Federal Home Loan Bank Advances and Other Borrowings

12 Months Ended

Dec. 31, 2011

Federal Home Loan Bank Advances and Other Borrowings [Abstract]

Federal Home Loan Bank Advances and Other Borrowings [Text Block]

Note 10. Federal Home Loan Bank Advances and Other Borrowings

The Bank has agreements with the Federal Home Loan Bank of Cincinnati (FHLB) that can provide advances to the Bank in an amount up to approximately $40,500,000. All of the Bank’s loans secured by first mortgages on 1-4 family residential, multi-family properties and commercial properties are pledged as collateral for these advances. Additionally, the Bank has pledged securities with a carrying amount of approximately $27,897,000 as of December 31, 2011.

At December 31, 2011 and 2010, FHLB advances consist of the following:

	2011		2010
Long-term advance dated February 9, 2005, requiring monthly interest payments, fixed at 3.86%, convertible on February 2010, principal due in February 2015	$	5,000,000	$	5,000,000
Long-term advance dated July 2, 2008, requiring monthly interest payments, fixed at 3.85%, until maturity, principal due in July 2011		-		5,000,000
Long-term advance dated January 22, 2008, requiring monthly interest payments, fixed at 3.59%, until maturity, principal due in January 2013		5,000,000		5,000,000
Long-term advance dated May 11, 2007, requiring monthly interest payments, fixed at 4.66%, with a put option exercisable in February 2008 and then quarterly thereafter, principal due in May 2011		-		5,000,000
Long-term advance dated May 15, 2007, requiring monthly interest payments, fixed at 4.58%, with a put option exercisable in May 2008 and then quarterly thereafter, principal due in May 2012		5,000,000		5,000,000
Long-term advance dated August 1, 2007, requiring monthly interest payments, fixed at 4.50%, with a put option exercisable in July 2008 and then quarterly thereafter, principal due in August 2013		5,000,000		5,000,000
Long-term advance dated August 13, 2007, requiring monthly interest payments, fixed at 4.43%, with a put option exercisable in February 2009 and then quarterly thereafter, principal due in August 2014		5,000,000		5,000,000
Long-term advance dated January 7, 2008, requiring monthly interest payments, fixed at 3.52%, with a put option exercisable in January 2011 and then quarterly thereafter, principal due in January 2015		5,000,000		5,000,000
Long-term advance dated January 20, 2006, requiring monthly interest payments, fixed at 4.18%, with a put option exercisable in January 2009 and then quarterly thereafter, principal due in January 2016		5,000,000		5,000,000
Long-term advance dated January 10, 2007, requiring monthly interest payments, fixed at 4.25%, with a put option exercisable in January 2008 and then quarterly thereafter, principal due in January 2017		5,000,000		5,000,000
	$	40,000,000	$	50,000,000

During the fixed rate term, the advances may be prepaid subject to a prepayment penalty as defined in the agreements. On convertible agreements, the FHLB has the right to convert the fixed rate on the above advances at the end of the initial fixed rate period and on a quarterly basis thereafter. If the conversion option is exercised, the advances will bear interest at the three-month London Interbank Offered Rate (LIBOR) adjusted quarterly at a spread of zero basis points to the LIBOR index. Subsequent to any conversion, the Bank has the option to prepay the advances, in full or in part, without penalty on the conversion date or any subsequent quarterly repricing date. On agreements with put options, the FHLB has the right, at its discretion, to terminate only the entire advance prior to the stated maturity date. The termination option may only be exercised on the expiration date of the predetermined lockout period and on a quarterly basis thereafter.

Cornerstone had an $8,500,000 line of credit with Silverton Bank (subsequently known as Silverton Bridge Bank, N.A.) that was secured by 100% of the Bank’s common stock. During March 2009, the line of credit matured and was reworked into two loans, a $4,350,000 amortizing term loan and a $1,000,000 revolving line of credit. These loans continue to be secured by 100% of the Bank’s common stock and bear interest at the greater of Prime plus 3% or 6.50%. The first loan requires semi-annual principal payments of $435,000 beginning July 2010, quarterly interest payments beginning April 2010, and final payment of outstanding principal and accrued interest due July 2014. The second loan required quarterly payments of $50,000 plus accrued interest beginning January 2010, and was paid in full on April 1, 2011. Borrowings outstanding under the remaining agreement as of December 31, 2011, totaled $3,045,000. Borrowings outstanding on these agreements totaled $4,715,000 at December 31, 2010.

During 2010, Midland Loan Services began servicing these loans for the Federal Deposit Insurance Corporation (FDIC). These loans contain certain compliance covenants which include stated minimum or maximum target amounts for Cornerstone’s capital levels, the Bank’s capital levels, nonperforming asset levels at the Bank and the ability of Cornerstone to meet the required debt service coverage ratio, which is computed on the four most recent consecutive fiscal quarters. Due to the level of nonperforming assets of the Bank and not currently meeting the required debt service coverage ratio, Cornerstone was not in compliance with these two covenants at December 31, 2011. However, Cornerstone had previously obtained waivers through December 31, 2011. During March 2012, Cornerstone obtained from the FDIC a waiver of the covenant compliance requirements through December 31, 2012, granted that all payments are made in accordance with the aforementioned repayment schedule.

The primary source of liquidity for Cornerstone is the payment of dividends from the Bank. As of December 31, 2011, the Bank was under a dividend restriction that requires regulatory approval prior to the payment of a dividend from the Bank to Cornerstone.

At December 31, 2011, scheduled maturities of the Federal Home Loan Bank advances and other borrowings are as follows:

2012	$	5,870,000
2013		10,870,000
2014		6,305,000
2015		10,000,000
2016		5,000,000
Thereafter		5,000,000
Total	$	43,045,000