an increase in the nonperforming and impaired
loans, as well as the change in the composition of the portfolio that now
includes a larger share of commercial business, construction and land, and
commercial real estate loans.  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.





Noninterest
income.  Noninterest income increased to $228,000 for the three
months ended September 30, 2008 from $195,000 for the comparable period in
2007.  Noninterest income increased to $593,000 for the nine months
ended September 30, 2008 from $458,000 for the comparable period in
2007.  The increase was due primarily to (i) gains on the sale of
loans that we sold but for which we retained the servicing rights and (ii)
service charge income on deposit accounts.  The volume of loans sold
compared to the prior periods increased due to the Bank’s strategy to control
potential interest rate risk on long term assets.  There was no gain
on the sale of assets for the three and nine months ended September 30, 2008
compared to $64,000 for the same periods in 2007.





Noninterest
expense.  Noninterest expense totaled $1.9 million for the
three months ended September 30, 2008 and $1.7 million for the same period in
2007.  Noninterest expense increased to $5.6 million for the nine
months ended September 30, 2008 from $5.1 million for the comparable period in
2007.  Compensation and employee benefits, the largest component of
noninterest expense, increased to $901,000 for the three months ended September
30, 2008 from $701,000 for the comparable period in 2007 and increased by
$415,000 to $2.5 million for the nine months ended September 30, 2008 from $2.1
million for the comparable period in 2007.  Compensation and employee
benefits increased primarily from a higher number of personnel.  The
number of full-time equivalent employees increased to 69 at September 30, 2008
from 53 at September 30, 2007.  Of the 16 additional full-time
equivalent employees, seven were related to the new Wood River
branch.  The remaining nine new full-time equivalent employees relate
primarily to the growth of the Company.





Occupancy
expense rose to $286,000 for the three months ended September 30, 2008 compared
to $239,000 for the comparable period in 2007.  Occupancy expense
increased by $119,000 to $770,000 for the nine months ended September 30, 2008
from $651,000 for the comparable period in 2007.  Occupancy expense
increased primarily due to depreciation on the renovation of one of our branch
offices that was completed in June 2007 and expenses related to a new branch
office that opened during the second quarter of 2008.





Income
taxes.  Income taxes increased to $367,000 for the three months
ended September 30, 2008 from $339,000 for the comparable period in
2007.  Income taxes decreased to $1.0 million for the nine months
ended September 30, 2008 from $1.1 million for the comparable period in
2007.  The primary reason for the change in


income
taxes was the level of pre-tax income.


22





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 September 30,
2008 and December 31, 2007, $42.6 million and $37.1 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 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 nine months ended September 30,
2008 and 2007, our loan originations, net of collected principal, totaled $41.6
million and $26.6 million, respectively.  Cash received from calls,
maturities, and paydowns of available-for-sale investment securities totaled
$96.0 million and $6.2 million for the nine months ended September 30, 2008 and
2007, respectively.  We purchased $119.7 million and $15.8 million in
available-for-sale investment securities during the nine months ended September
30, 2008 and 2007, respectively.  We received proceeds of $17.6
million from the maturities of interest-earning time deposits during the nine
months ended September 30, 2008.  There were no proceeds from the
maturities of interest-earning time deposits for the comparable period in
2007.  We purchased $12.9 million and $50,000 of interest-earning time
deposits for the nine months ended September 30, 2008 and 2007,
respectively.





Purchases
of premises and equipment, primarily related to the construction of a new branch
facility in Wood River, Illinois and the current expansion project of the Bank’s
main facility and operation center were $3.4 million during the nine months
ended September 30, 2008.  Purchases of premises and equipment were
$1.4 million for the comparable period in 2007.




Deposit
flows are generally affected by the level of interest rates, the interest rates
and products offered by local competitors, and other factors.  Net
deposits increased by $40.9 million for the nine months ended September 30,
2008.  During the comparable period in 2007 the net decrease in
deposits was $14.4 million.  Securities sold under agreements to
repurchase had a net increase of $25.5 million and a net decrease of $13.7
million for the nine months ended September 30, 2008 and 2007,
respectively.  Proceeds from Federal Home Loan Bank advances of $10.0
million for the nine months ended September 30, 2008 were offset by $3.0 million
for the repayment of such advances.  There were no advances or
repayments of advances to Federal Home Loan Bank for the comparable period in
2007.  Repurchases of the Company’s common stock were $4.2 million and
$4.6 million for the nine months ended September 30, 2008 and 2007,
respectively.


23





FIRST
CLOVER LEAF FINANCIAL CORP.





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





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 September
30, 2008, we had $17.4 million of advances from the Federal Home Loan Bank of
Chicago and additional available credit of approximately $40.9
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 September 30, 2008.  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 September 30, 2008 were
as follows:





Minimum
      Requiredfor
      Capital
              
              
              to
      be "WellActual
              
              
              Adequacy
              
              
              Capitalized"Amount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio(Dollars
      in Thousands)Stockholders'
      equity
              
              $
              79,875Goodwill
      and core deposit intangible
              
              
              (10,614
              )Disallowed
      servicing assets
              
              
              (478
              )Unrealized
      gain on securities AFS, net
              
              
              7Tangible
      capital to adjusted total assets
              
              $
              68,790
              
              
              
              14.7
              %
              
              $
              7,015
              
              
              
              1.5
              %
              
              
              N/A
              
              
              
              -General
      valuation allowance
              
              
              2,319Deduction
      for low-level recourse
              
              
              (1,433
              )Total
      capital to risk-weighted assets
              
              $
              69,676
              
              
              
              20.4
              %
              
              $
              27,396
              
              
              
              8.0
              %
              
              $
              34,246
              
              
              
              10.0
              %Tier
      1 capital to risk-weighted assets
              
              $
              68,790
              
              
              
              20.1
              %
              
              $
              N/A
              
              
              
              -
              
              
              $
              20,547
              
              
              
              6.0
              %Tier
      1 capital to total assets
              
              $
              68,790
              
              
              
              14.7
              %
              
              $
              18,707
              
              
              
              4.0
              %
              
              $
              23,384
              
              
              
              5.0
              %




Off-Balance Sheet
Arrangements




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




24





FIRST
CLOVER LEAF FINANCIAL CORP.





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





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 September 30, 2008 follows:





Range
      ofVariable
              
              
              Fixed
              
              
              
              
              
              Rates
      onRate
              
              
              Rate
              
              
              Total
              
              
              Fixed
      RateCommitments
              
              
              Commitments
              
              
              Commitments
              
              
              Commitments($
      in thousands)Commitments
      to extend credit
              
              $
              34,179
              
              
              $
              15,545
              
              
              $
              49,724
              
              
              
              3.75%-18.00
              %Standby
      letters of credit
              
              $
              241
              
              
              $
              3,406
              
              
              $
              3,647
              
              
              
              5.00%-9.25
              %





Loans
sold to the Federal Home Loan Bank (“FHLB”) of Chicago under the Mortgage
Partnership Finance program are sold with recourse.  The Bank has an
agreement to sell residential loans up to $70.0 million to the FHLB of
Chicago.  Approximately $64.4 million has been sold through September
30, 2008.  Under the agreement, the Bank has a maximum credit
enhancement of $1.4 million at September 30, 2008.  Based upon a
favorable payment history, the Bank does not anticipate recognizing any losses
on these residential loans.





The FHLB
announced in April that it will no longer enter into new master commitments or
renew existing master commitments to purchase mortgage loans from participating
financial institutions under the Mortgage Partnership Finance
Program.  The FHLB originally announced that they would work closely
with members that currently participate in the Mortgage Partnership Finance
Program to fund loans through July 31, 2008.  It has since extended
the program to fund loans through October 31, 2008.  The Company
intends to continue originating mortgage loans and selling them while retaining
the servicing.  The Company currently has a relationship with Fannie
Mae to purchase loans and is currently reviewing other vendors who purchase
mortgage loans.






25





FIRST
CLOVER LEAF FINANCIAL CORP.





Item
3.   Quantitative and Qualitative Disclosures about Market Risk





The
majority of First Clover Leaf Bank’s assets and liabilities are monetary in
nature.  Consequently, the most significant form of market risk is
interest rate risk.  First Clover Leaf’s assets, consisting primarily
of loans, have longer maturities than its liabilities, consisting primarily of
deposits.  As a result, the principal part of First Clover Leaf’s
business strategy is to manage interest rate risk and reduce the exposure of our
net interest income to changes in market interest rates.  Accordingly,
the Board of Directors has established an Asset/Liability Management Committee
which is responsible for evaluating the interest rate risk inherent in assets
and liabilities, for determining the level of risk that is appropriate given
First Clover Leaf’s business strategy, operating environment, capital, liquidity
and performance objectives, and for managing this risk consistent with the
guidelines approved by the Board of Directors.  Senior management
monitors the level of interest rate risk on a regular basis, and the
Asset/Liability Management Committee meets 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, due to the low interest rate environment,
the Quarterly Interest Rate Risk Exposure Report, provided by the Office of
Thrift Supervision, will not display results for scenarios of minus 200 basis
points or below until further notice.  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.


26





FIRST
CLOVER LEAF FINANCIAL CORP.





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





The
tables below set forth, as of June 30, 2008 and December 31, 2007, 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.





June
      30, 2008NPV
              
              
              Net
      Portfolio Value as a Percentage of Present Value of
    AssetsChange
      in Interest Rates
              
              
              Estimated
              
              
              Estimated
      Increase(Decrease) in NPV
              
              
              
              
              
              Change
      in(basis
      points)
              
              
              NPV
              
              
              Amount
              
              
              Percent
              
              
              NPV
      Ratio
              
              
              (basis
      points)(Dollars
      in thousands)+300
              
              
              $
              66,589
              
              
              $
              (12,650
              )
              
              
              (16
              )
      %
              
              
              16.48
              %
              
              
              (225
              )+200
              
              
              
              71,862
              
              
              
              (7,377
              )
              
              
              (9
              )
              
              
              17.47
              
              
              
              (126
              )+100
              
              
              
              75,388
              
              
              
              (3,851
              )
              
              
              (5
              )
              
              
              18.08
              
              
              
              (65
              )+50
              
              
              
              77,626
              
              
              
              (1,612
              )
              
              
              (2
              )
              
              
              18.47
              
              
              
              (26
              )—
              
              
              
              79,239
              
              
              
              —
              
              
              
              —
              
              
              
              18.73
              
              
              
              —-50
              
              
              
              80,947
              
              
              
              1,708
              
              
              
              2
              
              
              
              19.01
              
              
              
              28-100
              
              
              
              82,328
              
              
              
              3,090
              
              
              
              4
              
              
              
              19.22
              
              
              
              49


December
      31, 2007NPV
                
                
                Net
      Portfolio Value as a Percentage of Present Value of
    AssetsChange
      in Interest Rates
                
                
                Estimated
                
                
                Estimated
      Increase (Decrease) in NPV
                
                
                
                
                
                Change
      in(basis
      points)
                
                
                NPV
                
                
                Amount
                
                
                Percent
                
                
                NPV
      Ratio
                
                
                (basis
      points)(Dollars
      in thousands)+300
                
                
                $
                66,381
                
                
                $
                (9,274
                )
                
                
                (12
                )
      %
                
                
                17.12
                %
                
                
                (161
                )+200
                
                
                
                69,205
                
                
                
                (6,450
                )
                
                
                (9
                )
                
                
                17.62
                
                
                
                (111
                )+100
                
                
                
                72,960
                
                
                
                (2,695
                )
                
                
                (4
                )
                
                
                18.30
                
                
                
                (44
                )—
                
                
                
                75,655
                
                
                
                —
                
                
                
                —
                
                
                
                18.73
                
                
                
                —-100
                
                
                
                76,221
                
                
                
                566
                
                
                
                1
                
                
                
                18.73
                
                
                
                —-200
                
                
                
                75,884
                
                
                
                229
                
                
                
                —
                
                
                
                18.54
                
                
                
                (19
                )




The 2008
table above indicates that at June 30, 2008, in the event of a 100 basis point
decrease in interest rates, we would experience a 4% increase in the net
portfolio value.  In the event of a 300 basis point increase in
interest rates, we would experience a 16% decrease in net portfolio
value.  Management does not believe that the Company’s primary market
risk exposures and how those exposures were managed during the three months
ended September 30, 2008 have changed significantly when compared to the
immediately preceding quarter ended June 30, 2008.  However, the
Company’s primary market risk exposure has not yet been quantified at September
30, 2008 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.





27





FIRST
CLOVER LEAF FINANCIAL CORP.





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





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











28





FIRST
CLOVER LEAF FINANCIAL CORP.





Item 4.  Controls and Procedures





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





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








29





FIRST
CLOVER LEAF FINANCIAL CORP.





PART II - Other Information





Item
1 - Legal Proceedings.





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




Item
1A – Risk Factors.





The risks set forth below, in
addition to the other risks described in this quarterly report, represent
material changes from those risk factors previously disclosed in the Company’s
Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission
on May 12, 2008, and may adversely affect our business, financial condition and
operating results.  In addition to the risks set forth below and the
other risks described in this quarterly report, there may also be additional
risks and uncertainties that are not currently known to us or that we currently
deem to be immaterial that could materially and adversely affect our business,
financial condition or operating results.  As a result, past financial
performance may not be a reliable indicator of future performance, and
historical trends should not be used to anticipate results or trends in future
periods. Further, to the extent that any of the information contained in this
Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk
factors set forth below also are cautionary statements identifying important
factors that could cause our actual results to differ materially from those
expressed in any forward-looking statements made by or on behalf of
us.




Our
Expenses Will Increase as a Result of Increases in FDIC Insurance
Premiums





The Federal Deposit Insurance
Corporation (“FDIC”) imposes an assessment against institutions for deposit
insurance.  This assessment is based on the risk category of the
institution and ranges from 5 to 43 basis points of the institution’s
deposits.  Federal law requires that the designated reserve ratio for
the deposit insurance fund be established by the FDIC at 1.15% to 1.50% of
estimated insured deposits.  If this reserve ratio drops below 1.15%
or the FDIC expects it to do so within six months, the FDIC must, within 90
days, establish and implement a plan to restore the designated reserve ratio to
1.15% of estimated insured deposits within five years (absent extraordinary
circumstances).





Recent bank failures coupled with
deteriorating economic conditions have significantly reduced the deposit
insurance fund’s reserve ratio.  As of June 30, 2008, the designated
reserve ratio was 1.01% of estimated insured deposits at March 31,
2008.  As a result of this reduced reserve ratio, on October 16, 2008,
the FDIC published a proposed rule that would restore the reserve ratios to its
required level.  The proposed rule would raise the current deposit
insurance assessment rates uniformly for all institutions by 7 basis points (to
a range from 12 to 50 basis points) for the first quarter of
2009.  The proposed rule would also alter the way the FDIC calculates
federal deposit insurance assessment rates beginning in the second quarter of
2009 and thereafter.





Under the proposed rule, the FDIC
would first establish an institution’s initial base assessment
rate.  This initial base assessment rate would range, depending on the
risk category of the institution, from 10 to 45 basis points.  The
FDIC would then adjust the initial base assessment (higher or lower) to obtain
the total base assessment rate.  The adjustments to the initial base
assessment rate would be based upon an institution’s levels of unsecured debt,
secured liabilities, and brokered deposits.  The total base assessment
rate would range from 8 to 77.5 basis points of the institution’s deposits.
There can be no assurance that the proposed rule will be implemented by the FDIC
or implemented in its proposed form.





In addition, the Emergency Economic
Stabilization Act of 2008 (EESA) temporarily increased the limit on FDIC
insurance coverage for deposits to $250,000 through December 31, 2009, and the
FDIC took action to provide coverage for newly issued senior unsecured debt and
non-interest bearing transaction accounts in excess of the $250,000 limit, for
which institutions will be assessed additional premiums.





These actions will increase the
Company’s non-interest expense in 2009 and in future years as long as the
increased premiums are in place.


30





FIRST
CLOVER LEAF FINANCIAL CORP.





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





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


(b)
            Not
      applicable.


(c)
            There
      were no purchases made by or on behalf of the Company of shares of its
      common stock during the quarter ended September 30,
  2008.








Item
3 - Defaults upon Senior Securities.





Not
      applicable.




Item
4 - Submission of Matters to a Vote of Security
Holders.





None




Item
5 - Other Information.





None




Item
6 – Exhibits.





(a)  Exhibits.


31.1:
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2:
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32:
            Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.


31





FIRST CLOVER LEAF FINANCIAL
CORP.





SIGNATURES








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





FIRST CLOVER LEAF
      FINANCIAL CORP.(Registrant)DATE:
      November 10,
      2008
            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





32