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Loans and Allowance for Loan Losses | 3 Months Ended
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Mar. 31, 2014
Receivables [Abstract] |
Loans, Notes, Trade and Other Receivables Disclosure [Text Block] | Note 4. Loans and Allowance for Loan Losses At March 31, 2014 and December 31, 2013, loans are summarized as follows (in thousands):
|  | March 31, |  | December 31, |
|  | 2014 |  | 2013 |
Commercial real estate-mortgage: |  |  |  |  |  |  |
Owner-occupied |  | $ | 68,653 |  | $ | 65,747 |
All other |  |  | 70,089 |  |  | 64,052 |
Consumer real estate-mortgage |  |  | 77,767 |  |  | 76,315 |
Construction and land development |  |  | 32,752 |  |  | 41,597 |
Commercial and industrial |  |  | 41,122 |  |  | 38,999 |
Consumer and other |  |  | 2,569 |  |  | 2,730 |
Total loans |  |  | 292,952 |  |  | 289,440 |
Less: Allowance for loan losses |  |  | (3,011) |  |  | (3,203) |
Loans, net |  | $ | 289,941 |  | $ | 286,237 |
The following describe risk characteristics relevant to each of the portfolio segments: Real estate: As discussed below, Cornerstone offers various types of real estate loan products. All loans within this portfolio segment are particularly sensitive to the valuation of real estate:
| · | Commercial real estate-mortgage loans include owner-occupied commercial real estate loans and other commercial real estate loans. Owner-occupied commercial real estate loans to operating businesses are long-term financing of land and buildings. Other commercial real estate loans are generally secured by income producing properties.
| · | Consumer real estate-mortgage loans include loans secured by 1-4 family and multifamily residential properties. These loans are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property.
| · | Construction and land development loans include extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral. These loans are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio segment also includes owner-occupied construction loans for commercial businesses for the development of land or construction of a building. These loans are repaid by cash flow generated from the business operation. Real estate loans for income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties.
Commercial and industrial: The commercial and industrial loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the customers’ business operations. Consumer and other: The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans, and educational loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures. Cornerstone follows the loan impairment accounting guidance in ASC Topic 310. A loan is considered impaired when, based on current information and events, it is probable that Cornerstone will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans and loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in interest rates, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collections. The composition of loans by loan classification for impaired and performing loan status at March 31, 2014 and December 31, 2013, is summarized in the tables below (amounts in thousands):
March 31, 2014 |  | Commercial |  | Consumer |  | Construction |  | Commercial |  |  |  |  |
|  | Real Estate- |  | Real Estate- |  | and Land |  | and |  | Consumer |  |  |
|  | Mortgage |  | Mortgage |  | Development |  | Industrial |  | and Other |  | Total |
Performing loans |  | $ | 133,425 |  | $ | 74,712 |  | $ | 32,386 |  | $ | 39,383 |  | $ | 2,569 |  | $ | 282,475 |
Impaired loans |  |  | 5,317 |  |  | 3,055 |  |  | 366 |  |  | 1,739 |  |  | - |  |  | 10,477 |
Total |  | $ | 138,742 |  | $ | 77,767 |  | $ | 32,752 |  | $ | 41,122 |  | $ | 2,569 |  | $ | 292,952 |
December 31, 2013 |  | Commercial |  | Consumer |  | Construction |  | Commercial |  |  |  |  |
|  | Real Estate- |  | Real Estate- |  | and Land |  | and |  | Consumer |  |  |
|  | Mortgage |  | Mortgage |  | Development |  | Industrial |  | and Other |  | Total |
Performing loans |  | $ | 121,817 |  | $ | 72,868 |  | $ | 41,228 |  | $ | 37,007 |  | $ | 2,730 |  | $ | 275,650 |
Impaired loans |  |  | 7,982 |  |  | 3,447 |  |  | 369 |  |  | 1,992 |  |  | - |  |  | 13,790 |
Total |  | $ | 129,799 |  | $ | 76,315 |  | $ | 41,597 |  | $ | 38,999 |  | $ | 2,730 |  | $ | 289,440 |
The following tables show the allowance for loan losses allocation by loan classification for impaired and performing loans as of March 31, 2014 and December 31, 2013 (amounts in thousands):
March 31, 2014 |  | Commercial |  | Consumer |  | Construction |  | Commercial |  |  |  |  |
|  | Real Estate- |  | Real Estate- |  | and Land |  | and |  | Consumer |  |  |
Allowance related to: |  | Mortgage |  | Mortgage |  | Development |  | Industrial |  | and Other |  | Total |
Performing loans |  | $ | 1,163 |  | $ | 832 |  | $ | 241 |  | $ | 297 |  | $ | 40 |  | $ | 2,573 |
Impaired loans |  |  | 70 |  |  | 266 |  |  | - |  |  | 102 |  |  | - |  |  | 438 |
Total |  | $ | 1,233 |  | $ | 1,098 |  | $ | 241 |  | $ | 399 |  | $ | 40 |  | $ | 3,011 |
December 31, 2013 |  | Commercial |  | Consumer |  | Construction |  | Commercial |  |  |  |  |
|  | Real Estate- |  | Real Estate- |  | and Land |  | and |  | Consumer |  |  |
Allowance related to: |  | Mortgage |  | Mortgage |  | Development |  | Industrial |  | and Other |  | Total |
Performing loans |  | $ | 1,051 |  | $ | 927 |  | $ | 319 |  | $ | 297 |  | $ | 45 |  | $ | 2,639 |
Impaired loans |  |  | 498 |  |  | 11 |  |  | - |  |  | 55 |  |  | - |  |  | 564 |
Total |  | $ | 1,549 |  | $ | 938 |  | $ | 319 |  | $ | 352 |  | $ | 45 |  | $ | 3,203 |
The following tables detail the changes in the allowance for loan losses for the three month period ending March 31, 2014 and year ending December 31, 2013, by loan classification (amounts in thousands):
March 31, 2014 |  | Commercial |  | Consumer |  | Construction |  | Commercial |  |  |  |  |
|  | Real Estate- |  | Real Estate- |  | and Land |  | and |  | Consumer |  |  |
|  | Mortgage |  | Mortgage |  | Development |  | Industrial |  | and Other |  | Total |
Beginning balance |  | $ | 1,549 |  | $ | 938 |  | $ | 319 |  | $ | 352 |  | $ | 45 |  | $ | 3,203 |
Charged-off loans |  |  | (397) |  |  | (10) |  |  | (7) |  |  | (36) |  |  | (36) |  |  | (486) |
Recovery of charge-offs |  |  | 39 |  |  | 29 |  |  | 25 |  |  | 17 |  |  | 19 |  |  | 129 |
Provision for (reallocation of) loan losses |  |  | 42 |  |  | 141 |  |  | (96) |  |  | 66 |  |  | 12 |  |  | 165 |
Ending balance |  | $ | 1,233 |  | $ | 1,098 |  | $ | 241 |  | $ | 399 |  | $ | 40 |  | $ | 3,011 |
December 31, 2013 |  | Commercial |  | Consumer |  | Construction |  | Commercial |  |  |  |  |
|  | Real Estate- |  | Real Estate- |  | and Land |  | and |  | Consumer |  |  |
|  | Mortgage |  | Mortgage |  | Development |  | Industrial |  | and Other |  | Total |
Beginning balance |  | $ | 2,549 |  | $ | 1,528 |  | $ | 1,241 |  | $ | 809 |  | $ | 14 |  | $ | 6,141 |
Charged-off loans |  |  | (1,879) |  |  | (842) |  |  | (1,193) |  |  | (699) |  |  | (96) |  |  | (4,709) |
Recovery of charge-offs |  |  | 68 |  |  | 241 |  |  | 1,058 |  |  | 99 |  |  | 5 |  |  | 1,471 |
Provision for (reallocation of) loan losses |  |  | 811 |  |  | 11 |  |  | (787) |  |  | 143 |  |  | 122 |  |  | 300 |
Ending balance |  | $ | 1,549 |  | $ | 938 |  | $ | 319 |  | $ | 352 |  | $ | 45 |  | $ | 3,203 |
Credit quality indicators: Federal regulations require the Bank to review and classify its assets on a regular basis. To fulfill this requirement, the Bank systematically reviews its loan portfolio to ensure the Bank’s large loan relationships are being maintained within its loan policy guidelines, remain properly underwritten and are properly classified by loan grade. This review process is performed by the Bank's management, internal and external loan review, internal auditors, and state and federal regulators. The Bank’s loan grading process is as follows:
| ⋅ | All loans are assigned a loan grade at the time of origination by the relationship manager. Typically, a loan is assigned a loan grade of “pass” at origination.
| ⋅ | Loan relationships greater than or equal to $500 thousand are reviewed by the Bank’s external loan review provider on an annual basis.
| · | Additionally, the Bank’s external loan review provider samples other loan relationships between $100 thousand and $500 thousand with an emphasis on commercial and commercial real estate loans and insider loans.
| · | The Bank’s internal loan review department samples approximately 33 percent of all other loan relationships less than $500 thousand on an annual basis for review.
| · | If a loan is delinquent 60 days or more or a pattern of delinquency exists, the loan will be selected for review.
| · | Generally, all loans on the Bank’s internal watchlist are reviewed annually by internal loan review or external loan review providers.
If a loan is classified as a problem asset, it will be assigned one of the following loan grades: substandard, doubtful, and loss. “Substandard” assets must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful” assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special mention” category, described as assets which do not currently expose an institution to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving close attention. When the Bank classifies an asset as substandard or doubtful, a specific allowance for loan losses may be established. The following tables outline the amount of each loan classification and the amount categorized into each risk rating as of March 31, 2014 and December 31, 2013 (amounts in thousands):
March 31, 2014 |  | Commercial |  | Consumer |  | Construction |  | Commercial |  |  |  |  |
|  | Real Estate- |  | Real Estate- |  | and Land |  | and |  | Consumer |  |  |
|  | Mortgage |  | Mortgage |  | Development |  | Industrial |  | and Other |  | Total |
Pass |  | $ | 131,020 |  | $ | 69,570 |  | $ | 31,770 |  | $ | 39,031 |  | $ | 2,569 |  | $ | 273,960 |
Special mention |  |  | 3,424 |  |  | 3,095 |  |  | 318 |  |  | 185 |  |  | - |  |  | 7,022 |
Substandard |  |  | 4,298 |  |  | 5,102 |  |  | 664 |  |  | 1,906 |  |  | - |  |  | 11,970 |
|  | $ | 138,742 |  | $ | 77,767 |  | $ | 32,752 |  | $ | 41,122 |  | $ | 2,569 |  | $ | 292,952 |
December 31, 2013 |  | Commercial |  | Consumer |  | Construction |  | Commercial |  |  |  |  |
|  | Real Estate- |  | Real Estate- |  | and Land |  | and |  | Consumer |  |  |
|  | Mortgage |  | Mortgage |  | Development |  | Industrial |  | and Other |  | Total |
Pass |  | $ | 119,398 |  | $ | 67,444 |  | $ | 40,850 |  | $ | 33,394 |  | $ | 2,730 |  | $ | 263,816 |
Special mention |  |  | 3,538 |  |  | 3,536 |  |  | 73 |  |  | 3,468 |  |  | - |  |  | 10,615 |
Substandard |  |  | 6,863 |  |  | 5,335 |  |  | 674 |  |  | 2,137 |  |  | - |  |  | 15,009 |
|  | $ | 129,799 |  | $ | 76,315 |  | $ | 41,597 |  | $ | 38,999 |  | $ | 2,730 |  | $ | 289,440 |
After the Bank’s independent loan review department completes the loan grade assignment, a loan impairment analysis is performed on loans graded substandard or worse. The following tables present summary information pertaining to impaired loans by loan classification as of March 31, 2014 and December 31, 2013 (in thousands):
|  |  |  | For the quarter ended |
|  | At March 31, 2014 |  | March 31, 2014 |
|  |  |  | Unpaid |  |  |  | Average |  | Interest |
|  | Recorded |  | Principal |  | Related |  | Recorded |  | Income |
|  | Investment |  | Balance |  | Allowance |  | Investment |  | Recognized |
Impaired loans without a valuation allowance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate – mortgage |  | $ | 5,180 |  | $ | 5,670 |  | $ | - |  | $ | 5,483 |  | $ | 74 |
Consumer real estate – mortgage |  |  | 2,021 |  |  | 2,035 |  |  | - |  |  | 2,100 |  |  | 24 |
Construction and land development |  |  | 366 |  |  | 379 |  |  | - |  |  | 368 |  |  | 5 |
Commercial and industrial |  |  | 1,357 |  |  | 1,417 |  |  | - |  |  | 1,460 |  |  | 13 |
Total |  | $ | 8,924 |  | $ | 9,501 |  | $ | - |  | $ | 9,411 |  | $ | 116 |
Impaired loans with a valuation allowance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate – mortgage |  | $ | 137 |  | $ | 147 |  | $ | 70 |  | $ | 1,167 |  | $ | 5 |
Consumer real estate – mortgage |  |  | 1,034 |  |  | 1,044 |  |  | 266 |  |  | 1,152 |  |  | 19 |
Construction and land development |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Commercial and industrial |  |  | 382 |  |  | 382 |  |  | 102 |  |  | 406 |  |  | 11 |
Total |  | $ | 1,553 |  | $ | 1,573 |  | $ | 438 |  | $ | 2,725 |  | $ | 35 |
Total impaired loans |  | $ | 10,477 |  | $ | 11,074 |  | $ | 438 |  | $ | 12,136 |  | $ | 151 |
|  |  |  | For the year ended |
|  | At December 31, 2013 |  | December 31, 2013 |
|  |  |  | Unpaid |  |  |  | Average |  | Interest |
|  | Recorded |  | Principal |  | Related |  | Recorded |  | Income |
|  | Investment |  | Balance |  | Allowance |  | Investment |  | Recognized |
Impaired loans without a valuation allowance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate – mortgage |  | $ | 5,786 |  | $ | 5,854 |  | $ | - |  | $ | 4,657 |  | $ | 340 |
Consumer real estate – mortgage |  |  | 2,177 |  |  | 2,202 |  |  | - |  |  | 2,669 |  |  | 96 |
Construction and land development |  |  | 369 |  |  | 383 |  |  | - |  |  | 358 |  |  | 23 |
Commercial and industrial |  |  | 1,563 |  |  | 1,621 |  |  | - |  |  | 1,857 |  |  | 60 |
Total |  | $ | 9,895 |  | $ | 10,060 |  | $ | - |  | $ | 9,541 |  | $ | 519 |
Impaired loans with a valuation allowance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate – mortgage |  | $ | 2,196 |  | $ | 2,285 |  | $ | 498 |  | $ | 4,869 |  | $ | 118 |
Consumer real estate – mortgage |  |  | 1,270 |  |  | 1,281 |  |  | 11 |  |  | 1,353 |  |  | 90 |
Construction and land development |  |  | - |  |  | - |  |  | - |  |  | 177 |  |  | - |
Commercial and industrial |  |  | 429 |  |  | 430 |  |  | 55 |  |  | 597 |  |  | 53 |
Total |  | $ | 3,895 |  | $ | 3,996 |  | $ | 564 |  | $ | 6,996 |  | $ | 261 |
Total impaired loans |  | $ | 13,790 |  | $ | 14,056 |  | $ | 564 |  | $ | 16,537 |  | $ | 780 |
The following tables present an aged analysis of past due loans as of March 31, 2014 and December 31, 2013 (amounts in thousands):
March 31, 2014 |  | 30-89 Days |  | Past Due 90 |  |  |  |  |  |  |  |  |
|  | Past Due and |  | Days or More |  |  |  | Total |  | Current |  | Total |
|  | Accruing |  | and Accruing |  | Nonaccrual |  | Past Due |  | Loans |  | Loans |
Commercial real estate-mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner-occupied |  | $ | 438 |  | $ | - |  | $ | 292 |  | $ | 730 |  | $ | 67,923 |  | $ | 68,653 |
All other |  |  | 173 |  |  | - |  |  | 524 |  |  | 697 |  |  | 69,392 |  |  | 70,089 |
Consumer real estate-mortgage |  |  | 1,044 |  |  | - |  |  | 2,473 |  |  | 3,517 |  |  | 74,250 |  |  | 77,767 |
Construction and land development |  |  | - |  |  | - |  |  | 46 |  |  | 46 |  |  | 32,706 |  |  | 32,752 |
Commercial and industrial |  |  | 537 |  |  | - |  |  | 1,444 |  |  | 1,981 |  |  | 39,141 |  |  | 41,122 |
Consumer and other |  |  | 1 |  |  | - |  |  | - |  |  | 1 |  |  | 2,568 |  |  | 2,569 |
Total |  | $ | 2,193 |  | $ | - |  | $ | 4,779 |  | $ | 6,972 |  | $ | 285,980 |  | $ | 292,952 |
December 31, 2013 |  | 30-89 Days |  | Past Due 90 |  |  |  |  |  |  |  |  |
|  | Past Due and |  | Days or More |  |  |  | Total |  | Current |  | Total |
|  | Accruing |  | and Accruing |  | Nonaccrual |  | Past Due |  | Loans |  | Loans |
Commercial real estate-mortgage: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner-occupied |  | $ | 678 |  | $ | - |  | $ | 838 |  | $ | 1,516 |  | $ | 64,231 |  | $ | 65,747 |
All other |  |  | 867 |  |  | - |  |  | 44 |  |  | 911 |  |  | 63,141 |  |  | 64,052 |
Consumer real estate-mortgage |  |  | 419 |  |  | - |  |  | 1,006 |  |  | 1,425 |  |  | 74,890 |  |  | 76,315 |
Construction and land development |  |  | 50 |  |  | - |  |  | 47 |  |  | 97 |  |  | 41,500 |  |  | 41,597 |
Commercial and industrial |  |  | 201 |  |  | - |  |  | 1,631 |  |  | 1,832 |  |  | 37,167 |  |  | 38,999 |
Consumer and other |  |  | 35 |  |  | - |  |  | - |  |  | 35 |  |  | 2,695 |  |  | 2,730 |
Total |  | $ | 2,250 |  | $ | - |  | $ | 3,566 |  | $ | 5,816 |  | $ | 283,624 |  | $ | 289,440 |
Impaired loans also include loans that the Bank has elected to formally restructure when, due to the weakening credit status of a borrower, the restructuring may facilitate a repayment plan that seeks to minimize the potential losses that the Bank may have to otherwise incur. At March 31, 2014 and December 31, 2013, the Bank has loans of approximately $5,137,000 and $5,753,000, respectively, that were modified in troubled debt restructurings. Troubled commercial loans are restructured by specialists within our Special Asset department and all restructurings are approved by committees and credit officers separate and apart from the normal loan approval process. These specialists are trained to reduce the Bank’s overall risk and exposure to loss in the event of a restructuring through obtaining either or all of the following: improved documentation, additional guaranties, increase in curtailments, reduction in collateral terms, additional collateral or other similar strategies. There were no loans that were modified as troubled debt restructurings during the three month period ending March 31, 2014. The following table presents a summary of loans that were modified as troubled debt restructurings during the three month period ending March 31, 2013 (amounts in thousands):
|  |  |  | Pre-Modification |  | Post-Modification |
|  |  |  | Outstanding Recorded |  | Outstanding Recorded |
March 31, 2013 |  | Number of Contracts |  | Investment |  | Investment |
Commercial real estate-mortgage |  |  | 6 |  | $ | 8,354 |  | $ | 8,354 |
Consumer real estate-mortgage |  |  | 3 |  |  | 270 |  |  | 270 |
Construction and land development |  |  | 1 |  |  | 459 |  |  | 459 |
Commercial and industrial |  |  | 5 |  |  | 2,432 |  |  | 2,432 |
There were no loans that were modified as troubled debt restructurings during the past twelve months and for which there was a subsequent payment default.

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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.3,4) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 3, 4 -Article 5 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=28368275&loc=d3e5074-111524 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=28368275&loc=d3e5066-111524 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 7 -Article 9 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(k)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph k -Article 4 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 11 -URI http://asc.fasb.org/extlink&oid=28368275&loc=d3e5162-111524 + Details
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