UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period of _________ to _________

Commission File Number   000-53935

Harvard Illinois Bancorp, Inc.

(Exact name of Registrant as specified in its charter)

Maryland	27-2238553
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification Number)

58 N. Ayer Street
Harvard, IL	60033
(Address of principal executive office)	(Zip Code)

Registrant’s telephone number, including area code:  (815) 943-5261

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.

(x)  Yes ( )  No

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

(x) Yes ( )  No

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	( ) Accelerated Filer
( )  Non-Accelerated Filer	(x)  Smaller Reporting Company

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

( )  Yes (x)   No

As of May 9, 2014, 839,585 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

1

HARVARD ILLINOIS BANCORP, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50
PART II	OTHER INFORMATION	51
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	51
	Signatures	52

2

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

HARVARD ILLINOIS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	(Unaudited) March 31, 2014			December 31, 2013
Assets
Cash and due from banks	$	1,586		$	1,712
Interest-bearing demand deposits in banks		1,807			1,260
Securities purchased under agreements to resell		24,622			25,117
Cash and cash equivalents		28,015			28,089
Interest-bearing deposits with other financial institutions		5,650			6,240
Available-for-sale securities		6,968			5,545
Held-to-maturity securities, at amortized cost (estimated fair value of $414 and $839 at March 31, 2014 and December 31, 2013, respectively)		413			833
Loans, net of allowance for loan losses $2,431 and $2,475 at March 31, 2014 and December 31, 2013		114,331			116,858
Premises and equipment, net		3,348			3,366
Federal Home Loan Bank stock, at cost		870			870
Foreclosed assets held for sale		3			331
Accrued interest receivable		619			786
Deferred income taxes		1,823			1,897
Bank-owned life insurance		4,500			4,472
Loan servicing rights		620			620
Other		220			213
Total assets	$	167,380		$	170,120
Liabilities and Equity
Liabilities
Deposits
Demand	$	6,434		$	6,463
Savings, NOW and money market		54,873			51,794
Certificates of deposit		72,638			75,493
Total deposits		133,945			133,750
Federal Home Loan Bank advances		8,946			12,206
Advances from borrowers for taxes and insurance		544			358
Deferred compensation		2,430			2,433
Accrued interest payable		18			19
Other		905			908
Total liabilities		146,788			149,674
Commitments and Contingencies		—			—
Stockholders’ Equity
Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued or outstanding		—			—
Common stock, $.01 par value, 30,000,000 shares authorized; 839,585 and 833,851 shares issued and outstanding at March 31, 2014 and December 31, 2013		8			8
Additional paid-in capital		7,336			7,253
Unearned ESOP shares, at cost; March 31, 2014 – 44,989 shares; December 31, 2013 – 46,035 shares		(450	)		(460	)
Amount reclassified on ESOP shares		(302	)		(268	)
Retained earnings		13,973			13,897
Accumulated other comprehensive income, net of tax		27			16
Total stockholders’ equity		20,592			20,446
Total liabilities and stockholders’ equity	$	167,380		$	170,120

See accompanying notes to the consolidated financial statements.

3

HARVARD ILLINOIS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME      

(Dollars in thousands)

	(Unaudited) Three Months Ended March 31,
	2014			2013
Interest and Dividend Income
Interest and fees on loans	$	1,574		$	1,545
Securities
Taxable		12			34
Tax-exempt		13			9
Securities purchased under agreements to resell		63			44
Other		14			21
Total interest and dividend income		1,676			1,653
Interest Expense
Deposits		297			321
Federal Home Loan Bank advances		45			72
Total interest expense		342			393
Net Interest Income		1,334			1,260
Provision for Loan Losses		25			144
Net Interest Income After Provision for Loan Losses		1,309			1,116
Noninterest Income
Customer service fees		76			74
Brokerage commission income		—			1
Net realized gains on loan sales		4			92
Loan servicing fees		59			49
Bank-owned life insurance income, net		26			28
Other		1			2
Total noninterest income		166			246
Noninterest Expense
Compensation and benefits		660			640
Occupancy		139			127
Data processing		83			80
Professional fees		94			114
Marketing		9			30
Office supplies		14			10
Federal deposit insurance		32			33
Indirect automobile loan servicing fee		24			23
Foreclosed assets, net		(21	)		59
Other		93			73
Total noninterest expense		1,127			1,189
Income Before Income Taxes		348			173
Provision for Income Taxes		114			14
Net Income	$	234		$	159
Earnings Per Share
Basic (Note 4)	$	.30		$	0.20
Diluted		.29			0.20

See accompanying notes to the consolidated financial statements.

4

HARVARD ILLINOIS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

	(Unaudited) Three Months Ended March 31,
	2014		2013
Net Income	$	234	$	159
Other Comprehensive Income
Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes of  $5 and $(3), for 2014 and 2013, respectively		11		(6	)
Comprehensive Income	$	245	$	153

See accompanying notes to the consolidated financial statements.

5

HARVARD ILLINOIS BANCORP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

	Common Stock		Additional Paid-in Capital		Unearned ESOP Shares			Amount Reclassified On ESOP Shares			Retained Earnings			Accumulated Other Comprehensive Income			Total
For the Three Months Ended March 31, 2014 (unaudited)
Balance, January 1, 2014	$	8	$	7,253	$	(460	)	$	(268	)	$	13,897		$	16		$	20,446
Net income		—		—		—			—			234			—			234
Other comprehensive income		—		—		—			—			—			11			11
ESOP shares earned, 1,046 shares		—		8		10			—			—			—			18
Stock-based compensation expense		—		28		—			—			—			—			28
Reclassification due to change in fair value of common stock in ESOP subject to contingent repurchase obligation		—		—		—			(34	)		—			—			(34	)
Exercise of stock options, 5,734 shares		—		47		—			—			—			—			47
Dividends on common stock, $.20 per share		—		—		—			—			(158	)		—			(158	)
Balance, March 31, 2014	$	8	$	7,336	$	(450	)	$	(302	)	$	13,973		$	27		$	20,592
For the Three Months Ended March 31, 2013 (unaudited)
Balance, January 1, 2013	$	8	$	6,976	$	(502	)	$	(163	)	$	13,291		$	7		$	19,617
Net income		—		—		—			—			159			—			159
Other comprehensive loss		—		—		—			—			—			(6	)		(6	)
ESOP shares earned, 1,046 shares		—		4		11			—			—			—			15
Stock-based compensation expense		—		29		—			—			—			—			29
Reclassification due to change in fair value of common stock in ESOP subject to contingent repurchase obligation		—		—		—			(24	)		—			—			(24	)
Exercise of stock options, 13,774 shares		—		112		—			—			—			—			112
Dividends on common stock, $.10 per share		—		—		—			—			(82	)		—			(82	)
Balance, March 31, 2013	$	8	$	7,121	$	(491	)	$	(187	)	$	13,368		$	1		$	19,820

See accompanying notes to consolidated financial statements.

6

HARVARD ILLINOIS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	(Unaudited) Three Months Ended March 31,
	2014			2013
Operating Activities
Net income	$	234		$	159
Items not requiring (providing) cash
Depreciation		55			50
Provision for loan losses		25			144
Amortization of premiums and discounts on securities		10			1
Deferred income taxes		69			(68	)
Net realized gains on loan sales		(4	)		(92	)
(Gains) losses and write down on foreclosed assets held for sale		(25	)		50
Bank-owned life insurance income, net		(26	)		(28	)
Originations of loans held for sale		(3,204	)		(4,907	)
Proceeds from sales of loans held for sale		3,208			4,962
ESOP compensation expense		18			15
Stock-based compensation expense		28			29
Changes in
Accrued interest receivable		167			264
Other assets		52			111
Accrued interest payable		(1	)		1
Deferred compensation		(3	)		22
Other liabilities		(37	)		81
Net cash provided by operating activities		566			794
Investing Activities
Net decrease in interest-bearing deposits		590			500
Purchases of available-for-sale securities		(1,482	)		(1	)
Purchase of held-to-maturity securities		(103	)		—
Proceeds from maturities and pay-downs of available-for-sale securities		64			250
Proceeds from maturities and pay-downs of held-to-maturity securities		524			28
Net change in loans		2,499			(147	)
Purchase of premises and equipment		(37	)		(3	)
Proceeds from redemption of Federal Home Loan Bank stock		—			552
Proceeds from sale of foreclosed assets		295			97
Net cash provided by investing activities		2,350			1,276
Financing Activities
Net increase in demand deposits, money market, NOW and savings accounts		3,050			1,946
Net increase (decrease) in certificates of deposit		(2,855	)		199
Net increase in advances from borrowers for taxes and insurance		186			199
Proceeds from Federal Home Loan Bank advances		6,900			6,500
Repayments of Federal Home Loan Bank advances		(10,160	)		(8,122	)
Dividends paid		(158	)		(82	)
Stock options exercised		47			112
Net cash provided by (used in) financing activities		(2,990	)		752
Net Increase (Decrease) in Cash and Cash Equivalents		(74	)		2,822
Cash and Cash Equivalents, Beginning of Period		28,089			22,859
Cash and Cash Equivalents, End of Period	$	28,015		$	25,681
Supplemental Cash Flows Information
Interest paid	$	343		$	392
Income taxes paid		70			70
Foreclosed assets acquired in settlement of loans		3			102

See accompanying notes to unaudited consolidated financial statements.

7

HARVARD ILLINOIS BANCORP, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) (Dollar amounts in thousands)

Note 1:              Basis of Financial Statement Presentation

The consolidated financial statements include the accounts of Harvard Illinois Bancorp, Inc. (Company) and its wholly-owned subsidiary, Harvard Savings Bank (Bank). All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and with instructions for Form 10–Q and Rule 10–01 of Regulation S–X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ from these estimates. In the opinion of management, the preceding unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial condition of the Company as of March 31, 2014 and December 31, 2013, and the results of its operations for the three month periods ended March 31, 2014 and 2013. These consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2013 included as part of Harvard Illinois Bancorp, Inc.’s Form 10-K (File No. 000-53935) (2013 Form 10-K) filed with the Securities and Exchange Commission on March 28, 2014.

The results of operations for the three month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the entire year. For further information, refer to the consolidated financial statements and footnotes thereto included in the 2013 Form 10–K.

8

Note 2:              New Accounting Pronouncements

Recent and Future Accounting Requirements

In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-04, Troubled Debt Restructurings by Creditors (Subtopic 310-40: Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure, which affects all creditors who obtain physical possession (resulting from an in substance repossession or foreclosure) of residential real estate property collateralizing a consumer mortgage loan in satisfaction of a receivable. The ASU is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015 which the entity’s annual or interim financial statements have not been made available for issuance. The adoption of this guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

9

Note 3:              Stock-based Compensation

In connection with the conversion to stock form, the Bank established an ESOP for the exclusive benefit of eligible employees (all salaried employees who have completed at least 1,000 hours of service in a twelve-month period and have attained the age of 18). The ESOP borrowed funds from the Company in an amount sufficient to purchase 62,775 shares (approximately 8% of the common stock issued in the stock offering). The loan is secured by the shares purchased and is being repaid by the ESOP with funds from contributions made by the Bank and dividends received by the ESOP, with funds from any contributions on ESOP assets. Contributions are being applied to repay interest on the loan first, then the remainder are being applied to principal. The loan is expected to be repaid over a period of up to 15 years. Shares purchased with the loan proceeds are being held in a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation, relative to total compensation of all active participants. Participants vest 100% in their accrued benefits under the employee stock ownership plan after three vesting years, with no prorated vesting prior to reaching three vesting years. Vesting is accelerated upon retirement, death or disability of the participant or a change in control of the Bank. Forfeitures will be reallocated to remaining plan participants. Benefits may be payable upon retirement, death, disability, separation from service, or termination of the ESOP. Since the Bank’s annual contributions are discretionary, benefits payable under the ESOP cannot be estimated.

Participants receive the shares at the end of employment. Because the Company’s stock is not traded on an established market, as of March 31, 2014, it is required to provide the participants in the Plan with a put option to repurchase their shares. This repurchase obligation is reflected in the Company’s financial statements in other liabilities and reduces shareholders’ equity by the estimated fair value of the earned shares.

The Company is accounting for its ESOP in accordance with ASC Topic 718, Employers Accounting for Employee Stock Ownership Plans. Accordingly, the debt of the ESOP is eliminated in consolidation and the shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheet. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from collateral, the Company reports compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per shares computations. Dividends, if any, on unallocated ESOP shares are recorded as a reduction of debt and accrued interest. ESOP compensation expense for the three months ended March 31, 2014 and 2013 was $18 and $15, respectively.

A summary of ESOP shares is as follows:

	March 31, 2014		December 31, 2013
Allocated shares		16,740		12,555
Shares released for allocation		1,046		4,185
Unearned shares		44,989		46,035
Total ESOP shares		62,775		62,775
Fair value of unearned ESOP shares	$	731	$	609

The Company is obligated at the option of each beneficiary to repurchase shares of the ESOP upon the beneficiary’s termination or after retirement. At March 31, 2014, the fair value of the 17,786 allocated shares held by the ESOP is $302. The fair value of all shares subject to the repurchase obligation is $302.

On May 26, 2011, the stockholders approved the Harvard Illinois Bancorp, Inc. 2011 Equity Incentive Plan (the “Equity Incentive Plan”) for employees and directors of the Company. The Equity Incentive Plan authorizes the issuance of up to 109,856 shares of the Company’s common stock, with no more than 31,387 of shares as restricted stock awards and 78,469 as stock options, either incentive stock options or non-qualified stock options. The exercise price of options granted under the Equity Incentive Plan may not be less than the fair market value on the date the stock option is granted. The compensation committee of the board of directors has sole discretion to determine the amount and to whom equity incentive awards are granted. Certain option awards provide for accelerated vesting if there is a change of control (as defined in the Equity Incentive Plan).

10

On June 23, 2011, the compensation committee of the board of directors approved the awards of 73,761 options to purchase Company stock and 31,387 shares of restricted stock. Of the 73,761 stock options granted, 63,167 were qualified stock options and 10,594 were nonqualified. The remaining 4,708 shares were awarded on November 29, 2012. Stock options and restricted stock vest over a five year period, and stock options expire ten years after issuance. Apart from the vesting schedule for both stock options and restricted stock, there are no performance-based conditions or any other material conditions applicable to the awards issued.

A summary of the option activity under the Equity Incentive Plan as of March 31, 2014, and changes for the three months then ended, is presented below:

	March 31, 2014
	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding, January 1, 2014		60,694			8.32
Granted		—			—
Exercised		(5,734	)		8.22
Forfeited or expired		—			—
Outstanding, March 31, 2014		54,960		$	8.33		7.35	$	476
Exercisable, March 31, 2014		6,937		$	8.39		8.13	$	60

Stock-based compensation expense for stock options for the three month periods ended March 31, 2014 and 2013 was $17 and $17, respectively.

As of March 31, 2014, total unrecognized compensation costs related to nonvested stock options amounted to $155. That cost is expected to be recognized over a weighted-average period of 2.28 years.   

A summary of the status of the Company’s nonvested stock options as of March 31, 2014, and changes during the three month period then ended, is presented below:

	Shares		Weighted- Average Grant-Date Fair Value
Nonvested, January 1, 2014		48,023	$	4.21
Granted		—		—
Vested		—		—
Forfeited		—		—
Nonvested, March 31, 2014		48,023	$	4.21

11

The following table summarizes the nonvested restricted stock activity for the three months ended March 31, 2014:

	Shares		Weighted Average Grant-Date Fair Value
Balance, January 1, 2014		17,890	$	8.10
Granted		—		—
Forfeited		—		—
Earned and issued		—		—
Balance, March 31, 2014		17,890	$	8.10

The fair value of the restricted stock awards is amortized to compensation expense over the vesting period (five years) and is based on the market price of the Company’s common stock at the date of grant multiplied by the number of shares granted that are expected to vest. At the date of grant the par value of the shares granted was recorded in equity as a credit to common stock and a debit to paid-in capital. Stock-based compensation expense for restricted stock for the three month periods ended March 31, 2014 and 2013 was $12 and $12, respectively. Unrecognized compensation expense for nonvested restricted stock awards was $109 at March 31, 2014 and is expected to be recognized over a weighted average period of 2.23 years.

Total compensation expense for both plans for the three month periods ended March 31, 2014 and 2013 was $28 and $29, respectively.

Note 4:              Earnings Per Common Share (“EPS”)

Basic and diluted earnings per common share are presented for the three-month periods ended March 31, 2014 and 2013. The factors used in the earnings per common share computation follow:

	Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Net income	$	234		$	159
Net income allocated to participating securities		—			(4	)
Net income allocated to common stock	$	234		$	155
Basic weighted average shares outstanding		824,192			800,288
Less: Average unallocated ESOP shares		(45,335	)		(49,523	)
Basic average shares outstanding		778,857			750,765
Diluted effect of stock options		13,357			4,196
Diluted effect of restricted stock awards		2,347			2,991
Diluted average shares outstanding		794,561			757,952
Basic earnings per share	$	.30		$	.20
Diluted earnings per share	$	.29		$	.20

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Note 5:              Securities Purchased Under Agreements to Resell

The Company enters into purchases of securities under agreements to resell. The amounts advanced under these agreements were $24,622 and $25,117 at March 31, 2014 and December 31, 2013, respectively, and represent short-term cash investment alternatives. These agreements are over-collateralized by 3% with collateral consisting of securities and loans guaranteed by the “full faith and credit” of the United States government. During the period, the securities were delivered by appropriate entry into the third-party custodian’s account designated by the Company under a written custodial agreement that explicitly recognizes the Company’s interest in the securities. At March 31, 2014 and December 31, 2013, these agreements mature by notice by the Company or 30 days by the custodian.

At March 31, 2014 and December 31, 2013, agreements to resell securities purchased were outstanding with the following entities:

	March 31, 2014		December 31, 2013
ESI Investors III, LLC	$	1,500	$	1,500
BCM High Income Fund, LP		5,545		6,040
HEC Opportunity Fund LLC		500		500
Coastal Securities		2,266		2,266
First Farmers Financial, LLC		14,811		14,811
Total	$	24,622	$	25,117

Note 6:              Securities

The amortized cost and approximate fair value of securities, together with gross unrealized gains and losses, of securities are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale Securities:
March 31, 2014:
U.S. government agencies	$	991	$	—	$	(3	)	$	988
State and political subdivisions		4,430		10		(31	)		4,409
Mortgage-backed:
Government-sponsored enterprises (GSE) – residential		550		10		—			560
Equity securities		457		56		—			513
Corporate debt securities		499		—		(1	)		498
	$	6,927	$	76	$	(35	)	$	6,968
December 31, 2013:
U.S. Government and federal agency	$	990	$	—	$	(8	)	$	982
Mortgage-backed:
Government-sponsored enterprises (GSE) – residential		614		12		—			626
State and political subdivisions		3,461		7		(39	)		3,429
Equity securities		455		53		—			508
	$	5,520	$	72	$	(47	)	$	5,545

13

	Amortized Cost		Gross Unrealized Gains		Gross  Unrealized  Losses			Fair Value
Held-to-maturity Securities:
March 31, 2014:
Mortgage-backed:
Government-sponsored enterprises (GSE) – residential	$	12	$	1	$	—		$	13
Private-label residential		298		1		—			299
State and political subdivisions		103		—		(1	)		102
	$	413	$	2	$	(1	)	$	414
December 31, 2013:
U.S. Government agencies	$	500	$	2	$	—		$	502
Mortgage-backed:
Government-sponsored enterprises (GSE) – residential		13		1		—			14
Private-label residential		320		3		—			323
	$	833	$	6	$	—		$	839

The Company held no securities at March 31, 2014 or December 31, 2013 with a book value that exceeded 10% of total equity.

Available for sale equity securities consist of shares in the Shay Asset Management mutual funds, shares of FHLMC and shares in other financial institutions.

As of March 31, 2014 and December 31, 2013, the Company held investments in Shay Asset Management mutual funds with a fair value of $458 and $457, respectively. The investments in mutual funds are valued using available market prices. Management performed an analysis and deemed the remaining investment in the mutual funds was not other than temporarily impaired as of March 31, 2014 and December 31, 2013.

As of March 31, 2014 and December 31, 2013, the Company held investments in FHLMC common stock with a fair value of $29 and $22, respectively. The investment in FHLMC common stock is valued using available market prices. Management performed an analysis and deemed the remaining investment in FHLMC common stock was not other than temporarily impaired as of March 31, 2014 and December 31, 2013.

As of March 31, 2014 and December 31, 2013, the Company held investments in other equity securities with a fair value of $26 and $29. Management performed an analysis and deemed the remaining investment in other equity securities was not other than temporarily impaired as of March 31, 2014 and December 31, 2013.

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes was $621 and $1,120 as of March 31, 2014 and December 31, 2013, respectively.

There were no sales of available-for-sale securities for the three months ended March 31, 2014 and 2013.

14

The amortized cost and fair value of available-for-sale securities and held-to-maturity securities at March 31, 2014, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	1,075	$	1,077	$	—	$	—
One to five years		3,251		3,242		—		—
Five to ten years		1,594		1,576		103		102
After ten years		—		—		—		—
		5,920		5,895		103		102
Mortgage-backed securities		550		560		310		312
Equity securities		457		513		—		—
Totals	$	6,927	$	6,968	$	413	$	414

Certain investments in debt and marketable equity securities are reported in the financial statements at amounts less than their historical cost. Total fair value of these investments at March 31, 2014 and December 31, 2013 was $3,200 and $2,292, respectively, which is approximately 43% and 36% of the Company’s available-for-sale and held-to-maturity investment portfolio. These declines primarily resulted from recent increases in market interest rates. Management believes the declines in fair value for these securities are temporary.

The following table shows the Company’s securities’ gross unrealized losses and fair value of the Company’s securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2014 and December 31, 2013:

	March 31, 2014
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-sale:
U.S. government and federal agency	$	—	$	—		$	488	$	(3	)	$	488	$	(3	)
State and political subdivisions		1,151		(13	)		961		(18	)		2,112		(31	)
Corporate debt securities		498		(1	)		—		—			498		(1	)
Total temporarily impaired securities		1,649		(14	)		1,449		(21	)		3,098		(35	)
Held-to-maturity:
State and political subdivisions		102		(1	)		—		—			102		(1	)
Total	$	1,751	$	(15	)	$	1,449	$	(21	)	$	3,200	$	(36	)

	December 31, 2013
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-sale:
U.S. government and federal agency	$	500	$	(1	)	$	482	$	(7	)	$	982	$	(8	)
State and political subdivisions		555		(13	)		755		(26	)		1,310		(39	)
Total temporarily impaired securities	$	1,055	$	(14	)	$	1,237	$	(33	)	$	2,292	$	(47	)

15

Note 7:              Loans

Classes of loans include:

	March 31, 2014			December 31, 2013
Mortgage loans on real estate
One-to-four family	$	39,703		$	39,489
Home equity lines of credit and other 2nd mortgages		7,201			7,749
Multi-family residential		116			117
Commercial		19,129			19,244
Farmland		12,189			13,900
Construction and land development		553			354
Total mortgage loans on real estate		78,891			80,853
Commercial and industrial		6,577			6,424
Agricultural		23,877			24,343
Purchased indirect automobile, net of dealer reserve		7,313			7,616
Other consumer		100			115
		116,758			119,351
Less
Loans in process		3			26
Net deferred loan fees and costs		(7	)		(8	)
Allowance for loan losses		2,431			2,475
Net loans	$	114,331		$	116,858

The Company believes that sound loans are a necessary and desirable means of employing funds available for investment. Recognizing the Company’s obligations to its depositors and to the communities it serves, authorized personnel are expected to seek to develop and make sound, profitable loans that resources permit and that opportunity affords. The Company maintains lending policies and procedures in place designed to focus our lending efforts on the types, locations, and duration of loans most appropriate for our business model and markets. The Company’s principal lending activity is the origination of one-to four-family residential mortgage loans but also includes, commercial real estate loans, commercial and industrial, home equity, construction, agricultural and other loans. The primary lending market is McHenry, Grundy and to a lesser extent Boone Counties in Illinois and Walworth County in Wisconsin. Generally, loans are collateralized by assets, primarily real estate, of the borrowers and guaranteed by individuals.  The loans are expected to be repaid from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.

Pursuant to applicable law, the aggregate amount of loans that the Company is permitted to make to any one borrower or a group of related borrowers is generally limited to 25% of our total capital plus the allowance for loan losses.

Our lending is subject to written underwriting standards and origination procedures. Decisions on loan applications are made on the basis of detailed applications submitted by the prospective borrower and property valuations (consistent with our appraisal policy) prepared by outside independent licensed appraisers approved by our board of directors as well as internal evaluations, where permitted by regulations. The loan applications are designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, financial statements and tax returns.

Under our loan policy, the individual processing an application is responsible for ensuring that all documentation is obtained prior to the submission of the application to an officer for approval. An officer then reviews these materials and verifies that the requested loan meets our underwriting guidelines described below.

All one-to-four family residential loans up to $500,000, vacant land loans up to $250,000, and any consumer loans require approval of a quorum of our retail loan committee consisting of four officers. All such loan approvals are reported at the next board meeting following said approval. All secured commercial loans, including agricultural loans, up to $1,500,000 and unsecured loans up to $250,000 must be approved by our commercial credit management committee, which currently consists of our Chief Executive Officer, Secretary – Treasurer and our Vice President – Commercial Loan Officer. These approvals are reported at the next board meeting following said approval. All other loans must be approved by the board.

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Generally, title insurance or title searches on our mortgage loans are required as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan.

One-to-Four Family Residential Mortgage Loans

The cornerstone of our lending program has long been the origination of long-term permanent loans secured by mortgages on owner-occupied one-to-four family residences. Virtually all of the residential loans originated are secured by properties located in our market area.

Due to consumer demand in the current low market interest rate environment, many of our recent originations are 10- to 30-year fixed-rate loans secured by one-to-four family residential real estate. The Company generally originates fixed-rate one-to-four family residential loans in accordance with secondary market standards to permit their sale. During the last several years, consistent with our asset-liability management strategy, most of the fixed rate one-to-four family residential loans we originated with original terms to maturity in excess of ten years were sold in the secondary market.

During the last several years, as a part of our asset/liability management policy, seven-year balloon loans with up to 30-year amortization schedules secured by one-to-four family real estate have been originated, to a lesser extent.

In order to reduce the term to repricing of the loan portfolio, adjustable-rate one-to-four family residential mortgage loans have been originated. However, our ability to originate such loans is limited in the current low interest rate environment due to low consumer demand. Our current adjustable-rate mortgage loans carry interest rates that adjust annually at a margin over the one year U.S. Treasury index. Many of our adjustable-rate one-to-four family residential mortgage loans have fixed rates for initial terms of three to five years. Such loans carry terms to maturity of up to 30 years. The adjustable-rate mortgage loans currently offered by the Company generally provide for a 200 basis point annual interest rate change cap and a lifetime cap of 600 basis points over the initial rate.

Although adjustable-rate mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they periodically reprice as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by the maximum periodic and lifetime rate adjustments permitted by our loan documents. Moreover, the interest rates on many of our adjustable-rate loans do not adjust for the first three to five years. As a result, the effectiveness of adjustable-rate mortgage loans may be limited during periods of rapidly rising interest rates.

The Company evaluates both the borrower’s ability to make principal, interest and escrow payments and the value of the property that will secure the loan. One-to-four family residential mortgage loans do not currently include prepayment penalties, are non-assumable and do not produce negative amortization. One-to-four family residential mortgage loans customarily include due-on-sale clauses giving the Company the right to declare the loan immediately due and payable in the event that, among other things, the borrower sells the property subject to the mortgage. Residential mortgage loans are originated for our portfolio with loan-to-value ratios of up to 75% for one-to-four family homes, with higher limits applicable to loans with private mortgage insurance on owner-occupied residences.

Commercial Real Estate Loans

In an effort to enhance the yield and reduce the term to maturity of our loan portfolio, the Company has originated or purchased commercial real estate loans. Most of the commercial real estate loans have balloon loan terms of three to five years with amortization terms of 15 to 25 years and fixed interest rates. The maximum loan-to-value ratio of the commercial real estate loans is generally 75%.

The Company considers a number of factors in originating commercial real estate loans. The qualifications and financial condition of the borrower are evaluated, including credit history, profitability and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with the Company and other financial institutions are considered. In evaluating the property securing the loan, the factors considered include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service). All commercial real estate loans are appraised by outside independent appraisers approved by the board of directors or by internal evaluations, where permitted by regulation. Personal guarantees are generally obtained from the principals of commercial real estate loans.

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Loans secured by commercial real estate generally are larger than one-to-four family residential loans and involve greater credit risk. Commercial real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Repayment of these loans depends to a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on such property, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, the nature of these loans makes them more difficult for management to monitor and evaluate.

Multi Family Real Estate Loans

The Company has a limited number of loans on multi-family residences in our market area. Such loans have terms and are underwritten similarly to our commercial real estate loans and are subject to similar risks.

Home Equity Loans

The Company originates variable-rate home equity lines-of-credit and, to a lesser extent, fixed-rate loans secured by junior liens on the borrower’s primary residence. Home equity lines-of-credit are generally limited to 75% of the property value less any other mortgages. Prior to 2009, home equity loans were originated up to 90% of the property value to our customers where we serviced their first lien mortgage loan. The same underwriting standards are used for home equity lines-of-credit and loans as used for one-to-four family residential mortgage loans. The home equity line-of-credit product carries an interest rate tied to the prime rate published in the Wall Street Journal. The product has a rate ceiling of 18%. Home equity loans with fixed-rate terms typically amortize over a period of up to 20 years. Home equity lines-of-credit provide for an initial draw period of up to five years, with monthly payments of interest calculated on the outstanding balance. At the end of the initial five years, the line may be paid in full or restructured at our then current home equity program.

Construction and Land Development Loans

The Company has construction loans to builders and developers for the construction of one- to four- and multi-family residential units and to individuals for the construction of their primary or secondary residence. The Company has a limited amount of land loans to developers, primarily for the purpose of developing residential subdivisions.

The application process includes a submission of plans, specifications, and costs of the project to be constructed or developed. These items are used as a basis to determine the appraised value of the subject property. Loans are based on the lesser of current appraised value and/or the cost of construction (land plus building). Construction loan agreements generally provide that loan proceeds are disbursed in increments as construction progresses. Outside independent licensed appraisers or title company representatives under a construction loan escrow agreement inspect the progress of the construction of the dwelling before disbursements are made.

The Company has construction loans for commercial development projects such as multi-family, apartment and other commercial buildings. These loans generally have an interest-only phase during construction then convert to permanent financing. Disbursements of construction loan funds are at our discretion based on the progress of construction. The maximum loan-to-value ratio limit applicable to these loans is generally 75%.

The Company has loans to builders and developers for the development of one-to-four family lots in our market area. These loans have terms of five years or less. Land loans are generally made in amounts up to a maximum loan-to-value ratio of 65% on raw land and up to 75% on developed building lots based upon an independent appraisal. Personal guarantees are obtained for land loans.

Loans to individuals for the construction of their residences typically run for up to twelve months and then convert to permanent loans. These construction loans have rates and terms comparable to one-to-four family residential loans offered. During the construction phase, the borrower pays interest only at a fixed rate. The maximum loan-to-value ratio of owner-occupied single-family construction loans is 75%, 80% if the permanent loan has been approved to be sold in the secondary market. Residential construction loans are generally underwritten pursuant to the same guidelines used for originating permanent residential loans.

18

Construction and land lending generally affords the Company an opportunity to receive higher origination and other loan fees. In addition, such loans are generally made for relatively short terms. Nevertheless, construction and land lending to persons other than owner-occupants is generally considered to involve a higher level of credit risk than one-to-four family residential lending due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on construction projects, real estate developers and managers. In addition, the nature of these loans is such that they are more difficult to evaluate and monitor. Risk of loss on a construction or land loan is dependent largely upon the accuracy of the initial estimate of the property’s value upon completion of the project and the estimated cost (including interest) of the project. If the estimate of value proves to be inaccurate, the Company may be confronted, at or prior to the maturity of the loan, with a project with a value which is insufficient to assure full repayment and/or the possibility of having to make substantial investments to complete and sell the project. Because defaults in repayment may not occur during the construction period, it may be difficult to identify problem loans at an early stage. When loan payments become due, the cash flow from the property may not be adequate to service the debt. In such cases, the Company may be required to modify the terms of the loan.

Farmland

These loans are primarily secured by farmland located in our market area. Adjustable rate farmland loans have interest rates that generally adjust every one, three or five years in accordance with a designated index and are generally amortized over 15-25 years. Fixed-rate farmland loans generally are for terms of up to 15 years, although many are amortized over longer periods, and include a balloon payment at maturity. Lending policies on such loans generally limit the maximum loan-to-value ratio to 75% of the lesser of the appraised value or purchase price of the property.

While earning higher yields on agricultural mortgage loans than on single-family residential mortgage loans, agricultural-related lending involves a greater degree of risk than single-family residential mortgage loans because of the typically larger loan amounts and potential volatility in the market. In addition, repayments on agricultural loans are substantially dependent on the successful operation of the underlying business and the value of the property collateralizing the loan, both of which are affected by many factors, such as weather and changing market prices, outside the control of the borrower. Finally, some commentators believe that the recent sharp increases in farm land prices could make a price correction more likely.

Substantially all farmland loans are underwritten to conform to agency guidelines to qualify for a government guarantee of up to 90% of the original loan amount, which in turn qualifies them to be sold to a variety of investors in the secondary market. Once the government guarantee is secured from Farmers Home Loan Administration, the guarantee covers up to 90% of any loss on the loan. Longer-term fixed-rate agricultural mortgage loans may be sold in the secondary market, which the Company services for the secondary market purchaser.

Commercial and Industrial Loans

Commercial and industrial loans and lines of credit are originated to small and medium-sized companies in our primary market area. Commercial and industrial loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture. Commercial and industrial loans generally carry a floating-rate indexed to the prime rate as published in The Wall Street Journal and a one-year term. All commercial and industrial loans are secured.

When making commercial and industrial loans, the financial statements of the borrower, the lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower are considered. Commercial and industrial loans are generally secured by accounts receivable, inventory, equipment and personal guarantees.

Commercial and industrial loans generally have a greater credit risk than residential mortgage loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial and industrial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial and industrial loans may be substantially dependent on the success of the business itself. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. These risks are minimized through underwriting standards and personal guarantees.

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Agricultural Loans

Agricultural operating lines of credit generally have terms of one year and are secured by growing crops, livestock and equipment, and mortgages on the farmland. Intermediate-term loans have terms of 2-7 years and will be secured by machinery and equipment. Generally these loans are extended to farmers in our market area for the purchase of equipment, seed, fertilizer, insecticide and other purposes in connection with agricultural production. The maximum term for equipment secured loans is tied to the useful life of the underlying collateral but generally does not exceed 10 years. The interest rate is generally increased with respect to the longer terms loans due to the rate exposure of these loans. The amount of the commitment is based on management’s review of the borrower’s business plan, prior performance, marketability of crops, and current market prices. We examine recent financial statements and evaluate cash flow analysis and debt-to-net worth, and liquidity ratios. Loans for crop production generally require 75% or more crop insurance coverage.

The repayment of agricultural business loans generally is dependent on the successful operation of a farm and can be adversely affected by fluctuations in crop prices, increase in interest rates, and changes in weather conditions. These developments may result in smaller harvests and less income for farmers which may adversely affect such borrower’s ability to repay a loan. Many borrowers also have more than one agricultural business loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose the Company to significantly greater risk of loss compared to an adverse development with respect to a one-to-four family residential mortgage loan. Finally, if the Company forecloses on an agricultural commercial loan, our holding period for the collateral, if any, typically is longer than for one-to-four family residential mortgage loans because there are fewer potential purchasers of the collateral.

Consumer Loans

The Company has secured and unsecured loans to consumers. However, during recent years, most consumer lending efforts were focused on purchases of indirect automobile loans.

In an effort to expand and diversify our loan portfolio and increase the overall yield on our loan portfolio, since 1999 the Company has purchased indirect loans on new and used automobiles located primarily in Cook County, Illinois. Although we do not separately underwrite each purchased loan, we thoroughly review the knowledge and experience of the originators’ management teams, their underwriting standards, and their historical loss rates.

Under the loan purchase arrangement, the seller aggregates indirect automobile loans into separate loan pools. The pools are then segregated into risk categories with each category having predefined limits as to the maximum amounts allowed. Generally, the pools are sold without recourse. The Company receives a listing of the individual loans in the pool, including loan and borrower information prior to funding the purchase but the Company is not generally permitted to substitute loans in a pool or purchase part of a pool.

The seller is responsible for dealer relationships and the monitoring of their performance. The seller performs all servicing functions including the collection of principal, interest, and fees as well as repossessions and recoveries. Thus, the Company is not involved in the sale of repossessed vehicles.

The Company performs semi-annual reviews of newly purchased loan files and review operational procedures as part of our internal audit function.

Consumer loans may entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances as well as the economy. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

20

The following tables present the activity in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method for the three months ended March 31, 2014 and 2013, and the year ended December 31, 2013:

	Three Months Ended March 31, 2014 Mortgage Loans on Real Estate
	1-4 Family			HELOC and 2nd Mortgage		Multi-Family Residential		Commercial			Farmland			Construction and Land Development
Allowance for loan losses:
Balance, beginning of period	$	644		$	318	$	6	$	694		$	208		$	—
Provision charged to expense		52			15		—		(24	)		(19	)		23
Losses charged off		(82	)		—		—		—			—			—
Recoveries		11			—		—		—			—			—
Balance, end of period	$	625		$	333	$	6	$	670		$	189		$	23
Ending balance: individually evaluated for impairment	$	43		$	112	$	—	$	—		$	—		$	—
Ending balance: collectively evaluated for impairment	$	582		$	221	$	6	$	670		$	189		$	23
Loans:
Ending balance	$	39,703		$	7,201	$	116	$	19,129		$	12,189		$	553
Ending balance: individually evaluated for impairment	$	1,972		$	588	$	—	$	—		$	—		$	319
Ending balance: collectively evaluated for impairment	$	37,731		$	6,613	$	116	$	19,129		$	12,189		$	234

	Three Months Ended March 31, 2014 (Continued)
	Commercial and Industrial		Agricultural			Purchased Indirect Automobile, Net			Other Consumer			Unallocated		Total
Allowance for loan losses:
Balance, beginning of period	$	110	$	377		$	117		$	1		$	—	$	2,475
Provision charged to expense		2		(16	)		(7	)		(1	)		—		25
Losses charged off		—		—			—			—			—		(82	)
Recoveries		—		—			1			1			—		13
Balance, end of period	$	112	$	361		$	111		$	1		$	—	$	2,431
Ending balance: individually evaluated for impairment	$	3	$	—		$	—		$	—		$	—	$	158
Ending balance: collectively evaluated for impairment	$	109	$	361		$	111		$	1		$	—	$	2,273
Loans:
Ending balance	$	6,577	$	23,877		$	7,313		$	100		$	—	$	116,758
Ending balance: individually evaluated for impairment	$	3	$	—		$	—		$	—		$	—	$	2,882
Ending balance: collectively evaluated for impairment	$	6,574	$	23,877		$	7,313		$	100		$	—	$	113,876

21

	Three Months Ended March 31, 2013 Mortgage Loans on Real Estate
	1-4 Family			HELOC and 2nd Mortgage			Multi-Family Residential		Commercial		Farmland		Construction and Land Development
Allowance for loan losses:
Balance, beginning of period	$	668		$	333		$	3	$	530	$	176	$	275
Provision charged to expense		150			(1	)		—		124		5		(153	)
Losses charged off		(79	)		—			—		—		—		(60	)
Recoveries		—			—			—		—		—		—
Balance, end of period	$	739		$	332		$	3	$	654	$	181	$	62
Ending balance: individually evaluated for impairment	$	114		$	58		$	—	$	250	$	—	$	15
Ending balance: collectively evaluated for impairment	$	625		$	274		$	3	$	404	$	181	$	47
Loans:
Ending balance	$	41,263		$	9,077		$	54	$	18,324	$	12,074	$	1,257
Ending balance: individually evaluated for impairment	$	2,652		$	165		$	—	$	2,077	$	—	$	790
Ending balance: collectively evaluated for impairment	$	38,611		$	8,912		$	54	$	16,247	$	12,074	$	467

	Three Months Ended March 31, 2013 (Continued)
	Commercial and Industrial			Agricultural		Purchased Indirect Automobile, Net			Other Consumer			Unallocated		Total
Allowance for loan losses:
Balance, beginning of period	$	151		$	301	$	112		$	1		$	—	$	2,550
Provision charged to expense		(23	)		36		7			(1	)		—		144
Losses charged off		—			—		(8	)		—			—		(147	)
Recoveries		—			—		2			1			—		3
Balance, end of period	$	128		$	337	$	113		$	1		$	—	$	2,550
Ending balance: individually evaluated for impairment	$	5		$	—	$	5		$	—		$	—	$	447
Ending balance: collectively evaluated for impairment	$	123		$	337	$	108		$	1		$	—	$	2,103
Loans:
Ending balance	$	5,551		$	22,498	$	7,202		$	110		$	—	$	117,410
Ending balance: individually evaluated for impairment	$	5		$	—	$	19		$	—		$	—	$	5,708
Ending balance: collectively evaluated for impairment	$	5,546		$	22,498	$	7,183		$	110		$	—	$	111,702

	Year Ended December 31, 2013 Mortgage Loans on Real Estate
	1-4 Family			HELOC and 2nd Mortgage			Multi-Family Residential		Commercial		Farmland		Construction and Land Development
Allowance for loan losses:
Balance, beginning of year	$	668		$	333		$	3	$	530	$	176	$	275
Provision charged to expense		277			54			3		164		32		(141	)
Losses charged off		(330	)		(69	)		—		—		—		(151	)
Recoveries		29			—			—		—		—		17
Balance, end of year	$	644		$	318		$	6	$	694	$	208	$	—
Ending balance: individually evaluated for impairment	$	63		$	29		$	—	$	—	$	—	$	—
Ending balance: collectively evaluated for impairment	$	581		$	289		$	6	$	694	$	208	$	—
Loans:
Ending balance	$	39,489		$	7,749		$	117	$	19,244	$	13,900	$	354
Ending balance: individually evaluated for impairment	$	2,284		$	120		$	—	$	—	$	—	$	354
Ending balance: collectively evaluated for impairment	$	37,205		$	7,629		$	117	$	19,244	$	13,900	$	—

	Year Ended December 31, 2013 (Continued)
	Commercial and Industrial			Agricultural		Purchased Indirect  Automobile, Net			Other Consumer			Unallocated		Total
Allowance for loan losses:
Balance, beginning of year	$	151		$	301	$	112		$	1		$	—	$	2,550
Provision charged to expense		(41	)		76		35			(6	)		—		453
Losses charged off		—			—		(33	)		—			—		(583	)
Recoveries		—			—		3			6			—		55
Balance, end of year	$	110		$	377	$	117		$	1		$	—	$	2,475
Ending balance: individually evaluated for impairment	$	3		$	—	$	1		$	—		$	—	$	96
Ending balance: collectively evaluated for impairment	$	107		$	377	$	116		$	1		$	—	$	2,379
Loans:
Ending balance	$	6,424		$	24,343	$	7,616		$	115		$	—	$	119,351
Ending balance: individually evaluated for impairment	$	3		$	—	$	4		$	—		$	—	$	2,765
Ending balance: collectively evaluated for impairment	$	6,421		$	24,343	$	7,612		$	115		$	—	$	116,586

22

Management’s opinion as to the ultimate collectability of loans is subject to estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral.  These estimates are affected by changing economic conditions and the economic prospects of borrowers.

Allowance for Loan Losses

Our allowance for loan losses is the estimated amount considered necessary to reflect probable incurred credit losses in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged against income. In determining the allowance for loan losses, management makes significant estimates and has identified this policy as one of the most critical for the Company. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the assumptions utilized, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.

Since a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans and discounted cash flow valuations of properties are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisals and discounted cash flow valuations are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals and discounted cash flow valuations are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the related loans.

Management performs a quarterly evaluation of the allowance for loan losses. Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the value of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision based on changes in economic and real estate market conditions.

The analysis of the allowance for loan losses has two components: specific and general allocations. Specific allocations are made for loans that are determined to be impaired. Impairment loss is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating classified loans from the remaining loans, and then categorizing each group by type of loan. Loans within each type exhibit common characteristics including terms, collateral type, and other risk characteristics. The Company also analyzes historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general allocations.

Although the Company’s policy allows for a general valuation allowance on certain smaller-balance, homogenous pools of loans classified as substandard, the Company has historically evaluated every loan classified as substandard, regardless of size for impairment as part of the review for establishing specific allowances. The Company’s policy also allows for general valuation allowance on certain smaller-balance homogenous pools of loans which are loans criticized as special mention or watch. A separate general allowance calculation is made on these loans based on historical measured weakness, and which is no less than twice the amount of the general allowance calculated on the non-classified loans.

There have been no changes to the Company’s accounting policies or methodology from the prior periods.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. All commercial, agricultural and land development loans are graded at inception of the loan. Subsequently, analyses are performed on an annual basis and grade changes are made as necessary. Interim grade reviews may take place if circumstances of the borrower warrant a more timely review. The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Watch,” “Substandard,” “Doubtful,” and “Loss.” The Company uses the following definitions for risk ratings:

Pass – Loans classified as pass are well protected by the ability of the borrower to pay or by the value of the asset or underlying collateral.

23

Watch – Loans classified as watch represent loans with the minimum level of acceptable credit risk and servicing requirements and the borrower has the capacity to perform according to the terms and repayment is expected. However, one or more elements of uncertainty exist.

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loss – Loans classified as loss are the portion of the loan that is considered uncollectible so that its continuance as an asset is not warranted. The amount of the loss determined will be charged-off.

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of March 31, 2014 and December 31, 2013, respectively:

	March 31, 2014 Mortgage Loans on Real Estate
	1-4 Family		HELOC and 2nd Mortgage		Multi-Family Residential		Commercial		Farmland		Construction and Land Development
Pass	$	34,476	$	6,414	$	116	$	14,632	$	12,080	$	234
Watch		1,626		199		—		1,457		109		—
Special Mention		1,629		—		—		3,040		—		—
Substandard		1,972		588		—		—		—		319
Total	$	39,703	$	7,201	$	116	$	19,129	$	12,189	$	553

	March 31, 2014 (Continued)
	Commercial and Industrial		Agricultural		Purchased Indirect Automobile, Net		Other Consumer		Total
Pass	$	6,273	$	23,720	$	7,313	$	100	$	105,358
Watch		301		157		—		—		3,849
Special Mention		—		—		—		—		4,669
Substandard		3		—		—		—		2,882
Total	$	6,577	$	23,877	$	7,313	$	100	$	116,758

24

	December 31, 2013 Mortgage Loans on Real Estate
	1-4 Family		HELOC and 2nd Mortgage		Multi-Family Residential		Commercial		Farmland		Construction and Land Development
Pass	$	33,676	$	6,557	$	117	$	13,931	$	13,789	$	—
Watch		2,100		334		—		2,328		111		—
Special Mention		1,429		738		—		2,985		—		—
Substandard		2,284		120		—		—		—		354
Total	$	39,489	$	7,749	$	117	$	19,244	$	13,900	$	354

	December 31, 2013 (Continued)
	Commercial and Industrial		Agricultural		Purchased Indirect Automobile, Net		Other Consumer		Total
Pass	$	6,106	$	24,131	$	7,612	$	115	$	106,034
Watch		315		212		—		—		5,400
Special Mention		—		—		—		—		5,152
Substandard		3		—		4		—		2,765
Total	$	6,424	$	24,343	$	7,616	$	115	$	119,351

The accrual of interest on loans is generally discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at the earlier date if collection of principal and interest is considered doubtful.

All interest accrued but not collected for loans that are placed on non-accrual or charged-off are reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. 

The following tables present the Company’s loan portfolio aging analysis as of March 31, 2014 and December 31, 2013, respectively:

	March 31, 2014
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days & Accruing
Real estate loans:
One-to-four family	$	1,420	$	694	$	1,426	$	3,540	$	36,163	$	39,703	$	—
Home equity lines of credit and other 2nd mortgages		47		—		—		47		7,154		7,201		—
Multi-family		—		—		—		—		116		116		—
Commercial		—		—		—		—		19,129		19,129		—
Farmland		123		—		—		123		12,066		12,189		—
Construction and land development		—		—		319		319		234		553		—
Total real estate loans		1,590		694		1,745		4,029		74,862		78,891		—
Commercial and industrial		160		10		3		173		6,404		6,577		—
Agriculture		227		—		—		227		23,650		23,877		—
Consumer loans:
Purchased indirect automobile		—		—		—		—		7,313		7,313		—
Other		—		—		—		—		100		100		—
Total consumer loans		—		—		—		—		7,413		7,413		—
Total	$	1,977	$	704	$	1,748	$	4,429	$	112,329	$	116,758	$	—

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	December 31, 2013
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days & Accruing
Real estate loans:
One-to-four family	$	770	$	607		1,608	$	2,985	$	36,504	$	39,489	$	—
Home equity lines of credit and other 2nd mortgages		26		40		44		110		7,639		7,749		—
Multi-family		—		—		—		—		117		117		—
Commercial		33		—		—		33		19,211		19,244		—
Farmland		—		—		—		—		13,900		13,900		—
Construction and land development		—		—		354		354		—		354		—
Total real estate loans		829		647		2,006		3,482		77,371		80,853		—
Commercial and industrial		135		11		3		149		6,275		6,424		—
Agriculture		—		—		—		—		24,343		24,343		—
Consumer loans:
Purchased indirect automobile		4		—		—		4		7,612		7,616		—
Other		—		—		—		—		115		115		—
Total consumer loans		4		—		—		4		7,727		7,731		—
Total	$	968	$	658	$	2,009	$	3,635	$	115,716	$	119,351	$	—

At March 31, 2014 and December 31, 2013, the Company held $23,877 and $24,343 in agricultural production loans and $12,189 and $13,900, respectively in farmland loans in the Company’s geographic lending area. Generally, those loans are collateralized by assets of the borrower. The loans are expected to be repaid from cash flows or from proceeds of sale of related assets of the borrower. Declines in prices for corn, beans, livestock and farmland could significantly affect the repayment ability for many agricultural loan customers.

At March 31, 2014 and December 31, 2013, the Company held $19,129 and $19,244 in commercial real estate loans and $553 and $354 in loans collateralized by construction and development real estate primarily in the Company’s geographic lending area. Due to national, state and local economic conditions, values for commercial and development real estate have declined significantly, and the market for these properties is depressed.

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. 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 loans 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 by either the present value of the expected future cash flows, the loan’s observable market value, or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. Significant restructured loans are considered impaired in determining the adequacy of the allowance for loan losses.

The Company actively seeks to reduce its investment in impaired loans. The primary tools to work through impaired loans are settlement with the borrowers or guarantors, foreclosure of the underlying collateral, or restructuring.

The Company will restructure loans when the borrower demonstrates the inability to comply with the terms of the loan, but can demonstrate the ability to meet acceptable restructured terms. Restructurings generally include one or more of the following restructuring options; reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection. Restructured loans in compliance with modified terms are initially classified as impaired.

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The following tables present impaired loans at March 31, 2014, March 31, 2013 and December 31, 2013, respectively:

	Three Months Ended March 31, 2014
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest Income Recognized Cash Basis
Loans without a specific allowance
Real estate loans:
One-to-four family	$	1,408	$	1,771	$	—	$	1,565	$	13	$	13
Home equity lines of credit and other 2nd mortgages		9		93		—		27		5		5
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Farmland		—		—		—		—		—		—
Construction and land development		319		466		—		336		—		—
Total real estate loans		1,736		2,330		—		1,928		18		18
Commercial and industrial		—		—		—		—		—		—
Agriculture		—		—		—		—		—		—
Consumer loans:
Purchased indirect automobile		—		—		—		—		—		—
Other		—		25		—		—		1		1
Total consumer loans		—		25		—		—		1		1
Total loans	$	1,736	$	2,355	$	—	$	1,928	$	19	$	19
Loans with a specific allowance
Real estate loans:
One-to-four family	$	564	$	670	$	43	$	563	$	2	$	2
Home equity lines of credit and other 2nd mortgages		579		588		112		327		1		1
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Farmland		—		—		—		—		—		—
Construction and land development		—		—		—		—		—		—
Total real estate loans		1,143		1,258		155		890		3		3
Commercial and industrial		3		3		3		3		—		—
Agriculture		—		—		—		—		—		—
Consumer loans:
Purchased indirect automobile		—		—		—		2		—		—
Other		—		—		—		—		—		—
Total consumer loans		—		—		—		2		—		—
Total loans		1,146		1,261		3		895		3		3
Total	$	2,882	$	3,616	$	158	$	2,823	$	22	$	22

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	Three Months Ended March 31, 2013
	Recorded Balance		Unpaid Principal Balance		Specific  Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest Income Recognized Cash Basis
Loans without a specific allowance
Real estate loans:
One-to-four family	$	1,483	$	1,761	$	—	$	1,627	$	3	$	3
Home equity lines of credit and other 2nd mortgages		72		93		—		89		—		—
Multi-family		—		—		—		—		—		—
Commercial		687		704		—		344		1		1
Farmland		—		—		—		—		—		—
Construction and land development		377		651		—		189		1		1
Total real estate loans		2,619		3,209		—		2,249		5		5
Commercial and industrial		—		—		—		—		—		—
Agriculture		—		—		—		—		—		—
Consumer loans:
Purchased indirect automobile		—		—		—		—		—		—
Other		—		21		—		—		—		—
Total consumer loans		—		21		—		—		—		—
Total loans	$	2,619	$	3,230	$	—	$	2,249	$	5	$	5
Loans with a specific allowance
Real estate loans:
One-to-four family	$	1,169	$	1,301	$	114	$	942	$	3	$	3
Home equity lines of credit and other 2nd mortgages		93		93		58		77		—		—
Multi-family		—		—		—		—		—		—
Commercial		1,390		1,390		250		1,436		3		3
Farmland		—		—		—		—		—		—
Construction and land development		413		451		15		632		1		1
Total real estate loans		3,065		3,235		437		3,087		7		7
Commercial and industrial		5		5		5		6		—		—
Agriculture		—		—		—		—		—		—
Consumer loans:
Purchased indirect automobile		19		19		5		22		—		—
Other		—		—		—		—		—		—
Total consumer loans		24		24		10		28		—		—
Total loans		3,089		3,259		447		3,115		7		7
Total	$	5,708	$	6,489	$	447	$	5,364	$	12	$	12

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	December 31, 2013
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Interest Income Recognized Cash Basis
Loans without a specific allowance
Real estate loans:
One-to-four family	$	1,722	$	2,159	$	—	$	1,746	$	32	$	32
Home equity lines of credit and other 2nd mortgages		45		135		—		75		1		1
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		—		—		—
Farmland		—		—		—		—		—		—
Construction and land development		354		501		—		178		3		3
Total real estate loans		2,121		2,795		—		1,999		36		36
Commercial and industrial		—		—		—		—		—		—
Agriculture		—		—		—		—		—		—
Consumer loans:
Purchased indirect automobile		—		—		—		—		—		—
Other		—		27		—		—		—		—
Total consumer loans		—		27		—		—		—		—
Total	$	2,121	$	2,822	$	—	$	1,999	$	36	$	36
Loans with a specific allowance
Real estate loans:
One-to-four family	$	562	$	602	$	63	$	638	$	12	$	12
Home equity lines of credit and other 2nd mortgages		75		84		29		67		1		1
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		741		13		13
Farmland		—		—		—		—		—		—
Construction and land development		—		—		—		426		8		8
Total real estate loans		637		686		92		1,872		34		34
Commercial and industrial		3		3		3		5		—		—
Agriculture		—		—		—		—		—		—
Consumer loans:
Purchased indirect automobile		4		4		1		14		—		—
Other		—		—		—		—		—		—
Total consumer loans		4		4		1		14		—		—
Total loans		644		693		96		1,891		34		34
Total	$	2,765	$	3,515	$	96	$	3,890	$	70	$	70

The following table presents the Company’s nonaccrual loans at March 31, 2014 and December 31, 2013. This table excludes performing troubled debt restructurings.

	March 31, 2014		December 31, 2013
Mortgages on real estate:
One-to-four family	$	1,972	$	2,284
Home equity lines of credit and other 2nd mortgages		588		120
Multi-family residential		—		—
Commercial		—		—
Construction and land development		319		354
Commercial and industrial		3		3
Other consumer		—		—
Total	$	2,882	$	2,761

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The following table presents the recorded balance of troubled debt restructurings as of March 31, 2014 and December 31, 2013:

	March 31, 2014		December 31, 2013
Real estate loans:
One-to-four family	$	2,208	$	1,914
Home equity lines of credit and other 2nd mortgages		—		—
Multi-family		—		—
Commercial		—		—
Farmland		—		—
Construction and land development		319		354
Total real estate loans		2,527		2,268
Commercial and industrial		—		—
Agriculture		—		—
Consumer loans:
Purchased indirect automobile		—		—
Other		—		—
Total consumer loans		—		—
Total	$	2,527	$	2,268

The following table represents loans modified as troubled debt restructures during the three month periods ended March 31, 2014 and 2013:

	Three Months Ended March 31, 2014				Three Months Ended March 31, 2013
	Number of Modifications		Recorded Investment		Number of Modifications		Recorded Investment
Real estate loans:
One-to-four family		3	$	377		1	$	245
Home equity lines of credit and other 2nd mortgages		—		—		—		—
Multi-family		—		—		—		—
Commercial		—		—		—		—
Farmland		—		—		—		—
Construction and land development		—		—		—		—
Total real estate loans		3		377		—		—
Commercial and industrial		—		—		—		—
Agriculture		—		—		—		—
Consumer loans:
Purchased indirect automobile		—		—		—		—
Other		—		—		—		—
Total consumer loans		—		—		—		—
Total		3	$	377		1	$	245

During the three month period ended March 31, 2014, the Company modified three residential real estate loans, with a recorded investment of $377 prior to modification, which were deemed TDRs. Both modifications involved interest rate concessions, and resulted in impairment losses of $11,000 based upon the present value of expected future cash flows.

30

During the three month period ended March 31, 2013, the Company modified one residential real estate loan, with a recorded investment of $245 prior to modification, which was deemed a TDR. The modification involved both an interest rate and maturity concession, which resulted in an impairment loss of $16 based upon the present value of expected future cash flows.

As of March 31, 2014 there were no loans in default that had been modified within the previous 12 months as a troubled debt restructuring. As of March 31, 2014, there were three TDRs secured by one-to-four family real estate totaling $602 in default, and one TDR secured by commercial land for development totaling $319 in default.

Note 8:              Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income, included in stockholders’ equity at March 31, 2014 and December 31, 2013, are summarized as follows:

	March 31, 2014			December 31, 2013
Net unrealized gain on securities available-for-sale	$	41		$	25
Tax effect		(14	)		(9	)
Net-of-tax amount	$	27		$	16

Note 9:              Income Taxes

A reconciliation of the income tax expense at the statutory rate to the Company’s actual income tax expense for the three months ended March 31, 2014 and 2013 is shown below:

	Three Months Ended March 31,
	2014			2013
Computed at the statutory rate (34%)	$	118		$	59
Decrease resulting from
Tax exempt interest		(4	)		(3	)
Changes in deferred tax valuation allowance		—			(40	)
Cash surrender value of life insurance		(9	)		(10	)
Other		9			8
Actual expense	$	114		$	14
Tax expense as a percentage of pre-tax income		32.8	%		8.1	%

The decreases in the valuation allowance of $0 and $40 in 2014 and 2013 are due to the reversals of a portion of the previous valuation allowance related to capital losses incurred in prior periods. Management believes the Company has capital gains to enable a portion of the capital losses to be utilized prior to expiration.

31

Note 10:           Disclosures About Fair Value of Assets and Liabilities

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 at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2014 and December 31, 2013:

			Fair Value Measurements Using
	Fair Value		Quoted  Prices in Active Markets for Identical  Assets (Level 1)		Significant Other  Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2014:
Available-for-sale securities:
US Government and federal agency	$	988	$	—	$	988	$	—
Mortgage-backed securities – GSE residential		560		—		560		—
State and political subdivisions		4,409		—		4,409		—
Equity securities		513		26		487		—
Corporate debt securities		498		—		498		—
Loan servicing rights		620		—		—		620

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical  Assets (Level 1)		Significant Other  Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2013:
Available-for-sale securities:
US Government and federal agency	$	982	$	—	$	982	$	—
Mortgage-backed securities – GSE residential		626		—		626		—
State and political subdivisions		3,429		—		3,429		—
Equity securities		508		29		479		—
Loan servicing rights		620		—		—		620

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended March 31, 2014. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Available-for-sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Loan Servicing Rights

Loan servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models. Due to the nature of the valuation inputs, loan servicing rights are classified within Level 3 of the hierarchy.

Management measures mortgage servicing rights through the completion of a proprietary model. Inputs to the model are developed by the accounting staff and are reviewed by management. The model is tested annually using baseline data to check its accuracy.

Level 3 Reconciliation

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:

	Loan Servicing Rights
Balance, January 1, 2014	$	620
Total realized and unrealized gains and losses included in net income		—
Servicing rights that result from asset transfers		—
Loans refinanced		—
Balance, March 31, 2014	$	620
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets and liabilities still held at the reporting date	$	—

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Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2014 and December 31, 2013:

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2014:
Impaired loans (collateral dependent)	$	1,031	$	—	$	—	$	1,031
December 31, 2013:
Impaired loans (collateral dependent)	$	549	$	—	$	—	$	549

Following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Collateral-dependent Impaired Loans, Net of ALLL 

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by management. Appraisals are reviewed for accuracy and consistency by the Company. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by management by comparison to historical results.

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements (dollars in thousands).

	Fair Value at March 31, 2014		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Collateral-dependent impaired loans	$	1,031	Market comparable properties	Marketability discount		10%	-	40%	(24%)
Loan servicing rights		620	Discounted cash flow	Discount rate		8%	-	12.5%	(10%)
				PSA standard prepayment model rate		100	-	369	(194)

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	Fair Value at December 31, 2013		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Collateral-dependent impaired loans	$	549	Market comparable properties	Marketability discount		20%	-	40%	(25%)
Mortgage servicing rights		620	Discounted cash flow	Discount rate		8%	-	12.5%	(10.43%)
				PSA standard prepayment model rate		100	-	369	(194)

Fair Value of Financial Instruments

The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2014 and December 31, 2013.

				Fair Value Measurements Using
		Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2014:
Financial assets
Cash and cash equivalents	$	28,015	$	28,015	$	—	$	—
Interest-bearing deposits with other financial institutions		5,650		—		5,650		—
Held-to-maturity securities		413		—		414		—
Loans, net of allowance for loan losses		114,331		—		117,438
Federal Home Loan Bank stock		870		—		870		—
Accrued interest receivable		619		—		619		—
Financial liabilities
Deposits		133,945		—		130,853
Federal Home Loan Bank advances		8,946		—		9,098		—
Advances from borrowers for taxes and insurance		544		—		544		—
Accrued interest payable		18		—		18		—
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—
Letters of credit		—		—		—		—
Lines of credit		—		—		—		—

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			Fair Value  Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2013:
Financial assets
Cash and cash equivalents	$	28,089	$	28,089	$	—	$	—
Interest-bearing deposits with other financial institutions		6,240		—		6,240		—
Held-to-maturity securities		833		—		839		—
Loans, net of allowance for loan losses		116,858		—		119,462		—
Federal Home Loan Bank stock		870		—		870		—
Accrued interest receivable		786		—		786		—
Financial liabilities
Deposits		133,750		—		130,206		—
Federal Home Loan Bank advances		12,206		—		12,377		—
Advances from borrowers for taxes and insurance		358		—		358		—
Accrued interest payable		19		—		19		—
Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—
Letters of credit		—		—		—		—
Lines of credit		—		—		—		—

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.

Cash and Cash Equivalents, Interest-Bearing Deposits with Other Financial Institutions, Federal Home Loan Bank Stock, Accrued Interest Receivable, Accrued Interest Payable and Advances from Borrowers for Taxes and Insurance

The carrying amount approximates fair value.

Held-to-maturity Securities

Fair value is based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans

The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.

Deposits

Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount of these types of deposits approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

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Federal Home Loan Bank Advances

Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

Commitments to Originate Loans, Letters of Credit and Lines of Credit

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements, or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.

Note 11:           Commitments

Commitments to Originate Loans

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. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

Standby Letters of Credit

Standby letters of credit are irrevocable conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Financial standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Performance standby letters of credit are issued to guarantee performance of certain customers under non-financial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. Should the Company be obligated to perform under the standby letters of credit, the Company may seek recourse from the customer for reimbursement of amounts paid.

Lines of Credit

Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of the Company. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and accompanying notes thereto.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to:

● statements of our goals, intentions and expectations;

● statements regarding our business plans, prospects, growth and operating strategies;

● statements regarding the asset quality of our loan and investment portfolios; and

● estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Form 10-Q.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

● our ability to manage our operations under the current adverse economic conditions (including real estate values, loan demand, inflation, commodity prices and employment levels) nationally and in our market areas;

● adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values);

● significant increases in our loan losses, including as a result of our inability to resolve delinquent loans and non-performing and classified assets, changes in the underlying cash flows of our borrowers, and management’s assumptions in determining the adequacy of the allowance for loan losses;

● credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for loan losses and provision for loan losses;

● increased competition among depository and other financial institutions;

● our ability to successfully diversify our loan portfolio without experiencing a significant decrease in asset quality;

● our ability to attract and maintain deposits;

● expenses and diversion of management’s time and attention resulting from our efforts to oppose stockholder nominations that we do not believe are in the best interests of stockholders;

● changes interest rates generally, including changes in the relative differences between short-term and long-term interest rates, that may affect our interest margins, reduce the fair value of our financial instruments, or affect our access to funding sources;

● declines in the yield on our assets resulting from the current low interest rate environment;

● fluctuations in the demand for loans, which may be affected by the number of unsold homes, land and other properties in our market areas and by declines in the value of real estate in our market area;

● risks related to high concentration of loans secured by real estate located in our market areas;

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● the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings, which could adversely affect our dividends and earnings;

● possible increases in deposit and premium assessments;

● changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Act and the JOBS Act, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements (particularly the new capital regulations), regulatory fees and compliance costs and the resources we have available to address such changes;

● changes in the level of government support of housing finance;

● our ability to enter new markets successfully and capitalize on growth opportunities;

● our reliance on a small executive staff;

● changes in consumer spending, borrowing and savings habits;

● changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

● risks and costs related to operating as a publicly traded company;

● changes in our organization, compensation and benefit plan;

● changes in our organization, compensation and benefit plans, and our ability to retain key members of our senior management team and to address staffing needs in response to product demand or to implement our strategic plans;

● loan delinquencies and changes in the underlying cash flows of our borrowers;

● our ability to control costs and expenses, particularly those associated with operating as a publicly traded company;

● the failure or security breaches of computer systems on which we depend;

● the ability of key third-party service provider to perform their obligations to us;

● changes in the financial condition or future prospects of issuers of securities that we own; and

● other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

OVERVIEW

Harvard Illinois Bancorp, Inc. (the “Company”) is a savings and loan holding company and is subject to regulation by the Board of Governors of the Federal Reserve System. The Company’s business activities are limited to oversight of its investment in Harvard Savings Bank (the “Bank”).

The Bank is primarily engaged in providing a full range of banking and mortgage services to consumer and business customers in McHenry County, Grundy County, and to a lesser extent Boone County, Illinois and Walworth County in Wisconsin. The Bank is subject to regulation by the Federal Deposit Insurance Corporation and the Illinois Department of Financial and Professional Regulation.

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Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities and other interest-earning assets, and the interest paid on our interest-bearing liabilities, consisting primarily of savings and transaction accounts, certificates of deposit, and Federal Home Loan Bank of Chicago advances. Our results of operations also are affected by our provision for loan losses, noninterest income and noninterest expense. Noninterest income consists primarily of customer service fees, net realized gains on loan sales, loan servicing fees, and net income on bank-owned life insurance, offset by impairment charges on securities. Noninterest expense consists primarily of compensation and benefits, occupancy, data processing, professional fees, marketing, office supplies, federal deposit insurance premiums, indirect automobile loan servicing fees, and foreclosed assets.

The Company discontinued its securities brokerage activities in 2013.

On January 30, 2014, the Company paid a special dividend of $0.20 per share of the Company’s common stock to stockholders of record as of January 15, 2014.

At March 31, 2014, the Bank was categorized as “well capitalized” under regulatory capital requirements.

Business Strategy

Our long-term business strategy is to operate Harvard Savings Bank as a community-oriented financial institution, offering one- to four-family residential real estate, commercial real estate, farmland, commercial and industrial, home equity, agricultural and purchased indirect automobile loans, and to a lesser extent, multi-family, construction and land development, and other consumer loans along with a diversified platform of deposit and other products and services to individuals and agricultural and other businesses in our market areas. In order to offset the rising overhead costs related to community banking, we intend to grow our assets and liabilities in a disciplined manner, subject to market conditions. We believe that execution of our long-term business strategy will create long-term shareholder value.

We intend to accomplish this strategy by:

● Leveraging our established name and franchise, capital strength and loan production capability, and knowledge of our market areas to deliver a consistent high quality level of professional banking service to our retail and business customers, attracting new customers and expanding our presence in the geographical area we serve;

● Offering a complete platform of deposit products at competitive rates and terms, focusing on growing deposits, in particular lower-cost core deposits, and diversifying the deposit mix, in order to provide for replacing long-term FHLB advances as they mature and providing lower cost funding for lending activities;

● Managing our loan portfolio to minimize concentrations and diversify the types of loans in the portfolio;

● Managing the credit risk within our loan portfolio to minimize the risk of loss;

● Managing interest rate risk to optimize our net interest margin; and

● Improving our overall efficiency and profitability.

The following discussion compares the financial condition of Harvard Illinois Bancorp, Inc. and its wholly owned subsidiary, Harvard Savings Bank, at March 31, 2014 to its financial condition at December 31, 2013, and the results of operations for the three months ended March 31, 2014 to the same period in 2013. This discussion should be read in conjunction with the interim financial statements and footnotes included herein.

CRITICAL ACCOUNTING POLICIES AND USE OF SIGNIFICANT ESTIMATES

There are no material changes to the critical accounting policies disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

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FINANCIAL CONDITION

Comparison of Financial Condition at March 31, 2014 and December 31, 2013

Total assets at March 31, 2014 decreased $2.7 million, or 1.6%, to $167.4 million from $170.1 million at December 31, 2013. Total liabilities decreased $2.9 million, or 1.9%, to $146.8 million at March 31, 2014 from $149.7 million at December 31, 2013. The modest changes in total assets and liabilities were consistent with our strategy of disciplined growth of our balance sheet in the current economic environment.

Cash and cash equivalents decreased $74,000 to $28.0 million at March 31, 2014 from $28.1 million at December 31, 2013. Cash and cash equivalents includes securities purchased under agreements to resell, which decreased $495,000 to $24.6 million at March 31, 2014 from $25.1 million at December 31, 2013. These agreements to resell securities represent short-term cash investment alternatives that are over-collateralized with collateral that is guaranteed by the “full faith and credit” of the United States government. Interest-bearing deposits with other financial institutions decreased $590,000 to $5.7 million at March 31, 2014 from $6.2 million at December 31, 2013. These deposits are certificates of deposit we have placed with other financial institutions with terms from three months to five years and are fully covered by FDIC deposit insurance. Available-for-sale securities increased $1.4 million to $7.0 million at March 31, 2014 from $5.5 million at December 31, 2013. This increase was primarily due to purchases of municipal and corporate debt securities totaling $1.5 million, offset partially by maturities and pay-downs on those securities. Held-to-maturity securities totaled $413,000 at March 31, 2014, a decrease of $420,000 from $833,000 at December 31, 2013 as a result of maturities and pay-downs on those securities and no purchases. The investments in those deposits and securities were based on liquidity, yield and credit quality considerations.

Loans, net of allowance for loan losses, decreased $2.6 million, or 2.2%, to $114.3 million at March 31, 2014 from $116.9 million at December 31, 2013. During the three months ended March 31, 2014, loan originations, advances and purchases were $22.0 million, which were more than offset by $3.2 million in loans sold, $21.3 million of loan repayments and payoffs, net of $82,000 in charge offs and transfers to foreclosed assets of $3,000. The decrease in loans during the three months ended March 31, 2014 was due primarily to decreases in the farmland and agriculture loans totaling $2.2 million. The decrease in those loan portfolios was due in part to sales to Farmer Mac totaling $2.8 million during the quarter.

All other assets, consisting of premises and equipment, Federal Home Loan Bank stock, foreclosed assets held for sale, accrued interest receivable, deferred income taxes, bank-owned life insurance, loan servicing rights and other assets decreased $552,000 to $12.0 million at March 31, 2014 from $12.6 million at December 31, 2013. The largest component of other assets was our investment in bank-owned life insurance, which increased $28,000 to $4.5 million at March 31, 2014. The largest change was in foreclosed assets held for sale, which decreased $328,000 to $3,000 at March 31, 2014 from $331,000 at December 31, 2013 as sales of other real estate owned outpaced transfers of assets to foreclosed assets.

Total deposits increased $195,000 to $133.9 million at March 31, 2014 from $133.8 million at December 31, 2013. The net increase in deposits was due to our strategy to control growth in the current weak lending environment. Federal Home Loan Bank advances decreased $3.3 million to $8.9 million at March 31, 2014 from $12.2 million at December 31, 2013. The Bank maintained sufficient liquidity levels to allow more advances to mature without renewal. Noninterest - bearing liabilities increased $179,000 to $3.9 million at March 31, 2014 from $3.7 million at December 31, 2013. The largest component of noninterest - bearing liabilities is deferred compensation which was unchanged at $2.4 million at March 31, 2014. The largest change was in advances by borrowers for taxes and insurance which increased $186,000 to $544,000 at March 31, 2014 from $358,000 at December 31, 2013, primarily due to typical seasonal fluctuations.

Total stockholders’ equity increased by $146,000 or 0.7% to $20.6 million at March 31, 2014 from $20.4 million at December 31, 2013. The increase in stockholders’ equity for the three months ended March 31, 2014 resulted primarily from net income of $234,000, the recognition of ESOP compensation expense of $18,000, the recognition of stock – based compensation expense related to the 2011 Incentive Equity Plan of $28,000, proceeds from common stock issued upon exercise of options of $47,000 and the increase in other accumulated comprehensive income of $11,000, offset partially by dividends paid of $158,000 and the increase in the contingent repurchase obligation for the ESOP of $34,000.

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RESULTS OF OPERATIONS

Comparison of Operating Results for the Three Months Ended March 31, 2014 and March 31, 2013

General. Net income for the three months ended March 31, 2014 was $234,000 compared to net income of $159,000 for the three months ended March 31, 2013, an increase in net income of $75,000, or 47.2%. The increase in net income was due to an increase in interest and dividend income of $23,000, and decreases in interest expense, provision for loan losses, and noninterest expense of $51,000, $119,000 and $62,000, respectively, partially offset by a decrease in noninterest income of $80,000, and an increase in the provision for income taxes of $100,000.

Interest and Dividend Income. Total interest and dividend income increased $23,000 or 1.4% to $1.7 million for the three months ended March 31, 2014 compared to the same period in 2013. Although average interest-earning assets decreased $2.0 million to $158.0 million for the three months ended March 31, 2014 from $160.0 million for the three months ended March 31, 2013, the average yield increased 11 basis points to 4.24% from 4.13%. This increase reflected the higher average loan demand in our farmland and agricultural loan portfolios. Interest income on securities and other interest-earning assets decreased $6,000 or 5.5% to $102,000 for the three months ended March 31, 2014 compared to $108,000 for the three months ended March 31, 2013, as the average balances of those assets decreased $3.1 million to $38.8 million from $41.9 million, offset partially by an increase in the average yield on those assets of 1 basis point to 1.05% from 1.04%. Interest and fees on loans increased $29,000 or 1.9% to $1.6 million for the three months ended March 31, 2014 from $1.5 million for the same period in 2013, as the average balance of loans increased $1.1 million to $119.2 million, and by an increase in the average yield on loans of 5 basis points to 5.28% from 5.23%.

Interest Expense. Total interest expense decreased $51,000 or 13.0% to $342,000 for the three months ended March 31, 2014 from $393,000 for the same period in 2013. Interest expense on deposit accounts decreased $24,000 or 7.5% to $297,000 for the three months ended March 31, 2014 from $321,000 for the same period in 2013. This decrease was primarily due to a decrease in interest expense on certificates of deposit of $26,000. The average balance in certificates of deposits decreased $1.3 million with the cost of these deposits decreasing 11 basis points to 1.45% from 1.56%. The decrease in interest expense on certificates of deposit was partially offset by an increase in interest expense on savings, NOW and money market accounts of $2,000 to $27,000 for the three months ended March 31, 2014 from $25,000 for the same period in 2013. The average balances of savings, NOW and money market accounts increased $858,000 to $53.3 million from $52.5 million and the cost of these deposits increased 1 basis point to 0.20% during the three months ended March 31, 2014 from 0.19% during the three months ended March 31, 2013. The movement in deposit accounts and reduction in the cost of these funds was the result of our competitive pricing and the renewal of higher cost certificates of deposit at current rates, and execution of our business strategy to focus on growth of our lower-cost core deposits.

Interest expense on Federal Home Loan Bank advances decreased $27,000 to $45,000 for the three months ended March 31, 2014 from $72,000 for the three months ended March 31, 2013, as the average cost of advances decreased 52 basis points to 1.68% for the three months ended March 31, 2014 from 2.20% for the comparable period in 2013, and the average balances of advances decreased $2.4 million to $10.7 million. The decrease in the average balance of FHLB advances was due to adhering to our business strategy to lessen our reliance on FHLB advances. The decrease in the cost of these funds was due to the maturity of higher-cost long-term advances and a larger concentration of lower-cost short-term advances.

Net Interest Income. Net interest income increased $74,000 or 5.9% to $1.3 million for the three months ended March 31, 2014 from $1.3 million for the three months ended March 31, 2013, primarily as a result of an increase in our net interest rate spread of 23 basis points to 3.25% from 3.02%. Our net interest margin increased to 3.38% for the three months ended March 31, 2014 from 3.15% for the three months ended March 31, 2013. The increases in our net interest rate spread and net interest margin reflected the higher average balance of loans in 2014 compared to 2013 from stronger loan demand in the agriculture industry, as well as the increase in the ratio of our average interest-earning assets to average interest-bearing liabilities to 113.88% for the three months ended March 31, 2014 from 113.00% for the same period in 2013.

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

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The following table shows the activity in the allowance for loan losses for the three months ended March 31, 2014 and 2013 (dollars in thousands):

	2014			2013
Allowance at beginning of period	$	2,475		$	2,550
Provision for loan losses		25			144
Charge-offs:
Real estate loans:
One-to four family		82			79
Home equity line of credit and other 2nd mortgage		—			—
Commercial		—			—
Construction and land development		—			60
Total charge-offs, real estate loans		82			139
Consumer loans:
Purchased indirect automobile		—			8
Other		—			—
Total charge-offs, consumer loans		—			8
Total charge-offs		82			147
Recoveries:
Real estate loans:
One-to four family		11			—
Total recoveries, real estate loans		—			—
Commercial and industrial		—			—
Consumer loans:
Purchased indirect automobile		1			2
Other		1			1
Total recoveries, consumer loans		2			3
Total recoveries		13			3
Net charge-offs		(69	)		(144	)
Allowance at end of period	$	2,431		$	2,550
Allowance to non-performing loans		84.35	%		44.82	%
Allowance to total loans outstanding at the end of the period		2.08	%		2.17	%
Net charge-offs to average total loans outstanding during the period,
annualized		0.23	%		0.49	%

We evaluate the allowance for loan losses on a regular basis and the provision is based upon our periodic review of the collectability 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.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. The factors we considered 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. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all 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 loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

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Groups of loans with similar loan characteristics, including individually evaluated loans not determined to be impaired, are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, we do not separately identify individual consumer and residential loans for impairment measurements.

Based upon our evaluation of these factors, a provision of $25,000 was recorded for the three months ended March 31, 2014, a decrease of $119,000 or 82.6% from $144,000 for the three months ended March 31, 2013. The provision for loan losses reflected net charge offs of $69,000 for the three months ended March 31, 2014, compared to $144,000 for the three months ended March 31, 2013. The allowance for loan losses was $2.4 million, or 2.08% of total loans at March 31, 2014, compared to $2.5 million, or 2.07% of total loans at December 31, 2013. At March 31, 2014, we had identified substandard loans totaling $2.9 million, all of which were considered impaired, and maintained an allowance for loan losses of $158,000 allocated to these loans. At December 31, 2013, we considered all substandard loans totaling $2.8 million impaired and maintained an allowance for loan losses of $96,000 allocated to these loans. We used the same methodology in assessing the allowance for each period.

The allowance as a percent of nonperforming loans increased to 84.35% at March 31, 2014 from 44.82% at March 31, 2013. Nonperforming loans decreased to $2.9 million at March 31, 2014, compared to $5.7 million at March 31, 2013, a decrease of $2.8 million. All nonperforming loans were considered impaired at March 31, 2014 and 2013, and allowances for impaired loans decreased $289,000 or 64.7% to $158,000 at March 31, 2014 from $447,000 at March 31, 2013. Net charge-offs as a percent of average total loans outstanding decreased to 0.23% for the quarter ended March 31, 2014 from 0.49% for the same quarter in 2013, due to a decrease in net charge-offs of $75,000 to $69,000, partially offset by a $1.1 million increase in average loans outstanding to $119.2 million.

To the best of our knowledge, we have recorded all losses that are both probable and reasonably estimable for the three months ended March 31, 2014 and 2013, respectively.

The following table sets forth the allowance for loan losses allocated by loan category, the percent of allowance in each loan category to the total allowance, and the percent of loans in each loan category to total loans as of March 31, 2014 and December 31, 2013 (dollars in thousands).

	March 31, 2014								December 31, 2013
	Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans			Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans
Real estate loans:
One-to-four-family	$	625		25.71	%		34.00	%	$	644		26.02	%		33.09	%
Home equity line of credit and other 2nd mortgage		333		13.70			6.17			318		12.85			6.49
Multi-family		6		0.25			0.10			6		.24			.10
Commercial		670		27.56			16.38			694		28.04			16.12
Farmland		189		7.77			10.44			208		8.40			11.65
Construction and land development		23		0.94			0.48			—		—			.30
Total real estate loans		1,846		75.93			67.57			1,870		75.55			67.75
Commercial and industrial		112		4.61			5.63			110		4.45			5.38
Agriculture		361		14.85			20.45			377		15.23			20.40
Consumer loans:
Purchased indirect automobile		111		4.57			6.26			117		4.73			6.37
Other		1		0.04			0.09			1		.04			.10
Total consumer loans		112		4.61			6.35			118		4.77			6.47
Unallocated		—		—			—			—		—			—
Total allowance for loan losses	$	2,431		100.00	%		100.00	%	$	2,475		100.00	%		100.00	%

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The decrease in the allowance for loan losses allocated to one-to-four family real estate loans was primarily due to lower required level of reserves for loans individually evaluated for impairment. The increase in the allowance for loan losses allocated to home equity lines of credit and second mortgage loans was primarily due to higher required level of reserves for loans both individually and collectively evaluated for impairment. The decrease in the allowance for loan losses allocated to commercial real estate loans was primarily due to a decrease in the balance and required reserves for loans classified “watch”. The increase in the allowance for loan losses allocated to construction and land development real estate loans was primarily due to an increase in the balance of that portfolio. The decrease in the allowance for loan losses allocated to farmland and agriculture loans was primarily due to the decrease in the balance of those portfolios.

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The following table sets forth information regarding nonperforming assets at the dates indicated (dollars in thousands):

	At March 31, 2014			At December 31, 2013
Non-accrual loans:
Real estate loans:
One-to four-family	$	1,972		$	2,284
Home equity lines of credit and other 2nd mortgage		588			120
Multi-family residential		—			—
Commercial		—			—
Construction and land development		319			354
Total real estate loans		2,879			2,758
Commercial and industrial		3			3
Consumer loans:
Purchased indirect automobile		—			—
Other		—			—
Total consumer loans		—			—
Total non-accrual loans		2,882			2,761
Accruing loans past due 90 days or more:
Total accruing loans past due 90 days or more		—			—
Total of nonaccrual and 90 days or more past due loans		—			—
Other real estate owned:
One-to four family		—			331
Commercial		—			—
Total other real estate owned		—			331
Repossessed automobiles		3			—
Total non-performing assets		2,885			3,092
Troubled debt restructurings (not included in nonaccrual loans above)		1,228			1,009
Total non-performing assets and troubled debt restructurings	$	4,113		$	4,101
Total non-performing loans to total loans		2.47	%		2.31	%
Total non-performing assets to total assets		1.72	%		1.82	%
Total non-performing loans and troubled debt restructurings to total loans		3.52	%		3.16	%
Total non-performing assets and troubled debt restructurings to total assets		2.46	%		2.41	%

Total non-performing assets, including troubled debt restructurings, increased $12,000 and totaled $4.1 million at March 31, 2014 and December 31, 2013, respectively. Total non-performing assets, including troubled debt restructurings, to total assets were 2.46% and 2.41% at March 31, 2014 and December 31, 2013, respectively. Troubled debt restructurings included in nonaccrual loans totaled $1.3 million at March 31, 2014 and December 31, 2013, respectively.

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Non-accrual one- to four-family real estate loans totaled $2.0 million at March 31, 2014 and consisted of 16 loans secured by properties located in our market area. Those loans included 6 loans that totaled $979,000 that are troubled debt restructurings, which resulted in charge-offs of $11,000 during the three months ended March 31, 2014. Four of those troubled debt restructurings totaling $602,000 were not performing according to the terms of the restructuring. Non-accrual one- to four-family real estate loans at March 31, 2014 included 5 loans totaling $648,000 that were in the process of foreclosure, and resulted in charge-offs of $35,000 during the three months ended March 31, 2014. Non-accrual one- to four-family real estate loans at March 31, 2014 included 5 other loans totaling $347,000 that were in the process of collection. We have established impairment allowances of $43,000 on the non-performing one- to four-family real estate loans at March 31, 2014. There was 1 one-to four - family real estate loan totaling $223,000 at March 31, 2014, which was previously modified in a troubled debt restructuring, and was returned to accrual status during the three months ended March 31, 2014, and reclassified as a watch loan from a substandard loan.

Non-accrual home equity lines of credit and other second mortgage loans totaled $588,000 at March 31, 2014 and consisted of 8 loans secured by properties located in our market area, including 3 loans which have been completely charged off that were in the process of foreclosure. Non-accrual home equity lines of credit and other second mortgage loans included 5 other loans in the process of collection totaling $588,000. We have established impairment allowances of $112,000 on the non-performing home equity lines of credit and other second mortgage loans at March 31, 2014.

Non-accrual construction and land development loans totaled $319,000 at March 31, 2014 and consisted of a commercial land development loan secured by property in our market area that was refinanced in a troubled debt restructuring in 2011 which provided for both interest rate and maturity concessions. The loan was not performing according to the terms of the restructuring and was in the process of foreclosure.

Other non-performing loans totaled $3,000 at March 31, 2014. We have established impairment allowances of $3,000 on those loans at March 31, 2014.

There was no other real estate owned and repossessed automobiles with a carrying basis of $3,000 at March 31, 2014. Foreclosed assets are carried at estimated fair value less costs to sell.

The following table shows the aggregate principal amount of potential problem loans on the Company’s watch list at March 31, 2014 and December 31, 2013.  Substantially all non-accruing loans, troubled debt restructurings and loans past due 60 days or more are placed on the watch list (in thousands).

	March 31, 2014		December 31, 2013
Watch loans	$	3,849	$	5,400
Special Mention loans		4,669		5,152
Substandard loans		2,882		2,765
Total watch list loans	$	11,400	$	13,317

The $1.9 million net decrease in watch list loans during the quarter ended March 31, 2014 is primarily due to a $658,000 net decreases in one-to-four family residential, home equity lines of credit and other second mortgages, and commercial real estate loans included on the watch list during the three months ended March 31, 2014.

Noninterest Income. Noninterest income decreased $80,000 or 32.5% to $166,000 for the three months ended March 31, 2014 from $246,000 for the three months ended March 31, 2013. The decrease was primarily due to a decrease in net realized gains on loan sales of $88,000 for the three months ended March 31, 2014, compared to the same period in 2013. Net realized gains of $4,000 and $55,000 were recognized on loans sold of $3.2 million and $4.9 million for the three months ended March 31, 2014 and 2013, respectively. Net realized gains on loans sales also included the net increase in fair value of mortgage servicing rights of $0 and $37,000 for the three months ended March 31, 2014 and 2013, respectively. Loan servicing fees increased $10,000 to $59,000 for the three months ended March 31, 2014 compared to the same period in 2013, primarily due to a comparable increase in farmland and agricultural loans sold and serviced to Farmer Mac.

Noninterest Expense. Noninterest expense decreased $62,000 or 5.2% to $1.1 million for the three months ended March 31, 2014 from $1.2 million for the three months ended March 31, 2013. Decreases in professional fees, marketing, federal deposit insurance and foreclosed assets, net, in the three months ended March 31, 2014 compared to the three months ended March 31, 2013 of $20,000, $21,000, $1,000 and $80,000, respectively, were partially offset by increases in compensation and benefits, occupancy, data processing, office supplies, indirect automobile loan servicing fees and other noninterest expense of $20,000, $12,000, $3,000, $4,000, $1,000 and $20,000, respectively. The decrease in professional fees is primarily due to lower fees incurred to support the Board of Director’s nominees for director in a contested election. The decrease in marketing expense was primarily due to the promotion of a new checking product that initially rolled out in the three months ended March 31, 2013. The decrease in foreclosed assets, net, was due primarily to gains, net of write-downs on foreclosed assets held for sale of $25,000 for the three months ended March 31, 2014, compared to losses and write-downs, net of $50,000 for the same period in 2013.

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Provision for Income Taxes. The provision for income taxes was $114,000 for the three months ended March 31, 2014 compared to a provision of $14,000 for the same period in 2013, an increase in provision of $100,000. The effective tax provision as a percent of pre-tax income was 32.8% for the three months ended March 31, 2014, compared to the effective tax provision as a percent of pre-tax income of 8.1% for the same period in 2013. The lower provision for income taxes in 2013 reflects the impact of a $40,000 non-recurring decrease in valuation allowances recorded for deferred tax assets related to capital losses on equity securities compared to none in 2014, and by a higher level of pre-tax income in 2014 as compared to 2013.

Liquidity and Capital Resources

Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from maturities and calls of securities, and Federal Home Loan Bank advances. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including securities repurchase agreements. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $566,000 and $794,000 for the three months ended March 31, 2014 and 2013, respectively. Net cash provided by investing activities consisted primarily of disbursements for loan originations and the purchase of securities and interest-bearing deposits, offset by net cash provided by principal collections on loans, and proceeds from maturing securities and interest-bearing deposits, pay downs on mortgage-backed securities, and redemptions of excess Federal Home Loan Bank stock. Net cash provided by investing activities was $2.4 million and $1.3 million for the three months ended March 31, 2014 and 2013, respectively. Net cash provided by (used in) financing activities consisted primarily of the activity in deposit accounts and Federal Home Loan Bank borrowings. The net cash provided by (used in) financing activities was $(3.0) million and $752,000 for the three months ended March 31, 2014 and 2013, respectively.

The Bank is required to maintain regulatory capital requirements imposed by the Federal Deposit Insurance Corporation.  The Bank’s actual ratios at March 31, 2014 and the required minimums to be considered adequately capitalized are shown in the table below.  In order to be considered well-capitalized, the Bank must maintain: (i) Tier 1 Capital to Average Assets of 5.0%, (ii) Tier 1 Capital to Risk-Weighted Assets of 6.0%, and (iii) Total Capital to Risk-Weighted Assets of 10.0%. Accordingly, Harvard Savings Bank was categorized as well capitalized at March 31, 2014. Management is not aware of any conditions or events since the most recent notification that would change our category.

	March 31, 2014 Actual			December 31, 2013 Actual			Minimum Required
Tier 1 capital to average assets		10.5	%		10.3	%		4.0	%
Tier 1 capital to risk-weighted assets		13.7	%		13.2	%		4.0	%
Total capital to risk-weighted assets		14.9	%		14.5	%		8.0	%

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The Company must also maintain adequate levels of liquidity to ensure the availability of funds to satisfy loan commitments.  The Company anticipates that it will have sufficient funds available to meet its current commitments principally through the use of current liquid assets and through its borrowing capacity discussed above.  The following table summarizes these commitments at March 31, 2014 and December 31, 2013 (in thousands).

	March 31, 2014		December 31, 2013
Commitments to fund loans	$	17,655	$	15,864
Standby letters of credit		128		130

Certificates of deposit that are scheduled to mature in less than one year from March 31, 2014 totaled $37.2 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Analysis of Net Interest Income and Average Balance Sheet

The following table sets forth average balance sheets, average yields and costs, and certain other information at or for the periods indicated (dollars in thousands):

	Three Months Ended March 31,
	2014							2013
	Average Balance		Interest Income/ Expense		Yield/Cost			Average Balance		Interest Income/ Expense		Yield/Cost
Assets
Interest-earning assets:
Interest-earning deposits	$	6,593	$	14		0.85	%	$	9,856	$	20		0.81	%
Securities purchased under agreements to resell		24,642		63		1.02	%		21,863		44		0.81	%
Securities, tax-exempt		4,002		12		1.20	%		3,463		9		1.04	%
Securities, taxable		2,653		12		1.81	%		5,567		34		2.51	%
Loans		119,246		1,574		5.28	%		118,110		1,545		5.23	%
Federal Home Loan Bank stock		870		1		0.46	%		1,113		1		0.36	%
Total interest earning assets		158,006		1,676		4.24	%		159,972		1,653		4.13	%
Non-interest earning assets		11,257							11,115
Total assets	$	169,263						$	171,087
Liabilities and equity
Interest-bearing liabilities:
Savings accounts	$	17,712		6		0.14	%	$	17,119		5		0.12	%
NOW and money market accounts		35,613		21		0.24	%		35,348		20		0.23	%
Certificates of deposit		74,718		270		1.45	%		75,987		296		1.56	%
Federal Home Loan Bank advances		10,704		45		1.68	%		13,120		72		2.20	%
Total interest-bearing Liabilities		138,747		342		0.99	%		141,574		393		1.11	%
Non-interest-bearing deposits		6,255							5,919
Other non-interest-bearing liabilities		3,649							3,784
Total liabilities		148,651							151,277
Equity		20,612							19,810
Total liabilities and equity	$	169,263						$	171,087
Net interest income			$	1,334						$	1,260
Interest rate spread						3.25	%						3.02	%
Net interest margin						3.38	%						3.15	%
Average interest earning assets to average interest-bearing liabilities						113.88	%						113.00	%

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The following table sets forth the changes in interest income and interest expense resulting from the changes in interest rate and changes in volume of the Company’s interest-earning assets and interest-earning liabilities (in thousands).

	Three Months Ended March 31, 2014 Compared to 2013 Increase (Decrease) Due to
	Rate			Volume			Net
Interest income:
Interest-earning deposits	$	1		$	(7	)	$	(6	)
Securities purchased under agreements to resell		13			6			19
Securities, tax-exempt		—			3			3
Securities, taxable		(7	)		(15	)		(22	)
Loans		14			15			29
Federal Home Loan Bank stock		—			—			—
Total		21			2			23
Interest Expense:
Savings accounts		1			—			1
NOW and money market accounts		1			—			1
Certificates of deposit		(21	)		(5	)		(26	)
Brokered certificates of deposit		—			—			—
Federal Home Loan Bank advances		(15	)		(12	)		(27	)
Total		(34	)		(17	)		(51	)
Increase (decrease) in net interest income	$	(55	)	$	(19	)	$	(74	)

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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 4 - CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2014. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

Internal Control Over Financial Reporting. During the quarter ended March 31, 2014, there have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, as amended) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.		Legal Proceedings
		The Company and its subsidiaries are subject to various legal actions that are considered ordinary routine litigation incidental to the business of the Company, and no claim for money damages exceeds ten percent of the Company’s consolidated assets. In the opinion of management, based on currently available information, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s results of operations.
Item 1A.		Risk Factors
		Not required for smaller reporting companies
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.		Defaults Upon Senior Securities
None.
Item 4.		Mine Safety Disclosures
None.
Item 5.		Other Information
None.
Item 6.		Exhibits
	31.1 – Certification of the Chief Executive Officer Pursuant to Rule 13a-15(e)/15d-15(e)
	31.2 – Certification of the Chief Financial Officer Pursuant to Rule 13a-15(e)/15d-15(e)
	32.1 – Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2003

             101           Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013, (ii) the Consolidated Statements of Income for the three months ended March 31, 2014 and 2013, (iii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2013, (iv) the Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2014 and 2013, (v) the Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013, and (vi) the Notes to the Consolidated Financial Statements.

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SIGNATURES

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

	HARVARD ILLINOIS BANCORP, INC.
	Registrant
Date: May 9, 2014	/s/ Donn L. Claussen
	Donn L. Claussen
	President and Chief Executive Officer
	/s/ David Dobson
	David Dobson
	Vice President and Chief Financial Officer

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