UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

OR

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

Commission file number 000-50820

FIRST CLOVER LEAF FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

Yes o  No o

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

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

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

Yes o  No x

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

Class	Outstanding November 11, 2010
Common Stock, par value $.10 per share	7,889,565

FIRST CLOVER LEAF FINANCIAL CORP.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2010

INDEX

			PAGE NO.
PART I - Financial Information
	Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets		3
	Consolidated Statements of Operations		4
	Consolidated Statements of Comprehensive Income (Loss)		5
	Consolidated Statements of Cash Flows		6
	Notes to Consolidated Financial Statements		8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
	Item 4.	Controls and Procedures	41
PART II - Other Information
	Item 1.	Legal Proceedings	42
	Item 1A.	Risk Factors	42
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
	Item 3.	Defaults Upon Senior Securities	43
	Item 4.	[Reserved]	43
	Item 5.	Other Information	43
	Item 6.	Exhibits	43
Signatures			44

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Balance Sheets

(Unaudited)

Assets	September 30, 2010			December 31, 2009
Cash and due from banks	$	8,002,812		$	14,104,442
Interest-earning deposits		13,796,863			14,306,726
Federal funds sold		40,520,674			19,585,586
Total cash and cash equivalents		62,320,349			47,996,754
Interest-earning time deposits		1,700,000			-
Securities available for sale		82,747,717			86,407,138
Federal Home Loan Bank stock		6,306,273			6,306,273
Loans, net of allowance for loan losses
of $5,445,404 and $6,316,829, respectively		392,203,558			410,110,923
Loans held for sale		599,280			1,787,900
Property and equipment, net		10,720,038			11,096,748
Accrued interest receivable		1,975,546			2,183,520
Prepaid Federal Deposit Insurance Corporation insurance premiums		2,466,262			2,993,995
Goodwill		11,385,323			11,385,323
Core deposit intangible		1,197,001			1,480,001
Foreclosed assets		1,732,742			1,084,548
Mortgage servicing rights		675,520			680,776
Other assets		2,611,048			2,012,715
Total assets	$	578,640,657		$	585,526,614
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Non-interest bearing deposits	$	30,913,897		$	49,533,776
Interest bearing deposits		407,139,795			393,020,692
Total deposits		438,053,692			442,554,468
Federal Home Loan Bank advances		26,920,000			39,924,000
Securities sold under agreements to repurchase		27,633,279			18,936,168
Subordinated debentures		3,963,256			3,930,208
Accrued interest payable		670,601			1,211,552
Other liabilities		3,161,805			2,041,941
Total liabilities		500,402,633			508,598,337
Stockholders' Equity:
Preferred stock, $.10 par value; 10,000,000 shares
authorized; no shares issued		-			-
Common stock, $.10 par value; 20,000,000 shares authorized;
7,911,202 and 7,960,523 shares issued and outstanding
at September 30, 2010 and December 31, 2009, respectively		791,120			796,052
Additional paid-in capital		62,262,169			62,569,654
Retained earnings		14,339,256			12,451,069
Accumulated other comprehensive income		1,427,469			1,726,434
Unearned Employee Stock Ownership Plan shares		(581,990	)		(614,932	)
Total stockholders' equity		78,238,024			76,928,277
Total liabilities and stockholders' equity	$	578,640,657		$	585,526,614

See Accompanying Notes to Consolidated Financial Statements.

3

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Interest income:
Interest and fees on loans	$	5,706,190	$	5,975,400	$	17,091,670		18,048,966
Securities:
Taxable interest income		522,027		782,349		1,747,018		2,597,157
Non-taxable interest income		151,814		159,802		436,335		435,184
Interest-earning deposits, federal funds sold, and other		32,906		26,085		74,632		122,673
Total interest income		6,412,937		6,943,636		19,349,655		21,203,980
Interest expense:
Deposits		1,926,835		2,561,187		5,907,426		7,862,894
Federal Home Loan Bank advances		247,076		367,103		852,255		1,291,979
Securities sold under agreements to repurchase		7,417		16,826		19,791		54,525
Subordinated debentures		23,317		75,094		152,569		223,192
Total interest expense		2,204,645		3,020,210		6,932,041		9,432,590
Net interest income		4,208,292		3,923,426		12,417,614		11,771,390
Provision for loan losses		650,000		1,000,000		1,473,000		1,668,990
Net interest income after provision for loan losses		3,558,292		2,923,426		10,944,614		10,102,400
Non-interest income:
Service fees on deposit accounts		111,776		89,158		294,046		224,704
Other service charges and fees		73,761		73,952		253,364		197,211
Loan servicing fees		55,550		54,613		154,448		135,095
Gain on sale of securities		200,593		-		663,814		-
Gain on sale of loans		157,278		105,265		322,275		491,540
Other		99,297		9,336		118,848		34,459
Total non-interest income		698,255		332,324		1,806,795		1,083,009
Non-interest expense:
Compensation and employee benefits		1,205,235		1,122,790		3,534,313		3,398,746
Occupancy expense		340,763		370,092		1,034,397		1,087,476
Data processing services		161,595		140,808		495,408		417,899
Director fees		43,750		51,750		144,200		160,700
Professional fees		98,316		204,212		239,637		597,400
Federal Deposit Insurance Corporation insurance premiums		181,373		173,175		575,349		602,591
Amortization of core deposit intangible		85,000		108,000		283,000		369,000
Amortization of mortgage servicing rights		78,029		11,068		126,410		175,767
Goodwill Impairment		-		-		-		9,300,000
Impairment loss on assets		-		355,989		-		355,989
Other		452,835		436,277		1,252,847		1,273,525
Total non-interest expense		2,646,896		2,974,161		7,685,561		17,739,093
Income (loss) before income taxes		1,609,651		281,589		5,065,848		(6,553,684	)
Income taxes		554,717		70,100		1,771,010		974,496
Net income (loss)	$	1,054,934	$	211,489	$	3,294,838	$	(7,528,180	)
Basic and diluted income (loss) per share (see Note 6)	$	0.14	$	0.03	$	0.42	$	(0.91	)
Dividends per share	$	0.06	$	0.06	$	0.18	$	0.18

See Accompanying Notes to Consolidated Financial Statements.

4

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010			2009		2010			2009
Net income (loss)	$	1,054,934		$	211,489	$	3,294,838		$	(7,528,180	)
Other comprehensive income (loss):
Unrealized gains (losses) on securities
arising during the period, net of tax		117,215			342,806		129,195			569,946
Reclassification adjustment for realized
gains included in income, net of tax		(129,382	)		-		(428,160	)		-
Comprehensive income (loss)	$	1,042,767		$	554,295	$	2,995,873		$	(6,958,234	)
See Accompanying Notes to Consolidated Financial Statements.

5

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	September 30,
	2010			2009
Cash flows from operating activities:
Net income (loss)	$	3,294,838		$	(7,528,180	)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Amortization of:
Deferred loan origination costs, net		69,451			48,249
Premiums and discounts on securities		(800,513	)		(115,651	)
Core deposit intangible		283,000			369,000
Mortgage servicing rights		126,410			175,767
Amortization of fair value adjustments on:
Loans		(45,000	)		(50,300	)
Time deposits		(35,000	)		(125,500	)
Federal Home Loan Bank advances		(4,000	)		(32,999	)
Subordinated debentures		33,048			33,048
Investment securities		(42,250	)		(41,700	)
Property and equipment		12,054			12,054
Goodwill impairment		-			9,300,000
Impairment loss on assets		-			355,989
Provision for loan losses		1,473,000			1,668,990
Depreciation expense		451,070			538,206
ESOP expense		39,833			49,409
Gain on sale of securities available for sale		(663,814	)		-
Gain on sale of loans		(322,275	)		(491,540	)
Gain on sale of property and equipment		(40,289	)		-
(Gain) loss on sale of foreclosed real estate		(39,385	)		47,638
Proceeds from sales of loans held for sale		12,942,493			24,232,976
Originations of loans held for sale		(11,431,598	)		(24,426,556	)
Change in assets and liabilities:
Decrease (increase) in prepaid Federal Deposit Insurance
Corporation insurance premiums		527,733			(136,142	)
Decrease in accrued interest receivable		207,974			210,092
Increase in mortgage servicing rights		(121,154	)		(251,659	)
Increase in other assets		(598,333	)		(217,843	)
(Decrease) increase in accrued interest payable		(540,951	)		209,053
Increase in other liabilities		1,295,601			70,185
Net cash flows provided by operating activities		6,071,943			3,902,586
Cash flows from investing activities:
Proceeds from maturity of interest-earning time deposits		-			25,847,832
Purchase of interest-earning time deposits		(1,700,000	)		(20,637,371	)
Available for sale securities:
Purchases		(130,758,389	)		(92,450,000	)
Proceeds from calls, maturities and paydowns		123,597,019			100,597,630
Proceeds from sales		11,852,666			-
Decrease in loans; principal collections, net of loan originations		14,686,957			13,953,232
Purchase of property and equipment		(46,125	)		(461,693	)
Proceeds from the sale of foreclosed real estate		1,114,148			1,002,907
Net cash flows provided by investing activities	$	18,746,276		$	27,852,537

(Continued)

6

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Statements of Cash Flows (Continued)

(Unaudited)

	Nine Months Ended
	September 30,
	2010			2009
Cash flows from financing activities:
Net decrease in deposits	$	(4,465,776	)	$	(2,095,001	)
Net increase (decrease) in securities sold under agreements
to repurchase		8,697,111			(25,508,038	)
Proceeds from Federal Home Loan Bank advances		-			5,000,000
Repayment of Federal Home Loan Bank advances		(13,000,000	)		(14,254,920	)
Repurchase of Common Stock		(319,308	)		(5,677,570	)
Cash dividends		(1,406,651	)		(1,485,308	)
Net cash flows used in financing activities		(10,494,624	)		(44,020,837	)
Net increase (decrease) in cash and cash equivalents		14,323,595			(12,265,714	)
Cash and cash equivalents at beginning of period		47,996,754			67,135,384
Cash and cash equivalents at end of period	$	62,320,349		$	54,869,670
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	7,478,944		$	9,348,988
Income tax payments, net		775,354			1,233,593
Non-cash transactions
Loans transferred to foreclosed assets		1,722,957			1,114,303
Property and equipment transferred to other assets		-			825,000
See Accompanying Notes to Consolidated Financial Statements.

7

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

(1) Summary of Significant Accounting Policies:

The information contained in the accompanying consolidated financial statements is unaudited.  In the opinion of management, the consolidated financial statements contain all adjustments necessary for a fair statement of the results of operations for the interim periods. All such adjustments are of a normal recurring nature.  Any differences appearing between the numbers presented in the financial statements and management’s discussion and analysis are due to rounding.  The results of operations for the interim periods are not necessarily indicative of the results which may be expected for the entire fiscal year.  These consolidated financial statements should be read in conjunction with the consolidated financial statements of First Clover Leaf Financial Corp. (the “Company” or “First Clover Leaf”) for the year ended December 31, 2009 contained in the 2009 Annual Report to Stockholders that is filed as Exhibit 13 to the Company’s Annual Report on Form 10-K.  Accordingly, footnote disclosures which would substantially duplicate the disclosures in the audited consolidated financial statements have been omitted.

The Company is a Maryland corporation that was incorporated in March 2006 as the successor corporation to First Federal Financial Services, Inc., in connection with the July 2006 “second-step” conversion of First Federal Financial Services, MHC and the simultaneous acquisition of Clover Leaf Financial Corp. and its wholly owned savings bank subsidiary, Clover Leaf Bank.  The accompanying interim consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, First Clover Leaf Bank (the “Bank”) and its wholly owned subsidiary, Clover Leaf Financial Services.  First Clover Leaf’s common stock is traded on the NASDAQ Capital Market under the symbol “FCLF.”

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

8

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

(2) Intangible Assets:

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

	September 30,		December 31,
	2010		2009
Core deposit intangible	$	3,258,000	$	3,258,000
Accumulated amortization		2,060,999		1,777,999
Total	$	1,197,001	$	1,480,001

Amortization expense on the core deposit intangible for the three and nine months ended September 30, 2010 was $85,000 and $283,000, respectively and $108,000 and $369,000 for the comparable periods in 2009.

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

Period	Amount
Three months ending December 31, 2010	$	77,000
Year ending December 31, 2011		304,000
Year ending December 31, 2012		281,000
Year ending December 31, 2013		223,000
Year ending December 31, 2014		116,001
Year ending December 31, 2015		58,000

9

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

(3) Investment Securities:

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

	September 30, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		(Losses)			Value
Investment Securities:
U.S. government agency obligations	$	47,786,412	$	1,110,304	$	-		$	48,896,716
Corporate bonds		2,096,470		51,047		(58,548	)		2,088,969
State and municipal securities		17,078,979		802,538		(1,906	)		17,879,611
Other Securities		3,501		-		-			3,501
Mortgage-backed securities		13,516,421		397,482		(34,983	)		13,878,920
Total Investment Securities available for sale	$	80,481,783	$	2,361,371	$	(95,437	)	$	82,747,717

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

10

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

(3) Investment Securities (Continued):

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

	September 30, 2010
	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		loss		Value		loss		Value		loss
Corporate bonds	$	-	$	-	$	641,452	$	58,548	$	641,452	$	58,548
State and municipal securities		523,785		1,906		-		-		523,785		1,906
Mortgage-backed securities		4,667,883		34,983		-		-		4,667,883		34,983
	$	5,191,668	$	36,889	$	641,452	$	58,548	$	5,833,120	$	95,437

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

Management evaluates the investment portfolio on at least a quarterly basis to determine if investments have suffered an other-than-temporary decline in value.  In addition, management monitors market trends, investment grades, bond defaults and other circumstances to identify trends and circumstances that might impact the carrying value of investment securities.

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

11

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

(3) Investment Securities (Continued):

The amortized cost and fair value at September 30, 2010, by contractual maturity, are shown below.  Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties.  Therefore, stated maturities are not disclosed.

	Available for Sale
	Amortized		Fair
	Cost		Value
Due in one year or less	$	24,112,845	$	24,294,908
Due after one year through five years		30,201,412		31,449,754
Due after five years through ten years		3,856,101		4,078,816
Due after ten years		8,791,503		9,041,818
Mortgage-backed securities		13,516,421		13,878,920
Other securities		3,501		3,501
	$	80,481,783	$	82,747,717

Securities with a carrying amount of approximately $77,285,000 and $78,977,000 were pledged to secure deposits as required or permitted by law at September 30, 2010 and December 31, 2009, respectively.

12

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

(4) Loans:

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

	At September 30,						At December 31,
	2010						2009
	Amount			Percent			Amount		Percent
Real Estate Loans
One- to four-family residential loans(1)	$	93,124,710			22.8	%	$	98,080,406		23.4	%
Multi-family		23,557,022			5.8			20,946,534		5.0
Commercial		168,291,256			41.3			179,923,276		42.8
Construction and land(2)		55,647,400			13.7			45,447,453		10.8
Total real estate loans		340,620,388			83.6			344,397,669		82.0
Commercial business(2)		53,890,490			13.2			63,134,579		15.0
Consumer Loans		13,081,474			3.2			12,477,438		3.0
Total loans and loans held for sale		407,592,352			100.0	%		420,009,686		100.0	%
Less:
Undisbursed portion of construction loans		9,378,160						1,772,947
Deferred loan origination fees (costs), net		(34,050	)					21,087
Allowance for loan losses		5,445,404						6,316,829
Total loans and loans held for sale, net	$	392,802,838					$	411,898,823

(1)	Includes loans held for sale of $599,280 and $1,787,900 at September 30, 2010 and December 31, 2009, respectively.
(2)	Certain loans classified in the commercial business category at December 31, 2009 have been transferred into the construction and land category at September 30, 2010 as a result of a regulatory review.

13

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

(5) Asset Quality:

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

	September 30,		December 31,
	2010		2009
Loans 90 days or more past due and still accruing	$	899,671	$	2,580,077
Non-accrual loans, including $11,993,033 and $10,689,777 classified as
impaired as of September 30, 2010 and December 31, 2009, respectively		12,412,908		11,733,209
Other impaired loans		11,418,470		14,818,500
Total non-performing and impaired loans	$	24,731,049	$	29,131,786
Specific allowance for loan losses on non-performing and impaired loans	$	1,219,897	$	1,909,854

Asset Quality Ratios:

Non-performing assets and impaired loans to total assets	4.57	%	5.16	%
Non-performing and impaired loans to total loans	6.30		7.07
Allowance for loan losses to non-performing and impaired loans	22.02		21.68
Allowance for loan losses to total loans	1.39		1.53

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

	Nine Months Ended
	September 30,
	2010			2009
Balance at beginning of period	$	6,316,829		$	3,895,246
Charge-offs		(2,491,719	)		(332,284	)
Recoveries		147,294			-
Provision charged to expense		1,473,000			1,668,990
Balance at end of period	$	5,445,404		$	5,231,952

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

14

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

(6)  Earnings (losses) per Share:

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Net earnings available to common stockholders	$	1,054,934		$	211,489		$	3,294,838		$	(7,528,180	)
Basic potential common shares:
Weighted average shares outstanding		7,915,307			8,111,107			7,935,723			8,363,902
Weighted average unallocated Employee Stock
Ownership Plan shares		(114,776	)		(123,280	)		(116,886	)		(125,390	)
Basic weighted average shares outstanding		7,800,531			7,987,827			7,818,837			8,238,512
Dilutive potential common shares		-			-			-			-
Dilutive weighted average shares outstanding		7,800,531			7,987,827			7,818,837			8,238,512
Basic and diluted earnings per share	$	0.14		$	0.03		$	0.42		$	(0.91	)

(7) Employee Stock Ownership Plan:

The Company has an employee stock ownership plan (ESOP) which covers substantially all employees who have attained the age of 21 and completed one year of service.  In connection with its initial stock offering in 2004, the Company loaned funds to the ESOP for the purchase of its common stock at the initial public offering price.  The loan is being repaid based on a variable interest rate over 20 years beginning December 31, 2004.  All shares are held in a suspense account for allocation among the participants as the loan is repaid.  Shares are released for allocation to participants based upon the ratio of the current year’s debt service to the sum of total principal and interest payments over the remaining life of the note.  Shares released from the suspense account are allocated among the participants based upon their pro rata annual compensation.  The purchase of shares by the ESOP was recorded by the Company as unearned ESOP shares in a contra equity account.  As ESOP shares are committed to be released to compensate employees, the contra equity account is reduced and the Company recognizes compensation expense equal to the average fair market value of the shares committed to be released.  Compensation expense of $12,018 and $39,833 was incurred for the three and nine months ended September 30, 2010, respectively and $16,244 and $49,409 for the comparable periods in 2009.

15

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

(7) Employee Stock Ownership Plan (Continued):

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

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

	September 30,		December 31,
	2010		2009
Unallocated shares (fair value at September 30, 2010 and
December 31, 2009 of $674,911 and $875,025, respectively)		112,673		119,051
Allocated Shares		58,086		51,708
Total ESOP Shares		170,759		170,759

(8) Recent Accounting Pronouncements:

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

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

(1) the nature of credit risk inherent in the entity’s portfolio of financing receivables; (2) how that risk is analyzed and assessed in arriving at the allowance for credit losses; and (3) the changes and reasons for those changes in the allowance for credit losses.  The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.  The adoption of this pronouncement is not expected to have a material impact on the Company’s consolidated financial statements.

16

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

(9) Fair Value of Financial Instruments:

FASB ASC Topic 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet.  Fair value is determined under the framework established by ASC Topic 820, Fair Value Measurements and Disclosures.  ASC Topic 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirement.  Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.  The following information presents estimated fair values of the Company’s financial instruments as of September 30, 2010 and December 31, 2009 and the methods and assumptions used to estimate those fair values.

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

Cash and cash equivalents:  The carrying amounts of cash and cash equivalents approximate fair values.

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

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

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

17

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

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

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

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

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

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

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

Subordinated debentures:  This debenture was a fixed/floating rate instrument.  It was at a fixed rate for the first five years, and then it converted to a floating rate based on the three-month Libor rate plus 1.85% as of June 15, 2010. The fair value of variable rate trust preferred debentures approximate carrying value.  Prior to June 15, 2010, the trust preferred debentures had a fixed rate and the fair value was estimated using discounted cash flow analyses based on current rates for similar advances.

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

18

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

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

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

	September 30, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	62,320,349	$	62,320,349	$	47,996,754	$	47,996,754
Interest-earning time deposits		1,700,000		1,700,000		-		-
Securities available for sale		82,747,717		82,747,717		86,407,138		86,407,138
Federal Home Loan Bank stock		6,306,273		6,306,273		6,306,273		6,306,273
Loans, net		392,802,838		393,007,002		411,898,823		412,792,748
Accrued interest receivable		1,975,546		1,975,546		2,183,520		2,183,520
Financial liabilities:
Non-interest bearing deposits		30,913,897		30,913,897		49,533,776		49,533,776
Interest bearing deposits		407,139,795		409,130,743		393,020,692		395,518,484
Federal Home Loan Bank advances		26,920,000		27,468,704		39,924,000		40,471,672
Securities sold under agreement
to repurchase		27,633,279		27,633,279		18,936,168		18,936,168
Subordinated debentures		3,963,256		3,963,256		3,930,208		3,992,868
Accrued interest payable		670,601		670,601		1,211,552		1,211,552

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

(10) Fair Value Measurements:

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

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

19

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

(10) Fair Value Measurements (Continued):

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

	September 30, 2010
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:	(Level 1)		(Level 2)		(Level 3)		Total
Investment Securities:
U.S. government agency obligations	$	-	$	48,896,716	$	-	$	48,896,716
Corporate bonds		-		2,088,969		-		2,088,969
State and municipal securities		-		17,879,611		-		17,879,611
Other securities		-		3,501		-		3,501
Mortgage-backed securities		-		13,878,920		-		13,878,920
Total Investment Securites available for sale	$	-	$	82,747,717	$	-	$	82,747,717

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

20

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

(10) Fair Value Measurements (Continued):

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

	September 30, 2010
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Impaired loans	$	-	$	-	$	22,191,606		22,191,606
Foreclosed assets		-		1,732,742		-		1,732,742
Goodwill		-		11,385,323		-		11,385,323

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

Impaired loans that are collateral dependent have been written down to the fair value of the collateral, less estimated costs to sell, through the establishment of a specific allowance or by recording charge-offs when the carrying value exceeds the fair value of the collateral.  As of September 30, 2010, these loans totaled approximately $22.2 million.  Valuation techniques consistent with the market approach, income approach, and/or cost approach were used to measure fair value and primarily included observable inputs for the individual impaired loans being evaluated such as recent sales of similar assets or observable market data for operational or carrying costs.  In cases where such inputs were unobservable, the loan balance is reflected within the Level 3 hierarchy.  During this quarter management reassessed the valuation methods for impaired loans, and due to the volatility in the market and the subjectivity that goes into the valuation process, specifically the discounts on appraisals, management determined it was appropriate to reclassify impaired loans from Level 2 into Level 3.  The calculated valuation amount does not necessarily represent the value of the loan if sold to a willing buyer.  Management believes it is more likely than not that a workout solution or liquidation of the collateral is the best use of the asset and therefore has measured fair value based on the underlying collateral of the loans.  If management were to sell the impaired loan portfolio to a third party instead of liquidating the collateral, the measurement of fair value could be significantly different.

As noted in Note 11, an implied fair value of goodwill was measured for the reporting unit, in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the

21

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

aggregate fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination.

(11) Goodwill Impairment:

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

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

Due to the current economic environment and other uncertainties, it is possible that our estimates and assumptions may adversely change in the future, and we may be required to record additional goodwill impairment losses in future periods.  It is not possible at this time to determine if any such future impairment loss would result or, it if does, whether such charge would be material.  However, any such future impairment loss would be limited to the remaining goodwill balance of $11.4 million at September 30, 2010.  Subsequent reversal of goodwill impairment losses is not permitted.  At our annual impairment assessment date of September 30, 2010, our analysis indicated that no further impairment existed.

(12) Subsequent Events:

On October 26, 2010, the Board of Directors of the Company declared a cash dividend on the Company’s common stock of $0.06 per share for the quarter ended September 30, 2010. The dividend will be payable to stockholders of record as of November 12, 2010 and is expected to be paid on November 19, 2010.

22

FIRST CLOVER LEAF FINANCIAL CORP.

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

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

Forward-Looking Statements

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

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

Critical Accounting Policies

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

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

23

FIRST CLOVER LEAF FINANCIAL CORP.

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

Our evaluation of risk in maintaining the allowance for loan losses includes the review of all loans on which the collectibility of principal may not be reasonably assured.  We consider the following factors as part of this evaluation: our historical loan loss experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, peer group information and prevailing economic conditions.  Management evaluates the total balance of the allowance for loan losses based on several factors that are not loan specific but are reflective of the losses inherent in the loan portfolio, including management’s periodic review of loan collectibility in light of historical experience, the nature and volume of the loan portfolio, prevailing economic conditions such as housing trends, inflation rates and unemployment rates, geographic concentrations of loans within First Clover Leaf Bank’s immediate market area, and both peer financial institution historic loan loss experience and allowance for loan loss levels.

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

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

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

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

24

FIRST CLOVER LEAF FINANCIAL CORP.

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

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

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

First Clover Leaf utilizes a two step valuation approach to test for goodwill impairment.  We estimate the fair value of our single reporting unit as of the measurement date utilizing two valuation methodologies including the comparable transactions approach, and the control premium approach which utilizes the Company’s stock price.  We then compare the estimated fair value to the current carrying value of the reporting unit to determine if goodwill impairment had occurred as of the measurement date.  At our annual impairment assessment date of September 30, 2010, our analysis indicated that no further impairment existed.  Future events, such as adverse changes to First Clover Leaf’s business or changes in the economic market, could cause management to conclude that impairment indicators exist and require management to re-evaluate goodwill.  Should such re-evaluation determine goodwill is impaired; the resulting impairment loss recognized could have a material, adverse impact on First Clover Leaf’s financial condition and results of operations.  In accordance with current accounting guidance, management has determined that the Company has only one reporting unit for purposes of evaluating goodwill.  See Item 1, Note 11 for additional information on goodwill impairment.

Overview

First Clover Leaf had net income of $1.1 million for the three months ended September 30, 2010 compared to net income of $211,000 for the same period in 2009.  The increase was primarily due to an increase in non-interest income due to a gain on the sale of securities, a decrease in provision for loan losses, and an impairment loss on assets recorded in September 2009 with no additional impairment recorded for the quarter ended September 30, 2010.  Basic and diluted income per share was $0.14 and $0.03 for the three-month periods ended September 30, 2010 and 2009, respectively.

Net income increased to $3.3 million for the nine months ended September 30, 2010 from a net loss of $7.5 million for the same period last year.  The $10.8 million increase in net income was due primarily to the $9.3 million non-cash goodwill impairment charge recorded in June 2009 with no additional impairment charge recorded for the nine months ended September 30, 2010, in addition to an increase in net interest income, an increase in non-interest income due to a gain on the sale of securities, and a decrease in non-interest expense.  Basic and diluted income (loss) per share was $0.42 and $(0.91) for the nine-month periods ended September 30, 2010, and 2009, respectively.

25

 

FIRST CLOVER LEAF FINANCIAL CORP.

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

Financial Condition

Total Assets.  Total assets decreased to $578.6 million at September 30, 2010 from $585.5 million at December 31, 2009.  Total cash and cash equivalents increased to $62.3 million at September 30, 2010 from $48.0 million at December 31, 2009.  The increase in cash and cash equivalents was due primarily to an increase in federal funds sold partially offset by a decrease in cash and due from banks.

At September 30, 2010, we had $1.7 million invested in interest-earning time deposits.  We did not have any interest-earning time deposits at December 31, 2009.

Securities available for sale decreased to $82.7 million at September 30, 2010 from $86.4 million at December 31, 2009.  The decrease was due primarily to calls, maturities and pay-downs of $123.6 million and sales of $10.5 million partially offset by purchases of $130.8 million.

Loans, net amounted to $392.8 million at September 30, 2010, compared to $411.9 million at December 31, 2009.  This decrease was a result of loan paydowns and maturities exceeding new loan originations.  Due to the current economic environment, new loan demand has significantly declined in the one- to four-family residential loan, commercial real estate, and commercial business loan categories.

Foreclosed assets increased to $1.7 million at September 30, 2010 from $1.1 million at December 31, 2009.  We transferred six loans into foreclosed assets during the nine months ended September 30, 2010.  During the same time period we sold five properties that had been classified as foreclosed assets.

Total Liabilities.  Total liabilities decreased to $500.4 million at September 30, 2010 from $508.6 million at December 31, 2009.  Deposits decreased to $438.1 million at September 30, 2010 from $442.6 million at December 31, 2009.  Non-interest bearing deposits decreased $18.6 million to $30.9 million at September 30, 2010 from $49.5 million at December 31, 2009.  Interest bearing deposits increased $14.1 million totaling $407.1 million at September 30, 2010 compared to $393.0 million at December 31, 2009.  The fluctuation in balances was primarily a result of one customer with a significant balance which transferred from a non-interest bearing account into a money market account.  Federal Home Loan Bank advances at September 30, 2010 were $26.9 million compared to $39.9 million at December 31, 2009.  Advances of $13.0 million were repaid during the nine months ended September 30, 2010.  Securities sold under agreements to repurchase increased to $27.6 million at September 30, 2010 from $18.9 million at December 31, 2009.  This increase was due primarily to fluctuations in customer deposits.

Stockholders’ Equity.  Stockholders’ equity increased to $78.2 million at September 30, 2010 from $76.9 million at December 31, 2009, principally as a result of $3.3 million in net income partially offset by the payment of cash dividends of $1.4 million, a reduction in unrealized gains on securities of $299,000, and repurchases of common stock of $319,000 during the nine months ended September 30, 2010.

Asset Quality

The Company has experienced a slight increase in non-accrual loans as of September 31, 2010 compared to December 31, 2009.  However, total non-performing and impaired loans have decreased as of the same time periods.  Detailed information concerning the Company’s

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FIRST CLOVER LEAF FINANCIAL CORP.

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

non-accrual and impaired loans is described in the paragraphs that follow.  Overall, the Company has a very limited number and value of what would be classified as high risk loans.  The Company does not originate subprime loans and holds a very small number and dollar value of ARM products.  The Company does hold some junior lien mortgages and high loan-to-value ratio mortgages; however, they total a very insignificant portion of our loan portfolio.  The Company reviews these loans regularly and has not seen any increase in the delinquency trends for these products.  As commercial loans mature and requests for renewals are processed, either a new appraisal is obtained or the Company performs an internal valuation of the collateral based on comparable sales.  Additionally, the original appraisal is discounted if the Company believes it is warranted.

At September 30, 2010, the Company’s non-accrual loans increased $700,000 to $12.4 million from $11.7 million at December 31, 2009. At September 30, 2010, First Clover Leaf Bank had seven relationships classified as non-accrual with balances in excess of $500,000.  The largest non-accrual relationship is a $3.9 million development loan to a subdivision developer with excess inventory that is selling slowly due to the economic slowdown.  The loan is secured by the residential property, and an updated appraisal was obtained in the first quarter of 2010. The note is currently being re-evaluated on a quarterly basis under a discounted cash flow analysis.  The second non-accrual relationship is a $1.6 million land loan to a developer.  The borrower in this relationship has failed to make payments and has not provided the Bank with updated financial information.  The Bank was in the process of foreclosing on this property at September 30, 2010 and took possession in October 2010.  The third non-accrual relationship is a $1.5 million group of loans to a real estate investor, who is experiencing high vacancy rates and property repairs resulting in decreased cash flows due to the economic slowdown.  A charge-down of $464,000 was recorded on this loan during the third quarter of 2010.  The borrower and the Bank are currently working with a management company and vacancy rates are decreasing.  Property repairs are continuing to be made as cash flows allow. The fourth non-accrual relationship is a $1.2 million loan for a commercial investment property.  This credit was reviewed at year-end 2009, and a $600,000 charge-off was recorded.  A new appraisal was ordered on this property in March 2010. There was a pending contract on this property at September 30, 2010, that has since been rescinded.  The Bank will proceed with foreclosure on this property before the end of 2010 if there is not a new sales contract.  The fifth non-accrual relationship is a $1.1 million credit to a real estate investor.  This relationship relates to several credits which are all related by common ownership.  Most of the credits are single family residential properties, but some credits are related to commercial property.  The Bank re-assessed the values of most of these properties in the third quarter of 2010.  The remaining properties are currently being re-assessed.  The Bank expects to take possession of several of these properties early in the fourth quarter of 2010. The sixth non-accrual relationship is a $712,000 loan to a commercial contractor.  The contractor has the property listed for sale, and a new appraisal has been obtained.  The collateral value is sufficient to cover the loan value.  The seventh non-accrual relationship is a $691,000 loan to a real estate developer.  The primary collateral consists of 31 vacant lots.  The lots are continuing to sell in a manner that is allowing the borrower to continue to make principal payments.

In addition to the non-accrual loans in the previous paragraph, at September 30, 2010, our total other impaired loans amounted to $11.4 million compared to $14.8 million at December 31, 2009.  There are four impaired loans with balances in excess of $500,000 at September 30, 2010.  The largest loan is a $6.1 million credit to a builder with excess inventory.  This loan is secured by residential investment property for which updated appraisals have been

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

obtained.  Currently, the collateral on this loan is sufficient to cover the majority of the outstanding balance, and reserves have been set aside for the remaining outstanding balance.  The loan was restructured into three separate notes, with one note allowing for a period of interest only payments.  The borrower is in compliance with the modified terms.  The second loan is a $1.6 million loan to a residential real estate developer who is struggling with the economic downturn.  The loan is currently secured by single family residences.  The Bank is currently working with the developer on possible restructuring alternatives.  Currently, the collateral is sufficient to cover the outstanding loan balance.  The third loan is a $1.6 million loan for a hotel/condominium development located in a highly desired resort area.  Currently the collateral is sufficient to cover the outstanding balance.  The fourth loan is a $1.5 million loan to an investor who holds real estate and financial institution stock.  The collateral for this loan is stock in a financial institution and multifamily real estate.  Currently, the collateral is sufficient to cover the outstanding balance.

At September 30, 2010, the Bank had $3.5 million of loans which were classified as Troubled Debt Restructurings.  At September 30, 2010, all of these loans were in compliance with their modified terms.

The allowance for loan losses to non-performing and impaired loans, which is listed in the “Asset Quality Ratios” table in Item 1 Note 5, increased to 22.02% at September 30, 2010, compared to 21.68% at December 31, 2009.  While the change in the ratio for the period ended September 30, 2010 compared to the period ended December 31, 2009 is not significantly different, the ratio did experience a significant decline during 2009.  This decline was due to the large increase in non-performing loans during 2009 that did not require proportionate reserves under our allowance methodology.  The collateral on these loans was evaluated and in many instances a new appraisal was obtained.  It was determined that if liquidation of the collateral was necessary, the collateral value was sufficient to cover the loan balance.  Therefore, additional reserves were not required.

Results of Operations

General.  Net income increased to $1.1 million for the three months ended September 30, 2010 compared to net income of $211,000 for the same period in 2009.  The increase was primarily due to an increase in non-interest income due to a gain on the sale of securities, a decrease in provision for loan losses, and an impairment loss on assets recorded in September 2009 with no additional impairment recorded for the quarter ended September 30, 2010.  Basic and diluted income per share was $0.14 and $0.03 for the three-month periods ended September 30, 2010 and 2009, respectively.

Net income increased $10.8 million to $3.3 million for the nine months ended September 30, 2010 from a net loss of $7.5 million for the same period last year.  The increase in net income was primarily due to the $9.3 million, non-cash goodwill impairment charge recorded in June 2009 with no additional impairment charge recorded for the nine months ended September 30, 2010, in addition to an increase in net interest income, an increase in non-interest income due to a gain on the sale of securities, and a decrease in non-interest expense during the 2010 period. Basic and diluted income (loss) per share was $0.42 for the nine months ended September 30, 2010, and $(0.91) for the same period in 2009.

Yields on all interest-earning asset classes continued to decline for the three and nine months ended September 30, 2010 compared to the same period in 2009. Our commercial

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FIRST CLOVER LEAF FINANCIAL CORP.

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

loans are more sensitive to changes in market interest rates because they often have shorter terms to maturity, and therefore, the interest rates adjust more frequently.  The declining rate environment has also resulted in a significant number of the bonds in our securities portfolio being called and being replaced with lower yielding bonds.  The decline in rates has also impacted our interest-earning balances from depository institutions as those assets have adjustable rates.  While the overall yield on interest-earning assets remained fairly constant, our overall net interest rate spread and net interest margin increased due to the decline in the rates paid on interest-bearing liabilities.  However, our ability to lower rates paid on deposits is limited due to the already low deposit rates and the competitive environment in which we operate.  In addition, a significant number of our interest-bearing deposits are time deposits, which are fixed-rate contracts until maturity that do not allow for immediate repricing as rates fluctuate.

Net interest income.  Net interest income increased by $285,000 to $4.2 million for the three months ended September 30, 2010 from $3.9 million for the same period last year.  Net average interest-earning assets, which represent our average total interest-earning assets less our average total interest-bearing liabilities, were $69.4 million for the three months ended September 30, 2010, compared to $68.5 million for the same period in 2009.  The ratio of interest-earning assets to interest-bearing liabilities increased to 114.92% for the three months ended September 30, 2010 from 113.73% for the same period in 2009.  The net interest rate spread increased to 2.88% for the three months ended September 30, 2010, compared to 2.46% for the comparable period in 2009.  The average rate earned on interest-earning assets decreased by 10 basis points for the three months ended September 30, 2010 to 4.76% from 4.86% for the same period in 2009, while the average rate paid on interest-bearing liabilities decreased by 52 basis points during these periods to 1.88% from 2.40%.  The increase in the interest rate spread was attributable to the cost of funds declining faster than the yield on interest-earning assets.

Net interest income increased to $12.4 million for the nine months ended September 30, 2010 from $11.8 million for the same period last year.  Net average interest-earning assets were $71.1 million for the nine months ended September 30, 2010, compared to $65.1 million for the same period in 2009.  The ratio of interest-earning assets to interest-bearing liabilities increased to 115.27% for the nine months ended September 30, 2010 from 112.47% for the same period in 2009.  The net interest rate spread increased to 2.83% for the nine months ended September 30, 2010, compared to 2.41% for the comparable period in 2009.  The average rate earned on interest-earning assets decreased by one basis point for the nine months ended September 30, 2010 to 4.82% from 4.83% for the same period in 2009, while the average rate paid on interest-bearing liabilities decreased by 43 basis points during these periods to 1.99% from 2.42%.  The increase in the interest rate spread was attributable to the cost of funds declining faster than the yield on interest-earning assets.

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FIRST CLOVER LEAF FINANCIAL CORP.

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

The following tables set forth the average balance sheets, average yields and cost of funds, and certain other information for the periods indicated.  No tax-equivalent yield adjustments were made, as the effect thereof was not material.  All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield.  The yields set forth below include the effect of deferred loan fees, discounts and premiums that are amortized or accreted to interest income or expense.  Yields and rates have been annualized.

	Three Months Ended September 30,							Three Months Ended September 30,
	2010							2009
	Average Outstanding Balance		Interest (4)		Yield/ Rate			Average Outstanding Balance		Interest (4)		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, gross	$	402,592	$	5,706		5.62	%	$	421,621	$	5,975		5.62	%
Securities		81,826		674		3.26			99,183		943		3.77
Interest-earning balances from depository institutions		49,926		33		0.26			46,290		26		0.23
Total interest-earning assets		534,344		6,413		4.76			567,094		6,944		4.86
Non-interest-earning assets		43,350							45,573
Total assets	$	577,694						$	612,667
Interest-bearing liabilities:
Interest-bearing transaction	$	194,886		583		1.19		$	167,404		719		1.70
Savings deposits		19,508		37		0.75			18,815		51		1.08
Time deposits		194,883		1,307		2.66			218,540		1,792		3.25
Securities sold under agreements to repurchase		24,542		8		0.13			48,663		17		0.14
Federal Home Loan Bank advances		27,197		247		3.60			41,305		367		3.53
Subordinated debentures		3,955		23		2.41			3,911		75		7.61
Total interest-bearing liabilities		464,971		2,205		1.88			498,638		3,021		2.40
Non-interest-bearing liabilities		34,251							33,678
Total liabilities		499,222							532,316
Stockholders’ equity		78,472							80,351
Total liabilities and stockholders’ equity	$	577,694						$	612,667
Net interest income			$	4,208						$	3,923
Net interest rate spread (1)						2.88	%						2.46	%
Net interest-earning assets (2)	$	69,373						$	68,456
Net interest margin (3)						3.12	%						2.74	%
Ratio of interest-earning assets to interest-bearing liabilities						114.92	%						113.73	%

(1)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)	Net interest margin represents net interest income divided by average total interest-earning assets.
(4)	Interest on loans includes loan fees collected in the amount of $70,062 and $38,191 for the three months ended September 30, 2010 and 2009, respectively.

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FIRST CLOVER LEAF FINANCIAL CORP.

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

	Nine Months Ended September 30,							Nine Months Ended September 30,
	2010							2009
	Average Outstanding Balance		Interest (4)		Yield/ Rate			Average Outstanding Balance		Interest (4)		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, gross	$	409,027	$	17,092		5.59	%	$	424,224	$	18,049		5.69	%
Securities		87,079		2,183		3.35			98,853		3,032		4.10
Interest-earning balances from depository institutions		40,831		75		0.25			63,928		123		0.26
Total interest-earning assets		536,937		19,350		4.82			587,005		21,204		4.83
Non-interest-earning assets		44,552							54,574
Total assets	$	581,489						$	641,579
Interest-bearing liabilities:
Interest-bearing transaction	$	187,276		1,711		1.22		$	187,653		2,173		1.55
Savings deposits		19,307		116		0.80			18,678		174		1.25
Time deposits		197,395		4,080		2.76			216,267		5,516		3.41
Securities sold under agreements to repurchase		25,874		20		0.10			48,946		55		0.15
Federal Home Loan Bank advances		32,009		852		3.56			46,464		1,292		3.72
Subordinated debentures		3,945		153		5.19			3,901		223		7.64
Total interest-bearing liabilities		465,806		6,932		1.99			521,909		9,433		2.42
Non-interest-bearing liabilities		37,801							31,376
Total liabilities		503,607							553,285
Stockholders’ equity		77,882							88,294
Total liabilities and stockholders’ equity	$	581,489						$	641,579
Net interest income			$	12,418						$	11,771
Net interest rate spread (1)						2.83	%						2.41	%
Net interest-earning assets (2)	$	71,131						$	65,096
Net interest margin (3)						3.09	%						2.68	%
Ratio of interest-earning assets to interest-bearing liabilities						115.27	%						112.47	%

(1)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)	Net interest margin represents net interest income divided by average total interest-earning assets.
(4)	Interest on loans includes loan fees collected in the amount of $161,154 and $157,552 for the nine months ended September 30, 2010 and 2009, respectively.

Interest and fee income.  Interest and fee income on loans decreased to $5.7 million for the three months ended September 30, 2010 from $6.0 million for the comparable period in 2009 as a result of a lower average balance in the 2010 period.  Interest and fee income on loans decreased to $17.1 million for the nine months ended September 30, 2010 from $18.0 million for the comparable period in 2009.  Interest income on loans decreased primarily as a result of a lower average balance in addition to a lower yield.  The average balance of loans was $409.0 million and $424.2 million for the nine months ended September 30, 2010 and 2009, respectively. The average balance decreased primarily due to significant declines in new loan demand in the one- to four-family residential loan, commercial real estate, and commercial business loan categories due to the current economic environment.  The average yield on loans

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FIRST CLOVER LEAF FINANCIAL CORP.

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

decreased to 5.59% for the nine months ended September 30, 2010 from 5.69% for the comparable period in 2009.

Interest income on securities decreased to $674,000 for the three months ended September 30, 2010 compared to $943,000 for the same period in 2009.  The decrease was due primarily to a lower average balance in addition to a decline in yield.  Interest income on securities decreased to $2.2 million for the nine months ended September 30, 2010 from $3.0 million for the comparable period in 2009.  The decrease was due primarily to a lower average balance in addition to a decline in yield. The average balance of securities was $87.1 million and $98.9 million for the nine months ended September 30, 2010 and 2009, respectively.  Available for sale securities of $10.5 million were sold during the nine months ended September 30, 2010.  The declining rate environment also resulted in a significant number of bonds in our securities portfolio being called and replaced with lower yielding bonds.  The average yield on securities decreased to 3.35% from 4.10% for the nine months ended September 30, 2010 and 2009, respectively.

Interest on other interest-earning deposits increased to $33,000 for the three months ended September 30, 2010 from $26,000 for the comparable period in 2009.  The increase was due primarily to a higher average balance and an increase in yield.  Interest on other interest-earning deposits decreased to $75,000 for the nine months ended September 30, 2010 from $123,000 for the comparable period in 2009.  The decrease was due primarily to a lower average balance in addition to a slight decline in yield.  The average balance of other interest-earning deposits decreased to $40.8 million from $63.9 million for the nine months ended September 30, 2010 and 2009, respectively. The average yield on other interest-earning deposits decreased to 0.25% for the nine months ended September 30, 2010 from 0.26% for the comparable period in 2009.

Interest expense.  Interest expense on deposits decreased to $1.9 million for the three months ended September 30, 2010 from $2.6 million for the comparable period in 2009.  The decrease was due primarily to a decline in yield and a lower average balance in time deposits.  Interest expense on deposits decreased to $5.9 million for the nine months ended September 30, 2010 from $7.9 million for the comparable period in 2009.  The decrease was due primarily to a decline in yield in addition to a lower average balance in time deposits.  The average balance of interest-bearing deposits, comprised of interest bearing transactions, savings deposits, and time deposits, was $404.0 million and $422.6 million for the nine months ended September 30, 2010 and 2009, respectively.  The largest yield decline for the nine months ended September 30, 2010 compared to the same period in 2009 was in time deposits which declined 65 basis points, while savings deposits and interest-bearing transactions experienced yield declines of 45 and 33 basis points, respectively.

Interest expense on securities sold under agreements to repurchase decreased to $7,000 for the three months ended September 30, 2010 from $17,000 for the three months ended September 30, 2009.  The decrease was primarily due to a lower average balance in addition to a decline in yield.  Interest expense on securities sold under agreements to repurchase decreased to $20,000 for the nine months ended September 30, 2010 from $55,000 for the nine months ended September 30, 2009.  The decrease was primarily due to a lower average balance in addition to a decline in yield.  The average balance decreased to $25.9 million from $48.9 million for the nine months ended September 30, 2010 and 2009, respectively.  The yield decreased to 0.10% for the nine months ended September 30, 2010 from 0.15% for the comparable period in 2009.

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

Interest expense on Federal Home Loan Bank advances decreased to $247,000 from $367,000 for the three months ended September 30, 2010 and 2009, respectively due primarily to a lower average balance.  Interest expense on Federal Home Loan Bank advances decreased to $852,000 from $1.3 million for the nine months ended September 30, 2010 and 2009, respectively due primarily to a lower average balance in addition to a decline in yield.  The average balance of Federal Home Loan Bank advances was $32.0 million and $46.5 million for the nine months ended September 30, 2010 and 2009, respectively.  The average yield on Federal Home Loan Bank advances decreased to 3.56% for the nine months ended September 30, 2010 compared to 3.72% for the comparable period in 2009.

Interest expense on subordinated debentures decreased to $23,000 from $75,000 for the three months ended September 30, 2010 and 2009, respectively.  In accordance with the terms of our subordinated debentures, the rate has converted from a fixed rate to a variable rate that adjusts quarterly; therefore, for the remainder of 2010 this expense should be lower than the prior year.  Interest expense on subordinated debentures decreased to $153,000 from $223,000 for the nine months ended September 30, 2010 and 2009, respectively.

Provision for loan losses.  Provision for loan losses decreased for the three month period ended September 30, 2010 to $650,000 from $1.0 million for the comparable period in 2009.  Provision for loan losses decreased to $1.5 million from $1.7 million for the nine months ended September 30, 2010 and 2009, respectively.  The decrease was due primarily to lower reserves required for specific allocations for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009.  The provision for loan losses is based upon management’s consideration of current economic conditions, the Company’s loan portfolio composition and historical loss experience coupled with current market valuations on collateral, used to estimate probable losses as well as the level of nonperforming assets and classified assets.  Management also reviews individual loans for which full collectibility may not be reasonably assured and considers, among other matters, the estimated fair value of the underlying collateral. This evaluation is ongoing and results in variations in the Company’s provision for loan losses.  The Company is subject to periodic examination by the Office of Thrift Supervision, which may require the Company to record increases in the allowance based on its evaluation of available information.  There can be no assurance that the Office of Thrift Supervision will not require further increases to the allowance.  For further information, see Item 1 Note 5 “Asset Quality.”

Non-interest income.  Non-interest income increased to $698,000 for the three months ended September 30, 2010 from $332,000 for the comparable period in 2009 primarily due to a gain on sale of securities of $201,000 for the three months ended September 30, 2010.  Non-interest income increased to $1.8 million for the nine months ended September 30, 2010 from $1.1 million for the comparable period in 2009.  The increase was due primarily to a gain on sale of securities of $664,000 for the nine months ended September 30, 2010.  The Company chose to sell securities as a strategic plan to restructure the portfolio.  Selling these securities and using the proceeds to purchase both tax-exempt and taxable municipal securities, as well as mortgage backed securities should allow, over time, for a higher yield.  This also allowed the Company to restructure the cash flows from securities into a more laddered distribution.  These security sales allowed the Company to capture some of the gain in the portfolio that existed and would diminish if interest rates were to rise, or the securities were called or matured.  Income from service fees on deposit accounts and other service fees also increased.  These increases were the result of increased usage of debit cards which increases interchange fees, and the increased number of non-sufficient funds charges due primarily to the increased activity and

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FIRST CLOVER LEAF FINANCIAL CORP.

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

increased number of demand deposit accounts.  Additionally, other non-interest income increased primarily due to gain on sale of foreclosed property and gain on sale of assets.  These increases were partially offset by a decline in gain on sale of loans due to the decreased volume of loan sales.

Non-interest expense.  Non-interest expense decreased to $2.6 million for the three months ended September 30, 2010 from $3.0 million for the same period in 2009.  The decrease was due primarily to an impairment loss on assets of $356,000 recorded for the three months ended September 30, 2009 with no impairment charge recorded for the three months ended September 30, 2010.  Non-interest expense decreased $10.0 million to $7.7 million for the nine months ended September 30, 2010 from $17.7 million for the same period in 2009. The primary reason for the decrease in non-interest expense in 2010 compared to 2009 was a $9.3 million goodwill impairment charge and a $356,000 impairment loss on assets both recorded as of September 30, 2009.

Professional fees decreased to $98,000 for the three months ended September 30, 2010 compared to $204,000 for the comparable period in 2009.  Professional fees decreased to $240,000 for the nine months ended September 30, 2010 compared to $597,000 for the comparable period in 2009.  This decrease was due primarily to the completion of a consulting agreement with the former CEO of Partners Bank and the reversal of $150,000 of accrued expenses in connection with the consulting agreement entered into with the former CEO of Partners Bank which was based on certain contingencies that ultimately were not attained.

Compensation and employee benefits increased to $1.2 million for the three months ended September 30, 2010 compared to $1.1 million for the comparable period in 2009.  Compensation and employee benefits increased to $3.5 million for the nine months ended September 30, 2010 compared to $3.4 million for the comparable period in 2009.  The increase was due primarily to increased insurance, retirement, and compensation expenses in addition to a reduction in deferred loan fees which offset compensation expense.

Data processing totaled $162,000 for the three months ended September 30, 2010 compared to $141,000 for the same period in 2009.  Data processing totaled $495,000 for the nine months ended September 30, 2010 compared to $418,000 for the same period in 2009.  The increase was due primarily to additional services including online origination and increased expenses due to new regulations.

Income taxes.  Income taxes increased to $555,000 for the three months ended September 30, 2010 from $70,000 for the comparable period in 2009.  Income taxes increased to $1.8 million for the nine months ended September 30, 2010 from $974,000 for the comparable period in 2009.  The primary reason for the change in income taxes was the higher level of pre-tax income for the 2010 period.  The $9.3 million non-cash expense recorded for goodwill impairment in 2009 was not tax deductible, and therefore, the goodwill impairment expense was not tax effected.

Liquidity and Capital Resources

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

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FIRST CLOVER LEAF FINANCIAL CORP.

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

objectives.

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

A portion of our liquidity consists of cash and cash equivalents, which are a product of our operating, investing and financing activities.  At September 30, 2010 and December 31, 2009, $62.3 million and $48.0 million, respectively, were invested in cash and cash equivalents. The primary sources of cash are principal repayments on loans, proceeds from the calls and maturities of investment securities, increases in deposit and securities sold under agreements to repurchase accounts, and advances from the Federal Home Loan Bank of Chicago.

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

Our primary investing activities are the origination of loans and the purchase of investment securities.  During the nine months ended September 30, 2010 principal collections on loans, net of originations totaled $14.3 million compared to $14.0 million for the nine months ended September 30, 2009.  Cash received from calls, maturities, and paydowns of available-for-sale investment securities totaled $123.6 million and $100.6 million for the nine months ended September 30, 2010 and 2009, respectively.  We sold $10.5 million of available-for-sale investment securities during the nine months ended September 30, 2010.  We purchased $130.8 million and $92.5 million in available-for-sale investment securities during the nine months ended September 30, 2010 and 2009, respectively.  We did not receive any proceeds from the maturities of interest-earning time deposits during the nine months ended September 30, 2010 compared to $25.8 million received for the same period in 2009.  We invested $1.7 million in interest-earning time deposits for the nine months ended September 30, 2010 compared to $20.6 million invested during the same period in 2009.

Deposit flows are generally affected by interest rates as designated by management, the interest rates and products offered by local competitors, and other factors.  Net deposits decreased by $4.5 million for the nine months ended September 30, 2010.  During the comparable period in 2009 the net decrease in deposits was $2.1 million.  Securities sold under agreements to repurchase had a net increase of $8.7 million and a net decrease of $25.5 million for the nine months ended September 30, 2010 and 2009, respectively.  There were no proceeds from Federal Home Loan Bank advances for the nine months ended September 30, 2010 compared to proceeds of $5.0 million for the nine months ended September 30, 2009.  Repayments of such advances totaled $13.0 million for the nine months ended September 30, 2010 compared to $14.3 million for the same period in 2009.  Repurchases of the Company’s common stock were $319,000 and $5.7 million for the nine months ended September 30, 2010 and 2009, respectively.

Liquidity management is both a daily and long-term function of business management.

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FIRST CLOVER LEAF FINANCIAL CORP.

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

If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Chicago, which provides an additional source of funds.  At September 30, 2010, we had $27.0 million of advances from the Federal Home Loan Bank of Chicago and additional available credit of approximately $27.4 million.

The Bank is required to maintain certain minimum capital requirements under Office of Thrift Supervision regulations.  Failure by a savings institution to meet minimum capital requirements can result in certain mandatory and possible discretionary actions by regulators, which, if undertaken, could have a direct material effect on the Bank’s financial statements.  The Bank was considered “well-capitalized” at September 30, 2010.  Under the capital adequacy guidelines and regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

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

							Minimum Required
							for Capital					to be "Well
	Actual						Adequacy					Capitalized"
	Amount			Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
Stockholders' equity	$	72,863
Goodwill and core deposit intangible		(12,582	)
Disallowed servicing assets		(676	)
Unrealized gain on securities AFS, net		(1,427	)
Tangible capital to adjusted total assets	$	58,178			10.3	%	$	8,446		1.5	%		N/A		-
Allowance as limited by regulatory guidance		4,225
Deduction for low-level recourse		(1,607	)
Total capital to risk-weighted assets	$	60,796			15.7	%	$	30,949		8.0	%	$	38,686		10.0	%
Tier 1 capital to risk-weighted assets	$	58,178			15.0	%	$	N/A		-		$	23,212		6.0	%
Tier 1 capital to total assets	$	58,178			10.3	%	$	22,522		4.0	%	$	28,152		5.0	%

Off-Balance Sheet Arrangements

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

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

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FIRST CLOVER LEAF FINANCIAL CORP.

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

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

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

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

								Range of
		Variable		Fixed				Rates on
		Rate		Rate		Total		Fixed Rate
		Commitments		Commitments		Commitments		Commitments
	(Dollars in thousands)
Commitments to extend credit		$	36,117	$	15,742	$	51,859		3.75%-18.00	%
Standby letters of credit		$	1,633	$	3,246	$	4,879		3.25%-9.25	%

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

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FIRST CLOVER LEAF FINANCIAL CORP.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

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

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

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

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FIRST CLOVER LEAF FINANCIAL CORP.

The tables below set forth, as of June 30, 2010 and December 31, 2009, the estimated changes in the NPV that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

June 30, 2010
			NPV										Net Portfolio Value as a Percentage of Present Value of Assets
			Estimated NPV			Estimated Increase (Decrease) in NPV							NPV Ratio
Change in Interest Rates						Amount				Percent						Change
			(Dollars in thousands)
	+300	bp		$	69,213		$	(12,047	)		(15	) %		12.42	%		(171	) bp
	+200	bp			74,161			(7,098	)		(9	)		13.15			(98	) bp
	+100	bp			78,411			(2,849	)		(4	)		13.75			(38	) bp
	+50	bp			79,627			(1,633	)		(2	)		13.91			(22	) bp
	0	bp			81,260			—			—			14.13			0	bp
	-50	bp			81,398			138			0			14.12			0	bp
	-100	bp			80,892			(368	)		0			14.04			(9	) bp

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

The 2010 table above indicates that at June 30, 2010, in the event of a 100 basis point decrease in interest rates, we would experience a minor change in the net portfolio value.  In the event of a 300 basis point increase in interest rates, we would experience a 15% decrease in the net portfolio value.  Management does not believe that the Company’s primary market risk exposures at September 30, 2010, and how those exposures were managed during the three months ended September 30, 2010 have changed significantly when compared to the

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FIRST CLOVER LEAF FINANCIAL CORP.

immediately preceding quarter ended June 30, 2010.  However, the Company’s primary market risk exposure has not yet been quantified at September 30, 2010 as the Office of Thrift Supervision Net Portfolio Value Model is not yet available and the complexity of the model makes it difficult to accurately predict results.

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

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FIRST CLOVER LEAF FINANCIAL CORP.

Item 4.  Controls and Procedures

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

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

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FIRST CLOVER LEAF FINANCIAL CORP.

PART II - Other Information

Item 1 - Legal Proceedings.

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

Item 1A – Risk Factors.

Other than the information contained in this Quarterly Report on Form 10-Q, and the Company’s Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission during 2010, there are no material updates or additions to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2009, as filed with the Securities and Exchange Commission.  Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations.

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

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

(b) Not applicable.

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

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs(1)
July 1 - 31, 2010		23,857	$	6.03		23,857		1,143
August 1 - 31, 2010		1,143	$	5.68		1,143		25,000
September 1 - 30, 2010		1,500	$	5.67		1,500		23,500
Total		26,500				26,500

(1) The Company’s board of directors approved a stock repurchase program on November 12, 2008 for the repurchase of up to 924,480 shares of common stock, on December 11, 2008, they increased the number of shares that may be repurchased pursuant to that plan by an additional 382,641 shares, and on April 27, 2010 they authorized another increase to that plan of an additional 25,000 shares.  The plan has no expiration date.

On August 24, 2010, the Board of Directors of the Company authorized an increase in the number of shares that may be repurchased pursuant to the Company’s current stock repurchase plan that was previously announced on November 12, 2008 and expanded on December 12, 2008 and April 24, 2010.  Under the newly expanded repurchase plan, the Company is authorized to repurchase an additional 25,000 shares, representing approximately 0.32% of the Company’s issued and outstanding shares of common stock as of August 24, 2010.  As of August 24, 2010, the Company had repurchased all of the 1,332,121 shares of its common stock that had been previously authorized for repurchase.

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FIRST CLOVER LEAF FINANCIAL CORP.

Item 3 - Defaults upon Senior Securities.

Not applicable.

Item 4 – [Reserved].

Item 5 - Other Information.

None

Item 6 – Exhibits.

(a) Exhibits.

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

31.2: Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32: Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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FIRST CLOVER LEAF FINANCIAL CORP.

SIGNATURES

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

FIRST CLOVER LEAF FINANCIAL CORP.

(Registrant)

DATE:   November 15, 2010	BY:  /s/ Dennis M. Terry
	Dennis M. Terry, President and Chief Executive Officer
	BY:  /s/ Darlene F. McDonald
	Darlene F. McDonald, Senior Vice-President and Chief Financial Officer

44