Sunshine Financial, Inc. - FORM 10-K

Attached files

file	filename
EX-23 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - Sunshine Financial, Inc.	ex-23.htm
EX-32 - SECTION 1350 CERTIFICATIONS - Sunshine Financial, Inc.	ex-32.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER - Sunshine Financial, Inc.	ex31-2.htm
EX-31.1 - CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER - Sunshine Financial, Inc.	ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________

FORM 10-K

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2016
	OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	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 or organization)		(I.R.S. Employer Identification No.)

1400 EAST PARK AVENUE, TALLAHASSEE, FLORIDA		32301
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (850) 219-7200

Securities Registered Pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

Title of each class

Common Stock, par value $.01 per share

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [ ] NO [X]

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES [ ] NO [X]

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 checkmark whether the registrant has submitted electronically and posted on its corporate website, 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 [X] NO [ ]

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] [CONFIRM]

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Act.

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

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [ X ]

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2016, the last business day of the registrant's most recently completed second fiscal quarter, was approximately $17.8 million. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.)

Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date.

As of March 30, 2017, there were 1,030,039 shares of the registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

PART III of Form 10-K--Portions of registrant's Proxy Statement for its 2017 Annual Meeting of Stockholders

PART I

Item 1. Business

General

Sunshine Financial, Inc. ("Sunshine Financial" or the "Company"), a Maryland corporation, is the holding company for its wholly owned subsidiary, Sunshine Community Bank. Sunshine Community Bank was originally chartered as a credit union in 1952 as Sunshine State Credit Union to serve state government employees in the metropolitan Tallahassee area. We expanded over the years to serve city, county, state and federal government employees as well as the employees of commercial and industrial companies, associations, contract employees serving these groups, and family members. This expansion resulted in our evolution toward a community financial institution with a growing focus trending more toward real estate lending than the traditional credit union products. On July 1, 2007, we converted from a state-chartered credit union known as Sunshine State Credit Union to a federal mutual savings bank known as Sunshine Savings Bank, and in 2009 reorganized into the mutual holding company structure. On April 5, 2011, the Company completed a public offering as part of Sunshine Saving Bank's conversion and reorganization from a mutual holding company to a public stock holding company structure (the "Conversion").

On July 1, 2016, Sunshine Savings Bank completed its conversion from a federal savings bank charter to a Florida state bank charter, changing its name to Sunshine Community Bank. As a Florida-chartered financial institution, the Florida Office of Financial Regulation ("FOFR") is the primary regulator for the Bank, with additional federal oversight provided by the Federal Deposit Insurance Corporation (the "FDIC"). Sunshine Financial, Inc. continues to be regulated by the Board of Governors of the Federal Reserve System (the "Federal Reserve").

We currently operate out of five full-service 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 (including residential construction loans), lot loans, commercial real estate loans and consumer loans. We offer a wide variety of secured and unsecured consumer loan products, including home equity, direct automobile loans and credit card loans in our market area. In addition, in conjunction with owner and non-owner occupied real estate loans we occasionally will originate commercial secured or unsecured loans. In early December 2016, we closed our Appleyard branch and relocated the deposits to our other branches.

We offer a variety of deposit accounts having a wide range of interest rates and terms, including savings accounts, money market deposit and term certificate accounts, business accounts, and demand accounts. Our primary sources of funds are deposits and payments on loans.

Forward-Looking Statements

As used in this Form 10-K, the terms "we," "our," "us," "Sunshine Financial" and "Company" refer to Sunshine Financial, Inc. including its wholly-owned subsidiary, Sunshine Community Bank, unless the context indicates otherwise.

"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: When used in this Form 10-K, 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 FOFR, the FDIC, the Federal Reserve 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, changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, including as a result of Basel III;

our ability to attract and retain deposits;

changes in premiums for deposit insurance;

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;

our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, "denial of service" attacks, "hacking" and identity theft;

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 our 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;

technology changes;

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;

the impact of changes in financial services laws and regulations, including laws concerning taxes, banking, securities, consumer protection and insurance and the impact of other governmental initiatives affecting the financial services industry;

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 allowance 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 Form 10-K and our other reports filed with the Securities and Exchange Commission ("SEC").

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.

Market Area

We consider our primary market area to be the Tallahassee, Florida metropolitan area. We are headquartered in Tallahassee, Florida and have five retail offices as of December 31, 2016. Each of our offices is located within Leon County, Florida. Based on the most recent branch deposit data provided by the FDIC our share of deposits in the Leon County, Florida was approximately 2.16%. This data does not include deposits held by credit unions with which we also compete. See "- Competition."

Tallahassee is the state capital and home to Florida State University, Florida A&M and Tallahassee Community College and is significantly impacted by government services and education activities. Our primary market area includes a diverse population of management, professional and sales personnel, office employees, manufacturing and transportation workers, service industry workers and government employees, as well as retired and self-employed individuals. The population has a skilled work force with a wide range of education levels and ethnic backgrounds. Major employment sectors are government; education, health and social services; retail trades; professional & business services; leisure & hospitality services; and financial services.

Leon County's unemployment rate as of December 2016 was 4.4%, while the State of Florida rate was 4.9% and the United States rate was 4.7% for the same time period, as reported by the U.S. Bureau of Labor Statistics. According to RealtyTrac, the foreclosure rate of 0.09% in Leon County has been steady and is equal to the 0.09% foreclosure rate for the State of Florida at December 31, 2016, which has one of the highest foreclosure rates in the nation. As of December 31, 2016, the United States foreclosure rate was 0.06%. The median home price in Tallahassee was $167,200 as compared to the Florida median home price of $203,200 and the United States median home price of $228,900 at December 31, 2016.

Population growth in Leon County and the city of Tallahassee is projected to exceed population growth for the country and state as a whole. Per capita and average household income levels for Florida, Leon County and the city of Tallahassee generally fall below the United States levels. Demographic data for Leon County and Tallahassee are skewed by the large student population that resides in the area. Approximately 47% of the population of Tallahassee falls in the 15-34 year old age group, as compared to 40% for Leon County, 25% for the state of Florida and 27% for the United States, due to the large number of college students who reside in the area. The total number of households has increased since 2010 in Leon County and in Tallahassee, similar to the State of Florida. Total households in Leon County and Tallahassee are projected to continue this expansion at a more rapid pace over the next five years than state and national growth.

Lending Activities

The following table presents information concerning the composition of our loan portfolio in dollar amounts and in percentages (before deductions for loans in process, deferred fees and discounts and allowances for losses) at the dates indicated.

	December 31,
	2016						2015
	Amount			Percent			Amount			Percent
	(Dollars in Thousands)
Real estate mortgage loans:
One- to four-family	$	56,601			41.78	%	$	46,293			40.46	%
Commercial real estate		52,960			39.09			43,419			37.95
Construction and lot		4,247			3.13			5,175			4.53
Total real estate loans		113,808			84.00			94,887			82.94

Commercial loans:
Commercial loans		4,217			3.11			1,177			1.03

Consumer loans:
Home equity		7,166			5.29			7,609			6.65
Automobile		3,221			2.38			3,321			2.90
Credit cards and unsecured		5,796			4.28			6,100			5.33
Other		1,277			0.94			1,312			1.15
Total consumer loans		17,460			12.89			18,342			16.03
Total loans		135,485			100.00	%		114,406			100.00	%

Add (deduct):
Loans in process		(522	)					43
Deferred costs and fees		38						(132	)
Allowance for losses		(924	)					(895	)
Total loans, net	$	134,077					$	113,422

Maturities of Loans

The following table shows the contractual maturities of the Bank's loan portfolio at December 31, 2016. Loans with scheduled maturities are reported in the maturity category in which the payment is due. Demand loans with no stated maturity and overdrafts are reported in the "due one year or less" category. Loans that have adjustable rates are shown as amortizing to final maturity rather than when the interest rates are next subject to change. The tables do not include the effects of prepayments or scheduled principal repayments or due on sale clauses.

			Due After
	Due in One		One Year
	Year or		to Five		Due After
	Less		Years		Five Years		Total
	(In Thousands)
Real estate mortgage loans:
One- to four-family	$	32	$	889	$	55,680	$	56,601
Commercial real estate		5,730		34,260		12,970		52,960
Construction and lot(1)		-		123		4,124		4,247
Total real estate mortgage loans		5,762		35,272		72,774		113,808
Commercial		673		617		2,927		4,217
Consumer		3,869		5,018		8,573		17,460

Total loans	$	10,304	$	40,907	$	84,274	$	135,485

______________________________________________

(1) These construction loans all have a commitment to finance the permanent loan.

Sensitivity. The following table shows the total amount of loans due after December 31, 2017, which have fixed or pre-determined interest rates and floating or adjustable interest rates at December 31, 2016.

	Fixed		Floating
	Interest		Interest
	Rate		Rate		Total
Real estate mortgage loans:	(In Thousands)

One- to four-family	$	53,081	$	3,488	$	56,569
Commercial real estate		47,230		-		47,230
Construction and lot		4,247		-		4,247
Total real estate mortgage loans		104,558		3,488		108,046

Commercial		2,526		1,018		3,544
Consumer		7,095		6,496		13,591

Total	$	114,179	$	11,002	$	125,181

Our lending policies and loan approval limits are recommended by senior management and approved by the Board of Directors. Unsecured loans of $50,000 and secured loans of $150,000 and below meeting our underwriting guidelines can be approved by individual loan officers, although secured loans up to $750,000 may be approved by our Chief Executive Officer. Our Management loan committee, consisting of our President and Chief Executive Officer, Executive Vice President and Chief Operating Officer, and our Senior Vice President and Chief Financial Officer, reviews all other loans and all loan modifications. Loan committee meetings require a quorum of two members of the committee. Loans submitted to the loan

committee require approval of a majority of the members voting. Loans and total loan relationships exceeding $1.0 million must be approved by the Directors loan committee and loans and total loan relationships exceeding $2.0 million must be approved by the Board of Directors. All closed loans are presented to the Board for ratification on a monthly basis.

At December 31, 2016, the maximum amount under federal law that we could lend to any one borrower and the borrower's related entities was approximately $4.6 million. Our five largest lending relationships totaled $20.8 million in the aggregate, or 15.4% of our gross loan portfolio, at December 31, 2016. The largest relationship consisted of eight loans totaling $4.5 million secured primarily by non-owner occupied commercial buildings. The next four largest lending relationships at December 31, 2016, ranged from $3.3 million to $4.4 million and are also primarily secured by non-owner occupied commercial real estate. All of these loans were performing in accordance with their repayment terms at December 31, 2016.

Commercial Real Estate Loans. We began originating commercial real estate loans in 2012, primarily owner occupied loans. We are targeting small and mid-size owner occupants and investors with prime credit for commercial real estate loans between $500,000 and $2.0 million with a three, five, or seven year balloon payment and 20 year amortization term. We offer both fixed and adjustable-rate loans on commercial real estate loans, although a majority of the loans we recently originated were at a fixed interest rate with an amortization term of 20 years and maturity of up to 7 years. Commercial real estate loans are generally underwritten with loan-to-value ratios of up to 80% of the lesser of the appraised value or the purchase price of the property. We require appraisals of all properties securing commercial real estate loans. Appraisals are performed by independent appraisers designated by us. We generally require a minimum pro forma debt coverage ratio of 1.25 times for loans secured by commercial real estate properties. We also generally require and obtain loan guarantees from financially capable parties based upon the review of personal financial statements. If the borrower is a corporation, we generally require and obtain personal guarantees from the corporate principals based upon a review of their personal financial statements and individual credit reports. At December 31, 2016, we had $53.0 million of commercial real estate loans, representing approximately 39.1% of the total loan portfolio, consisting of loans secured by retail, office, warehouse, mini-storage facilities and other improved commercial properties, compared to $43.4 million, or 38.0% of the total loan portfolio at December 31, 2015. The largest commercial real estate relationship at December 31, 2016 included eight loans totaling $4.5 million which were performing in accordance with their repayment terms. The average size of our commercial real estate loans was approximately $481,000 at December 31, 2016.

Commercial real estate loans typically involve higher principal amounts than other types of loans, and repayment is dependent upon income generated, or expected to be generated, by the property securing the loan or business occupying the property in amounts sufficient to cover operating expenses and debt service, which may be adversely affected by changes in the economy or local market conditions. Commercial real estate mortgage loans also expose a lender to greater credit risk than loans secured by residential real estate because the collateral securing these loans typically cannot be sold as easily as residential real estate. In addition, to date, all of our commercial real estate loans are amortized over 15 to 20 years and contain large balloon payments upon maturity. Such balloon payments may require the borrower to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment. If we foreclose on a commercial real estate loan, our holding period for the collateral typically is longer than for one-to-four family residential mortgage loans because there are fewer potential purchasers of the collateral. Accordingly, if we make any errors in judgment in the collectability of our commercial real estate loans, any resulting charge-offs may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios.

One- to Four-Family Real Estate, Construction and Lot Loans. We originate loans secured by first mortgages on one- to four-family residences primarily in our market area. We originate one- to four-family residential mortgage loans primarily through referrals from real estate agents, builders and from existing customers. Walk-in customers are also important sources of loan originations.

We generally originate 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 loans exceeding an 80% loan-to-value ratio, we generally require the borrower to obtain private mortgage insurance covering us for any loss on the amount of the loan in excess of 80% in the event of foreclosure. The majority of our one- to four-family residential loans are originated with fixed rates and have terms of ten to 30 years. We also originate adjustable-rate mortgage, or ARM, loans which have interest rates that adjust annually to the yield on U.S. Treasury securities adjusted to a constant one-year maturity plus a margin. Most of our ARM loans are hybrid loans, which after an initial fixed rate period of one, five or seven years will convert to an adjustable interest rate for the remaining term of the loan. Our ARM loans have terms up to 30 years. Our pricing strategy for mortgage loans includes setting interest rates that are competitive with other local financial institutions and consistent with our asset/liability management objectives. Our ARM loans generally have a cap of two percentage points on rate adjustments during any one year and nine percentage points over the life of the loan. As a consequence of using caps, the interest rates on these loans may not be as rate sensitive as is our cost of funds.

ARM loans generally pose different credit risks than fixed-rate loans, primarily because as interest rates rise, the borrower's payment rises, increasing the potential for default. Due to historically low long term fixed interest rates, we have originated only $161,000 in ARM loans in the past three years and total ARM loans represent only 2.6% of our total mortgage loan portfolio. As of December 31, 2016, one-to four-family mortgage loans delinquent over 60 days represented 4.08% compared to 3.81% of that portfolio as of December 31, 2015. See "- Asset Quality -- Nonperforming Assets" and "-- Classified Assets."

Most of our loans are written using generally accepted underwriting guidelines, and are readily saleable to Freddie Mac, Fannie Mae, or other private investors. Our real estate loans generally contain a "due on sale" clause allowing us to declare the unpaid principal balance due and payable upon the sale of the security property. At December 31, 2016, one- to four-family residential loans totaled $56.6 million or 41.8% of our gross loan portfolio. The average size of our one- to four-family residential loans was approximately $119,000 at December 31, 2016.

Beginning in 2008 we began originating lot loans, which are loans secured by developed lots in residential subdivisions located in our market area. We originate these loans to individuals intending to construct their primary residence on the lot. We will generally originate construction loans in an amount up to 75% of the lower of the purchase price or appraisal, although we will also permit loan-to-value ratios of up to 95%. For loans exceeding a 75% loan-to-value ratio we generally require the borrower to obtain private mortgage insurance covering us for any loss on the amount of the loan in excess of 75% in the event of foreclosure. Lot loans are secured by a first lien on the property, have a fixed or variable rate of interest with a maximum amortization of 20 years. At December 31, 2016, lot loans totaled $2.9 million or 2.1% of our gross loan portfolio and the average loan size in our lot loan portfolio was approximately $36,000.

Property appraisals on real estate securing our one- to four-family and lot loans are made by state certified independent appraisers approved by the board of directors. Appraisals are performed in accordance with applicable regulations and policies. We generally require title insurance policies on all first mortgage real estate loans originated, but may also originate loans that will be retained for our portfolio with an attorney's opinion in lieu of title insurance. Homeowners, liability, fire and, if required, flood insurance policies are also required for one- to four-family loans. We also originate a limited amount of construction loans for single family houses to individuals for construction of their primary residence in our market area. We will generally originate construction loans in an amount up to 80% for a one- to four-family residential construction loan. Our construction loans generally have terms up to 12 months and provide for monthly payments of interest only until maturity. We typically originate construction loans to individuals as construction to permanent loans and on completion of construction the loan is automatically converted to permanent, but do not require take-out financing prior to origination.

Construction and lot loan lending is generally considered to involve a higher degree of credit risk than long-term permanent financing of residential properties. If the estimate of construction cost proves to be inaccurate, we 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 or guarantor to repay the loan. If we are forced to foreclose on a project prior to completion, there is no assurance that we will be able to recover the entire unpaid portion of the loan. In addition, we may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time. Lot loans also pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral. The value of the lots securing our loans may be affected by the success of the development in which they are located.

Consumer Lending. We offer 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. We also offer unsecured consumer loans including a credit card product. We originate our consumer loans primarily in our market area.

Our home equity loans, consisting of fixed-rate loans and variable-rate lines of credit, have been the largest component of our consumer loan portfolio over the past several years. At December 31, 2016, home equity lines of credit totaled $5.9 million and home equity loans totaled $1.3 million, or collectively 41.0 % of our consumer loan portfolio and 5.3 % of our gross loan portfolio. The lines of credit may be originated in amounts, together with the amount of the existing first mortgage, of up to 95% of the value of the property securing the loan (less any prior mortgage loans) provided that the borrower obtain private mortgage insurance covering us for any loss on the amount of the loan in excess of 80% in the event of foreclosure. Home equity lines of credit are originated with an adjustable-rate of interest, based on prime rate plus a margin. Home equity lines of credit generally have up to a ten-year draw period and amounts may be re-borrowed after payment at any time during the draw period. At December 31, 2016, unfunded commitments on these lines of credit totaled $3.0 million.

Our fixed-rate home equity loans are originated in amounts, together with the amount of the existing first mortgage, of up to 100% of the appraised value of the subject property for home equity loans (less any prior mortgage loans) provided that the borrower obtain private mortgage insurance covering us for any loss on the amount of the loan in excess of 80% in the event of foreclosure. These loans may have terms for up to 20 years and are fully amortizing.

Collateral value is determined through existing appraisals, new appraisals or evaluations by the loan department. On second mortgages, we do not require title insurance but do require homeowner, liability, fire and, if required, flood insurance policies.

We make loans on new and used automobiles. We currently originate automobile loans on a direct basis. Our automobile loan portfolio totaled $3.2 million at December 31, 2016, or 18.4% of our consumer loan portfolio and 2.4% of our gross loan portfolio. Automobile loans may be written for a term of up to six years for both new and used cars with fixed rates of interest. Loan-to-value ratios are up to 125% of the lesser of the MSRP or the National Automobile Dealers Association value for auto loans, plus the price of extended warranty insurance. We follow our internal underwriting guidelines in evaluating automobile loans, including credit scoring.

Our consumer loans also include loans secured by new and used boats and recreational vehicles, deposits and unsecured credit card and other consumer loans, all of which, at December 31, 2016, totaled $7.1 million, or 5.2% of our gross loan portfolio. Loans secured by boats and recreational vehicles typically have terms up to twenty years, and loan-to-value ratios up to 90%. They are made with fixed and adjustable rates. Our unsecured consumer loans have either a fixed rate of interest generally for a maximum term of 60 months, or are revolving lines of credit of generally up to $50,000. At December 31, 2016, unfunded commitments on our unsecured lines of credit and credit cards totaled $10.0 million, and the average outstanding balance on these lines was approximately $3,900.

Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates. In addition, management believes that offering consumer loan products helps to expand and

create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities.

Our underwriting standards for consumer loans include a determination of the applicant's credit history and an assessment of the applicant's ability to meet existing obligations and payments on the proposed loan. The stability of the applicant's monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income.

Consumer and other loans generally entail greater risk than do one- to four-family residential mortgage loans, particularly in the case of consumer loans that are secured by rapidly depreciable assets, such as manufactured homes, automobiles, boats and other recreational vehicles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. As a result, consumer loan collections are dependent on the borrower's continuing financial stability and, thus, are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Loan Originations, Purchases, Sales, Repayments and Servicing

We originate both fixed-rate and adjustable-rate loans. Our ability to originate loans, however, is dependent upon customer demand for loans in our market area. Demand is affected by competition and the interest rate environment. During the past few years, we, like many other financial institutions, have experienced significant prepayments on loans due to the low interest rate environment prevailing in the United States. In periods of economic uncertainty, the ability of financial institutions, including us, to originate large dollar volumes of real estate loans may be substantially reduced or restricted, with a resultant decrease in interest income. We have not purchased loans or loan participations recently, but we may do so in the future. We also originate single family mortgage loans for sale to Freddie Mac and third party investors with servicing retained without recourse, subject to a provision for repurchase upon breach of representation, warranty or covenant. The sale of mortgage loans provides a source of non-interest income through the gain on sale, reduces our interest rate risk, and provides a stream of servicing income. For the year ended December 31, 2016, loan sales totaled $1.2 million. Our loan servicing portfolio as of December 31, 2016 consisted of 223 loans totaling $29.4 million.

In addition to interest earned on loans and loan origination fees, we receive fees for loan commitments, late payments and other miscellaneous services. The fees vary from time to time, generally depending on the supply of funds and other competitive conditions in the market.

The following table shows our loan origination, purchase, sale and repayment activities for the periods indicated.

	Year Ended December 31,
	2016			2015
	(In thousands)

Originations by type:
Fixed-rate:
One- to four-family real estate	$	16,267		$	12,937
Construction		3,914			2,893
Commercial real estate		18,578			15,104
Lot loan		59			223
Commercial secured non real estate		1,368			69
Commercial unsecured		1,735			10
Home equity		-			191
Automobile		1,551			1,293
Credit cards and unsecured		834			599
Deposit accounts		540			473
Other consumer		89			114
Total fixed-rate		44,935			33,906
Adjustable-rate:
One- to four-family real estate		-			161
Commercial secured non real estate		3,398			550
Home equity		1,117			1,154
Credit cards and unsecured		38			94
Total adjustable rate		4,553			1,959
Total loans originated		49,488			35,865
Repayments:
Principal repayments		29,348			18,329
Loan sales		1,237			6,102
Increase (decrease) in other items, net		(1,752	)		769
Net increase	$	20,655		$	10,665

Asset Quality

Loan Delinquencies and Collection Procedures. The borrower is notified by both mail and telephone when a loan is four to nine days past due. If the delinquency continues, subsequent efforts are made to contact the delinquent borrower and additional collection notices and letters are sent. When a loan is 90 days delinquent, we commence repossession or a foreclosure action. Reasonable attempts are made to collect from borrowers prior to referral to an attorney for collection. In certain instances, we may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize their financial affairs, and we attempt to work with the borrower to establish a repayment schedule to cure the delinquency. At December 31, 2016, 17 loans totaling $2.7 million were classified as troubled debt restructurings. Troubled debt restructurings are loans where the Company, for economic or legal reasons related to the borrower's financial condition, has granted a concession to the borrower that it would otherwise not consider. A TDR typically involves a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, or an extension of the maturity date(s) at a stated interest rate lower than the current market rate for a new loan with similar risk.

As to mortgage loans, if a foreclosure action is taken and the loan is not reinstated, paid in full or refinanced, the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the debt. Any property acquired as the result of foreclosure or by deed in lieu of foreclosure is carried as foreclosed real estate and held for sale at fair value less estimated selling costs. The initial write-down of the property is charged to the allowance for loan losses. Adjustments to the carrying value of the properties that result from subsequent declines in value are charged to operations in the period in which the declines occur.

Loans are reviewed on a regular basis and are placed automatically on non-accrual status when they are 90 days or more delinquent. Loans may also be placed on a non-accrual status at any time if, in the opinion of management, the collection of additional interest is doubtful. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectability of the loan. At December 31, 2016, we had approximately $2.5 million of loans that were held on a non-accrual basis. These loans were considered when calculating the allowance for loan losses. As of December 31, 2016, we had $301,000 in loans that were less than 90 days past due, but were on nonaccrual status. Our procedures for repossession and sale of consumer collateral are subject to various requirements under the applicable consumer protection laws as well as other applicable laws and the determination by us that it would be beneficial from a cost basis. At December 31, 2016, we had $141,000 in foreclosed real estate.

The following table sets forth our loan delinquencies by type, by amount and by percentage of type at December 31, 2016.

	Loans Delinquent For:
	60-89 Days							90 Days and Over							Total Delinquent Loans
					Percent							Percent							Percent
					of Loan							of Loan							of Loan
	Number		Amount		Category			Number		Amount		Category			Number		Amount		Category
	(Dollars in thousands)

One- to four-family		2	$	277		0.49	%		17	$	2,087		3.69	%		19	$	2,364		4.18	%
Consumer		1		4		0.02			27		464		2.66			28		468		2.68

Total		3		281		0.21	%		44		2,551		1.88	%		47		2,832		2.09	%

Nonperforming Assets. The table below sets forth the amounts and categories of nonperforming assets in our loan portfolio. Loans are placed on non-accrual status when the loan becomes over 90 days delinquent and the collection of principal and/or interest become doubtful. We had $----2.0 million and $2.7 million at December 31, 2016 and 2015, respectively, in troubled debt restructurings, of which $699,000 and $227,000 were in nonaccrual status, respectively. We had $7,000 in accruing loans 90 days or more delinquent as of December 31, 2016 and December 31, 2015.

Nonperforming assets are as follows:

	December 31,
	2016			2015
	(Dollars in thousands)
Nonaccruing loans:
Real estate loans-
One- to four-family	$	2,087		$	1,344
Consumer loans-
Home equity		320			289
Automobile		22			10
Credit cards and unsecured		33			32
Other		82			83
Total		2,544			1,758

Accruing loans more than 90 days delinquent:
Consumer		7			7

Foreclosed real estate		141			433
Repossessed assets		-			8
Total		141			441

Total nonperforming assets	$	2,692		$	2,206
Total as a percentage of total assets		1.55	%		1.39	%
Performing troubled debt restructurings	$	2,023		$	2,742

For the year ended December 31, 2016, gross interest income which would have been recorded had all nonaccruing loans been current in accordance with their original terms amounted to approximately $150,000, of which $149,000 was included in interest income based on cash received.

Other Loans of Concern. In addition to the nonperforming assets set forth in the table above, as of December 31, 2016, there were seven loans totaling $1.0 million with respect to which known information about the possible credit problems of the borrowers have caused management to have doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such items in the nonperforming asset categories. These loans have been considered in management's determination of our allowance for loan losses.

Classified Assets. Federal regulations provide for the classification of loans and other assets (such as foreclosed real estate and repossessed assets) of lesser quality, as "substandard," "doubtful" or "loss." An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances for loan losses in an amount deemed prudent by management. General allowances represent loss allowances which have been established to recognize the risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as "loss," it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. An institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by our bank regulators, which may order the establishment of additional general or specific

loss allowances. Assets which do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories but require additional management oversight or possess minor credit weakness are designated by us as "special mention." We regularly review the problem assets in our portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of management's review of our assets, at December 31, 2016, we had classified $2.7 million of our loans as substandard, none as doubtful and none as loss, of which $2.5 million was included in non-accruing loans. This total amount of classified loans represented 12.99% of our equity capital plus allowance for loan losses and 1.56% of our assets at December 31, 2016. We also had designated $811,000 of our loans as special mention at December 31, 2016.

Allowance for Loan Losses. The allowance for loan losses is a valuation account that reflects our estimation of the losses in our loan portfolio to the extent they are reasonable to estimate. The allowance is maintained through provisions for loan losses that are charged to operations in the period they are established. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. Recoveries on loans previously charged off are added back to the allowance.

At December 31, 2016, our allowance for loan losses was $924,000, or 0.69% of our net loan portfolio and 36.3% of total nonperforming loans. This estimation is inherently subjective as it requires estimates and assumptions that are susceptible to significant revisions as more information becomes available or as future events change. The level of allowance is based on estimates and the ultimate losses may vary from these estimates. Large groups of smaller balance homogeneous loans, such as residential real estate, small commercial real estate, home equity and consumer loans, are evaluated in the aggregate using historical loss factors adjusted for current economic conditions. Assessing the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received. In the opinion of management, the allowance, when taken as a whole, reflects estimated loan losses in our loan portfolio.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due. Troubled debt restructurings are also considered impaired loans. 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 for residential mortgage loans 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.

Future additions to the allowance for loan losses may be necessary if economic and other conditions in the future differ substantially from the current operating environment. The Financial Accounting Standards Board has adopted a new accounting standard update ("ASU") that will be effective for our first fiscal year after December 15, 2019. This standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for credit losses. This will change the current method of providing allowances for credit losses that are probable, which may require us to increase our allowance for loan losses, and may greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for credit losses. For more on this ASU, see Note 1 of the Notes to Consolidated Financial Statements - Recently Issued Accounting Pronouncements contained in Item 8 of this report. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. If charge-offs in future periods exceed the allowance for loan losses, we may need additional provisions to replenish the allowance for loan losses. Any increases in the

allowance for loan losses will result in a decrease in net income and, most likely, capital, and may have a material negative effect on our financial condition and results of operations.

The following table sets forth an analysis of our allowance for loan losses at the date indicated.

	Year Ended December 31,
	2016			2015
	(Dollars in Thousands)
Balance at beginning of year	$	895		$	1,087

Charge-offs:
One- to- four-family		69			-
Construction and lot		-			6
Home equity		43			265
Automobile		-			16
Credit cards and unsecured		109			214
Total		221			501

Recoveries:
One- to- four-family		16			24
Construction and lot		-			9
Home equity		9			52
Automobile		8			5
Credit cards and unsecured		37			36
Other consumer		-			3
Total		70			129

Net charge-offs		151			372
Provisions for loan losses		180			180
Balance at end of year	$	924		$	895

Ratio of net charge-offs during the year to average loans outstanding during the year		0.12	%		0.35	%
Ratio of net charge-offs during the year to average nonperforming assets		6.54	%		16.49	%
Allowance as a percentage of nonperforming loans		36.32	%		50.71	%
Allowance as a percentage of total loans, net (end of year)		0.69	%		0.78	%

The following table sets forth the allocation of our allowance for loan losses by loan category and the percent of loans in each category to total loans receivable, net, at the dates indicated. The portion of the loan allowance allocated to each loan category does not represent the total available for losses which may occur within the loan category since the total loan loss allowance is a valuation reserve applicable to the entire loan portfolio. The distribution of our allowance for losses on loans at the dates indicated is summarized as follows:

	December 31,
	2016					2015
	Amount		Percent of loans in each category to total loans			Amount		Percent of loans in each category to total loans
	(Dollars in thousands)

One- to four-family	$	296		41.78	%	$	226		40.46	%
Commercial real estate		259		39.09			245		37.95
Construction and lot		3		3.13			32		4.53
Commercial		74		3.11			10		1.03
Home equity		140		5.29			195		6.65
Automobile		12		2.38			19		2.90
Credit cards and unsecured		130		4.28			151		5.33
Other consumer		10		0.94			16		1.15
Unallocated		-		-			1		-
Total	$	924		100.00	%	$	895		100.00	%

Investment Activities

Federal savings banks have the authority to invest in various types of liquid assets, including United States Treasury obligations, securities of various federal agencies, including callable agency securities, certain certificates of deposit of insured banks and savings institutions, certain bankers' acceptances, repurchase agreements and federal funds. Subject to various restrictions, federal savings banks may also invest their assets in investment grade commercial paper and corporate debt securities and mutual funds whose assets conform to the investments that the institution is otherwise authorized to make directly. See "How We Are Regulated - Sunshine Community Bank – Florida Office of Financial Regulation" for a discussion of additional restrictions on our investment activities.

Our chief executive officer and chief financial officer have the basic responsibility for the management of our investment portfolio, subject to the direction and guidance of the Board of Directors. These officers consider various factors when making decisions, including the marketability, maturity and tax consequences of the proposed investment. The maturity structure of investments will be affected by various market conditions, including the current and anticipated slope of the yield curve, the level of interest rates, the trend of new deposit inflows, and the anticipated demand for funds via deposit withdrawals and loan originations and purchases.

We may utilize our borrowing capacity at the Federal Home Loan Bank ("FHLB") Atlanta to purchase investment grade securities to leverage our balance sheet and increase our net interest income. The general objectives of our investment portfolio will be to provide liquidity when loan demand is high, to assist in maintaining earnings when loan demand is low and to maximize earnings while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk and interest rate risk. Our investment quality will emphasize safer expected average life short term investments with the yield on those investments secondary to not taking unnecessary risk with the available funds of Sunshine Community Bank. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset/Liability Management."

We do not currently participate in hedging programs, interest rate caps, floors or swaps, or other activities involving the use of off-balance sheet derivative financial instruments and have no present intention to do so. Further, we do not invest in securities which are not rated investment grade.

The following table sets forth the composition of our securities portfolio and other investments at the dates indicated. All securities at the dates indicated have been classified as held to maturity. At December 31, 2016, our securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States Government or its agencies or United States government sponsored entities.

	December 31,
	2016				2015
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Held to maturity:

Agency collateralized mortgage obligations	$	15,815	$	15,573	$	19,977	$	19,726
Agency mortgage-backed securities		697		721		1,086		1,128
Total securities held to maturity		16,512		16,294		21,063		20,854

The composition and contractual maturities of the investment securities portfolio as of December 31, 2016, are indicated in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur.

	Over 1 to 5 years					Over 5 to 10 years					Over 10 years					Total Securities
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Fair Value
	(Dollars in thousands)
Held to maturity securities:
Agency collateralized mortgage obligations	$	61		2.00	%	$	211		3.10	%	$	15,543		2.12	%	$	15,815		2.13	%	$	15,573
Agency mortgage-backed securities		576		4.05			121		4.00			-		-			697		4.04			721
Total securities	$	637		3.85	%	$	332		3.43	%	$	15,543		2.12	%	$	16,512		2.21	%	$	16,294

Sources of Funds

General. Our sources of funds are primarily deposits, borrowings, payments of principal and interest on loans and funds provided from operations.

Deposits. Our current deposit products include checking, savings, individual retirement savings accounts, money market accounts, and certificates of deposit accounts ranging in terms from seven months to 60 months, and individual retirement certificate of deposit accounts with terms starting at 12 months. Deposit account terms vary, primarily as to the required minimum balance amount, the amount of time that the funds must remain on deposit and the applicable interest rate. We solicit deposits primarily in our market area. At December 31, 2016, we had no brokered, Internet or wholesale deposits. We primarily rely on competitive pricing policies, marketing and customer service to attract and retain these deposits. As of December 31, 2016, core deposits, which we define as our non-certificate or non-time deposit accounts, represented approximately 85.5% of total deposits.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and competition. The variety of deposit accounts we offer has allowed us to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand. We have become more susceptible to short-term fluctuations in deposit flows as customers have become more interest rate conscious. We try to manage the pricing of our deposits in keeping with our asset/liability management, liquidity and profitability objectives, subject to competitive factors. Based on our experience, we believe that our deposits are relatively stable sources of funds. Despite this stability, our ability to attract and maintain these deposits and the rates paid on them has been and will continue to be significantly affected by market conditions.

Certificates of deposit represent 14.5% of our deposits at December 31, 2016. Our liquidity could be reduced if a significant amount of certificates of deposit, maturing within a short period of time, were not renewed. Historically, a significant portion of the certificates of deposit remain with us after they mature and we believe that this will continue. However, the need to retain these time deposits could result in an increase in our cost of funds.

The following table sets forth our deposit flows during the periods indicated.

	Year Ended December 31,
	2016			2015
	(Dollars in thousands)

Opening balance	$	130,470		$	127,905
Net Deposits		7,058			2,191
Interest credited	$	374			374

Ending balance	$	137,902		$	130,470

Net increase	$	7,432		$	2,565

Percent increase		5.7	%		2.0	%

The following table sets forth the dollar amount of deposits in the various types of deposit programs offered by us at the dates indicated.

	December 31,
	2016					2015
	Amount		Percent of total			Amount		Percent of total
	(Dollars in thousands)
Transactions and Savings Deposits:
Non interest-bearing demand	$	31,247		22.7	%	$	28,211		21.6	%
Statement savings		38,365		27.8			34,240		26.2
Money market		39,633		28.7			36,524		28.1
IRA		8,624		6.3			7,477		5.7

Total non-certificates		117,869		85.5			106,452		81.6

Certificates:
0.00 – 0.50%		11,865		8.6			12,426		9.5
0.51 – 1.00%		4,999		3.6			7,637		5.9
1.01 – 2.10%		3,169		2.3			3,955		3.0

Total certificates		20,033		14.5			24,018		18.4

Total deposits	$	137,902		100.0	%	$	130,470		100.0	%

The following table shows rate and maturity information for our certificates of deposit at December 31, 2016.

		0.00- 0.50%			0.51- 1.00%			1.01- 2.10%		Total			Percent of Total
	(Dollars in thousands)
Certificate accounts maturing in quarter ending:
March 31, 2017	$	2,596		$	965		$	289		$	3,850			19.22	%
June 30, 2017		3,304			575			308			4,187			20.90
September 30, 2017		2,998			218			352			3,568			17.81
December 31, 20176		2,172			521			109			2,802			13.99
March 31, 2018		463			506			80			1,049			5.24
June 30, 2018		260			516			127			903			4.51
September 30, 2018		10			1,033			336			1,379			6.88
December 31, 2018		62			196			125			383			1.91
March 31, 2019		-			5			34			39			0.19
June 30, 2019		-			110			102			212			1.05
September 30, 2019		-			175			223			398			1.99
December 31, 2019		-			128			252			380			1.90
Thereafter	$	-			51			832			883			4.41

Total	$	11,865		$	4,999		$	3,169		$	20,033			100.00	%

Percent of total		59.23	%		24.95	%		15.82	%		100.00	%

The following table indicates the amount of our certificates of deposit and other deposits by time remaining until maturity as of December 31, 2016.

	Maturity
	3 months or less		Over 3 to 6 months		Over 6 to 12 months		Over 12 months		Total
	(In thousands)

Certificates of deposit less than $100,000	$	2,743	$	2,979	$	4,744	$	3,546	$	14,012
Certificates of deposit of $100,000 or more		1,107		1,209		1,625		2,080		6,021
Total certificates of deposit	$	3,850	$	4,188	$	6,369	$	5,626	$	20,033

We are a member of and may obtain advances from the FHLB of Atlanta, which is part of the Federal Home Loan Bank System. The twelve regional Federal Home Loan Bank's provide a central credit facility for their member institutions. These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features. At December 31, 2016, the Company had an unsecured federal funds line of credit for $6.0 million with a correspondent bank and a $41.8 million line with the FHLB collateralized by a blanket lien on qualifying loans. At that date the Company had $12.8 million outstanding in FHLB advances that mature in 2017 at a weighted average fixed rate of 0.63% and no outstanding balance on the federal funds line of credit. We may rely in part on long-term FHLB advances to fund asset and loan growth. We are required to own stock in the FHLB of Atlanta based on the amount of our advances and total assets. At December 31, 2016, we had $684,000 in FHLB stock.

Subsidiary and Other Activities

Sunshine Community Bank is permitted to invest up to 10% of its assets, or $17.3 million at December 31, 2016, in the stock, obligations or securities of subsidiaries (with certain exceptions). Sunshine Community Bank has one subsidiary, Sunshine Member Insurance Services, Inc. ("SMSI"), which was established to sell automobile warranty and credit life and disability insurance products associated with loan products. Our investment in SMSI as of December 31, 2016 was $100.

Competition

We face strong competition in attracting deposits. Competition in originating real estate loans comes primarily from other savings institutions, commercial banks, credit unions, life insurance companies and mortgage bankers. Other savings institutions, commercial banks, credit unions and finance companies provide vigorous competition in consumer lending. Commercial business competition is primarily from local commercial banks. We compete because we believe we consistently deliver high-quality, personal service to our customers that result in a high level of customer satisfaction.

Our market area has a high concentration of financial institutions, many of which are branches of large money center and regional banks that have resulted from the consolidation of the banking industry in Florida and other eastern states. These include large national lenders and others in our market area that have greater resources than we do and offer services that we do not provide. For example, we do not offer trust services and do not actively seek out multifamily loans. Customers who seek "one-stop shopping" may be drawn to institutions that offer services that we do not.

We attract our deposits through our branch office system. Competition for those deposits is principally from other savings institutions, commercial banks and credit unions located in the same community, as well as mutual funds and other alternative investments. We compete for these deposits by offering superior service and a variety of deposit accounts at competitive rates. Based on the most recent branch deposit data provided by the FDIC, Sunshine Community Bank's share of deposits in the Tallahassee, Florida Metropolitan Statistical Area was approximately 2.16%.

How We Are Regulated

General. Set forth below is a brief description of certain laws and regulations that are applicable to Sunshine Financial and Sunshine Community Bank. The description of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere herein, does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations. Legislation is introduced from time to time in the United States Congress and the Florida Legislature that may affect the operations of Sunshine Financial and Sunshine Community Bank. In addition, the regulations governing us may be amended from time to time. Any such legislation or regulatory changes in the future could adversely affect our operations and financial condition.

The FDIC and the FOFR have extensive enforcement authority over Florida-chartered commercial banks that are not members of the Federal Reserve System, including Sunshine Community Bank, and the Federal Reserve has enforcement authority over their holding companies, including Sunshine Financial. This enforcement authority includes, among other things, the ability to assess civil monetary penalties, to issue cease-and-desist or removal orders, and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the FDIC or Federal Reserve. Except under certain circumstances, public disclosure of final enforcement actions by the FDIC or the Federal Reserve is required by law.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was signed into law. This law significantly changed the bank regulatory structure and affected the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. This law also established the Consumer Protection Bureau ("CFPB"). The following discussion summarizes significant aspects of the Dodd Frank Act that may affect Sunshine Community Bank and Sunshine Financial. The following aspects of the Dodd Frank Act are related to the operations of Sunshine Community Bank:

The CFPB is empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws. Smaller financial institutions, like Sunshine Community Bank, are subject to supervision and enforcement by their primary federal banking regulator with respect to federal consumer financial protection laws.

The Federal Reserve must require depository institution holding companies to serve as a source of strength for their depository institution subsidiaries.

The prohibition on payment of interest on demand deposits was repealed.

Deposit insurance was permanently increased to $250,000.

The deposit insurance assessment base for FDIC insurance is the depository institution's total average assets minus the sum of its average tangible equity during the assessment period.

The minimum reserve ratio of the Deposit Insurance Fund ("DIF") increased to 1.35 percent of estimated annual insured deposits; however, the FDIC is directed to offset the effect of the increased reserve ratio on insured depository institutions with total consolidated assets of less than $10 billion.

Sunshine Community Bank. Sunshine Community Bank is subject to regulation and oversight by the FDIC and FOFR extending to all aspects of its operations. This regulation of Sunshine Community Bank is intended for the protection of depositors and not for the purpose of protecting shareholders. Sunshine Community Bank is required to maintain minimum levels of regulatory capital and is subject to some limitations on the payment of dividends to Sunshine Financial See "- Capital Requirements for Sunshine Community Bank" and "-Limitations on Dividends and Other Capital Distributions." Sunshine Community

Bank also is subject to examination by the FOFR by the FDIC, which insures the deposits of Sunshine Community Bank to the maximum extent permitted by law.

Florida Office of Financial Regulation. The investment and lending authority of Sunshine Community Bank is prescribed by Florida federal laws and regulations and Sunshine Community Bank is prohibited from engaging in any activities not permitted by such laws and regulations.

Prior to July 1, 2016, Sunshine Community Bank was a federal-chartered savings bank known as Sunshine Savings Bank. As a federally chartered savings bank, Sunshine Community Bank was required to meet a qualified thrift lender ("QTL") test. This test required Sunshine Community Bank to have at least 65% of its portfolio assets, as defined by statute, in qualified thrift investments on a monthly average for nine out of every 12 months on a rolling basis or meet an alternative test. Under either test, Sunshine Community Bank was required to maintain a significant portion of its assets in residential-housing-related loans and investments. In addition, Sunshine Community Bank was subject to a 35% of total assets limit on consumer loans, commercial paper and corporate debt securities, and a 20% limit on commercial non-mortgage loans. This test and these asset limits do not apply to Sunshine Community Bank as a Florida-chartered commercial bank.

Sunshine Community Bank's relationship with its depositors and borrowers is regulated to a great extent by federal and Florida laws and regulations, especially in such matters as the ownership of savings accounts and the form and content of our mortgage requirements. In addition, the branching authority of Sunshine Community Bank is regulated by the FDIC and the FOFR. Sunshine Community Bank is generally authorized to branch nationwide.

Sunshine Community Bank is subject to a statutory lending limit on aggregate loans to one person or a group of persons combined because of certain common interests. That limit is generally equal to 15% of our unimpaired capital and surplus, except that for loans that are fully secured, the limit is increased to 25%. At December 31, 2016, Sunshine Community Bank's lending limit under this restriction was $4.6 million. We have no loans or lending relationships in excess of our lending limit.

Sunshine Community Bank is subject to periodic examinations by the FDIC and the FOFR. During these examinations, the examiners may require Sunshine Community Bank to provide for higher general or specific loan loss reserves, and/or recognized additional charge-offs based on their judgment, which can impact our capital and earnings. As a Florida-chartered commercial bank, Sunshine Community Bank is subject to a semiannual assessment, based on its assets, to fund the operations of the FOFR.

The FDIC has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure and compensation and other employee benefits. Any institution that fails to comply with these standards must submit a compliance plan.

Insurance of Accounts and Regulation by the FDIC. The FDIC insures deposit accounts in Sunshine Community Bank up to applicable limits. The FDIC assesses deposit insurance premiums quarterly on each FDIC-insured institution applied to its deposit base, which is its average consolidated total assets minus its Tier 1 capital. No institution may pay a dividend if it is in default on its federal deposit insurance assessment.

Prior to July 1, 2016, each institution with less than $10 billion in assets (a small institution) was assigned to one of four risk categories based on its capital levels, supervisory ratings and other factors. The assessment rates ranged from approximately 5 basis points to 35 basis points, subject to certain adjustments.

Effective July 1, 2016, the FDIC changed the method of calculating assessments for small institutions so that assessment rates for small institutions are based on an institution's weighted average CAMELS component ratings and certain financial ratios. Assessment rates range from 1.5 to 16 basis points for institutions with CAMELS composite ratings of 1 or 2, 3 to 30 basis points for those with a CAMELS

composite score of 3, and 11 to 30 basis points for those with CAMELS Composite scores of 4 or 5, subject to certain adjustments. Assessment rates are expected to decrease in the future as the reserve ratio increases in specified increments to the 1.35% ratio required by the Dodd-Frank Act.

As required by the Dodd Frank Act, the FDIC has adopted a rule to offset the effect of the increase in the minimum reserve ratio of the DIF on small institutions by imposing a surcharge on institutions with assets of $10 billion or more commencing on July 1, 2016 and ending when the reserve ratio reaches 1.35%. This surcharge period is expected to end by December 31, 2018. Small institutions will receive credits for the portions of their regular assessments that contributed to growth in the reserve ratio between 1.15% and 1.35%. The credits will apply to reduce regular assessments by 2.0 basis points for quarters when the reserve ratio is at least 1.40%.

FDIC-insured institutions are required to pay an additional quarterly assessment called the FICO assessment in order to fund the interest on bonds issued to resolve thrift failures in the 1980s. This assessment rate is adjusted quarterly to reflect changes in the assessment base, which is average assets less tangible equity, and is the same base as used for the deposit insurance assessment. These assessments are expected to continue until the bonds mature in the years 2017 through 2019. For the year ended December 31, 2016, Sunshine Community Bank paid $8,000 in FICO assessments.

Transactions with Affiliates. Transactions between Sunshine Community Bank and its affiliates are required to be on terms as favorable to the institution as transactions with non-affiliates; certain of these transactions, such as loans to an affiliate, are restricted to a percentage of Sunshine Community Bank's capital, and loans to affiliates require eligible collateral in specified amounts. In addition, Sunshine Community Bank may not lend to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of most affiliates. Sunshine Financial is an affiliate of Sunshine Community Bank. Sunshine Community Bank's authority to extend credit to executive officers, directors and 10% shareholders of the bank or its holding company ("insiders"), as well as entities such persons control, is limited. There are limits on both the individual and aggregate amount of loans that Sunshine Community Bank may make to insiders based, in part, on Sunshine Community Bank's capital level and certain board approval procedures must be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated parties and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. Loans to executive officers are subject to additional limitations based on the type of loan involved.

Capital Rules. Sunshine Financial and Sunshine Community Bank are subject capital regulations adopted by the Federal Reserve and the FDIC that became effective January 1, 2015 (with some provisions transitioned into full effectiveness over several years). Under these capital regulations, the minimum capital ratios are: (1) a common equity Tier 1 ("CET1") capital ratio of 4.5% of risk-weighted assets; (2) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (3) a total capital ratio of 8.0% of risk-weighted assets, and (4) a leverage ratio (the ratio of Tier 1 capital to average total adjusted assets) of 4.0%. CET1 generally consists of common stock, retained earnings, accumulated other comprehensive income ("AOCI") unless an institution elects to exclude AOCI from regulatory capital, as discussed below, and certain minority interests, all subject to applicable regulatory adjustments and deductions. Tier 1 capital generally includes CET1 and noncumulative perpetual preferred stock, less most intangible assets, subject to certain adjustments. Total capital consists of Tier 1 and Tier 2 Capital. Tier 2 capital, which is limited to 100 percent of Tier 1 capital, includes such items as qualifying general loan loss reserves, cumulative perpetual preferred stock, mandatory convertible debt, term subordinated debt and limited life preferred stock; however, the amount of term subordinated debt and intermediate term preferred stock that may be included in Tier 2 capital is limited to 50 percent of Tier 1 capital. Risk-weighted assets are determined under the capital regulations, which assign risk-weights to all assets and to certain off-balance sheet items.

These regulations include the phasing-out of certain instruments as qualifying capital. Mortgage servicing and deferred tax assets over designated percentages of CET1 are deducted from capital. In addition, Tier 1 capital includes AOCI, which includes all unrealized gains and losses on available for sale debt and

equity securities, unless an institution elects to opt out of such inclusion, if eligible to do so. We have elected to permanently opt-out of the inclusion of AOCI in our capital calculations.

The capital regulations include a 150% risk weight for certain high volatility commercial real estate acquisition, development and construction loans and for non-residential mortgage loans that are 90 days past due or otherwise in nonaccrual status; a 20% risk weight for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable; and a 250% risk weight for mortgage servicing and deferred tax assets that are not deducted from capital.

In addition to the minimum CET1, Tier 1 and total capital ratios, Sunshine Financial and Sunshine Community Bank must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. The capital conservation buffer requirement is phased in beginning on January 1, 2016 when a buffer greater than 0.625% of risk-weighted assets will be required which amount will increase each year until the buffer requirement is fully implemented on January 1, 2019.

Under the FDIC's prompt corrective action standards, in order to be considered well-capitalized, a bank must have a ratio of CET1 capital to risk-weighted assets of 6.5%, a ratio of Tier 1 capital to risk-weighted assets of 8%, a ratio of total capital to risk-weighted assets of 10%, and a leverage ratio of 5%. In order to be considered adequately capitalized, a bank must have the minimum capital ratios described above. Institutions with lower capital ratios are assigned to lower capital categories. Based on safety and soundness concerns, the FDIC may assign an institution to a lower capital category than would originally apply based on its capital ratios.

The FDIC is also authorized to require Sunshine Community Bank to maintain additional amounts of capital in connection with concentrations of assets, interest rate risk and certain other items. The FDIC has not imposed such a requirement of Sunshine Community Bank.

An institution that is not well capitalized is subject to certain restrictions on brokered deposits and interest rates on deposits. An institution that is not at least adequately capitalized is subject to numerous additional restrictions, and a guaranty by its holding company is required. An institution with a ratio of tangible equity to total assets of 20% or less is subject to appointment of the FDIC as receiver if its capital level does not improve in timely fashion. When the FDIC as receiver liquidates an institution, the claims of depositors and the FDIC as their successor have priority over other unsecured claims against the institution.

As of December 31, 2016, Sunshine Financial and Sunshine Community Bank are considered well-capitalized under applicable rules and meet the capital conservation buffer requirement. Regulatory capital is discussed further in Note 18 to the consolidated financial statements under Item 8 of this Report.

Community Reinvestment and Consumer Protection Laws. In connection with its lending and other activities, Sunshine Community Bank is subject to a number of federal laws designed to protect borrowers and promote lending to various sectors of the economy and population. These include the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, and the Community Reinvestment Act ("CRA"). In addition, federal banking regulators have enacted regulations limiting the ability of banks and other financial institutions to disclose nonpublic consumer information to non-affiliated third parties. The regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated parties.

The CRA requires the appropriate federal banking agency, in connection with its examination of an FDIC-insured institution, to assess its record in meeting the credit needs of the communities served by the institution, including low and moderate income neighborhoods. The federal banking regulators take into account the institution's record of performance under the CRA when considering applications for mergers, acquisitions and branches. Under the CRA, institutions are assigned a rating of outstanding, satisfactory,

needs to improve, or substantial non-compliance. Sunshine Community Bank received a "satisfactory" rating in its most recent CRA evaluation.

Bank Secrecy Act / Anti-Money Laundering Laws. Sunshine Community Bank is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA PATRIOT Act of 2001. These laws and regulations require Sunshine Community Bank to implement policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity of their customers. Violations of these requirements can result in substantial civil and criminal sanctions. In addition, provisions of the USA PATRIOT Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing mergers and acquisitions.

Limitations on Dividends and Other Capital Distributions. Generally, a Florida-chartered commercial bank that meets the capital conservation buffer requirement may make capital distributions during any calendar year equal to retained net profits of the previous two calendar years and the current year-to-date earnings. For additional information, see "– New Capital Rules." In addition, under the terms of the FOFR approval of the conversion to a Florida-chartered commercial bank, Sunshine Community Bank must obtain the prior approval of the FOFR before declaring any dividend during the three years following July 1, 2016.

The long-term ability of Sunshine Financial to pay dividends to its stockholders is based primarily upon the ability of Sunshine Community Bank to make capital distributions to Sunshine Financial. So long as Sunshine Community Bank continues to meet the applicable capital conservation buffer requirement (discussed above) after each capital distribution and operates in a safe and sound manner, it is management's belief that the FOFR will continue to allow Sunshine Community Bank to distribute its net income to Sunshine Financial, although no assurance can be given in this regard.

Federal Home Loan Bank System. Sunshine Community Bank is a member of the Federal Home Loan Bank of Atlanta, one of the 12 regional Federal Home Loan Banks in the Federal Home Loan Bank System. The Federal Home Loan Bank System provides a central credit facility for member institutions. As a member of the Federal Home Loan Bank of Atlanta, Sunshine Community Bank is required to hold shares of capital stock in that Federal Home Loan Bank. Sunshine Community Bank was in compliance with this requirement with an investment in Federal Home Loan Bank stock at December 31, 2016 of $684,000.

Regulation of Sunshine Financial

General. Sunshine Financial, as the sole shareholder of Sunshine Community Bank, is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to comprehensive regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations promulgated thereunder. This regulation and oversight is generally intended to ensure that Sunshine Financial limits its activities to those allowed by law and that it operates in a safe and sound manner without endangering the financial health of Sunshine Community Bank.

As a bank holding company, Sunshine Financial is required to file quarterly and annual reports with the Federal Reserve and any additional information required by the Federal Reserve and is subject to regular examinations by the Federal Reserve.

A merger or acquisition of Sunshine Financial, or an acquisition of control of Sunshine Financial, is generally subject to approval by the Federal Reserve. In general, control for this purpose means 25% of voting stock, but such approval can be required in other circumstances, including but not limited to an acquisition of as low as 5% of voting stock.

The Dodd-Frank Act and Federal Reserve policy require a bank holding company to serve as a source of financial strength to its subsidiary banks, with the ability to provide financial assistance to a subsidiary bank in financial distress. Regulations to implement this provision of the Dodd-Frank Act are required, but to date, none have been promulgated.

Permissible Activities. Under the Bank Holding Company Act, the Federal Reserve may approve the ownership of shares by a bank holding company in any company the activities of which the Federal Reserve has determined to be so closely related to the business of banking or managing or controlling banks as to be a proper incident thereto. The Bank Holding Company Act prohibits a bank holding company, with certain exceptions, from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. A bank holding company that meets certain supervisory and financial standards and elects to be designed as a financial holding company may also engage in certain securities, insurance and merchant banking activities and other activities determined to be financial in nature or incidental to financial activities.

The Federal Reserve must approve an application of a bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank, and may approve an acquisition located in a state other than the holding company's home state, without regard to whether the transaction is prohibited by the laws of any state, but may not approve the acquisition of a bank that has not been in existence for the minimum time period, not exceeding five years, specified by the law of the host state, or an application where the applicant controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank's home state or in any state in which the target bank maintains a branch. Federal law does not affect the authority of states to limit the percentage of total insured deposits in the state that may be held or controlled by a bank holding company to the extent such limitation does not discriminate against out-of-state banks or bank holding companies. Individual states may also waive the 30% state-wide concentration limit contained in the federal law.

Capital Requirements for Sunshine Financial. Effective January 1, 2015, Sunshine Financial became subject to the capital rules described under the caption "Capital Rules" above. The Federal Reserve expects a holding company's subsidiary banks to be well capitalized under the prompt corrective action regulations. In addition, a bank holding company must serve as a source of financial strength for its depository institution subsidiaries.

Federal Securities Law. The stock of Sunshine Financial is registered with the SEC under the Securities Exchange Act of 1934, as amended. Sunshine Financial is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Securities Exchange Act of 1934.

Sunshine Financial stock held by persons who are affiliates of Sunshine Financial may not be resold without registration unless sold in accordance with certain resale restrictions. Affiliates for this purpose are generally considered to be officers, directors and principal shareholders. If Sunshine Financial meets specified current public information requirements, each affiliate of Sunshine Financial will be able to sell in the public market, without registration, a limited number of shares in any three-month period.

The SEC has adopted regulations and policies under the Sarbanes-Oxley Act of 2002 that apply to Sunshine Financial as a registered company under the Securities Exchange Act of 1934. The stated goals of these Sarbanes-Oxley requirements are to increase corporate responsibility, provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The SEC and Sarbanes-Oxley-related regulations and policies include very specific additional disclosure requirements and new corporate governance rules.

Volcker Rule Regulations. Regulations were adopted by the federal banking agencies to implement the provisions of the Dodd- Frank Act commonly referred to as the Volcker Rule. The regulations contain prohibitions and restrictions on the ability of FDIC-insured institutions and their holding companies and affiliates to engage in proprietary trading and to hold certain interests in, or to have certain relationships with, various types of investment funds, including hedge funds and private equity funds, and certain other investments, including certain collateralized mortgage obligations, collateralized debt obligations and

collateralized loan obligations and others. We are currently in compliance with the various provisions of the Volcker Rule regulations.

Federal Taxation

General. Sunshine Financial and Sunshine Community Bank will be subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below.

Method of Accounting. For federal income tax purposes, Sunshine Financial and Sunshine Community Bank currently report their income and expenses on the accrual method of accounting and uses a fiscal year ending on December 31 for filing its federal income tax return.

Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, called alternative minimum taxable income. The alternative minimum tax is payable to the extent such alternative minimum taxable income is in excess of the regular tax. Net operating losses can offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. We have not been subject to the alternative minimum tax, nor do we have any such amounts available as credits for carryover.

Net Operating Loss Carryovers. A financial institution may carryback net operating losses to the preceding two taxable years and forward to the succeeding 20 taxable years. This provision applies to losses incurred in taxable years beginning after August 6, 1997. At December 31, 2016, we had approximately $3.7 million in net operating loss carry forwards for federal income tax purposes.

Corporate Dividends-Received Deduction. Sunshine Financial has elected to file consolidated return with Sunshine Community Bank. As a result, any dividends Sunshine Financial receives from Sunshine Community Bank will not be included as income to Sunshine Financial. The corporate dividends-received deduction is 100%, or 80% in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, depending on the level of stock ownership of the payer of the dividend.

State Taxation

Sunshine Community Bank is subject to a franchise tax imposed under Florida Statutes. For Florida, banks and savings associations pay a franchise tax measured by net income. This tax is imposed in lieu of the corporate income tax and is measured by net income of the bank or savings association for the tax year at a rate of 5.5%.

Executive Officers

The following information as to the business experience during the past five years is supplied with respect to executive officers of Sunshine Financial. Except as otherwise indicated, the persons named have served as officers of Sunshine Financial since it became the holding company of Sunshine Community Bank, and all offices and positions described below are also with Sunshine Community Bank.

Louis O. Davis, Jr. Mr. Davis, age 70, serves as the President and Chief Executive Officer of Sunshine Financial, a position he has held since its formation in 2010. Mr. Davis also serves as the President and Chief Executive Officer of Sunshine Community Bank, a position he has held since 2005. He has over 30 years of experience managing savings banks in Florida, including serving as President and Chief Executive Officer of First Bank of Florida and its publicly-traded holding company, First Palm Beach Bancorp. Mr. Davis also held senior management positions with First Federal of the Palm Beaches, a mutual savings bank in West Palm Beach, Florida.

Brian P. Baggett. Mr. Baggett, age 53, serves as the Executive Vice President and Corporate Secretary of Sunshine Financial, positions he has held since its formation in 2010. Mr. Baggett serves as the Executive Vice President and the Chief Lending Officer of Sunshine Community Bank, positions he has held since its formation in 2007. He has been employed at Sunshine Community Bank, including its predecessor organization, for the last 22 years, and with Sunshine Financial since its incorporation in 2010. His current responsibilities include overseeing the lending department and bank administration. He has overseen all major areas of Sunshine Community Bank.

Scott A. Swain. Mr. Swain, age 55, serves as a Senior Vice President and the Chief Financial Officer of Sunshine Financial, a position he has held since its formation in 2010. Mr. Swain also serves as a Senior Vice President and the Chief Financial Officer of Sunshine Community Bank, a position he has held since December 2004. Prior to joining Sunshine Community Bank, Mr. Swain held a similar position at Heartland Community Bank, Camden, Arkansas and Northwest Federal Savings Bank, Spencer, Iowa. Prior to that, Mr. Swain was a safety and soundness examiner with the Office of Thrift Supervision.

Employees

At December 31, 2016, we had a total of 45 full-time employees and eight part-time employees. Our employees are not represented by any collective bargaining group. Management considers its employee relations to be good.

Internet Website

The Company and Sunshine Community Bank maintain a website, www.banksunshine.com. Information pertaining to Sunshine Financial, Inc., including SEC filings, can be found by clicking the "Investor Relations" link contained under the heading "About Us." This Annual Report on Form 10-K and our other reports, proxy statements and other information filed with the SEC are available on that website within the Investor Relations webpage by clicking the link called "SEC Filings." The information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. For more information regarding access to these filings on our website, please contact Scott A. Swain, Chief Financial Officer, Sunshine Financial, Inc., 1400 East Park Avenue, Tallahassee, Florida 32301 or by calling (850) 219-7200.

Item 1A. Risk Factors

Not required; the Company is a smaller reporting company

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

At December 31, 2016, we had five full-service offices. The following table sets forth certain information concerning the main office and each branch office of Sunshine Community Bank at December 31, 2016. The aggregate net book value of our premises and equipment was $3.7 million at December 31, 2016. See also Note 5 of the Notes to Consolidated Financial Statements. In the opinion of management, the facilities are adequate and suitable for the needs of Sunshine Financial and Sunshine Community Bank.

Location	Year Opened	Owned or Leased	Lease Expiration Date		Net book value at December 31, 2016
					(In thousands)
Main office:
1400 East Park Avenue Tallahassee, FL 32301	1985	Owned		-	$	2,127

Branch offices:
3266 Mahan Drive Tallahassee, FL 32308	2002	Leased		2019	$	17

1700 N. Monroe Street, Suite 10 Tallahassee, FL 32303	1992	Leased		2017	$	7

3534-A Thomasville Road Tallahassee, FL 32309	2007	Leased		2024	$	222

3641 Coolidge Ct. Tallahassee, FL 32311	2014	Owned		-	$	1,289

We maintain depositor and borrower customer files on an on-line basis, utilizing a telecommunications network, portions of which are leased. The book value of all prepaid software, data processing and computer equipment utilized by Sunshine Community Bank at December 31, 2016 was $151,000. Management has a disaster recovery plan in place with respect to the data processing system, as well as Sunshine Community Bank's operations as a whole.

Item 3. Legal Proceedings

From time to time we are involved as plaintiff or defendant in various legal actions arising in the normal course of business. We do not anticipate incurring any material legal fees or other liability as a result of such litigation.

Item 4. Mine Safety Disclosure

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The shares of common stock of Sunshine Financial are traded on the Over-the-Counter Electronic Bulletin Board, or OTCBB, under the symbol "SSNF". The table below shows the high and low closing prices for our common stock and quarterly dividends paid for the periods indicated. This stock price information was provided by the Yahoo Finance System and is based on OTCBB quotations, which reflect inter-dealer prices with retail mark-up, mark-down or commissions and may not represent actual transactions.

	Stock Price		Dividends Per Share
2016 Quarters	High	Low	Dividends Per Share

First Quarter (01/01/2016 to 03/31/2016)	$ 19.30	$ 18.45	---
Second Quarter (04/01/2016 to 6/30/2016)	$ 19.35	$ 19.01	---
Third Quarter (07/01/2016 to 09/30/2016)	$ 20.05	$ 19.15	---
Fourth Quarter (10/01/2016 to 12/31/2016)	$ 19.90	$ 18.60	---

	Stock Price		Dividends Per Share
2015 Quarters	High	Low	Dividends Per Share

First Quarter (01/01/2015 to 03/31/2015)	$18.50	$18.00	---
Second Quarter (04/01/2015 to 6/30/2015)	$18.25	$17.50	---
Third Quarter (07/01/2015 to 09/30/2015)	$18.60	$17.90	---
Fourth Quarter (10/01/2015 to 12/31/2015)	$19.50	$18.00	---

At December 31, 2016, there were 1,030,039 shares outstanding and the closing price of our common stock on that date was $19.90. On that date, we had approximately 191 shareholders of record.

The Company does not currently pay any dividends. Our cash dividend payout policy, however, is continually reviewed by management and the Board of Directors. The payment of dividends will depend upon a number of factors, including capital requirements, Sunshine Financial's and Sunshine Community Bank's financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. Future dividends are not guaranteed and will depend on our ability to pay them. No assurances can be given that any dividends will be paid or that, if paid, will not be reduced or eliminated in future periods. Our future payment of dividends may depend, in part, upon receipt of dividends from Sunshine Community Bank. Federal regulations restrict the ability of Sunshine Community Bank to pay dividends and make other capital distributions to us. See "Business - How We Are Regulated -‑ Limitations on Dividends and Other Capital Distributions" in Part I, Item 1 of this report.

Equity Compensation Plan Information

The equity compensation plan information presented Part III, Item 12 of this Form 10-K is incorporated herein by reference.

Issuer Purchases of Equity Securities

The following table sets forth information with respect to our repurchases of our outstanding common shares during the three months ended December 31, 2016:

	Total Number of Shares Purchased	Average Price Paid per Share	Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
October 1, 2016 – October 31, 2016	---	$ ---	---	---
November 1, 2016 – November 30, 2016	1,859⁽¹⁾	18.75	---	---
December 1, 2016 – December 31, 2016	---	---	---	---
Total	1,859⁽¹⁾	$ 18.75	---	---

(1) Represents shares of our common stock withheld from participants for income tax withholding purposes in connection with the vesting of restricted stock grants during the period. The restricted stock was issued to participants pursuant to our 2013 Equity Incentive Plan.

The Company may repurchase shares of its common stock from time-to-time in open market transactions. The timing, volume and price of purchases are made at our discretion, and are contingent upon our overall financial condition, as well as general market conditions. As of December 31, 2016, the Company did not have any authorized stock repurchase programs.

Item 6. Selected Financial Data

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The summary information presented below under "Selected Financial Condition Data" and "Selected Operations Data" for, and as of the end of, each of the years ended December 31, 2016, 2015 and 2014 is derived from our audited consolidated financial statements. The following information is only a summary and you should read it in conjunction with our consolidated financial statements and accompanying notes contained in Item 8 of this Form 10-K.

	At December 31,
	2016		2015		2014
Selected Financial Condition Data:	(In thousands)

Total assets	$	173,209	$	157,828	$	151,006
Cash and cash equivalents		11,313		10,862		13,032
Loans net		134,077		113,422		102,786
Securities held to maturity, at amortized cost:
U.S. government and federal agency		16,512		21,063		26,035
Federal Home Loan Bank stock		684		348		130
Deposits		137,902		130,470		127,905
Federal Home Loan Bank advances		12,750		5,000		-
Equity		21,656		21,358		22,388

	For the Year Ended December 31,
	2016		2015			2014
	(In Thousands, except per share data)
Selected Operations Data:
Total interest income	$	6,416	$	6,005		$	5,907
Total interest expense		401		375			377
Net interest income		6,015		5,630			5,530
Provision for loan losses		180		180			130
Net interest income after provision for loan losses		5,835		5,450			5,400
Fees and service charges on deposit accounts		1,419		1,461			1,600
Gain on loan sales		36		134			149
Gain on sale of foreclosed real estate		12		39			49
Fees and service charges on loans		154		138			89
Fee income bank owned life insurance		97		75			-
Other income		180		493			17
Total noninterest income		1,898		2,340			1,904
Total noninterest expense		7,577		7,918			7,270
Earnings (loss) before income taxes (benefit)		156		(128	)		34
Income taxes (benefit)		46		(52	)		(5	)
Net earnings (loss)	$	110	$	(76	)	$	39

Basic earnings (loss) per share	$	0.12	$	(0.08	)	$	0.04
Diluted earnings (loss) per share	$	0.11	$	(0.08	)	$	0.04

	For the Year Ended December 31,
	2016			2015			2014

Selected Financial Ratios and Other Data:
Performance ratios:
Return on assets (ratio of net earnings (loss) to average total assets)		0.07	%		(0.05	) %		0.03	%
Return on equity (ratio of net earnings (loss) to average equity)		0.51			(0.34	)		0.17
Dividend payout ratio		-			-			-
Interest-rate spread information:
Average during period		3.92			4.01			3.99
End of period		4.04			4.13			4.11
Net interest margin⁽¹⁾		3.98			4.11			4.08
Noninterest income to operating revenue		22.83			28.04			24.38
Noninterest expense to average total assets		4.57			5.27			4.95
Average interest-earning assets to average interest-bearing liabilities		1.34			1.34			1.34
Efficiency ratio⁽²⁾		93.97			98.24			96.88

Asset quality ratios:
Nonperforming assets to total assets at end of period		1.55			1.39			1.53
Nonperforming loans to total loans		1.88			1.54			2.01
Allowance for loan losses to non- performing loans		36.32			50.71			51.76
Allowance for loan losses to loans receivable, net		0.69			0.78			1.04
Net charge-offs to average loans outstanding		0.12			0.35			0.34

Capital Ratios:
Equity to total assets at end of period		12.50			13.55			14.83
Average equity to average assets		12.93			14.77			15.84

Other data:
Number of full-service offices		5			6			6

__________________________________________

(1)	Net interest income divided by average interest-earning assets.
(2)	Total noninterest expense, excluding foreclosed asset and repossessed property related expenses, as a percentage of net interest income and total other operating income, excluding net securities transactions.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

This discussion and analysis reviews our consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial conditions and results of operations. The information in this section has been derived from the consolidated financial statements and footnotes thereto, which appear in Part I, Item 8 of this report. You should read the information in this section in conjunction with the business and financial information regarding the Company as provided in this report.

Overview

Sunshine Financial is the holding company for its wholly owned subsidiary, Sunshine Community Bank. Sunshine Community Bank was originally chartered as a credit union in 1952 as Sunshine State Credit Union to serve state government employees in the metropolitan Tallahassee area. On July 1, 2007, we converted from a state-chartered credit union known as Sunshine State Credit Union to a federal mutual savings bank known as Sunshine Savings Bank, then in 2009 reorganized into the mutual holding company structure. On April 5, 2011, Sunshine Financial completed a public offering as part of the Sunshine Saving Bank's conversion and reorganization from a mutual holding company to a public stock holding company structure. On July 1, 2016, Sunshine Savings Bank completed its conversion from a federal savings bank charter to a Florida state bank charter, changing its name to Sunshine Community Bank.

We currently operate out of five 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, commercial real estate, home equity loans and lines of credit, lot loans, and direct automobile, credit card and other consumer loans. In early December 2016, we closed our Appleyard branch and relocated the deposits to our other branches.

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

Our operations are 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 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, amortization expense, maintenance and costs of utilities.

Business and Operating Strategy and Goals

Our primary objective is to continue to grow Sunshine Community Bank as a well-capitalized, profitable, independent, community-oriented financial institution serving customers in our market area. Our strategy is simply to provide innovative products and superior service to customers in our market area, which we serve through our five convenient banking centers located in Tallahassee, Florida. We support these banking centers with 24/7 access to on-line banking and participation in a worldwide ATM network.

Maintaining and improving our asset quality. Our goal is to maintain and improve upon our level of nonperforming assets by managing credit risk. We are focused on actively monitoring and managing all segments of our loan portfolio in order to proactively identify and mitigate risk. We will continue to devote significant efforts and resources to reducing problem assets to levels consistent with our historical experience. Nonperforming assets increased to $2.7 million at December 31, 2016 compared to $2.2 million at December 31, 2015, and our nonperforming loans increased to $2.5 million at December 31, 2016, compared to $1.8 million at December 31, 2015. Nonperforming one-four family loans increased $743,000 due to an increase of four loans, while foreclosed real estate decreased by $292,000 due to the sale of three properties and only one foreclosure during the year ended December 31, 2016. Our percentage of nonperforming assets to total assets was 1.55% and 1.39% at December 31, 2016 and 2015, respectively.

Leveraging our capital to improve our overall efficiency and profitability. We may improve our overall efficiency and profitability by leveraging our strong capital base. We also may utilize our borrowing capacity at the FHLB of Atlanta to purchase investment grade securities to leverage our balance sheet and increase our net interest income and liquidity. We also will continue to emphasize lower cost deposits.

Improving our earnings through product selection, pricing and lower cost of funds. Through product selection and pricing and lower cost funds, we will seek to optimize our interest rate margin while managing our interest rate risk. We expect to expand our business by cross-selling our loan and deposit products and services to our customers and emphasizing our traditional strengths, which include residential mortgages, consumer loans and deposit products and services. In addition, from time to time, consistent with our asset/liability objectives, we may sell a portion of our residential mortgage loan originations to Freddie Mac or private investors. This allows us to maintain our customer relationships and generate servicing income, while also having the funds from any such loan sales available to make additional loans.

Growing our franchise within the Tallahassee metropolitan area. We operate with a service-oriented approach to banking by meeting our customers' needs and emphasizing the delivery of a consistent and high-quality level of professional service. We believe that opportunities currently exist within our market area to grow our franchise. Our attention to client service and competitive rates allows us to attract and retain deposit and loan customers.

Emphasizing lower cost core deposits to manage the funding costs of our loan growth. We offer personal checking, savings and money-market accounts, which generally are lower-cost sources of funds than certificates of deposits and are less sensitive to withdrawal when interest rates fluctuate. To build our core deposit base, we are pursuing a number of strategies that include sales promotions on savings and checking accounts to encourage the growth of these types of deposits.

Continuing to originate residential and increasing commercial real estate loans. Our primary lending focus has been, and will continue to be, on originating one- to four-family, owner-occupied mortgage loans and, to a lesser extent, automobile, credit card and other consumer loans. In addition, we began originating commercial real estate loans in the second quarter of 2012. Commercial real estate lending diversifies our loan portfolio and gives us the opportunity to earn more income because these loans have higher interest rates than residential mortgages in order to compensate for the increased credit risk. At December 31, 2016, commercial real estate loans represented 39.09% of our loan portfolio.

Controlling our operating expense while continuing to provide excellent customer service. In early December 2016, we closed our Appleyard branch due to underutilization, which we expect to result in an annual cost savings of approximately $240,000. Our existing infrastructure, personnel and fixed operating base can support a substantially larger asset base. As a result we believe we can cost-effectively grow as we continue to meet the financial needs of the communities in which we operate. We believe that we can be more effective in servicing our customers than many of our non-local competitors because our employees and senior management are able to respond promptly to customer needs and inquiries. Our ability to provide these services is enhanced by the experience of our executive officers, who have an average of over 30 years' experience in the financial services industry.

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, accounting for deferred income taxes as well as the valuation of foreclosed assets. Our accounting policies are discussed in detail in Note 1 of the Notes to Consolidated Financial Statements included under Part I, Item 8 of this report.

Allowance for Loan Losses. We believe that the accounting estimate related to the allowance for loan losses is a critical accounting estimate because it is highly susceptible to change from period to period, requiring management to make assumptions about losses on loans. The impact of a sudden large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect operations.

The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to operations. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. 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 that are also classified as impaired, an allowance is established when the discounted cash flows (or 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.

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 for all loans 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. GAAP requires 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 earnings 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.

Foreclosed Real Estates. 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.

Comparison of Financial Condition at December 31, 2016 and December 31, 2015

General. Total assets increased $15.4 million, or 9.7%, to $173.2 million at December 31, 2016 from $157.8 million at December 31, 2015. The increase in total assets was due primarily to increases in net loans slightly offset by a decrease in securities. Net loans increased $20.7 million, while securities decreased $4.6 million during the year ended December 31, 2016. The net increase in assets was funded by a $7.4 million, or 5.7%, increase in deposits and an increase in FHLB advances of $7.8 million from December 31, 2015 to December 31, 2016.

Loans. Our net loan portfolio increased $20.7 million or 18.2% to $134.1 million at December 31, 2016 from $113.4 million at December 31, 2015. Consistent with our strategy to diversify our loan portfolio, commercial real estate loans increased $9.5 million or 22.0% and one- to four-family real estate mortgage loans increased $10.3 million, or 22.3%, while construction and lot loans decreased $928,000. Consumer loans decreased $882,000 primarily due to a $443,000 decrease in home equity loans and $304,000 decrease in credit cards and unsecured loans. Total loan originations increased $13.6 million for the year ended December 31, 2016 compared to the year ended December 31, 2015 and loan repayments increased $11.2 million during the year. We originated $16.3 million and sold $1.1 million of one- to four-family real estate mortgage loans to generate additional income, consistent with our strategy to increase our loan portfolio.

Allowance for Loan Losses. Our allowance for loan losses at December 31, 2016 was $924,000, or 0.69% of total loans, compared to $895,000, or 0.78% of total loans, at December 31, 2015. Nonperforming loans increased to $2.5 million at December 31, 2016 from $1.8 million at December 31, 2015. Nonperforming loans to total loans increased to 1.88% at December 31, 2016 from 1.54% at December 31, 2015. Loans on nonaccrual which were less than ninety days past due totaled $335,000 at December 31, 2016 compared to $203,000 at December 31, 2015.

Deposits. Total deposits increased $7.4 million, or 5.7%, to $137.9 million at December 31, 2016 from $130.5 million at December 31, 2015. This increase was due primarily to an increase in savings, money-market deposit accounts, and noninterest-bearing deposit accounts, partially offset by a decrease in time deposits as some bank customers chose to move maturing time deposits into money-market deposit

accounts due to relatively comparable low interest rates, the immediate availability of funds and the anticipation of higher time deposit rates in the future.

Borrowings. FHLB advances increased to $12.8 million at December 31, 2016 from $5.0 million at December 31, 2015. These advances mature in 2017 and had a weighted average fixed rate of 0.63% at December 31, 2016.

Equity. Total stockholders' equity increased $298,000 to $21.7 million at December 31, 2016, from $21.4 million at December 31, 2015. This increase was due primarily to net earnings of $110,000 and stock-based compensation of $202,000 for the year ended December 31, 2016.

Average Balances, Interest and Average Yields/Cost

The following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Income and yields on tax-exempt obligations have not been computed on a tax equivalent basis. All average balances are daily average balances. Nonaccruing loans have been included in the table as loans carrying a zero yield for the period they have been on non-accrual.

	Year Ended December 31,
	2016								2015
	Average Outstanding Balance			Interest Earned/ Paid		Yield/ Rate			Average Outstanding Balance			Interest Earned/ Paid		Yield/ Rate
	(Dollars in thousands)
Interest-Earning Assets:
Loans ⁽¹⁾	$	121,757		$	5,995		4.92	%	$	106,302		$	5,510		5.18	%
Investments		18,670			369		1.98			23,451			473		2.02
FHLB stock		422			15		3.55			169			6		3.55
Other interest-earning assets		10,120			37		0.36			7,093			16		0.23

Total interest-earning assets⁽¹⁾		150,969			6,416		4.25			137,015			6,005		4.38

Interest-Bearing Liabilities:
Money market		38,979			172		0.44			35,912			158		0.44
Savings		45,196			96		0.21			40,506			91		0.22
Time deposits		21,945			106		0.48			25,277			125		0.49
FHLB advances		6,604			27		0.41			815			1		0.12

Total interest-bearing liabilities		112,724			401		0.36			102,510			375		0.37

Net interest income				$	6,015							$	5,630
Interest rate spread							3.89	%							4.01	%
Net earning assets	$	38,245							$	34,505
Net interest margin⁽²⁾							3.98	%							4.11	%
Ratio of average interest-earning assets to average interest-bearing liabilities		1.34	x							1.34	x

_____________

⁽¹⁾ Calculated net of deferred loan fees, loan discounts, loans in process and loss reserves.

⁽²⁾ Net interest margin represents net interest income as a percentage of average interest-bearing assets.

Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and that due to the changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

	Year Ended December 31, 2016 vs. 2015
	Increase (decrease) due to						Total increase (decrease)
	Volume			Rate			Total increase (decrease)

Interest earning assets:
Loans	$	797		$	(312	)	$	485
Investments		(96	)		(8	)		(104	)
FHLB stock		9			-			9
Other interest-earning assets		7			14			21

Total interest-earning assets		717			(306	)		411

Interest-bearing liabilities:
Money market		14			-			14
Savings		9			(4	)		5
Time deposits		(17	)		(2	)		(19	)
FHLB advances		7			19			26

Total interest-bearing liabilities		13			13			26

Net interest income	$	704		$	(319	)	$	385

Comparison of Results of Operation for the Year Ended December 31, 2016 and 2015

General. For the year ended December 31, 2016 we recorded net earnings of $110,000 or $0.12 per basic and $0.11 diluted earnings per share compared to recorded net loss of $76,000 or $(0.08) per basic and diluted loss per share for the year ended December 31, 2015, resulting in a return on average assets of 0.07% for the year ended December 31, 2016 compared to (0.05) % for last year. The $186,000 increase in net earnings was due primarily to a $384,000 increase in net interest income and $342,000 decrease in noninterest expenses, partially offset by a $442,000 decrease in noninterest income and a $98,000 increase in income taxes.

Net Interest Income. Net interest income increased $384,000, or 6.8%, to $6.0 million for the year ended December 31, 2016 from $5.6 million for 2015, primarily due to the increase in the average balance of our loan portfolio. Our interest rate spread decreased to 3.89% for the year ended December 31, 2016 from 4.01% last year, while our net interest margin decreased to 3.98% for the year ending December 31, 2016 from 4.11% last year. The ratio of average interest-earning assets to average interest-bearing liabilities for the year ended December 31, 2016 stayed unchanged from the previous year at 1.34x.

Interest Income. Interest income for the year ended December 31, 2016 increased $411,000, or 6.8%, to $6.4 million from $6.0 million for the same period ended December 31, 2015. The increase in

interest income for the year ended December 31, 2016 was primarily due to higher average balances of loans, offset by lower yields earned on loans. Average interest-earning loans increased to $121.8 million during the year ended December 31, 2016 compared to $106.3 million for the year ended December 31, 2015, while the average yield earned on loans declined 26 basis points to 4.92% at December 31, 2016 reflecting the continued low interest rate environment. Interest income on investments decreased $104,000 for the year ended December 31, 2016 compared to the previous year end. This was due to the average balance of interest-earning investments decreasing to $18.7 million from $23.4 million and the average yield decreasing to 1.98% from 2.02% as higher rate securities paid down.

Interest Expense. Interest expense for the year ended December 31, 2016 was $401,000 compared to $375,000 for last year, an increase of $26,000. The increase was the result of increases in the average balance and rate of FHLB borrowings and an increase in the average balance of money market accounts, offset by a decrease in the average balance of time deposits. The average balance of FHLB borrowings increased $5.8 million and the average rate increased to 0.41% from 0.12% from December 31, 2015 to 2016. The average balance of money market accounts increased $3.1 million during the year ended December 31, 2016. The average balance of time deposits decreased to $21.9 million for the year ended December 31, 2016 from $25.3 million for the prior year. The total average cost of interest-bearing liabilities for the year ended December 31, 2016 was 0.36% compared to 0.37% for the prior year.

Provision for Loan Losses. We establish an allowance for loan losses by charging amounts to the loan provision at a level required to reflect estimated credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers, among other factors, historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect borrowers' ability to repay, estimated value of any underlying collateral, prevailing economic conditions and current risk factors specifically related to each loan type. See "- Critical Accounting Policies -- Allowance for Loan Loss" for a description of the manner in which the provision for loan losses is established.

Based on management's evaluation of the foregoing factors, we recorded a provision for loan losses of $180,000 for the year ended December 31, 2016 and 2015. The provision for loan losses primarily reflected historical and incurred loan losses, the increase in the size of our loan portfolio, as well as the change in the mix of loans, in particular the increase in our commercial real estate loan portfolio, and the decline in net charge-offs. Net charge-offs for the year ended December 31, 2016 were $151,000 compared to $372,000 for the year ended December 31, 2015. Nonperforming loans to total loans at December 31, 2016 were 1.88% compared to 1.54% at December 31, 2015. The allowance for loan losses to loans receivable, net was 0.69% at December 31, 2016 compared to 0.79% at December 31, 2015.

Management considers the allowance for loan losses at December 31, 2016 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 year ended December 31, 2016 decreased $442,000, or 18.9%, to $1.9 million compared to $2.3 million for the same period in 2015 primarily as a result of a $451,000 decrease in gain on the sale of land due to the one-time sale of land next to the home office in 2015. In addition, noninterest income decreased due to a $98,000 decrease in the gain on loan sales and a $42,000 decrease in fees and service charges on deposit accounts, partially offset by a $22,000 increase in income from bank owned life insurance and a $138,000 increase in other income. The decrease in the gain on loan sales was due to management's and the Board's decision to retain most mortgage loans in portfolio in order to increase interest income in the long-term, which also has the effect of reducing short-term fee income and contributed to the decline in our average yield on loans. Management intends to continually review this strategy's effect on the Bank's interest-rate risk and recommend corrective action if deemed necessary. Income from bank owned life insurance, which insurance was purchased in April 2015, increased due to receipt of income for the entire year ended December 31, 2016 compared to only a portion of the year ended December 31, 2015. The increase in other income was due to a $98,000 gain on the sale of stock invested in a credit union service organization, which was include in other income, and a $52,000 gain on the sale of a former branch building in December 2016.

Noninterest Expense. Noninterest expense for the year ended December 31, 2016 was $7.6 million compared to $7.9 million for the same period in 2015, a decrease of $342,000 or 4.3%. The largest decreases were in salaries and employee benefits, data processing services, occupancy and equipment, foreclosed real estate, and deposit insurance expenses offset slightly by increases in professional fees, advertising and promotion, and credit card expense. The decrease in salaries and employee benefits was primarily due to a reduction of six full time equivalent employees over the last year. The increase in professional fees was due to higher legal fees for Sunshine Community Bank related to regulatory filings associated with the recent charter change to a Florida-chartered commercial bank.

Income Taxes. For the year ended December 31, 2016, we recorded income taxes of $46,000 on before tax earnings of $156,000. For the year ended December 31, 2015, we recorded an income tax benefit of $(52,000) on a before tax loss of $(128,000). Our effective tax rate for the year ended December 31, 2016 was 29.5% compared to (40.6)% for the same time period in 2015.

Asset/Liability Management

Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Our loans generally have longer maturities than our deposits. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk. As of December 31, 2016, our one-year cumulative interest rate sensitivity gap as a percentage of total assets was a negative 2.23%, or $3.9 million, which generally means we are slightly liability sensitive, with $3.9 million more liabilities maturing or repricing in one year than assets. Accordingly, if interest rates rise, our net interest income would be expected to decrease because interest received on interest-earning assets, including loans and other investments, would increase slower than interest paid on interest-bearing liabilities, including deposits and borrowings. The primary reason our gap is slightly negative is due to our lower balances in Interest-bearing deposits with banks and short term certificate of deposits.

How We Measure Our Risk of Interest Rate Changes. As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk. In monitoring interest rate risk we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates. Our board of directors sets the asset and liability policy, which is implemented by management and an asset/liability committee whose members includes certain members of the board and senior management.

The purpose of this committee is to communicate, coordinate and control asset/liability management consistent with our business plan and board approved policies. The committee establishes and monitors the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk, and profitability goals.

The committee generally meets on a quarterly basis to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to net present value of portfolio equity analysis and income simulations. The committee recommends appropriate strategy changes based on this review. The committee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the board of directors at least quarterly.

In order to manage our assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital targets, we have focused our strategies on:

originating adjustable rate home equity loans;

originating a managed amount of short- and intermediate-term fixed rate loans; and

promoting our deposits to establish stable deposit relationships.

Depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the committee may in the future determine to increase our interest rate risk position somewhat in order to maintain or increase our net interest margin. We intend to continue our existing strategy of originating a mix of single-family fixed-rate mortgage loans, quarterly adjustable home equity lines of credit, and relatively short term secured consumer loans. We may also originate fixed rate loans for sale.

The committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and our present value equity ("PVE"), which is defined as the net present value of our existing assets and liabilities. The committee also valuates these impacts against the potential changes in net interest income and market value of our portfolio equity that are monitored by the board of directors of Sunshine Community Bank generally on a quarterly basis.

Our asset/liability management strategy sets limits on the change in PVE given certain changes in interest rates. The table presented here, as of December 31, 2016, is forward-looking information about our sensitivity to changes in interest rates. The table incorporates data from an independent service, as it relates to maturity repricing and repayment/withdrawal of interest-earning assets and interest-bearing liabilities. Interest rate risk is measured by changes in PVE for instantaneous parallel shifts in the yield curve up 300 basis points and down 100 basis points. Given the relatively low level of market interest rates, a PVE calculation for a decrease of greater than 100 basis points has not been prepared. As illustrated in the table below, our PVE would benefit more from a decrease in market rates of interest than an increase. An increase in rates would negatively impact our PVE as a result of costs of deposit accounts increasing more rapidly than yields on loans due to the fixed rate nature of a large portion of our loan portfolio and that the prepayments on those loans would slow significantly. As rates rise, the market value of fixed rate assets generally declines due to both the rate increases and slowing prepayments.

December 31, 2016
Change in Interest Rates in Basis Points	Present Value Equity ($ in thousands)								PVE Ratio %
Change in Interest Rates in Basis Points	Amount		$ Change			% Change			PVE Ratio %
+300	$	17,680	$	(7,150	)		(28.80	) %		11.34	%
+200		19,799		(5,031	)		(20.26	)		12.33
+100		22,280		(2,550	)		(10.27	)		13.44
Base		24,830		-			-			14.52
-100		26,754		1,924			7.75			15.21

In evaluating our exposure to interest rate movements, certain shortcomings inherent in the method of analysis presented in the foregoing table must be considered. For example, although certain assets and liabilities may have similar maturities or repricing periods, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in interest rates. Additionally, certain assets, such as adjustable rate mortgages, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a significant change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed above. Finally, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. We consider all of these factors in monitoring our exposure to interest rate risk.

Liquidity

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, FHLB advances, and proceeds from maturities and calls of securities. The Company has an unsecured federal funds line of credit for $6 million with a correspondent bank and a $41.8 million line with the Federal Home Loan Bank of Atlanta collateralized by a blanket lien on qualifying loans. At December 31, 2016 the Company had $12.8 million outstanding in FHLB advances that mature in 2017 at a weighted average fixed rate of 0.63%, compared to $5.0 million outstanding in FHLB advances that matured in 2016 at a weighted average fixed rate of 0.39%.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. For the year ended December 31, 2016, cash provided by operating activities totaled $940,000, compared to $603,000 in cash provided by operating activities for the year ended December 31, 2015. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans and proceeds from pay-downs on securities, totaled $15.6 million for the year ended December 31, 2016, compared to cash used of $9.2 million for last year. Net cash provided by financing activities, consisting primarily of the activity in FHLB advances and deposit accounts, was $15.2 million for the year ended December 31, 2016, compared to net cash provided of $6.4 million in 2015. These changes were primarily due to increases in deposits and FHLB advances partially offset by common stock repurchases.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for repurchasing shares pursuant to any Board approved stock repurchase program and paying any dividends, when and if declared by the Board, to its

shareholders. The Company has the ability to receive dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends. At December 31, 2016, the Company (on an unconsolidated basis) had liquid assets of $311,000.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

Off-Balance Sheet Activities

In the normal course of operations, we engage in a variety of financial transactions that are not recorded in our financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage customers' requests for funding and take the form of loan commitments and lines of credit. For the year ended December 31, 2016, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows.

A summary of our off-balance sheet commitments to extend credit at December 31, 2016, is as follows (in thousands):

Unused lines of credit

17,905

Capital Resources

Sunshine Community Bank is subject to minimum capital requirements imposed by FDIC regulations. Based on its capital levels at December 31, 2016, Sunshine Community Bank exceeded these requirements as of that date. Consistent with our goals to operate a sound and profitable organization, our policy is for Sunshine Community Bank to maintain a "well-capitalized" status under the capital categories of the FDIC. At December 31, 2016, Sunshine Community Bank exceeded all regulatory capital requirements to be categorized as well capitalized under applicable regulatory guidelines with a common equity Tier 1 ("CET1") capital ratio of 14.61% of risk-weighted assets, which is above the required level of 6.5%, a Tier 1 leverage capital level of 11.42% of adjusted total assets, which is above the required level of 5.00%, Tier I capital to risk-weighted assets of 14.61%, which is above the required level of 8.00% and total risk-based capital to risk-weighted assets of 15.34%, which is above the required level of 10.00%. Management is not aware of any conditions or events since the most recent notification that would change our category. For additional information, see "Business - How We Are Regulated – Sunshine Community Bank -- Capital Rules" in Part I, Item 1 of this Form 10-K for capital rules that Sunshine Community Bank became subject to as of January 1, 2015.

At December 31, 2016, stockholders' equity at Sunshine Community Bank totaled $21.1 million. Management monitors the capital levels of Sunshine Community Bank to provide for current and future business opportunities and to meet regulatory guidelines for "well-capitalized" institutions.

Impact of Inflation

The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the growth of total assets, it believes that it is difficult to assess the overall impact. Management believes this to be the case due to the fact that generally neither the timing nor the magnitude of the inflationary changes in the consumer price index ("CPI") coincides with changes in interest rates. The price of one or more of the components of the CPI may fluctuate considerably and thereby influence the overall CPI without having a corresponding effect on interest rates or upon the cost of those good and services normally purchased by Sunshine Community Bank. In years of high inflation and high interest rates, intermediate and long-term interest rates tend to increase, thereby adversely impacting the market values of investment securities, mortgage loans and other long-term fixed rate loans. In addition, higher short-term interest rates caused by inflation tend to increase the cost of funds. In other years, the opposite may occur.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

See "Asset/Liability Management" under Item 7 above.

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Sunshine Financial, Inc.

Tallahassee, Florida:

We have audited the accompanying consolidated balance sheets of Sunshine Financial, Inc. and Subsidiaries (the "Company") as of December 31, 2016 and 2015, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Hacker, Johnson & Smith PA

HACKER, JOHNSON & SMITH PA

Tampa, Florida

March 30, 2017

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

($ in thousands, except per share data)

	At December 31,
	2016			2015
Assets

Cash and due from banks	$	2,705		$	1,773
Interest-bearing deposits with banks		8,608			9,089

Cash and cash equivalents		11,313			10,862

Securities held to maturity (fair value $16,294 in 2016 and $20,854 in 2015)		16,512			21,063
Loans, net of allowance for loan losses of $924 and $895		134,077			113,422
Premises and equipment, net		3,662			4,591
Bank owned life insurance		3,172			3,075
Federal Home Loan Bank stock, at cost		684			348
Deferred income taxes		2,550			2,613
Accrued interest receivable		449			322
Foreclosed real estate		141			433
Other assets		649			1,099

Total assets	$	173,209		$	157,828

Liabilities and Stockholders' Equity

Liabilities:
Noninterest-bearing deposit accounts		31,247			28,211
Money-market deposit accounts		39,633			36,524
Savings accounts		46,989			41,717
Time deposits		20,033			24,018

Total deposits		137,902			130,470

Federal home loan bank advances		12,750			5,000
Official checks		541			526
Other liabilities		360			474

Total liabilities		151,553			136,470

Commitments and contingencies (Notes 5, 9 and 12)

Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding		-			-
Common stock, $.01 par value, 6,000,000 shares authorized, 1,030,039 and 1,030,898 shares issued and outstanding at December 31, 2016 and 2015, respectively		10			10
Additional paid in capital		7,374			7,285
Retained earnings		14,743			14,633
Unearned Employee Stock Ownership Plan shares		(471	)		(570	)

Total stockholders' equity		21,656			21,358

Total liabilities and stockholders' equity	$	173,209		$	157,828

See accompanying Notes to Consolidated Financial Statements.

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share data)

	Year Ended December 31,
	2016		2015
Interest income:
Loans	$	5,995	$	5,510
Securities		369		473
Other		52		22

Total interest income		6,416		6,005

Interest expense:
Deposit accounts		374		374
Federal home loan bank borrowings		27		1

Total interest expense		401		375

Net interest income		6,015		5,630

Provision for loan losses		180		180

Net interest income after provision for loan losses		5,835		5,450

Noninterest income:
Fees and service charges on deposit accounts		1,419		1,461
Gain on loan sales		36		134
Gain on sale of land		-		451
Gain on sale of foreclosed real estate		12		39
Fees and charges on loans		154		138
Income from bank owned life insurance		97		75
Other		180		42

Total noninterest income		1,898		2,340

Noninterest expenses:
Salaries and employee benefits		3,393		3,673
Occupancy and equipment		1,103		1,123
Data processing services		1,232		1,285
Professional fees		695		638
Deposit insurance		87		125
Advertising and promotion		86		58
Stationery and supplies		75		67
Telephone communications		103		132
Foreclosed real estate		46		83
Credit card expense		154		135
Other		603		599

Total noninterest expenses		7,577		7,918

Earnings before income tax expense (benefit)		156		(128	)

Income tax expense (benefit)		46		(52	)

Net earnings (loss)	$	110	$	(76	)

Basic earnings (loss) per common share	$	0.12	$	(0.08	)

Diluted earnings (loss) per common share	$	0.11	$	(0.08	)

See accompanying Notes to Consolidated Financial Statements.

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

Years Ended December 31, 2016 and 2015

($ In thousands)

												Unearned
												Employee
												Stock
						Additional						Ownership			Total
	Common Stock					Paid In			Retained			Plan			Stockholders'
	Shares			Amount		Capital			Earnings			Shares			Equity

Balance, December 31, 2014		1,094,110		$	10		8,334			14,709			(665	)		22,388

Net loss		-			-		-			(76	)		-			(76	)

Repurchase of common stock		(63,212	)		-		(1,144	)		-			-			(1,144	)

Stock based compensation expense		-			-		176			-			-			176

Common stock allocated to ESOP participants		-			-		(81	)		-			95			14

Balance, December 31, 2015		1,030,898		$	10		7,285			14,633			(570	)		21,358

Net earnings		-			-		-			110			-			110

Repurchase of common stock		(1,859	)		-		(33	)		-			-			(33	)
Stock based compensation expense		-			-		202			-			-			202

Stock options exercised Common stock allocated to Employee Stock Ownership Plan ("ESOP") participants		1,000 -			- -		11 (91	)		- -			- 99			11 8

Balance, December 31, 2016		1,030,039		$	10		7,374			14,743			(471	)		21,656

See accompanying Notes to Consolidated Financial Statements.

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

	Year Ended December 31,
	2016			2015
Cash flows from operating activities:
Net earnings (loss)	$	110		$	(76	)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation		359			389
Gain on sale of land		-			(451	)
Provision for loan losses		180			180
Deferred income tax benefit		63			(52	)
Net amortization of premiums on securities		46			49
Net change in deferred loan fees (costs)		(170	)		19
Income from bank owned life insurance		(97	)		(75	)
Loans originated for sale		(1,237	)		(6,102	)
Proceeds from loans sold		1,273			6,485
Gain on sale of loans		(36	)		(134	)
ESOP compensation expense		8			14
Share-based compensation expense		202			176
(Increase) decrease in accrued interest receivable		(127	)		28
Decrease (increase) in other assets		450			(100	)
Gain on sale of foreclosed real estate		(12	)		(39	)
Write-down of foreclosed real estate		27			5
Increase in official checks		15			201
(Decrease) increase in other liabilities		(114	)		86

Net cash provided by operating activities		940			603
Cash flows from investing activities:
Principal pay-downs on held-to-maturity securities		4,505			4,923
Purchase of bank owned life insurance		-			(3,000	)
Net increase in loans		(20,765	)		(11,544	)
Net sales of premises and equipment		570			378
Purchase of Federal Home Loan Bank stock		(336	)		(218	)
Proceeds from sale of foreclosed real estate		391			298
Capital expenditures for foreclosed real estate		(14	)		(31	)

Net cash used in investing activities		(15,649	)		(9,194	)

Cash flows from financing activities:
Net increase in deposits		7,432			2,565
Net proceeds from FHLB borrowings		7,750			5,000
Cash proceeds from stock options exercised		11			-
Repurchase of common stock		(33	)		(1,144	)

Net cash provided by financing activities		15,160			6,421

Increase (decrease) in cash and cash equivalents		451			(2,170	)

Cash and cash equivalents at beginning of year		10,862			13,032

Cash and cash equivalents at end of year	$	11,313		$	10,862

Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes	$	-		$	-

Interest	$	401		$	375

Noncash transactions:
Transfer from loans to foreclosed real estate	$	100		$	460

See accompanying Notes to Consolidated Financial Statements.

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2016 and 2015 and the Years Then Ended

(1) Organization and Significant Accounting Policies

Organization. Sunshine Financial, Inc. ("Sunshine Financial" or the "Holding Company"), a Maryland corporation, is the holding company for Sunshine Community Bank (the "Bank") and owns all the outstanding common stock of the Bank.

The Bank completed its conversion from a federal savings bank charter to a Florida state bank charter effective July 1, 2016. As a result of the charter conversion, the Bank's legal name changed to Sunshine Community Bank.

The Holding Company's only business is the operation of the Bank. The Bank through its five 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."

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America ("GAAP") and to prevailing practices within the banking industry. The following summarizes the more significant of these policies and practices.

Principles of Consolidation. The consolidated financial statements include the accounts of Sunshine Financial and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates. In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, and the valuation of foreclosed real estate and deferred tax assets.

Cash and Cash Equivalents. For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks and interest-bearing deposits with banks, all of which mature within ninety days.

Banks are required to maintain cash reserves in the form of vault cash, in a noninterest-earning account with the Federal Reserve Bank or in noninterest-earning accounts with other qualified banks. This requirement is based on the amount of the Bank's transaction deposit accounts.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(1) Organization and Significant Accounting Policies, Continued

Securities. Securities may be classified as either trading, held-to-maturity or available-for-sale. Trading securities are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in operations. Held-to-maturity securities are those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities consist of securities not classified as trading securities nor as held‑to‑maturity securities. Unrealized holding gains and losses on available-for-sale securities are excluded from operations and reported in comprehensive income. Gains and losses on the sale of available‑for‑sale securities are recorded on the trade date and are determined using the specific‑identification method. Premiums and discounts on securities available for sale are recognized in interest income using the interest method over the period to maturity.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Loans Held for Sale. The Bank originates loans for sale in the secondary market. These loans are carried at the lower of cost or estimated fair value in the aggregate. At December 31, 2016 and 2015, there were no loans held for sale.

Loans. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay‑off are reported at their outstanding principal adjusted for any charge‑offs, the allowance for loan losses, and any deferred fees or costs on originated loans.

Loan origination fees are deferred and certain direct origination costs are capitalized. The net amount is recognized as an adjustment of the yield over the contractual life of the related loan.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(1) Organization and Significant Accounting Policies, Continued

Loans, Continued. The accrual of interest on loans is discontinued at the time the loan is more than ninety-days delinquent unless the loan is well collateralized and in process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered unlikely.

All interest accrued but not collected for loans placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and remain current for a period of six months.

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 years ended December 31, 2016 or 2015.

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 two years. This is supplemented by the risks for each portfolio segment. Risk factors impacting loans in each of the portfolio segments include changes in lending policies and procedures, economic conditions, volume and nature of loans, lending management experience, volume of troubled loans, quality of loan review system, value of collateral-dependent loans, credit concentrations and competition and regulatory change. 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.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(1) Organization and Significant Accounting Policies, Continued

Allowance for Loan Losses, Continued. 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 for all mortgage loans 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.

Income Taxes. There are two components of income taxes: current and deferred. Current income taxes reflect taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods.

Deferred income taxes result from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management's judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. As of December 31, 2016, management is not aware of any uncertain tax positions that would have a material effect on the Company's consolidated financial statements.

The Company files consolidated income tax returns. Income taxes are allocated to the Holding Company and the Bank as if separate income tax returns were filed. Interest and penalties on income taxes are recognized as a component of income taxes.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(1) Organization and Significant Accounting Policies, Continued

Loan Servicing. Servicing assets are recognized as separate assets when rights are retained or acquired through purchase or through sale of financial assets. Capitalized servicing rights are amortized in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based upon the fair value of the rights compared to amortized cost. Impairment is determined by stratifying rights by predominant characteristics, such as interest rates and terms. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance for an individual stratum, to the extent that fair value is less than the capitalized amount for the stratum. At December 31, 2016 and 2015, the amount of loan servicing assets was immaterial.

Premises and Equipment. Land is stated at cost. Buildings and improvements and furniture and equipment are stated at cost, less accumulated depreciation. Depreciation expense is computed using the straight‑line method over the estimated useful lives of the assets. Estimated useful lives for buildings and improvements range from ten to forty years; for furniture and fixtures from five to seven years.

Foreclosed Real Estate. Real estate acquired through, or in lieu of, loan foreclosure is 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 real estate is 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.

Off‑Balance Sheet Financial Instruments. In the ordinary course of business the Company has entered into off‑balance sheet financial instruments consist of unused lines of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded.

Transfer of Financial Assets. Transfers of financial assets or a participating interest in an entire financial asset are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. A participating interest is a portion of an entire financial asset that (1) conveys proportionate ownership rights with equal priority to each participating interest holder (2) involves no recourse (other than standard representations and warranties) to, or subordination by, any participating interest holder, and (3) does not entitle any participating interest holder to receive cash before any other participating interest holder.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(1) Organization and Significant Accounting Policies, Continued

Fair Value Measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy describes three levels of inputs that may be used to measure fair value:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.

Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.

The following describes valuation methodologies used for assets measured at fair value:

Impaired Loans. The Company's impaired loans are normally collateral dependent and, as such, are carried at the lower of the Company's net recorded investment in the loan or the estimated fair value of the collateral less estimated selling costs. Estimates of fair value are determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Company's management related to values of properties in the Company's market areas. These officers take into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, fair value estimates for impaired loans is classified as Level 3.

Foreclosed Real Estate. Estimates of fair values are determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Company's management related to values of properties in the Company's market areas. These officers taken into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, the fair values estimates for foreclosed real estate are classified as Level 3.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(1)	Organization and Significant Accounting Policies, Continued

Fair Values of Financial Instruments. The following methods and assumptions were used by the Company in estimating fair values of financial instruments:

Cash and Cash Equivalents. The carrying amounts of cash and cash equivalents approximate their fair value.

Securities Held to Maturity. Fair values for securities are based on the framework for measuring fair value.

Loans. For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for fixed-rate mortgage and consumer loans are estimated using discounted cash flow analyses, using a third party pricing model. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Federal Home Loan Bank Stock. Fair value of the Company's investment in Federal Home Loan Bank stock is its redemption value of $100 per share.

Accrued Interest Receivable. The carrying amounts of accrued interest approximate their fair values.

Deposit Liabilities. The fair values disclosed for demand, NOW, money-market and savings deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate time deposits are estimated using the Company's interest-rate risk management model.

Federal Home Loan Bank Advances. Due to the short term nature as of December 31, 2016 and 2015, the carrying amount of Federal Home Loan Bank advances approximate their fair value.

Off-Balance Sheet Financial Instruments. Fair values for off balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(1) Organization and Significant Accounting Policies, Continued

Recent Pronouncements.

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customer (Topic 606). In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) which postponed the effective date of 2014-09. Subsequently, in March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. This amendment clarifies that an entity should determine if it is the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The core principle of Topic 606 is that an entity must recognize revenue when it has satisfied a performance obligation of transferring promised goods or services to a customer. The standard is effective for public entities for interim and annual periods beginning after December 15, 2017; early adoption is not permitted. The standard allows for full retrospective adoption for all periods presented or modified retrospective adoption to only the most current period presented in the financial statements. The cumulative effect of initially applying the standard is recognized at the date of the initial application. Our primary source of revenue is interest income, which is recognized as it is earned and is deemed to be in compliance with this ASU. The Company does not expect implementation of this standard to have a material impact on our consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU requires equity investments to be measured at fair value with changes in fair values recognized in net earnings, simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment and eliminates the requirement to disclose fair values, the methods and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost. The ASU also clarifies that the Company should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale debt securities in combination with the Company's other deferred tax assets. These amendments are effective for the Company beginning January 1, 2017. The ASU did not have a material impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU 2016-2, Leases (Topic 842) which will require lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with term of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. The new ASU will require both types of leases to be recognized on the balance sheet. The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The ASU is effective for fiscal years,

and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is be permitted for all organizations. Once adopted, we expect to report higher assets and liabilities as a result of including additional lease information on the consolidated balance sheet. The Company is in the process of determining the effect of the ASU on its consolidated financial statements.

In March 2016 the FASB issued ASU No. 2016-09 Compensation-Stock Compensation (Topic 718). The ASU simplifies several aspects of the accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Early adoption is permitted. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The ASU is not expected to have a material impact on the Company's financial statements.

In June 2016, FASB issued Accounting Standards Update ("ASU") No. 2016-13 Financial Instruments-Credit Losses (Topic 326). The ASU requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The Company will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization's portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is in the process of determining the effect of the ASU on its consolidated financial statements. Once adopted, we expect our allowance for loan losses to increase; however, until our evaluation is complete the magnitude of the increase will be unknown.

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

RECENT ACCOUNTING PRONOUNCEMENTS (continued)

In August 2016, FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the appropriate classification of eight specific cash flow issues on the cash flow statement. Debt prepayment costs should be classified as an outflow for financing activities. Settlement of zero-coupon debt instruments divides the interest portion as an outflow for operating activities and the principal portion as an outflow for financing activities. Contingent consideration payments made after a business combination should be classified as outflows for financing and operating activities. Proceeds from the settlement of bank-owned life insurance policies should be classified as inflows from investing activities. Other specific areas are identified in the ASU as to the appropriate classification of the cash inflows or outflows. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect this ASU to have a material impact on the Company's consolidated financial statements.

Reclassifications. Certain amounts in the 2015 consolidated financial statements have been reclassified to conform with the 2016 presentation.

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(2) Earnings (loss) Per Share

Earnings (loss) per share ("EPS") has been computed on the basis of the weighted-average number of shares of common stock outstanding. For the year ended December 31, 2016 the outstanding stock options were considered dilutive securities for purposes of calculating diluted EPS which was computed using the treasury stock method. For the year ended December 31, 2015 the outstanding stock options were are not considered dilutive securities due to the net loss incurred by the Company. The shares purchased by the ESOP are included in the weighted-average shares when they are committed to be released (dollars in thousands, except per share amounts):

	2016						2015
			Weighted-		Per					Weighted-		Per
			Average		Share					Average		Share
	Earnings		Shares		Amount		Loss			Shares		Amount
Year Ended December 31:
Basic EPS:
Net earnings (loss)	$	110		944,372	$	0.12	$	(76	)		979,579	$	(0.08	)
Effect of dilutive securities-
Incremental shares from assumed conversion of options and restricted stock awards				33,374							-

Diluted EPS:
Net (loss) earnings	$	110		977,746	$	0.11	$	(76	)		979,579	$	(0.08	)

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(3) Securities Held to Maturity

Management has classified all securities as held to maturity. The carrying amount of securities and their fair values at the dates indicated are as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
At December 31, 2016:
Agency mortgage-backed securities	$	697		24		-			721
Agency collateralized mortgage obligations		15,815		15		(257	)		15,573

	$	16,512		39		(257	)		16,294

At December 31, 2015:
Agency mortgage-backed securities	$	1,086		42		-			1,128
Agency collateralized mortgage obligations		19,977		27		(278	)		19,726

	$	21,063		69		(278	)		20,854

There were no securities pledged as of December 31, 2016 and 2015.

Securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position at the date indicated, are as follows (in thousands):

	Less than Twelve Months					Twelve Months or Longer
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
At December 31, 2016-
Agency collateralized mortgage obligations	$	(102	)		10,523		(155	)		3,941

At December 31, 2015-
Agency collateralized mortgage obligations		$	(94	)			8,332				(184	)			5,839

At December 31, 2016 and 2015, the unrealized losses on twenty-one and nineteen securities, respectively, are considered by management to be attributable to changes in market interest rates, and not attributable to credit risk on the part of the issuer. Accordingly, if market rates were to decline, much or the entire decline in market value would likely be recovered through market appreciation. As management has the ability and intent to hold debt securities until maturity, or for the foreseeable future, no declines in the fair value below amortized cost are deemed to be other than temporary.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(4) Loans

The loan portfolio segments and classes at the dates indicated are as follows (in thousands):

	December 31,
	2016			2015
Real estate mortgage loans:
One-to-four family	$	56,601		$	46,293
Commercial real estate		52,960			43,419
Construction and lot		4,247			5,175

Total real estate mortgage loans		113,808			94,887

Commercial		4,217			1,177

Consumer loans:
Home equity		7,166			7,609
Automobile		3,221			3,321
Credit cards and unsecured		5,796			6,100
Other		1,277			1,312

Total consumer loans		17,460			18,342

Total loans		135,485			114,406

Add (deduct):
Loans in process		(522	)		43
Deferred loan fees (costs)		38			(132	)
Allowance for losses		(924	)		(895	)

Total loans, net	$	134,077		$	113,422

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(4) Loans, Continued

The Company has divided the loan portfolio into three portfolio segments and eight classes, each with different risk characteristics and methodologies for assessing risk. The portfolio segments identified by the Company are as follows:

Real Estate Mortgage Loans. Real estate mortgage loans are loans comprised of three classes: One- to four-family, Commercial real estate and Construction and lot 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 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 originated at 75% or less loan-to-value ratio and have amortization terms of up to 20 years and maturities of up to ten years. Construction loans to borrowers are to finance the construction of one- to four-family, owner occupied properties. These loans are categorized as construction loans during the construction period, later converting to residential real estate loans after the construction is complete and amortization of the loan begins. Real estate 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. The Company will generally originate lot loans in an amount up to 75% of the lower of the purchase price or appraisal and have a maximum amortization of up to 20 years and maturities up to 20 years. Construction and lot loan lending is generally considered to involve a higher degree of credit risk than long-term permanent financing of residential properties.

Commercial. Commercial loans are primarily underwritten on the basis of the borrowers' ability to service such debt from income. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. As a general practice, the Company takes as collateral a security interest in any available real estate, equipment, or other chattel, although loans may also be made on an unsecured basis. Collateralized working capital loans typically are secured by short-term assets whereas long-term loans are primarily secured by long-term assets.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(4) Loans, Continued

Consumer Loans. Consumer loans are comprised of four classes: Home equity, Automobile, Credit cards and unsecured, 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.

The activity in the allowance for loan losses for the periods shown was as follows (in thousands):

	Real Estate Mortgage Loans			Commercial Loans		Consumer Loans			Unallocated			Total
Year Ended December 31, 2016:
Beginning balance	$	503			10		381			1			895
Provision (credit) for loan loss		108			64		9			(1	)		180
Charge-offs		(69	)		-		(152	)		-			(221	)
Recoveries		16			-		54			-			70
Ending balance	$	558			74		292			-			924

Individually evaluated for impairment:
Recorded investment	$	2,559			-		162			-			2,721
Balance in allowance for loan losses	$	44			-		28			-			72
Collectively evaluated for impairment:
Recorded investment	$	111,249			4,217		17,298			-			132,764
Balance in allowance for loan losses	$	514			74		264			-			852

Year Ended December 31, 2015:
Beginning balance	$	708			10		296			73			1,087
Provision (credit) for loan loss		(232	)		-		484			(72	)		180
Charge-offs		(6	)		-		(495	)		-			(501	)
Recoveries		33			-		96			-			129
Ending balance	$	503			10		381			1			895

Individually evaluated for impairment:
Recorded investment	$	2,728			-		221			-			2,949
Balance in allowance for loan losses	$	73			-		33			-			106
Collectively evaluated for impairment:
Recorded investment	$	92,159			1,178		18,120			-			111,457
Balance in allowance for loan losses	$	430			10		348			1			789

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(4) Loans, Continued

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

Credit Risk	One-to-		Commercial										Credit
Profile by	Four		Real		Construc-		Commer-		Home		Auto-		Cards and
Internally	Family		Estate		tion/lot		cial		Equity		mobile		Unsecured		Other		Total
Assigned Grade:
At December 31, 2016:
Grade:

Pass	$	53,573		52,960		4,218		4,217		6,843		3,198		5,760		1,195		131,964
Special mention		807		-		-		-		-		-		4		-		811
Substandard		2,221		-		29		-		323		23		32		82		2,710

Total	$	56,601		52,960		4,247		4,217		7,166		3.221		5,796		1,277		135,485

At December 31, 2015:
Grade:
Pass	$	41,995		43,419		5,154		1,177		7,221		3,311		6,068		1,228		109,573
Special mention		419		-		21		-		23		-		-		1		464
Substandard		3,879		-		-		-		365		10		32		83		4,369

Total	$	46,293		43,419		5,175		1,177		7,609		3.321		6,100		1,312		114,406

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 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.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(4) Loans, Continued

Age analysis of past-due loans at the dates indicated is as follows (in thousands):

	Accruing Loans
					90 Days
	30-59		60-89		and		Total
	Days		Days		Greater		Past				Nonaccrual		Total
	Past Due		Past Due		Past Due		Due		Current		Loans		Loans
At December 31, 2016:
Real estate loans:
One-to-four family	$	772		277		-		1,049		53,465		2,087		56,601
Commercial		-		-		-		-		52,960		-		52,960
Construction and lot		85		-		-		85		4,162		-		4,247
Commercial loans		17		-		-		17		4,200		-		4,217
Consumer loans:
Home equity		60		-		-		60		6,786		320		7,166
Automobile		21		-		-		21		3,178		22		3,221
Credit cards and unsecured		138		4		7		149		5,614		33		5,796
Other		-		-		-		-		1,195		82		1,277

Total	$	1,093		281		7		1,381		131,560		2,544		135,485

At December 31, 2015:
Real estate loans:
One-to-four family	$	698		419		-		1,117		43,832		1,344		46,293
Commercial		-		-		-		-		43,419		-		43,419
Construction and lot		-		21		-		21		5,154		-		5,175
Commercial loans		-		-		-		-		1,177		-		1,177
Consumer loans:
Home equity		77		51		-		128		7,192		289		7,609
Automobile		22		-		-		22		3,289		10		3,321
Credit cards and unsecured		54		-		7		61		6,007		32		6,100
Other		4		1		-		5		1,224		83		1,312

Total	$	855		492		7		1,354		111,294		1,758		114,406

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(4) Loans, Continued

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

	With No Related Allowance Recorded				With an Allowance Recorded						Total
	Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
At December 31, 2016:
Real estate loans-
One-to-four family	$	1,985		2,037		574		591		44		2,559		2,628		44
Consumer loans-
Home equity		126		137		36		45		28		162		182		28

	$	2,111		2,174		610		636		72		2,721		2,810		72

At December 31, 2015:
Real estate loans-
One-to-four family	$	1,552		1,604		1,176		1,193		73		2,728		2,797		73
Consumer loans-
Home equity		56		71		165		174		33		221		245		33

	$	1,608		1,675		1,341		1,367		106		2,949		3,042		106

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(4) 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 Year Ended December 31, 2016:
Real estate loans:
One-to-four family	$	2,571		138		139
Consumer loans:
Home equity		162		11		11

Total	$	2,733		149		150

For the Year Ended December 31, 2015:
Real estate loans:
One-to-four family	$	2,686		125		127
Consumer loans:
Home equity		219		12		13

Total	$	2,905		137		140

There were no loans entered into as troubled debt restructures during the years ended December 31, 2016 or 2015.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(5) Premises and Equipment

Premises and equipment are summarized as follows (in thousands):

	At December 31,
	2016		2015

Land	$	791		921
Buildings and improvements		5,077		5,624
Furniture and equipment		4,632		4,616

Total, at cost		10,500		11,161

Less accumulated depreciation		6,838		6,570

Premises and equipment, net	$	3,662		4,591

Certain facilities are leased under operating leases. Rental expense was $224,000 and $215,000 for the years ended December 31, 2016 and 2015, respectively. The operating leases generally contain escalation clauses. The future minimum lease payments are as follows (in thousands):

Year Ending
December 31,	Amount

2017	$	188
2018		171
2019		121
2020		97
2021		100
Thereafter		217

	$	894

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(6) Foreclosed Real Estate

Expenses applicable to foreclosed real estate at the dates indicated are as follows (in thousands):

	Year Ended December 31,
	2016		2015

Write-down of foreclosed real estate	$	27		5
Operating expenses		19		78

	$	46		83

(7) Deposits

The aggregate amount of time deposits with a minimum denomination of $100,000 was approximately $6.0 million and $7.7 million at December 31, 2016 and 2015, respectively. Deposits in excess of $250,000 are not insured by FDIC. The scheduled maturities of time deposits are as follows (in thousands):

Year Ending
December 31,	Amount

2017	$	14,407
2018		3,715
2019		1,028
2020		711
2021		172

	$	20,033

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(8) Federal Home Loan Bank Advances and Line of Credit

The Company also has an unsecured federal funds line of credit for $6.0 million with a correspondent bank and a $41.8 million line with the Federal Home Loan Bank of Atlanta collateralized by a blanket lien on qualifying loans. At December 31, 2016, the Company had $12.75 million outstanding in FHLB advances that mature in 2017 at a weighted average fixed rate of 0.63%. At December 31, 2015 the Company had $5.0 million outstanding in FHLB advances that mature in 2016 at a weighted average fixed rate of 0.39%. At December 31, 2016 and 2015, the Company had no outstanding balances on the federal funds line of credit.

(9) 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 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 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 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 at the dates indicated follows (in thousands):

At December 31,	2016

Unused lines of credit	$	17,905

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(10) Fair Value of Financial Instruments

The estimated fair values of the Company's financial instruments at the dates indicated are as follows (in thousands):

	At December 31, 2016				At December 31, 2015
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents (Level 1)	$	11,313		11,313		10,862		10,862
Securities held to maturity (Level 2)		16,512		16,294		21,063		20,854
Loans (Level 3)		134,077		132,454		113,422		113,558
Federal Home Loan Bank stock (Level 3)		684		684		348		348
Accrued interest receivable (Level 3)		449		449		322		322

Financial liabilities:
Deposits (Level 3)		137,902		132,280		130,470		126,230
Federal Home Loan Bank advances (Level 3)		12,750		12,750		5,000		5,000

Off-balance-sheet financial instruments (Level 3)		-		-		-		-

(11) Income Taxes

The components of the income tax benefit for the years ended December 31, 2016 and 2015 are as follows (in thousands):

	Year Ended December 31,
	2016			2015
Current:
Federal	$	(17	)		-
State		-			-

Total current		(17	)		-

Deferred:
Federal		55			(45	)
State		8			(7	)

Total deferred		63			(52	)

Income taxes (benefit)	$	46			(52	)

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(11) Income Taxes, Continued

The reasons for the differences between the statutory Federal income tax rate and the effective tax rate at the dates indicated are as follows (dollars in thousands):

	Year Ended December 31,
	2016						2015
				% of						% of
				Pretax						Pretax
	Amount			Earnings			Amount			Loss
Income taxes (benefit) at Federal
statutory rate	$	53			34.0	%	$	(44	)		34.0	%
Increase (decrease) in income tax (benefit) resulting
from State taxes, net of Federal tax		5			3.2			(4	)		(3.0	)
Other		(12	)		(7.7	)		(4	)		(3.0	)

Total	$	46			29.5	%	$	(52	)		(40.6	)%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at the dates indicated are presented below (in thousands):

	At December 31,
	2016			2015
Deferred tax assets:
Allowance for loan losses	$	353			337
Net operating loss carryforwards		1,382			1,505
Other		54			156
Nonaccrual interest		565			412
Foreclosed property expenses		-			13
Premises and equipment		61			81
Stock based compensation		196			183

Total deferred tax assets		2,611			2,687

Deferred tax liabilities:
Mortgage service rights		(61	)		(74	)

Total deferred tax liabilities		(61	)		(74	)

Net deferred tax asset	$	2,550			2,613

At December 31, 2016, the Company has Federal net operating loss carryforwards of approximately $3.7 million, available to offset future taxable income. These carryforwards will begin to expire in 2028.

The Company files consolidated U.S. and Florida income tax returns. With few exceptions, the Company is no longer subject to U.S. federal or state and local income tax examinations by taxing authorities for years before 2013.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(11) Income Taxes, Continued

The Company performs periodic evaluations on the deferred tax asset to determine if a valuation allowance is necessary. The analysis weighs positive evidence against negative evidence to determine if it is more likely than not to recognize the future benefit of the deferred tax asset. The Company's analysis includes internal forecasts that demonstrate the Company's ability to fully utilize the deferred tax asset prior to the expiration of the related net operating loss periods discussed above. The Company's internal forecasts include growth assumptions relating to loans, noninterest income and noninterest expense, as well as estimating loan losses and other nonrecurring items. Management determined that a valuation allowance against the deferred tax asset was not necessary at December 31, 2016 or 2015.

(12) Contingencies

Various legal claims arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Company's consolidated financial statements.

(13) Related Parties

The Company makes loans to and accepts deposits from its executive officers and directors and their related entities. The activity for the periods shown is as follows (in thousands):

	Year Ended December 31,
	2015			2014

Loans at beginning of year	$	2			6
Repayments		(1	)		(4	)

Loans at end of year	$	1			2

Deposits at end of year	$	144			400

(14) Employee Benefit Plans

The Company has a 401(k) plan for its employees who meet certain age and length-of-service requirements. For the tax year 2016, eligible employees could contribute up to $18,000 of their compensation to the plan on a pre-tax basis. Employer matching contributions were made at 100 percent of the employee contribution up to five percent. Employer contributions to the 401(k) plan were approximately $106,000 and $97,000 for 2016 and 2015, respectively.

(15) Employee Stock Ownership Plan ("ESOP")

The Holding Company has established an ESOP which acquired 98,756 shares in exchange for a $988,000 note payable to the Holding Company. The loan is being repaid principally by the Bank through contributions to the ESOP over a period of 10 years. The note bears interest at a fixed rate of 4.25% and is payable in annual installments and is due in 2021. The ESOP expense was $8,000 and $14,000 for the years ended December 31, 2016 and 2015, respectively.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(16) 2012 Equity Incentive Plan

The Company's 2012 Equity Incentive Plan authorizes the grant of options or stock appreciation rights for up to 123,445 shares of the Holding Company's common stock. At December 31, 2016 and 2015, no stock appreciation rights had been granted. The options granted have ten year terms and vest from one to five years. At December 31, 2016, 41,945 shares remain available for grant. A summary of the activity in the Company's stock options is as follows:

						Weighted-
				Weighted-		Average
				Average		Remaining	Aggregate
	Number of			Exercise		Contractual	Intrinsic
	Options			Price		Term	Value

Outstanding at December 31, 2014		84,000			11.23
Forfeited		(2,500	)		10.75

Outstanding at December 31, 2015		81,500		$	11.62	7.12 years
Exercised		(1,000	)	$	10.75

Outstanding at December 31, 2016		80,500		$	11.63	6.14 years

Exercisable at December 31, 2016		10,000		$	10.75	5.95 years	$ 91,500

At December 31, 2016, there was approximately $51,000 of unrecognized compensation expense related to non-vested stock options granted under the Plan. The cost is expected to be recognized over a period of thirty-two months. The total fair value of shares vesting and recognized as compensation expense was $45,000 and $29,000 for the years ended December 31, 2016 and 2015, respectively. The Company recognized a tax benefit of $17,000 for each of the years ended December 31, 2016 and 2015.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(16) 2012 Equity Incentive Plan, Continued

The Company's 2012 Equity Incentive Plan also authorized the grant of up to 49,378 restricted common shares. The restricted shares granted vest in five equal annual installments, with the first installment vesting one year after the date of grant. Restricted shares generally are forfeited if employment is terminated before the restriction period expires. The record holder of the Company's restricted shares of common stock possesses all the rights of a holder of the Company common stock, including the right to receive dividends on and to vote the restricted shares. The restricted shares may not be sold, transferred, pledged, assigned, encumbered, or otherwise alienated or hypothecated until they become fully vested and transferable in accordance with the agreements. Compensation expense for restricted stock totaled $157,000 for 2016 and $147,000 for 2015. The income tax benefit recognized was $59,000 and $55,000 in the years ended December 31, 2016 and 2015, respectively.

A summary of the status of the Company's restricted stock and changes during the years then ended are presented below:

	Number of Shares			Weighted-Average Grant-Date Fair Value

Outstanding at December 31, 2014		38,000		$	16.91
Vested		(9,300	)		16.88

Outstanding at December 31, 2015		28,700			16.92
Vested		(9,300	)		16.88

Outstanding at December 31, 2016		19,400		$	16.94

Total unrecognized compensation cost related to these nonvested restricted stock amounted to approximately $300,000 at December 31, 2016. This cost is expected to be recognized monthly over the related vesting period using the straight-line method through 2019.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(17) 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 at December 31, 2016 and 2015 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 (Gains) Recorded During the Year
At December 31, 2016:
One-to four-family	$	574		-		-		574		44		(25	)
Home equity		36		-		-		36		28		23

Total	$	610		-		-		610		72		(2	)

At December 31, 2015:
One-to four-family	$	754		-		-		754		69		-
Home equity		16		-		-		16		5		-

Total	$	770		-		-		770		74		-

Foreclosed real estate is recorded at fair value less estimated costs to sell. Foreclosed real estate is measured at fair value on a nonrecurring basis at December 31, 2016 and 2015 is summarized below (in thousands):

Quoted Prices

In Active

Significant

Markets for

Other

Significant

Losses

Identical

Observable

Unobservable

Recorded

Fair

Assets

Inputs

Total

During the

Value

(Level 1)

(Level 2)

(Level 3)

Losses

Year

At December 31, 2016-

Foreclosed real estate

141

At December 31, 2015-

Foreclosed real estate

433

103

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(18) Regulatory Matters

On December 31, 2016, the Bank was subject to minimum capital requirements imposed by the Federal Deposit Insurance Corporation. Capital adequacy requirements are quantitative measures established by regulation that require the Bank to maintain minimum amounts and ratios of capital.

At December 31, 2016, the Bank exceeded all regulatory capital requirements. Consistent with its goals to operate a sound and profitable organization, the Bank's policy is to maintain a "well-capitalized" status under the capital categories. Based on capital levels at December 31, 2016, the Bank was considered to be well-capitalized.

The Bank's actual regulatory capital amounts and percentages at December 31, 2016 and 2015 are presented in the table (dollars in thousands):

											Minimum
											To Be Well
						Minimum					Capitalized Under
						For Capital Adequacy					Prompt and Corrective
	Actual					Purposes					Action Provisions
	Amount		%			Amount		%			Amount		%
At December 31, 2016:
Total Capital to Risk-
Weighted Assets	$	19,539		15.34	%	$	10,191		8.00	%	$	12,739		10.00	%
Tier I Capital to Risk-
Weighted Assets		18,615		14.61			7,643		6.00			10,191		8.00
Tier I Capital
to Total Assets		18,615		11.42			6,519		4.00			8,148		5.00
Common equity Tier 1Capital
to Risk-Weighted Assets		18,615		14.61			5,733		4.50			8,280		6.50

At December 31, 2015:
Total Capital to Risk-
Weighted Assets	$	19,117		17.03	%	$	8,978		8.00	%	$	11,222		10.00	%
Tier I Capital to Risk-
Weighted Assets		18,222		16.24			6,733		6.00			8,978		8.00
Tier I Capital
to Total Assets		18,222		12.56			5,803		4.00			7,253		5.00
Common equity Tier 1Capital
to Risk-Weighted Assets		18,222		16.24			5,050		4.50			7,295		6.50

In addition to the minimum Common Equity Tier 1 ("CET-1"), Tier 1 and Total Capital ratios, the Bank has to maintain a capital conservation buffer consisting of additional CET-1 capital equal above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained earnings that could be utilized for such actions. This new capital conservation buffer requirement began to be phased in starting in January 2016 at 0.625% of risk-weighted assets and will increase each year to an amount equal to 2.5% of risk-weighted assets when fully implemented in January 2019.

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(18) Regulatory Matters, Continued

Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. For a Bank holding company with less than $1.0 billion in assets, the capital guidelines apply on a bank only basis and the Federal Reserve expects the holding company's subsidiary banks to be well-capitalized under the prompt corrective action regulations.

(19) Parent Company Only Financial Information

The Holding Company's financial information follows (in thousands):

Condensed Balance Sheets

	At December 31,
	2016		2015
Assets

Cash	$	311		517
Investment in subsidiary		21,119		20,756
Other assets		229		122

Total assets	$	21,659		21,395

Liabilities and Stockholders' Equity

Other liabilities		3		37
Stockholders' equity		21,656		21,358

Total liabilities and stockholders' equity	$	21,659		21,395

Condensed Statements of Operations

	Year Ended December 31,
	2016			2015

Revenues	$	25			30
Expenses		(150	)		(135	)

Loss before earnings (loss) of subsidiary		(125	)		(105	)

Net earnings (loss) of subsidiary		229			(12	)

Earnings (loss) before income tax benefit		104			(117	)

Income tax benefit		(6	)		(41	)

Net earnings (loss)	$	110			(76	)

(continued)

SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

(19) Parent Company Only Financial Information, Continued

Condensed Statements of Cash Flows

	Year Ended December 31,
	2016			2015
Cash flows from operating activities:
Net earnings (loss)	$	110			(76	)
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
ESOP compensation expense		8			14
Decrease in investment in subsidiary due to ESOP
compensation		68			78
Increase in other assets		(107	)		(65	)
(Decrease) increase in other liabilities		(34	)		36
Equity in undistributed (earnings) loss of subsidiary		(229	)		12

Net cash used in operating activities		(184	)		(1	)

Cash flows from financing activities:
Cash proceeds from stock options exercised		11			-
Repurchase of common stock		(33	)		(1,144	)

Net cash used in financing activities		(22	)		(1,144	)

Net decrease in cash		(206	)		(1,145	)

Cash at beginning of the year		517			1,662

Cash at end of year	$	311			517

Supplemental disclosure of cash flow information:
Noncash transaction-
Stock-based compensation expense of subsidiary	$	202			176

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9(A). Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of December 31, 2016, was carried out under the supervision and with the participation of the our Chief Executive Officer, Principal Financial Officer and several other members of our senior management team within the period preceding the filing of this annual report. Our Chief Executive Officer and Principal Financial Officer concluded that, as of December 31, 2016, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) accumulated and communicated to our management (including our Chief Executive Officer and Principal 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.

We intend to continually review and evaluate the design and effectiveness of the Company's disclosure controls and procedures and to improve the Company's controls and procedures over time and to correct any deficiencies that we may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Company's business. While we believe the present design of the disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure controls and procedures.

The Company does not expect that its disclosure controls and procedures 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 can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management 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.

(b) Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Act) that occurred during the quarter ended December 31, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The annual report of management on the effectiveness of internal control over financial reporting is set forth below.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Sunshine Financial, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company's internal control over financial reporting is a process designed to provide reasonable assurance to the Company's management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2016. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on our assessment, we concluded that, as of December 31, 2016, the Company's internal control over financial reporting was effective based on those criteria.

This annual report does not include an attestation of our independent registered public accounting firm regarding internal controls over financial reporting. Management's report was not subject to attestation by our independent registered public accounting firm.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Directors

Information concerning the Company's directors is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Shareholders to be held in May 2017, except for information contained under the heading "Report of the Audit Committee" a copy of which will be filed not later than 120 days after the close of the fiscal year.

Executive Officers

Information concerning the executive officers of the Company and Sunshine Community Bank is contained under the caption "Executive Officers" under Part I, Item 1 of this Form 10-K and incorporated herein by reference.

Audit Committee Matters and Audit Committee Financial Expert

The Board of Directors of the Company has a standing Audit Committee, which has been established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of that committee during 2016 were Directors Betts (Chair), Bacon, Moore, Briglia, and Conte, each of whom was considered independent under Nasdaq listing standards. The Board of Directors has determined that Mr. Betts is an "audit committee financial expert" as defined in applicable SEC rules. Additional information concerning the Audit Committee is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Shareholders to be held in May 2017, except for information contained under the heading "Report of the Audit Committee," a copy of which will be filed not later than 120 days after the close of the fiscal year.

Section 16(a) Beneficial Ownership Reporting Compliance

Information concerning Section 16(a) beneficial ownership reporting compliance is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Shareholders to be held in May 2017, except for information contained under the heading "Report of the Audit Committee" a copy of which will be filed not later than 120 days after the close of the fiscal year.

Code of Ethics

The Company adopted a written Code of Ethics based upon the standards set forth under Item 406 of Regulation S-K of the Securities Exchange Act. The Code of Ethics applies to all of the Company's directors, officers and employees. A copy of the Company's Code of Ethics is available on our website at www.sunshinesavingsbank.com under "About Us – Investor Relations" or free of charge from the Company by writing to our Corporate Secretary at Sunshine Financial, Inc., 1400 East Park Avenue, Tallahassee, Florida 32301 or by calling (850) 219-7200.

Nomination Procedures

There have been no material changes to the procedures by which shareholders may recommend nominees to the Company's Board of Directors.

Item 11. Executive Compensation

Information concerning executive compensation is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Shareholders to be held in May 2017, except for information contained under the heading "Report of the Audit Committee," a copy of which will be filed not later than 120 days after the close of the fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Shareholders to be held in May 2017, except for information contained under the heading "Report of the Audit Committee," a copy of which will be filed not later than 120 days after the close of the fiscal year.

Equity Compensation Plan Information. The following table sets forth information as of December 31, 2016, with respect to compensation plans under which shares of common stock were issued.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plan

2012 Equity Incentive Plan approved by security holders		80,500	$	11.63		44,823	⁽¹⁾

Equity Incentive Plan not approved by security holders		---		---		---

(1)	Consists of stock options and stock appreciation rights covering up to 41,945 shares of common stock and restricted stock unit awards covering up to 2,878 shares of common stock.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information concerning certain relationships and related transactions, our independent directors and our audit and nominating committee charters is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Shareholders to be held in May 2017, except for information contained under the heading "Report of the Audit Committee," a copy of which will be filed not later than 120 days after the close of the fiscal year.

Item 14. Principal Accounting Fees and Services

Information concerning principal accountant fees and services is incorporated herein by reference from the Company's definitive proxy statement for its Annual Meeting of Shareholders to be held in May 2017, except for information contained under the heading "Report of the Audit Committee," a copy of which will be filed not later than 120 days after the close of the fiscal year.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1) List of Financial Statements

The following are contained in Item 8 of this Form 10-K:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at December 31, 2016 and 2015

Consolidated Statements of Earnings for the Years Ended December 31, 2016 and 2015

Consolidated Statements of Stockholders' Equity for the Years Ended December 31,

2016 and 2015

Consolidated Statements of Cash Flows for the Years Ended December 31,
2016 and 2015

Notes to Consolidated Financial Statements

(a)(2) List of Financial Statement Schedules:

All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable.

(a)(3) List of Exhibits:

See Exhibit Index.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 FINANCIAL, INC.

Date: March 30, 2017	By:	/s/ Louis O. Davis, Jr.
		Louis O. Davis, Jr., President and Chief Executive Officer (Duly Authorized Representative)

KNOWALLMEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Louis O. Davis, Jr. and Scott A. Swain his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him/her and in his/her name, place and stead, in any and all capacities, to sign any amendment to Sunshine Financial, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2016, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming said attorney-in-fact and agent or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ Louis O. Davis, Jr.	Date: March 30, 2017
Louis O. Davis Jr., President, Chief Executive Officer and Director (Duly authorized representative and Principal Executive Officer)

/s/ Benjamin F. Betts, Jr.	Date: March 30, 2017
Benjamin F. Betts, Jr., Chairman of the Board and Director

/s/ Susan J. Conte	Date: March 30, 2017
Susan J. Conte, Director

/s/ Richard A. Moore	Date: March 30, 2017
Richard A. Moore, Director

/s/ Fred G. Shelfer	Date: March 30, 2017
Fred G. Shelfer, Director

/s/ Robert K. Bacon	Date: March 30, 2017
Robert K. Bacon, Director

/s/ Joyce E. Chastain	Date: March 30, 2017
Joyce E. Chastain, Director


/s/ Brian P. Baggett	Date: March 30, 2017
Brian P. Baggett, Executive Vice President and Director

/s/ Corissa J. Briglia	Date: March 30, 2017
Corissa J. Briglia, Director

/s/ Scott A. Swain	Date: March 30, 2017
Scott A. Swain, Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

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, as amended, of Sunshine Financial, Inc. (incorporated herein by reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K filed with the SEC on August 28, 2013 (File No. 000-54280))
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 (now known as Sunshine Community 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	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))
10.5	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))
10.8	Agreement, dated February 5, 2016, by and among, Sunshine Financial, Inc., Sunshine Savings Bank (now known as Sunshine Community Bank), Stilwell Value Partners VII, L.P., Stilwell Activist Fund, L.P., Stilwell Activist Investments, L.P., Stilwell Partners, L.P. and Stilwell Value LLC, and Corissa J. Briglia (incorporated by reference to the Registrant's Current Report on Form 8-K filed on February 8, 2016 (File No. 000-54280))
11.0	Statement re computation of per share earnings (See Note 2 of the Notes to Consolidated Financial Statements included in this Form10-K).
21.0	Subsidiaries of the registrant (incorporated herein by reference to Exhibit 21.0 to the Registrant's Registration Statement on Form S-1, as amended (File No. 333-169555))
23.0	Consent of Accountants
24.0	Power of Attorney (on signature page)
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

Attached files

Sunshine Financial, Inc. Reports

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