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 changes in economic conditions in our market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in our market area, and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution you not to place undue reliance on any such forward-looking statements, which only speak as of the date made. The Company wishes to advise you that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

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

Critical Accounting Policies

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

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

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

The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

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

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

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

Goodwill and Other Intangible Assets. Over the past several years, First Clover Leaf has grown through acquisitions accounted for under the purchase method of accounting. Under the purchase method, First Clover Leaf is 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 the intangible assets are estimated to be consumed or otherwise used up. 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 dependent on 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 would need to be recognized. Any impairment recognized would adversely impact earnings in the period in which it is recognized.

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

First Clover Leaf utilizes a two step valuation approach to test for goodwill impairment. We estimate the fair value as of the measurement date utilizing two valuation methodologies including the comparable transactions approach, and the control premium approach. We then compare the estimated fair value to the current carrying value to determine if goodwill impairment had occurred as of the measurement date. At December 31, 2008, we concluded no impairment existed since the fair value exceeded the carrying value. Future events, such as adverse changes to First Clover Leaf's business, could cause management to conclude that impairment indicators exist and require management to re-evaluate goodwill. Should such re-evaluation determine goodwill is impaired, any 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.

Overview

Net income increased to $1.1 million for the three months ended March 31, 2009 from $574,000 for the same period last year. The increase in net income was due primarily to an increase in interest and fees on loans and gain on sale of loans. These increases were offset slightly by an increase in non-interest expense. Basic and diluted income per share was $0.12 and $0.07 for the three months ended March 31, 2009 and 2008, respectively.

Financial Condition

Total Assets. Total assets decreased to $638.9 million at March 31, 2009 from $653.3 million at December 31, 2008. Total cash and cash equivalents decreased to $54.2 million at March 31, 2009 from $67.1 million at December 31, 2008. The decrease in cash and cash equivalents was due primarily to a decrease in interest-earning deposits. These represent deposits held at correspondent banks. In contrast, the Bank's interest-earning time deposits increased to $15.6 million at March 31, 2009 from $5.2 million at December 31, 2008. Securities available for sale decreased to $99.3 million at March 31, 2009 from $103.6 million at December 31, 2008. The decrease was due primarily to calls, maturities and pay-downs of $15.7 million, partially offset by purchases of $11.0 million. Loans, net amounted to $422.4 million at March 31, 2009, compared to $430.9 million at December 31, 2008. This decrease was a result of loan paydowns and maturities exceeding new loan originations. Loans held for sale increased to $6.2 million at March 31, 2009 from $240,000 at December 31, 2008 primarily due to the significant increase in loan refinancing during the three-month period ending March 31, 2009.

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

Total Liabilities. Deposits increased to $458.6 million at March 31, 2009 from $447.3 million at December 31, 2008. Securities sold under agreements to repurchase decreased to $30.8 million at March 31, 2009 from $55.1 million at December 31, 2008. The change in the deposit accounts and securities sold under agreements to repurchase accounts was due primarily to fluctuations by one significant customer. This type of fluctuation is a normal occurrence for this customer. Federal Home Loan Bank advances at March 31, 2009 were $48.5 million compared to $50.0 million at December 31, 2008. Other liabilities increased to $3.2 million at March 31, 2009 from $2.2 million at December 31, 2008.

Stockholders' Equity. Stockholders' equity decreased to $92.7 million at March 31, 2009 from $93.7 million at December 31, 2008, principally as a result of the repurchase of $1.8 million of the Company's common stock, and the payment of cash dividends of $517,000. The decrease in equity was partially offset by $1.1 million in net income.

Asset Quality

At March 31, 2009, the Company's nonaccrual loans increased $291,000 from December 31, 2008, while other impaired loans increased $2.6 million from December 31, 2008. The increase in other impaired loans is due primarily to the addition of two relationships that had not previously been classified as impaired. Both of these relationships are real estate related loans. The larger of the two relationships is primarily secured by commercial real estate, while the other is secured by residential rental property. Currently the collateral on each of the loans in the larger relationship is sufficient to cover the outstanding loan balance. We are obtaining new appraisals on the second, and the credit will be restructured to allow for cash flow to match debt requirements. Management performs periodic reviews of the collateral to ensure adequate debt coverage.

Under the Company's internal review policy, loans classified as substandard totaled $8.9 million at March 31, 2009 and $6.1 million at December 31, 2008. This increase was due primarily to the reclassification of two loan relationships. These loans are for the purchase of real estate investment properties, and they are secured by commercial real estate and residential rental property. We believe the collateral on these loans is sufficient to cover the outstanding loan balances, but we are having some of the property serving as loan collateral reevaluated given the changes in the real estate market.

Results of Operations

General. Net income increased by $479,000 to $1.1 million for the three months ended March 31, 2009 from $574,000 for the same period last year. The increase in net income was due primarily to higher net interest income and non-interest income, which more than offset the higher non-interest expense and higher taxes.

Yields on all interest-earning assets declined for the three months ended March 31, 2009 compared to the same period in 2008 due to the interest rate cuts instituted by the Federal Reserve. These rate cuts resulted in declining yields in our loan portfolio, as a significant number of our loans are adjustable-rate loans that reprice immediately. The rate cuts also impacted our interest-earning deposits with depository institutions as those assets also have adjustable-rates versus fixed rates. The declining rate environment has resulted in a number of the bonds in our securities portfolio being called and being replaced with lower yielding bonds. We continue to attempt to absorb the effects of the interest rate cuts through

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

lowering the rates we pay on deposits. However, our ability to lower rates paid on deposits is limited due to the already low deposit rates and the competitive environment in which we operate. In addition, a significant number of our interest-bearing deposits are time deposits, which are fixed-rate contracts until maturity that do not allow for immediate repricing as rates fluctuate. Overall, further downward pressure on interest rates is unlikely to benefit our net interest margin or net income.

The results for the three months ended March 31, 2009 reflect the October 2008 acquisition of Partners Bank, which had $170.0 million in assets, $101.6 million in loans, and $108.7 million of deposits at the time of acquisition.

Net interest income. Net interest income increased to $4.1 million for the three months ended March 31, 2009 from $2.7 million for the comparable period in 2008. Net average interest-earning assets were $67.9 million for the three months ended March 31, 2009, compared to $77.9 million for the same period in 2008. The ratio of interest-earning assets to interest-bearing liabilities decreased to 112.50% for the three months ended March 31, 2009 from 125.17% for the same period in 2008. The net interest rate spread increased to 2.46% for the three months ended March 31, 2009, compared to 1.96% for the comparable period in 2008. The average rate earned on interest-earning assets decreased by 123 basis points for the three months ended March 31, 2009 compared to the same period in 2008, while the average rate paid on interest-bearing liabilities decreased by 173 basis points. The increase in the interest rate spread was attributable to the cost of funds declining faster than the yield on interest-earning assets.

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

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

                                                                                     Three Months Ended March 31,                                                Three Months Ended March 31,
                                                                                                 2009                                                                        2008
                                                                       Average                                                                        Average
                                                                     Outstanding                                                Yield/              Outstanding                                   Yield/
                                                                       Balance                       Interest (4)                Rate                 Balance              Interest (4)            Rate
                                                                             (Dollars in thousands)
Interest-earning assets:
Loans, gross                                                $                      429,261         $           6,137                  5.80 %      $        296,944        $        4,818                6.49 %
Securities                                                                          99,139                     1,071                  4.38                  53,142                   725                5.46
Federal Home Loan Bank stock                                                         6,306                         -                     -                   5,604                     -                   -
Interest-earning balances from depository institutions                              76,379                        60                  0.32                  31,605                   314                3.97
Total interest-earning assets                                                      611,085                     7,268                  4.82                 387,295                 5,857                6.05
Non-interest-earning assets                                                         54,127                                                                  26,699
Total assets                                                $                      665,212                                                        $        413,994

Interest-bearing liabilities:
Interest-bearing transaction                                $                      212,992                       690                  1.31        $         77,636                   585                3.01
Savings deposits                                                                    18,338                        67                  1.48                  18,483                   113                2.45
Time deposits                                                                      210,029                     1,837                  3.55                 172,939                 2,105                4.87
Securities sold under agreements to repurchase                                      48,307                        20                  0.17                  21,709                   107                1.97
Federal Home Loan Bank advances                                                     49,650                       469                  3.83                  14,799                   179                4.84
Subordinated debentures                                                              3,890                        74                  7.71                   3,846                    74                7.70
Total interest-bearing liabilities                                                 543,206                     3,157                  2.36                 309,412                 3,163                4.09
Non-interest-bearing liabilities                                                    28,239                                                                  18,059
Total liabilities                                                                  571,445                                                                 327,471
Stockholders' equity                                                                93,767                                                                  86,523
Total liabilities and stockholders' equity                  $                      665,212                                                        $        413,994

Net interest income                                                                                $           4,111                                                      $        2,694
Net interest rate spread (1)                                                                                                          2.46 %                                                            1.96 %
Net interest-earning assets (2)                             $                       67,879                                                        $         77,883
Net interest margin (3)                                                                                                               2.73 %                                                            2.78 %
Ratio of interest-earning assets to interest-bearing liabilities                                                                    112.50 %                                                          125.17 %

(1) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average total interest-earning assets.
(4) Interest on loans includes loan fees collected in the amount of $51,898 and $53,029 for the three months ended March 31, 2009 and 2008, respectively.

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

Interest income. Interest and fee income on loans increased to $6.1 million for the three months ended March 31, 2009 from $4.8 million for the comparable period in 2008. Interest income on loans increased primarily as a result of a higher average balance offset by a lower yield. The average balance of loans was $429.3 million and $296.9 million for the three months ended March 31, 2009 and 2008, respectively. The average balance increased due to the Partners Bank acquisition. The average yield on loans decreased to 5.80% for the three months ended March 31, 2009 from 6.49% for the comparable period in 2008.

Interest income on securities increased to $1.1 million for the three months ended March 31, 2009 from $725,000 for the comparable period in 2008. The increase was due primarily to a higher average balance offset by a decline in yield. The average balance of securities was $99.1 million and $53.1 million for the three months ended March 31, 2009 and 2008, respectively. The average balance increased due to the Partners Bank acquisition. The average yield on securities decreased to 4.38% from 5.46% for the three months ended March 31, 2009 and 2008, respectively.

Interest on other interest-earning deposits decreased to $60,000 for the three months ended March 31, 2009 from $314,000 for the comparable period in 2008. The average balance of other interest-earning deposits increased to $76.4 million from $31.6 million for the three months ended March 31, 2009 and 2008, respectively, however, the average yield on other interest-earning deposits decreased to 0.32% for the three months ended March 31, 2009 from 3.97% for the year earlier period. The lower yield on other interest-earning deposits was due to a declining interest rate environment, specifically the federal fund rate, which reprices on a daily basis.

Interest expense. Interest expense on deposits decreased to $2.6 million for the three months ended March 31, 2009 from $2.8 million for the comparable period in 2008. The decrease was due primarily to a decline in yield offset by an increase in average interest-bearing deposits. The average balance of interest-bearing deposits was $441.4 million and $269.1 million for the three months ended March 31, 2009 and 2008, respectively. The average balance increased due to the Partners Bank acquisition.

Interest on securities sold under agreements to repurchase decreased to $20,000 for the three months ended March 31, 2009 from $107,000 for the three months ended March 31, 2008. Although the average balance of securities increased to $48.3 million from $21.7 million for the three months ended March 31, 2009 and 2008, respectively, the yield decreased to 0.17% for the three months ended March 31, 2009 from 1.97% for the comparable period in 2008. The average balance increased due to the Partners Bank acquisition.

Interest on Federal Home Loan Bank advances increased due primarily to a higher average balance offset by a decline in yield. The average balance of Federal Home Loan Bank advances was $49.7 million and $14.8 million for the three months ended March 31, 2009 and 2008, respectively. The average yield on Federal Home Loan Bank advances decreased to 3.83% for the three months ended March 31, 2009 compared to 4.84% for the comparable period in 2008.

Provision for loan losses. Provisions for loan losses were $240,000 and $171,000 for the three months ended March 31, 2009 and 2008, respectively. The increase for the three months ended March 31, 2009 compared to the same period in 2008 was primarily due to the overall increase in the loan portfolio, an increase in the nonperforming and impaired loans, as well as the change in the composition of the portfolio that now includes a larger share of commercial

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

business, construction and land, and commercial real estate loans. Provisions for loan losses are based upon management's consideration of current economic conditions, the Company's loan portfolio composition and historical loss experience used to estimate probable losses as well as the level of nonperforming assets and classified assets. Management also reviews individual loans for which full collectibility may not be reasonably assured and considers, among other matters, the estimated fair value of the underlying collateral. This evaluation is ongoing and results in variations in the Company's provision for loan losses. The Company is subject to periodic examination by the Office of Thrift Supervision, which may require the Company to record increases in the allowance based on its evaluation of available information. There can be no assurance that the Office of Thrift Supervision will not require further increases to the allowance.

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