2007 ANNUAL REPORT
We’ve Come a Long Way .............................................................................. Inside Front Cover
Table of Contents ................................................................................................................ 1
Letter to Shareholders ................................................................................................... 2 - 3
Town and Country Financial Corporation ........................................................................... 4
Town & Country Bank of Springfield .................................................................................. 5
Town & Country Bank - Buffalo, Forsyth & Mt. Zion ........................................................... 6
Logan County Bank ............................................................................................................ 7
Town & Country Banc Mortgage Services, Inc. ........................................................... 8
Town & Country Insurance Services, LLC .................................................................. 9
INDEPENDENT AUDITOR’S REPORT ............................................................................. 11
Audited Financial Statements and Related Notes ....................................................... 12-38
Community Involvement ................................................................................................... 39
Market Makers ................................................................................................................... 40
Locations ................................................................................................ Inside Back Cover
1
Dear Shareholder:
In 2007, we posted record earnings and also made significant efforts to strengthen our
company’s long-term growth prospects and financial situation. These efforts included
reorganizing and making investments in people and systems to enhance our back office
operations, improve our compliance culture, and provide capacity that supports future
growth. From a financial perspective, efforts included strengthening our loan loss
reserves based on market conditions, taking measures to strengthen and diversify our
balance sheet, and improving our net interest margin by lowering our cost of funds and
otherwise improving our asset/liability strategies.
The turmoil in the real estate and credit markets and the slowing of the economy
presented significant challenges to our industry, especially in the last half of 2007. We
were not directly involved in the lending practices that lead to many of these issues, yet
nevertheless were impacted by the wider credit market and real estate market
implications; which included lower mortgage volumes in our local markets, deterioration
in the value of our equity securities, additional credit risks from the spill-over impact to
our loan customers, changes to interest rates and funding spreads, and other factors.
We believe the market disruptions will eventually provide opportunities to community
banks as larger organizations exit certain business lines.
Financial Results
We are pleased to report that 2007 earnings of $3.12 million represent a record for the
company. However, earnings were approximately $951 thousand when excluding the
impact of certain non-recurring items (net of tax), such as a gain on sale of equity
securities of $2.63 million, an increase to the carrying amount of mortgage servicing
rights of $337 thousand, and one-time personnel costs (including certain accounting
adjustments) of $804 thousand.
During 2007, earnings were also impacted by: (1) significant costs to strengthen the
company’s operations and compliance programs and (2) a provision for loan losses of
$341 thousand that drove an increase in our allowance for loan losses to a strong 1.34%
of loans as of December 31, 2007 as compared to 1.15% at the previous year end. The
increase in the provision for loan losses was a result of a general weakening in the
economy and real estate markets as well as a new methodology used in 2007 to assess
the adequacy of the allowance. We believe our credit quality remains strong and 2007
net charge-offs of $150 thousand were actually down from the 2006 level of $208
thousand.
The results in 2007 compare to earnings of $2.46 million in 2006, which included a onetime gain of $614 thousand (net of tax) on the sale of a branch. Earnings per share were
$1.10 for 2007 as compared to $0.87 for 2006.
Total assets ended the year at $367 million, down from $386 million at December 31,
2006. A slowing economy, weak loan demand, and our decision to de-emphasize
indirect lending resulted in a $24 million reduction in total loans. Demand and savings
deposits increased nearly $2 million while time deposits decreased $4.6 million. Total
equity capital ended the year at $32.9 million, down from $37.8 million at December 31,
2006. While retained earnings increased for the year, the reduction in equity capital was
due to a decrease in the unrealized gain on securities. A portion of this decrease was
related to gains realized on equity securities sold (and reflected in net income), while the
remainder represented a decrease in the market value of equity securities still owned at
December 31, 2007. The book value per share at year-end was $11.63 as compared to
$13.34 at December 31, 2006. Excluding the unrealized gain on securities, the book
value increased to $10.12 at December 31, 2007 from $9.30 at the prior year-end.
2
Accomplishments
Accomplishments
As stated earlier, we made several accomplishments in 2007 which served to strengthen
As
earlier,
we madegrowth
several
accomplishments
2007initiatives
which served
to strengthen
the stated
company’s
long-term
prospects.
Some of in
those
include:
the company’s long-term growth prospects. Some of those initiatives include:
Developed an additional source of future non-interest income by launching Town &
Developed
an additional
source
Country Insurance
Services,
LLCof future non-interest income by launching Town &
Country Insurance
Services,
Invested
in management
andLLC
long-term succession by recruiting new leadership for
Invested
in management
long-term
succession
by recruiting
new Inc.
leadership for
the Holding
Company andand
Town
& Country
Banc Mortgage
Services,
the Holding
Company
Town to
& Country
Mortgageinfrastructure
Services, Inc.
Invested
in people
andand
systems
improve Banc
our operating
Invested
in people
and systems
to improveSecurities,
our operating
infrastructure
Refinanced
$7.5 million
in Trust Preferred
lowering
the cost from 8.97% to
Refinanced
$7.5 million in Trust Preferred Securities, lowering the cost from 8.97% to
6.58%
6.58%
Redeemed
$2.6 million in 9.5% subordinated debt
Redeemed
$2.6
millionmargin
in 9.5%
Increased net
interest
14subordinated
basis points debt
Increased
netnew
interest
margin 14
basis points
Implemented
technology
solutions
(Branch Capture, Check-21, and Electronic
Implemented
Statements) new technology solutions (Branch Capture, Check-21, and Electronic
Statements)
Started
major remodel of 1925 S. MacArthur location
Started major remodel of 1925 S. MacArthur location
Future Plans
Future Plans
Our core strategy in 2008 is to continue improving our operations and infrastructure while
Our
strategy
in 2008forward
is to continue
improving
operations
andthere
infrastructure
at thecore
same
time moving
on several
growthour
initiatives.
While
are short-while
at
thecosts
sameinvolved
time moving
forward
severalwegrowth
initiatives.
therewill
areproduce
shortterm
with this
dual on
strategy,
are confident
thatWhile
our plans
term
costsimprovement
involved withtothis
strategy,
we are confident that our plans will produce
long-term
ourdual
growth
and profitability.
long-term improvement to our growth and profitability.
As we look forward, we are incredibly optimistic about the growth prospects of our
As
we lookbased
forward,
we are
optimisticweabout
growth prospects
of our on
company,
on the
teamincredibly
of professionals
havethe
assembled
who are focused
company,
based
on
the
team
of
professionals
we
have
assembled
who
are
focused
our strategic initiatives. Those initiatives include additional branches and/or loan on
our
strategicoffices,
initiatives.
Those
initiatives
includeenhancements
additional branches
and/orprocess,
loan and
production
additions
to our
sales force,
to the sales
production
offices,
additions
to
our
sales
force,
enhancements
to
the
sales
process,
aggressive marketing and product development for our commercial, retail, mortgage,and
and
aggressive
marketinglines
and of
product
development
for ourthat
commercial,
wealth management
business.
We anticipate
earnings inretail,
2008mortgage,
will be a and
wealth
management
lines
of business.
We anticipate
2008 will
be a
challenge
as we make
significant
investments
to growthat
our earnings
companyinquickly
during
challenge
as
we
make
significant
investments
to
grow
our
company
quickly
during
difficult economic, interest rate, and other market conditions.
difficult economic, interest rate, and other market conditions.
During 2007, the company marked its 45th anniversary. We have come a long way in 45
th
anniversary.
We have
long way in 45
During and
2007,
company
marked
its 45brighter
years,
wethe
believe
our future
is even
as we grow
into acome
well adiversified
years,
and
we believe
our future
is evenofbrighter
as weemployees,
grow into aand
wellboard
diversified
financial
services
company.
On behalf
the officers,
of directors,
financial
services
On behalf
of theofofficers,
employees, and board of directors,
we remain
gratefulcompany.
for the continued
support
our shareholders.
we remain grateful for the continued support of our shareholders.
Micah R. Bartlett
President and COO
David E. Kirschner
Chairman and CEO
Thank you for your support,
3
������������������
David E. Kirschner
Chairman & CEO
Town and Country Financial Corporation
Robert L. Evans
Retired Owner
Evans Construction Company
Micah R. Bartlett
President & COO
Town and Country Financial Corporation
Mark O. Roberts, Jr.
President & Chairman of the Board
Standard Mutual Insurance Company
John E. Staudt
Vice Chairman
Town and Country Financial Corporation
John S. Cobb
Attorney
Samuels, Miller, Schroeder, Jackson & Sly
Dewey R. Yaeger
Retired Bank President
Union Bancorp
Louis H. Dixon
Engineer & Senior Vice President
Crawford, Murphy & Tilly, Inc.
��������
David E. Kirschner .................................................................................. Chairman & CEO
Micah R. Bartlett ..................................................................................... President & COO
John E. Staudt ............................................................................................ Vice Chairman
Nancy J. Bahre .................................................................... Senior Vice President & CFO
Henry C. Kirschner ................................................................. Director of Corporate Affairs
Paula J. Bradley ......................................... Vice President & Director of Support Services
James E. Burris ........................................................ Vice President & Compliance Officer
Scott J. Freschi .................................... Vice President & Information Systems Security Officer
Cindy E. Pierson ................................................... Vice President & Loan Support Manager
Barbara L. Weatherford ........................... Vice President & Director of Human Resources
Molly A. Appelt ................................................... Assistant Vice President & Product Manager
A. Vicki Harbauer ............................................. Assistant Vice President & Servicing Manager
Sheryl K. Meyer ............................................................ Assistant Vice President & Auditor
Vickie V. Meseke .......................................................................... Assistant Vice President
Denise D. Skiles ...................................................... Assistant Vice President & Controller
Albert O. Eck, III ............................................................................. Senior Financial Accountant
Indra M. Perry ................................................................................................ Corporate Trainer
Margaret M. Schneider .................................................. Data Processing Assistant Manager
Matthew V. Simhauser ......................................................................................... Credit Analyst
Christine A. Smith .......................................................................................... Marketing Officer
Cynthia C. Turnbull ........................................................... Loan Services Assistant Manager
�������������������������������
3601 Wabash Avenue, Springfield, IL 62711
Toll Free Number 866.770.3100
Telephone Banking Line 800.505.5124
E-mail: support@townandcountrybank.com
www
.townandcountrybank.com
4
������������������
J. Michael Houston
Chairman, President & CEO
Town & Country Bank of Springfield
David E. Kirschner
Chairman & CEO
Town and Country Financial Corporation
Micah R. Bartlett
President & COO
Town and Country Financial Corporation
John E. Staudt
Vice Chairman
Town and Country Financial Corporation
Louis H. Dixon
Engineer & Senior Vice President
Crawford, Murphy & Tilly, Inc.
Dewey R. Yaeger
Retired Bank President
Union Bancorp
��������
J. Michael Houston ................................................................ Chairman, President & CEO
Michael J. A. Shaw ...................................................................... Executive Vice President
John W. Clark ................................................................................... Senior Vice President
Grant N. Franklin ................................................................................. Senior Vice President
Randy L. Brackensick .............................................. Vice President & Commercial Lender
Douglas F. Finn ............................................................. Vice President & Branch Manager
Stephen K. Gnuse .................................................... Vice President & Commercial Lender
Harold L. Henry, III ................................................... Vice President & Commercial Lender
Marianne P. Jackson ..................................................... Vice President & Branch Manager
William A. Kowalski ....................................................... Vice President & Branch Manager
Matthew M. Waldrop ...................................... Assistant Vice President & Branch Manager
�������������������������������
3601 Wabash Avenue, Springfield, IL 62711
2401 Wabash Avenue, Springfield, IL 62704
1925 South MacArthur Blvd., Springfield, IL 62704
2601 North Dirksen Parkway, Springfield, IL 62702
Telephone 217.787.3100
Telephone Banking Line 800.505.5124
www
.townandcountrybank.com
5
������������������
J. Bruce Moore
Chairman, President & CEO
Town & Country Bank
John S. Cobb
Attorney
Samuels, Miller, Schroeder, Jackson & Sly
Micah R. Bartlett
President & COO
Town and Country Financial Corporation
Robert L. Evans
Retired Owner
Evans Construction Company
John E. Staudt
Vice Chairman
Town and Country Financial Corporation
David E. Kirschner
Chairman & CEO
Town and Country Financial Corporation
��������
J. Bruce Moore ............................................................................. Chairman, President & CEO
Larry D. Anderson ................................................................................ Senior Vice President
Richard E. Logan ...................................................... Vice President & Commercial Lender
Michele L. McCoy ............................................. Assistant Vice President & Branch Manager
Steven K. Fryman ....................................................................................... Commercial Lender
�������������������������������
100 Elm Street, Buffalo, IL 62515 Phone 217.364.4406
107 East Highland Drive, Forsyth, IL 62535 Phone 217.872.1326
1645 State Highway 121, Mt. Zion, IL 62549 Phone 217.864.2311
Telephone Banking Line 800.505.5124
www
.townandcountrybank.com
6
������������������
Brian K. Ash
Chairman, President & CEO
Logan County Bank
Mark O. Roberts, Jr.
President & Chairman of the Board
Standard Mutual Insurance Company
Micah R. Bartlett
President and COO
Town and Country Financial Corporation
John E. Staudt
Vice Chairman
Town and Country Financial Corporation
David E. Kirschner
Chairman & CEO
Town and Country Financial Corporation
��������
Brian K. Ash ................................................................................. Chairman, President & CEO
Sandra L. Shehorn .......................................................... Vice President & Branch Manager
Keith B. Sheldon ...................................................... Vice President & Loan Sales Manager
Rick L. Harbarger ................................................... Assistant Vice President & Ag Lender
�������������������������������
303 Pulaski Street, Lincoln, IL 62656
809 Woodlawn Road, Lincoln, IL 62656
Telephone 217.732.3151
Telephone Banking Line 800.505.5124
www
.logancountybank.com
7
������������������
Dana M. Dow
Chairman, President & CEO
Town & Country Banc Mortgage
Services, Inc.
David E. Kirschner
Chairman & CEO
Town and Country Financial Corporation
Micah R. Bartlett
President & COO
Town and Country Financial Corporation
John E. Staudt
Vice Chairman
Town and Country Financial Corporation
Louis H. Dixon
Engineer & Senior Vice President
Crawford, Murphy & Tilly, Inc.
Dewey R. Yaeger
Retired Bank President
Union Bancorp
J. Michael Houston
President & CEO
Town & Country Bank of Springfield
��������
Dana M. Dow ................................................................................ Chairman, President & CEO
Timothy W. Holliday ......................................................... Vice President & Sales Manager
Debra K. Foster ..................................................................................... Mortgage Originator
�������������������������������
TOWN & COUNTRY BANK OF SPRINGFIELD
3601 Wabash Avenue, Springfield, IL 62711
2401 Wabash Avenue, Springfield, IL 62704
1925 South MacArthur Blvd., Springfield, IL 62704
2601 North Dirksen Parkway, Springfield, IL 62702
TOWN & COUNTRY BANK - BUFFALO, FORSYTH & MT. ZION
100 Elm Street, Buffalo, IL 62515
107 East Highland Drive, Forsyth, IL 62535
1645 State Highway 121, Mt. Zion, IL 62549
LOGAN COUNTY BANK
303 Pulaski Street, Lincoln, IL 62656
809 Woodlawn Road, Lincoln, IL 62656
Toll Free Number 866.770.3100
Telephone Banking Line 800.505.5124
www
.townandcountrybank.com
8
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��������������
��������������
������������������
������������������
Town & Country Insurance Services, LLC offers complete insurance coverage. It is our
privilege to further our commitment to our customers by offering a full range of property
and casualty insurance with the convenience of a one-stop financial resource. Our
agency will work with leading insurance companies to provide customers comprehensive
coverage at competitive rates.
����������������������������������������
1) Online - fill out the form (www.townandcountrybank.com or www.logancountybank.com)
2) Telephone - call the toll free number 866.397.4086
3) Fax - go to any of our locations and ask for a form to fax to 217.546.6858
4) In Person - visit any of our locations and speak to a banker.
�������������������������������
TOWN & COUNTRY BANK OF SPRINGFIELD
3601 Wabash Avenue, Springfield, IL 62711
2401 Wabash Avenue, Springfield, IL 62704
1925 South MacArthur Blvd., Springfield, IL 62704
2601 North Dirksen Parkway, Springfield, IL 62702
TOWN & COUNTRY BANK - BUFFALO, FORSYTH & MT. ZION
100 Elm Street, Buffalo, IL 62515
107 East Highland Drive, Forsyth, IL 62535
1645 State Highway 121, Mt. Zion, IL 62549
LOGAN COUNTY BANK
303 Pulaski Street, Lincoln, IL 62656
809 Woodlawn Road, Lincoln, IL 62656
Toll Free Number 866.770.3100
www
.townandcountrybank.com
9
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
10
Independent Auditor's Report
To the Board of Directors
Town and Country Financial Corporation
Springfield, Illinois
We have audited the accompanying consolidated balance sheets of Town and Country Financial Corporation and
subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the years in the three-year period ended December 31, 2007. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Town and Country Financial Corporation and subsidiaries as of December 31, 2007 and 2006,
and the results of its operations and its cash flows for each of the years in the three-year period ended December 31,
2007, in conformity with accounting principles generally accepted in the United States of America.
Springfield, Illinois
February 26, 2008
McGladrey & Pullen, LLP is a member firm of RSM International –
an affiliation of separate and independent legal entities.
11
Town and Country Financial Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 2007 and 2006
2007
2006
Assets
Cash and due from banks
Federal funds sold
Securities held to maturity (fair value of $1,810,863 and
$2,886,523 at December 31, 2007 and 2006, respectively)
Securities available for sale (cost of $85,344,017 and
$77,769,064 at December 31, 2007 and 2006, respectively)
Nonmarketable equity securities
Loans, net of allowance for loan losses ($3,153,862 and $2,963,070
at December 31, 2007 and 2006, respectively)
Mortgage loans held for sale
Premises and equipment, net
Mortgage servicing rights, net
Other assets
$
8,427,545
9,650,000
$
10,022,587
-
1,837,654
2,834,281
92,326,935
2,132,456
96,475,747
2,094,355
231,528,779
1,862,333
9,372,428
2,197,748
7,836,130
255,157,076
337,219
9,733,290
1,765,795
7,609,521
$
367,172,008
$
386,029,871
$
31,676,753
91,886,268
19,649,414
148,310,989
291,523,424
$
34,382,629
86,241,367
20,821,718
152,926,220
294,371,934
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Demand:
Noninterest bearing
Interest bearing
Savings
Time
Federal funds and securities sold under agreements to repurchase
Subordinated debentures and junior subordinated debt issued to Trusts
Other borrowings
Deferred income taxes
Accrued expenses and other liabilities
Commitments, Contingencies and Credit Risk
(Notes 15 and 16)
Stockholders' Equity
Common stock, no par value, authorized 5,000,000 shares,
issued 2007 and 2006 2,983,608 shares
Additional paid-in capital
Retained earnings
Accumulated comprehensive income
Less cost of treasury shares, 2007 and 2006 151,139 shares
$
See Notes to Consolidated Financial Statements.
12
11,856,000
25,795,347
1,818,270
3,234,434
334,227,475
2,175,000
14,447,000
27,882,825
6,381,965
2,980,795
348,239,519
1,657,560
9,935,098
17,820,537
4,272,290
33,685,485
1,657,560
9,935,098
15,493,522
11,445,124
38,531,304
740,952
32,944,533
740,952
37,790,352
367,172,008
$
386,029,871
Town and Country Financial Corporation and Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 2007, 2006, and 2005
2007
Interest income:
Loans
Securities:
U.S. Treasury and agencies
States and political subdivisions
Other
Interest-bearing deposits with financial institutions
Federal funds sold
Total interest income
Interest expense:
Deposits
Other borrowings
Total interest expense
$
Net interest income
Provision for loan losses
Net interest income after provision
for loan losses
Non-interest income:
Service charges on deposit accounts
Other fee income
Loan servicing income
Fees on loans sold
Gain on sale of loans
Gain (loss) on sale of securities available for sale
Loss on impaired securities
Trust department fees
Gain on sale of branch
Other
Non-interest expense:
Salaries
Employee benefits
Occupancy expense, net of rental income
Furniture and equipment expense
Amortization of mortgage servicing rights
Other
Income before income taxes
Income taxes
Net income
Basic earnings per share
2006
16,442,390
$
2005
16,172,709
$
13,985,605
1,981,021
1,082,413
741,576
82,509
475,418
20,805,327
1,929,101
1,120,631
1,156,327
86,331
128,791
20,593,890
2,250,277
1,187,384
1,037,713
60,001
81,124
18,602,104
9,465,660
2,462,732
11,928,392
9,025,913
2,797,987
11,823,900
6,545,686
2,441,937
8,987,623
8,876,935
341,000
8,769,990
255,500
9,614,481
445,500
8,535,935
8,514,490
9,168,981
1,111,888
809,064
753,857
187,456
1,050,871
4,293,376
(50,000)
173,632
417,747
8,747,891
1,272,553
717,034
779,942
116,400
534,987
(42,314)
170,944
1,049,509
396,105
4,995,160
1,323,024
662,310
788,724
121,877
634,698
19,388
153,619
399,527
4,103,167
6,150,458
1,594,304
994,283
547,202
522,385
3,362,588
13,171,220
4,830,608
1,023,062
918,526
533,942
524,311
2,887,260
10,717,709
4,835,949
1,024,226
934,961
549,727
550,062
2,803,083
10,698,008
4,112,606
992,500
2,791,941
333,762
2,574,140
394,700
$
3,120,106
$
2,458,179
$
2,179,440
$
1.10
$
0.87
$
0.77
See Notes to Consolidated Financial Statements.
13
Town and Country Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2007, 2006, and 2005
Additional
Paid-in Capital
Common Stock
Balance, December 31, 2004
$
Comprehensive income:
Net income
Change in net unrealized gain
on securities available for sale,
net of reclassification adjustment
and tax effect
1,657,560
$
9,935,098
-
-
-
-
Retained Earnings
$
12,045,554
Treasury Stock
$
2,179,440
(739,943)
Accumulated
Comprehensive
Income
$
-
-
12,976,724
Total
$
-
-
2,179,440
(542,777)
(542,777)
Comprehensive income
1,636,663
Cash dividends ($.19 per common share)
-
-
Balance, December 31, 2005
1,657,560
Comprehensive income:
Net income
Change in net unrealized gain
on securities available for sale,
net of reclassification adjustment
and tax effect
(528,738)
9,935,098
-
-
-
-
-
13,696,256
-
(739,943)
2,458,179
12,433,947
-
-
(528,738)
$
-
-
36,982,918
2,458,179
(988,823)
(988,823)
Comprehensive income
1,469,356
Cash dividends ($.23 per common share)
-
-
Purchase of treasury stock, 61 shares
-
-
Balance, December 31, 2006
1,657,560
Comprehensive income:
Net income
Change in net unrealized gain
on securities available for sale,
net of reclassification adjustment
and tax effect
(660,913)
-
9,935,098
-
-
-
-
(1,009)
15,493,522
(740,952)
3,120,106
(660,913)
-
(1,009)
11,445,124
-
-
-
$
-
-
37,790,352
3,120,106
(7,172,834)
(7,172,834)
Comprehensive (loss)
(4,052,728)
Cash dividends ($.28 per common share)
Balance, December 31, 2007
35,874,993
-
$
1,657,560
$
9,935,098
See Notes to Consolidated Financial Statements.
14
(793,091)
$
17,820,537
$
(740,952)
$
4,272,290
(793,091)
$
32,944,533
Town and Country Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2007, 2006, and 2005
2007
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation
Amortization of intangible assets
Amortization of premiums on securities
Amortization of mortgage servicing rights
Provision for loan losses
Deferred income taxes
(Gain) on sale of loans held for sale
(Gain) loss on sale of securities available for sale
Loss on impaired securities
Loss on sale of properties acquired in settlement of loans
Loss on sale of premises and equipment
Stock dividend on nonmarketable equity securities
Gain on sale of branch
Change in assets and liabilities:
(Increase) decrease in other assets
Increase in accrued expenses and other liabilities
Net cash flows provided by operations before
loan originations and sales
Originations of loans held for sale
Proceeds from sale of loans held for sale
Net cash provided by (used in) operating activities
Cash Flows From Investing Activities
Securities held to maturity:
Proceeds from maturities, calls, and paydowns
Purchases
Securities available for sale:
Proceeds from sales
Proceeds from maturities, calls, and paydowns
Purchases
Purchase of nonmarketable equity securities
Proceeds from sale of nonmarketable equity securities
Increase in federal funds sold
(Increase) decrease in loans
Purchases of premises and equipment
Proceeds from sale of properties acquired
in settlement of loans
Proceeds from sale of branch, net of expenses
Proceeds from sale of premises and equipment
Net cash flows provided by (used in)
investing activities
(Continued)
15
$
3,120,106
2006
$
2,458,179
2005
$
2,179,440
790,543
39,288
32,276
522,385
341,000
(12,764)
(1,050,871)
(4,293,376)
50,000
35,730
-
772,671
39,288
171,342
524,311
255,500
(343,703)
(534,987)
42,314
62,246
550
(1,049,509)
844,806
39,288
287,825
550,062
445,500
(334,090)
(634,698)
(19,388)
26,368
31
(110,895)
-
347,171
253,639
(142,162)
491,152
(620,195)
552,937
175,127
2,747,192
3,206,991
(46,808,078)
45,452,511
(1,180,440)
(37,667,770)
38,008,733
3,088,155
(46,480,489)
47,108,978
3,835,480
1,149,000
(155,630)
345,500
-
349,997
(154,000)
5,295,380
22,164,164
(30,820,140)
(38,101)
(9,650,000)
22,381,785
(429,681)
6,213,875
15,199,037
(10,157,878)
551,190
(7,340,329)
(494,345)
530,616
17,074,311
(12,484,972)
(20,755,328)
(665,280)
183,700
-
171,906
1,207,370
-
21,932
2,063
10,080,477
5,696,326
(16,080,661)
Town and Country Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 2007, 2006, and 2005
2007
2006
2005
1,766,721
(4,615,231)
$ (2,524,194)
(3,307,081)
$ (7,888,587)
19,564,367
(2,175,000)
8,046,843
7,500,000
(7,500,000)
(10,134,321)
(2,591,000)
(793,091)
(10,495,079)
(4,350,000)
7,131,673
(3,864,413)
(660,913)
(1,009)
(7,575,937)
3,175,000
31,673
(3,400,394)
(528,738)
10,953,321
(1,595,042)
1,208,544
(1,291,860)
10,022,587
8,814,043
10,105,903
$
8,427,545
$ 10,022,587
$
8,814,043
$
9,340,081
$
8,450,175
$
6,233,161
Interest on other borrowings
$
2,530,558
$
2,779,802
$
2,460,497
Income taxes, net
$
1,995,091
$
778,056
$
533,000
$
954,338
$
356,138
$
447,784
Investing Activities:
Loans transferred from held for sale to portfolio
$
8,359
$
75,033
$
201,135
Property acquired in settlement of loans
$
832,498
$
140,809
$
45,343
Cash Flows From Financing Activities
Net increase (decrease) in demand and savings accounts
Net increase (decrease) in time deposits
Net increase (decrease) in federal funds purchased and securities
sold under agreements to repurchase
Proceeds from other borrowings
Proceeds from issuance of subordinated debt
Payment on retirement of subordinated debt
Principal payments on other borrowings
Principal payments on subordinated debt
Dividends paid
Purchase of treasury stock
Net cash flows provided by (used in) financing activities
$
Net increase (decrease) in cash
and due from banks
Cash and due from banks:
Beginning
Ending
Supplemental Disclosures of Cash Flow
Information
Cash payments for:
Interest on deposits
Supplemental Schedule of Noncash
Operating Activities:
Capitalization of mortgage servicing rights
See Notes to Consolidated Financial Statements.
16
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1.
Significant Accounting Policies
Nature of business: Town and Country Financial Corporation (Company) is a multi-bank holding company, which
through its subsidiaries provides a full range of financial services to individual and corporate customers in the Central
Illinois area. The Company is subject to competition from other financial institutions and nonfinancial institutions
providing financial products. Additionally, Town and Country Financial Corporation and its bank subsidiaries are
subject to regulations of certain regulatory agencies and undergo periodic examinations by those regulatory
agencies.
Principles of consolidation: The consolidated financial statements include the accounts of Town and Country
Financial Corporation and its wholly-owned subsidiaries, Town & Country Bank of Springfield and its wholly-owned
subsidiary Town & Country Banc Mortgage Services, Inc., Logan County Bank, Town & Country Bank, Haley, LLC,
and Town & Country Insurance Services, LLC. All material intercompany accounts and transactions are eliminated in
consolidation.
Use of estimates: Preparation of the consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions, which
affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates
which are particularly susceptible to change in a short period of time include the determination of the allowance for
loan losses, valuation of real estate and other properties acquired in connection with foreclosures or in satisfaction of
amounts due from borrowers on loans and the fair value of investment securities. Actual results could differ from
those estimates.
Trust assets: Assets held by the subsidiary banks' trust departments as an agent or as a fiduciary, other than trust
cash on deposit at the subsidiary banks, are not included in these financial statements because they are not assets
of the subsidiary banks.
Cash and due from banks: The Bank maintains cash balances in several financial institutions which, from time to
time, exceed the federally insured limits. The Bank has not experienced any losses in such accounts as a result of
this concentration and believes it is not exposed to any significant credit risk on cash balances.
For the purposes of reporting cash flows, the Company includes all cash and due from banks, which are not subject
to withdrawal restrictions or penalties, as cash. Cash flows from loans originated by the Bank, federal funds sold,
deposits and federal funds purchased and securities sold under agreements to repurchase are reported net.
Securities held to maturity: Securities classified as held to maturity are those debt securities the Company has both
the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in
general economic conditions. These securities are carried at cost adjusted for amortization of premium and accretion
of discount, computed by the interest method over their contractual lives.
Securities available for sale: Securities classified as available for sale are those debt securities that the Company
intends to hold for an indefinite period of time, but not necessarily to maturity, and marketable equity securities. Any
decision to sell a security classified as available for sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the Company's assets and liabilities, liquidity needs,
regulatory capital considerations and other similar factors. Securities available for sale are carried at fair value with
unrealized gains or losses reported as a separate component of comprehensive income, net of the related deferred
tax effect. The amortization of premiums and accretion of discounts, computed by the interest method over their
contractual lives, are recorded as interest income. Realized gains or losses, determined using the specific
identification method, are included in earnings.
17
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1.
Significant Accounting Policies (Continued)
Declines in the fair value of individual securities classified as either held to maturity or available for sale below their
amortized costs that are determined to be other than temporary result in write-downs of the individual securities to
their fair value with the resulting write-downs included in current earnings as realized losses.
Nonmarketable equity securities: Nonmarketable equity securities, consisting primarily of Federal Home Loan Bank
stock and Federal Reserve Stock, are securities which do not have a readily available market value. Nonmarketable
equity securities are carried at cost.
Loans: Loans are stated at the outstanding amount of principal, net of the allowance for loan losses. With the
exception of mortgage loans held for sale, the Company intends to originate and hold loans and to collect the
contractual payments over the terms of the loans. Loan commitment fees and certain direct loan costs are being
deferred and the net amount amortized as an adjustment of the related loan's yield.
Interest on loans is calculated by using the simple interest method applied to the daily balances of the principal
amount outstanding.
A loan is impaired when it is probable the Company will not be able to collect all contractual principal and interest
payments due in accordance with the terms of the loan agreement. Impaired loans are measured based on the
present value of the estimated future cash flows of interest and principal discounted at the loan's effective interest
rate or on the fair value of the collateral for collateral dependent loans or as a practical expedient, at the loan’s
observable market price.
The accrual of interest income on impaired loans is discontinued when, in the opinion of management, there is
reasonable doubt as to the borrower's ability to meet payments of interest or principal when they become due.
Interest income on these loans is recognized to the extent interest payments are received and the principal is
considered fully collectible.
Allowance for loan losses: The allowance for loan losses is established through a provision for loan losses charged to
expenses and reduced by net charge-offs. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The allowance is an amount that management
believes will be adequate to absorb losses on existing loans that may become uncollectible based on evaluations of
the collectibility of loans and prior loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrowers' ability to pay. While management uses the best
information available to make its evaluation, future adjustments to the allowance may be necessary if there are
significant changes in economic conditions.
Mortgage loans held for sale: Mortgage loans originated and intended for sale in the secondary market are carried at
the lower of aggregate cost or estimated market value. Net unrealized losses are recognized in a valuation
allowance by charges to income. The fair values are estimated using discounted cash flow analysis, using interest
rates currently being offered for loans with similar terms to borrowers with similar credit quality. Gains and losses on
sales of loans held for sale are computed using the specific identification method and are reflected in income at time
of sale.
18
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1.
Significant Accounting Policies (Continued)
Mortgage servicing rights: The cost of mortgage servicing rights is capitalized and amortized in proportion to, and
over the period of, estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on
the fair value of those rights. Fair values are estimated using discounted cash flows based on a current market
interest rate. For purposes of measuring impairment, the rights are stratified based on predominant risk
characteristics of the underlying loans, including loan type, weighted average interest rate, and weighted average
maturity date. The amount of impairment recognized is the amount by which the capitalized mortgage servicing
rights for a stratum exceed their fair value. Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal on these loans amounted to approximately $299,356,000 and
$303,293,000 as of December 31, 2007 and 2006, respectively.
Transfers of financial assets: Transfers of financial assets are accounted for as sales only when the control over the
financial assets have been surrendered. Control over transferred assets is deemed surrendered when (1) the assets
have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from
taking advantage of the right) to pledge or exchange the transferred assets, and (3) the Company does not maintain
effective control over the transferred assets through an agreement to repurchase them before their maturity.
Intangible assets: Deposit intangible assets relate to a branch acquisition and are included in other assets on the
consolidated balance sheet. The excess of the purchase price over the fair value of net assets is amortized into
other expense on a straight-line basis over 15 years.
Rate lock commitments: The Company enters into commitments to originate loans whereby the interest rate on the
loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans that are
intended to be sold are considered to be derivatives. Accordingly, such commitments, along with any related fees
received from potential borrowers, are recorded at fair value in derivative assets or liabilities, with changes in fair
value recorded in the net gain or loss on sale of mortgage loans. Fair value is based on fees currently charged to
enter into similar agreements, and for fixed-rate commitments also considers the difference between current levels of
interest rates and the committed rates.
Premises and equipment: Premises and equipment are stated at cost less accumulated depreciation. Depreciation
is computed using straight-line and accelerated depreciation methods over the estimated useful lives of the assets.
Estimated lives are 5 to 35 years for buildings and improvements, and 3 to 10 years for furniture and equipment.
Income taxes: Deferred income tax assets and liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based
on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable
income. Income tax expense is the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities. Deferred taxes are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of its deferred tax assets will not be realized.
Basic earnings per share: Basic earnings per share are calculated by dividing net income by the weighted average
number of shares outstanding. Weighted average shares outstanding were 2,832,469 for December 31, 2007,
2,832,484 for December 31, 2006, and 2,832,530 for December 31, 2005, respectively. The Company declared a 3
for 2 stock split on January 24, 2006, payable to stockholders of record on March 2, 2006. Retroactive effect was
given to the 994,536 shares issued in connection with the stock split.
19
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1.
Significant Accounting Policies (Continued)
Other real estate owned: Other real estate owned (OREO) represents properties acquired through foreclosure or
other proceedings and is initially recorded at fair value at the date of foreclosure, which establishes a new cost. After
foreclosure, OREO is held for sale and is carried at fair value less estimated costs of disposal. Any write-down to fair
value at the time of transfer to OREO is charged to the allowance for loan losses. Property is evaluated regularly to
ensure that the recorded amount is supported by its current fair value and adjustments to reduce the carrying amount
to fair value less estimated costs to dispose are recorded as necessary. Revenue and expense from the operation of
OREO and adjustments to fair value are included in loss on foreclosed real estate.
Adoption of Statement 142: On January 1, 2002, the Company implemented Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets. SFAS 142 requires that an acquired intangible asset
should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal
rights, or if the asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer’s intent to do
so.
Intangible assets disclosures are as follows:
Accumulated
Amortization
Intangible Assets
$
December 31, 2007:
651,610
$
373,014
Net Balance
$
278,596
$
39,288
39,288
39,288
39,288
39,288
82,156
$
278,596
Amortization expense for the years ending December 31:
2008
2009
2010
2011
2012
Thereafter
There was no goodwill reported as of December 31, 2007 or 2006.
Note 2.
Restrictions on Cash and Due from Banks
The Bank subsidiaries are required to maintain legal reserves composed of funds on deposit with the Federal
Reserve Bank, Travelers Express and cash on hand. The required balances were approximately $3,234,000 and
$2,645,000 at December 31, 2007 and 2006, respectively.
20
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 3.
Securities
Amortized costs and fair values of securities as of December 31, 2007 and 2006 are summarized as follows:
Held to maturity
State and political subdivisions
Corporate notes
Gross
Unrealized
Gains
Amortized
Cost
2007
Gross
Unrealized
Losses
Fair
Value
$
1,364,610
473,044
$
10,333
14,289
$
51,413
-
$
1,323,530
487,333
$
1,837,654
$
24,622
$
51,413
$
1,810,863
2006
State and political subdivisions
Corporate notes
$
2,361,445
472,836
$
53,182
43,164
$
44,104
-
$
2,370,523
516,000
$
2,834,281
$
96,346
$
44,104
$
2,886,523
2007
Available for sale
U.S. Government agencies
State and political subdivisions
Corporate notes
Equity securities
Mortgage-backed securities
$
19,313,112
20,401,953
11,972,876
1,511,554
32,144,522
$
190,293
819,382
6,346,116
187,377
$
21,788
401,022
22,400
115,040
$
19,481,617
21,221,335
11,571,854
7,835,270
32,216,859
$
85,344,017
$
7,543,168
$
560,250
$
92,326,935
2006
U.S. Government agencies
State and political subdivisions
Corporate notes
Equity securities
Mortgage-backed securities
$
24,274,681
20,858,557
9,037,365
1,743,558
21,854,903
$
63,228
896,570
43,658
18,396,046
51,901
$
287,605
12,503
32,150
412,462
$
24,050,304
21,755,127
9,068,520
20,107,454
21,494,342
$
77,769,064
$
19,451,403
$
744,720
$
96,475,747
21
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 3.
Securities (Continued)
The amortized cost and fair value of securities as of December 31, 2007 by contractual maturity are shown below.
Expected maturities may differ from contractual maturities in mortgage-backed securities because the mortgages
underlying the securities may be prepaid without any penalties. Also, no stated maturity exists for the equity
securities. Therefore, these securities are not included in the maturity categories in the following maturity summary.
Available for Sale
Amortized
Fair
Cost
Value
Due in one year or less
Due after one year through 5 years
Due after 5 years through 10 years
Due after 10 years
Equity securities
Mortgage-backed securities
Held to Maturity
Amortized
Fair
Cost
Value
$ 12,865,579
12,789,176
2,723,917
23,309,269
1,511,554
32,144,522
$ 12,876,361
13,172,371
2,803,623
23,422,451
7,835,270
32,216,859
$
177,022
437,588
470,000
753,044
-
$
176,687
435,810
448,139
750,227
-
$ 85,344,017
$ 92,326,935
$
1,837,654
$
1,810,863
Gross realized gains and (losses) from the sale of investment securities classified as available for sale follow:
For the years ended December 31,
2007
2006
2005
Gross realized gains
Gross realized (losses)
Net gains
$
4,293,376
-
$
3,979
(46,293)
$
19,388
-
$
4,293,376
$
(42,314)
$
19,388
Securities with a carrying value of approximately $35,288,000 and $40,970,000 at December 31, 2007 and 2006,
respectively, were pledged to secure public deposits, securities sold under agreement to repurchase and for other
purposes as required or permitted by law.
Marketable equity securities represents primarily SLMA stock. The Company held 282,861 and 357,861 shares of
SLMA stock with a carrying value of approximately $5,696,821 and $17,453,000, at December 31, 2007 and 2006,
respectively. The Company sold 75,000 shares of SLMA stock during 2007 resulting in a gain of $4,293,376.
22
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 3.
Securities (Continued)
Information pertaining to securities with gross unrealized losses at December 31, 2007 aggregated by investment
category and length of time that individual securities have been in a continuous loss position, follows:
2007
Less Than Twelve Months
Gross
Unrealized
Fair
Losses
Value
Securities Available for Sale
Debt securities:
U.S. Government and federal agency
Mortgage-backed
Other
Total debt securities
Marketable equity securities
Total securities available for sale
Securities Held to Maturity
State and political subdivisions
$
$
3
396,313
396,316
396,316
$
66
$
$
$
1,428
9,598,970
9,600,398
9,600,398
$
19,933
Securities Available for Sale
Debt securities:
U.S. Government and federal agency
Mortgage-backed
Other
Total debt securities
Marketable equity securities
Total securities available for sale
Securities Held to Maturity
State and political subdivisions
$
$
$
141
28,996
29,137
29,137
-
23
$
$
$
$
$
21,788
115,037
4,709
141,534
22,400
163,934
$
51,347
$
2006
Less Than Twelve Months
Gross
Unrealized
Fair
Losses
Value
2,997,180
1,209,883
4,207,063
4,207,063
-
Over Twelve Months
Gross
Unrealized
Fair
Losses
Value
$
5,463,590
13,195,702
1,006,995
19,666,287
128,000
$ 19,794,287
734,101
Over Twelve Months
Gross
Unrealized
Fair
Losses
Value
$
287,464
383,466
12,503
683,433
32,150
715,583
$
44,104
$ 15,074,994
17,940,277
1,019,770
34,035,041
168,250
$ 34,203,291
$
885,902
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 3.
Securities (Continued)
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more
frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of
time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period
of time sufficient to allow for any anticipated recovery in fair value.
At December 31, 2007, sixty-eight debt securities have unrealized losses with aggregate depreciation of 1.93% from
the Company’s amortized cost basis. These unrealized losses relate principally to the fluctuations in the current
interest rate environment. In analyzing an issuer’s financial condition, management considers whether the securities
are issued by the federal government or its agencies and whether downgrades by bond rating agencies have
occurred. As management has the ability to hold debt securities until maturity, or for the foreseeable future if
classified as available for sale, no declines are deemed to be other than temporary.
At December 31, 2007, two marketable equity securities have unrealized losses with aggregate depreciation of
14.9% from the Company’s cost basis. These unrealized losses relate primarily to investments in the financial
industry. Although the issues have shown declines in fair value and earnings as a result of fluctuations in the current
interest rate environment and credit risk associated with Fannie Mae, no credit issues have been identified that cause
management to believe the decline in market value is other than temporary. In analyzing the issuers financial
condition, management considers industry analysts reports and projected target prices of investment analysts within
a one year time frame.
The Company reduced the carrying amount of its investment in a perpetual preferred stock issue of Freddie Mac, a
government sponsored enterprise, by $50,000 at December 31, 2007. The perpetual stock issue is an investment
grade security (AA- by S&P and Aa3 by Moody’s) that is held in the Company’s available-for-sale securities portfolio.
Prior to this charge, impairment was recorded as an unrealized mark-to-market loss on securities available-for-sale
and reflected as a reduction to equity through other comprehensive income. Accordingly, the reclassification of the
unrealized after-tax loss to an other-than-temporary impairment non-cash charge did not affect stockholders’ equity.
The Company recorded the other-than-temporary charge due to a significant decline in the market value of the
security caused by Freddie Mac’s recent negative financial results and capital raising activity.
Note 4.
Loans
The major classifications of loans follow:
December 31,
2007
2006
Commercial
Residential real estate
Installment
Less:
Allowance for loan losses
24
$ 145,835,786
38,216,630
50,630,225
234,682,641
$ 151,160,640
48,714,736
58,244,770
258,120,146
3,153,862
2,963,070
$ 231,528,779
$ 255,157,076
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 4.
Loans (Continued)
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 property, real and personal, pledged as collateral. These estimates are
affected by changing economic conditions and the economic prospects of borrowers.
The following table presents data on impaired loans as of and for the years ended December 31, 2007 and 2006:
2007
2006
Impaired loans for which an allowance has been provided
Impaired loans for which no allowance has been provided
$
4,747,881
290,381
$
3,346,050
676,499
Total loans determined to be impaired
$
5,038,262
$
4,022,549
$
1,294,746
5,037,186
300,920
306,581
$
824,900
3,990,826
255,270
256,337
Allowance for loan losses for impaired loans included in the
allowance for loan losses
Average recorded investment in impaired loans
Interest income recognized from impaired loans
Cash basis interest income recognized from impaired loans
The Banks utilize their data processing system to identify loan payments not made by their contractual due date and
calculate the number of days each loan exceeds the contractual due date. The accrual of interest on any loan is
discontinued when in the opinion of management, there is reasonable doubt as to the collectibility of interest and
principal, or the loan reaches ninety days past due.
Loans contractually past due in excess of ninety days and loans no longer accruing interest are summarized as
follows:
December 31,
2007
2006
Loans contractually past due ninety days or more and still accruing interest:
Not impaired
Impaired
Loans no longer accruing interest:
Not impaired
Impaired
$
165,184
127,849
$
626,634
-
1,210,012
525,256
$ 1,503,045
$ 1,151,890
The bank subsidiaries have had, and may be expected to have in the future, banking transactions with directors,
executive officers, their immediate families and affiliated companies on essentially the same terms as those
prevailing for comparable transactions with others. These persons and firms were indebted to the subsidiaries for
loans totaling approximately $2,908,000 and $2,901,000 at December 31, 2007 and 2006, respectively.
25
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 5.
Allowance for Loan Losses
An analysis of activity in the allowance for loan losses follows:
2007
Balance, beginning
$
Provision for loan losses
Recoveries
Note 6.
2,963,070
$
341,000
86,414
3,390,484
(236,622)
Loans charged off
Balance, ending
Years Ended December 31,
2006
$
3,153,862
2,915,378
$
255,500
73,049
3,243,927
(280,857)
$
2,963,070
2005
2,690,076
445,500
98,243
3,233,819
(318,441)
$
2,915,378
Loan Servicing
Mortgage and commercial real estate loans serviced for others are not included in the accompanying consolidated
balance sheets. The unpaid balance of these loans are summarized as follows:
2007
Mortgage loan portfolios serviced for Federal National
Mortgage Association
Commercial real estate loan portfolios serviced for third party investors
Note 7.
$
December 31,
299,356,183
9,583,217
$
2006
303,292,711
5,686,534
Premises and Equipment
Premises and equipment consist of:
2007
Land
Construction in progress
Buildings and improvements
Furniture and equipment
2006
$
2,645,714
79,727
8,971,407
6,201,268
17,898,116
8,525,688
$
2,662,940
8,919,888
6,004,311
17,587,139
7,853,849
$
9,372,428
$
9,733,290
Less accumulated depreciation
26
December 31,
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 8.
Deposits
As of December 31, 2007, the scheduled maturities of time deposits are as follows:
Years Ended December 31,
Amount
2007
2008
2009
2010
2011
$
105,753,180
23,209,227
16,412,993
1,744,449
1,191,140
$
148,310,989
The aggregate amount of time deposits, each with a minimum denomination of $100,000, was $51,519,016 and
$55,288,205 at December 31, 2007 and 2006, respectively.
Note 9.
Subordinated Debentures and Junior Subordinated Debt Issued to Trusts
At December 31, 2006, the Company had $2,591,000 of subordinated debentures outstanding, which required semiannual interest payments at 9.5% and were due September 15, 2007. The debentures were unsecured to the claims
of depositors and certain other creditors of the Bank. Subordinated debentures are eligible as capital under
regulatory guidelines, with certain restrictions. The balance of $2,591,000 at December 31, 2006 matured during
2007.
On March 26, 2002, Statutory Trust I (the Trust) was formed and issued $7,732,000 of floating rate Cumulative Trust
Preferred Securities which is classified as junior subordinated debt in the accompanying balance sheet. The interest
rate, 8.97% at December 31, 2006, is tied to the 3-month LIBOR rate plus 3.60%. The funds raised from the Trust’s
issuance of these securities were all passed to the Company. The sole asset of the Trust is a note receivable from
the Company. This debt requires quarterly interest payments and matures March 26, 2032. This debt may be
redeemed after March 31, 2007 as outlined in the indenture agreement. On March 22, 2007, the debt was redeemed
with the proceeds from Statutory Trust III.
On March 17, 2004, Statutory Trust II (the Trust) was formed and issued $4,124,000 of floating rate Cumulative Trust
Preferred Securities which is classified as junior subordinated debt in the accompanying balance sheet. The interest
rate 7.78% and 8.15% December 31, 2007and 2006, respectively, is tied to the 3-month LIBOR rate plus 2.79%.
The funds raised from the Trust’s issuance of these securities were all passed to the Company. The sole asset of
the Trust is a note receivable from the Company. This debt requires quarterly interest payments and matures March
17, 2034. This debt may be redeemed after March 31, 2009 as outlined in the indenture agreement.
On March 22, 2007, Statutory Trust III (the Trust) was formed and issued $7,732,000 of floating rate Cumulative
Trust Preferred Securities which is classified as junior subordinated debt in the accompanying balance sheet. The
interest rate, 6.58% at December 31, 2007, is tied to the 3-month LIBOR rate plus 1.68%. The funds raised from the
Trust’s issuance of these securities were used to redeem Statutory Trust I. The sole asset of the Trust is a note
receivable from the Company. This debt requires quarterly interest payments and matures March 22, 2037. This
debt may be redeemed after March 22, 2012 as outlined in the indenture agreement.
27
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 9.
Subordinated Debentures and Junior Subordinated Debt Issued to Trusts (Continued)
In the event of certain changes or amendments to regulatory requirements or federal tax rates, the debt is
redeemable in whole. The obligations under these instruments are fully and unconditionally guaranteed by Town and
Country Financial Corporation and rank subordinate and junior in right of payment to all other liabilities of the
Company. The Trust preferred securities qualify as Tier 1 Capital for the Company, subject to certain limitations, with
the excess being included in total capital for regulatory purposes.
Note 10.
Other Borrowings
The Company's subsidiary banks had $25,522,600 and $27,406,921 in secured advances from Federal Home Loan
Bank of Chicago at December 31, 2007 and 2006, respectively. Interest is payable monthly at rates ranging from
3.23 to 6.26 %. The advances are secured by the Federal Home Loan Bank of Chicago stock, approximately
$22,491,000 of qualifying first mortgage loans and approximately $2,186,000 of securities. The Company's
subsidiary banks had $272,747 and $475,904 in demand notes from the U.S. Treasury at December 31, 2007 and
2006, respectively. Interest is payable monthly at 25 basis points below the federal funds rate (3.06% at December
31, 2007 and 5.17% at December 31, 2006). The notes are secured by investment securities. Borrowings at
December 31, 2007 and 2006 have maturity dates as follows:
Maturity Year Ending December 31,
2007
2007
2008
2009
2010
2011
Thereafter
Note 11.
2006
$
5,045,347
1,000,000
7,250,000
8,500,000
4,000,000
$
6,475,904
5,906,921
2,000,000
11,500,000
2,000,000
$
25,795,347
$
27,882,825
Income Taxes
Income taxes consist of:
Federal and state:
Current
Deferred
2007
Years Ended December 31,
2006
2005
$
1,005,264
(12,764)
$
677,465
(343,703)
$
728,790
(334,090)
$
992,500
$
333,762
$
394,700
28
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 11.
Income Taxes (Continued)
The Company's income tax expense differed from the statutory federal rate of 34% as follows:
2007
Expected income taxes
Income tax effect of:
Tax-exempt income
State income tax
Dividends received
Cash surrender value of life insurance
Other
$
Years Ended December 31,
2006
1,398,286
$
(408,437)
142,646
(35,633)
(43,896)
(60,466)
$
992,500
949,260
2005
$
875,208
(444,655)
127,052
(106,310)
(42,281)
(149,304)
$
333,762
(423,034)
72,597
(94,277)
(38,869)
3,075
$
394,700
The net deferred tax liabilities in the accompanying balance sheets include the following amounts of deferred tax
assets (liabilities).
2007
Deferred tax liabilities
Deferred tax assets
Net deferred tax liability
December 31,
2006
$
(3,944,363)
2,126,093
$
(8,387,905)
2,005,940
$
(1,818,270)
$
(6,381,965)
The tax effects of principal temporary differences are shown in the following table.
2007
Allowance for loan losses
Premises and equipment basis
Securities available for sale
Deferred compensation
Deferred loan fees
Mortgage servicing rights
Alternative minimum tax credit
Other
Net deferred tax liability
29
December 31,
2006
$
1,147,343
(177,784)
(2,710,634)
191,536
(1,799)
(853,122)
456,664
129,526
$
1,057,972
(235,640)
(7,261,565)
13,379
(3,132)
(685,445)
433,379
299,087
$
(1,818,270)
$
(6,381,965)
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 12.
Capital Ratios
The Company's primary source of cash is dividends from its subsidiary banks. By regulation, the Banks are
prohibited from paying dividends that would reduce regulatory capital below a specific percentage of assets without
regulatory approval.
The Banks are subject to various regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory--and possibly additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on the Banks' financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet
specific capital guidelines that involve quantitative measures of the Banks' assets, liabilities, and certain off-balancesheet items as calculated under regulatory accounting practices. The Banks' capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Banks to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to riskweighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management
believes, as of December 31, 2007, that the Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 2007, the most recent notification from the Federal Deposit Insurance Corporation categorized
the Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Banks must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the following table. There are no conditions or events since that notification that management believes have
changed the Banks' category.
30
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 12.
Capital Ratios (Continued)
Actual capital amounts and ratios for the Company and the Banks are presented in the following tables:
December 31, 2007:
Actual
Amount
Ratio
Minimum Required For
Capital Adequacy
Purposes
Ratio
Amount
To be Well Capitalized
Under Regulatory
Provisions
Ratio
Amount
Total Capital (to Risk Weighted Assets)
Consolidated
$ 45,870,679
Town & Country - Spfld
25,140,143
Logan County Bank
6,702,290
Town & Country Bank
5,860,146
15.52 %
12.43
14.82
13.81
Tier I Capital (to Risk Weighted Assets)
Consolidated
Town & Country - Spfld
Logan County Bank
Town & Country Bank
37,858,193
20,357,426
6,334,132
5,327,128
12.81
10.06
14.00
12.55
11,823,327
8,091,549
1,809,548
1,697,923
4.0
4.0
4.0
4.0
12,137,324
2,714,322
2,546,884
6.0
6.0
6.0
Tier I Capital (to Average Assets)
Consolidated
Town & Country - Spfld
Logan County Bank
Town & Country Bank
37,858,193
20,357,426
6,334,132
5,327,128
10.15
8.58
8.71
8.35
14,901,317
9,492,224
2,907,342
2,541,301
4.0
4.0
4.0
4.0
11,865,280
3,634,178
3,176,626
5.0
5.0
5.0
December 31, 2006:
Actual
Amount
Ratio
$ 23,646,654
16,183,098
3,619,096
3,395,846
8.0 %
8.0
8.0
8.0
$
Minimum Required For
Capital Adequacy
Purposes
Ratio
Amount
20,228,873
4,523,870
4,244,807
10.0 %
10.0
10.0
To be Well Capitalized
Under Regulatory
Provisions
Ratio
Amount
Total Capital (to Risk Weighted Assets)
Consolidated
$ 48,754,166
Town & Country - Spfld
30,193,499
Logan County Bank
6,720,466
Town & Country Bank
6,001,129
16.44 %
15.53
14.56
12.08
Tier I Capital (to Risk Weighted Assets)
Consolidated
Town & Country - Spfld
Logan County Bank
Town & Country Bank
34,703,124
20,026,125
6,257,604
5,409,232
11.70
10.30
13.56
10.89
11,859,630
7,778,753
1,846,330
1,986,720
4.0
4.0
4.0
4.0
11,668,129
2,769,495
2,980,080
6.0
6.0
6.0
Tier I Capital (to Average Assets)
Consolidated
Town & Country - Spfld
Logan County Bank
Town & Country Bank
34,703,124
20,026,125
6,257,604
5,409,232
9.06
8.26
8.69
8.15
15,312,410
9,695,139
2,880,229
2,642,905
4.0
4.0
4.0
4.0
12,118,924
3,600,286
3,303,631
5.0
5.0
5.0
31
$ 23,713,260
15,557,505
3,692,660
3,973,440
8.0 %
8.0
8.0
8.0
$
19,446,881
4,615,825
4,966,800
10.0 %
10.0
10.0
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 13.
Employee Benefit Plans
The Company has an Employee Stock Ownership Plan (ESOP) to provide retirement benefits for substantially all
employees. All full time employees who meet certain age and length of service requirements are eligible to
participate in the ESOP. Dividends on allocated shares of common stock are allocated directly to the participant's
account. All shares held by the ESOP have been allocated to the Plan participants and are included in the
computation of weighted average common shares outstanding.
During the years ended December 31, 2007, 2006, and 2005 the Company made a cash contribution of $5,000,
$50,000 and $50,000, respectively, to the Plan. These contributions are included in employee benefits expense in
the accompanying income statements. In the event a terminated Plan participant desires to sell his or her shares of
the Company's stock, or for certain employees who elect to diversify their account balances and the Plan elects not
to purchase the shares, the Company would be required to purchase the shares from the participant at their fair
market value as determined by an independent appraiser. At December 31, 2007 and 2006, the Plan held 89,855
shares. The fair market value of those shares totaled approximately $1,257,970 and $1,213,000 as of December 31,
2007 and 2006, respectively.
The Company makes contributions to a savings investment plan established for the benefit of substantially all of the
Company's employees. A portion of the Company's contribution is based upon the employees' contributions and
another portion of the Company's contribution is at the discretion of the Board of Directors. Contributions by the
Company to the plan were $142,458, $94,235, and $99,636 for the years ended December 31, 2007, 2006, and
2005, respectively.
The Company has a non-qualified executive incentive retirement plan (the Plan) that covers select members of
management. Contributions to the Plan are based upon the Company meeting certain financial performance
measures and are deferred until the employee reaches the “normal retirement age” of 65. Retirement benefits are
paid out of the general assets of the Company. The retirement benefit is paid out in monthly installments for a 13
year period. During the first 13 years of retirement, should death occur, the beneficiary will continue to receive
payments until the 13th year following retirement. During active service, should death occur, the beneficiary will
receive monthly installments for a 13 year period in an amount equal to the greater of the deferral account balance or
$272,757. The Plan vests over time and allows for an early termination benefit that is determined by the employee’s
years of service. The accrued expenses related to the Plan were $394,683 and $437,106 as of December 31, 2007
and 2006, respectively.
Note 14.
Fair Value of Financial Instruments
Management has estimated the fair value information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument. Certain financial instruments and all
nonfinancial instruments have been excluded from its disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Company.
32
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 14.
Fair Value of Financial Instruments (Continued)
The following methods and assumptions were used by the Company in estimating the fair value of its financial
instruments:
Cash and due from banks: The stated carrying amounts approximate their fair values.
Federal funds sold and purchased: The stated carrying amounts of federal funds sold and purchased approximate
their fair values.
Securities: Fair values for securities are based on quoted market prices, where available. If quoted market prices
are not available, fair values are based on quoted market prices of comparable instruments. The carrying amount of
accrued interest receivable approximates its fair value. The carrying values reported in the balance sheet for
nonmarketable equity securities are used to approximate their fair values due to the lack of available market prices
for these securities and comparable instruments.
Loans and mortgage loans held for sale: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values for fixed-rate loans are estimated
using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to
borrowers with similar credit quality. The carrying amount of accrued interest receivable approximates its fair value.
Originated mortgage servicing rights: The fair values for mortgage servicing rights are estimated using discounted
cash flows based on current market conditions.
Off-balance-sheet instruments: Fair values for the Company's off-balance-sheet instruments are based on fees
currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and
the counterparties' credit standing. The fair value of these items is not material.
Deposits: The fair values for demand deposits are, by definition, equal to the amount payable on demand at the
balance sheet date. The carrying values for variable-rate, fixed-term money market accounts and certificates of
deposit approximate their fair values at the balance sheet date. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to
a schedule of aggregated expected monthly maturities on time deposits. The carrying amount of accrued interest
payable approximates its fair value.
Borrowings: The fair value of securities sold under agreements to repurchase, notes payable, subordinated
debentures, trust preferred securities and other borrowings are determined using a discount rate similar to the rates
available to the Company for debt with similar terms and remaining maturities.
33
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 14.
Fair Value of Financial Instruments (Continued)
The following table reflects a comparison of carrying values and the fair values of financial instruments at December
31, 2007 and 2006:
Carrying
Value
Financial Assets:
Cash and due from banks
Federal funds sold
Securities
Nonmarketable equity securities
Loans
Mortgage loans held for sale
Originated mortgage servicing rights,
net
Accrued interest receivable
Financial Liabilities:
Deposits
Federal funds purchased
Note payable and junior subordinated
debentures
Other borrowings
Accrued interest payable
$
2007
2006
Fair
Value
Carrying
Value
8,427,545
9,650,000
94,137,798
2,132,456
230,754,748
1,872,517
$ 10,022,587
99,310,028
2,094,355
255,157,076
337,219
$ 10,022,587
99,362,270
2,094,355
256,891,443
339,192
2,197,748
1,909,799
2,875,426
1,909,799
1,765,795
2,138,157
2,317,081
2,138,157
291,523,424
-
292,779,628
-
294,371,934
2,175,000
294,649,461
2,175,000
11,856,000
25,795,347
1,743,888
12,148,336
26,671,748
1,743,888
14,447,000
27,882,825
1,686,135
14,521,309
27,881,148
1,686,135
8,427,545
9,650,000
94,164,589
2,132,456
231,528,779
1,862,333
$
Fair
Value
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 earnings potential of loan servicing
rights, the earnings potential of the trust operations, the trained work force, customer goodwill and similar items.
Note 15.
Lease Commitments and Total Rental Expenses
The Company leases certain facilities under agreements expiring through 2014. The total minimum rental
commitment at December 31, 2007 follows:
Years Ended December 31,
Amount
2008
2009
2010
2011
2012
Thereafter
$
43,725
43,725
49,737
50,284
50,284
104,758
$
342,513
Total rental expense was $83,895, $67,154, and $82,391 for the years ended December 31, 2007, 2006, and 2005,
respectively.
34
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 16.
Commitments, Contingencies and Credit Risk
In the normal course of business, there are outstanding various contingent liabilities such as claims and legal actions,
which are not reflected in the accompanying balance sheet. In the opinion of management, no material losses are
anticipated as a result of these actions or claims.
The Company's bank subsidiaries are parties to financial instruments with off-balance-sheet risk in the normal course
of business to meet the financing needs of their customers. These financial instruments include commitments to
extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheets. The contractual amounts of those
instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
The Company's bank subsidiaries exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and standby letters of credit written is represented by the
contractual amount of those instruments. The Banks use the same credit policies in making commitments and
conditional obligations as they do for on-balance-sheet instruments.
Financial instruments whose contractual amounts represent credit risk at December 31, 2007 and 2006 follow:
December 31, 2007:
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit
Standby letters of credit
Variable Rate
Commitments
Fixed Rate
Commitments
Total
Commitments
Range of Rates
on Fixed Rate
Commitments
$ 31,842,471
1,624,569
$
8,852,536
345,216
$ 40,695,007
1,969,785
4.99 - 9.75%
5.0 - 8.0%
$ 40,426,317
906,862
$
9,148,687
345,216
$ 49,575,004
1,252,078
3.99 - 11.25%
5.00 - 8.00%
December 31, 2006:
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit
Standby letters of credit
As of December 31, 2007 and 2006, the Company has no futures, forwards, swaps or option contracts, and does not
have a material amount of other financial instruments with similar characteristics.
All of the Company's loans, commitments to extend credit, and standby letters of credit have been granted to
customers in the Company's market area. Investments in securities issued by state and political subdivisions also
involve governmental entities within the Company's market area. The distribution of commitments to extend credit
approximates the distribution of loans outstanding. Standby letters of credit were granted primarily to commercial
borrowers. The Company, as a matter of policy, does not extend credit to any single borrower or group of related
borrowers in excess of $7,500,000. Although the Company has a diversified loan portfolio, a substantial portion of its
debtors' ability to honor their contracts is dependent upon the performance of the economy in Sangamon, Logan,
Macon and Macoupin Counties.
35
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 17.
Sale of Palmyra Branch
On October 19, 2005, Town & Country Bank of Springfield, a wholly owned subsidiary of Town and Country Financial
Corporation, entered into a contract for the sale of Town & Country Bank of Springfield’s Palmyra branch. The
acquiring bank, located in Modesto, Illinois, obtained all fixed assets of the branch and assumed liability for all
deposits of the branch. The remaining assets and liabilities will remain with Town & Country Bank of Springfield.
Town & Country Bank of Springfield received $1,250,000 on March 17, 2006, the closing date. The Company sold
fixed assets with a net book value of $157,862 incurred attorney fees of $23,465, incurred employee benefit expense
of $13,164 and incurred data processing conversion expense of $6,000. This resulted in a gain on sale to the
Company of $1,049,509. The Company sold deposits totaling $11,008,635.
Note 18.
New Accounting Pronouncements
In September 2006, the FASB issued Statement of Financial Accounting Standard No. 157 (SFAS No. 157), Fair
Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. It clarifies that fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which
the reporting entity transacts. This Statement does not require any new fair value measurements, but rather, it
provides enhanced guidance to other pronouncements that require or permit assets or liabilities to be measured at
fair value. This Statement is effective for fiscal years beginning after November 15, 2007, with earlier adoption
permitted. The Company is currently evaluating the impact, if any, of the provisions of SFAS 157.
In February 2007, the FASB issued Statement on Financial Accounting Standard No. 159 (SFAS No. 159), The Fair
Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115.
SFAS 159 permits an entity to choose to measure many financial instruments and certain other items at fair value.
SFAS 159 is effective as of the beginning of any entity’s first fiscal year that begins after November 15, 2007. The
Company does not expect that the adoption of this Statement will have a material impact on its financial position,
results of operation and cash flows.
In June 2006, the FASB issued FASB Interpretation No. 48 (“FIN48”), Accounting for Uncertainty in Income Taxes.
This interpretation applies to all tax positions accounted for in accordance with SFAS No. 109, Accounting for Income
Taxes. FIN 48 clarifies the application of SFAS No. 109 by defining the criteria that an individual tax position must
meet in order for the position to be recognized within the financial statements and provides guidance on
measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and
transition for tax positions. This interpretation is effective for fiscal years beginning after December 15, 2006, with
earlier adoption permitted. On January 23, 2008, the FASB decided to defer the effective date of FIN 48 for eligible
nonpublic enterprises and to require those enterprises to adopt FIN 48 for annual periods beginning after December
15, 2007. The Company is eligible for the deferral and management has decided to defer the implementation of FIN
48. The Company does not expect that the adoption of this Interpretation will have a material impact on its financial
position, results of operation and cash flows.
36
Town and Country Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 18.
New Accounting Pronouncements (Continued)
In September 2006, the Emerging Issues Task Force (“EITF”) reached a final consensus on Issue 06-04, “Accounting
for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements.” The consensus stipulates that an agreement by an employer to share a portion of the proceeds of a
life insurance policy with an employee during the postretirement period is a postretirement benefit arrangement
required to be accounted for under SFAS No. 106 or Accounting Principles Board Opinion (“APB”) No. 12, “Omnibus
Opinion – 1967.” The consensus concludes that the purchase of a split-dollar life insurance policy does not
constitute a settlement under SFAS No. 106 and, therefore, a liability for the postretirement obligation must be
recognized under SFAS No. 106 if the benefit is offered under an arrangement that constitutes a plan or under APB
No. 12 if it is not part of a plan. Issue 06-04 is effective for annual or interim reporting periods beginning after
December 15, 2007. The Company has endorsement split-dollar life insurance policies and is currently assessing
the financial statement impact of implementing EITF 06-04. The Company does not expect that the adoption of EITF
06-04 will have a material impact on its financial position, results of operation and cash flows.
In March 2007, the Emerging Issues Task Force (“EITF”) reached a final conclusion on Issue 06-10, “Accounting for
Collateral Assignment Split-Dollar Life Insurance Arrangements”. The consensus concludes that a liability must be
recognized for the postretirement obligation related to a collateral assignment split-dollar life insurance arrangement
in accordance with SFAS No. 106 or APB No. 12. Any asset should be recognized and measured based on the
nature and substance of the collateral assignment split-dollar life insurance arrangement. The effective date of EITF
06-10 is for fiscal years beginning after December 15, 2007. The Company is currently assessing the financial
statement impact of implementing EITF 06-10. The Company does not expect that the adoption of EITF 06-10 will
have a material impact on its financial position, results of operation and cash flows.
37
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38
We value teamwork. By working with others, we will do much more than we could on our
own.
Our community support is a classic example of the power of teamwork. Our team of
volunteers reach out to both our servicing and outlying areas. We also provide financial
support to a number of local charities as diverse as our employee base (see a complete
list below).
Town and Country Financial Corporation is dedicated to leveraging our financial and
human resources to better our community.
Abe Lincoln High Twelve Club No. 38
American Red Cross, IL Capitol Area Chapter
Big Brothers Big Sisters of Sangamon County
Blessed Sacrament School
Boys and Girls Clubs of Springfield
Boy Scouts, Abraham Lincoln Council
Brown Street COGIC
Butler Elementary School
CASA’s Playhouse Project
Capital Area Association of Realtors
Children’s Miracle Network
Christ the King School
Farmingdale Elementary School Parent Teacher Club
Fellowship of Christian Athletes
Festival of Trees Silent Auction
Glen-Aire Association Block Party/Picnic 2007
International Brotherhood of Electrical Workers Golf Outing
Knights of Columbus
Lincoln Art & Balloon Festival
Lincoln Land Community College Foundation
Lincoln High School Student of the Month
Logan County Farm Bureau
Lutheran Social Services of Illinois
March of Dimes
Mary Teubner Memorial Open
Midwest Petroleum and Convenience Trade Show Silent Auction 2007
Muscular Dystrophy Association
Newspapers in Education (State
State Journal-Register
Journal-Register)
PORA (Positive Options, Referrals and Alternatives)
Race for the Cure
Rotary Club
St. Agnes Parish Auction 2007
St. Teresa High School
The Salvation Army
Senior Services of Central Illinois
Sparc
The Springfield Chapter of Hadassah
Springfield Lion’s Club
Springfield Overflow Shelter
Springfield Southeast High School
Springfield Sports Hall of Fame
Springfield Urban League
Springfield Vicinity Sheet Metal Contractors Association &
Mechanical Contractors Association of Central Illinois
St. John’s Evangelical Lutheran Church
St. John’s Hospital
United Way of Central Illinois, Inc.
YMCA of Springfield
39
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Town and Country Financial Corporation shares are quoted on the OTC Bulletin Board
under the symbol TWCF. If you are interested in purchasing shares of Town and Country
Financial Corporation, you may contact the following Market Makers:
Automated Trading Desk Financial Services, LLC 866-283-2831
Ferris, Baker Watts, Inc. 800-638-7411
Hill Thompson Magid & Co., Inc. 800-631-3083
Howe Barnes Investments, Inc. 800-621-2364
Hudson Securities, Inc. 800-624-0050
Knight Equity Markets, L.P. 800-232-3684
McAdams Wright Ragen, Inc. 503-922-4888
Monroe Securities, Inc. 800-766-5560
Pershing Trading Company, L.P. 800-305-0161
UBS Securities LLC (UBSS) 203-719-8710
40
3601 Wabash Avenue
Springfield, IL 62711
Toll Free 866.770.3100
www.townandcountrybank.com or
www.logancountybank.com