2010_annual-report_town-and-country-financial-
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To w n a n d C o u n T ry F i n a n C i a l C o r p o r aT i o n • 2010 A n n uA l R e p o R t w w w.To w n a n d C o u n T ry b a n k .C o mII
Table of ConTenTs
1 LettertoShareholders
4 2010YearinReview
6 FinancialSummary
8 BoardofDirectors
9 ExecutiveOfficers
10 Management’sDiscussionandAnalysis
1 1 IndependentAccounts’Report
Melodey Charles, assistant bank Manager
Jessica Walcher, Customer expert - solution Center
l to R: Jennifer stice, Trust officer; Dana Dow, President - Mortgage services; linda Hammer, Marketing assistant
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Though our industry and our nation’s economy continue to be in flux, one thing is clear: at Town and Country Financial Corporation, we are in focus. More than any other time in recent memory, our vision — and plans for achieving it — are clear, real and concrete. And perhaps most importantly, we are proud to report that this clear focus is shared and embraced by our entire team, from our front line staff to our back office support.
Where has our clarity come from? It’s come from our newly focused position, centered around the understanding of how the changes in our economy altered how we as individuals, families and businesses manage our money every day and prioritize our values. What makes this company unique and special is our connection to the customer, our understanding of this “new norm,” our tie to the communities we do business in and our focus to educate our staff about these new needs and desires.
For the past year, we have been keenly focused on living out our actions — not just making statements. We have made great strides toward becoming more customercentric, and growing business by focusing on working with customers to meet their needs and goals — not pushing products.
As we reflect on 2010, we ask ourselves bluntly: did we meet our own expectations? In many ways, we did. We are proud of our continued improvement. Still, we are not content. We will not settle.
We are driven by the goal to help our customers improve their financial lives. The result of that work is growth and profitability for the company and its shareholders. We are pleased to report that in 2010, we doubled our profits over 2009, reporting net income of $2.1 million, or $0.75 per share, compared with $1.0 million, or $0.36 per share in 2009. We attribute this improvement primarily to lower loan loss provision expense driven by lower net chargeoffs, and stronger net interest margin of 3.57% compared
to 3.47% in 2009. This margin represents marked improvement over recent years, and in fact places the company near the top of our local peer group. Noninterest income of $5.8 million was 11% below 2009 due to a reduction in the value of the serviced mortgage portfolio and onetime insurance proceeds received in 2009. Noninterest expense was $13.7 million and generally unchanged from the prior year. We remain keenly aware of the need to balance revenue growth in relation to expense growth, and feel confident our plans are in balance. We have long said we planned to make our mortgage business a stable contri butor to the company’s profitability, and we are pleased to report we are well on the way to achieving this.
As you are aware, regulatory pressures continue to have a substantial effect on all banks’ noninterest income sources,
DearShareholders,
Last year we shared our way forward. We charted a path toward our goals, and for the past 12 months, we have been busy executing our plan. Today, as we reflect on 2010, we are proud to report significant progress.
Micah R. bartlett (l) and David e. Kirschner
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such as overdraft fees and interchange income. As such, our revenues are lower based on both economic factors and regulatory factors, and it is apparent these pressures will continue moving forward. While frustrating, we see these abundant industry changes as an opportunity — a chance to reconsider how we charge customers and add value. We believe this will stimulate business model innovation at our banks and will ultimately make our company more sustainable.
Among our most significant accomplishments in 2010 was strengthening our balance sheet in nearly every sense. Total assets at the close of 2010 were $362 million compared to $375 million at the end of 2009, the change due primarily to investment portfolio cash flows. Net loans were $226 million, up $6 million, or 2.8%, while the serviced mortgage portfolio posted growth of 5.3%. Total deposits were $298 million compared to $305 million at the prior yearend.
We are pleased to tell you that our loan portfolio quality is much stronger, and we believe it to be among the top in our local peer group. Credit quality continues to be a major focus for banks nationwide, but ours has strengthened. Our liquidity is excellent, our capital is stronger, and we have enhanced our book value to $11.13 per share compared to $10.47 per share at the end of 2009.
As you can see, our team is managing diligently to create profitable business units. Our Trust and Investment Services made great strides in 2010, increasing our expertise, bolstering the team and expanding our capabilities. That business had its most successful year, growing annualized revenue by 14% and total trust assets by 74%.
We also made great advancement in operations and customer service. One example of which is the establishment of our new Solution Center. The Solution Center was designed with a keen sense of improved customer experience, by allowing bankers to focus on customers without interruption. This is just one of the first of many developments at the company as a result of our focus on living our brand position and executing methods to enhance customer engagement.
We are especially proud of the ways we supported our communities in 2010 — the true definition of a community bank. In fact, we were honored as a 2010 Community Service Award winner by the Illinois Bankers Association. In addition, Town & Country Bank is the lead bank on two major community initiatives: the
development of a new YMCA branch in Springfield, and the expansion of Springfield’s only Catholic High School, Sacred HeartGriffin. We also created our popular new Denim Fridays program, in which Town and Country selects an area notforprofit each month. Employees step away from the traditional banking attire by wearing jeans to work on Fridays if they make a donation matching an item on the charity’s wish list.
As we approach our 50 year anniversary, we continue to do business in an everchanging environment. While the industry and economy are challenging, we at Town and Country are optimistic, and focused on creating a bright future by evolving our business. In 2011, our focus is on customers, employees and technology. We believe strongly that investing our resources in these areas will help our strategy pay off and enhance our financial standing. While we continue to enhance the company’s profitability by improving our operations and strengthening our brand position, please note we will always be committed to maintaining a strong balance sheet and capital position. And while we did not experience the balance sheet growth in 2010 we had strived for, we believe our clear focus and strategies will deliver growth in 2011 and beyond.
Lastly, we’d like to commemorate two important individuals. First, the Town and Country family suffered the loss of Glenys RobertsHamer, a dedicated and positive member of our team. She is greatly missed. Secondly, we celebrated the retirement of Director Robert Evans from our Board after 32 years of service. Bob’s seat was filled by his son, Donald Evans, who we welcome to our Board. We greatly appreciate Bob’s contributions and year’s of service to our organization.
Your ongoing support and belief in our vision for this company is more appreciated than you know. I’m proud to report that vision is now more clear than it has ever been, and we are very excited about the months and years ahead.
Here’s to a fulfilling 2011: for you, for our families, for Town and Country Financial Corporation and for our communities.
Sincerely,
Micah R. Bartlett David E. KirschnerPresident and CEO Executive Chairman
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Our clarity comes from our newly focused position, centered around the understanding of how the
changes in our economy altered how we as individuals manage our money and prioritize our values.
To w n a n d C o u n T ry F i n a n C i a l C o r p o r aT i o n • 2010 A n n uA l R e p o R t w w w.To w n a n d C o u n T ry b a n k .C o m4
February 21, 2010
In remembrance of Henry Kirschner, and to continue to recognize those in the Town and Country family who push for innovation, the company launched the Henry Kirschner Innovator of the Year Award. This award is given to one employee who has implemented inno vation through quality of service, employee morale, company process, increased revenue, reduced expense or any number of other areas within the bank.
april 2010
Town and Country Financial Corporation reported first quarter net income of $316 thousand, or $0.11 per share, compared with $343 thousand, or $0.12 per share in the first quarter of 2009.
May 2010
Town and Country Financial Corporation announced its newest program — Denim Fridays — presenting an opportunity for its staff to donate to great causes while taking a break from the traditional banking attire. Each month Town and Country selects an area notforprofit and in order for an employee to wear jeans, the person must bring in items from the charity’s wish list or donate $5 each Friday.
June 24, 2010
Illinois Bankers Association presented Town & Country Bank with the Community Service Award for its involvement in assisting the Salvation Army with beating their budget shortfall by extending their Red Kettle campaign and for helping area notforprofits through their new program, Denim Fridays.
July 2010
Town and Country Financial Corporation reported second quarter net income of $366 thousand, or $0.13 per share, compared with $240 thousand, or $0.09 per share in the second quarter of 2009.
2010YearinReview
Henry Kirschner
Town & Country bank President Micah bartlett (far left) presents a check to salvation army representatives at the Chamber of Commerce’s annual gala.
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July 22, 2010
Town and Country Financial Corporation welcomed its Board of Directors, employees and their families to the 2nd annual Backyard BBQ held on the back field at the 3601 West Wabash location.
SepteMber 17, 2010
Logan County Bank announced a $25,000 commitment to Preserve the Mission Capital Campaign Fund. This gift, made payable over five years, will be used towards the new campus of the Abraham Lincoln Memorial Hospital opening in the spring of 2011 in Lincoln.
SepteMber/OctOber 2010
Springfield Scene Magazine featured Town & Country Bank President & CEO Micah Bartlett and his wife Peggy as their cover story.
OctOber 2010
Town and Country Financial Corporation reported third quarter net income of $673 thousand, or $0.24 per share, compared with $362 thousand, or $0.13 per share in the third quarter of 2009.
OctOber 22, 2010
Town & Country Bank issued its commitment to be the lead bank for the new YMCA being built on the West side of Springfield.
OctOber 28, 2010
Town and Country announced the election of Donald H. Evans to their Board of Directors. Mr. Evans filled the board seat vacated by the retirement of his father, Mr. Robert L. Evans, a Town and Country Financial Corporation Director of 32 years.
DeceMber 22, 2010
Town & Country Bank issued its commitment to be the lead bank for the expansion of Sacred HeartGriffin, the only Catholic High School in Springfield.
logan County bank President brian ash presents a check to abraham lincoln Healthcare foundation’s executive Director Marty ahrends.
Donald H. evans
David Kirschner with his sister Pam bolduc and her children Haley and logan at the backyard bbQ.
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FinancialSummaryIn thousands except per share and ratio data
tOtal net revenue FunDing SOurceS
net intereSt Margin Tax Equivalent
nOnperFOrMing lOanS tO tOtal lOanS
Excluding loans held for sale
tOtal riSk-baSeD capital
DiviDenDS DeclareD per cOMMOn Share
‘06
$12
,19
1
$12
,80
9
$12
,86
3
$17
,78
3
$17
,54
4
‘07 ‘08 ‘09 ‘10
17,544 17,783 12,863 12,809 12,191
0
5000
10000
15000
20000
‘06 ‘07 ‘08 ‘09 ‘10
$141,446 $143,212 $158,640 $177,985 $181,704 $150,993 $147,313 $141,525 $127,477 $115,877
0
50000
100000
150000
200000
0
50000
100000
150000
200000
$1,933 $998 $994 $996 $8,823 $27,407 $25,523 $30,650 $27,654 $20,223
0
50000
100000
150000
200000
0
50000
100000
150000
200000
‘06
2.7
4% 2.8
8% 3.0
0% 3
.47% 3.
57%
‘07 ‘08 ‘09 ‘10
2.74% 2.88% 3.00% 3.47% 3.57%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
‘06
0.5
9%
0.7
6%
1.75
%
1.24
%
0.4
0%
‘07 ‘08 ‘09 ‘10
0.59% 0.76% 1.75% 1.24% 0.40%
0.0
0.5
1.0
1.5
2.0
‘06
16.8
%
15.6
%
15.4
%
14.9
%
15.1
%
‘07 ‘08 ‘09 ‘10
Risk-based Capital 16.8% 15.6% 15.4% 14.9% 15.1%
0
5
10
15
20
‘06
$0
.23 $
0.2
8
$0
.20
$0
.14
$0
.12
‘07 ‘08 ‘09 ‘10
$0.23 $0.28 $0.20 $0.14 $0.12
0.00
0.05
0.10
0.15
0.20
0.25
0.30
WellCapitalized:10%
CoreDepositsBrokeredTimeDepositsFHLBAdvances
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SuMMary OF cOnSOliDateD Financial highlightSin thousands except per share, shares outstanding and ratio data
As of or for the year ended December 31, 2010 2009 2008 2007 2006
SelectedincomeStatementitemSNoninterest income before income from mortgage banking activities $2,730 $3,075 $2,567 $2,462 $2,514 Income from mortgage banking activities 3,026 3,391 815 1,470 907 Net Interest income 11,788 11,317 9,481 8,877 8,770 Total net revenue 17,544 17,783 12,863 12,809 12,191 Provision for credit losses 672 2,951 281 341 256 Noninterest expense 13,709 13,664 12,241 12,649 10,193 Income before income tax expense and nonrecurring items 3,163 1,168 340 (181) 1,742 Income tax expense 920 (62) (428) (674) (74)Net income before nonrecurring items 2,243 1,230 768 493 1,816 Net income from nonrecurring items (142) (217) (655) 2,627 642 Net Income $2,101 $1,013 $113 $3,120 $2,458
detailnonrecurringitemS(after tax)Gain on sale of assets $46 $74 $492 $2,627 $642 Asset valuation adjustments including writedowns due to impairment $(188) $(291) $(1,147) $– $–
PercommonShareNet income before nonrecurring items per share $0.80 $0.44 $0.27 $0.17 $0.64 Net income from nonrecurring items per share $(0.05) $(0.08) $(0.23) $0.93 $0.23 Basic earnings per share $0.75 $0.36 $0.04 $1.10 $0.87 Cash dividends declared per share $0.12 $0.14 $0.20 $0.28 $0.23 Book value per share excluding accumulated comprehensive income $10.82 $10.19 $9.96 $10.12 $9.30 Book value per share including accumulated comprehensive income $11.13 $10.47 $10.25 $11.63 $13.34
Weighted-averagecommonShareSoutStanding(net of treasury shares) 2,792,704 2,792,704 2,828,070 2,832,469 2,832,484
SelectedratioSReturn on common equity 7.00% 3.53% 0.36% 8.25% 6.54%Return on assets 0.58% 0.27% 0.03% 0.87% 0.66%Tier 1 leverage ratio 10.9% 10.1% 10.0% 10.5% 9.4%Total riskbased capital ratio 15.1% 14.9% 15.4% 15.6% 16.8%
SelectedbalanceSheetdata(periodend)Total assets $362,247 $375,141 $374,600 $367,172 $386,030 Securities 95,961 107,826 113,437 94,165 99,310 Net Loans including loans available for sale 226,470 220,331 227,047 233,391 255,494 Mortgage loans sold with servicing retained 341,771 324,484 289,982 299,356 303,293 Deposits 297,581 305,462 300,165 291,523 294,372 Total stockholders’ equity excluding accumulated comprehensive income 30,212 28,446 27,824 28,672 26,345 Accumulated comprehensive income 881 804 789 4,272 11,445
creditqualityAllowance for loan loss $2,918 $2,633 $3,102 $3,154 $2,963 Nonperforming loans $890 $2,727 $3,917 $1,791 $1,512 Real Estate Owned $1,718 $796 $689 $460 $100 Allowance for loan loss to total loans, excluding loans held for sale 1.32% 1.22% 1.39% 1.34% 1.15%Coverage (Allowance for loan loss to nonperforming loans) 327.9% 96.6% 79.2% 176.1% 196.0%Net chargeoffs $387 $3,420 $333 $150 $208 Net chargeoff rate (to average loans) 0.18% 1.53% 0.14% 0.06% 0.08%
To w n a n d C o u n T ry F i n a n C i a l C o r p o r aT i o n • 2010 A n n uA l R e p o R t w w w.To w n a n d C o u n T ry b a n k .C o m8
David E. KirschnerExecutive Chairman, Town and Country Financial Corporation
John E. StaudtVice Chairman & Chief Risk Officer, Town and Country Financial Corporation
Donald H. EvansOwner, Evans Construction Company
Louis H. DixonEngineer & Senior Vice President,Crawford, Murphy & Tilly, Inc.
Mark O. Roberts, Jr.President & Chairman of the Board,Standard Mutual Insurance Company
John S. CobbAttorney, Samuels, Miller, Schroeder, Jackson & Sly
Dewey R. YaegerRetired
Micah R. BartlettPresident & CEO,Town and Country Financial Corporation
BoardofDirectorsLeft to right
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Thomas M. GallagherSenior Vice President, Trust & Investment Services, Town & Country Bank
Nancy J. BahreExecutive Vice President & CFO, Town and Country Financial Corporation
Larry D. AndersonCommunity Bank President, Macon County, Town & Country Bank
David E. KirschnerExecutive Chairman, Town and Country Financial Corporation
Micah R. BartlettPresident & CEO, Town and Country Financial Corporation;Chairman, President, CEO, Town & Country Bank
Brian K. AshChairman, President & CEO,Logan County Bank
Dana M. DowChairman, President & CEO,Town & Country Banc Mortgage Services, Inc.
John E. StaudtVice Chairman & Chief Risk Officer, Town and Country Financial Corporation
ExecutiveOfficersLeft to right
2010 A n n uA l R e p o R t • To w n a n d C o u n T ry F i n a n C i a l C o r p o r aT i o n 9
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OverviewTown and Country Financial Corporation (the Company) is a banking and financial services holding company conducting operations through its affiliates, Logan County Bank, Town & Country Bank, and Town & Country Banc Mortgage Services, Inc. The Company offers loan, investment, trust, deposit and cash management services to businesses and individuals through its 10 offices in the Central Illinois communities of Buffalo, Decatur, Forsyth, Lincoln, Mt. Zion and Springfield. Approximately 130 employees are engaged in providing these services.
resultsThe Company reported 2010 net income of $2.1 million, or $0.75 per share, compared with net income of $1.0 million, or $0.36 per share, in 2009. Return on common equity was 7.0% in 2010 and 3.5% in 2009. Improved results in 2010 were driven by lower loan loss provision expense and higher net interest spreads. Partially offsetting these improvements were lower income from mortgage banking activities and income from life insurance proceeds received in 2009.
During 2010, total recurring net revenue was $17.5 million compared to $17.8 million in 2009 as the Company improved the net interest margin by 10 basis points to 3.57% and increased net interest income by $471 thousand (4.2%). However, this was not enough to offset the decline of $365 thousand in mortgage banking profits as the value of mortgage servicing rights fell by $528 thousand. When rates drop significantly, as they did in 2010, the expected lives of underlying loans shortened producing lower service value. A like adjustment of $116 thousand was recorded during 2009. Also, the Company had a $411 thousand gain on Company owned life insurance in 2009 for which there was none in 2010. And finally, the Company experienced a 16% decline in overdraft income.
Full-year net credit losses were much improved from the prior year at $387 thousand, or 0.18% of loans, compared to $3.4 million, or 1.54% of loans, in 2009. The lower credit losses plus additions to the general loss reserve drove a lower provision expense of $672 thousand in 2010 compared to $3 million in 2009. Other expenses were $13.7 million in 2010, up $45 thou sand, or 0.3% from the prior year. The primary drivers of change were higher costs associated with employee benefits and reductions to the net realizable value of foreclosed assets held for sale, partially offset by lower FDIC assessments.
The Company maintained its investment in trust pre ferred securities, which securities generally represent the debt of small and mid-sized banks. In 2010, the Company recorded pretax credit impairment charges of $307 thousand compared to $382 thousand in 2009. The assets were valued at $6.1 million at December 31, 2010 with an amortized cost of $9.9 million.
Credit quality metrics were much improved in 2010 mostly reflective of the aggressive management of troubled assets. Nonperforming assets (loans 90 days or more past due, nonaccrual loans, and real estate owned) as a percentage of loans plus real estate owned improved to 1.17% at year-end compared to 1.60% at December 31, 2009. And, the coverage ratio (allowance for loan loss to nonperforming loans) improved to 328% at December 31, 2010 up from 97% at December 31, 2009.
Total assets were $362 million at December 31, 2010 compared to $375 million at December 31, 2009. The change was led by a reduction in investment securities partially offset by an increase in net loans of $6 million, or 2.8%, due to higher levels of loans available for sale. Mortgage loans sold with servicing retained were up $17 million (5.3%) primarily due to wholesale relationships forged in 2009.
Total deposits were $298 million on December 31, 2010 and $8 million below the year-ago due to a temporary deposit at year end 2009. Core deposits, adjusted to exclude the temporary deposit, were up $12 million, as customers were increasingly unwilling to tie up their cash for longer periods of time favoring instead liquid demand and savings accounts. Term deposits excluding brokered CDs were down $19 million. Seeking to take advantage of the low rate environment, the Company periodically added longer-term brokered deposits through the wholesale funding market at favorable rates. Brokered deposits were $9 million at year-end, or 2.4% of total assets. In other funding changes, the Company allowed maturing FHLB advances to roll off the balance sheet without replacement.
Throughout 2010, the bank focused on maintaining strength in its balance sheet. Along with improved credit quality, the Company’s equity capital strengthened to $31 million on December 31, 2010 with a reported book value of $11.13 per share compared to $29 million and $10.47 on December 31, 2009. Tier 1 capital was $40 million, or 10.9% of average assets, and total regulatory capital was nearly $46 million, or 15.1% of risk-weighted assets.
2011 OutlOOkGrowing revenues faster than expenses will be challenging in 2011 and beyond. Although very strong, our net interest margin is likely to come under pressure in 2011 as further opportunities to lower the cost of funds are limited, and attractive investment options are fewer and farther between. In addition, finding loans meeting our quality and profitability standards will continue to challenge well-capitalized companies such as ours due to aggressive competition in today’s slower growing markets.
Mortgage banking activities remain important to the Company although we acknowledge that earnings can be volatile and have hinged, historically, on the presence or absence of a refinance market. We continue to streamline processes to reduce costs and seek to replace refinance activity with sustainable and profitable retail and whole sale lending ventures. Also, Trust and Investment Services, a growing area of revenue for the Company, remain central to our plans for growth and prosperity.
In general, management believes that revenue and expense will be impacted negatively as new laws are implemented by our legislators and rules promulgated by our regulators. We are generally optimistic about the quality of credit-based assets despite an economic recovery that could be long and slow. In response to these headwinds and to achieve our goals of balance sheet strength, growth and profitability, we continue to focus on, and invest in, our employees, branches and technology.
Management’sDiscussionandAnalysis
This section presents management’s discussion and analysis of the financial condition and results of operations of the Town and Country Financial Corporation for 2010 and 2009. Forward-looking statements are not a guarantee of future performance and actual results could differ materially. The section should be read in conjunction with the accompanying Annual Report.
1,512 1,791
3,917 3,602
5,540
7,880
2,727 2,673 2,496 2,598
890
100 460
714 639 In thousands
430
730
796 1,019 882 849
1,718
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
FY 06 FY 07 YE 08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10
NPL REO NPAs/Loans + REO
levels of nonperforming assets (loans 90 days past due, nonearning, real estate owned) decline sharply at year-end 2009 and are stable to lower in 2010.
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To w n a n d C o u n T ry F i n a n C i a l C o r p o r aT i o n • 2010 A n n uA l R e p o R t w w w.To w n a n d C o u n T ry b a n k .C o m12 13
Town and Country Financial Corporation Consolidated Balance Sheets December 31, 2010 and 2009 Assets
2010 2009
Cash and due from banks $ 3,622,640 $ 4,487,488 Interest-bearing demand deposits in banks 5,441,133 17,151,695
Cash and cash equivalents 9,063,773 21,639,183
Interest-bearing time deposits in banks 7,602,000 1,876,000 Available-for-sale securities 95,543,117 106,313,703 Held-to-maturity securities 417,803 1,512,742 Loans held for sale 8,855,868 4,116,183 Loans, net of allowance for loan losses of $2,918,132 and $2,633,107 at December 31, 2010 and 2009 217,614,241 216,214,999 Premises and equipment, net of accumulated depreciation of $10,347,241 and $10,056,961 at December 31, 2010 and
2009 9,232,884 9,682,470 Federal Reserve and Federal Home Loan Bank stock 2,241,706 2,094,656 Foreclosed assets held for sale, net 1,717,979 795,640 Deferred income taxes 1,940 — Cash surrender value of life insurance 3,560,959 3,682,975 Mortgage servicing rights, net of valuation allowance of $964,119 and $436,419 at December 31, 2010 and 2009 2,515,566 2,572,808 Other 3,878,808 4,639,717
Total assets $ 362,246,644 $ 375,141,076
Liabilities and Stockholders’ Equity
Liabilities Deposits
Demand $ 41,258,487 $ 42,659,173 Savings, NOW and money market 140,445,437 135,325,368 Time 107,054,435 126,480,437 Brokered time deposits 8,822,898 996,826
Total deposits 297,581,257 305,461,804
Federal Home Loan Bank advances 20,000,000 27,250,000 Junior subordinated debt owed to unconsolidated parties 11,856,000 11,856,000 U.S Treasury demand note 222,661 404,011 Deferred income taxes — 11,853 Other liabilities 1,493,339 907,301
Total liabilities 331,153,257 345,890,969
Stockholders’ Equity
Common stock, no par value; authorized 5,000,000 shares; issued – 2,983,608 shares 1,657,560 1,657,560 Additional paid-in capital 9,935,098 9,935,098 Retained earnings 19,755,940 17,990,036 Accumulated other comprehensive income 881,299 803,923
32,229,897 30,386,617
Treasury stock, at cost Common; 190,904 shares 1,136,510 1,136,510
Total stockholders’ equity 31,093,387 29,250,107
Total liabilities and stockholders’ equity $ 362,246,644 $ 375,141,076 See Notes to Consolidated Financial Statements
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Town and Country Financial Corporation Consolidated Statements of Income Years Ended December 31, 2010 and 2009
2010 2009 Interest and Dividend Income
Loans, including fees $ 12,545,506 $ 13,139,513 Securities
Taxable 2,828,110 3,452,072 Tax-exempt 742,567 869,336 Other 315,174 387,945
Federal funds sold 1,003 3,732 Dividends on Federal Reserve Bank stock 16,441 16,782 Deposits with financial institutions and other 164,230 149,743
Total interest and dividend income 16,613,031 18,019,123
Interest Expense
Deposits 3,165,343 4,846,653 Other borrowings 1,659,354 1,855,598
Total interest expense 4,824,697 6,702,251
Net Interest Income 11,788,334 11,316,872 Provision for Loan Losses 672,166 2,951,370 Net Interest Income After Provision for Loan Losses 11,116,168 8,365,502 Noninterest Income
Fiduciary activities 240,724 211,435 Customer service fees 1,046,934 1,217,836 Other service charges and fees 1,013,674 886,813 Realized gains on sales of available-for-sale securities 147,258 122,127 Mortgage banking income, net 3,553,890 3,506,768 Loss on impairment of mortgage servicing rights (527,700) (116,000) Gains on life insurance — 410,995 Loss on other-than-temporary impairment of equity securities — (94,407) Other-than-temporary losses on debt securities
Total other-than-temporary losses (1,106,918) (1,059,845) Portion of loss recognized in other comprehensive income (before taxes) 800,318 678,342
Net impairment losses on debt securities recognized in earnings (306,600) (381,503)
Other 356,148 348,294
Total noninterest income 5,524,328 6,112,358
Noninterest Expense Salaries and employee benefits 8,023,209 7,774,905 Occupancy 1,102,727 1,072,682 Equipment 441,887 482,323 Other 4,141,345 4,334,400
Total noninterest expense 13,709,168 13,664,310
Income Before Income Taxes 2,931,328 813,550 Provision (Credit) for Income Taxes 830,300 (199,918) Net Income $ 2,101,028 $ 1,013,468 Basic Earnings Per Share $ 0.75 $ 0.36 Weighted Average Shares Outstanding $ 2,792,704 $ 2,792,704
See Notes to Consolidated Financial Statements
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Town and Country Financial Corporation Consolidated Statements of Stockholders’ Equity December 31, 2010 and 2009
Accumulated Additional Other Common Stock Paid-in Retained Comprehensive Treasury Shares Amount Capital Earnings Income Stock Total
Balance, January 1, 2009 2,983,608 $ 1,657,560 $ 9,935,098 $ 17,367,547 $ 788,708 $ (1,136,510) $ 28,612,403 Comprehensive income Net income — — — 1,013,468 — — 1,013,468 Change in unrealized appreciation on available-for-
sale securities, net of tax expense of $120,379 — — — — 197,689 — 197,689 Change in unrealized depreciation on available-for-
sale securities for which a portion of an other-than-temporary impairment has been recognized in income, net of tax benefit of $(116,663) — — — — (182,474) — (182,474)
Total comprehensive income 1,028,683
Dividends on common stock, $0.14 per share — — — (390,979) — — (390,979)
Balance, December 31, 2009 2,983,608 1,657,560 9,935,098 17,990,036 803,923 (1,136,510) 29,250,107
Comprehensive income Net income — — — 2,101,028 — — 2,101,028 Change in unrealized appreciation on available-for-
sale securities, net of tax benefit of $(98,290) — — — — (161,414) — (161,414) Change in unrealized depreciation on available-for-
sale securities for which a portion of an other-than-temporary impairment has been recognized in income, net of tax expense of $152,669 — — — — 238,790 — 238,790
Total comprehensive income 2,178,404
Dividends on common stock, $0.12 per share — — — (335,124) — — (335,124)
Balance, December 31, 2010 2,983,608 $ 1,657,560 $ 9,935,098 $ 19,755,940 $ 881,299 $ (1,136,510) $ 31,093,387
See Notes to Consolidated Financial Statements
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Town and Country Financial Corporation Consolidated Statements of Cash Flows December 31, 2010 and 2009
2010 2009
Operating Activities Net income $ 2,101,028 $ 1,013,468 Items not requiring (providing) cash
Depreciation 718,940 746,881 Provision for loan losses 672,166 2,951,370 Amortization of premiums and discounts on
securities 536,367 97,312 Amortization of mortgage servicing rights 758,290 645,622 Loss on impairment of mortgage servicing
rights 527,700 116,000 Deferred income taxes (62,890) 976,759 Net realized gains on available-for-sale
securities (147,258) (122,127) Loss on impairment of securities 306,600 475,910 Gains on loan sales (2,788,465) (1,478,807) Net loss on foreclosed assets 63,128 3,570 Amortization of intangibles 39,288 39,288 Increase in cash surrender value of life
insurance (128,014) (148,330) Gain on life insurance policies — (410,995)
Loans originated for sale (161,172,092) (184,352,298) Proceeds from sales of loans originated for
sale 160,529,791 187,176,322 Changes in
Other assets 721,621 (1,289,163) Other liabilities 586,038 (1,891,017)
Net cash provided by operating activities 3,262,238 4,549,765
Investing Activities
Net change in interest-bearing time deposits in banks (5,726,000) 297,000
Purchases of available-for-sale securities (31,257,625) (25,332,316) Proceeds from maturities of available-for-sale
securities 35,235,640 30,302,982 Proceeds from the sales of available-for-sale
securities 6,317,709 62,544 Proceeds from maturities of held-to-maturity
securities 1,000,565 145,000 Net change in loans and loans held for sale (6,252,939) 121,668 Purchase of premises and equipment (269,354) (312,435) Proceeds from the sale of foreclosed assets 658,397 708,963 Purchase of Federal Home Loan Bank stock — (14,700) Purchase of Federal Reserve Bank stock (147,050) — Proceeds from redemption of Federal
Reserve Bank stock — 52,500 Proceeds from life insurance policies 250,030 1,336,256
Net cash provided by (used in) investing
activities (190,627) 7,367,462
See Notes to Consolidated Financial Statements
2010 2009
Financing Activities Net increase in demand deposits, money
market, NOW and savings accounts $ 3,719,383 $ 19,344,384 Net decrease in certificates of deposit (11,599,930) (14,047,559) Net decrease in short-term borrowings (181,350) (114,204) Proceeds from Federal Home Loan Bank
advance 4,900,000 4,000,000 Repayment of Federal Home Loan Bank
advances (12,150,000) (7,400,000) Dividends paid (335,124) (390,979)
Net cash provided by (used in) financing
activities (15,647,021) 1,391,642
Increase (Decrease) in Cash and Cash Equivalents (12,575,410) 13,308,869
Cash and Cash Equivalents, Beginning of
Year 21,639,183 8,330,314 Cash and Cash Equivalents, End of Year $ 9,063,773 $ 21,639,183 Supplemental Cash Flows Information
Interest paid $ 5,058,669 $ 7,102,635 Income taxes paid $ 41,536 $ 407,496 Real estate acquired in settlement of loans $ 1,643,864 $ 818,891
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Town and Country Financial Corporation (“Company”) is a two bank holding company, which through its subsidiaries provides a full range of banking and financial services to individual and corporate customers in Central Illinois. The Company is subject to competition from other financial institutions. The Company and its bank subsidiaries are subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Logan County Bank and Town & Country Bank and its wholly-owned subsidiaries Town & Country Banc Mortgage Services, Inc. and Haley, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, other-than-temporary impairment of investments, fair values of investments, valuation of mortgage servicing rights, and Federal Home Loan Bank (FHLB) stock recoverability.
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2010 and 2009, cash equivalents consisted primarily of noninterest bearing deposits and interest bearing deposits.
The financial institution holding the Company’s cash accounts is participating in the FDIC’s Transaction Account Guarantee Program. Under that program, through December 31, 2010, all noninterest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account. Pursuant to legislation enacted in 2010, the FDIC will fully insure all noninterest-bearing transaction accounts beginning December 31, 2010 through December 31, 2012, at all FDIC-insured institutions.
Effective July 21, 2010, the FDIC’s insurance limits were permanently increased to $250,000. At December 31, 2010, the Company’s interest-bearing cash accounts did not exceed federally insured limits.
Interest-bearing Time Deposits in Banks
Interest-bearing time deposits in banks mature within 25 months and are carried at cost.
Securities
Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
For debt securities with fair value below amortized cost when the Company does not intend to sell a debt security, and it is more likely than not the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.
The Company’s consolidated statements of income reflect impairment (that is, the difference between the security’s amortized cost basis and fair value) on debt securities that the Company intends to sell or would more likely than not be required to sell before the expected recovery of the amortized cost basis. For available-for-sale and held-to-maturity debt securities that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive income. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections.
For equity securities, when the Company has decided to sell an impaired available-for-sale security and the entity does not expect the fair value of the security to fully recover before the expected time of sale, the security is deemed other-than-temporarily impaired in the period in which the decision to sell is made. The Company recognizes an impairment loss when the impairment is deemed other than temporary even if a decision to sell has not been made.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, and any unamortized deferred fees or costs on originated loans.
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 1: Nature of Operations and Summary of Significant Accounting Policies (continued)
Loans (continued)
For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and amortized as a level yield adjustment over the respective term of the loan.
The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered uncollectible.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income if accrued in the current year. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
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 income. 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 allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the collateral value of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.
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, construction, and residential 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.
Allowance for Loan Losses (continued)
Groups of loans with similar risk characteristics, including individually evaluated loans not determined to be impaired, are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Company does not separately identify individual consumer loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and depreciated using the straight-line method over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Expected terms include lease option periods to the extent that the exercise of such options is reasonably assured.
The estimated useful lives for each major depreciable classification of premises and equipment are as follows:
Buildings and improvements 35-40 years Leasehold improvements 5-10 years Equipment 3-5 years
Federal Reserve and Federal Home Loan Bank Stock
Federal Reserve and Federal Home Loan Bank stock are required investments for institutions that are members of the Federal Reserve and Federal Home Loan Bank systems. The required investment in the common stock is based on a predetermined formula, carried at cost and evaluated for impairment.
The Company owns $1,843,106 (18,431 shares) of Federal Home Loan Bank stock as of December 31, 2010 and 2009. During the third quarter of 2007, the Federal Home Loan Bank of Chicago (FHLB) received a Cease and Desist Order from their regulator, the Federal Housing Finance Board. The order prohibits capital stock repurchases until a time to be determined by the Federal Housing Finance Board. The FHLB will continue to provide liquidity and funding through advances and purchase loans through the MPF program. With regard to dividends, the FHLB will continue to assess their dividend capacity each quarter and make appropriate request for approval. The FHLB did not pay a dividend during 2010 or 2009; however in early 2011, the FHLB announced they have declared a dividend at an annualized rate of 10 basis points per share paid on February 14, 2011. Management performed an analysis and deemed the cost method investment in FHLB stock was ultimately recoverable.
Foreclosed Assets Held for Sale
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net income or expense from foreclosed assets.
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 1: Nature of Operations and Summary of Significant Accounting Policies (continued)
Intangible Assets
Intangible assets are being amortized on the straight-line basis over a period of 15 years. Such assets are periodically evaluated as to the recoverability of their carrying value.
Mortgage Servicing Rights
Mortgage servicing assets are recognized separately when rights are acquired through purchase or through sale of financial assets. Under the servicing assets and liabilities accounting guidance (ASC 860-50), servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer. The Company has elected to initially and subsequently measure the mortgage servicing rights for consumer mortgage loans using the amortization method. Under the amortization method, servicing rights are amortized in proportion to and over the period of estimated net servicing income. The amortized assets are assessed for impairment or increased obligation based on fair value at each reporting date.
Each class of separately recognized servicing assets subsequently measured using the amortization method are evaluated and measured for impairment. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets for that tranche. The valuation allowance is adjusted to reflect changes in the measurement of impairment after the initial measurement of impairment. Changes in valuation allowances are reported with noninterest income on the income statement. Fair value in excess of the carrying amount of servicing assets for that stratum is not recognized.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.
Treasury Stock
Common stock shares repurchased are recorded at cost. Cost of shares retired or reissued is determined using the first-in, first-out method.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company—put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that 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 or the ability to unilaterally cause the holder to return specific assets.
Trust Assets and Fees
Assets held in fiduciary or agency capacities are not included in the consolidated balance sheets, since such items are not assets of the Company.
Fees from trust activities are recorded on the cash basis, for the period in which the service is provided. Fees are a function of the market value of assets managed and administered, the volume of transactions and fees for other services rendered, as set forth in the underlying trust agreements. This revenue recognition involves the use of estimates and assumptions including components that are calculated based on estimated asset valuations and transaction volumes. The Company manages or administers trust accounts with assets totaling approximately $67,743,000 and $38,838,000 as of December 31, 2010 and 2009, respectively.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to the management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
The Company files consolidated income tax returns with its subsidiaries.
Earnings Per Share
Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during each period. Treasury stock shares are not deemed outstanding for earnings per share calculations.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation (depreciation) on available-for-sale securities and unrealized appreciation (depreciation) on available-for-sale securities for which a portion of an other-than-temporary impairment has been recognized in income.
Reclassifications
Certain reclassifications have been made to the 2009 financial statements to conform to the 2010 financial statement presentation. These reclassifications had no effect on net income.
Note 2: Restriction on Cash and Due From Banks
The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank and MoneyGram. The reserve required at December 31, 2010 and 2009 was $480,566.
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 3: Securities
The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows:
Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses Fair Value
Available-for-sale Securities:
December 31, 2010: U.S. Government and
federal agency and Government-sponsored enterprises (GSEs) $ 12,252,081 $ 356,062 $ — $ 12,608,143
Mortgage-backed: GSE residential 58,518,344 2,016,055 (385,104) 60,149,295
State and political subdivisions 11,300,506 293,583 (14,355) 11,579,734
Equity securities 26,362 2,701,592 (1,605) 2,726,349 Trust preferred
securities 9,554,519 — (3,715,477) 5,839,042 Corporate 2,450,846 197,474 (7,766) 2,640,554 $ 94,102,658 $ 5,564,766 $ (4,124,307) $ 95,543,117
Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses Fair Value
Available-for-sale Securities:
December 31, 2009: U.S. Government and
federal agency and Government-sponsored enterprises (GSEs) $ 19,752,995 $ 311,283 $ (51,598) $ 20,012,680
Mortgage-backed: GSE residential 56,652,761 2,129,836 (109,430) 58,673,167
State and political subdivisions 16,388,178 632,211 (1,821) 17,018,568
Equity securities 26,522 2,497,900 (3,934) 2,520,488 Trust preferred
securities 9,735,168 — (4,173,521) 5,561,647 Corporate 2,444,093 105,403 (22,343) 2,527,153
$104,999,717 $ 5,676,633 $(4,362,647) $106,313,703
Note 3: Securities (continued)
Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses Fair Value
Held-to-maturity Securities:
December 31, 2010: State and political
subdivisions $ 108,500 $ — $ — $ 108,500 Trust preferred
security 309,303 — — 309,303 $ 417,803 $ — $ — $ 417,803
December 31, 2009: State and political
subdivisions $ 1,039,274 $ 69,202 $ — $ 1,108,476 Trust preferred security 473,468 — (220,245) 253,223 $ 1,512,742 $ 69,202 $ (220,245) $ 1,361,699
Available-for-sale equity securities consist of investments in SLM Corp. (SLMA) stock and corporate stock. The Company held 214,361 and 220,361 shares of SLMA stock with a carrying value of $2,698,805 and $2,483,468 at December 31, 2010 and 2009, respectively. During 2010 and 2009, the Company sold 6,000 and 10,000 shares of SLMA stock resulting in a gain of $74,824 and $77,896, respectively.
Available-for-sale corporate securities consist of investments in corporate bonds rated AA+ as of December 31, 2010.
The Company recorded an other-than-temporary impairment on the FNMA and FHLMC preferred stock and FNMA common stock included in equity securities of $94,407 in 2009. During 2009, the Company sold the investments in FNMA and FHLMC preferred stock. As of December 31, 2010 and 2009, the Company held an investment in FNMA common stock with a book value of $5,733. The FNMA common stock has an unrealized gain (loss) of ($955) and $13,057 and a fair value of $4,778 and $18,790 as of December 31, 2010 and 2009, respectively.
During 2010 and 2009, the Company recorded an other-than-temporary impairment on available-for-sale trust preferred securities (TruPSs) of $213,000 and $381,503, respectively. As of December 31, 2010 and 2009, the Company’s amortized cost in available-for-sale TruPSs was $9,554,519 and $9,735,168, respectively. The TruPSs had an unrealized loss of $3,715,477 and $4,173,521 and a fair value of $5,839,042 and $5,561,647 as of December 31, 2010 and 2009, respectively. Management performed an analysis, which included assistance by an independent valuation specialist, and deemed the remaining balance of the available-for-sale TruPSs were not other than temporarily impaired as of December 31, 2010.
As of December 31, 2010 and 2009, the Company recorded an other-than-temporary impairment on a held-to-maturity trust preferred security of $93,600. As of December 31, 2010 and 2009, the Company ’s investment in the held-to-maturity TruPS was $309,303 and $473,468, respectively. The TruPS had an unrealized loss of $0 and $220,245 and a fair value of $309,303 and $253,223 as of December 31, 2010 and 2009, respectively. Management performed an analysis, which included assistance by an independent valuation specialist, and deemed the remaining balance of the held-to-maturity TruPS was not other than temporarily impaired as of December 31, 2010.
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 3: Securities (continued)
The amortized cost and fair value of available-for-sale securities and held-to-maturity securities at December 31, 2010, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Available-for-sale Held-to-maturity
Amortized
Cost Fair
Value Amortized
Cost Fair
Value
Within one year $ — $ — $ 13,500 $ 13,500 One to five years 6,394,429 6,592,750 40,000 40,000 Five to ten years 18,136,576 18,725,535 33,500 33,500 After ten years 1,472,427 1,510,146 330,803 330,803 26,003,432 26,828,431 Mortgage-backed: GSE
residential 58,518,345 60,149,295 — — Trust preferred securities 9,554,519 5,839,042 Equity securities 26,362 2,726,349 — — Totals $ 94,102,658 $ 95,543,117 $ 417,803 $ 417,803
The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $33,140,794 at December 31, 2010 and $39,963,839 at December 31, 2009.
Gross gains of $147,258 and $122,127 resulting from sales of available-for-sale securities were realized for 2010 and 2009, respectively. There were no gross losses resulting from the sales of available-for-sale securities realized in 2010 or 2009.
Certain investments in debt equity securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at December 31, 2010 and 2009, was $24,186,724 and $17,165,450, which is approximately 25% and 16%, respectively, of the Company’s available-for-sale and held-to-maturity investment portfolio. These declines primarily resulted from recent changes in market interest rates and failure of certain investments to maintain consistent credit quality ratings.
Except as discussed above, management believes the declines in fair value for these securities are temporary.
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 3: Securities (continued)
The following table shows the Company’s investments’ gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2010 and 2009:
December 31, 2010 Less than 12 Months 12 Months or More Total
Description of Securities Fair Value
Unrealized Losses Fair Value
Unrealized Losses Fair Value
Unrealized Losses
Available-for-sale securities: Mortgage-backed: GSE
residential $ 17,354,939 $ (385,104) $ — $ — $ 17,354,939 $ (385,104) State and political subdivisions 489,155 (14,355) — — 489,155 (14,355) Equity securities 4,777 (956) 6,575 (649) 11,352 (1,605) Trust preferred securities — — 5,839,042 (3,715,477) 5,839,042 (3,715,477) Corporate 492,236 (7,766) — — 492,236 (7,766) Total temporarily impaired
securities $ 18,341,107 $ (408,181) $ 5,845,617 $ (3,716,126) $ 24,186,724 $ (4,124,307)
December 31, 2009 Less than 12 Months 12 Months or More Total
Description of Securities Fair Value
Unrealized Losses Fair Value
Unrealized Losses Fair Value
Unrealized Losses
Available-for-sale securities: U.S. Government federal agency
and Government-sponsored enterprises (GSEs) $ 2,946,260 $ (51,598) $ — $ — $ 2,946,260 $ (51,598)
Mortgage-backed: GSE residential 7,643,328 (109,430) — — 7,643,328 (109,430)
State and political subdivisions 535,025 (1,821) — — 535,025 (1,821) Equity securities — — 3,290 (3,934) 3,290 (3,934) Trust preferred securities 219,372 (232,664) 5,342,275 (3,940,857) 5,561,647 (4,173,521) Corporate 475,900 (22,343) — — 475,900 (22,343) Total temporarily impaired
securities $ 11,819,885 $ (417,856) $ 5,345,565 $ (3,944,791) $ 17,165,450 $ (4,362,647)
December 31, 2009 Less than 12 Months 12 Months or More Total
Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses
Held-to-maturity Securities: Trust preferred security $ — $ — $ 253,223 $ (220,245) $ 253,223 $ (220,245)
There were no held-to-maturity securities with unrealized losses as of December 31, 2010.
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 3: Securities (continued)
Trust Preferred Securities (TruPSs)
The unrealized loss on TruPSs was primarily caused by the long-term nature of the pooled trust preferred securities, a lack of demand or inactive market for these securities, and concerns regarding the financial institutions that have issued the underlying trust preferred securities. The Company currently expects certain issuing financial institutions to settle the securities at a price less than the amortized cost basis of the investment (that is, the Company expects to recover less than the entire amortized cost basis of the security). The Company has recognized a loss equal to the credit loss, establishing a new, lower amortized cost basis on four of the ten TruPSs owned as of December 31, 2010. The credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment. Because the Company does not intend to sell the investment and it is not more likely than not the Company will be required to sell the investment before recovery of its new, lower amortized cost basis, which may be maturity, it does not consider the remainder of the investment in TruPSs to be other-than-temporarily impaired at December 31, 2010.
Other-than-temporary Impairment
Upon acquisition of a security, the Company decides whether it is within the scope of the accounting guidance for beneficial interests in securitized financial assets or will be evaluated for impairment under the accounting guidance for investments in debt and equity securities.
The accounting guidance for beneficial interests in securitized financial assets provides incremental impairment guidance for a subset of the debt securities within the scope of the guidance for investments in debt and equity securities. For securities where the security is a beneficial interest in securitized financial assets, the Company uses the beneficial interests in securitized financial asset impairment model. For securities where the security is not a beneficial interest in securitized financial assets, the Company uses debt and equity securities impairment model.
The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred. Economic models are used to determine whether an other-than-temporary impairment has occurred on these securities. While all securities are considered, the securities primarily impacted by other-than-temporary impairment testing are pooled trust preferred securities and FNMA and FHLMC preferred stock. For each pooled trust preferred security in the investment portfolio (including but not limited to those whose fair value is less than their amortized cost basis), an extensive, regular review is conducted to determine if an other-than-temporary impairment has occurred. Various inputs to the economic models are used to determine if an unrealized loss is other-than-temporary. The most significant inputs are the following:
• Prepayments
• Default rates
• Loss severity
The pooled trust preferred securities relate to trust preferred securities issued by financial institutions. The pools typically consist of financial institutions throughout the United States. Other inputs may include performance indicators of the underlying financial institutions including profitability, capital ratios, and asset quality.
To determine if the unrealized losses for pooled trust preferred securities is other-than-temporary, the Company projects total estimated defaults of the underlying assets (financial institutions) and multiplies that calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine the projected collateral loss. If the Company determines that a given pooled trust preferred security position will be subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings.
Other-than-temporary Impairment (continued)
For those securities for which an other-than-temporary impairment was determined to have occurred as of December 31, 2010 (that is, a determination was made that the entire amortized cost bases will not likely be recovered), the following assumptions were used to measure the amount of credit loss recognized in earnings. The Company’s assumptions for the pooled trust preferred securities included default rates of 2% annually for two years and 36 basis points for the remaining life of the securities, 10% recovery with a 2 year lag, and prepayments of 5% every 5 years.
Credit Losses Recognized on Investments
Certain debt securities have experienced fair value deterioration due to credit losses and other market factors, but are not otherwise other-than-temporarily impaired.
The following table provides information about debt securities for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income.
Accumulated Credit Losses 2010 2009
Credit losses on debt securities held
Beginning of year $ 900,464 $ 518,961 Additions related to other-than-temporary
losses not previously recognized 93,600 277,762 Additions related to increases in previously
recognized other-than-temporary losses 213,000 103,741 End of year $ 1,207,064 $ 900,464
Note 4: Loans and Allowance for Loan Losses
Categories of loans at December 31, include:
2010 2009
Mortgage loans on real estate Residential 1-4 family $ 62,418,733 $ 60,930,795 Commercial 100,621,329 82,241,914 Construction 13,473,711 16,512,354 Agriculture 3,727,263 6,225,945
Total mortgage loans on real estate 180,241,036 165,911,008 Commercial 27,191,939 37,933,217 Agriculture 7,047,378 6,782,949 Consumer 6,052,020 8,220,932 220,532,373 218,848,106 Less
Allowance for loan losses 2,918,132 2,633,107
Net loans $ 217,614,241 $ 216,214,999 The loan portfolio includes a concentration of loans secured by commercial real estate properties amounting to $100,621,329 and $82,241,914 as of December 31, 2010 and 2009, respectively. Generally, these loans are collateralized by assets of the borrower. The loans are expected to be repaid from cash flows or from proceeds from the sale of selected assets of the borrower.
The loan portfolio includes a concentration of loans for construction and land development amounting to $13,473,711 and $16,512,354 as of December 31, 2010 and 2009, respectively. Generally, these loans are collateralized by building or land being developed. The loans are expected to be repaid from cash flows or from proceeds from the sale of selected assets of the borrower.
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 4: Loans and Allowance for Loan Losses (continued)
The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2010:
Mortgage Loans on Real Estate
Residential 1-4
Family Commercial Construction Agriculture Commercial Agriculture
Consumer Unallocated Total
Allowance for loan losses: Balance, beginning of year $ 564,911 $ 765,601 $ 112,861 $ 31,106 $ 902,337 $ 44,580 $ 48,891 $ 162,820 $ 2,633,107
Provision charged to expense 124,937 188,375 8,856 (18,355) 151,080 (723)
3,444 214,552 672,166
Losses charged off (116,657) (110,815) (29,624) — (175,495) (27,828) (31,206) — (491,625) Recoveries 41,199 — 3,000 — 16,021 29,982 14,282 — 104,484
Balance, end of year $ 614,390 $ 843,161 $ 95,093 $ 12,751 $ 893,943 $ 46,011 $ 35,411 $ 377,372 $ 2,918,132 Ending balance: individually
evaluated for impairment $ 378,148 $ 819,391 $ — $ — $ 883,157 $ 45,570 $ 33,013 $ — $ 2,159,279 Ending balance: collectively
evaluated for impairment 236,242 23,770 95,093 12,751 10,786 441 2,398 377,372 758,853 Ending balance $ 614,390 $ 843,161 $ 95,093 $ 12,751 $ 893,943 $ 46,011 $ 35,411 $ 377,372 $ 2,918,132
Loans:
Ending balance: individually evaluated for impairment $ 1,244,053 $ 475,386 $ — $ — $ 215,727 $ 8,821 $ 47,968 $ — $ 1,991,955
Ending balance: collectively evaluated for impairment 61,174,680 100,145,943 13,473,711 $ 3,727,263 $ 26,976,212 $ 7,038,557 6,004,052 — 218,540,418
Ending balance $62,418,733 $ 100,621,329 $ 13,473,711 $ 3,727,263 $ 27,191,939 $ 7,047,378 $ 6,052,020 $ — $ 220,532,373
Activity in the allowance for loan losses as of December 31, 2009 was as follows:
Balance, beginning of year $ 3,102,057 Provision charged to expense 2,951,370 Losses charged off, net of recoveries of $57,249 (3,420,320) Balance, end of year $ 2,633,107
The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of December 31, 2010:
Mortgage Loans on Real Estate
Residential 1-4
Family Commercial Construction Agriculture Commercial Agriculture
Consumer
Total
Pass $ 60,849,315 $ 95,876,780 $ 13,473,711 $ 3,727,263 $ 24,082,013 $ 7,047,378 $ 5,930,868 $ 210,987,328 Special
Mention 450,673 4,143,694 — — 2,894,199 — 64,363 7,552,929 Substandard 1,118,745 600,855 — — 215,727 — 14,518 1,949,845 Doubtful — — — — — — 42,271 42,271 Loss — — — — — — — —
Total $ 62,418,733 $100,621,329 $ 13,473,711 $ 3,727,263 $ 27,191,939 $ 7,047,378 $ 6,052,020 $ 220,532,373
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on all loans at origination. In addition, significant lending relationships, new commercial and commercial real estate loans, and watch list credits are reviewed annually by an independent third party in order to verify risk ratings. The Company uses the following definitions for risk ratings:
Pass – Loans classified as pass are well protected by the ability of the borrower to pay or by the value of the asset or underlying collateral.
Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 4: Loans and Allowance for Loan Losses (continued)
Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss – Loans classified as loss are the portion of the loan that is considered uncollectible so that its continuance as an asset is not warranted. The amount of the loss determined will be charged-off.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans.
The following tables present the Company’s loan portfolio aging analysis as of December 31, 2010:
30-89 Days Past
Due Greater Than 90
Days Total Past
Due Current Total Loans Receivable
Total Loans > 90 Days & Accruing
Mortgage Loans on Real Estate: Residential 1-4 Family $ 1,267,412 $ 612,350 $ 1,879,762 $ 60,538,971 $ 62,418,733 $ — Commercial 258,616 8,782 267,398 100,353,931 100,621,329 — Construction — — — 13,473,711 13,473,711 — Agriculture 4,177 — 4,177 3,723,086 3,727,263 — Commercial 63,216 215,727 278,943 26,912,996 27,191,939 — Agriculture — — — 6,052,020 6,052,020 — Consumer 87,371 53,087 140,458 6,906,920 7,047,378 9,936
Total $ 1,680,792 $ 889,946 $ 2,570,738 $ 217,961,635 $ 220,532,373 $ 9,936
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
The following tables present impaired loans for the years ended December 31, 2010:
Recorded Balance Unpaid Principal
Balance Specific Allowance Average Investment in Impaired Loans
Interest Income Recognized
Loans without a specific valuation allowance
Mortgage Loans on Real Estate: Residential 1-4 Family $ 602,330 $ 637,147 $ — $ 605,151 $ 34,465 Commercial 520,096 579,422 — 576,047 33,109 Construction — — — — — Agriculture — — — — —
Commercial 215,727 219,663 — 228,645 64 Agriculture — — — — — Consumer 138,735 138,735 — 149,856 1,354
Loans with a specific valuation allowance Mortgage Loans on Real Estate:
Residential 1-4 Family 396,083 396,083 122,181 401,130 17,069 Commercial 80,759 80,759 35,902 79,691 4,332 Construction — — — — — Agriculture — — — — —
Commercial — — — — — Agriculture — — — — — Consumer 38,226 38,226 38,226 39,618 1,155
Total: Mortgage Loans on Real Estate:
Residential 1-4 Family 998,413 1,033,230 122,181 1,006,281 51,534 Commercial 600,855 660,181 35,902 655,738 37,441 Construction — — — — — Agriculture — — — — —
Commercial 215,727 219,663 — 228,645 64 Agriculture — — — — — Consumer 176,961 176,961 38,226 189,474 2,509
Total $ 1,991,956 $ 2,090,035 $ 196,309 $ 2,080,138 $ 91,548
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 4: Loans and Allowance for Loan Losses (continued)
The following table presents the Company’s nonaccrual loans at December 31, 2010. This table excludes performing troubled debt restructurings.
Mortgage Loans on Real Estate: Residential 1-4 Family $ 647,167 Commercial 8,782 Construction — Agriculture — Commercial 215,727 Agriculture — Consumer 43,151
Total $ 914,827
The following table presents the Company’s impaired loans, nonaccrual loans and loans past due over 90 days and still accruing at December 31, 2009.
2009
Impaired loans without a valuation allowance $ 4,167,757 Impaired loans with a valuation allowance 790,617 Total impaired loans $ 4,958,374 Valuation allowance related to impaired loans $ 342,156 Total nonaccrual loans $ 2,508,000 Total loans past due 90 days or more and still
accruing $ 219,000
2009
Average investment in impaired loans $ 6,488,039 Interest income recognized on impaired loans $ 212,861 Interest income recognized on a cash basis on
impaired loans $ 217,731
Note 5: Premises and Equipment
Major classifications of premises and equipment, stated at cost, are as follows:
2010 2009
Land $ 2,680,166 $ 2,680,166 Buildings and improvements 8,858,560 8,845,768 Equipment 6,792,388 6,958,527 Leasehold improvements 1,249,011 1,254,970 19,580,125 19,739,431 Less accumulated depreciation 10,347,241 10,056,961
Net premises and equipment $ 9,232,884 $ 9,682,470
Note 6: Other Intangible Assets
The carrying basis and accumulated amortization of recognized intangible assets included in other assets on the consolidated balance sheets, at December 31, 2010 and 2009, were:
2010 2009
Gross Carrying Amount
Accumulated Amortization
Gross Carrying Amount
Accumulated Amortization
Core deposits $ 651,610 $ 490,878 $ 651,610 $ 451,590
Amortization expense for the years ended December 31, 2010 and 2009, was $39,288 for each year. Estimated amortization expense for each of the following five years is:
2011 $ 39,288 2012 39,288 2013 39,288 2014 39,288 2015 828 Thereafter 2,754 $ 160,734
Note 7: Loan Servicing
Loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates. The unpaid principal balances of mortgage loans serviced for others was $341,770,629 and $324,483,603 at December 31, 2010 and 2009, respectively.
The following summarizes the activity pertaining to mortgage servicing rights measured using the amortization method, along with the aggregate activity in related valuation allowances:
2010 2009
Mortgage servicing rights Balance at beginning of year $ 3,009,227 $ 2,176,042
Additions 1,228,748 1,478,807 Amortization (758,290) (645,622)
Balance at end of year $ 3,479,685 $ 3,009,227 Valuation allowances
Balance at beginning of year $ 436,419 $ 320,419 Additions 527,700 116,000
Balances at end of year 964,119 436,419 Mortgage servicing assets, net $ 2,515,566 $ 2,572,808 Fair value disclosures
Fair value as of the beginning of the period $ 2,572,808 $ 1,855,623 Fair value as of the end of the period $ 2,515,566 $ 2,572,808
During 2010 and 2009, a valuation allowance of $964,119 and $436,419, respectively, was necessary to adjust the aggregate cost basis of the mortgage servicing right asset to fair value.
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 8: Interest-bearing Deposits
Interest-bearing deposits in denominations of $100,000 or more were $43,342,372 on December 31, 2010 and $39,797,495 on December 31, 2009.
At December 31, 2010, the scheduled maturities of time deposits are as follows:
2011 $ 75,187,590 2012 17,764,764 2013 14,800,247 2014 4,687,188 2015 3,437,544 $ 115,877,333
Note 9: Junior Subordinated Debentures
The Company has $4,124,000 of junior subordinated debt owed to Statutory Trust II (“Trust II”) as of December 31, 2010 and 2009. Trust II is a wholly owned unconsolidated subsidiary, which was formed on March 17, 2004, to issue cumulative preferred securities. The Company owns all of the securities of Trust II that possess general voting powers. The Company issued shares of the preferred securities through a private placement offering on March 17, 2004, through the trust. Trust II invested the proceeds in the Company’s junior subordinated debentures. The junior subordinated debentures have an interest rate based on a floating rate equal to 3 month LIBOR plus 279 basis points which adjusts quarterly on March 15, June 15, September 15, and December 15. The rate at December 31, 2010 was 3.09%. The junior subordinated debentures mature on March 17, 2034. Trust II’s sole asset is the holding company’s junior subordinated debt.
The Company has $7,732,000 of junior subordinated debt owed to Statutory Trust III (“Trust III”) as of December 31, 2010 and 2009. Trust III is a wholly owned unconsolidated subsidiary, which was formed on March 22, 2007, to issue cumulative preferred securities. The Company owns all of the securities of Trust III that possess general voting powers. The Company issued shares of the preferred securities through a private placement offering on March 22, 2007, through the trust. Trust III invested the proceeds in the Company’s junior subordinated debentures. The junior subordinated debentures have an interest rate based on a fixed rate for five years of 6.58%, which was the rate at December 31, 2010 and 2009. Commencing March 22, 2012, the rate is equal to 3 month LIBOR plus 168 basis points. The junior subordinated debentures mature on March 22, 2037, which the date may be shortened to a date not earlier than March 22, 2012, if certain conditions are met. Trust III’s sole asset is the holding company’s junior subordinated debt.
The Company’s obligations with respect to the issuance of the preferred securities constitute a full and unconditional guarantee of Trust II and III’s obligations with respect to the preferred securities. Interest on the junior subordinated debentures and distributions on the preferred securities are payable quarterly in arrears. Distributions on the preferred securities are cumulative. The Company has the right, at any time, so long as no event of default has occurred and is continuing, to defer payments of interest on the junior subordinated debentures, which will require deferral of distribution of the preferred securities, for a period not exceeding 20 consecutive quarterly periods, provided that such deferral may not extend beyond the stated maturity of the junior subordinated debentures. The preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated debentures at maturity or their earlier redemption.
Interest expense on the junior subordinated debt was $633,568 and $671,336 for the years ended December 31, 2010 and 2009, respectively.
Note 10: Federal Home Loan Bank Advances
The Federal Home Loan Bank advances totaled $20,000,000 and $27,250,000 as of December 31, 2010 and 2009, respectively. The Federal Home Loan Bank advances are secured by mortgage loans and investment securities totaling $53,604,840 at December 31, 2010. Advances, at interest rates from 2.93 to 5.30 percent are subject to restrictions or penalties in the event of prepayment.
Aggregate annual maturities of Federal Home Loan Band advances at December 31, 2010, are:
2011 $ 12,000,000 2012 — 2013 — 2014 4,000,000 2015 — Thereafter 4,000,000 $ 20,000,000
Note 11: Income Taxes
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and State of Illinois. The Company is no longer subject to U.S. federal or Illinois income tax examinations by tax authorities for years before 2007. During the years ended December 31, 2010 and 2009, the Company recognized no expense for interest or penalties.
The income tax expense (credit) includes these components:
2010 2009
Taxes currently payable (refundable) $ 893,190 $ (1,176,677) Deferred income taxes (62,890) 976,759
Income tax expense (credit) $ 830,300 $ (199,918)
A reconciliation of income tax expense (credit) at the statutory rate to the Company’s actual income tax credit is shown below:
2010 2009
Computed at the statutory rate (34%) $ 996,652 $ 273,207 Increase (decrease) resulting from
Tax exempt interest (297,853) (333,722) State income taxes 127,989 5,866 Dividends received (86) (6) Cash surrender value of life insurance (43,865) (47,066) Life insurance proceeds — (139,738) Other 47,463 41,541
Actual tax expense (credit) $ 830,300 $ (199,918)
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 11: Income Taxes (continued)
The tax effects of temporary differences related to deferred taxes shown on the consolidated balance sheets were:
2010 2009
Deferred tax assets Allowance for loan losses $ 916,470 $ 909,869 Deferred compensation 152,261 161,997 Alternative minimum tax credits 208,321 207,990 Loss on other-than-temporary impairment of
securities 358,455 455,259 Other 301,107 278,612
1,936,614 2,013,727 Deferred tax liabilities
Depreciation (126,273) (174,661) Mortgage servicing rights (985,036) (1,062,570) Deferred loan fees (62,441) (67,554) Unrealized gains on available-for-sale securities (559,160) (510,063) Other (201,764) (210,732)
(1,934,674) (2,025,580)
Net deferred tax asset (liability) $ 1,940 $ (11,853)
Note 12: Comprehensive Income (Loss) Components
Other comprehensive income components and related taxes were as follows:
2010 2009
Net unrealized gain (loss) on available-for-sale securities $ (117,728) $ 345,788
Net unrealized gain (loss) on available-for-sale securities for which a portion of an other-than-temporary impairment has been recognized in income 84,859 (680,640)
Less other-than-temporary impairment of equity securities — (94,407)
Less other-than-temporary impairment losses on debt securities recognized in income (306,600) (381,503)
Less reclassification adjustment for realized gains included in income 147,258 122,127
Other comprehensive income, before tax effect 126,473 18,931 Tax expense 49,097 3,716
Other comprehensive income $ 77,376 $ 15,215
Note 12: Comprehensive Income (Loss) Components (continued)
The components of accumulated other comprehensive income, included in stockholders’ equity, are as follows:
2010 2009
Net unrealized gain on available-for-sale securities $ 1,859,781 $ 1,992,328 Net unrealized loss on available-for-sale securities
for which a portion of an other-than-temporary impairment has been recognized in income (419,322) (678,342)
1,440,459 1,313,986 Tax effect 559,160 510,063
Net-of-tax amount $ 881,299 $ 803,923
Note 13: Regulatory Matters
The Company and 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 Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Banks must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company and 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 Company and Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital to average assets (as defined). Management believes, as of December 31, 2010 and 2009, that the Company and Banks meets all capital adequacy requirements to which it is subject.
As of December 31, 2010, the most recent notification from the Company’s and Banks’ regulators 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 table. There are no conditions or events since that notification that management believes have changed the Company or Banks’ category.
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 13: Regulatory Matters (continued)
The Company and Banks’ actual capital amounts (in thousands) and ratios are also presented in the table.
Actual Minimum Capital Requirement
Minimum to Be Well Capitalized Under Prompt Corrective Action
Provisions Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2010 Total capital
(to risk-weighted assets) Consolidated $ 45,550 15.1% $ — — $ — — Town & Country Bank 33,933 14.1 19,294 8.0 24,117 10.0% Logan County Bank 8,835 14.7 4,803 8.0 6,003 10.0 Tier I capital
(to risk-weighted assets) Consolidated 39,816 13.2 — — — — Town & Country Bank 30,111 12.5 9,647 4.0 14,470 6.0 Logan County Bank 8,410 14.0 2,401 4.0 3,602 6.0 Tier I capital
(to average assets) Consolidated 39,816 10.9 — — — — Town & Country Bank 30,111 11.0 10,965 4.0 13,707 5.0 Logan County Bank 8,410 8.8 3,811 4.0 4,763 5.0
As of December 31, 2009 Total capital
(to risk-weighted assets) Consolidated $ 43,237 14.9% $ — — $ — — Town & Country Bank 28,266 12.4 18,248 8.0% 22,810 10.0% Logan County Bank 8,783 15.0 4,676 8.0 5,845 10.0 Tier I capital
(to risk-weighted assets) Consolidated 37,395 12.8 — — — — Town & Country Bank 24,802 10.9 9,124 4.0 13,686 6.0 Logan County Bank 8,368 14.3 2,338 4.0 3,507 6.0 Tier I capital
(to average assets) Consolidated 37,395 10.1 — — — — Town & Country Bank 24,802 9.1 10,905 4.0 13,632 5.0 Logan County Bank 8,368 8.7 3,863 4.0 4,829 5.0
Note 14: Related Party Transactions
At December 31, 2010 and 2009, the Company had loans outstanding to executive officers, directors, significant stockholders and their affiliates (related parties), in the amount of $4,090,273 and $3,102,710, respectively.
In management’s opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectibility or present other unfavorable features.
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 15: Employee Benefits
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.
The Plan owned 95,378 shares of the Company’s common stock as of December 31, 2010 and 2009. The fair value of those shares totaled $667,646 as of December 31, 2010 and 2009.
In the event a terminated Plan participant desires to sell his or her shares of the Company’s stock, the Company would be required to purchase the shares from the participant at their fair market value as determined by an independent appraiser.
The Bank’s contribution for the Plan was approximately $5,000 for each of the years ended December 31, 2010 and 2009.
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 $182,116 and $195,337 for the years ended December 31, 2010 and 2009, respectively.
Also, the Company has a non-qualified executive incentive retirement plan (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 and equals the deferral account balance. The liability recorded was $240,731 and $282,674 at December 31, 2010 and 2009, respectively. The Company’s expense for the plan was $9,040 and $9,613 for 2010 and 2009, respectively.
Note 16: Operating Leases
The Company has several noncancellable operating leases, primarily for branch offices, that expire through 2015. These leases generally contain renewal options for periods ranging from 2 to 5 years and require the Company to pay all executory costs such as taxes, maintenance and insurance. Rental expense for these leases was $92,336 and $92,627 for the years ended December 31, 2010 and 2009, respectively.
Future minimum lease payments under operating leases are:
2011 $ 50,284 2012 50,284 2013 50,284 2014 50,284 2015 4,190 Total minimum lease payments $ 205,326
Note 17: Disclosures About Fair Value of Assets and Liabilities
ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.
Available-for-sale Securities
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include SLMA stock and corporate stock. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include U.S. Government and federal agency and Government-sponsored enterprises (GSEs), GSE residential mortgage-backed securities, state and political subdivision securities, and corporate securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include investments in pooled trust preferred securities (TruPS).
The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2010 and 2009:
2010 Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs (Level 3)
U.S. Government and
federal agency and U.S. Government-sponsored enterprises (GSEs) $ 12,608,143 $ — $ 12,608,143 $ —
Mortgage-backed: GSE residential 60,149,295 — 60,149,295 —
State and political subdivision securities 11,579,734 — 11,579,734 —
Equity securities 2,726,349 2,726,349 — — Trust preferred
securities 5,839,042 — — 5,839,042 Corporate 2,640,554 — 2,640,554 — $ 95,543,117 $ 2,726,349 $ 86,977,726 $ 5,839,042
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 17: Disclosures About Fair Value of Assets and Liabilities (continued)
Available-for-sale Securities (continued)
2009 Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs (Level 3)
U.S. Government and
federal agency and U.S. Government-sponsored enterprises (GSEs) $20,012,680 $ — $20,012,680 $ —
Mortgage-backed: GSE residential 58,673,167 — 58,673,167 —
State and political subdivision securities 17,018,568 — 17,018,568 —
Equity securities 2,520,488 2,520,488 — — Trust preferred securities 5,561,647 — — 5,561,647 Corporate 2,527,153 — 2,527,153 — $106,313,703 $ 2,520,488 $98,231,568 $ 5,561,647
The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:
Pooled Trust Preferred Securities 2010 2009
Balance, January 1, $ 5,561,647 $ 6,918,085 Total realized and unrealized gains and losses
Included in net income (213,000) (381,503) Included in other comprehensive income 562,034 (951,774)
Settlements (71,639) (23,161) Balance, December 31, $ 5,839,042 $ 5,561,647 Total gains or losses for the period included in net
income attributable to the change in unrealized gains or losses related to assets and liabilities still held at the reporting date $ (213,000) $ (381,503)
Realized and unrealized gains and losses for items reflected in the table above are included in net income in the consolidated statements of income as follows:
Other Income 2010 2009
Total gains and losses $ (213,000) $ (381,503) Change in unrealized gains or losses relating to
assets still held at the balance sheet date $ (213,000) $ (381,503)
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.
Impaired Loans (Collateral Dependent)
Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.
If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.
Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.
Mortgage Servicing Rights
Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.
The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2010 and 2009:
2010 Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs (Level 3)
Impaired loans (collateral
dependent) $ 85,345 $ — $ — $ 85,345 Mortgage servicing
rights 2,515,566 — — 2,515,566
2009 Fair Value Measurements Using
Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs (Level 3)
Impaired loans (collateral
dependent) $ 398,273 $ — $ — $ 398,273 Mortgage servicing rights 2,572,808 — — 2,572,808
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 17: Disclosures About Fair Value of Assets and Liabilities (continued)
The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.
Cash and Cash Equivalents, Interest-Bearing Time Deposits in Banks, Federal Reserve and Federal Home Loan Bank Stock, U.S Treasury Demand Note, Interest Receivable and Interest Payable
The carrying amount approximates fair value.
Securities
Fair values equal quoted market prices, if available. If quoted market prices are not available, fair value is estimated based on quoted market prices of similar securities.
Loans Held for Sale
For homogeneous categories of loans, such as mortgage loans held for sale, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.
Loans
The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates its fair value.
Deposits
Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.
Long-term Debt and Federal Home Loan Bank Advances
Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.
Commitments to Originate Loans, Letters of Credit and Lines of Credit
The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.
Commitments to Originate Loans, Letters of Credit and Lines of Credit (continued)
The following table presents estimated fair values of the Company’s financial instruments at December 31, 2010 and 2009.
December 31, 2010 December 31, 2009
Carrying Amount Fair Value
Carrying Amount Fair Value
Financial assets Cash and cash
equivalents $ 9,063,773 $ 9,063,773 $21,639,183 $21,639,183 Interest-bearing time
deposits in banks 7,602,000 7,602,000 1,876,000 1,876,000 Available-for-sale
securities 95,543,117 95,543,117 106,313,703 106,313,703 Held-to-maturity
securities 417,803 417,803 1,512,742 1,361,699 Loans held for sale 8,855,868 8,855,868 4,116,183 4,116,183 Loans, net of allowance
for loan losses 217,614,241 217,785,886 216,214,999 215,548,504 Federal Reserve and
Federal Home Loan Bank stock 2,241,706 2,241,706 2,094,656 2,094,656
Interest receivable 1,446,488 1,446,488 1,638,739 1,638,739
Financial liabilities Deposits 297,581,257 298,738,705 305,461,804 306,904,260 Junior subordinated
debentures 11,856,000 6,424,679 11,856,000 8,685,065 Federal Home Loan
Bank advances 20,000,000 20,280,299 27,250,000 27,687,532 U.S. Treasury demand
note 222,661 222,661 404,011 404,011 Interest payable 363,029 363,029 597,001 597,001
Unrecognized financial
instruments (net of contract amount)
Commitments to originate loans 0 0 0 0
Letters of credit 0 0 0 0 Lines of credit 0 0 0 0
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Town and Country Financial Corporation Notes to Consolidated Financial Statements December 31, 2010 and 2009
Note 18: Significant Estimates and Concentrations
Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in the note regarding loans. Current vulnerabilities due to certain concentrations of credit risk are discussed in the note on commitments and credit risk. Other significant estimates and concentrations not discussed in those footnotes include:
Foreclosed Assets Held For Sale
Foreclosed assets held for sale had a carrying value of $1,717,979 and $795,640 as of December 31, 2010 and 2009, respectively. As of December 31, 2010, foreclosed assets held for sale include residential real estate with a carrying value of $199,100 and commercial real estate with a carrying value of $1,518,879 in Springfield, Illinois and surrounding communities. The carrying value reflects management’s best estimate of the amount to be realized from the sale of the property. The amount that the Company realizes from the sale of the property could differ materially in the near term from the carrying value reflected in these financial statements due to the recent declines in residential and commercial real estate.
Investments
The Company invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the accompanying consolidated balance sheet.
Current Economic Conditions
The current protracted economic decline continues to present financial institutions with circumstances and challenges, which in some cases have resulted in large and unanticipated declines in the fair values of investments and other assets, constraints on liquidity and capital and significant credit quality problems, including severe volatility in the valuation of real estate and other collateral supporting loans.
At December 31, 2010 and 2009, the Company held $100,621,329 and $82,241,914, respectively, in commercial real estate loans and $13,473,711 and $16,512,354 in commercial and residential real estate development loans located primarily in Central Illinois. Due to national, state and local economic conditions, values for commercial and development real estate have declined significantly, and the market for these properties is depressed.
The accompanying consolidated financial statements have been prepared using values and information currently available to the Company.
Given the volatility of current economic conditions, the values of assets and liabilities recorded in the consolidated financial statements could change rapidly, resulting in material future adjustments in asset values, the allowance for loan losses and capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.
Note 19: Commitments and Credit Risk
The Company grants commercial, mortgage and consumer loans and receives deposits from customers primarily located within Central Illinois. The Company’s loans are generally secured by specific items of collateral including real property, consumer assets and business assets. Although the Company has a diversified loan portfolio, a substantial portion of its debtors ability to honor their contracts is dependent upon the economic conditions within Central Illinois.
Note 19: Commitments and Credit Risk (continued)
Commitments to Originate Loans
Commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.
At December 31, 2010 and 2009, the Company had outstanding commitments to originate loans aggregating approximately $10,804,470 and $8,430,945, respectively. The commitments extended over varying periods of time with the majority being disbursed within a one-year period. Loan commitments at fixed rates of interest amounted to $6,154,470 and $7,255,945 at December 31, 2010 and 2009, respectively, with the remainder at floating market rates.
Standby Letters of Credit
Standby letters of credit are irrevocable conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Financial standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Performance standby letters of credit are issued to guarantee performance of certain customers under non-financial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. Should the Company be obligated to perform under the standby letters of credit, the Company may seek recourse from the customer for reimbursement of amounts paid.
The Company had total outstanding standby letters of credit amounting to $1,766,732 and $1,241,806, at December 31, 2010 and 2009, respectively, with terms ranging from 1 day to 25 months. At December 31, 2010 and 2009, the Company’s deferred revenue under standby letter of credit agreements was nominal.
Lines of Credit
Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.
At December 31, 2010, the Company had granted unused lines of credit to borrowers aggregating approximately $37,160,755 and $21,781,197 for commercial lines and open-end consumer lines, respectively. At December 31, 2009, unused lines of credit to borrowers aggregated approximately $28,134,113 for commercial lines and $22,063,336 for open-end consumer lines.
Note 20: Subsequent Events
Subsequent events have been evaluated through March 14, 2011, which is the date the financial statements were available to be issued.
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CorporateInformation
Market MakerSTown 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 Market Makers listed on www.otcmarkets.com.
tranSFer agentTown and Country Financial Corporation acts as its own Transfer Agent. Contact us by calling 866.770.3100 with questions on registrations or stock transfer instructions. Mail requests to our Corporate Office at the address below:
Town and Country Financial Corporation3601 Wabash AvenueSpringfield, IL 62711www.townandcountrybank.com
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