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Fair Value Disclosures | 9 Months Ended
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Sep. 30, 2014
Fair Value Disclosures [Abstract] |
Fair Value Disclosures [Text Block] | Note 6. Fair Value Disclosures Fair Value Measurements: Cornerstone uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the “Fair Value Measurements and Disclosures” ASC Topic 820, the fair value of a financial instrument is 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. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. ASC Topic 820 provides a consistent definition of fair value, which focuses on exit price in an orderly transaction between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. ASC Topic 820 also establishes a three-tier 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, as follows: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that Cornerstone has the ability to access. Level 2 - Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data. Level 3 - Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following methods and assumptions were used by Cornerstone in estimating fair value disclosures for financial instruments. There have been no changes in the methodologies used at September 30, 2014 and December 31, 2013. Cash and cash equivalents: The carrying amounts of cash and cash equivalents approximate fair values based on the short-term nature of the assets. Cash and cash equivalents are classified as Level 1 of the fair value hierarchy. Securities: Fair values are estimated using pricing models and discounted cash flows that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, and credit spreads. Securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs. The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank. Federal Home Loan Bank stock is classified as Level 3 of the fair value hierarchy. Loans: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for fixed-rate loans are estimated using discounted cash flow analysis, using market interest rates for comparable loans. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310, “Accounting by Creditors for Impairment of a Loan.” The fair value of impaired loans is estimated using several methods including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2014, substantially all of the total impaired loans were evaluated based on the fair value of collateral. The remaining impaired loans were evaluated based on a discounted cash flow methodology. In accordance with ASC Topic 820, these impaired loans with a valuation allowance require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, Cornerstone records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value or is based on a discounted cash flow methodology and there is no observable market price, Cornerstone records the impaired loan as nonrecurring Level 3. At December 31, 2013, impaired loans were evaluated based on the fair value of collateral and on the discounted cash flow methodology. Foreclosed assets: Foreclosed assets, consisting of properties obtained through foreclosure or in satisfaction of loans, is initially recorded at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. Gains or losses on sale and any subsequent adjustment to the fair value are recorded as a component of foreclosed assets expense. Foreclosed assets are included in Level 2 of the valuation hierarchy. Deposits: The fair value of deposits with no stated maturity, such as noninterest-bearing and interest-bearing demand deposits, savings deposits, and money market accounts, is equal to the amount payable on demand at the reporting date. The carrying amounts of variable-rate, fixed-term certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits. Generally, Level 3 inputs are utilized in this estimate. Federal funds purchased and securities sold under agreements to repurchase: The carrying amount of these liabilities approximates their estimated fair value. These liabilities are included in Level 3 of the fair value hierarchy. Federal Home Loan Bank advances and other borrowings: The fair value of these fixed rate advances is estimated based on discounted contractual cash flows using current incremental borrowing rates for similar type borrowing arrangements. These liabilities are included in Level 3 of the fair value hierarchy. Accrued interest: The carrying amounts of accrued interest approximate fair value. Accrued interest is included in Level 3 of the fair value hierarchy. Commitments to extend credit, letters of credit and lines of credit: The fair value of commitments 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. Assets and liabilities recorded at fair value on a recurring basis are as follows.
|  |  |  | Quoted Prices in |  | Significant |  | Significant |
|  |  |  | Active Markets |  | Other |  | Other |
|  | Balance as of |  | for Identical |  | Observable |  | Unobservable |
|  | September 30, |  | Assets |  | Inputs |  | Inputs |
|  | 2014 |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Debt securities available-for-sale: |  |  |  |  |  |  |  |  |
U.S. Government agencies |  | $ | 666,571 |  | $ | - |  | $ | 666,571 |  | $ | - |
State and municipal securities |  |  | 8,901,666 |  |  | - |  |  | 8,901,666 |  |  | - |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage guaranteed by GNMA or FNMA |  |  | 5,033,736 |  |  | - |  |  | 5,033,736 |  |  | - |
Collateralized mortgage obligations issued or guaranteed by U.S. Government agencies or sponsored agencies |  |  | 63,647,699 |  |  | - |  |  | 63,647,699 |  |  | - |
Total securities available-for-sale |  | $ | 78,249,672 |  | $ | - |  | $ | 78,249,672 |  | $ | - |
|  |  |  | Quoted Prices in |  | Significant |  | Significant |
|  |  |  | Active Markets |  | Other |  | Other |
|  | Balance as of |  | for Identical |  | Observable |  | Unobservable |
|  | December 31, |  | Assets |  | Inputs |  | Inputs |
|  | 2013 |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Debt securities available-for-sale: |  |  |  |  |  |  |  |  |
U.S. Government agencies |  | $ | 3,481,335 |  | $ | - |  | $ | 3,481,335 |  | $ | - |
State and municipal securities |  |  | 15,249,238 |  |  | - |  |  | 15,249,238 |  |  | - |
Mortgage-backed securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage guaranteed by GNMA or FNMA |  |  | 7,132,279 |  |  | - |  |  | 7,132,279 |  |  | - |
Collateralized mortgage obligations issued or guaranteed by U.S. Government agencies or sponsored agencies |  |  | 66,345,820 |  |  | - |  |  | 66,345,820 |  |  | - |
Total securities available-for-sale |  | $ | 92,208,672 |  | $ | - |  | $ | 92,208,672 |  | $ | - |
Cornerstone has no assets or liabilities whose fair values are measured on a recurring basis using Level 3 inputs. Additionally, there were no transfers between Level 1 and Level 2 in the fair value hierarchy. Certain assets and liabilities are measured at fair value on a nonrecurring basis, which means the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The tables below present information about assets and liabilities on the balance sheet at September 30, 2014 and December 31, 2013 for which a nonrecurring change in fair value was recorded (amounts in thousands).
|  |  |  | Quoted Prices in |  | Significant |  | Significant |
|  |  |  | Active Markets |  | Other |  | Other |
|  | Balance as of |  | for Identical |  | Observable |  | Unobservable |
|  | September 30, |  | Assets |  | Inputs |  | Inputs |
|  | 2014 |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Impaired loans |  | $ | 1,037 |  | $ | - |  | $ | 1,023 |  | $ | 14 |
Foreclosed assets |  |  | 10,994 |  |  | - |  |  | 10,994 |  |  | - |
|  |  |  | Quoted Prices in |  | Significant |  | Significant |
|  |  |  | Active Markets |  | Other |  | Other |
|  | Balance as of |  | for Identical |  | Observable |  | Unobservable |
|  | December 31, |  | Assets |  | Inputs |  | Inputs |
|  | 2013 |  | (Level 1) |  | (Level 2) |  | (Level 3) |
Impaired loans |  | $ | 3,331 |  | $ | - |  | $ | 891 |  | $ | 2,440 |
Foreclosed assets |  |  | 12,926 |  |  | - |  |  | 12,926 |  |  | - |
Loans include impaired loans held for investment for which an allowance for loan losses has been calculated based upon the fair value of the loans at September 30, 2014 and December 31, 2013. The carrying amount and estimated fair value of Cornerstone's financial instruments at September 30, 2014 and December 31, 2013 are as follows (in thousands):
|  | September 30, 2014 |  | December 31, 2013 |
|  | Carrying |  | Estimated |  | Carrying |  | Estimated |
|  | Amount |  | Fair Value |  | Amount |  | Fair Value |
Assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 15,875 |  | $ | 15,875 |  | $ | 24,852 |  | $ | 24,852 |
Securities |  |  | 78,279 |  |  | 78,279 |  |  | 92,243 |  |  | 92,244 |
Federal Home Loan Bank stock |  |  | 2,323 |  |  | 2,323 |  |  | 2,323 |  |  | 2,323 |
Loans, net |  |  | 294,916 |  |  | 295,369 |  |  | 286,237 |  |  | 287,411 |
Accrued interest receivable |  |  | 1,180 |  |  | 1,180 |  |  | 978 |  |  | 978 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Noninterest-bearing demand deposits |  |  | 53,616 |  |  | 53,616 |  |  | 75,207 |  |  | 75,207 |
Interest-bearing demand deposits |  |  | 25,246 |  |  | 25,246 |  |  | 24,564 |  |  | 24,564 |
Savings deposits and money market accounts |  |  | 83,109 |  |  | 83,109 |  |  | 86,330 |  |  | 86,330 |
Time deposits |  |  | 154,343 |  |  | 155,652 |  |  | 155,314 |  |  | 156,698 |
Federal funds purchased and securities sold under agreements to repurchase |  |  | 27,336 |  |  | 27,336 |  |  | 22,974 |  |  | 22,974 |
Federal Home Loan Bank advances and other borrowings |  |  | 28,000 |  |  | 28,389 |  |  | 26,740 |  |  | 27,449 |
Accrued interest payable |  |  | 78 |  |  | 78 |  |  | 82 |  |  | 82 |
Unrecognized financial instruments (net of contract amount): |  |  |  |  |  |  |  |  |  |  |  |  |
Commitments to extend credit |  |  | - |  |  | - |  |  | - |  |  | - |
Letters of credit |  |  | - |  |  | - |  |  | - |  |  | - |
Lines of credit |  |  | - |  |  | - |  |  | - |  |  | - |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13537-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13433-108611 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13504-108611 + Details
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