Goodwill

12 Months Ended

Dec. 31, 2011

Disclosure Text Block Supplement [Abstract]

Goodwill Disclosure [Text Block]

Note 7. Goodwill

There was no change in the carrying amount of goodwill for the year ended December 31, 2011. The change in the carrying amount of goodwill for the year ended December 31, 2010, is as follows:

Balance, beginning of year	$	2,541,476
Goodwill acquired		-
Goodwill impairment		2,541,476
Balance, end of year	$	-

Cornerstone’s policy is to assess goodwill for impairment on an annual basis or between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of goodwill below its carrying amount as required by authoritative accounting guidance. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. The impairment testing is a two-step process. Step one compares the fair value of the reporting unit to the carrying value. If the fair value is below the carrying value, step two is performed. Step two involves a process similar to business combination accounting in which fair value is assigned to all assets, liabilities and other (non-goodwill) intangibles. The result of step two is the implied fair value of goodwill. If the implied fair value of goodwill is below the recorded goodwill amount, an impairment charge is recorded for the difference.

Cornerstone performed its annual impairment analysis in December 2010. ASC Topic 350, “Intangibles-Goodwill and Other,” states that the fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. Quoted market prices in active markets are the best evidence of fair value and shall be used as the basis for the measurement, if available. Cornerstone obtained published information on the market price to book value and market price to tangible book value for other financial institutions located in Tennessee and Georgia, financial institutions in the southeastern region of the United States, and recently completed merger and acquisition transactions. This information was compared to Cornerstone’s market price to book value and market price to tangible book value. Based on this testing, step two analysis was required.

The results from the impairment analysis led management and the board of directors to conclude that Cornerstone’s goodwill was fully impaired as of December 31, 2010. The impairment amount of $2,541,476 was recorded in noninterest expenses in the Consolidated Statements of Operations. The impairment was primarily a result of the continuing economic downturn and its implications on entity valuations. Cornerstone’s goodwill was originally recorded as a non-taxable stock purchase. Therefore, the $2,541,476 goodwill impairment is not deductible for taxes and thus no tax benefit was recognized.