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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x      Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2013

OR

o         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                                to

Commission File No. 333-187317

Sunnyside Bancorp, Inc.

(Exact name of registrant as specified in its charter)

(914) 591-8000

(Registrant’s telephone number)

N/A

(Former name or former address, if changed since last report)

Indicate by check mark 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 requirements for the past 90 days.  YES  o  NO  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES  o  NO  x

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  o  NO  x

No shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding as of May 14, 2013.

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Sunnyside Bancorp, Inc.

Form 10-Q

Index

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EXPLANATORY NOTE

Sunnyside Bancorp, Inc., a Maryland corporation (the “Company” or the “Registrant”), was formed on March 14, 2013 to serve as the savings and loan holding company for Sunnyside Federal Savings and Loan Association of Irvington (the “Association”) as part of the Association’s mutual-to-stock conversion.  As of March 31, 2013, the conversion had not been completed, and, as of that date, the Registrant had no assets or liabilities, and had not conducted any business other than that of an organizational nature.  Accordingly, financial and other information of the Association is included in this Quarterly Report.

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Part I. — Financial Information

Item 1.                                                         Financial Statements

SUNNYSIDE FEDERAL SAVINGS AND LOAN ASSOCIATION OF IRVINGTON

CONDENSED STATEMENTS OF FINANCIAL CONDITION

The accompanying notes are an integral part of these financial statements.

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SUNNYSIDE FEDERAL SAVINGS AND LOAN ASSOCIATION OF IRVINGTON

CONDENSED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements.

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SUNNYSIDE FEDERAL SAVINGS AND LOAN ASSOCIATION OF IRVINGTON

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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SUNNYSIDE FEDERAL SAVINGS AND LOAN ASSOCIATION OF IRVINGTON

CONDESNED STATEMENT OF CHANGES IN EQUITY

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SUNNYSIDE FEDERAL SAVINGS AND LOAN ASSOCIATION OF IRVINGTON

CONDENSED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements.

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Sunnyside Federal Savings and Loan Association of Irvington

Form 10-Q

Notes to Condensed Financial Statements

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Sunnyside Federal Savings and Loan Association of Irvington is a community-oriented savings institution whose primary business is accepting deposits from customers within its market area (Westchester County, New York) and investing those funds in mortgage loans secured by one-to-four family residences and in mortgage-backed and other securities. To a significantly lesser extent, funds are invested in multi-family and commercial mortgage loans, commercial loans, and consumer loans. Customer deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation. As a federally-chartered savings association, the Association’s primary regulator is the Office of the Controller of the Currency (the “OCC”).

Basis of Financial Statement Presentation

The financial statements of the Association have been prepared in conformity with accounting principles generally accepted in the United States of America.  In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of financial condition and revenues and expenses for the period then ended.  Actual results could differ significantly from those estimates.

A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses.  Management believes that the allowance for loan losses is adequate.  While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the Association’s market area.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Association’s allowance for loan losses.  Such agencies may require the Association to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Association considers all cash and amounts due from depository institutions and interest-bearing deposits in other depository institutions with original maturities of three months or less to be cash equivalents.

Investment and Mortgage-Backed Securities

Securities that the Association has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost.  Securities classified as available-for-sale securities are reported at fair value, with unrealized holding gains or losses reported in a separate component of retained earnings.  As of March 31, 2013 and December 31, 2012, the Association had no securities classified as held for trading.

The Association conducts a periodic review and evaluation of the securities portfolio to determine if a decline in the fair value of any security below its cost basis is other-than-temporary.  The evaluation of other-than-temporary impairment considers the duration and severity of the impairment, the Association’s intent and ability to hold the securities and assessments of the reason for the decline in value and the likelihood of a near-term recovery.  If such a decline is deemed other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged to income as a component of non-interest expense.

Premiums and discounts on securities are amortized by use of the level-yield method, over the life of the individual securities.  Gain or loss on sales of securities is based upon the specific identification method.

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1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Loans Receivable

Loans receivable are stated at unpaid principal balances less the allowance for loan losses and net deferred loan fees.

Recognition of interest on the accrual method is generally discontinued when interest or principal payments are ninety days or more in arrears, or when other factors indicate that the collection of such amounts is doubtful.  At that time, a loan is placed on a nonaccrual status, and all previously accrued and uncollected interest is reversed against interest income in the current period.  Interest on such loans, if appropriate, is recognized as income when payments are received.  A loan is returned to an accrual status when factors indicating doubtful collectibility no longer exist.

Allowance for Loan Losses

An allowance for loan losses is maintained at a level, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate.  Management of the Association, in determining the provision for loan losses considers the risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions.  The Association utilizes a two tier approach: (1) identification of problem loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio.  The Association maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential problem loans.  Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral, and financial condition of the borrowers.  Specific loan losses are established for identified loans based on a review of such information and appraisals of the underlying collateral.  General loan losses are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions, and management’s judgment.  Although management believes that adequate specific and general loan loss allowances are established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may be necessary.

A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Association will be unable to collect all amounts due according to the contractual terms of the loan agreement.  An insignificant payment delay, which is defined as up to ninety days by the Association, will not cause a loan to be classified as impaired.  A loan is not impaired during a period of delay in payment if the Association expects to collect all amounts due, including interest accrued at the contractual interest rate for the period of delay.  The amount of loan impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. All loans identified as impaired are evaluated independently.  The Association does not aggregate such loans for evaluation purposes.  Payments received on impaired loans are applied first to accrued interest receivable and then to principal.

Federal Home Loan Bank of New York stock

As a member of the Federal Home Loan Bank of New York (“FHLB”), the Association is required to acquire and hold shares of FHLB Class B stock.  The holding requirement varies based on the Association’s activities, primarily its outstanding borrowings, with the FHLB.  The investment in FHLB stock is carried at cost.  The Association conducts a periodic review and evaluation of its FHLB stock to determine if any impairment exists.

Premises and Equipment

Premises and equipment are comprised of land, building, and furniture, fixtures, and equipment, at cost, less accumulated depreciation.  Depreciation charges are computed on the straight-line method over the following estimated useful lives:

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1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Bank-Owned Life Insurance

Bank-owned life insurance (“BOLI”) is accounted for in accordance with FASB guidance.  The cash surrender value of BOLI is recorded on the statement of financial condition as an asset and the change in the cash surrender value is recorded as non-interest income.  The amount by which any death benefits received exceeds a policy’s cash surrender value is recorded in non-interest income at the time of receipt.  A liability is also recorded on the statement of financial condition for postretirement death benefits provided by the split-dollar endorsement policy.  A corresponding expense is recorded in non-interest expense for the accrual of benefits over the period during which employees provide services to earn the benefits.

Income Taxes

Federal and state income taxes have been provided on the basis of reported income.  The amounts reflected on the tax return differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes.  The tax effect of these temporary differences is accounted as deferred taxes applicable to future periods.  Deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.  The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which is not likely to be realized.

Defined Benefit Plans

The accounting guidance related to retirement benefits requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year; and (c) recognize, in comprehensive income, changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. The accounting guidance requires that plan assets and benefit obligations be measured as of the date of the employer’s fiscal year-end statement of financial condition.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, and the actuarial gains and losses of the pension plan, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

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1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Concentration of Credit Risk and Interest-Rate Risk

Financial instruments which potentially subject the Association to concentrations of credit risk consist of cash and cash equivalents, investment and mortgage-backed securities and loans.  Cash and cash equivalents include amounts placed with highly rated financial institutions.  Investment securities include securities backed by the U.S. Government and other highly rated instruments.  The Association’s lending activity is primarily concentrated in loans collateralized by real estate in the State of New York.  As a result, credit risk is broadly dependent on the real estate market and general economic conditions in the State.

The Association is principally engaged in the business of attracting deposits from the general public and using these deposits, together with borrowings and other funds, to make loans secured by real estate in the State of New York. The potential for interest-rate risk exists as a result of the shorter duration of the Association’s interest-sensitive liabilities compared to the generally longer duration of interest-sensitive assets.  In a rising rate environment, liabilities will reprice faster than assets, thereby reducing net interest income.  For this reason, management regularly monitors the maturity structure of the Association’s assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility.

Advertising Costs

It is the Association’s policy to expense advertising costs in the period in which they are incurred.

Subsequent Events

The Association has evaluated all events subsequent to the balance sheet date of March 31, 2013, through the date of this report, and has determined that there are no subsequent events that require disclosure under FASB guidance.

2.  SECURITIES

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2.  SECURITIES (Cont’d)

Mortgage-backed securities consist of securities guaranteed by Ginnie Mae, Fannie Mae, Freddie Mac, and the Small Business Administration with amortized costs of $8.4 million, $9.4 million, $5.7 million, and $8.1 million, respectively, at March 31, 2013 ($8.9 million, $9.1 million, $9.6 million, and $6.8 million, respectively, at December 31, 2012).

Proceeds from the sale of securities available for sale amounted to $2,119,000 and $1,214,000 for the three months ended March 31, 2013 and 2012, respectively. Net gains of $4,600 and $3,300 were recognized on those sales for the three months ended, March 31, 2013 and 2012, respectively.

Proceeds from the sale of securities held to maturity amounted to $2,860,000 for the year ended December 31, 2012.  Net gains of $48,000 were recognized on these sales. The sale of the securities occurred after the Association had already collected a substantial portion (at least 85%) of the principal outstanding at acquisition due to prepayments on the debt securities.

The following is a summary of the amortized cost and fair value of securities at March 31, 2013 and December 31, 2012, by remaining period to contractual maturity.  Actual maturities may differ from these amounts because certain debt security issuers have the right to call or redeem their obligations prior to contractual maturity. In addition, mortgage backed securities that amortize monthly are listed in the period the security is legally set to pay off in full.

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2.  SECURITIES (Cont’d)

The following tables summarize the fair values and unrealized losses of securities with an unrealized loss at December 31, 2012 and 2011, segregated between securities that have been in an unrealized loss position for less than one year, or one year or longer, at the respective dates.

The unrealized losses are primarily due to changes in market interest rates subsequent to purchase. At December 31, 2012, a total of 8 securities were in an unrealized loss position (3 at December 31, 2011).  The Association generally purchases securities issued by Government Sponsored Enterprises (GSE). Accordingly, it is expected that the GSE securities would not be settled at a price less than the Association’s amortized cost basis. The Association does not consider these investments to be other-than-temporarily impaired at December 31, 2012 and December 31, 2011 since the decline in market value is attributable to changes in interest rates and not credit quality and the Association has the intent and ability to hold these investments until there is a full recovery of the unrealized loss, which may be at maturity.

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3.  LOANS RECEIVABLE, NET

Activity in the allowance for loan losses is summarized as follows:

In the ordinary course of business, the Association makes loans to its directors, executive officers, and their associates (related parties) on the same terms as those prevailing at the time of origination for comparable loans with other borrowers.  The unpaid principal balances of related party loans were approximately $285,000 and $292,000 at March 31, 2013 and December 31, 2012, respectively.

There were no impaired loans or loans on non-accrual status as of March 31, 2013 and December 31, 2012.  As of March 31, 2013 and December 31, 2012, Residential 1-4 family loans, totaling $281,463 and $245,733, were 30-59 days delinquent. There were no other delinquent loans as of March 31, 2013 and December 31, 2012.

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3.  LOANS RECEIVABLE, NET (Cont’d)

The allowance for loan losses consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are 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. There are no specific allowances as of December 31, 2012 and 2011. The general component covers pools of loans by loan class not considered impaired, as well as smaller balance homogeneous loans, such as one-to-four family real estate, home equity lines of credit and other consumer loans.  These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors.  These qualitative risk factors include:

1.               Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.