10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]           QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

[  ]           TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _______ to ________

Commission file number:    000-54280

SUNSHINE FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

Maryland	36-4678532
(State or other jurisdiction of incorporation of organization)	(IRS Employer Identification No.)

1400 East Park Avenue, Tallahassee, Florida  32301

(Address of principal executive offices; Zip Code)

(850) 219-7200

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes [X ]No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes xNo ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]		Accelerated filer [  ]
Non-accelerated filer   [  ]	(Do not check if a smaller reporting company)	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each issuer's classes of common equity, as of the latest practicable date:

At November 12, 2012, there were issued and outstanding 1,234,454 shares of the issuer’s common stock.

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Index

		Page Number
PART I  FINANCIAL INFORMATION
Item 1.  Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011	2
	Condensed Consolidated Statements of Operations for the Three-Month and Nine-Month Periods Ended September 30, 2012 and 2011 (Unaudited)	3
	Condensed Consolidated Statements of Stockholders' Equity for the Nine-Month Periods Ended September 30, 2012 and 2011 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows For the Nine-Month Periods Ended September 30, 2012 and 2011 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements	6-22
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations		23-34
Item 3.  Quantitative and Qualitative Disclosure About Market Risk		35
Item 4.  Controls and Procedures		35
PART II  OTHER INFORMATION
Item 1.  Legal Proceedings		36
Item 1A.  Risk Factors		36
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3.  Defaults Upon Senior Securities		36
Item 4.  Mine Safety Disclosures		36
Item 5.  Other Information		36
Item 6.  Exhibits		36
SIGNATURES		37
EXHIBIT INDEX

1

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

Condensed Consolidated Balance Sheets

(In thousands, except share information)

	At September 30, 2012			At December 31, 2011
	(Unaudited)
Assets
Cash and due from banks	$	1,334			2,053
Interest-bearing deposits with banks		3,166			6,546
Federal funds sold		24,804			16,456
Cash and cash equivalents		29,304			25,055
Securities held to maturity (fair value of $15,623 and $10,088)		15,397			9,835
Loans, net of allowance for loan losses of $1,526 and $1,329		91,813			102,002
Premises and equipment, net		3,394			3,623
Federal Home Loan Bank stock, at cost		218			247
Deferred income taxes		2,770			2,364
Accrued interest receivable		385			454
Foreclosed real estate		2,199			743
Other assets		1,359			1,437
Total assets	$	146,839			145,760
Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing deposit accounts		23,017			21,827
Money-market deposit accounts		30,087			27,028
Savings accounts		35,558			34,271
Time deposits		32,153			36,290
Total deposits		120,815			119,416
Official checks		553			572
Advances by borrowers for taxes and insurance		275			21
Other liabilities		423			366
Total liabilities		122,066			120,375
Stockholders' equity:
Common stock, $.01 par value, 6,000,000 shares authorized,   1,234,454 shares issued and outstanding at September 30, 2012   and December 31, 2011		12			12
Additional paid in capital		11,483			11,487
Retained earnings		14,143			14,813
Unearned Employee Stock Ownership Plan shares		(865	)		(927	)
Total stockholders' equity		24,773			25,385
Total liabilities and stockholders’ equity	$	146,839			145,760

See accompanying Notes to Condensed Consolidated Financial Statements.

2

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share information)

	Three Months Ended   September 30,					Nine Months Ended   September 30,
	2012			2011		2012			2011
Interest income:
Loans	$	1,392			1,634		4,256			5,027
Securities, held to maturity		66			82		180			192
Other		16			9		46			31
Total interest income		1,474			1,725		4,482			5,250
Interest expense-
Deposit accounts		128			206		439			761
Net interest income		1,346			1,519		4,043			4,489
Provision for loan losses		270			306		1,450			756
Net interest income after provision for loan losses		1,076			1,213		2,593			3,733
Noninterest income:
Fees and service charges on deposit accounts		532			573		1,572			1,681
Gain on loan sales		135			21		257			35
Fees and charges on loans		35			36		82			71
Other		28			4		34			26
Total noninterest income		730			634		1,945			1,813
Noninterest expenses:
Salaries and employee benefits		862			828		2,645			2,586
Occupancy and equipment		270			272		826			813
Data processing services		202			191		579			551
Professional fees		164			178		519			455
FDIC insurance		32			29		90			112
Advertising and promotion		13			16		50			48
Stationery and supplies		17			12		63			40
Other		324			294		842			792
Total noninterest expenses		1,884			1,820		5,614			5,397
Earnings (loss) before income taxes		(78	)		27		(1,076	)		149
Income taxes (benefit)		(34	)		13		(406	)		56
Net (loss) earnings	$	(44	)		14		(670	)		93
Basic (loss) earnings per common share	$	(0.04	)		0.01		(0.54	)		-
Cash dividends per common share	$	-			-		-			-

See accompanying Notes to Condensed Consolidated Financial Statements.

3

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity

Nine Months Ended September 30, 2012 and 2011

($ in thousands)

											Unearned
											Employee
											Stock
					Additional						Ownership			Total
	Common Stock				Paid In			Retained			Plan			Stockholders'
	Shares		Amount		Capital			Earnings			Shares			Equity
Balance, December 31, 2010		-	$	-		-			15,039			-			15,039
Net earnings (unaudited)		-		-		-			93			-			93
Proceeds from issuance of
common stock, net of offering
costs of $847 (unaudited)		1,135,698		11		10,498			-			-			10,509
Issuance of common stock for
ESOP (unaudited)		98,756		1		987			-			(988	)		-
Common stock allocated to
ESOP participants (unaudited)		-		-		3			-			49			52
Balance, September 30, 2011
(unaudited)		1,234,454	$	12		11,488			15,132			(939	)		25,693
Balance, December 31, 2011		1,234,454		12		11,487			14,813			(927	)		25,385
Net loss (unaudited)		-		-		-			(670	)		-			(670	)
Common stock allocated to
ESOP participants (unaudited)		-		-		(4	)		-			62			58
Balance, September 30, 2012
(unaudited)		1,234,454	$	12		11,483			14,143			(865	)		24,773

See accompanying Notes to Condensed Consolidated Financial Statements.

4

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2012			2011
Cash flows from operating activities:
Net (loss) earnings	$	(670	)		93
Adjustments to reconcile net (loss) earnings to net cash from operating activities:
Depreciation		371			368
Provision for loan losses		1,450			756
Deferred income taxes (benefit)		(406	)		56
Net accretion of premiums/discounts on securities		55			16
Net amortization of deferred loan fees and costs		9			6
Loans originated for sale		(10,227	)		(2,218	)
Proceeds from loans sold		10,484			2,253
Gain on sale of loans		(257	)		(35	)
ESOP compensation expense		58			52
Decrease  in accrued interest receivable		69			66
Decrease in other assets		78			350
Loss on sale of foreclosed real estate		3			-
Write-down of foreclosed real estate		101			25
(Decrease) increase in official checks		(19	)		86
Net increase in advances by borrowers for taxes and insurance		254			220
Increase (decrease) in other liabilities		57			(104	)
Net cash provided by operating activities		1,410			1,990
Cash flows from investing activities:
Net purchases of securities held-to-maturity		(5,617	)		(7,795	)
Net decrease in loans		6,628			9,710
Net purchases of premises and equipment		(142	)		(59	)
Proceeds from sale of Federal Home Loan Bank stock		29			38
Proceeds from sale of foreclosed real estate		542			-
Capital expenditures for foreclosed real estate		-			(35	)
Net cash provided by investing activities		1,440			1,859
Cash flows from financing activities:
Net increase (decrease) in deposits		1,399			(14,852	)
Net proceeds from stock issuance		-			11,497
Issuance of common stock to ESOP		-			(988	)
Net cash provided by (used in) financing activities		1,399			(4,343	)
Increase (decrease) in cash and cash equivalents		4,249			(494	)
Cash and cash equivalents at beginning of period		25,055			19,324
Cash and cash equivalents at end of period	$	29,304			18,830
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes	$	-			-
Interest	$	439			761
Noncash transaction-
Transfer from loans to foreclosed real estate	$	2,102			210

See accompanying Notes to Condensed Consolidated Financial Statements.

5

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.  Organization and Basis of Presentation

Sunshine Financial, Inc. ("Sunshine Financial" or the "Holding Company"), a Maryland corporation, is the holding company for Sunshine Savings Bank (the "Bank") and owns all the outstanding common stock of the Bank.  The Bank completed its reorganization from the mutual to stock holding company form of organization on April 5, 2011. A total of 1,234,454 shares of common stock were sold in the subscription and community offerings at a price of $10.00 per share.  In accordance with the Plan of Conversion and Reorganization (the "Plan"), the Holding Company has succeeded to all rights and obligations of Sunshine Savings MHC and the old Sunshine Financial, Inc. ("Old Sunshine").  See Note 14 for details of the conversion.  The transaction was accounted for as a reorganization of entities under common control at historical cost and, the financial data for periods presented include the results of the Bank.  The unaudited, condensed consolidated financial statements include the consolidated results of operations of Old Sunshine and its subsidiary, the Bank.

The Holding Company's only business is the operation of the Bank.  The Bank, through its four banking offices, provides a variety of retail community banking services to individuals and businesses primarily in Leon County, Florida. The Bank's deposits are insured up to the applicable limits by the Federal Deposit Insurance Corporation. The Bank's subsidiary is Sunshine Member Insurance Services, Inc. ("SMSI"), which was established to sell automobile warranty and credit life and disability insurance products associated with loan products. Collectively the entities are referred to as the "Company."

These condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and Article 8-03 of Regulation S-X and do not include all disclosures required by generally accepted accounting principles for a complete presentation of the Company's financial condition and results of operations.

In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements not misleading and for a fair representation of the results of operations for such periods.  The results for the three and nine-month periods ended September 30, 2012 should not be considered as indicative of results for a full year.

2.  Recent Accounting Standards Update

In January 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") No. 2011-01, Receivables (Topic 310) Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in ASU No. 2011-20. The amendments in this ASU delay the effective date of the disclosures about troubled debt restructurings in ASU 2011-20 for public entities. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring is effective as outlined in ASU No. 2011-02. The adoption of the ASU did not have a material impact on the Company's consolidated financial statements.

(continued)

6

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

2.  Recent Accounting Standards Update, Continued

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This amends the guidance for troubled debt restructurings.  The guidance clarifies the guidance on a creditor's evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. For public entities, the amendments are effective for first interim or annual period beginning on or after September 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption. The adoption of the ASU did not have a material impact on the Company's consolidated financial statements.

In April 2011, the FASB issued ASU 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreement, which applies to all public entities. It affects all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The amendments do not affect other transfers of financial assets. ASU 2011-03 removes from the assessment of effective control the requirement that the transferor have the ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. Consequently, it also eliminates the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. Eliminating consideration of the transferor's ability to fulfill its contractual rights and obligations from the criteria in determining effective control should improve the accounting for repos and other similar transactions. ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011 and is to be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date.Early adoption is not permitted. The adoption of ASU 2011-03 did not have a material impact on the Company's consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04 ("ASU 2011-04"), Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.  The objective of ASU 2011-04 is to provide clarification of Topic 820 and, also, to ensure that fair value has the same meaning in U.S. generally accepted accounting principles ("GAAP") and in international financial reporting standards ("IFRSs") and that their respective fair value measurement and disclosure requirements are generally the same.  Thus, this ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. The amendment is effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively.  Early application is not permitted. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.

(continued)

7

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

2.  Recent Accounting Standards Update, Continued

In June 2011, the FASB issued ASU No. 2011-05 ("ASU 2011-05"), Comprehensive Income (Topic 220), Presentation of Comprehensive Income. The objective of ASU 2011-05 is to improve the comparability, consistency and transparency of financial reporting, and to increase the prominence of items reported in other comprehensive income.  To achieve this goal and to facilitate convergence of U.S. GAAP and IFRS, the FASB decided to eliminate the option to present components of other comprehensive income as part of the consolidated statement of changes in stockholders' equity. The amendments in ASU 2011-05 require that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in ASU 2011-05 should be applied retrospectively.  For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  Early adoption is permitted, because compliance with the amendments is already permitted.  The amendments do not require any transition disclosures.  The adoption of this guidance had no effect on the Company's consolidated financial statements.

In December 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-12 ("ASU 2011-12"), Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 ("ASU 2011-05"). Stakeholders raised concerns that the new presentation requirements about reclassifications of items out of accumulated other comprehensive income would be difficult for preparers and may add unnecessary complexity to financial statements.  In addition, it is difficult for some stakeholders to change systems in time to gather the information for the new presentation requirements by the effective date of ASU 2011-05.  All other requirements in ASU 2011-05 are not affected by this update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The amendments in ASU 2011-12 are effective on a retrospective basis for public entities for annual periods beginning after December 15, 2011, and interim periods within those years.  An entity should provide the disclosures required by ASU 2011-12 retrospectively for all comparative periods presented.  The adoption of this guidance had no effect on the Company's consolidated financial statements.

(continued)

8

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

2.  Recent Accounting Standards Update, Continued

In December 2011, the FASB issued ASU No. 2011-11 ("ASU 2011-11"), Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities. The objective of ASU 2011-11 is to enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45.  This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position.  The amendments in ASU 2011-11 are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by ASU 2011-11 retrospectively for all comparative periods presented. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.

3.  (Loss) Earnings Per Share

(Loss) per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period, which was 1,234,454 shares during the three and nine-month periods ended September 30, 2012.  The Company has no dilutive securities.

For 2011, earnings per share have been computed for periods beginning after April 1, 2011, as if conversion from a mutual holding company to a capital stock holding company occurred on that date.  Basic earnings per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period, which was 1,141,587 shares during the three-month period ended September 30, 2011.

4.  Securities Held to Maturity

Securities have been classified as held to maturity according to management intent.  The carrying amount of securities and their fair values are as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
At September 30, 2012-
Mortgage-backed securities	$	15,397		268		(42	)		15,623
At December 31, 2011-
Mortgage-backed securities	$	9,835		255		(2	)		10,088

There were no sales of securities during the nine months ended September 30, 2012 or 2011. There were no securities pledged at September 30, 2012 or December 31, 2011.

(continued)

9

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5.  Loans

The loan portfolio segments and classes are as follows (in thousands):

	September 30,		December 31,
	2012		2011
Real estate mortgage loans:
One-to-four-family	$	62,335		70,144
Lot loans		6,651		7,363
Commercial real estate		1,975		-
Construction		813		74
Total real estate loans		71,774		77,581
Consumer loans:
Home equity		10,723		12,731
Automobile		2,553		2,483
Credit cards and unsecured		7,481		8,184
Deposit account		598		791
Other		1,501		1,818
Total consumer loans		22,856		26,007
Total loans		94,630		103,588
Less:
Loans in process		1,232		207
Deferred fees and discounts		59		50
Allowance for losses		1,526		1,329
Total loans, net	$	91,813		102,002

The Company grants real estate and consumer loans to customers primarily in the State of Florida with the majority of such loans in the Tallahassee, Florida metropolitan area.  Therefore, the Company's exposure to credit risk could be significantly affected by changes in the economy and real estate market in the Tallahassee, Florida metropolitan area.  The Company grants commercial real estate loans to customers primarily in the Leon county market area.

(continued)

10

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5.  Loans, Continued

The Company has divided the loan portfolio into two portfolio segments, each with different risk characteristics and methodologies for assessing risk. All loans are underwritten in accordance with policies set forth and approved by the Board, including repayment capacity and source, value of the underlying property, credit history and stability.  The portfolio segments identified by the Company are as follows:

Real Estate Mortgage Loans.  Real estate mortgage loans are loans comprised of four classes: One-to-four family, Lot loans, Commercial real estate, and Construction loans. The Company generally originates one-to-four family mortgage loans in amounts up to 80% of the lesser of the appraised value or purchase price of a mortgaged property, but will also permit loan-to-value ratios of up to 95%. For one-to-four family mortgage loans exceeding an 80% loan-to-value ratio, the Company generally requires the borrower to obtain private mortgage insurance covering any loss on the amount of the loan in excess of 80% in the event of foreclosure. Commercial real estate loans are generally 80% or less loan-to-value ratio and contain balloon features for up to ten years.  Construction loans to borrowers are to finance the construction of owner occupied properties. These loans are categorized as construction loans during the construction period, later converting to one-to-four family mortgage loans after the construction is complete and amortization of the loan begins. Construction loan funds are disbursed periodically based on the percentage of construction completed.  If the estimate of construction cost proves to be inaccurate, the Company may be compelled to advance additional funds to complete the construction with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower to repay the loan.  The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Construction loans are typically secured by the properties under construction. The Company also makes loans for the purchase of developed lots for future construction of the borrower's primary residence. Construction and lot loan lending is generally considered to involve a higher degree of credit risk than long-term permanent financing of residential properties.

Consumer Loans.  Consumer loans are comprised of five classes: Home Equity, Automobile, Credit cards and unsecured, Deposit account and Other.  The Company offers a variety of secured consumer loans, including home equity, new and used automobile, boat and other recreational vehicle loans, and loans secured by savings deposits.  The Company also offers unsecured consumer loans including a credit card product.  The Company originates its consumer loans primarily in its market area.  Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates and may be made on terms of up to twenty years. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

(continued)

11

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5.  Loans, Continued

An analysis of the change in the allowance for loan losses follows (in thousands):

	For the Three Months Ended September 30, 2012
	One-to Four- Family			Lot Loans		Commercial Real Estate		Construction		Home Equity			Automobile			Credit Cards and Unsecured			Deposit Account		Other			Total
Beginning balance	$	670			112		-		-		326			8			227			-		124			1,467
Provision (credit) for loan loss		143			-		20		-		70			(1	)		22			-		16			270
Charge-offs		(92	)		-		-		-		(63	)		-			(48	)		-		(23	)		(226	)
Recoveries		-			-		-		-		-			2			12			-		1			15
Ending balance	$	721			112		20		-		333			9			213			-		118			1,526

	For the Nine Months Ended September 30, 2012
	One-to Four- Family			Lot Loans			Commercial Real Estate		Construction		Home Equity			Automobile			Credit Cards and Unsecured			Deposit Account		Other			Total
Beginning balance	$	475			144			-		-		235			39			337			-		99			1,329
Provision (credit) for loan loss		819			91			20		-		387			(23	)		23			-		133			1,450
Charge-offs		(573	)		(128	)		-		-		(289	)		(17	)		(181	)		-		(116	)		(1,304	)
Recoveries		-			5			-		-		-			10			34			-		2			51
Ending balance	$	721			112			20		-		333			9			213			-		118			1,526
Individually evaluated for impairment:
Recorded investment	$	3,289			73			-		-		323			-			40			-		-			3,725
Balance in allowance for loan losses	$	38			-			-		-		1			-			-			-		-			39
Collectively evaluated for impairment:
Recorded investment	$	59,046			6,578			1,975		813		10,400			2,553			7,441			598		1,501			90,905
Balance in allowance for loan losses	$	683			112			20		-		332			9			213			-		118			1,487

(continued)

12

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5.  Loans, Continued

	For the Three Months Ended September 30, 2011
	One-to Four- Family			Lot Loans		Commercial Real Estate		Construction			Home Equity			Automobile			Credit Cards and Unsecured			Deposit Accounts		Other			Total
Beginning balance	$	835			137		-		6			109			43			315			-		139			1,604
Provision for loan loss		86			17		-		(6	)		220			5			(30	)		-		14			306
Charge-offs		(160	)		-		-		-			(104	)		(22	)		(46	)		-		(38	)		(370	)
Recoveries		2			-		-		-			-			5			12			-		-			19
Ending balance	$	783			154		-		-			225			31			251			-		115			1,559

	For the Nine Months Ended September 30, 2011
	One-to Four- Family			Lot Loans		Commercial Real Estate		Construction			Home Equity			Automobile			Credit Cards and Unsecured			Deposit Accounts		Other			Total
Beginning balance	$	623			59		-		2			252			39			503			-		143			1,621
Provision for loan loss		379			95		-		(2	)		308			7			(71	)		-		40			756
Charge-offs		(221	)		-		-		-			(335	)		(28	)		(227	)		-		(70	)		(881	)
Recoveries		2			-		-		-			-			13			46			-		2			63
Ending balance	$	783			154		-		-			225			31			251			-		115			1,559
Individually evaluated for   impairment:
Recorded investment	$	3,649			142		-		-			380			18			-			-		-			4,187
Balance in allowance         for loan losses	$	535			118		-		-			75			18			-			-		-			746
Collectively evaluated for   impairment:
Recorded investment	$	70,229			8,143		-		-			12,953			2,221			8,331			834		1,916			104,627
Balance in allowance         for loan losses	$	248			36		-		-			150			13			251			-		115			813

(continued)

13

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5.  Loans, Continued

The following summarizes the loan credit quality (in thousands):

Credit Risk Profile by Internally	One-to Four-		Lot		Commercial Real				Home				Credit Cards and		Deposit
Assigned Grade:	Family		Loans		Estate		Construction		Equity		Automobile		Unsecured		Account		Other		Total
At September 30, 2012:
Grade:
Pass	$	57,834		6,544		1,975		813		10,209		2,534		7,372		598		1,468		89,347
Special mention		701		-		-		-		131		-		89		-		-		921
Substandard		3,800		107		-		-		383		19		13		-		-		4,322
Doubtful		-		-		-		-		-		-		7		-		33		40
Loss		-		-		-		-		-		-		-		-		-		-
Total	$	62,335		6,651		1,975		813		10,723		2,553		7,481		598		1,501		94,630
At December 31, 2011:
Grade:
Pass		64,888		7,151		-		74		12,218		2,449		8,166		791		1,743		97,480
Special mention		1,528		-		-		-		91		1		10		-		-		1,630
Substandard		3,728		212		-		-		422		3		7		-		13		4,385
Doubtful		-		-		-		-		-		12		1		-		62		75
Loss		-		-		-		-		-		18		-		-		-		18
Total	$	70,144		7,363		-		74		12,731		2,483		8,184		791		1,818		103,588

Internally assigned loan grades are defined as follows:

Pass – A Pass loan's primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary.

Special Mention – A Special Mention loan has potential weaknesses that deserve management's close attention.  If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or theCompany's credit position at some future date.  Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard – A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that theCompany will sustain some loss if the deficiencies are not corrected.

Doubtful – A loan classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss – A loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted.  This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

(continued)

14

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5.  Loans, Continued

Age analysis of past-due loans is as follows (in thousands):

	Accruing Loans
		30-59		60-89	90 Days		Total
	Days		Days		or More		Past				Nonaccrual		Total
	Past Due		Past Due		Past Due		Due		Current		Loans		Loans
At September 30, 2012:
Real estate loans:
One-to four-family	$	352		254		-		606		59,534		2,195		62,335
Lot loans		-		-		-		-		6,544		107		6,651
Commercial real estate		-		-		-		-		1,975		-		1,975
Construction		-		-		-		-		813		-		813
Consumer loans:
Home equity		95		147		-		242		10,302		179		10,723
Automobile		19		-		-		19		2,515		19		2,553
Credit cards and unsecured		92		32		-		124		7,319		38		7,481
Deposit account		-		-		-		-		598		-		598
Other		-		-		-		-		1,468		33		1,501
Total	$	558		433		-		991		91,068		2,571		94,630
At December 31, 2011:
Real estate loans:
One-to four-family		1,894		146		-		2,040		64,148		3,956		70,144
Lot loans		-		-		-		-		7,152		211		7,363
Construction		-		-		-		-		74		-		74
Consumer loans:
Home equity		465		91		-		556		11,815		360		12,731
Automobile		-		1		-		1		2,458		24		2,483
Credit cards and unsecured		107		25		-		132		8,040		12		8,184
Deposit account		-		-		-		-		791		-		791
Other		-		-		-		-		1,743		75		1,818
Total	$	2,466		263		-		2,729		96,221		4,638		103,588

At September 30, 2012 and December 31, 2011, there were no loans past due ninety days or more but still accruing.

(continued)

15

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5.  Loans, Continued

Aloan 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. 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 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.

The following summarizes the amount of impaired loans (in thousands):

	With No Related Allowance Recorded						With an Allowance Recorded						Total
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
At September 30, 2012:
Real estate loans:
One-to four-family	$	2,566		2,941		-		723		723		38		3,289		3,664		38
Lot loans		73		318		-		-		-		-		73		318		-
Consumer loans:
Home equity		261		438		-		62		62		1		323		500		1
Credit cards and         unsecured		40		46		-		-		-		-		40		46		-
	$	2,940		3,743		-		785		785		39		3,725		4,528		39
At December 31, 2011:
Real estate loans:
One-to four-family		2,786		3,328		-		301		301		36		3,087		3,629		36
Lot loans		47		182		-		108		108		85		155		290		85
Consumer loans:
Home equity		574		660		-		16		16		3		590		676		3
Automobile		-		-		-		18		18		18		18		18		18
	$	3,407		4,170		-		443		443		142		3,850		4,613		142

At September 30, 2012 and December 31, 2011, the Company's loan portfolio included primarily large groups of smaller balance homogeneous loans.  The Company considers individual loans which are in the process of foreclosure for impairment.

(continued)

16

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5.  Loans, Continued

The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands):

	Average		Interest		Interest
	Recorded		Income		Income
	Investment		Recognized		Received
For the Nine Months Ended September 30, 2012:
Real estate loans:
One-to four-family	$	3,764		49		69
Lot loans		65		-		26
Consumer loans:
Home equity		436		7		7
Credit cards and unsecured		25		-		-
Total	$	4,290		56		102
For the Nine Months Ended September 30, 2011:
Real estate loans:
One-to four-family		2,715		-		-
Lot loans		142		-		-
Consumer loans:
Home equity		211		-		-
Total	$	3,068		-		-

A troubled debt restructuring is a loan to a borrower that is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that the Company is granting the borrower a concession of some kind.  The Company has granted a variety of concessions to borrowers in the form of loan modifications.

The Company had troubled debt restructurings totaling $762,000 entered into during the nine months ended September 30, 2012 and $748,000 for the nine months ended September 30, 2011.  Impairment losses totaled $49,000 and $16,000 for the nine months ended September 30, 2012 and 2011, respectively.  The Company has not had any troubled debt restructurings which were restructured during the last twelve months that subsequently defaulted during the period ended September 30, 2012.

6.  Foreclosed Real Estate

Expenses applicable to foreclosed assets are included in other noninterest expense and include operating expenses of $217,000 and $45,000 for the nine months ended September 30, 2012 and 2011, respectively.  There were write-downs of $101,000 and six sales of foreclosed real estate during the nine months ended September 30, 2012 with a net loss on the sale of $3,000.  There were no sales and write-downs of $25,000 for the nine months ended September 30, 2011.

(continued)

17

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

7.  Line of Credit

The Company has an unsecured federal funds line of credit for $4.2 million with a correspondent bank and a $14.7 million line with the Federal Home Loan Bank of Atlanta collateralized by a blanket lien on qualifying loans. At September 30, 2012 and December 31, 2011, the Company had no outstanding balances on these lines.

8.  Off-Balance-Sheet Financial Instruments

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments are unused lines of credit and commitments to extend credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the balance sheets.  The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unused lines of credit and commitments to extend credit is represented by the contractual amount of those instruments.  The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

Commitments to extend credit 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 some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company evaluates each customer's credit worthiness on a case-by-case basis.  The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management's credit evaluation of the counterparty.

Unused lines of credit and commitments to extend credit typically result in loans with a market interest rate when funded.  A summary of the amounts of the Company's financial instruments, with off-balance-sheet risk follows at September 30, 2012 (in thousands):

	Contract
	Amount
Unused lines of credit (rates range from
3.25% to 15.45%)	$	17,860
Commitments to extend credit (all fixed rates
ranging from 2.49% to 11.90%)	$	462

(continued)

18

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

9.  Fair Value of Financial Instruments

The carrying amounts and estimated fair values of the Company's financial instruments are as follows (in thousands):

	At September 30, 2012				At December 31, 2011
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents (1)	$	29,304		29,304		25,055		25,055
Securities held to maturity (2)		15,397		15,623		9,835		10,088
Loans (3)		91,813		91,893		102,002		101,736
Federal Home Loan Bank stock (3)		218		218		247		247
Accrued interest receivable (3)		385		385		454		454
Financial liabilities:
Deposits (3)		120,815		119,077		119,416		117,135
Off-balance-sheet financial instruments (3)		-		-		-		-

 _____________________________

 (1)   We consider these fair value measurements to be Level 1.

 (2)   We consider these fair value measurements to be Level 2.

 (3)   We consider these fair value measurements to be Level 3.

10.  Employee Benefit Plans

The Company has a 401(k) plan for its employees who meet certain age and length-of-service requirements. Eligible employees can contribute up to $17,000 of their compensation to the plan on a pre-tax basis. Employer matching contributions are made at 100 percent of employee contribution up to five percent. Employer contributions made to the 401(k) plan were $78,000and $83,000 for the nine-months ended September 30, 2012 and 2011, respectively.

11.  Employee Stock Ownership Plan

Effective April 5, 2011, upon closing of the stock offering, the Holding Company established an Employee Stock Ownership Plan which acquired 8% of the total number of shares of common stock sold during the public offering.  A total of 98,756 shares were acquired in exchange for a $988,000 note payable to the Holding Company.  The note bears interest at the prime plus one percent rate and is payable in annual installments and is due in 2021.  The employer expense was $28,000 and $88,000 for the three- and nine-month periods ended September 30, 2012, respectively. The employer expense was $33,000 and $68,000 for the three- and nine-month periods ended September 30, 2011, respectively.

(continued)

19

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

12.  Fair Value Measurements

Impaired collateral-dependent loans are carried at fair value when the current collateral value is lower than the carrying value of the loan.  Those impaired collateral-dependent loans which are measured at fair value on a nonrecurring basis are as follows (in thousands):

	Fair Value		Quoted Prices In Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total Losses		Losses Recorded During the Period
At September 30, 2012:
One-to four-family	$	2,610		-		-		2,610		414		270
Lot loans		73		-		-		73		246		43
Home equity		323		-		-		323		177		129
Credit cards and unsecured		40		-		-		40		6		6
Total	$	3,046		-		-		3,046		843		448
At December 31, 2011:
One-to four-family		1,667		-		-		1,667		592		378
Lot loans		70		-		-		70		220		129
Home equity		501		-		-		501		89		89
Automobile		-		-		-		-		18		18
Total	$	2,238		-		-		2,238		919		614

Foreclosed real estate is recorded at fair value less estimated costs to sell.  Foreclosed real estate which is measured at fair value on a nonrecurring basis is summarized below (in thousands):

Quoted Prices

In Active

Significant

Markets for

Other

Significant

Losses

Identical

Observable

Unobservable

Recorded

Fair

Assets

Inputs

Inputs

Total

During the

Value

(Level 1)

(Level 2)

(Level 3)

Losses

Period

At September 30, 2012-

Foreclosed real estate

$

2,199

-

-

2,199

133

93

At December 31, 2011-

Foreclosed real estate

$

743

-

-

743

83

68

(continued)

20

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

13.  Regulatory Matters

The Bank is 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 Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Bank's 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 Bank to maintain minimum amounts (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined).  Management believes, as of September 30, 2012, that the Bank meets all capital adequacy requirements to which it was subject.

At September 30, 2012, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank 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 institution's category.

The Bank's actual regulatory capital amounts and percentages are presented in the table ($ in thousands).

	Actual					Minimum For Capital Adequacy Purposes					Minimum To Be Well Capitalized Under Prompt and Corrective Action Provisions
	Amount		%			Amount		%			Amount		%
At September 30, 2012:
Total Capital to Risk-
Weighted Assets	$	18,132		21.49	%	$	6,749		8.00	%	$	8,436		10.00	%
Tier I Capital to Risk-
Weighted Assets		17,077		20.24			3,375		4.00			5,062		6.00
Tier I Capital
to Total Assets		17,077		11.86			4,321		3.00			7,201		5.00
At December 31, 2011:
Total Capital to Risk-
Weighted Assets		19,431		22.35			6,955		8.00			8,694		10.00
Tier I Capital to Risk-
Weighted Assets		18,102		20.82			3,478		4.00			5,216		6.00
Tier I Capital
to Total Assets		18,102		12.69			4,279		3.00			7,132		5.00

(continued)

21

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

14.  Adoption of Plan of Reorganization and Subsequent Stock Issuance

On April 5, 2011, in accordance with a Plan of Conversion and Reorganization (the "Plan") adopted by its Board of Directors and approved by its members, the Bank converted from a mutual holding company to a stock holding company form of organization, with the Bank becoming a wholly-owned subsidiary of the Holding Company.  The conversion and reorganization was accomplished through the sale and issuance of 1,234,454 shares of common stock at a price of $10.00 per share, through which the Holding Company received proceeds of approximately $10.5 million, net of offering expenses of approximately $847,000.

In accordance with Office of the Comptroller of the Currency ("OCC") regulations, upon the completion of the conversion, the Bank restricted retained earnings by establishing a liquidation account. The liquidation account is maintained for the benefit of certain account holders who continue to maintain their accounts at the Bank after conversion. The liquidation account is reduced annually to the extent that these account holders have reduced their qualifying deposits. Subsequent increases will not restore an account holder's interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

22

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Item 2.  Management's Discussion and Analysis of

Financial Condition and Results of Operations

Forward-Looking Statements

When used in this report and in future filings by Sunshine Financial with the SEC, in Sunshine Financial's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases, "anticipate," "believes," "expects," "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "projected," or similar expressions are intended to identify forward-looking statements.  These forward-looking statements include, but are not limited to:

·   statements of our goals, intentions and expectations;

·   statements regarding our business plans, prospects, growth and operating strategies;

·   statements regarding the asset quality of our loan and investment portfolios; and

·   estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control.  In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

·   the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets;

·   changes in general economic conditions, either nationally or in our market area;

·   changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources;

·   fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market area;

·   results of examinations of us by the Federal Reserve Board, OCC or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings;

·   legislative or regulatory changes that adversely affect our business including the effect of the Dodd-Frank Act, Basel III, changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules;

·   our ability to attract and retain deposits;

·   further increases in premiums for deposit insurance;

23

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

·   our ability to control operating costs and expenses;

·   the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;

·   difficulties in reducing risks associated with the loans on our balance sheet;

·   staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;

·   computer systems on which we depend could fail or experience a security breach;

·   our ability to retain key members of our senior management team;

·   costs and effects of litigation, including settlements and judgments;

·   our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and out ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

·   increased competitive pressures among financial services companies;

·   changes in consumer spending, borrowing and savings habits;

·   the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;

·   our ability to pay dividends on our common stock;

·   adverse changes in the securities markets;

·   inability of key third-party providers to perform their obligations to us;

·   changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods including relating to fair value accounting and loan loss reserve requirements; and

·   other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described elsewhere in this report.

Forward-looking statements are based upon management's beliefs and assumptions at the time they are made.  We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise.  In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.

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SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

General

On July 1, 2007, Sunshine Savings Bank converted its charter from a state-chartered credit union to a federally-chartered savings bank.  On that date the name was changed from Sunshine State Credit Union to Sunshine Savings Bank, and we became a taxable organization.  In January 2009, we reorganized into a mutual holding company structure, with Sunshine Savings Bank as a wholly-owned subsidiary of Sunshine Financial, Inc., a federal corporation ("Old Sunshine"), which was the wholly-owned subsidiary of Sunshine Savings MHC (the "MHC").  On April 5, 2011, in accordance with a Plan of Conversion and Reorganization (the "Plan") adopted by its Board of Directors and approved by its members, we converted from a mutual to a stock holding company form of organization, with the MHC and Old Sunshine being merged into a new holding company, Sunshine Financial, Inc. ("Sunshine Financial" or the "Holding Company"), and the Bank becoming a wholly-owned subsidiary of the Holding Company.  See Notes 1 and 14 to the Notes to Condensed Consolidated Financial Statements.  References to we, us and our throughout this document refer to Sunshine Financial and Sunshine Savings Bank, as the context requires.

We currently operate out of four full-service branch offices serving the Tallahassee, Florida metropolitan area.  Our principal business consists of attracting retail deposits from the general public and investing those funds in loans secured by first and second mortgages on one- to four-family residences, home equity loans and lines of credit, lot loans, and direct automobile, credit card and other consumer loans.

We offer a variety of deposit accounts, which are our primary source of funding for our lending activities.

The Bank is significantly affected by prevailing economic conditions as well as government policies and regulations concerning, among other things, monetary and fiscal affairs, housing and financial institutions.  Deposit flows are influenced by a number of factors, including interest rates paid on competing time deposits, other investments, account maturities, and the overall level of personal income and savings.  Lending activities are influenced by the demand for funds, the number and quality of lenders, and regional economic cycles.  Sources of funds for lending activities of the Bank include primarily deposits, borrowings, payments on loans and income provided from operations.

Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Changes in levels of interest rates affect our net interest income. A secondary source of income is noninterest income, which includes revenue we receive from providing products and services. Our noninterest expense has typically exceeded our net interest income and we have relied primarily upon noninterest income to supplement our net interest income and to achieve earnings.

Our operating expenses consist primarily of salaries and employee benefits, general and administrative, occupancy and equipment, data processing services, professional services and marketing expenses. Salaries and benefits consist primarily of the salaries and wages paid to our employees, payroll taxes, expenses for retirement and other employee benefits. Occupancy and equipment expenses, which are the fixed and variable costs of building and equipment, consist primarily of lease payments, taxes, depreciation charges, maintenance and costs of utilities.

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SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Critical Accounting Policies

Certain of our accounting policies are important to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain.  Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances.  Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers.  Management believes that its critical accounting policies include, determining the allowance for loan losses, valuation of foreclosed assets and accounting for deferred income taxes.

Foreclosed Assets.  Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure, establishing a new cost basis.  After foreclosure, valuations are periodically performed by management and the assets are carried at the lower of the new cost basis or fair value less costs to sell.  Revenue and expenses from operations are included in the consolidated statements of operations.

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 operations.  Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance. There were no changes in the Bank's accounting policies or methodology during the period ended September 30, 2012.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectability 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 specific and general components.  The specific component relates to loans that are classified as impaired.  For such loans, an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan.  The general component covers all other loans and is based on historical industry loss experience adjusted for qualitative factors.

The historical loss component of the allowance is determined by losses recognized by portfolio segment over the preceding year. This is supplemented by the risks for each portfolio segment. Risk factors impacting loans in each of the portfolio segments include changes in property values, changes in consumer and business spending and changes in credit availability. The historical experience is adjusted for qualitative factors such as economic conditions and other trends or uncertainties that could affect management's estimate of probable losses.

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SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Aloan 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. 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 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.

Deferred Tax Assets.  Income taxes are reflected in our financial statements to show the tax effects of the operations and transactions reported in the financial statements and consist of taxes currently payable plus deferred taxes.  Generally accepted accounting principles require the asset and liability approach for financial accounting and reporting for deferred income taxes.  Deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of assets and liabilities.  They are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled and are determined using the assets and liability method of accounting.  The deferred income provision represents the difference between net deferred tax asset/liability at the beginning and end of the reported period.  In formulating our deferred tax asset, we are required to estimate our income and taxes in the jurisdiction in which we operate.  This process involves estimating our actual current tax exposure for the reported period together with assessing temporary differences resulting from differing treatment of items, such as depreciation and the provision for loan losses, for tax and financial reporting purposes.  Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates.  The realization of deferred tax assets is dependent on results of future operations.  A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

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SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Comparison of Financial Condition at September 30, 2012 and December 31, 2011

General.  Total assets increased $1.1 million, or 0.7%, to $146.8 million at September 30, 2012 from $145.7 million at December 31, 2011. The increase in total assets was due primarily to increases in federal funds sold and securities held to maturity offset by decreases in loans and interest-bearing deposits with banks.  Our federal funds sold increased $8.3 million, securities held to maturity increased $5.6 million, loans decreased $10.2 million, and interest bearing deposits with banks decreased $3.4 million since December 31, 2011.

Loans.  Our net loan portfolio decreased $10.2 million, or 10.0%, to $91.8 million at September 30, 2012 from $102.0 million at December 31, 2011.  Real estate mortgage loans decreased $5.8 million while consumer loans decreased $3.2 million. The decrease in loans receivable was due primarily to loan amortizations and prepayments exceeding loan originations.  The decrease in loan originations was primarily attributable to the weakness in the housing market and the economy.  The Bank originates and sells most fixed rate greater than fifteen year residential loans to Freddie Mac in order to generate additional income.  For the nine months ended September 30, 2012, the Bank originated and sold $10.2 million in loans to Freddie Mac.  In an effort to maintain or increase our loan portfolio and increase interest income, in July 2012 management and the Board approved a program of keeping in portfolio, fifteen year single family mortgage loans that meet certain interest rate parameters and would qualify for sale to Freddie Mac.  In addition, the Bank has begun a commercial real estate lending program for owner occupied commercial buildings. At September 30, 2012, the Bank originated and kept $663,000 in fifteen year single family mortgage loans and $2.0 million in owner occupied commercial real estate loans.

Allowance for Loan Losses.  Our allowance for loan losses at September 30, 2012 was $1.5 million, or 1.66% of net loans receivable, compared to $1.3 million, or 1.30% of net loans receivable, at December 31, 2011.  Nonperforming loans decreased to $2.6 million at September 30, 2012 from $4.6 million at December 31, 2011.  Nonperforming loans to total loans decreased to 2.72% at September 30, 2012 from 4.47% at December 31, 2011.  This decrease in nonperforming loans was primarily due to transferring loans to real estate owned as a result of foreclosure.  Loans on nonaccrual which were less than ninety days past due totaled $220,000 at September 30, 2012 compared to $242,000 at December 31, 2011.

As of September 30, 2012 the Bank had fifteen properties in real estate owned with a fair value of $2.2 million and total unpaid principal balances of $4.0 million.  In addition, the Bank was in the process of foreclosure on ten properties with a total fair value of $1.2 million and total unpaid principal balances of $2.0 million.  However, only three of these foreclosures were filed in 2012.

Deposits.  Total deposits increased $1.4 million, or 1.2%, to $120.8 million at September 30, 2012 from $119.4 million at December 31, 2011.  This increase was due primarily to increases in money market, savings and noninterest bearing deposits, offset by decreases in time deposits.  These increases were primarily matured time deposits moving to liquid deposit accounts in anticipation of higher rates in the future.

Equity.  Total equity decreased $612,000 to $24.8 million at September 30, 2012 from $25.4 million at December 31, 2011.  This decrease was due to the net loss of $670,000 during the nine months ended September 30, 2012, offset by Employee Stock Ownership Plan share allocation of $58,000 for the nine months ended September 30, 2012.

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SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Results of Operations

The following tables set forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest-rate spread; and (v) net interest margin. Nonaccruing loans have been included in the table as loans carrying a zero yield for the period they have been on nonaccrual.

	Three Months Ended September 30,
	2012								2011
	Average Balance			Interest and Dividends		Average Yield/ Rate			Average Balance			Interest and Dividend		Average Yield/ Rate
						($ in thousands)
Interest-earning assets:
Loans receivable (1)	$	93,452		$	1,392		5.96	%	$	109,254		$	1,634		5.98	%
Investments held to maturity		11,237			66		2.35			11,171			82		2.94
Other interest-earning assets (2)		27,217			16		0.24			18,067			9		0.20
Total interest-earning assets		131,906			1,474		4.47			138,492			1,725		4.99
Noninterest-earning assets		11,649								9,950
Total assets	$	143,555							$	148,442
Interest-bearing liabilities:
MMDA and statement savings		65,277			70		0.43			59,591			109		0.73
Time deposits		32,841			58		0.71			40,317			97		0.96
Total interest-bearing liabilities		98,118			128		0.52			99,908			206		0.83
Noninterest-bearing liabilities		20,665								22,843
Equity		24,772								25,691
Total liabilities and equity	$	143,555							$	148,442
Net interest income				$	1,346							$	1,519
Net interest-rate spread (3)							3.95	%							4.16	%
Net interest margin (4)							4.08	%							4.39	%
Ratio of average interest-earning assets
to average interest-bearing liabilities		1.34	x							1.39	x

____________________________

(1)	Includes nonaccrual loans.
(2)	Other interest-earnings assets including federal funds sold, Federal Home Loan Bank stock and interest-bearing deposits.
(3)	Interest-rate spread represents the difference between the average yield on interest-earning assets and the average rate of interest-bearing liabilities.
(4)	Net interest margin is net interest income divided by average interest-earning assets (annualized).

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SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

	Nine Months Ended September 30,
	2012								2011
	Average Balance			Interest and Dividends		Average Yield/ Rate			Average Balance			Interest and Dividend		Average Yield/ Rate
						($ in thousands)
Interest-earning assets:
Loans receivable (1)	$	96,938		$	4,256		5.85	%	$	112,685		$	5,027		5.95	%
Investments held to maturity		9,747			180		2.46			7,543			192		3.39
Other interest-earning assets (2)		26,033			46		0.24			20,830			31		0.19
Total interest-earning assets		132,718			4,482		4.50			141,058			5,250		4.96
Noninterest-earning assets		10,668								10,400
Total assets	$	143,386							$	151,458
Interest-bearing liabilities:
MMDA and statement savings		64,000			250		0.52			59,463			324		0.73
Time deposits		33,982			189		0.74			47,792			437		1.22
Total interest-bearing liabilities		97,982			439		0.60			107,255			761		0.95
Noninterest-bearing liabilities		20,305								22,785
Equity		25,099								21,418
Total liabilities and equity	$	143,386							$	151,458
Net interest income				$	4,043							$	4,489
Net interest-rate spread (3)							3.90	%							4.01	%
Net interest margin (4)							4.06	%							4.24	%
Ratio of average interest-earning assets
to average interest-bearing liabilities		1.35	x							1.32	x

_________________________________

(1)	Includes nonaccrual loans.
(2)	Other interest-earnings assets including federal funds sold, Federal Home Loan Bank stock and interest-bearing deposits.
(3)	Interest-rate spread represents the difference between the average yield on interest-earning assets and the average rate of interest-bearing liabilities.
(4)	Net interest margin is net interest income divided by average interest-earning assets (annualized).

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SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Comparison of the Three Months Ended September 30, 2012 and 2011

General. Net loss for the three months ended September 30, 2012 was $44,000 compared to net earnings of $14,000 for the three months ended September 30, 2011, resulting in an annualized loss on average assets of (0.12)% for the three months ended September 30, 2012 and annualized income of 0.04% for the three months ended September 30, 2011.  The decrease in net earnings was due primarily to a decrease in our net interest income, partially offset by an increase in gains on loan sales to FHLMC.

Net Interest Income.  Net interest income decreased $173,000, or 11.4%, to $1,346,000 for the three months ended September 30, 2012 from $1,519,000 for the same period in 2011, primarily due to the decline in average balance of our loan portfolio, partially offset by our lower cost of deposits.  Our interest rate spread decreased to 3.95% for the three months ended September 30, 2012 from 4.16% for the same period in 2011, while our net interest margin decreased to 4.08% from 4.39%.  The ratio of average interest-earning assets to average interest-bearing liabilities for the three months ended September 30, 2012 decreased to 1.34x, from 1.39x for the three months ended September 30, 2011.

Interest Income. Interest income for the three months ended September 30, 2012 decreased $251,000, or 14.5%, to $1,474,000 from $1,725,000 for the same period ended September 30, 2011.  The decrease in interest income for the three months ended September 30, 2012 was primarily due to lower average balances of loans receivable.  Average interest-earning loans decreased to $93.5 million during the three months ended September 30, 2012 compared to $109.3 million for the three months ended September 30, 2011.  In addition, the average yield on average interest earning assets decreased 52 basis points to 4.47% from 4.99% due to a shift in portfolio balance.

Interest Expense. Interest expense for the three months ended September 30, 2012 was $128,000 compared to $206,000 for the same period in 2011, a decrease of $78,000 or 37.9%.  The decrease was primarily the result of decreases in both the average balance of and the average rate paid on time deposits.  The average balance of time deposits decreased to $32.8 million for the three month period ended September 30, 2012 from $40.3 million for the same period in 2011 and the average rate paid on certificates of deposit decreased to 0.71% from 0.96%. The total cost of funds for the three months ended September 30, 2012 decreased to 0.52% from 0.83% for the three months ended September 30, 2011.

Provision for Loan Losses.  We recorded a provision for loan loss of $270,000 for the three months ended September 30, 2012 compared to $306,000 for the same period in 2011.  The provision for loan losses reflected the decrease in net charge-offs and in nonperforming single family mortgage loans in foreclosure and the resulting write-downs based on fair value calculations.  Net charge-offs for the three months ended September 30, 2012 were $211,000 compared to $351,000 for the three months ended September 30, 2011. For the three months ended September 30, 2012, net charge-offs consisted of $36,000 for credit card and unsecured loans, $63,000 for second mortgage loans, $92,000 for first mortgages, $22,000 for other secured consumer loans, and a net recovery of $2,000 for automobile loans.  For the same period in 2011, net charge-offs consisted of $34,000 for credit card and unsecured loans, $104,000 for second mortgage loans, $158,000 for first mortgages, $38,000 for other secured consumer loans and $17,000 for automobile loans. Nonperforming loans to total loans at September 30, 2012 were 2.72% compared to 4.20% at September 30, 2011.  The allowance for loan losses to net loans receivable was 1.66% at September 30, 2012 compared to 1.43% at September 30, 2011.

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SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Comparison of the Three Months Ended September 30, 2012 and 2011, Continued

Management considers the allowance for loan losses at September 30, 2012 to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio. While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future losses will not exceed the amount of the established allowance for loan losses or that any increased allowance for loan losses that may be required will not adversely impact our financial condition and results of operations. In addition, the determination of the amount of our allowance for loan losses is subject to review by bank regulators, as part of the routine examination process, which may result in additions to our provision for loan losses based upon their judgment of information available to them at the time of their examination.

Noninterest Income. Noninterest income for the three months ended September 30, 2012 increased $96,000, or 15.1%, to $730,000 compared to $634,000 for the same period in 2011. Gain on loan sales increased $114,000, fees and service charges on deposit accounts decreased $41,000, and other fees increased $24,000 for the three months ended September 30, 2012, compared to the three months ended September 30, 2011.  Gain on loan sales increased as a result of an increase in the volume of loans originated and sold to Freddie Mac.  Other income increased as a result of gains on the sale of both real estate owned and other respossessed assets.  The primary cause for the decrease in fees and service charges on deposit accounts was a decrease in income from NSF fees on transaction accounts.

Noninterest Expense. Noninterest expense for the three months ended September 30, 2012 increased $64,000, or 3.5%, to $1,884,000 compared to $1,820,000 for the same period in 2011.  The largest increase occurred in salaries and employee benefits which increased $34,000, or 4.1% to $862,000 for the three months ended September 30, 2012, from $828,000 for the same period last year.  For the three months ended September 30, 2012, other expense increased $30,000, or 10.2%, to $324,000 compared to $294,000 for the same period in 2011.  The increase in other expense was primarily due to an increase in real estate owned and postage expenses offset by decreases in debit card losses and returned check charge offs.  Postage expense increased due to postage on direct mail loan promotions during the quarter.

Income Taxes. For the three months ended September 30, 2012, we recorded an income tax benefit of $34,000 on before tax losses of $78,000.  For the three months ended September 30, 2011, we recorded income tax expense of $13,000 on a before tax income of $27,000.  Our effective tax rate for the three months ended September 30, 2012 was 43.6% compared to 48.2% for the same time period in 2011.

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SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Comparison of the Nine Months Ended September 30, 2012 and 2011

General.  Net loss for the nine months ended September 30, 2012 was $670,000 compared to net earnings of $93,000 for the nine months ended September 30, 2011, resulting in an annualized loss on average assets of (0.62)% for the nine months ended September 30, 2012 and annualized income on average assets of 0.08% for the nine months ended September 30, 2011.  The decrease in net earnings was due primarily to an increase in our provision for loan loss and a decrease in our net interest income.

Net Interest Income.  Net interest income decreased $446,000, or 9.9%, to $4,043,000 for the nine months ended September 30, 2012 from $4,489,000 for the same period in 2011, primarily due to the decline in average balance and yield of our loan portfolio, partially offset by our lower cost of deposits.  Our interest rate spread decreased to 3.90% for the nine months ended September 30, 2012 from 4.01% for the same period in 2011, while our net interest margin decreased to 4.06% from 4.24%.  The ratio of average interest-earning assets to average interest-bearing liabilities for the nine months ended September 30, 2012 increased to 1.35x, from 1.32x for the nine months ended September 30, 2011.

Interest Income. Interest income for the nine months ended September 30, 2012 decreased $768,000, or 14.6%, to $4,482,000 from $5,250,000 for the same period ended September 30, 2011.  The decrease in interest income for the nine months ended September 30, 2012 was primarily due to lower average balances of loans receivable and a 10 basis point decline in the yield earned on loans.  Average interest-earning loans decreased to $96.9 million during the nine months ended September 30, 2012 compared to $112.7 million for the nine months ended September 30, 2011.

Interest Expense. Interest expense for the nine months ended September 30, 2012 was $439,000 compared to $761,000 for the same period in 2011, a decrease of $322,000 or 42.3%.  The decrease was primarily the result of decreases in both the average balance of and the average rate paid on time deposits.  The average balance of time deposits decreased to $34.0 million for the nine month period ended September 30, 2012 from $47.8 million for the same period in 2011 and the average rate paid on time deposit decreased to 0.74% from 1.22%.  The total cost of funds for the nine months ended September 30, 2012 decreased to 0.60% from 0.95% for the nine months ended September 30, 2011.

Provision for Loan Losses.  We recorded a provision for loan loss of $1,450,000 for the nine months ended September 30, 2012 and $756,000 for the same period in 2011.  The provision for loan losses reflected the increase in net loan charge-offs and in nonperforming single family mortgage loans in foreclosure and the increase in real estate owned and the resulting write-downs based on fair value calculations.  Net charge-offs for the nine months ended September 30, 2012 were $1,253,000 compared to $818,000 for the nine months ended September 30, 2011. For the first nine months of 2012, net charge-offs consisted of $147,000 for credit card and unsecured loans, $289,000 for second mortgage loans, $123,000 for lot loans, $573,000 for first mortgages, $114,000 for other secured consumer loans, and $7,000 for automobile loans.  For the first nine months of 2011, net charge-offs consisted of $181,000 for credit card and unsecured loans, $335,000 for second mortgage loans, $219,000 for first mortgages, $68,000 for other secured consumer loans, and $15,000 for automobile loans. Nonperforming loans to total loans at September 30, 2012 were 2.72% compared to 4.20% at September 30, 2011.  The allowance for loan losses to net loans receivable was 1.66% at September 30, 2012 compared to 1.43% at September 30, 2011.

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SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Comparison of the Nine Months Ended September 30, 2012 and 2011, Continued

Our provision for loan losses increased for the nine months ended September 30, 2012, despite a decrease in our nonperforming loans.  As mentioned above, this increase was primarily due to an increase in net charge-offs and in nonperforming single family real estate loans.   As of September 30, 2012, the Bank was in the process of foreclosure on 10 single family real estate loans.

Noninterest Income. Noninterest income for the nine months ended September 30, 2012 increased $132,000, or 7.3%, to $1,945,000 compared to $1,813,000 for the same period in 2011. Gain on loan sales increased $222,000, fees and service charges on deposit accounts decreased $109,000, fees and charges on loans increased $11,000, and other fees increased $8,000 for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011.  Gain on sales increased as a result of an increase in the volume of loans originated and sold to Freddie Mac during the period, which was also the primary reason for the increase in fees and charges on loans.  Other fees increased as a result of gains on the sale of other repossessed assets.  The primary cause for the decrease in fees and service charges on deposit accounts and other income was a decrease in income from NSF fees on transaction accounts and losses on the sale of real estate owned.

Noninterest Expense. Noninterest expense for the nine months ended September 30, 2012 was $5,614,000 compared to $5,397,000 for the same period in 2011, an increase of $217,000 or 4.0%.  The largest increase occurred in professional fees which increased $64,000, or 14.1%, to $519,000 compared to $455,000 for the same period in 2011.  The increase in professional fees was primarily due to an increase in legal fees associated our first annual meeting and stockholder vote as a public company, and both accounting and legal fees associated with being a public company and consultant fees associated with internal audit reviews.  For the nine months ended September 30, 2012, salaries and employee benefits expense increased $59,000, or 2.3%, to $2,645,000 compared to $2,586,000 for the same period in 2011.  For the nine months ended September 30, 2012, other expense increased $50,000, or 6.3%, to $842,000 compared to $792,000 for the same period in 2011.  The increase in other expense was primarily due to an increase in real estate owned expenses.  For the nine months ended September 30, 2012, FDIC insurance expense decreased $22,000, or 19.6%, to $90,000 compared to $112,000 for the same period in 2011.  The decrease in FDIC insurance expense was primarily due to a decrease in our base deposits and a decrease in the assessment rate for the nine months ended September 30, 2012.

Income Taxes. For the nine months ended September 30, 2012, we recorded an income tax benefit of $406,000 on before tax losses of $1,076,000.  For the nine months ended September 30, 2011, we recorded income tax expense of $56,000 on a before tax income of $149,000.  Our effective tax rate for the nine months ended September 30, 2012 was 37.7% compared to 37.6% for the same time period in 2011.

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SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

Not required by smaller reporting companies.

Item 4.  Controls and Procedures

An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Act")) as of September 30, 2012, was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officerand several other members of the Company's senior management.The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures in effect as of September 30, 2012, were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is: (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

In addition, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended September 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

35

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

In the normal course of business, the Company occasionally becomes involved in various legal proceedings.  In the opinion of management, any liability from such proceedings would not have a material adverse effect on the business or financial condition of the Company.

Item 1A.  Risk Factors

Not required for smaller reporting companies.

Item 2.  Unregistered Sales of Equity Securities and use of Proceeds

Nothing to report.

Item 3.  Defaults Upon Senior Securities

Nothing to report.

Item 4.  Mine Safety Disclosures

Nothing to report.

Item 5.  Other Information

Nothing to report.

Item 6.  Exhibits

See Exhibit Index

36

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SUNSHINE FINANICAL, INC.
Date:  November 14, 2012	By:	/s/ Louis O. Davis, Jr.
		Louis O. Davis, Jr.
		President and Chief Executive Officer
		(Duly Authorized Officer)
Date:  November 14, 2012	By:	/s/ Scott A. Swain
		Scott A, Swain
		Senior Vice President, Treasurer and
		Chief Financial Officer
		(Principal Financial Officer)

37

EXHIBIT INDEX

Exhibits:
2.0	Plan of Conversion and Reorganization (incorporated herein by reference to Exhibit 2.0 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555))
3.1	Articles of Incorporation of Sunshine Financial, Inc. (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555))
3.2	Bylaws of Sunshine Financial, Inc. (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555))
4.0	Form of Common Stock Certificate of Sunshine Financial, Inc. (incorporated herein by reference to Exhibit 4.0 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555))
10.1	Employment Agreement by and between Sunshine Savings Bank and Louis O Davis, Jr. (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555))
10.2	Form of Change of Control Agreement by and between Sunshine Financial, Inc. and Louis O. Davis Jr. (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555))
10.3	Form of Change of Control Agreement by and between Sunshine Financial, Inc. and each of Brian P. Baggett and Scott A. Swain (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555))
10.4	Employee Severance Policy (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-169555))
10.5	Director Fee Arrangements (incorporated herein by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 (File No. 000-54280))
10.6	Sunshine Financial, Inc. 2012 Equity Incentive Plan (incorporated herein by reference to Appendix A to the Registrant's Definitive Proxy Statement filed on Schedule 14A on April 20, 2012 (File No. 000-54280))
10.7	Forms of Incentive Stock Option, Non-Qualified Stock Option and Restricted Stock Agreements under the 2012 Equity Incentive Plan (incorporated by reference to the Exhibits to the Registrant's Registration Statement on Form S-8 filed with the SEC on June 29, 2012 (File No. 333-182450))
31.1	Rule 13a-14(a) Certification of the Chief Executive Officer
31.2	Rule 13a-14(a) Certification of the Chief Financial Officer
32.0	Section 1350 Certification
101	Interactive Data Files *

*Pursuant to Rule 406T of Regulation S-T, the interactive files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

EX-31.1

EXHIBIT 31.1

RULE 13a-14(a) CERTIFICATION

I, Louis O. Davis, Jr., certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Sunshine Financial, Inc. (the “Company”);

2.   Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.   The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-(15(f)) for the Company and have:

(a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

(d)   disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5.   The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

(a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

November 14, 2012	By:	/s/ Louis O. Davis, Jr.
		Louis O. Davis, Jr.
		President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

RULE 13a-14(a) CERTIFICATION

I, Scott A. Swain, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Sunshine Financial, Inc. (the “Company”);

2.   Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.   The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-(15(f)) for the Company and have:

a.   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluations; and

d.   disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5.   The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a.   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

November 14, 2012	By:	/s/ Scott A. Swain
		Scott A. Swain
		Senior Vice President, Treasurer and Chief
		Financial Officer

EX-32

EXHIBIT 32

SECTION 1350 CERTIFICATION

Each of the undersigned hereby certifies in his capacity as an officer of Sunshine Financial, Inc (the "Company") that the Quarterly Report of the Company on Form 10-Q for the period ended September 30, 2012, fully complies with the requirements of Section 13(a) of the Securities and Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and periods presented in the financial statements included in such report.

November 14, 2012	By:	/s/ Louis O. Davis, Jr.
		Louis O. Davis, Jr.
		President and Chief Executive Officer
November 14, 2012	By:	/s/ Scott A. Swain
		Scott A. Swain
		Senior Vice President, Treasurer and Chief
		Financial Officer

XML

5. Loans: Schedule of Age Analysis of Loans Receivable Past Due (Tables)

3 Months Ended

Sep. 30, 2012

Tables/Schedules

Schedule of Age Analysis of Loans Receivable Past Due

	Accruing Loans
	30-59	60-89	90 Days	Total
	Days	Days	or More	Past		Nonaccrual	Total
	Past Due	Past Due	Past Due	Due	Current	Loans	Loans
At September 30, 2012:
Real estate loans:
One-to four-family	$352	254	-	606	59,534	2,195	62,335
Lot loans	-	-	-	-	6,544	107	6,651
Commercial real estate	-	-	-	-	1,975	-	1,975
Construction	-	-	-	-	813	-	813
Consumer loans:
Home equity	95	147	-	242	10,302	179	10,723
Automobile	19	-	-	19	2,515	19	2,553
Credit cards and unsecured	92	32	-	124	7,319	38	7,481
Deposit account	-	-	-	-	598	-	598
Other	-	-	-	-	1,468	33	1,501
Total	$558	433	-	991	91,068	2,571	94,630
At December 31, 2011:
Real estate loans:
One-to four-family	1,894	146	-	2,040	64,148	3,956	70,144
Lot loans	-	-	-	-	7,152	211	7,363
Construction	-	-	-	-	74	-	74
Consumer loans:
Home equity	465	91	-	556	11,815	360	12,731
Automobile	-	1	-	1	2,458	24	2,483
Credit cards and unsecured	107	25	-	132	8,040	12	8,184
Deposit account	-	-	-	-	791	-	791
Other	-	-	-	-	1,743	75	1,818
Total	$2,466	263	-	2,729	96,221	4,638	103,588

XML

5. Loans: Schedule of Impaired Loans With No Related Allowance and With An Allowance Recorded (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
One- to Four Family Real Estate
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	$ 2,566	$ 2,786
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	2,941	3,328
Impaired Financing Receivable, with Related Allowance, Recorded Investment	723	301
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	723	301
Impaired Financing Receivable With Related Allowance Related Allowance	38	36
Impaired Financing Receivable Total Recorded Investment	3,289	3,087
Impaired Financing Receivable Total Unpaid Principal Balance	3,664	3,629
Impaired Financing Receivable Total Related Allowance	38	36
Real Estate Lot Loans
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	73	47
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	318	182
Impaired Financing Receivable, with Related Allowance, Recorded Investment		108
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance		108
Impaired Financing Receivable With Related Allowance Related Allowance		85
Impaired Financing Receivable Total Recorded Investment	73	155
Impaired Financing Receivable Total Unpaid Principal Balance	318	290
Impaired Financing Receivable Total Related Allowance		85
Consumer Home Equity
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	261	574
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	438	660
Impaired Financing Receivable, with Related Allowance, Recorded Investment	62	16
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	62	16
Impaired Financing Receivable With Related Allowance Related Allowance	1	3
Impaired Financing Receivable Total Recorded Investment	323	590
Impaired Financing Receivable Total Unpaid Principal Balance	500	676
Impaired Financing Receivable Total Related Allowance	1	3
Consumer Credit Cards and Unsecured
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	40
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	46
Impaired Financing Receivable Total Recorded Investment	40
Impaired Financing Receivable Total Unpaid Principal Balance	46
Total Impaired Loans
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	2,940
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	3,743
Impaired Financing Receivable, with Related Allowance, Recorded Investment	785
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	785
Impaired Financing Receivable With Related Allowance Related Allowance	39
Impaired Financing Receivable Total Recorded Investment	3,725
Impaired Financing Receivable Total Unpaid Principal Balance	4,528
Impaired Financing Receivable Total Related Allowance	39
Consumer Automobile
Impaired Financing Receivable, with Related Allowance, Recorded Investment		18
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance		18
Impaired Financing Receivable With Related Allowance Related Allowance		18
Impaired Financing Receivable Total Recorded Investment		18
Impaired Financing Receivable Total Unpaid Principal Balance		18
Impaired Financing Receivable Total Related Allowance		18
Total Loans
Impaired Financing Receivable, with No Related Allowance, Recorded Investment		3,407
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance		4,170
Impaired Financing Receivable, with Related Allowance, Recorded Investment		443
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance		443
Impaired Financing Receivable With Related Allowance Related Allowance		142
Impaired Financing Receivable Total Recorded Investment		3,850
Impaired Financing Receivable Total Unpaid Principal Balance		4,613
Impaired Financing Receivable Total Related Allowance		$ 142

XML

4. Securities Held To Maturity: Schedule of Held to Maturity Securities Amortized Cost, Gross Unrealized Gains and Losses and Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Securities held to maturity fair value	$ 15,623	$ 10,088
Mortgage-backed securities
Held to maturity Securities Amortized Cost	15,397	9,835
Held to maturity Securities Gross Unrealized Gains	268	255
Held to maturity Securities Gross Unrealized Losses	(42)	(2)
Securities held to maturity fair value	$ 15,623	$ 10,088

XML

5. Loans: Schedule of Investment and Interest Income on Impaired Loans (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
One- to Four Family Real Estate
Impaired Financing Receivable, Average Recorded Investment	$ 3,764	$ 2,715
Impaired Financing Receivable Interest Income Recognized	49
Impaired Financing Receivable Interest Income Received	69
Real Estate Lot Loans
Impaired Financing Receivable, Average Recorded Investment	65	142
Impaired Financing Receivable Interest Income Received	26
Consumer Home Equity
Impaired Financing Receivable, Average Recorded Investment	436	211
Impaired Financing Receivable Interest Income Recognized	7
Impaired Financing Receivable Interest Income Received	7
Consumer Credit Cards and Unsecured
Impaired Financing Receivable, Average Recorded Investment	25
Total Impaired Loans
Impaired Financing Receivable, Average Recorded Investment	4,290	3,068
Impaired Financing Receivable Interest Income Recognized	56
Impaired Financing Receivable Interest Income Received	$ 102

XML

13. Regulatory Matters: Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations (Tables)

3 Months Ended

Sep. 30, 2012

Tables/Schedules

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations

					Minimum
					To Be Well
			Minimum		Capitalized Under
			For Capital Adequacy		Prompt and Corrective
	Actual		Purposes		Action Provisions
	Amount	%	Amount	%	Amount	%
At September 30, 2012:
Total Capital to Risk-
Weighted Assets	$ 18,132	21.49%	$ 6,749	8.00%	$ 8,436	10.00%
Tier I Capital to Risk-
Weighted Assets	17,077	20.24	3,375	4.00	5,062	6.00
Tier I Capital
to Total Assets	17,077	11.86	4,321	3.00	7,201	5.00
At December 31, 2011:
Total Capital to Risk-
Weighted Assets	19,431	22.35	6,955	8.00	8,694	10.00
Tier I Capital to Risk-
Weighted Assets	18,102	20.82	3,478	4.00	5,216	6.00
Tier I Capital
to Total Assets	18,102	12.69	4,279	3.00	7,132	5.00

XML

13. Regulatory Matters: Regulatory Capital Requirements Policy (Policies)

3 Months Ended

Sep. 30, 2012

Policies

Regulatory Capital Requirements Policy

The Bank is 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 Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Bank's 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 Bank to maintain minimum amounts (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined).  Management believes, as of September 30, 2012, that the Bank meets all capital adequacy requirements to which it was subject.

At September 30, 2012, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank 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 institution's category.

XML

7. Line of Credit: Lines of Credit Policy (Details) (USD $)	3 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Correspondent Bank Line of Credit Available	$ 4,200,000
Federal Home Loan Bank of Atlanta Line of Credit Available	14,700,000
Outstanding Balance on Lines of Credit Available	$ 0	$ 0

XML

5. Loans: Real Estate Mortgage Loans Policy (Policies)

3 Months Ended

Sep. 30, 2012

Policies

Real Estate Mortgage Loans Policy

Real Estate Mortgage Loans.  Real estate mortgage loans are loans comprised of four classes: One-to-four family, Lot loans, Commercial real estate, and Construction loans. The Company generally originates one-to-four family mortgage loans in amounts up to 80% of the lesser of the appraised value or purchase price of a mortgaged property, but will also permit loan-to-value ratios of up to 95%. For one-to-four family mortgage loans exceeding an 80% loan-to-value ratio, the Company generally requires the borrower to obtain private mortgage insurance covering any loss on the amount of the loan in excess of 80% in the event of foreclosure. Commercial real estate loans are generally 80% or less loan-to-value ratio and contain balloon features for up to ten years.  Construction loans to borrowers are to finance the construction of owner occupied properties. These loans are categorized as construction loans during the construction period, later converting to one-to-four family mortgage loans after the construction is complete and amortization of the loan begins. Construction loan funds are disbursed periodically based on the percentage of construction completed.  If the estimate of construction cost proves to be inaccurate, the Company may be compelled to advance additional funds to complete the construction with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower to repay the loan.  The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Construction loans are typically secured by the properties under construction. The Company also makes loans for the purchase of developed lots for future construction of the borrower's primary residence. Construction and lot loan lending is generally considered to involve a higher degree of credit risk than long-term permanent financing of residential properties.

XML

5. Loans: Schedule of Loan Portfolio Segments and Classes (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Real estate mortgage loans one- to four-family	$ 62,335	$ 70,144
Real estate mortgage lot loans	6,651	7,363
Loans Receivable, Gross, Commercial, Real Estate	1,975
Loans Receivable Real Estate Loans Construction	813	74
Total real estate loans	71,774	77,581
Loans and Leases Receivable, Gross, Consumer, Home Equity	10,723	12,731
Loans Receivable Consumer Automobile	2,553	2,483
Loans and Leases Receivable, Gross, Consumer, Revolving, Credit Card	7,481	8,184
Loans Receivable Consumer Deposit Accounts	598	791
Loans and Leases Receivable, Gross, Consumer, Other	1,501	1,818
Total consumer loans	22,856	26,007
Loans Receivable Total	94,630	103,588
Loans and Leases Receivable, Loans in Process	1,232	207
Deferred fees and discounts	59	50
Loans and Leases Receivable, Allowance	1,526	1,329
Total Loans Receivable, Net	$ 91,813	$ 102,002

XML

8. Off-balance-sheet Financial Instruments: Schedule of Fair Value, Off-balance Sheet Risks (Tables)

3 Months Ended

Sep. 30, 2012

Tables/Schedules

Schedule of Fair Value, Off-balance Sheet Risks

	Contract
	Amount
Unused lines of credit (rates range from
3.25% to 15.45%)	$17,860
Commitments to extend credit (all fixed rates
ranging from 2.49% to 11.90%)	$462

XML

5. Loans: Schedule of Changes in Allowance for Loan Losses (Tables)

3 Months Ended

Sep. 30, 2012

Tables/Schedules

Schedule of Changes in Allowance for Loan Losses

	For the Three Months Ended September 30, 2012
	One-to		Commercial				Credit
	Four	Lot	Real		Home		Cards and	Deposit
	Family	Loans	Estate	Construction	Equity	Automobile	Unsecured	Account	Other	Total
Beginning balance	$670	112	-	-	326	8	227	-	124	1,467
Provision (credit) for loan loss	143	-	20	-	70	(1)	22	-	16	270
Charge-offs	(92)	-	-	-	(63)	-	(48)	-	(23)	(226)
Recoveries	-	-	-	-	-	2	12	-	1	15
Ending balance	$721	112	20	-	333	9	213	-	118	1,526

	For the Nine Months Ended September 30, 2012
	One-to		Commercial				Credit
	Four	Lot	Real		Home		Cards and	Deposit
	Family	Loans	Estate	Construction	Equity	Automobile	Unsecured	Account	Other	Total
Beginning balance	$475	144	-	-	235	39	337	-	99	1,329
Provision (credit) for loan loss	819	91	20	-	387	(23)	23	-	133	1,450
Charge-offs	(573)	(128)	-	-	(289)	(17)	(181)	-	(116)	(1,304)
Recoveries	-	5	-	-	-	10	34	-	2	51
Ending balance	$721	112	20	-	333	9	213	-	118	1,526
Individually evaluated for impairment:
Recorded investment	$3,289	73	-	-	323	-	40	-	-	3,725
Balance in allowance for loan losses	$38	-	-	-	1	-	-	-	-	39
Collectively evaluated for impairment:
Recorded investment	$59,046	6,578	1,975	813	10,400	2,553	7,441	598	1,501	90,905
Balance in allowance for loan losses	$683	112	20	-	332	9	213	-	118	1,487

	For the Three Months Ended September 30, 2011
	One-to		Commercial				Credit
	Four	Lot	Real		Home		Cards and	Deposit
	Family	Loans	Estate	Construction	Equity	Automobile	Unsecured	Account	Other	Total
Beginning balance	$ 835	137	-	6	109	43	315	-	139	1,604
Provision for loan loss	86	17	-	(6)	220	5	(30)	-	14	306
Charge-offs	(160)	-	-	-	(104)	(22)	(46)	-	(38)	(370)
Recoveries	2	-	-	-	-	5	12	-	-	19
Ending balance	$ 783	154	-	-	225	31	251	-	115	1,559

	For the Nine Months Ended September 30, 2011
	One-to		Commercial				Credit
	Four	Lot	Real		Home		Cards and	Deposit
	Family	Loans	Estate	Construction	Equity	Automobile	Unsecured	Account	Other	Total
Beginning balance	$623	59	-	2	252	39	503	-	143	1,621
Provision for loan loss	379	95	-	(2)	308	7	(71)	-	40	756
Charge-offs	(221)	-	-	-	(335)	(28)	(227)	-	(70)	(881)
Recoveries	2	-	-	-	-	13	46	-	2	63
Ending balance	$783	154	-	-	225	31	251	-	115	1,559
Individually evaluated for impairment:
Recorded investment	$3,649	142	-	-	380	18	-	-	-	4,187
Balance in allowance for loan losses	$535	118	-	-	75	18	-	-	-	746
Collectively evaluated for impairment:
Recorded investment	$70,229	8,143	-	-	12,953	2,221	8,331	834	1,916	104,627
Balance in allowance for loan losses	$248	36	-	-	150	13	251	-	115	813

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5. Loans: Schedule of Loans Receivable Credit Quality Indicators (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
One- to Four Family Real Estate | Pass
Profile by Internally Assigned Grade	$ 57,834	$ 64,888
One- to Four Family Real Estate | Special Mention
Profile by Internally Assigned Grade	701	1,528
One- to Four Family Real Estate | Substandard
Profile by Internally Assigned Grade	3,800	3,728
One- to Four Family Real Estate | Total Credit Risk
Profile by Internally Assigned Grade	62,335	70,144
Real Estate Lot Loans | Pass
Profile by Internally Assigned Grade	6,544	7,151
Real Estate Lot Loans | Substandard
Profile by Internally Assigned Grade	107	212
Real Estate Lot Loans | Total Credit Risk
Profile by Internally Assigned Grade	6,651	7,363
Commercial Real Estate | Pass
Profile by Internally Assigned Grade	1,975
Commercial Real Estate | Total Credit Risk
Profile by Internally Assigned Grade	1,975
Construction Loans | Pass
Profile by Internally Assigned Grade	813	74
Construction Loans | Total Credit Risk
Profile by Internally Assigned Grade	813	74
Consumer Home Equity | Pass
Profile by Internally Assigned Grade	10,209	12,218
Consumer Home Equity | Special Mention
Profile by Internally Assigned Grade	131	91
Consumer Home Equity | Substandard
Profile by Internally Assigned Grade	383	422
Consumer Home Equity | Total Credit Risk
Profile by Internally Assigned Grade	10,723	12,731
Consumer Automobile | Pass
Profile by Internally Assigned Grade	2,534	2,449
Consumer Automobile | Special Mention
Profile by Internally Assigned Grade		1
Consumer Automobile | Substandard
Profile by Internally Assigned Grade	19	3
Consumer Automobile | Doubtful
Profile by Internally Assigned Grade		12
Consumer Automobile | Loss
Profile by Internally Assigned Grade		18
Consumer Automobile | Total Credit Risk
Profile by Internally Assigned Grade	2,553	2,483
Consumer Credit Cards and Unsecured | Pass
Profile by Internally Assigned Grade	7,372	8,166
Consumer Credit Cards and Unsecured | Special Mention
Profile by Internally Assigned Grade	89	10
Consumer Credit Cards and Unsecured | Substandard
Profile by Internally Assigned Grade	13	7
Consumer Credit Cards and Unsecured | Doubtful
Profile by Internally Assigned Grade	7	1
Consumer Credit Cards and Unsecured | Total Credit Risk
Profile by Internally Assigned Grade	7,481	8,184
Consumer Deposit Account | Pass
Profile by Internally Assigned Grade	598	791
Consumer Deposit Account | Total Credit Risk
Profile by Internally Assigned Grade	598	791
Consumer Other Loans | Pass
Profile by Internally Assigned Grade	1,468	1,743
Consumer Other Loans | Substandard
Profile by Internally Assigned Grade		13
Consumer Other Loans | Doubtful
Profile by Internally Assigned Grade	33	62
Consumer Other Loans | Total Credit Risk
Profile by Internally Assigned Grade	1,501	1,818
Total Loans | Pass
Profile by Internally Assigned Grade	89,347	97,480
Total Loans | Special Mention
Profile by Internally Assigned Grade	921	1,630
Total Loans | Substandard
Profile by Internally Assigned Grade	4,322	4,385
Total Loans | Doubtful
Profile by Internally Assigned Grade	40	75
Total Loans | Loss
Profile by Internally Assigned Grade		18
Total Loans | Total Credit Risk
Profile by Internally Assigned Grade	$ 94,630	$ 103,588

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11. Employee Stock Ownership Plan: Employee Stock Ownership Plan ESOP Policy (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Employer Stock Ownership Plan Expense	$ 28,000	$ 33,000	$ 88,000	$ 68,000

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3. (loss) Earnings Per Share: Earnings Per Share Policy (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Weighted Average Number of Shares Outstanding, Basic	1,234,454	1,234,454

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3. (loss) Earnings Per Share

3 Months Ended

Sep. 30, 2012

Notes

3. (loss) Earnings Per Share

3.  (Loss) Earnings Per Share

(Loss) per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period, which was 1,234,454 shares during the three and nine-month periods ended September 30, 2012.  The Company has no dilutive securities.

For 2011, earnings per share have been computed for periods beginning after April 1, 2011, as if conversion from a mutual holding company to a capital stock holding company occurred on that date.  Basic earnings per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period, which was 1,141,587 shares during the three-month period ended September 30, 2011.

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12. Fair Value Measurements: Schedule of Impaired Collateral Dependent Loans Measured at Fair Value on Nonrecurring Basis (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
One- to Four Family Real Estate
ImpairedCollateralDependentLoansFairValue	$ 2,610	$ 1,667
Impaired Collateral Loans Level 3	2,610	1,667
Impaired Collateral Loans Total Losses	414	592
Impaired Collateral Loans Losses Recorded During the Period	270	378
Real Estate Lot Loans
ImpairedCollateralDependentLoansFairValue	73	70
Impaired Collateral Loans Level 3	73	70
Impaired Collateral Loans Total Losses	246	220
Impaired Collateral Loans Losses Recorded During the Period	43	129
Consumer Home Equity
ImpairedCollateralDependentLoansFairValue	323	501
Impaired Collateral Loans Level 3	323	501
Impaired Collateral Loans Total Losses	177	89
Impaired Collateral Loans Losses Recorded During the Period	129	89
Consumer Credit Cards and Unsecured
ImpairedCollateralDependentLoansFairValue	40
Impaired Collateral Loans Level 3	40
Impaired Collateral Loans Total Losses	6
Impaired Collateral Loans Losses Recorded During the Period	6
Total Collateral Dependent Impaired Loans
ImpairedCollateralDependentLoansFairValue	3,046	2,238
Impaired Collateral Loans Level 3	3,046	2,238
Impaired Collateral Loans Total Losses	843	919
Impaired Collateral Loans Losses Recorded During the Period	448	614
Consumer Automobile
Impaired Collateral Loans Total Losses		18
Impaired Collateral Loans Losses Recorded During the Period		$ 18

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9. Fair Value of Financial Instruments: Schedule of Financial Instruments Carrying Amounts and Estimated Fair Value (Tables)

3 Months Ended

Sep. 30, 2012

Tables/Schedules

Schedule of Financial Instruments Carrying Amounts and Estimated Fair Value

	At September 30, 2012		At December 31, 2011
	Carrying	Fair	Carrying	Fair
	Amount	Value	Amount	Value
Financial assets:
Cash and cash equivalents (1)	$29,304	29,304	25,055	25,055
Securities held to maturity (2)	15,397	15,623	9,835	10,088
Loans (3)	91,813	91,893	102,002	101,736
Federal Home Loan Bank stock (3)	218	218	247	247
Accrued interest receivable (3)	385	385	454	454
Financial liabilities:
Deposits (3)	120,815	119,077	119,416	117,135
Off-balance-sheet financial instruments (3)	-	-	-	-

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7. Line of Credit: Lines of Credit Policy (Policies)

3 Months Ended

Sep. 30, 2012

Policies

Lines of Credit Policy

The Company has an unsecured federal funds line of credit for $4.2 million with a correspondent bank and a $14.7 million line with the Federal Home Loan Bank of Atlanta collateralized by a blanket lien on qualifying loans. At September 30, 2012 and December 31, 2011, the Company had no outstanding balances on these lines.

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6. Foreclosed Real Estate: Foreclosed Real Estate Policy (Policies)

3 Months Ended

Sep. 30, 2012

Policies

Foreclosed Real Estate Policy

Expenses applicable to foreclosed assets are included in other noninterest expense and include operating expenses of $217,000 and $45,000 for the nine months ended September 30, 2012 and 2011, respectively.  There were write-downs of $101,000 and six sales of foreclosed real estate during the nine months ended September 30, 2012 with a net loss on the sale of $3,000.  There were no sales and write-downs of $25,000 for the nine months ended September 30, 2011.

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6. Foreclosed Real Estate: Foreclosed Real Estate Policy (Details) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Foreclosed Real Estate Operating Expense	$ 217,000	$ 45,000
Mortgage Loans on Real Estate, Write-down or Reserve, Amount	$ 101,000	$ 25,000
Number of Foreclosed Real Estate Sales	6	0

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12. Fair Value Measurements: Schedule of Impaired Collateral Dependent Loans Measured at Fair Value on Nonrecurring Basis (Tables)

3 Months Ended

Sep. 30, 2012

Tables/Schedules

Schedule of Impaired Collateral Dependent Loans Measured at Fair Value on Nonrecurring Basis

		Quoted Prices
		In Active	Significant
		Markets for	Other	Significant		Losses
		Identical	Observable	Unobservable		Recorded
	Fair	Assets	Inputs	Inputs	Total	During the
	Value	Level 1	Level 2	Level 3	Losses	Period
At September 30, 2012:
One-to four-family	$2,610	-	-	2,610	414	270
Lot loans	73	-	-	73	246	43
Home equity	323	-	-	323	177	129
Credit cards and unsecured	40	-	-	40	6	6
Total	$3,046	-	-	3,046	843	448
At December 31, 2011:
One-to four-family	1,667	-	-	1,667	592	378
Lot loans	70	-	-	70	220	129
Home equity	501	-	-	501	89	89
Automobile	-	-	-	-	18	18
Total	$2,238	-	-	2,238	919	614

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8. Off-balance-sheet Financial Instruments: Off-Balance Sheet Financial Instruments Policy (Policies)

3 Months Ended

Sep. 30, 2012

Policies

Off-Balance Sheet Financial Instruments Policy

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments are unused lines of credit and commitments to extend credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the balance sheets.  The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unused lines of credit and commitments to extend credit is represented by the contractual amount of those instruments.  The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

Commitments to extend credit 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 some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company evaluates each customer's credit worthiness on a case-by-case basis.  The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management's credit evaluation of the counterparty.

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10. Employee Benefit Plans: Employee Benefit Plans Policy (Policies)

3 Months Ended

Sep. 30, 2012

Policies

Employee Benefit Plans Policy

The Company has a 401(k) plan for its employees who meet certain age and length-of-service requirements. Eligible employees can contribute up to $17,000 of their compensation to the plan on a pre-tax basis. Employer matching contributions are made at 100 percent of employee contribution up to five percent. Employer contributions made to the 401(k) plan were $78,000 and $83,000 for the nine-months ended September 30, 2012 and 2011, respectively.

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2. Recent Accounting Standards Update

3 Months Ended

Sep. 30, 2012

Notes

2. Recent Accounting Standards Update

2.  Recent Accounting Standards Update

In January 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") No. 2011-01, Receivables (Topic 310) Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in ASU No. 2011-20. The amendments in this ASU delay the effective date of the disclosures about troubled debt restructurings in ASU 2011-20 for public entities. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring is effective as outlined in ASU No. 2011-02. The adoption of the ASU did not have a material impact on the Company's consolidated financial statements.

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This amends the guidance for troubled debt restructurings.  The guidance clarifies the guidance on a creditor's evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. For public entities, the amendments are effective for first interim or annual period beginning on or after September 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption. The adoption of the ASU did not have a material impact on the Company's consolidated financial statements.

In April 2011, the FASB issued ASU 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreement, which applies to all public entities. It affects all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The amendments do not affect other transfers of financial assets. ASU 2011-03 removes from the assessment of effective control the requirement that the transferor have the ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. Consequently, it also eliminates the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. Eliminating consideration of the transferor's ability to fulfill its contractual rights and obligations from the criteria in determining effective control should improve the accounting for repos and other similar transactions. ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011 and is to be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of ASU 2011-03 did not have a material impact on the Company's consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04 ("ASU 2011-04"), Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.  The objective of ASU 2011-04 is to provide clarification of Topic 820 and, also, to ensure that fair value has the same meaning in U.S. generally accepted accounting principles ("GAAP") and in international financial reporting standards ("IFRSs") and that their respective fair value measurement and disclosure requirements are generally the same.  Thus, this ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. The amendment is effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively.  Early application is not permitted. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements. 

In June 2011, the FASB issued ASU No. 2011-05 ("ASU 2011-05"), Comprehensive Income (Topic 220), Presentation of Comprehensive Income. The objective of ASU 2011-05 is to improve the comparability, consistency and transparency of financial reporting, and to increase the prominence of items reported in other comprehensive income.  To achieve this goal and to facilitate convergence of U.S. GAAP and IFRS, the FASB decided to eliminate the option to present components of other comprehensive income as part of the consolidated statement of changes in stockholders' equity. The amendments in ASU 2011-05 require that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in ASU 2011-05 should be applied retrospectively.  For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  Early adoption is permitted, because compliance with the amendments is already permitted.  The amendments do not require any transition disclosures.  The adoption of this guidance had no effect on the Company's consolidated financial statements.

In December 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-12 ("ASU 2011-12"), Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 ("ASU 2011-05"). Stakeholders raised concerns that the new presentation requirements about reclassifications of items out of accumulated other comprehensive income would be difficult for preparers and may add unnecessary complexity to financial statements.  In addition, it is difficult for some stakeholders to change systems in time to gather the information for the new presentation requirements by the effective date of ASU 2011-05.  All other requirements in ASU 2011-05 are not affected by this update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The amendments in ASU 2011-12 are effective on a retrospective basis for public entities for annual periods beginning after December 15, 2011, and interim periods within those years.  An entity should provide the disclosures required by ASU 2011-12 retrospectively for all comparative periods presented.  The adoption of this guidance had no effect on the Company's consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11 ("ASU 2011-11"), Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities. The objective of ASU 2011-11 is to enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45.  This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position.  The amendments in ASU 2011-11 are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by ASU 2011-11 retrospectively for all comparative periods presented. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.

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11. Employee Stock Ownership Plan: Employee Stock Ownership Plan ESOP Policy (Policies)

3 Months Ended

Sep. 30, 2012

Policies

Employee Stock Ownership Plan ESOP Policy

Effective April 5, 2011, upon closing of the stock offering, the Holding Company established an Employee Stock Ownership Plan which acquired 8% of the total number of shares of common stock sold during the public offering.  A total of 98,756 shares were acquired in exchange for a $988,000 note payable to the Holding Company.  The note bears interest at the prime plus one percent rate and is payable in annual installments and is due in 2021.  The employer expense was $28,000 and $88,000 for the three- and nine-month periods ended September 30, 2012, respectively. The employer expense was $33,000 and $68,000 for the three- and nine-month periods ended September 30, 2011, respectively.

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5. Loans: Schedule of Impaired Loans With No Related Allowance and With An Allowance Recorded (Tables)

3 Months Ended

Sep. 30, 2012

Tables/Schedules

Schedule of Impaired Loans With No Related Allowance and With An Allowance Recorded

	With No Related Allowance Recorded			With an Allowance Recorded			Total
		Unpaid			Unpaid			Unpaid
	Recorded	Principal	Related	Recorded	Principal	Related	Recorded	Principal	Related
	Investment	Balance	Allowance	Investment	Balance	Allowance	Investment	Balance	Allowance
At September 30, 2012:
Real estate loans:
One-to four-family	$2,566	2,941	-	723	723	38	3,289	3,664	38
Lot loans	73	318	-	-	-	-	73	318	-
Consumer loans:
Home equity	261	438	-	62	62	1	323	500	1
Credit cards and unsecured	40	46	-	-	-	-	40	46	-
Total	$2,940	3,743	-	785	785	39	3,725	4,528	39
At December 31, 2011:
Real estate loans:
One-to four-family	2,786	3,328	-	301	301	36	3,087	3,629	36
Lot loans	47	182	-	108	108	85	155	290	85
Consumer loans:
Home equity	574	660	-	16	16	3	590	676	3
Automobile	-	-	-	18	18	18	18	18	18
Total	$3,407	4,170	-	443	443	142	3,850	4,613	142

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5. Loans: Schedule of Age Analysis of Loans Receivable Past Due (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
One- to Four Family Real Estate
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	$ 352	$ 1,894
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	254	146
Financing Receivable, Recorded Investment, Past Due	606	2,040
Financing Receivable, Recorded Investment, Current	59,534	64,148
Financing Receivable, Recorded Investment, Nonaccrual Status	2,195	3,956
Total loans	62,335	70,144
Real Estate Lot Loans
Financing Receivable, Recorded Investment, Current	6,544	7,152
Financing Receivable, Recorded Investment, Nonaccrual Status	107	211
Total loans	6,651	7,363
Commercial Real Estate
Financing Receivable, Recorded Investment, Current	1,975
Total loans	1,975
Construction Loans
Financing Receivable, Recorded Investment, Current	813	74
Total loans	813	74
Consumer Home Equity
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	95	465
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	147	91
Financing Receivable, Recorded Investment, Past Due	242	556
Financing Receivable, Recorded Investment, Current	10,302	11,815
Financing Receivable, Recorded Investment, Nonaccrual Status	179	360
Total loans	10,723	12,731
Consumer Automobile
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	19
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due		1
Financing Receivable, Recorded Investment, Past Due	19	1
Financing Receivable, Recorded Investment, Current	2,515	2,458
Financing Receivable, Recorded Investment, Nonaccrual Status	19	24
Total loans	2,553	2,483
Consumer Credit Cards and Unsecured
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	92	107
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	32	25
Financing Receivable, Recorded Investment, Past Due	124	132
Financing Receivable, Recorded Investment, Current	7,319	8,040
Financing Receivable, Recorded Investment, Nonaccrual Status	38	12
Total loans	7,481	8,184
Consumer Deposit Account
Financing Receivable, Recorded Investment, Current	598	791
Total loans	598	791
Consumer Other Loans
Financing Receivable, Recorded Investment, Current	1,468	1,743
Financing Receivable, Recorded Investment, Nonaccrual Status	33	75
Total loans	1,501	1,818
Total Past Due
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	558	2,466
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	433	263
Financing Receivable, Recorded Investment, Past Due	991	2,729
Financing Receivable, Recorded Investment, Current	91,068	96,221
Financing Receivable, Recorded Investment, Nonaccrual Status	2,571	4,638
Total loans	$ 94,630	$ 103,588

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Sunshine Financial, Inc. and Subsidiaries -- Condensed Consolidated Balance Sheets (September 30, 2012 figures unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Assets
Cash and due from banks	$ 1,334	$ 2,053
Interest-bearing deposits with banks	3,166	6,546
Federal funds sold	24,804	16,456
Cash and cash equivalents	29,304	25,055
Securities held to maturity fair value	15,623	10,088
Loans, net of allowance for loan losses of $1,526 and $1,329	91,813	102,002
Premises and equipment, net	3,394	3,623
Federal Home Loan Bank stock, at cost	218	247
Deferred income taxes	2,770	2,364
Accrued interest receivable	385	454
Foreclosed real estate	2,199	743
Other assets	1,359	1,437
Total assets	146,839	145,760
Liabilities:
Noninterest-bearing deposit accounts	23,017	21,827
Money-market deposit accounts	30,087	27,028
Savings accounts	35,558	34,271
Time deposits	32,153	36,290
Total deposits	120,815	119,416
Official checks	553	572
Advances by borrowers for taxes and insurance	275	21
Other liabilities	423	366
Total liabilities	122,066	120,375
Stockholders' equity:
Common stock, $.01 par value, 6,000,000 shares authorized, 1,234,454 shares issued and outstanding at September 30, 2012 and December 31, 2011	12	12
Additional paid in capital	11,483	11,487
Retained earnings	14,143	14,813
Unearned Employee Stock Ownership Plan shares	(865)	(927)
Total stockholders' equity	24,773	25,385
Total liabilities and stockholders' equity	$ 146,839	$ 145,760

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12. Fair Value Measurements: Schedule of Foreclosed Real Estate Measured at Fair Value on Nonrecurring Basis (Tables)

3 Months Ended

Sep. 30, 2012

Tables/Schedules

Schedule of Foreclosed Real Estate Measured at Fair Value on Nonrecurring Basis

		Quoted Prices
		In Active	Significant
		Markets for	Other	Significant		Losses
		Identical	Observable	Unobservable		Recorded
	Fair	Assets	Inputs	Inputs	Total	During the
	Value	(Level 1)	(Level 2)	(Level 3)	Losses	Period
At September 30, 2012-
Foreclosed real estate	$2,199	-	-	2,199	133	93
At December 31, 2011-
Foreclosed real estate	$743	-	-	743	83	68

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Sunshine Financial, Inc. and Subsidiaries -- Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Net (loss) earnings	$ (670,000)	$ 93,000
Adjustments to reconcile net (loss) earnings to net cash from operating activities:
Depreciation	371,000	368,000
Provision for loan losses	1,450,000	756,000
Deferred income taxes (benefit)	(406,000)	56,000
Net accretion of premiums/discounts on securities	55,000	16,000
Net amortization of deferred loan fees and costs	9,000	6,000
Loans originated for sale	(10,227,000)	(2,218,000)
Proceeds from loans sold	10,484,000	2,253,000
Gain on sale of loans	257,000	35,000
ESOP compensation expense	58,000	52,000
Decrease in accrued interest receivable	69,000	66,000
Decrease in other assets	78,000	350,000
Loss on sale of foreclosed real estate	3,000
Write-down of foreclosed real estate	101,000	25,000
(Decrease) increase in official checks	(19,000)	86,000
Net increase in advances by borrowers for taxes and insurance	254,000	220,000
Increase (decrease) in other liabilities	57,000	(104,000)
Net cash provided by operating activities	1,410,000	1,990,000
Cash flows from investing activities:
Net purchases of securities held-to-maturity	(5,617,000)	(7,795,000)
Net decrease in loans	6,628,000	9,710,000
Net purchases of premises and equipment	(142,000)	(59,000)
Proceeds from sale of Federal Home Loan Bank stock	29,000	38,000
Proceeds from sale of foreclosed real estate	542,000
Capital expenditures for foreclosed real estate	217,000	(35,000)
Net cash provided by investing activities	1,440,000	1,859,000
Cash flows from financing activities:
Net increase (decrease) in deposits	1,399,000	(14,852,000)
Net proceeds from stock issuance		11,497,000
Issuance of common stock to ESOP		(988,000)
Net cash provided by (used in) financing activities	1,399,000	(4,343,000)
Increase (decrease) in cash and cash equivalents	4,249,000	(494,000)
Cash and cash equivalents at beginning of period	25,055,000	19,324,000
Cash and cash equivalents at end of period	29,304,000	18,830,000
Supplemental disclosure of cash flow information:
Interest	439,000	761,000
Noncash transaction-
Transfer from loans to foreclosed real estate	$ 2,102,000	$ 210,000

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9. Fair Value of Financial Instruments: Schedule of Financial Instruments Carrying Amounts and Estimated Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Financial assets -- Cash and cash equivalents
Financial Instruments Carrying Amount	$ 29,304	[1]	$ 25,055	[1]
Financial Instruments, Owned, at Fair Value	29,304	[1]	25,055	[1]
Financial assets -- Securities held to maturity
Financial Instruments Carrying Amount	15,397	[2]	9,835	[2]
Financial Instruments, Owned, at Fair Value	15,623	[2]	10,088	[2]
Financial assets -- Loans
Financial Instruments Carrying Amount	91,813	[3]	102,002	[3]
Financial Instruments, Owned, at Fair Value	91,893	[3]	101,736	[3]
Financial assets -- Federal Home Loan Bank stock
Financial Instruments Carrying Amount	218	[3]	247	[3]
Financial Instruments, Owned, at Fair Value	218	[3]	247	[3]
Financial assets -- Accrued interest receivable
Financial Instruments Carrying Amount	385	[3]	454	[3]
Financial Instruments, Owned, at Fair Value	385	[3]	454	[3]
Financial liabilities -- Deposits
Financial Instruments Carrying Amount	120,815	[3]	119,416	[3]
Financial Instruments, Owned, at Fair Value	$ 119,077	[3]	$ 117,135	[3]

[1] We consider these fair value measurements to be Level 1.

[2] We consider these fair value measurements to be Level 2.

[3] We consider these fair value measurements to be Level 3.

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4. Securities Held To Maturity: Schedule of Held to Maturity Securities Amortized Cost, Gross Unrealized Gains and Losses and Fair Value (Tables)

3 Months Ended

Sep. 30, 2012

Tables/Schedules

Schedule of Held to Maturity Securities Amortized Cost, Gross Unrealized Gains and Losses and Fair Value

		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
At September 30, 2012-
Mortgage-backed securities	$15,397	268	(42)	15,623
At December 31, 2011-
Mortgage-backed securities	$9,835	255	(2)	10,088

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2. Recent Accounting Standards Update: New Accounting Pronouncements Policy (Policies)

3 Months Ended

Sep. 30, 2012

Policies

New Accounting Pronouncements Policy

In January 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update ("ASU") No. 2011-01, Receivables (Topic 310) Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in ASU No. 2011-20. The amendments in this ASU delay the effective date of the disclosures about troubled debt restructurings in ASU 2011-20 for public entities. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring is effective as outlined in ASU No. 2011-02. The adoption of the ASU did not have a material impact on the Company's consolidated financial statements.

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This amends the guidance for troubled debt restructurings.  The guidance clarifies the guidance on a creditor's evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. For public entities, the amendments are effective for first interim or annual period beginning on or after September 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption. The adoption of the ASU did not have a material impact on the Company's consolidated financial statements.

In April 2011, the FASB issued ASU 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreement, which applies to all public entities. It affects all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The amendments do not affect other transfers of financial assets. ASU 2011-03 removes from the assessment of effective control the requirement that the transferor have the ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. Consequently, it also eliminates the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. Eliminating consideration of the transferor's ability to fulfill its contractual rights and obligations from the criteria in determining effective control should improve the accounting for repos and other similar transactions. ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011 and is to be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of ASU 2011-03 did not have a material impact on the Company's consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04 ("ASU 2011-04"), Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.  The objective of ASU 2011-04 is to provide clarification of Topic 820 and, also, to ensure that fair value has the same meaning in U.S. generally accepted accounting principles ("GAAP") and in international financial reporting standards ("IFRSs") and that their respective fair value measurement and disclosure requirements are generally the same.  Thus, this ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. The amendment is effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively.  Early application is not permitted. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements. 

In June 2011, the FASB issued ASU No. 2011-05 ("ASU 2011-05"), Comprehensive Income (Topic 220), Presentation of Comprehensive Income. The objective of ASU 2011-05 is to improve the comparability, consistency and transparency of financial reporting, and to increase the prominence of items reported in other comprehensive income.  To achieve this goal and to facilitate convergence of U.S. GAAP and IFRS, the FASB decided to eliminate the option to present components of other comprehensive income as part of the consolidated statement of changes in stockholders' equity. The amendments in ASU 2011-05 require that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in ASU 2011-05 should be applied retrospectively.  For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  Early adoption is permitted, because compliance with the amendments is already permitted.  The amendments do not require any transition disclosures.  The adoption of this guidance had no effect on the Company's consolidated financial statements.

In December 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-12 ("ASU 2011-12"), Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 ("ASU 2011-05"). Stakeholders raised concerns that the new presentation requirements about reclassifications of items out of accumulated other comprehensive income would be difficult for preparers and may add unnecessary complexity to financial statements.  In addition, it is difficult for some stakeholders to change systems in time to gather the information for the new presentation requirements by the effective date of ASU 2011-05.  All other requirements in ASU 2011-05 are not affected by this update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The amendments in ASU 2011-12 are effective on a retrospective basis for public entities for annual periods beginning after December 15, 2011, and interim periods within those years.  An entity should provide the disclosures required by ASU 2011-12 retrospectively for all comparative periods presented.  The adoption of this guidance had no effect on the Company's consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11 ("ASU 2011-11"), Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities. The objective of ASU 2011-11 is to enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45.  This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position.  The amendments in ASU 2011-11 are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by ASU 2011-11 retrospectively for all comparative periods presented. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.

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5. Loans: Schedule of Loan Portfolio Segments and Classes (Tables)

3 Months Ended

Sep. 30, 2012

Tables/Schedules

Schedule of Loan Portfolio Segments and Classes

	September 30,	December 31,
	2012	2011
Real estate mortgage loans:
One-to-four-family	$62,335	70,144
Lot loans	6,651	7,363
Commercial real estate	1,975	-
Construction	813	74
Total real estate loans	71,774	77,581
Consumer loans:
Home equity	10,723	12,731
Automobile	2,553	2,483
Credit cards and unsecured	7,481	8,184
Deposit account	598	791
Other	1,501	1,818
Total consumer loans	22,856	26,007
Total loans	94,630	103,588
Less:
Loans in process	1,232	207
Deferred fees and discounts	59	50
Allowance for losses	1,526	1,329
Total loans, net	$91,813	102,002

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4. Securities Held To Maturity: Marketable Securities Held to Maturity Securities Policy (Policies)

3 Months Ended

Sep. 30, 2012

Policies

Marketable Securities Held to Maturity Securities Policy

There were no sales of securities during the nine months ended September 30, 2012 or 2011. There were no securities pledged at September 30, 2012 or December 31, 2011.

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1. Organization and Basis of Presentation

3 Months Ended

Sep. 30, 2012

Notes

1. Organization and Basis of Presentation

1.  Organization and Basis of Presentation

Sunshine Financial, Inc. ("Sunshine Financial" or the "Holding Company"), a Maryland corporation, is the holding company for Sunshine Savings Bank (the "Bank") and owns all the outstanding common stock of the Bank.  The Bank completed its reorganization from the mutual to stock holding company form of organization on April 5, 2011. A total of 1,234,454 shares of common stock were sold in the subscription and community offerings at a price of $10.00 per share.  In accordance with the Plan of Conversion and Reorganization (the "Plan"), the Holding Company has succeeded to all rights and obligations of Sunshine Savings MHC and the old Sunshine Financial, Inc. ("Old Sunshine").  See Note 14 for details of the conversion.  The transaction was accounted for as a reorganization of entities under common control at historical cost and, the financial data for periods presented include the results of the Bank.  The unaudited, condensed consolidated financial statements include the consolidated results of operations of Old Sunshine and its subsidiary, the Bank. 

The Holding Company's only business is the operation of the Bank.  The Bank, through its four banking offices, provides a variety of retail community banking services to individuals and businesses primarily in Leon County, Florida. The Bank's deposits are insured up to the applicable limits by the Federal Deposit Insurance Corporation. The Bank's subsidiary is Sunshine Member Insurance Services, Inc. ("SMSI"), which was established to sell automobile warranty and credit life and disability insurance products associated with loan products. Collectively the entities are referred to as the "Company."

These condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and Article 8-03 of Regulation S-X and do not include all disclosures required by generally accepted accounting principles for a complete presentation of the Company's financial condition and results of operations.

In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements not misleading and for a fair representation of the results of operations for such periods.  The results for the three and nine-month periods ended September 30, 2012 should not be considered as indicative of results for a full year.

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Sunshine Financial, Inc. and Subsidiary -- Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Interest income:
Loans	$ 1,392	$ 1,634	$ 4,256	$ 5,027
Securities, held to maturity	66	82	180	192
Other interest income	16	9	46	31
Total interest income	1,474	1,725	4,482	5,250
Interest expense
Deposit accounts	128	206	439	761
Net interest income	1,346	1,519	4,043	4,489
Provision for loan losses	270	306	1,450	756
Net interest income after provision for loan losses	1,076	1,213	2,593	3,733
Noninterest income
Fees and service charges on deposit accounts	532	573	1,572	1,681
Gain on loan sales	135	21	257	35
Fees and charges on loans	35	36	82	71
Other noninterest income	28	4	34	26
Total noninterest income	730	634	1,945	1,813
Noninterest expenses
Salaries and employee benefits	862	828	2,645	2,586
Occupancy and equipment	270	272	826	813
Data processing services	202	191	579	551
Professional fees	164	178	519	455
FDIC insurance	32	29	90	112
Advertising and promotion	13	16	50	48
Stationery and supplies	17	12	63	40
Other noninterest expense	324	294	842	792
Total noninterest expenses	1,884	1,820	5,614	5,397
Earnings (loss) before income taxes	(78)	27	(1,076)	149
Income taxes (benefit)	(34)	13	(406)	56
Net (loss) earnings	$ (44)	$ 14	$ (670)	$ 93
Basic (loss) earnings per common share	$ (0.04)	$ 0.01	$ (0.54)

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11. Employee Stock Ownership Plan

3 Months Ended

Sep. 30, 2012

Notes

11. Employee Stock Ownership Plan

11.  Employee Stock Ownership Plan

Effective April 5, 2011, upon closing of the stock offering, the Holding Company established an Employee Stock Ownership Plan which acquired 8% of the total number of shares of common stock sold during the public offering.  A total of 98,756 shares were acquired in exchange for a $988,000 note payable to the Holding Company.  The note bears interest at the prime plus one percent rate and is payable in annual installments and is due in 2021.  The employer expense was $28,000 and $88,000 for the three- and nine-month periods ended September 30, 2012, respectively. The employer expense was $33,000 and $68,000 for the three- and nine-month periods ended September 30, 2011, respectively.

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Document and Entity Information (USD $)	3 Months Ended
	Sep. 30, 2012	Nov. 12, 2012	Jun. 30, 2011
Document and Entity Information
Entity Registrant Name	Sunshine Financial Inc
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Entity Central Index Key	0001500837
Current Fiscal Year End Date	--06-30
Entity Common Stock, Shares Outstanding		1,234,454
Entity Public Float			$ 13,000,000
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1

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12. Fair Value Measurements

3 Months Ended

Sep. 30, 2012

Notes

12. Fair Value Measurements

12.  Fair Value Measurements

Impaired collateral-dependent loans are carried at fair value when the current collateral value is lower than the carrying value of the loan.  Those impaired collateral-dependent loans which are measured at fair value on a nonrecurring basis are as follows (in thousands):

		Quoted Prices
		In Active	Significant
		Markets for	Other	Significant		Losses
		Identical	Observable	Unobservable		Recorded
	Fair	Assets	Inputs	Inputs	Total	During the
	Value	Level 1	Level 2	Level 3	Losses	Period
At September 30, 2012:
One-to four-family	$2,610	-	-	2,610	414	270
Lot loans	73	-	-	73	246	43
Home equity	323	-	-	323	177	129
Credit cards and unsecured	40	-	-	40	6	6
Total	$3,046	-	-	3,046	843	448
At December 31, 2011:
One-to four-family	1,667	-	-	1,667	592	378
Lot loans	70	-	-	70	220	129
Home equity	501	-	-	501	89	89
Automobile	-	-	-	-	18	18
Total	$2,238	-	-	2,238	919	614

Foreclosed real estate is recorded at fair value less estimated costs to sell.  Foreclosed real estate which is measured at fair value on a nonrecurring basis is summarized below (in thousands):

		Quoted Prices
		In Active	Significant
		Markets for	Other	Significant		Losses
		Identical	Observable	Unobservable		Recorded
	Fair	Assets	Inputs	Inputs	Total	During the
	Value	(Level 1)	(Level 2)	(Level 3)	Losses	Period
At September 30, 2012-
Foreclosed real estate	$2,199	-	-	2,199	133	93
At December 31, 2011-
Foreclosed real estate	$743	-	-	743	83	68

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Sunshine Financial, Inc. and Subsidiaries -- Condensed Consolidated Statements of Stockholders' Equity (Unaudited) (USD $) In Thousands, except Share data	Common Stock Shares	Common Stock Amount	Additional Paid In Capital	Retained Earnings	Earned Employee Stock Ownership Shares	Total Stockholders' Equity
Balance beginning of period at Dec. 31, 2010				$ 15,039		$ 15,039
Net income (loss)				93		93
Proceeds from issuance of common stock, net	1,135,698	11	10,498			10,509	[1]
Issuance of common stock for ESOP	98,756	1	987		(988)
Common stock allocated to ESOP participants at Sep. 30, 2011			3		49	52
Balance end of period at Sep. 30, 2011	1,234,454	12	11,488	15,132	(939)	25,693
Balance beginning of period at Dec. 31, 2011	1,234,454	12	11,487	14,813	(927)	25,385
Net income (loss)				(670)		(670)
Common stock allocated to ESOP participants at Sep. 30, 2012			(4)		62	58
Balance end of period at Sep. 30, 2012	$ 1,234,454	$ 12	$ 11,483	$ 14,143	$ (865)	$ 24,773

[1] Offering costs of $847.

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6. Foreclosed Real Estate

3 Months Ended

Sep. 30, 2012

Notes

6. Foreclosed Real Estate

6.  Foreclosed Real Estate

Expenses applicable to foreclosed assets are included in other noninterest expense and include operating expenses of $217,000 and $45,000 for the nine months ended September 30, 2012 and 2011, respectively.  There were write-downs of $101,000 and six sales of foreclosed real estate during the nine months ended September 30, 2012 with a net loss on the sale of $3,000.  There were no sales and write-downs of $25,000 for the nine months ended September 30, 2011.

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5. Loans

3 Months Ended

Sep. 30, 2012

Notes

5. Loans

5.  Loans

The loan portfolio segments and classes are as follows (in thousands):

	September 30,	December 31,
	2012	2011
Real estate mortgage loans:
One-to-four-family	$62,335	70,144
Lot loans	6,651	7,363
Commercial real estate	1,975	-
Construction	813	74
Total real estate loans	71,774	77,581
Consumer loans:
Home equity	10,723	12,731
Automobile	2,553	2,483
Credit cards and unsecured	7,481	8,184
Deposit account	598	791
Other	1,501	1,818
Total consumer loans	22,856	26,007
Total loans	94,630	103,588
Less:
Loans in process	1,232	207
Deferred fees and discounts	59	50
Allowance for losses	1,526	1,329
Total loans, net	$91,813	102,002

The Company grants real estate and consumer loans to customers primarily in the State of Florida with the majority of such loans in the Tallahassee, Florida metropolitan area.  Therefore, the Company's exposure to credit risk could be significantly affected by changes in the economy and real estate market in the Tallahassee, Florida metropolitan area.  The Company grants commercial real estate loans to customers primarily in the Leon county market area.

The Company has divided the loan portfolio into two portfolio segments, each with different risk characteristics and methodologies for assessing risk. All loans are underwritten in accordance with policies set forth and approved by the Board, including repayment capacity and source, value of the underlying property, credit history and stability.  The portfolio segments identified by the Company are as follows:

Real Estate Mortgage Loans.  Real estate mortgage loans are loans comprised of four classes: One-to-four family, Lot loans, Commercial real estate, and Construction loans. The Company generally originates one-to-four family mortgage loans in amounts up to 80% of the lesser of the appraised value or purchase price of a mortgaged property, but will also permit loan-to-value ratios of up to 95%. For one-to-four family mortgage loans exceeding an 80% loan-to-value ratio, the Company generally requires the borrower to obtain private mortgage insurance covering any loss on the amount of the loan in excess of 80% in the event of foreclosure. Commercial real estate loans are generally 80% or less loan-to-value ratio and contain balloon features for up to ten years.  Construction loans to borrowers are to finance the construction of owner occupied properties. These loans are categorized as construction loans during the construction period, later converting to one-to-four family mortgage loans after the construction is complete and amortization of the loan begins. Construction loan funds are disbursed periodically based on the percentage of construction completed.  If the estimate of construction cost proves to be inaccurate, the Company may be compelled to advance additional funds to complete the construction with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower to repay the loan.  The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Construction loans are typically secured by the properties under construction. The Company also makes loans for the purchase of developed lots for future construction of the borrower's primary residence. Construction and lot loan lending is generally considered to involve a higher degree of credit risk than long-term permanent financing of residential properties.

Consumer Loans.  Consumer loans are comprised of five classes: Home Equity, Automobile, Credit cards and unsecured, Deposit account and Other.  The Company offers a variety of secured consumer loans, including home equity, new and used automobile, boat and other recreational vehicle loans, and loans secured by savings deposits.  The Company also offers unsecured consumer loans including a credit card product.  The Company originates its consumer loans primarily in its market area.  Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates and may be made on terms of up to twenty years. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

An analysis of the change in the allowance for loan losses follows (in thousands):

	For the Three Months Ended September 30, 2012
	One-to		Commercial				Credit
	Four	Lot	Real		Home		Cards and	Deposit
	Family	Loans	Estate	Construction	Equity	Automobile	Unsecured	Account	Other	Total
Beginning balance	$670	112	-	-	326	8	227	-	124	1,467
Provision (credit) for loan loss	143	-	20	-	70	(1)	22	-	16	270
Charge-offs	(92)	-	-	-	(63)	-	(48)	-	(23)	(226)
Recoveries	-	-	-	-	-	2	12	-	1	15
Ending balance	$721	112	20	-	333	9	213	-	118	1,526

	For the Nine Months Ended September 30, 2012
	One-to		Commercial				Credit
	Four	Lot	Real		Home		Cards and	Deposit
	Family	Loans	Estate	Construction	Equity	Automobile	Unsecured	Account	Other	Total
Beginning balance	$475	144	-	-	235	39	337	-	99	1,329
Provision (credit) for loan loss	819	91	20	-	387	(23)	23	-	133	1,450
Charge-offs	(573)	(128)	-	-	(289)	(17)	(181)	-	(116)	(1,304)
Recoveries	-	5	-	-	-	10	34	-	2	51
Ending balance	$721	112	20	-	333	9	213	-	118	1,526
Individually evaluated for impairment:
Recorded investment	$3,289	73	-	-	323	-	40	-	-	3,725
Balance in allowance for loan losses	$38	-	-	-	1	-	-	-	-	39
Collectively evaluated for impairment:
Recorded investment	$59,046	6,578	1,975	813	10,400	2,553	7,441	598	1,501	90,905
Balance in allowance for loan losses	$683	112	20	-	332	9	213	-	118	1,487

	For the Three Months Ended September 30, 2011
	One-to		Commercial				Credit
	Four	Lot	Real		Home		Cards and	Deposit
	Family	Loans	Estate	Construction	Equity	Automobile	Unsecured	Account	Other	Total
Beginning balance	$ 835	137	-	6	109	43	315	-	139	1,604
Provision for loan loss	86	17	-	(6)	220	5	(30)	-	14	306
Charge-offs	(160)	-	-	-	(104)	(22)	(46)	-	(38)	(370)
Recoveries	2	-	-	-	-	5	12	-	-	19
Ending balance	$ 783	154	-	-	225	31	251	-	115	1,559

	For the Nine Months Ended September 30, 2011
	One-to		Commercial				Credit
	Four	Lot	Real		Home		Cards and	Deposit
	Family	Loans	Estate	Construction	Equity	Automobile	Unsecured	Account	Other	Total
Beginning balance	$623	59	-	2	252	39	503	-	143	1,621
Provision for loan loss	379	95	-	(2)	308	7	(71)	-	40	756
Charge-offs	(221)	-	-	-	(335)	(28)	(227)	-	(70)	(881)
Recoveries	2	-	-	-	-	13	46	-	2	63
Ending balance	$783	154	-	-	225	31	251	-	115	1,559
Individually evaluated for impairment:
Recorded investment	$3,649	142	-	-	380	18	-	-	-	4,187
Balance in allowance for loan losses	$535	118	-	-	75	18	-	-	-	746
Collectively evaluated for impairment:
Recorded investment	$70,229	8,143	-	-	12,953	2,221	8,331	834	1,916	104,627
Balance in allowance for loan losses	$248	36	-	-	150	13	251	-	115	813

The following summarizes the loan credit quality (in thousands):

	One-to		Commercial				Credit
	Four-	Lot	Real		Home		Cards and	Deposit
	Family	Loans	Estate	Construction	Equity	Automobile	Unsecured	Account	Other	Total
Credit Risk Profile by Internally
Assigned Grade:
At September 30, 2012:
Grade:
Pass	$57,834	6,544	1,975	813	10,209	2,534	7,372	598	1,468	89,347
Special mention	701	-	-	-	131	-	89	-	-	921
Substandard	3,800	107	-	-	383	19	13	-	-	4,322
Doubtful	-	-	-	-	-	-	7	-	33	40
Loss	-	-	-	-	-	-	-	-	-	-
Total	$62,335	6,651	1,975	813	10,723	2,553	7,481	598	1,501	94,630
At December 31, 2011:
Grade:
Pass	64,888	7,151	-	74	12,218	2,449	8,166	791	1,743	97,480
Special mention	1,528	-	-	-	91	1	10	-	-	1,630
Substandard	3,728	212	-	-	422	3	7	-	13	4,385
Doubtful	-	-	-	-	-	12	1	-	62	75
Loss	-	-	-	-	-	18	-	-	-	18
Total	$70,144	7,363	-	74	12,731	2,483	8,184	791	1,818	103,588

Internally assigned loan grades are defined as follows:

Pass – A Pass loan's primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary.

Special Mention – A Special Mention loan has potential weaknesses that deserve management's close attention.  If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company's credit position at some future date.  Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard – A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – A loan classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss – A loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted.  This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

Age analysis of past-due loans is as follows (in thousands):

	Accruing Loans
	30-59	60-89	90 Days	Total
	Days	Days	or More	Past		Nonaccrual	Total
	Past Due	Past Due	Past Due	Due	Current	Loans	Loans
At September 30, 2012:
Real estate loans:
One-to four-family	$352	254	-	606	59,534	2,195	62,335
Lot loans	-	-	-	-	6,544	107	6,651
Commercial real estate	-	-	-	-	1,975	-	1,975
Construction	-	-	-	-	813	-	813
Consumer loans:
Home equity	95	147	-	242	10,302	179	10,723
Automobile	19	-	-	19	2,515	19	2,553
Credit cards and unsecured	92	32	-	124	7,319	38	7,481
Deposit account	-	-	-	-	598	-	598
Other	-	-	-	-	1,468	33	1,501
Total	$558	433	-	991	91,068	2,571	94,630
At December 31, 2011:
Real estate loans:
One-to four-family	1,894	146	-	2,040	64,148	3,956	70,144
Lot loans	-	-	-	-	7,152	211	7,363
Construction	-	-	-	-	74	-	74
Consumer loans:
Home equity	465	91	-	556	11,815	360	12,731
Automobile	-	1	-	1	2,458	24	2,483
Credit cards and unsecured	107	25	-	132	8,040	12	8,184
Deposit account	-	-	-	-	791	-	791
Other	-	-	-	-	1,743	75	1,818
Total	$2,466	263	-	2,729	96,221	4,638	103,588

At September 30, 2012 and December 31, 2011, there were no loans past due ninety days or more but still accruing.

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. 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 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.

The following summarizes the amount of impaired loans (in thousands):

	With No Related Allowance Recorded			With an Allowance Recorded			Total
		Unpaid			Unpaid			Unpaid
	Recorded	Principal	Related	Recorded	Principal	Related	Recorded	Principal	Related
	Investment	Balance	Allowance	Investment	Balance	Allowance	Investment	Balance	Allowance
At September 30, 2012:
Real estate loans:
One-to four-family	$2,566	2,941	-	723	723	38	3,289	3,664	38
Lot loans	73	318	-	-	-	-	73	318	-
Consumer loans:
Home equity	261	438	-	62	62	1	323	500	1
Credit cards and unsecured	40	46	-	-	-	-	40	46	-
Total	$2,940	3,743	-	785	785	39	3,725	4,528	39
At December 31, 2011:
Real estate loans:
One-to four-family	2,786	3,328	-	301	301	36	3,087	3,629	36
Lot loans	47	182	-	108	108	85	155	290	85
Consumer loans:
Home equity	574	660	-	16	16	3	590	676	3
Automobile	-	-	-	18	18	18	18	18	18
Total	$3,407	4,170	-	443	443	142	3,850	4,613	142

At September 30, 2012 and December 31, 2011, the Company's loan portfolio included primarily large groups of smaller balance homogeneous loans.  The Company considers individual loans which are in the process of foreclosure for impairment.

The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands):

	Average	Interest	Interest
	Recorded	Income	Income
	Investment	Recognized	Received
For the Nine Months Ended September 30, 2012:
Real estate loans:
One-to four-family	$ 3,764	49	69
Lot loans	65	-	26
Consumer loans:
Home equity	436	7	7
Credit cards and unsecured	25	-	-
Total	$ 4,290	56	102
For the Nine Months Ended September 30, 2011:
Real estate loans:
One-to four-family	2,715	-	-
Lot loans	142	-	-
Consumer loans:
Home equity	211	-	-
Total	$ 3,068	-	-

A troubled debt restructuring is a loan to a borrower that is experiencing financial difficulty that has been modified from its original terms and conditions in such a way that the Company is granting the borrower a concession of some kind.  The Company has granted a variety of concessions to borrowers in the form of loan modifications.

The Company had troubled debt restructurings totaling $762,000 entered into during the nine months ended September 30, 2012 and $748,000 for the nine months ended September 30, 2011.  Impairment losses totaled $49,000 and $16,000 for the nine months ended September 30, 2012 and 2011, respectively.  The Company has not had any troubled debt restructurings which were restructured during the last twelve months that subsequently defaulted during the period ended September 30, 2012.

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3. (loss) Earnings Per Share: Earnings Per Share Policy (Policies)

3 Months Ended

Sep. 30, 2012

Policies

Earnings Per Share Policy

(Loss) per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period, which was 1,234,454 shares during the three and nine-month periods ended September 30, 2012.  The Company has no dilutive securities.

For 2011, earnings per share have been computed for periods beginning after April 1, 2011, as if conversion from a mutual holding company to a capital stock holding company occurred on that date.  Basic earnings per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period, which was 1,141,587 shares during the three-month period ended September 30, 2011.

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13. Regulatory Matters

3 Months Ended

Sep. 30, 2012

Notes

13. Regulatory Matters

13.  Regulatory Matters

The Bank is 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 Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Bank's 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 Bank to maintain minimum amounts (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined).  Management believes, as of September 30, 2012, that the Bank meets all capital adequacy requirements to which it was subject.

At September 30, 2012, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank 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 institution's category.

The Bank's actual regulatory capital amounts and percentages are presented in the table ($ in thousands).

					Minimum
					To Be Well
			Minimum		Capitalized Under
			For Capital Adequacy		Prompt and Corrective
	Actual		Purposes		Action Provisions
	Amount	%	Amount	%	Amount	%
At September 30, 2012:
Total Capital to Risk-
Weighted Assets	$ 18,132	21.49%	$ 6,749	8.00%	$ 8,436	10.00%
Tier I Capital to Risk-
Weighted Assets	17,077	20.24	3,375	4.00	5,062	6.00
Tier I Capital
to Total Assets	17,077	11.86	4,321	3.00	7,201	5.00
At December 31, 2011:
Total Capital to Risk-
Weighted Assets	19,431	22.35	6,955	8.00	8,694	10.00
Tier I Capital to Risk-
Weighted Assets	18,102	20.82	3,478	4.00	5,216	6.00
Tier I Capital
to Total Assets	18,102	12.69	4,279	3.00	7,132	5.00

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9. Fair Value of Financial Instruments

3 Months Ended

Sep. 30, 2012

Notes

9. Fair Value of Financial Instruments

9.  Fair Value of Financial Instruments

The carrying amounts and estimated fair values of the Company's financial instruments are as follows (in thousands):

	At September 30, 2012		At December 31, 2011
	Carrying	Fair	Carrying	Fair
	Amount	Value	Amount	Value
Financial assets:
Cash and cash equivalents (1)	$29,304	29,304	25,055	25,055
Securities held to maturity (2)	15,397	15,623	9,835	10,088
Loans (3)	91,813	91,893	102,002	101,736
Federal Home Loan Bank stock (3)	218	218	247	247
Accrued interest receivable (3)	385	385	454	454
Financial liabilities:
Deposits (3)	120,815	119,077	119,416	117,135
Off-balance-sheet financial instruments (3)	-	-	-	-

(1)  We consider these fair value measurements to be Level 1.

(2)  We consider these fair value measurements to be Level 2.

(3)  We consider these fair value measurements to be Level 3.

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10. Employee Benefit Plans: Employee Benefit Plans Policy (Details) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Defined Benefit Plan, Contributions by Employer	$ 78,000	$ 83,000

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7. Line of Credit

3 Months Ended

Sep. 30, 2012

Notes

7. Line of Credit

7.  Line of Credit

The Company has an unsecured federal funds line of credit for $4.2 million with a correspondent bank and a $14.7 million line with the Federal Home Loan Bank of Atlanta collateralized by a blanket lien on qualifying loans. At September 30, 2012 and December 31, 2011, the Company had no outstanding balances on these lines.

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8. Off-balance-sheet Financial Instruments

3 Months Ended

Sep. 30, 2012

Notes

8. Off-balance-sheet Financial Instruments

8.  Off-Balance-Sheet Financial Instruments

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments are unused lines of credit and commitments to extend credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the balance sheets.  The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unused lines of credit and commitments to extend credit is represented by the contractual amount of those instruments.  The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

Commitments to extend credit 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 some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company evaluates each customer's credit worthiness on a case-by-case basis.  The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management's credit evaluation of the counterparty.

Unused lines of credit and commitments to extend credit typically result in loans with a market interest rate when funded.  A summary of the amounts of the Company's financial instruments, with off-balance-sheet risk follows at September 30, 2012 (in thousands): 

	Contract
	Amount
Unused lines of credit (rates range from
3.25% to 15.45%)	$17,860
Commitments to extend credit (all fixed rates
ranging from 2.49% to 11.90%)	$462

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10. Employee Benefit Plans

3 Months Ended

Sep. 30, 2012

Notes

10. Employee Benefit Plans

10.  Employee Benefit Plans

The Company has a 401(k) plan for its employees who meet certain age and length-of-service requirements. Eligible employees can contribute up to $17,000 of their compensation to the plan on a pre-tax basis. Employer matching contributions are made at 100 percent of employee contribution up to five percent. Employer contributions made to the 401(k) plan were $78,000 and $83,000 for the nine-months ended September 30, 2012 and 2011, respectively.

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13. Regulatory Matters: Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Total Capital to Risk-Weighted Assets
Actual Capital Amount	$ 18,132	$ 19,431
Actual Regulatory Capital Percentage	21.49%	22.35%
Minimum Capital Required for Capital Adequacy Purposes	6,749	6,955
Minimum Regulatory Capital Percentage Required for Capital Adequacy Purposes	8.00%	8.00%
Minimum Capital Required to be Well Capitalized Under Prompt and Corrective Action Provisions	8,436	8,694
Minimum Regulatory Capital Percentage Required to be Well Capitalized Under Prompt and Corrective Action Provisions	10.00%	10.00%
Tier 1 Capital to Risk-Weighted Assets
Actual Capital Amount	17,077	18,102
Actual Regulatory Capital Percentage	20.24%	20.82%
Minimum Capital Required for Capital Adequacy Purposes	3,375	3,478
Minimum Regulatory Capital Percentage Required for Capital Adequacy Purposes	4.00%	4.00%
Minimum Capital Required to be Well Capitalized Under Prompt and Corrective Action Provisions	5,062	5,216
Minimum Regulatory Capital Percentage Required to be Well Capitalized Under Prompt and Corrective Action Provisions	6.00%	6.00%
Tier 1 Capital to Total Assets
Actual Capital Amount	17,077	18,102
Actual Regulatory Capital Percentage	11.86%	12.69%
Minimum Capital Required for Capital Adequacy Purposes	4,321	4,279
Minimum Regulatory Capital Percentage Required for Capital Adequacy Purposes	3.00%	3.00%
Minimum Capital Required to be Well Capitalized Under Prompt and Corrective Action Provisions	$ 7,201	$ 7,132
Minimum Regulatory Capital Percentage Required to be Well Capitalized Under Prompt and Corrective Action Provisions	5.00%	5.00%

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12. Fair Value Measurements: Schedule of Foreclosed Real Estate Measured at Fair Value on Nonrecurring Basis (Details) (Foreclosed real estate, USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Foreclosed real estate
Foreclosed Real Estate Fair Value	$ 2,199	$ 743
Level 3 - Significant Unobservable Inputs	2,199	743
Foreclosed Real Estate Total Losses	133	83
Foreclosed Real Estate Losses Recorded During the Period	$ 93	$ 68

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14. Adoption of Plan of Reorganization and Subsequent Stock Issuance: Plan of Reorganization and Stock Issuance Policy (Policies)

3 Months Ended

Sep. 30, 2012

Policies

Plan of Reorganization and Stock Issuance Policy

On April 5, 2011, in accordance with a Plan of Conversion and Reorganization (the "Plan") adopted by its Board of Directors and approved by its members, the Bank converted from a mutual holding company to a stock holding company form of organization, with the Bank becoming a wholly-owned subsidiary of the Holding Company.  The conversion and reorganization was accomplished through the sale and issuance of 1,234,454 shares of common stock at a price of $10.00 per share, through which the Holding Company received proceeds of approximately $10.5 million, net of offering expenses of approximately $847,000. 

In accordance with Office of the Comptroller of the Currency ("OCC") regulations, upon the completion of the conversion, the Bank restricted retained earnings by establishing a liquidation account. The liquidation account is maintained for the benefit of certain account holders who continue to maintain their accounts at the Bank after conversion. The liquidation account is reduced annually to the extent that these account holders have reduced their qualifying deposits. Subsequent increases will not restore an account holder's interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

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5. Loans: Schedule of Changes in Allowance for Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
One- to Four Family Real Estate | Beginning balance
Changes in Allowance for Loan Losses	$ 670	$ 835	$ 475	$ 623
One- to Four Family Real Estate | Provision (credit) for loan loss
Changes in Allowance for Loan Losses	143	86	819	379
One- to Four Family Real Estate | Charge-offs
Changes in Allowance for Loan Losses	(92)	(160)	(573)	(221)
One- to Four Family Real Estate | Recoveries
Changes in Allowance for Loan Losses		2		2
One- to Four Family Real Estate | Ending balance
Changes in Allowance for Loan Losses	721	783	721	783
One- to Four Family Real Estate | Individually evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			3,289	3,649
One- to Four Family Real Estate | Balance in allowance after individually evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			38	535
One- to Four Family Real Estate | Collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			59,046	70,229
One- to Four Family Real Estate | Balance in allowance afer collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			683	248
Real Estate Lot Loans | Beginning balance
Changes in Allowance for Loan Losses	112	137	144	59
Real Estate Lot Loans | Provision (credit) for loan loss
Changes in Allowance for Loan Losses		17	91	95
Real Estate Lot Loans | Charge-offs
Changes in Allowance for Loan Losses			(128)
Real Estate Lot Loans | Recoveries
Changes in Allowance for Loan Losses			5
Real Estate Lot Loans | Ending balance
Changes in Allowance for Loan Losses	112	154	112	154
Real Estate Lot Loans | Individually evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			73	142
Real Estate Lot Loans | Balance in allowance after individually evaluated for impairment recorded investment
Changes in Allowance for Loan Losses				118
Real Estate Lot Loans | Collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			6,578	8,143
Real Estate Lot Loans | Balance in allowance afer collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			112	36
Commercial Real Estate | Provision (credit) for loan loss
Changes in Allowance for Loan Losses	20		20
Commercial Real Estate | Ending balance
Changes in Allowance for Loan Losses	20		20
Commercial Real Estate | Collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			1,975
Commercial Real Estate | Balance in allowance afer collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			20
Construction Loans | Beginning balance
Changes in Allowance for Loan Losses		6		2
Construction Loans | Provision (credit) for loan loss
Changes in Allowance for Loan Losses		(6)		(2)
Construction Loans | Collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			813
Consumer Home Equity | Beginning balance
Changes in Allowance for Loan Losses	326	109	235	252
Consumer Home Equity | Provision (credit) for loan loss
Changes in Allowance for Loan Losses	70	220	387	308
Consumer Home Equity | Charge-offs
Changes in Allowance for Loan Losses	(63)	(104)	(289)	(335)
Consumer Home Equity | Ending balance
Changes in Allowance for Loan Losses	333	225	333	225
Consumer Home Equity | Individually evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			323	380
Consumer Home Equity | Balance in allowance after individually evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			1	75
Consumer Home Equity | Collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			10,400	12,953
Consumer Home Equity | Balance in allowance afer collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			332	150
Consumer Automobile | Beginning balance
Changes in Allowance for Loan Losses	8	43	39	39
Consumer Automobile | Provision (credit) for loan loss
Changes in Allowance for Loan Losses	(1)	5	(23)	7
Consumer Automobile | Charge-offs
Changes in Allowance for Loan Losses		(22)	(17)	(28)
Consumer Automobile | Recoveries
Changes in Allowance for Loan Losses	2	5	10	13
Consumer Automobile | Ending balance
Changes in Allowance for Loan Losses	9	31	9	31
Consumer Automobile | Individually evaluated for impairment recorded investment
Changes in Allowance for Loan Losses				18
Consumer Automobile | Balance in allowance after individually evaluated for impairment recorded investment
Changes in Allowance for Loan Losses				18
Consumer Automobile | Collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			2,553	2,221
Consumer Automobile | Balance in allowance afer collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			9	13
Consumer Credit Cards and Unsecured | Beginning balance
Changes in Allowance for Loan Losses	227	315	337	503
Consumer Credit Cards and Unsecured | Provision (credit) for loan loss
Changes in Allowance for Loan Losses	22	(30)	23	(71)
Consumer Credit Cards and Unsecured | Charge-offs
Changes in Allowance for Loan Losses	(48)	(46)	(181)	(227)
Consumer Credit Cards and Unsecured | Recoveries
Changes in Allowance for Loan Losses	12	12	34	46
Consumer Credit Cards and Unsecured | Ending balance
Changes in Allowance for Loan Losses	213	251	213	251
Consumer Credit Cards and Unsecured | Individually evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			40
Consumer Credit Cards and Unsecured | Collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			7,441	8,331
Consumer Credit Cards and Unsecured | Balance in allowance afer collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			213	251
Consumer Deposit Account | Collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			598	834
Consumer Other Loans | Beginning balance
Changes in Allowance for Loan Losses	124	139	99	143
Consumer Other Loans | Provision (credit) for loan loss
Changes in Allowance for Loan Losses	16	14	133	40
Consumer Other Loans | Charge-offs
Changes in Allowance for Loan Losses	(23)	(38)	(116)	(70)
Consumer Other Loans | Recoveries
Changes in Allowance for Loan Losses	1		2	2
Consumer Other Loans | Ending balance
Changes in Allowance for Loan Losses	118	115	118	115
Consumer Other Loans | Collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			1,501	1,916
Consumer Other Loans | Balance in allowance afer collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			118	115
Total Loans | Beginning balance
Changes in Allowance for Loan Losses	1,467	1,604	1,329	1,621
Total Loans | Provision (credit) for loan loss
Changes in Allowance for Loan Losses	270	306	1,450	756
Total Loans | Charge-offs
Changes in Allowance for Loan Losses	(226)	(370)	(1,304)	(881)
Total Loans | Recoveries
Changes in Allowance for Loan Losses	15	19	51	63
Total Loans | Ending balance
Changes in Allowance for Loan Losses	1,526	1,559	1,526	1,559
Total Loans | Individually evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			3,725	4,187
Total Loans | Balance in allowance after individually evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			39	746
Total Loans | Collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			90,905	104,627
Total Loans | Balance in allowance afer collectively evaluated for impairment recorded investment
Changes in Allowance for Loan Losses			$ 1,487	$ 813

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1. Organization and Basis of Presentation: Business Description and Accounting Policies (Policies)

3 Months Ended

Sep. 30, 2012

Policies

Business Description and Accounting Policies

Sunshine Financial, Inc. ("Sunshine Financial" or the "Holding Company"), a Maryland corporation, is the holding company for Sunshine Savings Bank (the "Bank") and owns all the outstanding common stock of the Bank.  The Bank completed its reorganization from the mutual to stock holding company form of organization on April 5, 2011. A total of 1,234,454 shares of common stock were sold in the subscription and community offerings at a price of $10.00 per share.  In accordance with the Plan of Conversion and Reorganization (the "Plan"), the Holding Company has succeeded to all rights and obligations of Sunshine Savings MHC and the old Sunshine Financial, Inc. ("Old Sunshine").  See Note 14 for details of the conversion.  The transaction was accounted for as a reorganization of entities under common control at historical cost and, the financial data for periods presented include the results of the Bank.  The unaudited, condensed consolidated financial statements include the consolidated results of operations of Old Sunshine and its subsidiary, the Bank. 

The Holding Company's only business is the operation of the Bank.  The Bank, through its four banking offices, provides a variety of retail community banking services to individuals and businesses primarily in Leon County, Florida. The Bank's deposits are insured up to the applicable limits by the Federal Deposit Insurance Corporation. The Bank's subsidiary is Sunshine Member Insurance Services, Inc. ("SMSI"), which was established to sell automobile warranty and credit life and disability insurance products associated with loan products. Collectively the entities are referred to as the "Company."

These condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and Article 8-03 of Regulation S-X and do not include all disclosures required by generally accepted accounting principles for a complete presentation of the Company's financial condition and results of operations.

In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements not misleading and for a fair representation of the results of operations for such periods.  The results for the three and nine-month periods ended September 30, 2012 should not be considered as indicative of results for a full year.

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5. Loans: Consumer Loans Policy (Policies)

3 Months Ended

Sep. 30, 2012

Policies

Consumer Loans Policy

Consumer Loans.  Consumer loans are comprised of five classes: Home Equity, Automobile, Credit cards and unsecured, Deposit account and Other.  The Company offers a variety of secured consumer loans, including home equity, new and used automobile, boat and other recreational vehicle loans, and loans secured by savings deposits.  The Company also offers unsecured consumer loans including a credit card product.  The Company originates its consumer loans primarily in its market area.  Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates and may be made on terms of up to twenty years. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

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4. Securities Held To Maturity: Marketable Securities Held to Maturity Securities Policy (Details) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Number of Securities Sold	0	0
Held-to-maturity Securities Pledged as Collateral	$ 0	$ 0

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5. Loans: Schedule of Investment and Interest Income on Impaired Loans (Tables)

3 Months Ended

Sep. 30, 2012

Tables/Schedules

Schedule of Investment and Interest Income on Impaired Loans

	Average	Interest	Interest
	Recorded	Income	Income
	Investment	Recognized	Received
For the Nine Months Ended September 30, 2012:
Real estate loans:
One-to four-family	$ 3,764	49	69
Lot loans	65	-	26
Consumer loans:
Home equity	436	7	7
Credit cards and unsecured	25	-	-
Total	$ 4,290	56	102
For the Nine Months Ended September 30, 2011:
Real estate loans:
One-to four-family	2,715	-	-
Lot loans	142	-	-
Consumer loans:
Home equity	211	-	-
Total	$ 3,068	-	-

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SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES -- Condensed Consolidated Balance Sheets (June 30, 2012 figures unaudited) (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Securities held to maturity fair value	$ 15,623	$ 10,088
Allowance for loan losses	$ 1,526	$ 1,329
Common stock par value	$ 0.01	$ 0.01
Common stock shares authorized	6,000,000	6,000,000
Common stock shares issued	1,234,454	1,234,454
Common stock shares outstanding	1,234,454	1,234,454

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4. Securities Held To Maturity

3 Months Ended

Sep. 30, 2012

Notes

4. Securities Held To Maturity

4.  Securities Held to Maturity

Securities have been classified as held to maturity according to management intent.  The carrying amount of securities and their fair values are as follows (in thousands):

		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
At September 30, 2012-
Mortgage-backed securities	$15,397	268	(42)	15,623
At December 31, 2011-
Mortgage-backed securities	$9,835	255	(2)	10,088

There were no sales of securities during the nine months ended September 30, 2012 or 2011. There were no securities pledged at September 30, 2012 or December 31, 2011.

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8. Off-balance-sheet Financial Instruments: Schedule of Fair Value, Off-balance Sheet Risks (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Fair Value Disclosure, Off-balance Sheet Risks, Amount, Liability	$ 17,860	[1]
Commitments to extend credit
Fair Value Disclosure, Off-balance Sheet Risks, Amount, Liability	$ 462	[2]

[1] Rates range from 3.25% to 15.45%.

[2] All fixed rates ranging from 2.49% to 11.90%.

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5. Loans: Internal Loan Grade Policy (Policies)

3 Months Ended

Sep. 30, 2012

Policies

Internal Loan Grade Policy

Internally assigned loan grades are defined as follows:

Pass – A Pass loan's primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary.

Special Mention – A Special Mention loan has potential weaknesses that deserve management's close attention.  If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company's credit position at some future date.  Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard – A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – A loan classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss – A loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted.  This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

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5. Loans: Schedule of Loans Receivable Credit Quality Indicators (Tables)

3 Months Ended

Sep. 30, 2012

Tables/Schedules

Schedule of Loans Receivable Credit Quality Indicators

	One-to		Commercial				Credit
	Four-	Lot	Real		Home		Cards and	Deposit
	Family	Loans	Estate	Construction	Equity	Automobile	Unsecured	Account	Other	Total
Credit Risk Profile by Internally
Assigned Grade:
At September 30, 2012:
Grade:
Pass	$57,834	6,544	1,975	813	10,209	2,534	7,372	598	1,468	89,347
Special mention	701	-	-	-	131	-	89	-	-	921
Substandard	3,800	107	-	-	383	19	13	-	-	4,322
Doubtful	-	-	-	-	-	-	7	-	33	40
Loss	-	-	-	-	-	-	-	-	-	-
Total	$62,335	6,651	1,975	813	10,723	2,553	7,481	598	1,501	94,630
At December 31, 2011:
Grade:
Pass	64,888	7,151	-	74	12,218	2,449	8,166	791	1,743	97,480
Special mention	1,528	-	-	-	91	1	10	-	-	1,630
Substandard	3,728	212	-	-	422	3	7	-	13	4,385
Doubtful	-	-	-	-	-	12	1	-	62	75
Loss	-	-	-	-	-	18	-	-	-	18
Total	$70,144	7,363	-	74	12,731	2,483	8,184	791	1,818	103,588

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14. Adoption of Plan of Reorganization and Subsequent Stock Issuance

3 Months Ended

Sep. 30, 2012

Notes

14. Adoption of Plan of Reorganization and Subsequent Stock Issuance

14.  Adoption of Plan of Reorganization and Subsequent Stock Issuance

On April 5, 2011, in accordance with a Plan of Conversion and Reorganization (the "Plan") adopted by its Board of Directors and approved by its members, the Bank converted from a mutual holding company to a stock holding company form of organization, with the Bank becoming a wholly-owned subsidiary of the Holding Company.  The conversion and reorganization was accomplished through the sale and issuance of 1,234,454 shares of common stock at a price of $10.00 per share, through which the Holding Company received proceeds of approximately $10.5 million, net of offering expenses of approximately $847,000. 

In accordance with Office of the Comptroller of the Currency ("OCC") regulations, upon the completion of the conversion, the Bank restricted retained earnings by establishing a liquidation account. The liquidation account is maintained for the benefit of certain account holders who continue to maintain their accounts at the Bank after conversion. The liquidation account is reduced annually to the extent that these account holders have reduced their qualifying deposits. Subsequent increases will not restore an account holder's interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.