UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended September 30, 2012

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from                              to

Commission file number 000-50820

FIRST CLOVER LEAF FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes   x.  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  o
Non-accelerated filer  o	Smaller reporting company x
(do not check if smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes 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 October 31, 2012
Common Stock, par value $.10 per share	7,514,926

FIRST CLOVER LEAF FINANCIAL CORP.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2012

INDEX

	PAGE NO.
PART I - Financial Information
Item 1. Financial Statements(Unaudited)
Consolidated Balance Sheets	3
Consolidated Statements of Net Income and Comprehensive Income	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	7
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.Quantitative and Qualitative Disclosures about Market Risk	47
Item 4.Controls and Procedures	48
PART II - Other Information
Item 1. Legal Proceedings	49
Item 1A. Risk Factors	49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3. Defaults Upon Senior Securities	49
Item 4. Mine Safety Disclosures	49
Item 5. Other Information	49
Item 6. Exhibits	50
Signatures	51

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Balance Sheets

	September 30,		December 31,
	2012		2011
	(Unaudited)
ASSETS
Cash and due from banks	$	13,892,266	$	10,336,923
Interest-earning deposits	10,427,388		7,083,526
Federal funds sold	14,445,286		21,940,960
Total cash and cash equivalents	38,764,940		39,361,409
Interest-earning time deposits	1,745,769		1,738,498
Securities available for sale	78,948,242		85,575,351
Federal Home Loan Bank stock	3,077,201		6,306,273
Loans, net of allowance for loan losses of $5,669,422 and $7,789,262 at September 30, 2012 and December 31, 2011, respectively	387,605,718		387,634,646
Loans held for sale	1,468,000		1,661,750
Property and equipment, net	10,257,193		10,088,154
Goodwill	11,385,323		11,385,323
Bank-owned life insurance	5,199,304		5,067,935
Core deposit intangible	605,249		816,000
Foreclosed assets	6,471,334		5,822,864
Mortgage servicing rights	779,101		651,409
Accrued interest receivable	1,728,355		1,726,319
Prepaid FDIC insurance premiums	1,109,237		1,439,197
Other assets	3,053,488		3,449,851
Total assets	$	552,198,454	$	562,724,979
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Noninterest bearing	$	49,509,033	$	39,256,851
Interest bearing	370,806,479		375,501,432
Total deposits	420,315,512		414,758,283
Federal Home Loan Bank advances	26,963,000		26,944,000
Securities sold under agreements to repurchase	19,562,647		36,874,298
Subordinated debentures	4,000,000		4,000,000
Accrued interest payable	316,685		417,828
Other liabilities	2,230,914		2,016,445
Total liabilities	473,388,758		485,010,854
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, 7,605,546 and 7,727,756 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively	760,555		772,776
Additional paid-in capital	60,481,777		61,230,512
Retained earnings	16,062,834		14,418,656
Accumulated other comprehensive income	1,504,530		1,292,181
Total stockholders’ equity	78,809,696		77,714,125
Total liabilities and stockholders’ equity	$	552,198,454	$	562,724,979

See Notes to Consolidated Financial Statements.

3

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Statements of Net Income and Comprehensive Income

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Interest and dividend income:
Interest and fees on loans	$	4,890,979	$	5,246,210	$	14,849,606	$	15,970,496
Securities:
Taxable interest income	260,845		425,661		911,035		1,324,939
Nontaxable interest income	207,385		182,834		611,625		516,550
Federal Home Loan Bank dividends	2,941		1,572		6,213		4,717
Interest-earning deposits, federal funds sold, and other	13,700		26,380		44,532		79,663
Total interest and dividend income	5,375,850		5,882,657		16,423,011		17,896,365
Interest expense:
Deposits	927,908		1,420,324		2,960,395		4,535,474
Federal Home Loan Bank advances	133,662		129,393		394,426		382,671
Securities sold under agreements to repurchase	5,468		1,492		12,851		9,385
Subordinated debentures	24,939		21,886		74,591		92,615
Total interest expense	1,091,977		1,573,095		3,442,263		5,020,145
Net interest income	4,283,873		4,309,562		12,980,748		12,876,220
Provision for loan losses	400,000		891,000		1,200,000		1,666,000
Net interest income after provision for loan losses	3,883,873		3,418,562		11,780,748		11,210,220
Other income:
Service fees on deposit accounts	91,596		104,399		277,593		296,141
Other service charges and fees	93,652		83,267		276,420		255,464
Loan servicing fees	57,697		46,742		156,528		134,507
Gain on sale of securities	167,978		348,776		167,978		454,920
Gain on sale of loans	610,215		153,660		1,131,293		355,121
Other	177,472		75,582		187,079		63,839
	1,198,610		812,426		2,196,891		1,559,992
Other expenses:
Compensation and employee benefits	1,413,234		1,206,764		4,403,489		3,669,271
Occupancy expense	313,669		322,811		935,050		950,846
Data processing services	178,640		157,972		530,372		481,787
Director fees	34,850		38,000		115,850		109,000
Professional fees	119,510		135,707		410,320		396,110
FDIC insurance premiums	120,585		181,532		365,593		544,112
Foreclosed asset related expenses	138,469		277,260		583,066		603,284
Amortization of core deposit intangible	70,249		77,320		210,751		232,000
Amortization of mortgage servicing rights	88,416		51,348		193,811		114,304
Other	581,765		469,028		1,667,910		1,361,513
	3,059,387		2,917,742		9,416,212		8,462,227
Income before income taxes	2,023,096		1,313,246		4,561,427		4,307,985
Income tax expense	708,656		459,072		1,535,946		1,534,670
Net income	$	1,314,440	$	854,174	$	3,025,481	$	2,773,315
Net income	$	1,314,440	$	854,174	$	3,025,481	$	2,773,315
Other comprehensive income:
Change in unrealized gains on securities available for sale, net of reclassifications and taxes	96,017		119,554		212,349		663,985
Comprehensive income	$	1,410,457	$	973,728	$	3,237,830	$	3,437,300
Basic and diluted earnings per share (see Note 5)	$	0.17	$	0.11	$	0.39	$	0.36
Dividends per share	$	0.06	$	0.06	$	0.18	$	0.18

See Notes to Consolidated Financial Statements.

4

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	September 30,
	2012			2011
Cash flows from operating activities
Net income	$	3,025,481		$	2,773,315
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization (accretion) of:
Deferred loan origination (fees) costs, net	(68,656		)	3,082
Premiums and discounts on securities	(430,839		)	(344,969		)
Core deposit intangible	210,751			232,000
Mortgage servicing rights	193,811			114,304
Amortization of fair value adjustments	(41,030		)	(57,224		)
Provision for loan losses	1,200,000			1,666,000
Depreciation	414,336			426,802
ESOP expense	—			44,186
Gain on sale of securities available for sale	(167,978		)	(454,920		)
Gain on sale of loans	(1,131,293		)	(355,121		)
Gain on sale of property and equipment	—			(78,832		)
(Gain) loss on sale of foreclosed assets	(26,018		)	62,951
Write-down on foreclosed assets	369,500			169,734
Earnings on bank-owned life insurance	(131,369		)	(18,576		)
Increase in mortgage servicing rights	(321,503		)	(140,070		)
Proceeds from sales of loans held for sale	40,199,478			16,272,188
Originations of loans held for sale	(38,874,435		)	(16,877,667		)
Change in assets and liabilities:
Accrued interest receivable and other assets	724,287			741,746
Accrued interest payable	(101,143		)	(138,723		)
Other liabilities	89,757			(103,141		)
Net cash provided by operating activities	5,133,137			3,937,065
Cash flows from investing activities
Purchase of interest-earning time deposits	(7,271		)	(10,880		)
Available for sale securities:
Purchases	(34,569,689		)	(76,032,719		)
Proceeds from calls, maturities, and paydowns	37,873,293			58,843,176
Proceeds from sales	4,307,679			8,271,072
Redemption of FHLB stock	3,229,072			—
Increase in loans	(3,372,339		)	(2,642		)
Purchase of property and equipment	(595,429		)	(153,479		)
Proceeds from sale of property and equipment	—			146,655
Proceeds from the sale of foreclosed assets	1,298,759			2,306,842
Purchase of bank-owned life insurance	—			(5,000,000		)
Net cash provided by (used in) investing activities	8,164,075			(11,631,975		)

(Continued)

5

FIRST CLOVER LEAF FINANCIAL CORP.

Consolidated Statements of Cash Flows (Continued)

(Unaudited)

	Nine Months Ended
	September 30,
	2012			2011
Cash flows from financing activities
Net increase (decrease) in deposit accounts	$	5,560,229		$	(12,194,343	)
Net (decrease) increase in securities sold under agreements to repurchase	(17,311,651		)	3,825,192
Proceeds from Federal Home Loan Bank advances	10,000,000			5,000,000
Repayments of Federal Home Loan Bank advances	(10,000,000		)	—
Repurchase of common stock	(760,956		)	(348,638		)
Cash dividends paid	(1,381,303		)	(1,397,011		)
Net cash used in financing activities	(13,893,681		)	(5,114,800		)
Net decrease in cash and cash equivalents	(596,469		)	(12,809,710		)
Cash and cash equivalents:
Beginning	39,361,409			66,253,047
Ending	$	38,764,940		$	53,443,337
Supplemental schedule of noncash investing activities
Assets acquired in settlement of loans	$	2,471,211		$	4,192,582
Loans made to finance sales of foreclosed assets	180,500			415,000
Supplemental disclosures of cash flow information Cash paid during the period for:
Interest	$	3,527,406		$	5,140,140
Income taxes, net of refunds	840,000			1,091,728

See Notes to Consolidated Financial Statements.

6

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 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 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, 2011 contained in the 2011 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 preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the reported periods.  Actual results could differ from those estimates.

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.”

Recent accounting pronouncements:  There were no accounting standards recently issued relating to the financial services industry.

Reclassifications:  Certain reclassifications have been made to the balances, with no effect on net income or total stockholders’ equity, for the three and nine months ended September 30, 2011, to be consistent with the classifications adopted for the three and nine months ended September 30, 2012.

7

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 2.Securities

The amortized cost and fair values of securities available for sale, with gross unrealized gains and losses, are summarized as follows:

	September 30, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		(Losses)			Value
U.S. government agency obligations	$	19,688,497	$	296,741	$	—		$	19,985,238
State and municipal securities	28,959,046		1,576,952		(3,849		)	30,532,149
Other securities	3,501		—		—			3,501
Mortgage-backed: residential	27,908,945		547,864		(29,455		)	28,427,354
	$	76,559,989	$	2,421,557	$	(33,304	)	$	78,948,242

	December 31, 2011
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		(Losses)			Value
U.S. government agency obligations	$	31,226,753	$	517,236	$	—		$	31,743,989
Corporate bonds	1,949,836		12,444		(123,956		)	1,838,324
State and municipal securities	25,063,842		1,329,567		(17,291		)	26,376,118
Other securities	3,501		—		—			3,501
Mortgage-backed: residential	25,280,227		425,272		(92,080		)	25,613,419
	$	83,524,159	$	2,284,519	$	(233,327	)	$	85,575,351

8

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 2.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, 2012 and December 31, 2011, are summarized as follows:

	September 30, 2012
	Less than 12 Months					12 Months or More				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Losses			Value		Losses		Value		Losses
State and municipal securities	1,165,961		(3,849		)	—		—		1,165,961		(3,849		)
Mortgage-backed: residential	2,829,771		(29,455		)	—		—		2,829,771		(29,455		)
	$	3,995,732	$	(33,304	)	$	—	$	—	$	3,995,732	$	(33,304	)

	December 31, 2011
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Corporate bonds	$	—	$	—		$	576,044	$	(123,956	)	$	576,044	$	(123,956	)
State and municipal securities	1,448,738		(17,291		)	—		—			1,448,738		(17,291		)
Mortgage-backed: residential	9,805,765		(92,080		)	—		—			9,805,765		(92,080		)
	$	11,254,503	$	(109,371	)	$	576,044	$	(123,956	)	$	11,830,547	$	(233,327	)

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

At September 30, 2012, the Company had seven securities in an unrealized loss position which included: four state and municipal securities and three 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, 2012.  The Company had in previous filings reported a corporate security that had been in an unrealized loss position for more than 12 months.  The bond was called at par during the third quarter of 2012 and is no longer owned by the Company.

9

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 2.Securities (Continued)

The amortized cost and fair value at September 30, 2012, by contractual maturity, is 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. Other securities have no stated maturity.  Therefore, stated maturities are not disclosed for these two categories.

	Available for Sale
	Amortized		Fair
	Cost		Value
Due in one year or less	$	11,285,318	$	11,411,850
Due after one year through five years	12,497,377		12,894,983
Due after five years through ten years	8,624,282		9,181,316
Due after ten years	16,240,566		17,029,238
Mortgage-backed: residential	27,908,945		28,427,354
Other securities	3,501		3,501
	$	76,559,989	$	78,948,242

Securities with a carrying amount of approximately $69,630,000 and $76,501,000 were pledged to secure deposits as required or permitted by law at September 30, 2012 and December 31, 2011, respectively.

Note 3.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,
	2012					2011
	Amount			Percent		Amount			Percent
Real estate loans:
One-to-four family	$	110,992,194		27.9	%	$	115,540,320		29.1	%
Multi-family	35,106,027			8.8		39,481,726			9.9
Commercial	135,025,633			34.0		128,656,804			32.4
Construction and land	35,945,619			9.1		44,192,020			11.1
	317,069,473			79.8		327,870,870			82.5
Commercial business	66,228,492			16.7		48,676,963			12.3
Consumer:
Home equity	12,630,466			3.2		19,139,850			4.8
Automobile and other	1,356,448			0.3		1,414,711			0.4
	13,986,914			3.5		20,554,561			5.2
Total gross loans	397,284,879			100.0	%	397,102,394			100.0	%
Undisbursed portion of construction loans	(3,987,904		)			(1,725,311		)
Deferred loan origination costs (fees), net	(21,835		)			46,825
Allowance for loan losses	(5,669,422		)			(7,789,262		)
Loans, net	$	387,605,718				$	387,634,646

10

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 3.Loans (Continued)

The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk.  Management reviews and presents these policies to the Board at least annually.  A reporting system supplements the review process by providing management with reports related to loan production, loan quality, loan delinquencies and non-performing and potential problem loans.

Additional information regarding our accounting policies for the individual loan categories is contained in our 2011 Annual Report to Stockholders that is filed as an exhibit to the Company’s Annual Report on Form 10-K.

The loan portfolio includes a concentration of loans in commercial real estate amounting to approximately $135,026,000 and $128,657,000 as of September 30, 2012 and December 31, 2011, respectively.  The loans are expected to be repaid from cash flows or from proceeds from the sale of selected assets of the borrowers.  The concentration of credit within commercial real estate is taken into consideration by management in determining the allowance for loan losses.  The Company’s opinion as to the ultimate collectibility of these loans is subject to estimates regarding future cash flows from operations and the value of the property, real and personal, pledged as collateral.  These estimates are affected by changing economic conditions and the economic prospects of borrowers.

On occasion, the Company originates loans secured by single-family dwellings with loan to value ratios exceeding 90%.  The Company does not consider the level of such loans to be a significant concentration of credit as of September 30, 2012 or December 31, 2011.

The recorded investment in loans does not include accrued interest or loan origination fees due to immateriality.

The following tables present our past-due loans, segregated by class, as of September 30, 2012 and December 31, 2011.

	September 30, 2012
	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current  Loans		Total		Accruing Loans  90 or More Days Past Due
Real estate loans:
One-to-four family	$	415,745	$	1,145,227	$	932,855	$	2,493,827	$	108,498,367	$	110,992,194	$	—
Multi-family	220,535		—		—		220,535		34,885,492		35,106,027		—
Commercial	62,246		—		537,904		600,150		134,425,483		135,025,633		—
Construction and land	—		—		374,668		374,668		35,570,951		35,945,619		—
	698,526		1,145,227		1,845,427		3,689,180		313,380,293		317,069,473		—
Commercial business	2,664		96,185		386,064		484,913		65,743,579		66,228,492		26,817
Consumer:
Home equity	65,407		—		178,150		243,557		12,386,909		12,630,466		—
Automobile and other	3,779		4,054		8,868		16,701		1,339,747		1,356,448		—
	69,186		4,054		187,018		260,258		13,726,656		13,986,914		—
Total	$	770,376	$	1,245,466	$	2,418,509	$	4,434,351	$	392,850,528	$	397,284,879	$	26,817

11

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 3.Loans (Continued)

	December 31, 2011
	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days  PastDue		Total Past Due Loans		Current Loans		Total		Accruing Loans 90 or More Days  Past Due
Real estate loans:
One-to-four family	$	679,214	$	49,977	$	946,915	$	1,676,106	$	113,864,214	$	115,540,320	$	404,984
Multi-family	—		—		235,837		235,837		39,245,889		39,481,726		—
Commercial	—		1,745,863		762,168		2,508,031		126,148,773		128,656,804		—
Construction and land	155,125		229,500		7,130,658		7,515,283		36,676,737		44,192,020		—
	834,339		2,025,340		9,075,578		11,935,257		315,935,613		327,870,870		404,984
Commercial business	202,874		126,674		193,697		523,245		48,153,718		48,676,963		—
Consumer:
Home equity	109,795		123,527		141,777		375,099		18,764,751		19,139,850		—
Automobile and other	—		—		—		—		1,414,711		1,414,711		—
	109,795		123,527		141,777		375,099		20,179,462		20,554,561		—
	$	1,147,008	$	2,275,541	$	9,411,052	$	12,833,601	$	384,268,793	$	397,102,394	$	404,984

All loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, there is reasonable probability of loss of principal or collection of additional interest is deemed insufficient to warrant further accrual.  Generally, we place all loans 90 days or more past due on non-accrual status.  However, exceptions may occur when a loan is in process of renewal, but it has not yet been completed.  In addition, we may place any loan on non-accrual status if any part of it is classified as loss or if any part has been charged-off.  When a loan is placed on non-accrual status, total interest accrued and unpaid to date is reversed.  Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectability of the loan.

Non-accrual loans, segregated by class, are as follows:

	September 30,		December 31,
	2012		2011
Real estate loans:
One-to-four family	$	1,301,273	$	1,203,351
Multi-family	3,029,933		1,119,696
Commercial	3,522,232		762,168
Construction and land	2,554,531		7,690,156
	10,407,969		10,775,371
Commercial business	359,248		249,695
Consumer:
Home equity	192,556		141,777
Automobile and other	8,868		—
	201,424		141,777
Total non-accrual loans	$	10,968,641	$	11,166,843

12

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 3.           Loans (Continued)

The following tables present the activity in the allowance for loan losses for the three and nine months ended September 30, 2012 and 2011.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

	Three months ended September 30, 2012
	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Real estate loans:
One-to-four family	$	629,183	$	(54,664	)	$	504	$	84,682		$	659,705
Multi-family	690,986		—			—		(131,373		)	559,613
Commercial	1,117,029		(178,781		)	4,946		61,992			1,005,186
Construction and land	2,254,932		—			6,169		(180,527		)	2,080,574
	4,692,130		(233,445		)	11,619		(165,226		)	4,305,078
Commercial business	968,829		(383,575		)	9,801		595,069			1,190,124
Consumer:
Home equity	189,091		—			—		(20,671		)	168,420
Automobile and other	14,972		—			—		(9,172		)	5,800
	204,063		—			—		(29,843		)	174,220
Total	$	5,865,022	$	(617,020	)	$	21,420	$	400,000		$	5,669,422

	Three months ended September 30, 2011
	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Real estate loans:
One-to-four family	$	619,443	$	(171,660	)	$	4,791	$	(67,523	)	$	385,051
Multi-family	560,523		—			—		(202,091		)	358,432
Commercial	959,582		—			2,509		363,962			1,326,053
Construction and land	1,904,460		(662,788		)	13,345		58,734			1,313,751
	4,044,008		(834,448		)	20,645		153,082			3,383,287
Commercial business	687,908		—			—		492,007			1,179,915
Consumer:
Home equity	66,008		—			—		243,045			309,053
Automobile and other	21,948		—			—		2,866			24,814
	87,956		—			—		245,911			333,867
Total	$	4,819,872	$	(834,448	)	$	20,645	$	891,000		$	4,897,069

13

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 3.           Loans (Continued)

	Nine months ended September 30, 2012
	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Real estate loans:
One-to-four family	$	777,470	$	(263,026	)	$	1,172	$	144,089		$	659,705
Multi-family	779,680		—			34,312		(254,379		)	559,613
Commercial	1,157,114		(576,046		)	221,287		202,831			1,005,186
Construction and land	3,934,573		(2,123,047		)	15,316		253,732			2,080,574
	6,648,837		(2,962,119		)	272,087		346,273			4,305,078
Commercial business	969,669		(549,749		)	11,997		758,207			1,190,124
Consumer:
Home equity	133,234		(92,056		)	—		127,242			168,420
Automobile and other	37,522		—			—		(31,722		)	5,800
	170,756		(92,056		)	—		95,520			174,220
Total	$	7,789,262	$	(3,603,924	)	$	284,084	$	1,200,000		$	5,669,422

	Nine months ended September 30, 2011
	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
Real estate loans:
One-to-four family	$	1,161,865	$	(411,864	)	$	27,728	(392,678		)	$	385,051
Multi-family	299,964		(171,878		)	—		230,346			358,432
Commercial	1,043,023		(275,405		)	6,939		551,496			1,326,053
Construction and land	2,151,810		(1,753,982		)	70,589		845,334			1,313,751
	4,656,662		(2,613,129		)	105,256		1,234,498			3,383,287
Commercial business	868,572		—			10,547		300,796			1,179,915
Consumer:
Home equity	193,756		—			—		115,297			309,053
Automobile and other	9,405		—			—		15,409			24,814
	203,161		—			—		130,706			333,867
Total	$	5,728,395	$	(2,613,129	)	$	115,803	$	1,666,000		$	4,897,069

14

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 3.           Loans (Continued)

The following tables separate the allocation of the allowance for loan losses and the loan balances between loans evaluated both individually and collectively as of September 30, 2012, and December 31, 2011.

	September 30, 2012
	Period-end allowance allocated to loans:						Loans evaluated for impairment:
	Individually evaluated for impairment		Collectively evaluated for impairment		Ending Balance		Individually		Collectively		Ending Balance
Real estate loans:
One-to-four family	$	35,363	$	624,342	$	659,705	$	1,301,273	$	109,690,921	$	110,992,194
Multi-family	405,026		154,587		559,613		3,029,933		32,076,094		35,106,027
Commercial	128,048		877,138		1,005,186		3,288,577		131,737,056		135,025,633
Construction and land	—		2,080,574		2,080,574		2,554,531		33,391,088		35,945,619
	568,437		3,736,641		4,305,078		10,174,314		306,895,159		317,069,473
Commercial business	141,291		1,048,833		1,190,124		467,019		65,761,473		66,228,492
Consumer:
Home equity	12,848		155,572		168,420		192,556		12,437,910		12,630,466
Automobile and other	139		5,661		5,800		8,868		1,347,580		1,356,448
	12,987		161,233		174,220		201,424		13,785,490		13,986,914
Total	$	722,715	$	4,946,707	$	5,669,422	$	10,842,757	$	386,442,122	$	397,284,879

	December 31, 2011
	Period-end allowance allocated to loans:						Loans evaluated for impairment:
	Individually evaluated for impairment		Collectively evaluated for impairment		Ending Balance		Individually		Collectively		Ending Balance
Real estate loans:
One-to-four family	$	383,825	$	393,645	$	777,470	$	2,531,092	$	113,009,228	$	115,540,320
Multi-family	356,260		423,420		779,680		3,640,570		35,841,156		39,481,726
Commercial	98,754		1,058,360		1,157,114		3,357,048		125,299,756		128,656,804
Construction and land	2,080,706		1,853,867		3,934,573		7,845,281		36,346,739		44,192,020
	2,919,545		3,729,292		6,648,837		17,373,991		310,496,879		327,870,870
Commercial business	161,786		807,883		969,669		1,563,746		47,113,217		48,676,963
Consumer:
Home equity	13,814		119,420		133,234		651,248		18,488,602		19,139,850
Automobile and other	—		37,522		37,522		—		1,414,711		1,414,711
	13,814		156,942		170,756		651,248		19,903,313		20,554,561
Total	$	3,095,145	$	4,694,117	$	7,789,262	$	19,588,985	$	377,513,409	$	397,102,394

15

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 3.           Loans (Continued)

Credit Quality Indicators:

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt and comply with various terms of their loan agreements.  The Company considers current financial information, historical payment experience, credit documentation, public information and current economic trends.  Generally, all sizeable credits receive a financial review no less than annually to monitor and adjust, if necessary, the credit’s risk profile.  Credits classified as watch generally receive a review more frequently than annually.  The risk category of homogeneous loans such as consumer loans and smaller balance loans is evaluated when the loan becomes delinquent.  For special mention, substandard, and doubtful credit classifications, the frequency of review is increased to no less than quarterly in order to determine potential impact on credit loss estimates.

The Company categorizes loans into the following risk categories based on relevant information about the ability of borrowers to service their debt:

Pass — A pass asset is well protected by the current worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.  Pass assets also include certain assets considered watch, which are still protected by the worth and paying capacity of the borrower but deserve closer attention and a higher level of credit monitoring.

Special Mention — A special mention asset has potential weaknesses that deserve management’s close attention.  The asset may also be subject to a weak or speculative market or to economic conditions, which may, in the future adversely affect the obligor.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date.  Special mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

Substandard — A substandard asset is an asset with a well-defined weakness that jeopardizes repayment, in whole or in part, of the debt.  These credits are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged.  These assets are characterized by the distinct possibility that the institution will sustain some loss of principal and/or interest if the deficiencies are not corrected.  It is not necessary for a loan to have an identifiable loss potential in order to receive this rating.

Doubtful — An asset that has all the weaknesses inherent in the substandard classification, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.  The possibility of loss is extremely likely, but it is not identified at this point due to pending factors.

Loss — An asset, or portion thereof, classified as loss is considered uncollectible and of such little value that its continuance on the Company’s books as an asset is not warranted.  This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery would occur.  As such, it is not practical or desirable to defer the write-off.  Therefore, there is no balance to report at September 30, 2012 or December 31, 2011.

16

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 3.           Loans (Continued)

The following tables present our credit quality indicators, segregated by class, as of September 30, 2012 and December 31, 2011.

	September 30, 2012
	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
One-to-four family	$	108,469,402	$	1,200,469	$	701,455	$	620,868	$	110,992,194
Multi-family	31,744,874		331,220		3,029,933		—		35,106,027
Commercial	122,043,456		5,333,234		7,648,943		—		135,025,633
Construction and land	19,587,885		6,368,612		9,614,454		374,668		35,945,619
	281,845,617		13,233,535		20,994,785		995,536		317,069,473
Commercial business	64,085,010		463,190		1,577,730		102,562		66,228,492
Consumer:
Home equity	12,400,947		36,963		192,556		—		12,630,466
Automobile and other	1,347,580		—		—		8,868		1,356,448
	13,748,527		36,963		192,556		8,868		13,986,914
Total	$	359,679,154	$	13,733,688	$	22,765,071	$	1,106,966	$	397,284,879

	December 31, 2011
	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
One-to-four family	$	111,752,817	$	1,245,332	$	2,126,651	$	415,520	$	115,540,320
Multi-family	35,841,156		—		3,640,570		—		39,481,726
Commercial	117,634,711		3,856,453		7,061,405		104,235		128,656,804
Construction and land	25,903,980		950,000		17,338,040		—		44,192,020
	291,132,664		6,051,785		30,166,666		519,755		327,870,870
Commercial business	44,805,581		474,961		3,396,421		—		48,676,963
Consumer:
Home equity	17,980,458		471,386		688,006		—		19,139,850
Automobile and other	1,411,319		—		3,392		—		1,414,711
	19,391,777		471,386		691,398		—		20,554,561
Total	$	355,330,022	$	6,998,132	$	34,254,485	$	519,755	$	397,102,394

17

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 3.           Loans (Continued)

The following tables provide details of impaired loans, segregated by class, as of and for the periods indicated.  The unpaid contractual balance represents the recorded balance prior to any partial charge-offs.  The recorded investment represents customer balances net of any partial charge-offs recognized on the loans.

	As of September 30, 2012						As of December 31, 2011
	Unpaid Contractual Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Contractual Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Real estate loans:
One-to-four family	$	936,169	$	882,521	$	—	$	799,309	$	799,309	$	—
Multi-family	372,455		220,535		—		387,757		235,837		—
Commercial	3,063,355		2,750,673		—		1,954,587		1,954,587		—
Construction and land	4,578,765		2,554,531		—		2,227,340		1,976,340		—
	8,950,744		6,408,260		—		5,368,993		4,966,073		—
Commercial business	107,771		107,771		—		270,304		270,304		—
Consumer:
Home equity	178,150		178,150		—		637,433		637,434		—
Automobile and other	3,442		3,442		—		—		—		—
	181,592		181,592		—		637,433		637,434		—
Subtotal	$	9,240,107	$	6,697,623	$	—	$	6,276,730	$	5,873,811	$	—
With an allowance recorded:
Real estate loans:
One-to-four family	$	418,752	$	418,752	$	35,363	$	1,731,783	$	1,731,783	$	383,825
Multi-family	2,809,398		2,809,398		405,026		3,404,733		3,404,733		356,260
Commercial	537,904		537,904		128,048		1,402,461		1,402,461		98,754
Construction and land	—		—		—		6,799,046		5,868,941		2,080,706
	3,766,054		3,766,054		568,437		13,338,023		12,407,918		2,919,545
Commercial business	742,822		359,248		141,291		1,293,442		1,293,442		161,786
Consumer:
Home equity	14,406		14,406		12,848		13,814		13,814		13,814
Automobile and other	5,426		5,426		139		—		—		—
	19,832		19,832		12,987		13,814		13,814		13,814
Subtotal	$	4,528,708	$	4,145,134	$	722,715	$	14,645,279	$	13,715,174	$	3,095,145
Total	$	13,768,815	$	10,842,757	$	722,715	$	20,922,009	$	19,588,985	$	3,095,145

18

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 3.           Loans (Continued)

	For the three months ended September 30, 2012						For the three months ended September 30, 2011
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
With no related allowance recorded:
Real estate loans:
One-to-four family	$	883,460	$	—	$	—	$	1,448,969	$	12,456	$	—
Multi-family	110,267		—		—		4,407,617		35,366		—
Commercial	2,774,179		—		—		3,228,972		82,087		—
Construction and land	2,007,976		5,900		—		6,029,662		—		—
	5,775,882		5,900		—		15,115,220		129,909		—
Commercial business	137,408		569		—		696,676		13,291		—
Consumer:
Home equity	141,763		—		—		597,265		8,412		—
Automobile and other	1,721		—		—		—		—		—
	143,484		—		—		597,265		8,412		—
Subtotal	$	6,056,774	$	6,469	$	—	$	16,409,161	$	151,612	$	—
With an allowance recorded:
Real estate loans:
One-to-four family	$	601,068	$	—	$	—	$	1,079,421	$	—	$	—
Multi-family	3,206,090		—		—		63,221		—		—
Commercial	541,666		—		—		689,505		20,062		—
Construction and land	1,077,650		—		—		1,242,926		—		—
	5,426,474		—		—		3,075,073		20,062		—
Commercial business	556,251		—		—		605,135		—		—
Consumer:
Home equity	51,578		—		—		52,721		—		—
Automobile and other	2,713		—		—		—		—		—
	54,291		—		—		52,721		—		—
Subtotal	6,037,016		—		—		3,732,929		20,062		—
Total	$	12,093,790	$	6,469	$	—	$	20,142,090	$	171,674	$	—

19

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 3.           Loans (Continued)

	For the nine months ended September 30, 2012						For the nine months ended September 30, 2011
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
With no related allowance recorded:
Real estate loans:
One-to-four family	$	908,408	$	8,634	$	—	$	1,745,835	$	24,704	$	—
Multi-family	171,665		—		—		2,678,580		88,194		3,995
Commercial	1,880,889		—		—		3,544,854		160,929		2,012
Construction and land	2,100,065		10,322		—		4,302,687		3,876		—
	5,061,027		18,956		—		12,271,956		277,703		6,007
Commercial business	179,918		925		—		508,513		13,420		—
Consumer:
Home equity	262,230		—		—		570,367		14,707		—
Automobile and other	860		—		—		—		—		—
	263,090		—		—		570,367		14,707		—
Subtotal	$	5,504,035	$	19,881	$	—	$	13,350,836	$	305,830	$	6,007
With an allowance recorded:
Real estate loans:
One-to-four family	$	842,127	$	604	$	—	$	959,930	$	—	$	—
Multi-family	3,304,568		27,971		—		1,387,083		—		—
Commercial	1,622,268		8,000		—		423,435		20,062		4,827
Construction and land	2,932,441		3,746		—		2,287,224		—		—
	8,701,404		40,321		—		5,057,672		20,062		4,827
Commercial business	677,244		1,132		—		480,377		12,287		—
Consumer:
Home equity	65,126		—		—		26,360		—		—
Automobile and other	1,357		—		—		2,960		—		—
	66,483		—		—		29,320		—		—
Subtotal	$	9,445,131	$	41,453	$	—	$	5,567,369	$	32,349	$	4,827
Total	$	14,949,166	$	61,334	$	—	$	18,918,205	$	338,179	$	10,834

20

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 3.           Loans (Continued)

Troubled Debt Restructurings:

The Company has allocated $405,026 of specific reserves on $7,964,563 of loans to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2012.  The Company had $1,275,718 of allocations of specific reserves on $9,349,510 of loans to customers whose loan terms were modified in troubled debt restructurings as of December 31, 2011.  The Company had no commitments to lend additional amounts as of September 30, 2012 or December 31, 2011 to customers with outstanding loans that are classified as troubled debt restructurings.

During the three months ended September 30, 2012, no loans were modified as troubled debt restructurings.  During the nine months ended September 30, 2012, six loans totaling $4.2 million were modified as troubled debt restructurings.  The one-to-four family loan modification was classified as a TDR due to a reduction of the stated interest rate of the loan.  The multi-family loan modification was classified as a TDR due to payment and maturity changes not available in the market.  The commercial real estate loan modifications were classified as TDRs due to forbearance agreements, and the construction and land loan modification was due to a reduction of the stated interest rate of the loan.

The following tables present loans, by class, that were modified as troubled debt restructurings that occurred during the three and nine months ended September 30, 2011 and the nine months ended September 30, 2012:

	Three months ended September 30, 2011
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
One-to-four family	1	$	495,174	$	485,983
Commercial business	1	55,998		55,998
Consumer:
Home equity	1	128,743		127,962
Total	3	$	679,915	$	669,943

21

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 3.           Loans (Continued)

	Nine months ended September 30, 2012
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
One-to-four family	1	$	306,794	$	303,503
Multi-family	1	449,055		220,535
Commercial	3	2,978,384		2,750,673
Construction and land	1	499,175		—
Total	6	$	4,233,408	$	3,274,711

	Nine months ended September 30, 2011
	Number of  Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
One-to-four family	2	$	1,025,174	$	1,010,652
Multi-family	2	5,894,771		3,470,700
Construction and land	2	3,413,137		2,851,388
	6	10,333,082		7,332,740
Commercial business	1	55,998		55,998
Consumer:
Home equity	2	338,737		333,518
Total	9	$	10,727,817	$	7,722,256

The troubled debt restructurings described above resulted in a net decrease of $42,000 in the allowance for loan losses and charge-offs of $313,000 during the nine months ended September 30, 2012.

The following table presents the troubled debt restructurings for which there was a payment default (past due 60 days or more) within twelve months following the modification during the three and nine months ended September 30, 2012.

	Three and nine months ended September 30, 2012
	Number of Contracts	Recorded Investment (as of period end)
Real estate loans:
One-to-four family	1	$	303,503
Total	1	$	303,503

22

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 3.           Loans (Continued)

The troubled debt restructurings for which there was a payment default described above resulted in no net increases in the allowance for loan losses and no charge-offs during the three or nine months ended September 30, 2012.

There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the three and nine months ended September 30, 2011.

Note 4.           Goodwill

The Company reported goodwill from its acquisition of Clover Leaf Bank in 2006 in the amount of $9,402,608 and its acquisition of Partners Bank in 2008 in the amount of $11,282,715, for a total of $20,685,323 in goodwill.  In June 2009, we recorded an impairment charge of $9,300,000, reducing the amount of goodwill to $11,385,323.  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.  If the fair value has been substantially greater than the carrying value a qualitative assessment may also be performed.  The first step, 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 step is performed to measure the amount of impairment.  The second step 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.  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 $11,385,323 at September 30, 2012.  Subsequent reversal of goodwill impairment losses is not permitted.  At our annual impairment assessment date of September 30, 2012, our analysis indicated that no further impairment existed.

23

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 5.           Earnings per Share

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

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2012		2011			2012		2011
Net income	$	1,314,440	$	854,174		$	3,025,481	$	2,773,315
Basic potential common shares:
Weighted average shares outstanding	7,635,819		7,849,980			7,673,272		7,868,832
Weighted average unallocated Employee Stock Ownership Plan shares	—		(106,272		)	—		(108,382		)
Basic weighted average shares outstanding	7,635,819		7,743,708			7,673,272		7,760,450
Dilutive potential common shares	—		—			—		—
Diluted weighted average shares outstanding	7,635,819		7,743,708			7,673,272		7,760,450
Basic and diluted earnings per share	$	0.17	$	0.11		$	0.39	$	0.36

Note 6.           Employee Stock Ownership Plan

The Company had an employee stock ownership plan (ESOP) that covered substantially all employees who had attained the age of 21 and completed one year of service.  The Company terminated the ESOP effective December 31, 2011.  The Company loaned funds to the ESOP for the purchase of its common stock.  The loan was being repaid based on a variable interest rate over 20 years beginning December 31, 2004.  All shares were held in a suspense account for allocation among the participants as the loan was repaid. Shares were released for allocation to participants’ accounts 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 were allocated among the participants’ accounts 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 were committed to be released to compensate employees, the contra equity account was reduced and the Company recognized compensation expense equal to the average fair market value of the shares committed to be released.  Compensation expense of $14,043 and $44,186 was incurred for the three and nine months ended September 30, 2011.  There was no compensation expense incurred for the three or nine months ended September 30, 2012 due to the ESOP’s termination.

Dividends on unallocated ESOP shares, together with Company contributions, were used by the ESOP in 2011 to repay principal and interest on the outstanding note.

In conjunction with the termination of the ESOP, 100,453 shares with a value of $6.10 per share were cancelled and applied as repayment of the ESOP loan.  The remaining 1,591 unallocated shares were then allocated to the participants based on their pro-rata share.  As of September 30, 2012 and December 31, 2011 there were 74,866 allocated shares held by the ESOP.  These allocated shares will be distributed to the participants prior to December 31, 2012.  In July, 2012 the Company received a favorable IRS determination letter and is proceeding with the final distribution.

24

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 7.           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.  Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  There are three levels of inputs that may be used to measure fair values:

·Level 1 - 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 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 - 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.

The Company used the following methods and significant assumptions to estimate fair value.

Available-for-sale securities:  The fair value of available-for-sale securities is 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.  During the nine months ended September 30, 2012, there were no transfers between Level 1 and Level 2.  The valuation methodology was consistent for the nine months ended September 30, 2012 and the year ended December 31, 2011.  At least annually, a third party is engaged to validate the discounted cash flows and resulting fair value.

Foreclosed assets:  Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.  These amounts are subsequently accounted for at lower of cost or fair value less estimated costs to sell.  Fair value is commonly based on recent real estate appraisals.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

25

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 7.           Fair Value Measurements (Continued)

Impaired loans:  At the time a loan is considered impaired, it is valued at the lower of cost or fair value.  Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses.  For collateral dependent loans, fair value is commonly based on recent real estate appraisals.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.  Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification.

Appraisals for both foreclosed assets and collateral-dependent impaired loans are performed by certified general appraisers (for commercial property) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.  Once received, a member of the Loan Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.  On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value.  The most recent analysis performed indicated that a discount of 8% to 20% should be applied to appraisals based on property type.  An additional discount is applied if the appraisal was performed more than 12 months ago.

26

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 7.           Fair Value Measurements (Continued)

Assets measured at fair value on a recurring basis segregated by fair value hierarchy level as of September 30, 2012 and December 31, 2011 are summarized below:

	Fair Value Measurements at September 30, 2012 Using:
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:	(Level 1)		(Level 2)		(Level 3)		Total
Securities:
U.S. government agency obligations	$	—	$	19,985,238	$	—	$	19,985,238
State and municipal securities	—		30,532,149		—		30,532,149
Other securities	—		3,501		—		3,501
Mortgage-backed: residential	—		28,427,354		—		28,427,354
Total securities available for sale	$	—	$	78,948,242	$	—	$	78,948,242

	Fair Value Measurements at December 31, 2011 Using:
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:	(Level 1)		(Level 2)		(Level 3)		Total
Securities:
U.S. government agency obligations	$	—	$	31,743,989	$	—	$	31,743,989
Corporate bonds	—		1,838,324		—		1,838,324
State and municipal securities	—		26,376,118		—		26,376,118
Other securities	—		3,501		—		3,501
Mortgage-backed: residential	—		25,613,419		—		25,613,419
Total securities available for sale	$	—	$	85,575,351	$	—	$	85,575,351

27

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 7.           Fair Value Measurements (Continued)

Assets measured at fair value on a nonrecurring basis by fair value hierarchy level as of September 30, 2012 and December 31, 2011 are summarized below:

	Fair Value Measurements at September 30, 2012 Using:
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:	(Level 1)		(Level 2)		(Level 3)		Total
Foreclosed assets:
Real estate loans:
Commercial	$	—	$	—	$	755,000	$	755,000
Construction and land	—		—		2,966,282		2,966,282
Total foreclosed assets	$	—	$	—	$	3,721,282	$	3,721,282
Impaired loans:
Real estate loans:
One-to-four family	$	—	$	—	$	383,389	$	383,389
Multi-family	—		—		2,404,372		2,404,372
Commercial	—		—		409,856		409,856
	—		—		3,197,617		3,197,617
Commercial business	—		—		217,957		217,957
Consumer:
Home equity	—		—		1,558		1,558
Automobile and other	—		—		5,287		5,287
	—		—		6,845		6,845
Total impaired loans	$	—	$	—	$	3,422,419	$	3,422,419

28

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 7.           Fair Value Measurements (Continued)

	Fair Value Measurements at December 31, 2011 Using:
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Assets:	(Level 1)		(Level 2)		(Level 3)		Total
Foreclosed assets:
Real estate loans:
One-to-four family	$	—	$	—	$	224,060	$	224,060
Commercial	—		—		755,000		755,000
Construction and land	—		—		407,193		407,193
Total foreclosed assets	$	—	$	—	$	1,386,253	$	1,386,253
Impaired loans:
Real estate loans:
One-to-four family	$	—	$	—	$	1,347,958	$	1,347,958
Multi-family	—		—		3,048,473		3,048,473
Commercial	—		—		1,303,707		1,303,707
Construction and land	—		—		3,788,235		3,788,235
	—		—		9,488,373		9,488,373
Commercial business	—		—		1,131,656		1,131,656
Total impaired loans	$	—	$	—	$	10,620,029	$	10,620,029

Foreclosed assets are collateral dependent and are recorded at the lesser of the recorded investment in the receivable or the appraised value less costs to sell and may be revalued on a nonrecurring basis.  Foreclosed assets measured at fair value less costs to sell on a nonrecurring basis as of September 30, 2012, had a net carrying amount of $3,721,282, which is made up of the outstanding balance of $4,382,282, net of cumulative write-downs of $661,000 which includes $350,000 that occurred during the nine months ended September 30, 2012.  At December 31, 2011, foreclosed assets measured at fair value less costs to sell on a nonrecurring basis had a net carrying amount of $1,386,253, which was made up of the outstanding balance of $1,835,527, net of write-downs of $449,274.

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $4,145,133, with a valuation allowance of $722,715 at September 30, 2012.  Provisions for loan losses on impaired loans during the three and nine months ended September 30, 2012 decreased $323,000 and increased $614,000, respectively.  At December 31, 2011, impaired loans had a principal balance of $13,715,174, with a valuation allowance of $3,095,145, resulting in a net increase in provision for loan losses of $967,420 for the year ended December 31, 2011.

29

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 7.           Fair Value Measurements (Continued)

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2012:

	Fair Value		Valuation Techniques	Unobservable Inputs	Range		Weighted Average
Foreclosed assets:
Real estate loans:
Commercial	$	755,000	Sales Comparison	Adjustment for difference between comparable sales	1-24	%	10.5	%
Construction and land	2,966,282		Sales Comparison	Adjustment for difference between comparable sales	0-47	%	19.3	%
Impaired loans:
Real estate loans:
One-to-four family	383,389		Sales Comparison	Adjustment for difference between comparable sales	0-12	%	5.7	%
Multi-family	2,404,372		Sales Comparison	Adjustment for difference between comparable sales	1-18	%	10.0	%
Commercial	409,856		Sales Comparison	Adjustment for difference between comparable sales	5-17	%	12.3	%
Commercial business	217,957		Sales Comparison	Adjustment for difference between comparable sales	4-50	%	22.8	%
Home equity	1,558		Sales Comparison	Adjustment for estimated priority liens	0-12	%	0.0	%
Automobile and other	5,287		Sales Comparison	Adjustment for unknown condition of the vehicle	0-50	%	50.0	%

30

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 8.           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 Measurement and Disclosures.  ASC Topic 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The methods and assumptions, not previously presented, used to estimate fair value are described as follows:

Cash and Cash Equivalents:  The carrying amounts of cash and cash equivalents approximate fair values given the short-term nature and active market for U.S. currency and are classified as Level 1.

Interest-Earning Time Deposits:  Due to the short-term nature of these deposits, the carrying amounts of these deposits approximate fair values.  However, since it is unusual to observe a quoted price in an active market during the outstanding term these deposits are classified as Level 2.

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

Loans:  Fair values are estimated for portfolios of loans with similar financial characteristics.  Loans are segmented by type such as real estate, commercial business, and consumer loans.  Each loan segment is further segregated into fixed and adjustable rate interest terms and by performing and non-performing classifications.  The fair value of fixed rate loans is estimated by either observable market prices or by discounting future cash flows using discount rates that reflect the Company’s current pricing for loans with similar characteristics, such as loan type, pricing and remaining maturity resulting in a Level 3 classification.  Impaired loans that have no specific reserve are classified as Level 3.  Impaired loans that have been written down to the fair value of the corresponding collateral, less estimated costs to sell, are not included in this table as those amounts were presented previously.  The fair value computed is not necessarily an exit price.

Accrued Interest Receivable:  The carrying amount of accrued interest receivable approximates its fair value.  Accrued interest receivable related to interest-earning time deposits and securities is classified as Level 2.  Accrued interest receivable related to loans is classified as Level 3.

Deposits:  The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts) and are classified as Level 1. The carrying amounts for interest-bearing money market and savings accounts approximate their fair values at the reporting date and are classified as Level 1. 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 resulting in a Level 2 classification.

Federal Home Loan Bank Advances:  The fair value of Federal Home Loan Bank  advances, which are at a fixed rate, are estimated using discounted cash flow analyses based on current rates for similar advances resulting in a Level 2 classification.

Securities Sold Under Agreements to Repurchase:  The carrying amounts of securities sold under agreements to repurchase approximate fair value resulting in a Level 2 classification.

Subordinated debentures:  This debenture is a floating rate instrument which re-prices quarterly.  The fair value of variable rate trust preferred debentures approximate carrying value resulting in a Level 2 classification.

31

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 8.           Fair Value of Financial Instruments (Continued)

Accrued Interest Payable:  The carrying amount of accrued interest payable approximates its fair value.  Accrued interest payable related to interest-bearing money market and savings accounts is classified as Level 1.  All other accrued interest payable is classified as Level 2.

The following information presents estimated fair values of the Company’s financial instruments as of September 30, 2012 and December 31, 2011 that have not been presented in prior tables.

			Fair Value Measurements at September 30, 2012 Using:
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
Financial assets:
Cash and cash equivalents	$	38,764,940	$	38,764,940	$	—	$	—	$	38,764,940
Interest-earning time deposits	1,745,769		—		1,745,769		—		1,745,769
Federal Home Loan Bank stock	3,077,201		—		—		—		N/A
Loans, net (excluding impaired loans with a reserve allocation)	384,183,300		—		—		394,294,421		394,294,421
Accrued interest receivable	1,728,355		—		496,400		1,231,955		1,728,355
Financial liabilities:
Non-interest bearing deposits	49,509,033		49,509,033		—		—		49,509,033
Interest-bearing deposits	370,806,479		214,850,624		156,785,770		—		371,636,394
Federal Home Loan Bank advances	26,963,000		—		27,208,980		—		27,208,980
Securities sold under agreement to repurchase	19,562,647		—		19,562,647		—		19,562,647
Subordinated debentures	4,000,000		—		4,000,000		—		4,000,000
Accrued interest payable	316,685		25,553		291,132		—		316,685

32

FIRST CLOVER LEAF FINANCIAL CORP.

Notes to Consolidated Financial Statements

September 30, 2012 and December 31, 2011

Note 8.           Fair Value of Financial Instruments (Continued)

	December 31, 2011
	Carrying		Fair
	Amount		Value
Financial assets:
Cash and cash equivalents	$	39,361,409	$	39,361,409
Interest-earning time deposits	1,738,498		1,738,498
Federal Home Loan Bank stock	6,306,273		N/A
Loans, net (excluding impaired loans with a reserve allocation)	377,014,617		388,315,138
Accrued interest receivable	1,726,319		1,726,319
Financial liabilities:
Non-interest bearing deposits	39,256,851		39,256,851
Interest-bearing deposits	375,501,432		376,697,157
Federal Home Loan Bank advances	26,944,000		27,208,915
Securities sold under agreement to repurchase	36,874,298		36,874,298
Subordinated debentures	4,000,000		4,000,000
Accrued interest payable	417,828		417,828

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.

Note 9.           Subsequent Events

Events occurring subsequent to September 30, 2012, have been evaluated as to their potential impact to the financial statements through the date of issuance of this report.

On October 23, 2012, 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, 2012.  The dividend will be payable to stockholders of record as of November 9, 2012 and will be paid on November 16, 2012.

33

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, capital requirements and allowance for loan losses 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 due to the higher degree of judgment and complexity than its other significant accounting estimates.

Allowance for loan losses.  The allowance for loan losses is a valuation account that reflects our evaluation of the probable incurred 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.

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, 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 probable incurred losses 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, and geographic concentrations of loans within First Clover Leaf Bank’s immediate market area.

34

There may be other factors that may warrant our consideration in maintaining an allowance at a level sufficient to provide for probable incurred 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.

In addition, the Office of the Comptroller of the Currency (“OCC”), as an integral part of its examination process, periodically reviews our loan portfolio and the related allowance for loan losses.  The OCC 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.  Historically, 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 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 under the guidance of ASU 2011-08, Topic 350.  This guidance also allows for a qualitative assessment of the reporting unit.  A qualitative assessment may be performed if in the prior period two-step impairment test the fair value was greater than the carrying value by a substantial margin.  If in the prior period two-step test goodwill was impaired or fair value was not greater than the carrying amount by a substantial margin, First Clover Leaf would go straight to the two-step impairment test.  In step one, 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 of the reporting unit to the current carrying value of the reporting unit to determine if goodwill impairment had occurred as of the measurement date.  During 2012, at our annual impairment assessment date of September 30, our analysis indicated that no 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 4 for additional information on goodwill impairment.

35

Overview

First Clover Leaf had net income of $1.3 million for the three months ended September 30, 2012 compared to net income of $854,000 for the same period in 2011.  The increase was primarily due to a reduction in provision for loan losses and an increase in gain on sale of loans offset by a reduction in gain on sale of securities and increases in non-interest expense and taxes.  Basic and diluted earnings per share was $0.17 for the three-month period ended September 30, 2012 and $0.11 for the comparable period in 2011.

Net income for the nine months ended September 30, 2012 was $3.0 million compared to $2.8 million for the same period in 2011.  The increase was primarily due to an increase in gain on sale of loans and a reduction in provision for loan losses offset by an increase in non-interest expenses and a reduction in gain on sale of securities.  Basic and diluted earnings per share was $0.39 for the nine months ended September 30, 2012 and $0.36 for the same period in 2011.

Financial Condition

Total Assets.  Total assets decreased to $552.2 million at September 30, 2012 from $562.7 million at December 31, 2011.  Total cash and cash equivalents decreased $596,000 to $38.8 million at September 30, 2012 from $39.4 million at December 31, 2011.

Securities available for sale decreased to $78.9 million at September 30, 2012 from $85.6 million at December 31, 2011.  The decrease was due primarily to calls, maturities and pay-downs of $37.9 million and sales of $4.3 million partially offset by purchases of $34.6 million.

Federal Home Loan Bank stock decreased to $3.1 million at September 30, 2012 from $6.3 million at December 31, 2011.  Prior to the first quarter of 2012 the Federal Home Loan Bank of Chicago was prohibited from redeeming excess voluntary stock.  However, it has since started a program to redeem the stock in increments.  The Company elected to have $3.2 million of excess voluntary stock redeemed during the nine months ended September 30, 2012.  The Company is currently required to hold $2.0 million in Federal Home Loan Bank of Chicago stock in order to be a member bank.  This amount is based annually on the greater of 1% of mortgage-related assets or 5% of outstanding Federal Home Loan Bank of Chicago advances.

Net loans remained at $387.6 million as of September 30, 2012 and December 31, 2011.  This was primarily due to new loan originations exceeding loan paydowns and maturities by $3.4 million offset by $2.5 million in loan transfers to other real estate and provision expense of $1.2 million.

Foreclosed assets increased to $6.5 million at September 30, 2012 from $5.8 million at December 31, 2011.  During the three months ended September 30, 2012, we transferred two loans totaling $316,000 into foreclosed assets and incurred a write-off of $40,000.  We transferred seven loans into foreclosed assets during the nine months ended September 30, 2012.  During the same time period we incurred write-offs of $370,000 and received proceeds of $1.3 million from the sale of 10 properties that had been classified as foreclosed assets.

Total Liabilities.  Total liabilities decreased to $473.4 million at September 30, 2012 from $485.0 million at December 31, 2011.  Deposits increased to $420.3 million at September 30, 2012 from $414.8 million at December 31, 2011.  Non-interest bearing deposits increased $10.3 million to $49.5 million at September 30, 2012 from $39.3 million at December 31, 2011 due to normal fluctuations in business deposit accounts.  Interest bearing deposits decreased $4.7 million, totaling $370.8 million at September 30, 2012 compared to $375.5 million at December 31, 2011.  This decrease was primarily due to a decrease of $7.6 million in brokered deposits as we were able to reduce our reliance on higher rate deposits due to reduced loan demand.  Securities sold under agreements to repurchase decreased $17.3 million to $19.6 million at September 30, 2012 from $36.9 million at December 31, 2011.  This decrease was due primarily

36

to normal fluctuations in one customer’s account.  Due to the nature of this customer’s business, large fluctuations in its accounts are a normal occurrence.

Stockholders’ Equity.  Stockholders’ equity increased to $78.8 million at September 30, 2012 from $77.7 million at December 31, 2011, principally as a result of $3.0 million in net income partially offset by the payment of cash dividends of $1.4 million and repurchases of common stock of $761,000 during the nine months ended September 30, 2012.

Asset Quality

The following tables set forth information with respect to the Company’s non-performing and impaired loans at the dates indicated:

	September 30,		December 31,
	2012		2011
Loans 90 days or more past due and still accruing	$	26,817	$	404,984
Non-accrual loans(1)	10,968,641		11,166,843
Other impaired loans	107,772		8,017,158
Total non-performing loans	11,103,230		19,588,985
Foreclosed assets	6,471,334		5,822,864
Total non-performing assets	$	17,574,564	$	25,411,849

(1) Non-accrual loans includes $10,734,985 and $11,166,843 classified as impaired as of September 30, 2012 and December 31, 2011, respectively.

	September 30,		December 31,
	2012		2011
Non-performing assets to total assets	3.18	%	4.52	%
Non-performing loans to total loans	2.86		5.05
Allowance for loan losses to non-performing loans	51.06		39.76
Allowance for loan losses to total loans	1.46		2.01

Non-Performing, Impaired Loans and Non-Performing Assets.  As of September 30, 2012, our total non-performing and impaired loans and non-performing assets were $17.6 million compared to $25.4 million at December 31, 2011.

At September 30, 2012, the Company’s non-accrual loans decreased $200,000 to $11.0 million from $11.2 million at December 31, 2011.  At September 30, 2012, First Clover Leaf Bank had five relationships classified as non-accrual with balances in excess of $1.0 million.  The largest non-accrual relationship is a $2.8 million credit to a real estate investor.  This credit was placed in non-accrual status during the three months ended June 30, 2012.  The investor is experiencing cash flow difficulties due to higher vacancy rates and the need for property repairs.   A $600,000 payment was received on this loan during the third quarter of 2012. A property manager is overseeing the daily operations, and all non-rented properties have been listed for sale.  We believe the collateral on this loan is sufficient to cover the majority of the outstanding balance and that sufficient allowances have been set aside for the remaining outstanding balance.  The second relationship is a $1.7 million commercial credit secured by a retail strip center.  The investor was experiencing cash flow difficulties due to high vacancy rates as the center recently experienced a great deal of tenant turnover.  The building is currently fully leased.  A restructuring of the loan was completed during the third quarter, and the borrowers are paying as agreed.

37

The loan will be considered for upgrade after an acceptable period of payment performance in accordance with our loan policy.  A deficiency note was signed for the remaining balance.  The third credit is a $1.1 million credit secured by a subdivision development.  The credit was placed on non-accrual status during the three-months ended September 30, 2012.  The development was experiencing very limited lot sales, and the cash flow was not sufficient to cover the principal and interest payments.  The Company is working with the developer on a plan to increase lot sales.  Currently the collateral is sufficient to cover the outstanding loan balance.  The fourth credit is a $1.0 million credit to a real estate investor.  The collateral for this credit is primarily a mobile home park along with several small commercial buildings.  Currently the mobile home park is struggling with vacancies and cash flow is limited.  The Company has recently restructured this loan into a two-note structure with the requirement that all rents from the mobile home park are deposited directly into an account at the Company.  The two commercial buildings making up the remainder of the collateral are currently listed for sale.  The fifth credit is a $1.0 million development credit for a subdivision with excess inventory that is selling slowly due to the economic slowdown.  A charge-off of $843,000 of specific reserves was recorded on this relationship during the first quarter of 2012.  A $630,000 pay-down was received during the third quarter of 2012 from the sale of excess acreage associated with this project.  The borrower recently signed a forbearance agreement on this credit.  Currently the collateral is sufficient to cover the outstanding loan balance.

In addition to the non-accrual loans in the previous paragraph, we have loans that are still accruing interest that we categorize as impaired due to observed credit deterioration that we believe in the future may impact our ability to collect all principal and interest according to the current contractual terms.  We have elected to downgrade these loans to impaired status and will individually evaluate them for our allowance for loan losses.  At September 30, 2012, our total other impaired loans amounted to $108,000 compared to $8.0 million at December 31, 2011.  The decrease in other impaired loans is primarily due to $4.5 million in credits moving to non-accrual status and $2.5 million in credits with an improved status which are no longer considered impaired. The credit in excess of $500,000 with the pending contract at the quarter ended June 30, 2012, sold during the third quarter of 2012.  There are no credits in this category with an outstanding balance greater than $500,000.

Overall, total non-performing loans have decreased since December 31, 2011.  The largest changes have occurred in the construction and land portfolio.  As of September 30, 2012 the total of substandard and doubtful loans in the construction and land portfolio was $10.0 million, or 28% of the portfolio.  As of December 31, 2011 the total of substandard and doubtful loans in the construction and land portfolio was $17.3 million or 39% of the portfolio.  The decrease in substandard loans was due in-part to sales of $1.5 million, charge-offs of $3.4 million and $1.8 million in credits moving to foreclosed property.

Another event impacting the construction and land portfolio at September 30, 2012 was the downgrade of a $6.3 million credit to special mention from being categorized as a pass credit at December 31, 2011.  This credit is categorized as special mention while it is being restructured to include additional collateral.  The Company expects the credit to return to pass status before year end.  The overall total of the construction and land portfolio has declined to $35.9 million at September 30, 2012, compared to $44.2 million at December 31, 2011 as a result of the above mentioned sales, charge-offs and increases to foreclosed property.  In addition, the related provision expense for the construction and land portfolio has also decreased for the above mentioned reasons.

Another portfolio with a decrease in provision expense for the three and nine months ended September 30, 2012 is the multi-family portfolio.  The reduced expense is primarily due to an overall decline in the portfolio balance as well as a decline in the loss factor applied to this portfolio.

The allowance for loan losses to non-performing loans increased to 51.06% at September 30, 2012 compared to 39.76% at December 31, 2011.  The increase in this ratio is primarily the result of a decline of $8.5 million of non-performing loans to $11.1 million at September 30, 2012 compared to $19.6 million at December 31, 2011.  The allowance for loan losses to total loans decreased to 1.46% at

38

September 30, 2012 compared to 2.01% at December 31, 2011. The primary reason for the decline in this percentage was a directive by the Office of the Comptroller of the Currency which required all specific valuation allowances on collateral-dependent loans (valuation allowances established when the recorded investment in an impaired loan exceeded the measured value of the collateral) maintained by savings institutions to be charged-off by March 31, 2012.  The Company adopted this methodology effective for the quarter ended March 31, 2012.  As a result, reported loan charge-offs of $2.7 million for the quarter ended March 31, 2012 were impacted by the charge-off of specific valuation allowances of $2.4 million on these collateral-dependent loans.  This one time charge-off has decreased the amount of our specific reserves which totaled $723,000 at September 30, 2012, compared to $3.1 million at December 31, 2011.  The general allocation was not materially impacted by the charge-offs and totaled $4.9 million at September 30, 2012 compared to $4.7 million at December 31, 2011.  These charge-offs resulted in the decline in the allowance for loan losses to total loans at September 30, 2012.

At September 30, 2012, First Clover Leaf Bank had 15 properties classified as foreclosed assets with a value of $6.5 million. The collateral on these properties consisted of a commercial mobile-home site, a commercial development site, farmland, three residential lot developments, and nine single-family residences.  All of these properties were transferred into foreclosed assets at the property’s fair value, less estimated costs of disposal, at the date of foreclosure.

Results of Operations

General.  Net income increased to $1.3 million for the three months ended September 30, 2012 from $854,000 for the same period in 2011.  Net income for the nine months ended September 30, 2012 was $3.0 million compared to $2.8 million for the same period in 2011.  The increase was primarily due to an increase in gain on sale of loans and a reduction in provision for loan losses offset by an increase in non-interest expenses and a reduction in gain on sale of securities.  Basic and diluted earnings per share was $0.39 for the nine months ended September 30, 2012 and $0.36 for the same period in 2011.

The overall net interest rate spread and net interest margin increased to 3.26% from 3.06% and to 3.44% from 3.27%, respectively for the nine months ended September 30, 2012 compared to the same period in 2011.  Yields on loans and securities continued to decline for the nine months ended September 30, 2012 compared to the same period in 2011. The increase in the interest rate spread was attributable to the cost of funds declining faster than the yield on interest-earning assets.  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 re-pricing as rates fluctuate.

Net interest income.  Net interest income remained at $4.3 million for the three months ended September 30, 2012 and 2011.  Net interest income increased to $13.0 million for the nine months ended September 30, 2012 from $12.9 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 $81.0 million for the nine months ended September 30, 2012, compared to $72.2 million for the same period in 2011.  The ratio of interest-earning assets to interest-bearing liabilities increased to 119.12% for the nine months ended September 30, 2012 from 115.87% for the same period in 2011.  The net interest rate spread increased to 3.26% for the nine months ended September 30, 2012, compared to 3.06% for the comparable period in 2011.  The average rate earned on interest-earning assets decreased by 19 basis points for the nine months ended September 30, 2012 to 4.35% from 4.54% for the same period in 2011, while the average rate paid on interest-bearing liabilities decreased by 39 basis points during these periods to 1.09% from 1.48%.

39

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,
	2012						2011
	Average Outstanding Balance		Interest (4)		Yield/ Rate		Average Outstanding Balance		Interest (4)		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, gross	$	396,573	$	4,891	4.91	%	$	389,885	$	5,246	5.34	%
Securities	79,683		469		2.34		87,059		608		2.77
Federal Home Loan Bank stock	3,367		3		0.35		6,306		2		0.13
Interest-earning balances from depository institutions	24,107		13		0.21		40,491		26		0.25
Total interest-earning assets	503,730		5,376		4.25		523,741		5,882		4.46
Non-interest-earning assets	46,232						45,638
Total assets	$	549,962					$	569,379
Interest-bearing liabilities:
Interest-bearing transaction	$	188,264	298		0.63		$	202,360	455		0.89
Savings deposits	25,156		29		0.46		21,403		40		0.74
Time deposits	151,269		601		1.58		175,627		925		2.09
Securities sold under agreements to repurchase	26,367		6		0.09		24,924		1		0.02
Federal Home Loan Bank advances	26,902		133		1.97		22,044		130		2.34
Subordinated debentures	4,000		25		2.49		4,000		22		2.18
Total interest-bearing liabilities	421,958		1,092		1.03		450,358		1,573		1.39
Non-interest-bearing liabilities	49,257						39,657
Total liabilities	471,215						490,015
Stockholders’ equity	78,746						79,364
Total liabilities and stockholders’ equity	$	549,961					$	569,379
Net interest income			$	4,284					$	4,309
Net interest rate spread (1)					3.22	%					3.07	%
Net interest-earning assets (2)	$	81,772					$	73,383
Net interest margin (3)					3.38	%					3.26	%
Ratio of interest-earning assets to interest-bearing liabilities					119.38	%					116.29	%

(1)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)	Net interest margin represents net interest income divided by average total interest-earning assets.
(4)	Interest on loans includes loan fees collected in the amount of $54,591 and $45,221 for the three months ended September 30, 2012 and 2011, respectively.

40

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2012						2011
	Average Outstanding Balance		Interest (4)		Yield/ Rate		Average Outstanding Balance		Interest (4)		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, gross	$	398,565	$	14,850	4.98	%	$	392,936	$	15,970	5.43	%
Securities	81,829		1,523		2.49		83,632		1,841		2.94
Federal Home Loan Bank stock	4,198		6		0.19		6,306		5		0.11
Interest-earning balances from depository institutions	20,057		44		0.29		44,264		80		0.24
Total interest-earning assets	504,649		16,423		4.35		527,138		17,896		4.54
Non-interest-earning assets	44,891						43,230
Total assets	$	549,540					$	570,368
Interest-bearing liabilities:
Interest-bearing transaction	$	193,251	913		0.63		$	202,992	1,435		0.95
Savings deposits	23,799		91		0.51		21,312		117		0.73
Time deposits	149,465		1,956		1.75		182,716		2,983		2.18
Securities sold under agreements to repurchase	26,205		13		0.07		21,965		9		0.05
Federal Home Loan Bank advances	26,934		394		1.95		21,967		383		2.33
Subordinated debentures	4,000		75		2.50		3,993		93		3.11
Total interest-bearing liabilities	423,654		3,442		1.09		454,945		5,020		1.48
Non-interest-bearing liabilities	47,352						36,862
Total liabilities	471,006						491,807
Stockholders’ equity	78,534						78,561
Total liabilities and stockholders’ equity	$	549,540					$	570,368
Net interest income			$	12,981					$	12,876
Net interest rate spread (1)					3.26	%					3.06	%
Net interest-earning assets (2)	$	80,995					$	72,193
Net interest margin (3)					3.44	%					3.27	%
Ratio of interest-earning assets to interest-bearing liabilities					119.12	%					115.87	%

(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 $134,118 and $153,996 for the nine months ended September 30, 2012 and 2011, respectively.

Interest and fee income.  Interest and fee income on loans decreased to $4.9 million for the three months ended September 30, 2012 from $5.2 million for the comparable period in 2011 primarily as a result of a lower average yield in the 2012 period offsetting a higher average balance.  Interest and fee income on loans decreased to $14.9 million for the nine months ended September 30, 2012 from $16.0 million for the comparable period in 2011 primarily as a result of a lower average yield in the 2012 period offsetting a higher average balance. The average balance of loans was $398.6 million and $392.9 million for the nine months ended September 30, 2012 and 2011, respectively.  The average yield on loans decreased to 4.98% for the nine months ended September 30, 2012 from 5.43% for the comparable period in 2011.

41

Interest income on securities decreased to $469,000 for the three months ended September 30, 2012 compared to $608,000 for the same period in 2011.  The decrease was due primarily to a lower average yield in addition to a lower average balance.  Interest income on securities decreased to $1.5 million for the nine months ended September 30, 2012 from $1.8 million for the comparable period in 2011.  The decrease was due primarily to a decline in yield.  The average balance of securities was $81.8 million and $83.6 million for the nine months ended September 30, 2012 and 2011, respectively.  The average yield on securities decreased to 2.49% from 2.94% for the nine months ended September 30, 2012 and 2011, respectively.

Interest on other interest-earning deposits decreased to $13,000 for the three months ended September 30, 2012 from $26,000 for the comparable period in 2011.  The decrease was due primarily to a lower average balance.  Interest on other interest-earning deposits increased to $44,000 for the nine months ended September 30, 2012 from $80,000 for the comparable period in 2011.  The decrease was primarily due to a lower average balance.  The average balance of other interest-earning deposits decreased to $20.0 million from $44.3 million for the nine months ended September 30, 2012 and 2011, respectively. The average yield on other interest-earning deposits increased to 0.29% for the nine months ended September 30, 2012 from 0.24% for the comparable period in 2011.

Interest expense.  Interest expense on deposits decreased to $928,000 for the three months ended September 30, 2012 from $1.4 million for the comparable period in 2011.  The decrease was due primarily to a decline in rate and lower average balances in time deposits and in interest-bearing transaction accounts.  Interest expense on deposits decreased to $3.0 million for the nine months ended September 30, 2012 from $4.5 million for the comparable period in 2011.  The decrease was due primarily to a decline in rate and lower average balances in time deposits and in interest-bearing transaction accounts.  The average balance of interest-bearing deposits, comprised of interest-bearing transaction, savings deposits, and time deposits, was $366.5 million and $407.0 million for the nine months ended September 30, 2012 and 2011, respectively.  Reduced loan demand has led to a reduced need for cash; therefore, we were able to reduce our reliance on higher yielding time deposits.  The rate for time deposits decreased to 1.75% from 2.18% for the nine months ended September 30, 2012 and 2011, respectively.  The rate for interest-bearing transaction accounts decreased to 0.63% from 0.95% for the nine months ended September 30, 2012 and 2011, respectively.  The rate for savings deposits decreased to 0.51% from 0.73% for the nine months ended September 30, 2012 and 2011, respectively.

Interest expense on Federal Home Loan Bank advances increased to $133,000 from $130,000 for the three months ended September 30, 2012 and 2011, respectively, due primarily to a higher average balance partially offset by a decline in rate.  Interest expense on Federal Home Loan Bank advances increased to $394,000 from $383,000 for the nine months ended September 30, 2012 and 2011, respectively, due primarily to a higher average balance partially offset by a decline in rate.  The average balance of Federal Home Loan Bank advances was $26.9 million and $22.0 million for the nine months ended September 30, 2012 and 2011, respectively.  The average rate on Federal Home Loan Bank advances decreased to 1.95% for the nine months ended September 30, 2012 compared to 2.33% for the comparable period in 2011.

Interest expense on subordinated debentures increased to $25,000 from $22,000 for the three months ended September 30, 2012 and 2011, respectively.  Interest expense on subordinated debentures decreased to $75,000 from $93,000 for the nine months ended September 30, 2012 and 2011, respectively, due to a decline in rate.  The average rate on subordinated debentures declined to 2.50% for the nine months ended September 30, 2012 compared to 3.11% for the comparable period in 2011.

Provision for loan losses.  Provision for loan losses decreased for the three-month period ended September 30, 2012 to $400,000 from $891,000 for the comparable period in 2011.  Provision for loan losses decreased for the nine-month period ended September 30, 2012 to $1.2 million from $1.7 million for the comparable period in 2011.

42

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, and management’s estimate of probable losses in the portfolio as well as the level of non-performing and impaired loans.  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.  There may be other factors that may warrant our consideration in maintaining an allowance at a level sufficient to provide for probable losses.  The Company is subject to periodic examination by the OCC, 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 OCC will not require further increases to the allowance.

Non-interest income.  Non-interest income increased to $1.2 million for the three months ended September 30, 2012 from $812,000 for the comparable period in 2011 primarily due to a $457,000 increase in gain on sale of loans and a $102,000 increase in other income, partially offset by a $181,000 decrease in gain on sale of securities for the three months ended September 30, 2012 compared to the comparable period in 2011.  During the three months ended September 30, 2012, we sold $19.6 million of loans compared to $5.9 million of loan sales for the comparable period in 2011.  Other income increased for the three months ended September 30, 2012 primarily due to gain on sale of foreclosed assets totaling $125,000 compared to a loss of $28,000 for the same period in 2011.  This increase was partially offset by no gain on sale of assets for the three months ended September 30, 2012 compared to a gain of $79,000 for the same period in 2011.

Non-interest income increased to $2.2 million for the nine months ended September 30, 2012 from $1.6 million for the comparable period in 2011 primarily due to a $776,000 increase in gain on sale of loans and a $123,000 increase in other income for the nine months ended September 30, 2012.  These increases were partially offset by a $287,000 decrease in gain on sale of securities.  Other income increased for the nine months ended September 30, 2012 primarily due to  a $113,000 increase in income from bank-owned life insurance which was purchased in August 2011 and a gain on sale of foreclosed assets of $26,000 compared to a loss of $63,000 for the same period in 2011.  These increases were partially offset by no gain on sale of assets for the nine months ended September 30, 2012 compared to a gain of $79,000 for the same period in 2011.

Non-interest expense.  Non-interest expense increased to $3.1 million for the three months ended September 30, 2012 from $2.9 million for the same period in 2011.  Non-interest expense increased to $9.4 million for the nine months ended September 30, 2012 from $8.5 million for the same period in 2011.  The increase was due primarily to an increase in compensation and employee benefits, and amortization of mortgage servicing rights, partially offset by decreases in FDIC insurance premiums and in foreclosed asset related expenses.

Compensation and employee benefits increased to $1.4 million for the three months ended September 30, 2012 from $1.2 million for the same period in 2011, and increased to $4.4 million for the nine months ended September 30, 2012 from $3.7 million for the same period in 2011. The increases were due to standard merit increases as well as an increased staffing level over the prior year.

Amortization of mortgage servicing rights increased to $88,000 for the three months ended September 30, 2012 from $51,000 for the same period in 2011, and increased to $194,000 for the nine months ended September 30, 2012 from $114,000 for the same period in 2011.  The increases were due to increased refinancing activity in 2012.

FDIC premiums decreased to $121,000 for the three months ended September 30, 2012 compared to $182,000 for the comparable period in 2011, and decreased to $366,000 for the nine months ended September 30, 2012 compared to $544,000 for the comparable period in 2011.  The decreases were due to a decline in the volume of the base used for the calculation.  The FDIC also changed the base that is used for this calculation.  For the nine months ended September 30, 2012 the base was total assets.  The prior period calculation was based on total deposits.  Both the total assets

43

and total deposits of the Bank declined at September 30, 2012 compared to the comparable period in 2011.

Foreclosed asset related expenses decreased to $138,000 for the three months ended September 30, 2012 compared to $277,000 for the comparable period in 2011.  The decrease was due to less write-downs occurring during three months ended September 30, 2012 compared to the same period in 2011.  Foreclosed asset related expenses were more consistent for the nine months ended September 30, 2012 totaling $583,000 compared to $603,000 for the same period in 2011.

Income taxes.  Income taxes increased to $709,000 for the three months ended September 30, 2012 from $459,000 for the comparable period in 2011.  Income tax expense remained at $1.5 million for the nine months ended September 30, 2012 and 2011.  The nine months ended September 30, 2012 had a higher level of pre-tax income which was offset by an increased level of tax exempt income for the 2012 period than the comparable period in 2011.

Liquidity and Capital Resources

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

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

A portion of our liquidity consists of cash and cash equivalents, which are a product of our operating, investing and financing activities.  At September 30, 2012 and December 31, 2011, $38.8 million and $39.4 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.  Loan originations exceeded principal collections on loans by $3.4 million for the nine months ended September 30, 2012 and loan principal collections exceeded loan originations by $3,000 for the nine months ended September 30, 2011.  Cash received from calls, maturities, and paydowns of available-for-sale investment securities totaled $37.9 million and $58.8 million for the nine months ended September 30, 2012 and 2011, respectively.  We purchased $34.6 million and $76.0 million in available-for-sale investment securities during the nine months ended September 30, 2012 and 2011, respectively. We received proceeds of $4.3 million and $8.3 million from the sale of available-for-sale investment securities for the nine months ended September 30, 2012 and 2011, respectively.  We received proceeds of $1.3 million and $2.3 million from the sale of foreclosed assets for the nine months ended September 30, 2012 and 2011, respectively.  During the nine months ended September 30, 2012, the Federal Home Loan Bank of Chicago redeemed $3.2 million of excess voluntary stock.  There were no redemptions of Federal Home Loan Bank of Chicago stock for the nine months ended September 30, 2011.  During the nine months ended September 30, 2011, we purchased $5.0 million of bank-owned life insurance.  There were no purchases of bank-owned life insurance for the nine months ended September 30, 2012.

44

Deposit flows are generally affected by market interest rates, the products offered by local competitors, and other factors.  Net deposits increased by $5.6 million for the nine months ended September 30, 2012 and decreased $12.2 million for the comparable period in 2011.  Securities sold under agreements to repurchase had a net decrease of $17.3 million for the nine months ended September 30, 2012 and a net increase of $3.8 million for the nine months ended September 30, 2011, respectively.

Liquidity management is both a daily and long-term function of business management.  If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Chicago, which provides an additional source of funds.  At September 30, 2012, we had $27.0 million of advances from the Federal Home Loan Bank of Chicago and additional available credit of approximately $23.9 million.

The Bank is required to maintain certain minimum capital requirements under OCC 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, 2012.  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 capital amounts and ratios are presented in the following table.

	As of September 30, 2012
									To be Well Capitalized
					For Capital				Under Prompt Corrective
	Actual				Adequacy Purposes				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
Tangible Capital to Tangible Assets	$	66,070	12.29	%	$	8,065	1.50	%	N/A		N/A
Tier I Capital to Adjusted Total Assets	66,070		12.29	%	21,508		4.00	%	$	26,885	5.00	%
Tier I Capital to Risk Weighted Assets	66,070		18.01	%	14,676		4.00	%	22,014		6.00	%
Total Capital to Risk Weighted Assets	69,063		18.82	%	29,352		8.00	%	36,689		10.00	%

The Company’s actual capital amounts and ratios are presented in the following table:

	As of September 30, 2012
	Actual				For Capital Adequacy Purposes				To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount	Ratio
	(Dollars in Thousands)
Tangible Capital to Tangible Assets	$	65,238	11.59	%	$	8,441	1.50	%	N/A	N/A
Tier I Capital to Adjusted Total Assets	65,238		11.59	%	22,510		4.00	%	N/A	N/A
Tier I Capital to Risk Weighted Assets	65,238		17.73	%	14,720		4.00	%	N/A	N/A
Total Capital to Risk Weighted Assets	72,231		19.63	%	29,441		8.00	%	N/A	N/A

On June 6, 2012, the OCC and the other federal bank regulatory agencies issued a series of proposed rules to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient

45

Banks and Banking Systems” (“Basel III”). The proposed rules would apply to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more, and top-tier savings and loan holding companies (“banking organizations”). Among other things, the proposed rules establish a new common equity tier 1 minimum capital requirement and a higher minimum tier 1 capital requirement, and assign higher risk weightings (150%) to exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property. The proposed rules also limit a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of a specified amount of common equity tier 1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rules are expected to become effective on January 1, 2013, and the changes set forth in the final rules will be phased in from January 1, 2013 through January 1, 2019.

Off-Balance Sheet Arrangements

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

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

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

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

A summary of the notional or contractual amounts of financial instruments, with off-balance-sheet risk at September 30, 2012 follows:

							Range of Rates
	Variable Rate		Fixed Rate		Total		on Fixed Rate
	Commitments		Commitments		Commitments		Commitments
	(Dollars in thousands)
Commitments to extend credit	$	25,373	$	20,020	$	45,393	1.85% - 18.00%
Standby letters of credit	$	1,208	$	2,493	$	3,701	3.50% - 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 $81.0 million to the FHLB of Chicago.  Approximately $72.2 million have been sold.  As a part of the agreement, the Bank has a maximum credit enhancement of $1.6 million at September 30, 2012.  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.

46

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

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

First Clover Leaf utilized an independent third party to analyze interest rate risk sensitivity as of June 30, 2012.  The model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value (“NPV”).  The model estimates the economic value of each type of asset, liability and off-balance-sheet contract under the assumption of instantaneous rate increases of up to 300 basis points or decreases of 100 points in 100 basis point increments.  An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest” column.

The tables below set forth, as of June 30, 2012 and December 31, 2011, 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, 2012
		NPV							Net Portfolio Value as a Percentage of Present Value of Assets
		Estimated		Estimated Increase (Decrease) in NPV
Change in Interest Rates		NPV		Amount			Percent		NPV Ratio		Change
+300	bp	$	64,766	$	(16,885	)	(21	)%	12.75	%	(231	)bp
+200	bp	71,596		(10,055		)	(12	)	13.76		(130	)bp
+100	bp	77,774		(3,877		)	(5	)	14.62		(44	)bp
0	bp	81,651		—			—		15.06		0	bp
-100	bp	84,548		2,897			4		15.37		31	bp

47

		December 31, 2011
		NPV							Net Portfolio Value as a Percentage of Present Value of Assets
		Estimated		Estimated Increase (Decrease) in NPV
Change in Interest Rates		NPV		Amount			Percent		NPV Ratio		Change
+300	bp	$	60,442	$	(17,906	)	(23	)%	11.37	%	(247	)bp
+200	bp	67,778		(10,570		)	(13	)	12.45		(139	)bp
+100	bp	74,290		(4,058		)	(5	)	13.36		(48	)bp
0	bp	78,348		—			—		13.84		0	bp
-100	bp	81,292		2,944			4		14.17		33	bp

The 2012 table above indicates that at June 30, 2012 in the event of a 100 basis point decrease in interest rates, we would experience a 4% increase in the net portfolio value.  In the event of a 300 basis point increase in interest rates, we would experience a 21% decrease in the net portfolio value.  Management does not believe that the Company’s primary market risk exposures at September 30, 2012, and how those exposures were managed during the three months ended September 30, 2012 have changed materially when compared to the immediately preceding quarter ended June 30, 2012.  However, the Company’s primary market risk exposure has not yet been quantified at September 30, 2012 as it 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 re-pricing 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.

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 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.

48

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, 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, 2011, 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, 2012	25,288	$	6.05	25,288	47,864
August 1 - 31, 2012	500	$	6.15	500	47,364
September 1 - 30, 2012	29,067	$	6.80	29,067	118,297
Total	54,855			54,855

(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, the Board increased the number of shares that may be repurchased pursuant to that plan by an additional 382,641 shares. On April 27, 2010, August 24, 2010, November 23, 2010, and June 28, 2011 the Board authorized additional increases to that plan of 25,000 shares each, on August 23, 2011 the Board authorized an additional increase to that plan of 150,000 shares, and on September 24, 2012 the Board authorized an additional increase to that plan of 100,000 shares. The plan has no expiration date.

Item 3 - Defaults upon Senior Securities.

Not applicable.

Item 4 — Mine Safety Disclosures.

Not applicable.

Item 5 - Other Information.

None

49

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.

101:The following financial statements for the quarter ended September 30, 2012, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Net Income and Comprehensive Income, (iii) Consolidated Statements of Cash Flows, and (iv) the Notes to Consolidated Financial Statements.

50

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 14, 2012	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

51