Attached files
file | filename |
---|---|
EX-31.1 - Sunshine Financial, Inc. | ex31-1.htm |
EX-31.2 - Sunshine Financial, Inc. | ex31-2.htm |
EX-32 - Sunshine Financial, Inc. | ex-32.htm |
EXCEL - IDEA: XBRL DOCUMENT - Sunshine Financial, Inc. | Financial_Report.xls |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______ to ________
Commission file number:001-54280
SUNSHINE FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Maryland
|
36-4678532
|
(State or other jurisdiction of incorporation of organization)
|
(IRS Employer Identification No.)
|
1400 East Park Avenue, Tallahassee, Florida 32301
(Address of principal executive offices; Zip Code)
(850) 219-7200
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes [X ]No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each issuer's classes of common equity, as of the latest practicable date:
At May 13, 2015, there were issued and outstanding 1,088,700 shares of the issuer's common stock.
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Index
Page Number
|
|
PART IFINANCIAL INFORMATION
|
|
Item 1.Financial Statements
|
|
Condensed Consolidated Balance Sheets as of March 31, 2015 (Unaudited) and December 31, 2014
|
2
|
Condensed Consolidated Statements of Operations for the Three-Month Periods Ended March 31, 2015 and 2014 (Unaudited)
|
3
|
Condensed Consolidated Statements of Stockholders' Equity for the Three-Month Periods Ended March 31, 2015 and 2014 (Unaudited)
|
4
|
Condensed Consolidated Statements of Cash Flows For the Three-Month Periods Ended March 31, 2015 and 2014 (Unaudited)
|
5
|
Notes to Condensed Consolidated Financial Statements (unaudited)
|
6-22
|
Item 2.Management's Discussion and Analysis of Financial Conditionand Results of Operations
|
23-30
|
Item 3.Quantitative and Qualitative Disclosure About Market Risk
|
31
|
Item 4.Controls and Procedures
|
31
|
PART IIOTHER INFORMATION
|
|
Item 1.Legal Proceedings
|
32
|
Item 1A.Risk Factors
|
32
|
Item 2.Unregistered Sales of Equity Securities and Use
of Proceeds
|
32
|
Item 3.Defaults Upon Senior Securities
|
32
|
Item 4.Mine Safety Disclosures
|
32
|
Item 5.Other Information
|
32
|
Item 6.Exhibits
|
32
|
SIGNATURES
|
33
|
EXHIBIT INDEX
|
1
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
($ in thousands)
At March 31,
2015
|
At December 31,
2014
|
|||||||
(Unaudited)
|
||||||||
Assets
|
||||||||
Cash and due from banks
|
$
|
1,936
|
3,682
|
|||||
Interest-bearing deposits with banks
|
15,588
|
9,350
|
||||||
Cash and cash equivalents
|
17,524
|
13,032
|
||||||
Securities held to maturity (fair value of $24,943 and $25,835)
|
24,845
|
26,035
|
||||||
Loans, net of allowance for loan losses of $1,102 and $1,087
|
102,677
|
102,786
|
||||||
Premises and equipment, net
|
4,825
|
4,907
|
||||||
Federal Home Loan Bank stock, at cost
|
136
|
130
|
||||||
Deferred income taxes
|
2,551
|
2,561
|
||||||
Accrued interest receivable
|
359
|
350
|
||||||
Foreclosed real estate
|
354
|
206
|
||||||
Other assets
|
998
|
999
|
||||||
Total assets
|
$
|
154,269
|
151,006
|
|||||
Liabilities and Stockholders' Equity
|
||||||||
Liabilities:
|
||||||||
Noninterest-bearing deposit accounts
|
$
|
27,857
|
26,206
|
|||||
Money-market deposit accounts
|
35,327
|
35,358
|
||||||
Savings accounts
|
41,530
|
39,606
|
||||||
Time deposits
|
26,122
|
26,735
|
||||||
Total deposits
|
130,836
|
127,905
|
||||||
Official checks
|
369
|
325
|
||||||
Advances by borrowers for taxes and insurance
|
193
|
29
|
||||||
Other liabilities
|
475
|
359
|
||||||
Total liabilities
|
131,873
|
128,618
|
||||||
Stockholders' equity:
|
||||||||
Preferred stock, $0.01 par value, 1,000,000 authorized, none
issued and outstanding
|
-
|
-
|
||||||
Common stock, $.01 par value, 6,000,000 shares authorized,
1,090,110 and 1,094,110 shares issued and outstanding at
March 31, 2015 and December 31, 2014
|
10
|
10
|
||||||
Additional paid in capital
|
8,295
|
8,334
|
||||||
Retained earnings
|
14,733
|
14,709
|
||||||
Unearned Employee Stock Ownership Plan shares
|
(642
|
)
|
(665
|
)
|
||||
Total stockholders' equity
|
22,396
|
22,388
|
||||||
Total liabilities and stockholders' equity
|
$
|
154,269
|
151,006
|
See accompanying Notes to Condensed Consolidated Financial Statements.
2
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share information)
Three Months Ended
March 31,
|
||||||||
2015
|
2014
|
|||||||
Interest income:
|
||||||||
Loans
|
$
|
1,346
|
$
|
1,284
|
||||
Securities
|
130
|
152
|
||||||
Other
|
7
|
6
|
||||||
Total interest income
|
1,483
|
1,442
|
||||||
Interest expense-deposits
|
93
|
93
|
||||||
Net interest income
|
1,390
|
1,349
|
||||||
Provision for loan losses
|
30
|
50
|
||||||
Net interest income after provision for loan losses
|
1,360
|
1,299
|
||||||
Noninterest income:
|
||||||||
Fees and service charges on deposit accounts
|
349
|
401
|
||||||
Gain on loan sales
|
62
|
27
|
||||||
Gain on sale of foreclosed real estate
|
10
|
-
|
||||||
Fees and charges on loans
|
38
|
22
|
||||||
Other
|
6
|
10
|
||||||
Total noninterest income
|
465
|
460
|
||||||
Noninterest expenses:
|
||||||||
Salaries and employee benefits
|
885
|
873
|
||||||
Occupancy and equipment
|
279
|
294
|
||||||
Data processing services
|
172
|
203
|
||||||
Professional fees
|
151
|
126
|
||||||
Federal Deposit Insurance Corporation insurance
|
30
|
26
|
||||||
Advertising and promotion
|
6
|
16
|
||||||
Stationery and supplies
|
16
|
18
|
||||||
Telephone communications
|
41
|
41
|
||||||
Foreclosed real estate
|
17
|
16
|
||||||
Credit card expense
|
31
|
33
|
||||||
Other
|
140
|
150
|
||||||
Total noninterest expenses
|
1,768
|
1,796
|
||||||
Earnings (loss) before income taxes (benefit)
|
57
|
(37
|
)
|
|||||
Income taxes (benefit)
|
33
|
(16
|
)
|
|||||
Net earnings (loss)
|
$
|
24
|
$
|
(21
|
)
|
|||
Basic earnings (loss) per common share
|
$
|
0.02
|
$
|
(0.02
|
)
|
|||
Diluted earnings (loss) per common share
|
$
|
0.02
|
$
|
(0.02
|
)
|
|||
Dividends per share
|
$
|
-
|
$
|
-
|
See accompanying Notes to Condensed Consolidated Financial Statements.
3
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
Three Months Ended March 31, 2015 and 2014 (Unaudited)
($ in thousands)
Unearned
|
||||||||||||||||||||||||
Employee
|
||||||||||||||||||||||||
Stock
|
||||||||||||||||||||||||
Additional
|
Ownership
|
Total
|
||||||||||||||||||||||
Common Stock
|
Paid In
|
Retained
|
Plan
|
Stockholders'
|
||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Earnings
|
Shares
|
Equity
|
|||||||||||||||||||
Balance, December 31, 2013
|
1,174,454
|
$
|
11
|
9,789
|
14,670
|
(756
|
)
|
23,714
|
||||||||||||||||
Net loss (unaudited)
|
-
|
-
|
-
|
(21
|
)
|
-
|
(21
|
)
|
||||||||||||||||
Stock based compensation
expense (unaudited)
|
-
|
-
|
48
|
-
|
-
|
48
|
||||||||||||||||||
Repurchase of common stock
(unaudited)
|
(20,944
|
)
|
-
|
(383
|
)
|
-
|
-
|
(383
|
)
|
|||||||||||||||
Common stock allocated to Employee
Stock Ownership Plan ("ESOP")
participants (unaudited)
|
-
|
-
|
(19
|
)
|
-
|
22
|
3
|
|||||||||||||||||
Balance, March 31, 2014 (unaudited)
|
1,153,510
|
$
|
11
|
9,435
|
14,649
|
(734
|
)
|
23,361
|
||||||||||||||||
Balance, December 31, 2014
|
1,094,110
|
$
|
10
|
8,334
|
14,709
|
(665
|
)
|
22,388
|
||||||||||||||||
Net earnings (unaudited)
|
-
|
-
|
-
|
24
|
-
|
24
|
||||||||||||||||||
Stock based compensation expense
(unaudited)
|
-
|
-
|
53
|
-
|
-
|
53
|
||||||||||||||||||
Repurchase of common
Stock (unaudited)
|
(4,000
|
)
|
(72
|
)
|
(72
|
)
|
||||||||||||||||||
Common stock allocated to ESOP
participants (unaudited)
|
-
|
-
|
(20
|
)
|
-
|
23
|
3
|
|||||||||||||||||
Balance, March 31, 2015 (unaudited)
|
1,090,110
|
$
|
10
|
8,295
|
14,733
|
(642
|
)
|
22,396
|
See accompanying Notes to Condensed Consolidated Financial Statements.
4
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
March 31,
|
||||||||
2015
|
2014
|
|||||||
Cash flows from operating activities:
|
||||||||
Net earnings (loss)
|
$
|
24
|
$
|
(21
|
)
|
|||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
|
||||||||
Depreciation
|
95
|
92
|
||||||
Provision for loan losses
|
30
|
50
|
||||||
Deferred income taxes (benefit)
|
10
|
(16
|
)
|
|||||
Net amortization of premiums/discounts on securities
|
12
|
11
|
||||||
Net amortization of deferred loan fees and costs
|
(2
|
)
|
13
|
|||||
Loans originated for sale
|
(2,546
|
)
|
(1,072
|
)
|
||||
Proceeds from loans sold
|
2,220
|
1,174
|
||||||
Gain on sale of loans
|
(46
|
)
|
(27
|
)
|
||||
ESOP compensation expense
|
23
|
22
|
||||||
Decrease in additional paid in capital due to ESOP allocation | (20 | ) | (19 | ) | ||||
Share-based compensation expense
|
53
|
48
|
||||||
Increase in accrued interest receivable
|
(9
|
)
|
(10
|
)
|
||||
Decrease (increase) in other assets
|
1
|
(139
|
)
|
|||||
Gain on sale of foreclosed real estate
|
(10
|
)
|
-
|
|||||
Write-down of foreclosed real estate
|
-
|
25
|
||||||
Increase in official checks
|
44
|
20
|
||||||
Net increase in advances by borrowers for taxes and insurance
|
164
|
131
|
||||||
Increase in other liabilities
|
116
|
86
|
||||||
Net cash provided by operating activities
|
159
|
368
|
||||||
Cash flows from investing activities:
|
||||||||
Purchases of securities held-to-maturity
|
-
|
(3,910
|
)
|
|||||
Principal pay-downs on held-to-maturity securities
|
1,178
|
965
|
||||||
Net decrease (increase) in loans
|
223
|
(1,539
|
)
|
|||||
Net purchases of premises and equipment
|
(13
|
)
|
(63
|
)
|
||||
(Purchase) redemption of Federal Home Loan Bank stock
|
(6
|
)
|
47
|
|||||
Proceeds from sale of foreclosed real estate
|
106
|
128
|
||||||
Capital expenditures for foreclosed real estate
|
(14
|
)
|
(12
|
)
|
||||
Net cash provided (used) in investing activities
|
1,474
|
|
(4,384
|
)
|
||||
Cash flows from financing activities:
|
||||||||
Net increase in deposits
|
2,931
|
3,934
|
||||||
Repurchase of common stock
|
(72
|
)
|
(383
|
)
|
||||
Net cash provided by financing activities
|
2,859
|
3,551
|
||||||
Increase (decrease) in cash and cash equivalents
|
4,492
|
(465
|
)
|
|||||
Cash and cash equivalents at beginning of period
|
13,032
|
14,455
|
||||||
Cash and cash equivalents at end of period
|
$
|
17,524
|
$
|
13,990
|
||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the period for:
|
||||||||
Income taxes
|
$
|
-
|
$
|
-
|
||||
Interest
|
$
|
93
|
$
|
93
|
||||
Noncash transactions:
|
||||||||
Transfer from loans to foreclosed real estate
|
$
|
230
|
$
|
-
|
||||
Increase in loan servicing assets
|
$
|
16
|
$
|
-
|
||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Organization and Basis of Presentation
Sunshine Financial, Inc. ("Sunshine Financial" or the "Holding Company"), a Maryland corporation, is the holding company for Sunshine Savings Bank (the "Bank") and owns all the outstanding common stock of the Bank.
The Holding Company's only business is the operation of the Bank. The Bank through its six 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, credit life and disability insurance products associated with loan products. Collectively the entities are referred to as the "Company."
These condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and Article 8-03 of Regulation S-X and do not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP") for a complete presentation of the Company's consolidated financial condition and consolidated results of operations.
In the opinion of management, the information reflects all adjustments (consisting only of normal recurring adjustments) which are necessary in order to make the financial statements not misleading and for a fair representation of the results of operations for such periods. The results for the three-month period ended March 31, 2015 should not be considered as indicative of results for a full year.
2. Recent Accounting Standards Update
In January 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, which is intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. These amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures are required. The ASU was effective beginning January 1, 2015. The adoption of ASU 2014-04 is not expected to impact the Company's consolidated financial statements.
(continued)
6
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
2. Recent Accounting Standards Update, Continued
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which creates Topic 606 and supersedes Topic 605, Revenue Recognition. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, the ASU requires companies to use more judgment and make more estimates than under current guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The ASU is effective for public entities for interim and annual periods beginning after December 15, 2016; early adoption is not permitted. For financial reporting purposes, the ASU allows for either full retrospective adoption, meaning the ASU is applied to all of the periods presented, or modified retrospective adoption, meaning the ASU is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company is currently evaluating the provisions of ASU No. 2014-09 to determine the potential impact ASU No. 2014-09 will have on the Company's consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, which changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. It also requires additional disclosures about repurchase agreements and other similar transactions. The ASU aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. The ASU also requires new and expanded disclosures. This ASU is effective for the first interim or annual period beginning after December 15, 2014. The adoption of ASU No. 2014-11 is not expected to have a material impact on the Company's consolidated financial statements.
In January 2015, the FASB issued ASU No. 2015-1, Income Statement —Extraordinary and Unusual Items (Subtopic 225-20). The objective of this ASU is to simplify the income statement presentation requirements in Subtopic 225-20 by eliminating the concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015 with early adoption permitted. The Company does not expect this ASU to have a material impact on the Company's consolidated financial statements.
7
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
3. Earnings (Loss) Per Share
Earnings (loss) earnings per share ("EPS") has been computed on the basis of the weighted-average number of shares of common stock outstanding. For the three-months ended March 31, 2015, the outstanding stock options are considered dilutive securities for purposes of calculating diluted EPS which was computed using the treasury stock method. For the three-months ended March 31, 2014, the outstanding stock options were 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 ($ in thousands, except per share amounts):
2015
|
2014
|
|||||||||||||||||||||||
Weighted-
|
Per
|
Weighted-
|
Per
|
|||||||||||||||||||||
Average
|
Share
|
Average
|
Share
|
|||||||||||||||||||||
Earnings
|
Shares
|
Amount
|
Loss
|
Shares
|
Amount
|
|||||||||||||||||||
Three Months Ended March 31:
|
||||||||||||||||||||||||
Basic EPS:
|
||||||||||||||||||||||||
Net earnings (loss)
|
$
|
24
|
987,128
|
$
|
0.02
|
$
|
(21
|
)
|
1,042,973
|
$
|
0.02
|
|||||||||||||
Effect of dilutive securities:
|
||||||||||||||||||||||||
Incremental shares from assumed conversion
|
||||||||||||||||||||||||
of options and restricted stock awards
|
31,372
|
-
|
||||||||||||||||||||||
Diluted EPS:
|
||||||||||||||||||||||||
Net earnings (loss)
|
$
|
24
|
1,018,500
|
$
|
0.02
|
$
|
(21
|
)
|
1,042,973
|
$
|
0.02
|
(continued)
8
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
4. Securities Held to Maturity
Securities have been classified as held to maturity according to management intent. The carrying amount of securities and their fair values are as follows (in thousands):
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
At March 31, 2015
|
||||||||||||||||
Mortgage-backed securities
|
$
|
1,442
|
71
|
-
|
1,513
|
|||||||||||
Collateralized mortgage obligations
|
23,403
|
194
|
(167
|
)
|
23,430
|
|||||||||||
Total
|
$
|
24,845
|
265
|
(167
|
)
|
24,943
|
||||||||||
At December 31, 2014
|
||||||||||||||||
Mortgage-backed securities
|
1,580
|
72
|
-
|
1,652
|
||||||||||||
Collateralized mortgage obligations
|
24,455
|
65
|
(337
|
)
|
24,183
|
|||||||||||
Total
|
$
|
26,035
|
137
|
(337
|
)
|
25,835
|
There were no securities pledged at March 31, 2015 or December 31, 2014.
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 March 31, 2015:
|
||||||||||||||||
Collateralized mortgage obligations
|
$
|
(2
|
)
|
838
|
(165
|
)
|
8,511
|
|||||||||
At December 31, 2014:
|
||||||||||||||||
Collateralized mortgage obligations
|
$
|
(27
|
)
|
5,984
|
(310
|
)
|
11,283
|
At March 31, 2015 the unrealized losses on eleven securities 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 all of the 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)
9
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
5. Loans
The loan portfolio segments and classes as of the dates indicated are as follows (in thousands):
March 31,
|
December 31,
|
|||||||
2015
|
2014
|
|||||||
Real estate mortgage loans:
|
||||||||
One-to four-family
|
$
|
48,631
|
48,957
|
|||||
Lot
|
4,033
|
4,109
|
||||||
Commercial real estate
|
31,168
|
29,803
|
||||||
Construction
|
438
|
1,140
|
||||||
Total real estate loans
|
84,270
|
84,009
|
||||||
Commercial loans
|
1,051
|
656
|
||||||
Consumer loans:
|
||||||||
Home equity
|
7,967
|
8,212
|
||||||
Automobile
|
3,468
|
3,545
|
||||||
Credit cards and unsecured
|
6,368
|
6,583
|
||||||
Deposit account
|
489
|
534
|
||||||
Other
|
969
|
973
|
||||||
Total consumer loans
|
19,261
|
19,847
|
||||||
Total loans
|
104,582
|
104,512
|
||||||
Deduct
|
||||||||
Loans in process
|
(692
|
)
|
(526
|
)
|
||||
Deferred fees and discounts
|
(111
|
)
|
(113
|
)
|
||||
Allowance for loan losses
|
(1,102
|
)
|
(1,087
|
)
|
||||
Total loans, net
|
$
|
102,677
|
102,786
|
|||||
(continued)
10
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
5. Loans, Continued
The Company has divided the loan portfolio into three portfolio segments and ten 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 four classes: One- to four-family, Lot, Commercial real estate and Construction loans. The Company generally originates one- to four-family mortgage loans in amounts up to 80% of the lesser of the appraised value or purchase price of a mortgaged property, but will also permit loan-to-value ratios of up to 95%. For one- to four-family 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. 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. 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. 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 Loans. Commercial loans are comprised of unsecured loans. The Company offers unsecured commercial loans generally to its commercial real estate borrowers.
Consumer Loans. Consumer loans are comprised of five classes: Home Equity, Automobile, Credit cards and unsecured, Deposit account and Other. The Company offers a variety of secured consumer loans, including home equity, new and used automobile, boat and other recreational vehicle loans, and loans secured by deposit accounts. The Company also offers unsecured consumer loans including a credit card product. The Company originates its consumer loans primarily in its market area. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates and may be made on terms of up to twenty years. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.
(continued)
11
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
5. Loans, Continued
An analysis of the change in the allowance for loan losses follows (in thousands):
Real Estate Mortgage Loans
|
Consumer Loans
|
|||||||||||||||||||||||||||||||||||||||||||||||
One-to
Four- Family |
Lot
|
Commercial
Real Estate |
Construction
|
Comme-
rcial Loans |
Home Equity
|
Auto-
mobile |
Credit
Cards and Unsecured |
Deposit
Account |
Other
|
Unallocated
|
Total
|
|||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2015:
|
||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance
|
$
|
454
|
46
|
206
|
2
|
10
|
115
|
31
|
111
|
-
|
39
|
73
|
1,087
|
|||||||||||||||||||||||||||||||||||
Provision (credit) for loan loss
|
14
|
3
|
9
|
(1
|
)
|
6
|
31
|
(4
|
)
|
32
|
-
|
(14
|
)
|
(46
|
)
|
30
|
||||||||||||||||||||||||||||||||
Charge-offs
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(29
|
)
|
-
|
-
|
-
|
(29
|
)
|
||||||||||||||||||||||||||||||||||
Recoveries
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
14
|
-
|
-
|
-
|
14
|
||||||||||||||||||||||||||||||||||||
Ending balance
|
$
|
468
|
49
|
215
|
1
|
16
|
146
|
27
|
128
|
-
|
25
|
27
|
1,102
|
|||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2014:
|
||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance
|
$
|
605
|
93
|
163
|
1
|
5
|
146
|
12
|
187
|
-
|
64
|
18
|
1,294
|
|||||||||||||||||||||||||||||||||||
Provision (credit) for loan loss
|
39
|
(38
|
)
|
41
|
-
|
4
|
(7
|
)
|
10
|
(22
|
)
|
-
|
39
|
(16
|
)
|
50
|
||||||||||||||||||||||||||||||||
Charge-offs
|
(79
|
)
|
-
|
-
|
-
|
-
|
(10
|
)
|
(5
|
)
|
(41
|
)
|
-
|
(40
|
)
|
-
|
(175
|
)
|
||||||||||||||||||||||||||||||
Recoveries
|
-
|
-
|
-
|
-
|
-
|
1
|
-
|
43
|
-
|
-
|
-
|
44
|
||||||||||||||||||||||||||||||||||||
Ending balance
|
$
|
565
|
55
|
204
|
1
|
9
|
130
|
17
|
167
|
-
|
63
|
2
|
1,213
|
|||||||||||||||||||||||||||||||||||
At March 31, 2015:
|
||||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment:
|
||||||||||||||||||||||||||||||||||||||||||||||||
Recorded investment
|
$
|
3,040
|
-
|
-
|
-
|
-
|
281
|
-
|
14
|
-
|
-
|
-
|
3,335
|
|||||||||||||||||||||||||||||||||||
Balance in allowance for loan losses
|
$
|
80
|
-
|
-
|
-
|
-
|
4
|
-
|
2
|
-
|
-
|
-
|
86
|
|||||||||||||||||||||||||||||||||||
Collectively evaluated for impairment:
|
||||||||||||||||||||||||||||||||||||||||||||||||
Recorded investment
|
$
|
45,591
|
4,033
|
31,168
|
438
|
1,051
|
7,686
|
3,468
|
6,354
|
489
|
969
|
-
|
101,247
|
|||||||||||||||||||||||||||||||||||
Balance in allowance for loan losses
|
$
|
388
|
49
|
215
|
1
|
16
|
142
|
27
|
126
|
-
|
25
|
27
|
1,016
|
|||||||||||||||||||||||||||||||||||
At December 31, 2014:
|
||||||||||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment:
|
||||||||||||||||||||||||||||||||||||||||||||||||
Recorded investment
|
$
|
3,297
|
-
|
-
|
-
|
-
|
289
|
-
|
14
|
-
|
-
|
-
|
3,600
|
|||||||||||||||||||||||||||||||||||
Balance in allowance for loan losses
|
$
|
63
|
-
|
-
|
-
|
-
|
4
|
-
|
2
|
-
|
-
|
-
|
69
|
|||||||||||||||||||||||||||||||||||
Collectively evaluated for impairment:
|
||||||||||||||||||||||||||||||||||||||||||||||||
Recorded investment
|
$
|
45,660
|
4,109
|
29,803
|
1,140
|
656
|
7,923
|
3,545
|
6,569
|
534
|
973
|
-
|
100,912
|
|||||||||||||||||||||||||||||||||||
Balance in allowance for loan losses
|
$
|
391
|
46
|
206
|
2
|
10
|
111
|
31
|
109
|
-
|
39
|
73
|
1,018
|
(continued)
12
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
5. Loans, Continued
The following summarizes the loan credit quality by loan grade and class at the dates indicated (in thousands):
Credit Risk
|
||||||||||||||||||||||||||||||||||||||||||||
Profile by Internally
|
One to
Four
|
Commercial
Real
|
Constru-
|
Comme-
|
Home
|
Auto-
|
Credit
Cards and
|
Deposit
|
||||||||||||||||||||||||||||||||||||
Assigned Grade:
|
Family
|
Lot
|
Estate
|
ction
|
rcial
|
Equity
|
mobile
|
Unsecured
|
Accounts
|
Other
|
Total
|
|||||||||||||||||||||||||||||||||
At March 31, 2015:
|
||||||||||||||||||||||||||||||||||||||||||||
Grade:
|
||||||||||||||||||||||||||||||||||||||||||||
Pass
|
$
|
44,824
|
3,998
|
31,168
|
438
|
1,051
|
7,604
|
3,431
|
6,291
|
489
|
945
|
100,239
|
||||||||||||||||||||||||||||||||
Special mention
|
345
|
-
|
-
|
-
|
-
|
28
|
-
|
14
|
-
|
-
|
387
|
|||||||||||||||||||||||||||||||||
Substandard
|
3,462
|
35
|
-
|
-
|
-
|
335
|
37
|
63
|
-
|
24
|
3,956
|
|||||||||||||||||||||||||||||||||
Doubtful
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||||||
Loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||||||
Total
|
$
|
48,631
|
4,033
|
31,168
|
438
|
1,051
|
7,967
|
3,468
|
6,368
|
489
|
969
|
104,582
|
||||||||||||||||||||||||||||||||
At December 31, 2014:
|
||||||||||||||||||||||||||||||||||||||||||||
Grade:
|
||||||||||||||||||||||||||||||||||||||||||||
Pass
|
44,305
|
4,031
|
29,803
|
1,140
|
656
|
7,726
|
3,526
|
6,563
|
534
|
938
|
99,222
|
|||||||||||||||||||||||||||||||||
Special mention
|
375
|
34
|
-
|
-
|
-
|
57
|
14
|
7
|
-
|
12
|
499
|
|||||||||||||||||||||||||||||||||
Substandard
|
4,277
|
44
|
-
|
-
|
-
|
429
|
5
|
13
|
-
|
23
|
4,791
|
|||||||||||||||||||||||||||||||||
Doubtful
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||||||
Loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||||||
Total
|
$
|
48,957
|
4,109
|
29,803
|
1,140
|
656
|
8,212
|
3,545
|
6,583
|
534
|
973
|
104,512
|
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.
(continued)
13
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
5. Loans, Continued
Loss – A loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.
Age analysis of past-due loans 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 March 31, 2015:
|
||||||||||||||||||||||||||||
Real estate loans:
|
||||||||||||||||||||||||||||
One-to four-family
|
$
|
1,554
|
-
|
-
|
1,554
|
45,627
|
1,450
|
48,631
|
||||||||||||||||||||
Lot
|
53
|
-
|
-
|
53
|
3,892
|
88
|
4,033
|
|||||||||||||||||||||
Commercial real estate
|
-
|
-
|
-
|
-
|
31,168
|
-
|
31,168
|
|||||||||||||||||||||
Construction
|
-
|
-
|
-
|
-
|
438
|
-
|
438
|
|||||||||||||||||||||
Commercial loans
|
-
|
-
|
-
|
-
|
1,051
|
-
|
1,051
|
|||||||||||||||||||||
Consumer loans:
|
||||||||||||||||||||||||||||
Home equity
|
23
|
40
|
-
|
63
|
7,533
|
371
|
7,967
|
|||||||||||||||||||||
Automobile
|
10
|
21
|
-
|
31
|
3,420
|
17
|
3,468
|
|||||||||||||||||||||
Credit cards and unsecured
|
106
|
1
|
13
|
120
|
6,218
|
30
|
6,368
|
|||||||||||||||||||||
Deposit account
|
1
|
-
|
-
|
1
|
488
|
-
|
489
|
|||||||||||||||||||||
Other
|
-
|
-
|
-
|
-
|
969
|
-
|
969
|
|||||||||||||||||||||
Total
|
$
|
1,747
|
62
|
13
|
1,822
|
100,804
|
1,956
|
104,582
|
||||||||||||||||||||
At December 31, 2014:
|
||||||||||||||||||||||||||||
Real estate loans:
|
||||||||||||||||||||||||||||
One-to four-family
|
417
|
90
|
-
|
507
|
46,709
|
1,741
|
48,957
|
|||||||||||||||||||||
Lot
|
69
|
34
|
-
|
103
|
3,962
|
44
|
4,109
|
|||||||||||||||||||||
Commercial real estate
|
-
|
-
|
-
|
-
|
29,803
|
-
|
29,803
|
|||||||||||||||||||||
Construction
|
-
|
-
|
-
|
-
|
1,140
|
-
|
1,140
|
|||||||||||||||||||||
Commercial loans
|
-
|
-
|
-
|
-
|
656
|
-
|
656
|
|||||||||||||||||||||
Consumer loans:
|
||||||||||||||||||||||||||||
Home equity
|
154
|
27
|
-
|
181
|
7,767
|
264
|
8,212
|
|||||||||||||||||||||
Automobile
|
12
|
14
|
-
|
26
|
3,514
|
5
|
3,545
|
|||||||||||||||||||||
Credit cards and unsecured
|
29
|
83
|
7
|
119
|
6,441
|
23
|
6,583
|
|||||||||||||||||||||
Deposit account
|
5
|
-
|
-
|
5
|
529
|
-
|
534
|
|||||||||||||||||||||
Other
|
83
|
12
|
-
|
95
|
855
|
23
|
973
|
|||||||||||||||||||||
Total
|
$
|
769
|
260
|
7
|
1,036
|
101,376
|
2,100
|
104,512
|
||||||||||||||||||||
(continued)
14
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
5. 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 March 31, 2015:
|
||||||||||||||||||||||||||||||||
Real estate loans:
|
||||||||||||||||||||||||||||||||
One-to four-family
|
$
|
1,828
|
1,955
|
1,212
|
1,229
|
80
|
3,040
|
3,184
|
80
|
|||||||||||||||||||||||
Consumer loans:
|
||||||||||||||||||||||||||||||||
Home equity
|
149
|
177
|
132
|
132
|
4
|
281
|
309
|
4
|
||||||||||||||||||||||||
Credit card and unsecured
|
-
|
-
|
14
|
14
|
2
|
14
|
14
|
2
|
||||||||||||||||||||||||
$
|
1,977
|
2,132
|
1,358
|
1,375
|
86
|
3,335
|
3,507
|
86
|
||||||||||||||||||||||||
At December 31, 2014:
|
||||||||||||||||||||||||||||||||
Real estate loans:
|
||||||||||||||||||||||||||||||||
One-to four-family
|
2,069
|
2,196
|
1,228
|
1,244
|
63
|
3,297
|
3,440
|
63
|
||||||||||||||||||||||||
Consumer loans:
|
||||||||||||||||||||||||||||||||
Home equity
|
155
|
183
|
134
|
134
|
4
|
289
|
317
|
4
|
||||||||||||||||||||||||
Credit card and unsecured
|
-
|
-
|
14
|
14
|
2
|
14
|
14
|
2
|
||||||||||||||||||||||||
$
|
2,224
|
2,379
|
1,376
|
1,392
|
69
|
3,600
|
3,771
|
69
|
||||||||||||||||||||||||
The average net investment in impaired loans and interest income recognized and received on impaired loans for the period shown are as follows (in thousands):
Average
|
Interest
|
Interest
|
||||||||||
Recorded
|
Income
|
Income
|
||||||||||
Investment
|
Recognized
|
Received
|
||||||||||
For the Three Months Ended March 31, 2015:
|
||||||||||||
Real estate loans:
|
||||||||||||
One-to four-family
|
$
|
2,961
|
25
|
29
|
||||||||
Consumer loans:
|
||||||||||||
Home equity
|
276
|
3
|
3
|
|||||||||
Credit card and unsecured
|
12
|
-
|
-
|
|||||||||
Total
|
$
|
3,249
|
28
|
32
|
||||||||
For the Three Months Ended March 31, 2014:
|
||||||||||||
Real estate loans:
|
||||||||||||
One-to four-family
|
2,938
|
21
|
21
|
|||||||||
Consumer loans:
|
||||||||||||
Home equity
|
281
|
2
|
2
|
|||||||||
Credit card and unsecured
|
47
|
-
|
-
|
|||||||||
Total
|
$
|
3,266
|
23
|
23
|
(continued)
15
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
5. Loans, Continued
The Company had no troubled debt restructurings (TDR) entered into during the three months ended March 31, 2015 or 2014. There were no TDR loans that were modified within the 12 months prior to March 31, 2015, and for which there was a payment default during the three months ended March 31, 2015.
6. Lines of Credit
The Company has an unsecured federal funds line of credit for $2.5 million with a correspondent bank and a $15.1 million line with the Federal Home Loan Bank of Atlanta collateralized by a blanket lien on qualifying loans. At March 31, 2015 and December 31, 2014, the Company had no outstanding balances on these lines.
7. Off-Balance-Sheet Financial Instruments
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are unused lines of credit and commitments to extend credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the balance sheets. The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unused lines of credit and commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed-expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management's credit evaluation of the counterparty.
Unused lines of credit and commitments to extend credit typically result in loans with a market interest rate when funded. A summary of the amounts of the Company's financial instruments, with off-balance-sheet risk follows at March 31, 2015 (in thousands):
Contract
|
||||
Amount
|
||||
Unused lines of credit
|
$
|
15,344
|
||
Commitments to extend credit
|
$
|
686
|
||
(continued)
16
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
8. Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments are as follows (in thousands):
At March 31, 2015
|
At December 31, 2014
|
|||||||||||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||||||||||
Amount
|
Value
|
Level
|
Amount
|
Value
|
Level
|
|||||||||||||||||||
Financial assets:
|
||||||||||||||||||||||||
Cash and cash equivalents
|
$
|
17,524
|
17,524
|
1
|
13,032
|
13,032
|
1
|
|||||||||||||||||
Securities held to maturity
|
24,845
|
24,943
|
2
|
26,035
|
25,835
|
2
|
||||||||||||||||||
Loans
|
102,677
|
104,192
|
3
|
102,786
|
103,152
|
3
|
||||||||||||||||||
Federal Home Loan Bank stock
|
136
|
136
|
3
|
130
|
130
|
3
|
||||||||||||||||||
Accrued interest receivable
|
359
|
359
|
3
|
350
|
350
|
3
|
||||||||||||||||||
Financial liabilities:
|
||||||||||||||||||||||||
Deposits
|
130,836
|
127,158
|
3
|
127,905
|
125,524
|
3
|
||||||||||||||||||
Off-balance-sheet financial
|
||||||||||||||||||||||||
instruments
|
-
|
-
|
3
|
-
|
-
|
3
|
Discussion regarding the assumptions used to compute the estimated fair values of financial instruments can be found in Note 1 to the consolidated financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2014 filed with the U.S. Securities and Exchange Commission ("SEC") on March 30, 2015 ("2014 Form 10-K").
9. Employee Stock Ownership Plan
The Holding Company has established an ESOP which acquired 98,756 shares of common stock in exchange for a $988,000 note payable from the Bank to the Holding Company. The note bears interest at a fixed rate of 4.25%, is payable in annual installments and is due in 2021. The ESOP expense was $23,000 for the three-months ended March 31, 2015 and $22,000 for the three-months ended March 31, 2014. At March 31, 2015 and 2014, there were 59,353 and 69,228 shares, respectively, that had not been allocated under the ESOP.
(continued)
17
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
10. 2012 Equity Incentive Plan
On May 23, 2012, the Company's stockholders approved its 2012 Equity Incentive Plan ("Plan"). The Plan authorizes the grant of options for up to 123,445 shares of the Holding Company's common stock. The options granted have ten year terms and vest from one to five years. 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, 2013
|
87,500
|
$
|
11.23
|
|
-
|
|||||||||||
Forfeited
|
(2,000
|
)
|
10.75
|
|||||||||||||
Outstanding at March 31, 2014
|
85,500
|
$
|
11.24
|
8.74 years
|
-
|
|||||||||||
Outstanding at December 31, 2014
|
84,000
|
11.70
|
|
-
|
||||||||||||
Outstanding at March 31, 2015
|
84,000
|
$
|
11.70
|
7.89 years
|
-
|
|||||||||||
Exercisable at March 31, 2015
|
10,000
|
$
|
10.75
|
7.70 years
|
76,500
|
At March 31, 2015, there was approximately $138,000 of unrecognized compensation expense related to non-vested stock options granted under the Plan. The cost is expected to be recognized over a weighted average period of fifty-two months. The total fair value of shares vesting and recognized as compensation expense was $12,000 for both the three-months ended March 31, 2015 and 2014.
(continued)
18
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
10. 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 awarded vest equally over five years from the date of grant. Restricted shares 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 $41,000 for the three months ended March 31, 2015 and $36,000 for the three months ended March 31, 2014. There was no associated income tax benefit recognized.
A summary of the status of the Company's restricted stock and changes during the periods then ended are presented below:
Number of
Shares
|
Weighted-Average
Grant-Date
Fair Value
|
|||||||
Outstanding at December 31, 2013
|
42,500
|
$
|
16.75
|
|||||
Outstanding at March 31, 2014
|
42,500
|
16.75
|
||||||
Outstanding at December 31, 2014
|
46,500
|
16.88
|
||||||
Vested
|
(8,500
|
)
|
16.75
|
|||||
Outstanding at March 31, 2015
|
38,000
|
$
|
16.91
|
Total unrecognized compensation cost related to these non-vested restricted stock amounted to approximately $576,000 at March 31, 2015. This cost is expected to be recognized monthly over the related vesting period using the straight-line method through 2019.
(continued)
19
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
11. Fair Value Measurements
Impaired collateral-dependent loans are carried at fair value when the current collateral value is lower than the carrying value of the loan. Those impaired collateral-dependent loans which are measured at fair value on a nonrecurring basis are as follows (in thousands):
Fair
Value |
Level 1
|
Level 2
|
Level 3
|
Total
Losses |
Losses
Recorded During the Period |
|||||||||||||||||||
At March 31, 2015:
|
||||||||||||||||||||||||
One-to four-family
|
$
|
3,137
|
-
|
-
|
3,137
|
223
|
16
|
|||||||||||||||||
Home equity
|
277
|
-
|
-
|
277
|
32
|
1
|
||||||||||||||||||
Total
|
$
|
3,414
|
-
|
-
|
3,414
|
255
|
17
|
|||||||||||||||||
At December 31, 2014:
|
||||||||||||||||||||||||
One-to four-family
|
$
|
2,875
|
-
|
-
|
2,875
|
206
|
61
|
|||||||||||||||||
Home equity
|
285
|
-
|
-
|
285
|
32
|
1
|
||||||||||||||||||
Total
|
$
|
3,160
|
-
|
-
|
3,160
|
238
|
62
|
Foreclosed real estate is recorded at fair value less estimated costs to sell. Foreclosed real estate which is measured at fair value on a nonrecurring basis is summarized below (in thousands):
Quoted Prices
|
||||||||||||||||||||||||
In Active
|
Significant
|
|||||||||||||||||||||||
Markets for
|
Other
|
Significant
|
Losses
|
|||||||||||||||||||||
Identical
|
Observable
|
Unobservable
|
Recorded
|
|||||||||||||||||||||
Fair
|
Assets
|
Inputs
|
Inputs
|
Total
|
During the
|
|||||||||||||||||||
Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
Losses
|
Period
|
|||||||||||||||||||
At March 31, 2015:
|
||||||||||||||||||||||||
Foreclosed real estate
|
$
|
354
|
-
|
-
|
354
|
233
|
-
|
|||||||||||||||||
At March 31, 2014:
|
||||||||||||||||||||||||
Foreclosed real estate
|
$
|
583
|
-
|
-
|
583
|
66
|
25
|
|||||||||||||||||
(continued)
20
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
12. Regulatory Matters
The Bank is subject to minimum capital requirements imposed by the Office of the Comptroller of the Currency ("OCC"). Capital adequacy requirements are quantitative measures established by regulation that require the Bank to maintain minimum amounts and ratios of capital.
Effective January 1, 2015 (with some changes transitioned into full effectiveness over two to four years), the Bank became subject to new capital adequacy requirements adopted by the OCC which created a new required ratio for common equity Tier 1 ("CET1") capital, increased the minimum Tier 1 risk-based capital ratio, changed the risk-weightings of certain assets for purposes of the risk-based capital ratios, created an additional capital conservation buffer over required risk-based capital ratios, and changed what qualifies as capital for purposes of meeting these various capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by bank regulators that, if undertaken, could have a direct material effect on the Company's financial statements.
In addition to the capital requirements, there are a number of changes in what constitutes regulatory capital, subject to transition periods. These changes include the phasing-out of certain instruments as qualifying capital, of which the Bank has none. Mortgage servicing rights and deferred tax assets over designated percentages of CET1 are deducted from capital, subject to a transition period ending December 31, 2017. CET1 consists of Tier 1 capital less all capital components that are not considered common equity. In addition, Tier 1 capital includes accumulated other comprehensive income, which includes all unrealized gains and losses on available for sale debt and equity securities, subject to a transition period end December 31, 2017. Because of the Bank's asset size, the Bank is not are considered an advanced approaches banking organization and has elected to permanently opt-out of the inclusion of unrealized gains and losses on available for sale debt and equity securities in its Tier 1 capital calculations.
The new requirements also include changes in the risk-weighting of assets to better reflect credit risk and other risk exposure. These include a 150% risk weight (up from 100%) 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% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancelable (currently set at 0%); and a 250% risk weight (up from 100%) 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, the Bank will have to maintain a capital conservation buffer consisting of additional CET1 capital equal to 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 based on percentages of eligible retained income that could be utilized for such actions. This new capital conservation buffer requirement is to be phased in over a period of four years starting with an increase of 0.625% beginning in January 2016 and increasing by the same amount each year until the full 2.5% becomes effective in January 2019.
21
Under the new standards, in order to be considered well-capitalized, the Bank must have a CET1 risk-based ratio of 6.5% (new), a Tier 1 risk-based ratio of 8% (increased from 6%), a total risk-based capital ratio of 10% (unchanged) and a leverage ratio of 5% (unchanged).
At March 31, 2015, 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 of the OCC. Based on capital levels at March 31, 2015, the Bank was considered to be well-capitalized.
The Bank's actual regulatory capital amounts and percentages are presented in the table ($ in thousands).
Actual
|
Minimum
For Capital Adequacy Purposes |
Minimum
To Be Well Capitalized Under Prompt and Corrective Action Provisions |
||||||||||||||||||||||
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||
At March 31, 2015:
|
||||||||||||||||||||||||
Total Capital to Risk-
|
||||||||||||||||||||||||
Weighted Assets
|
$
|
19,300
|
16.41
|
%
|
$
|
9,407
|
8.00
|
%
|
$
|
11,759
|
10.00
|
%
|
||||||||||||
Tier I Capital to Risk-
|
||||||||||||||||||||||||
Weighted Assets
|
18,198
|
15.48
|
7,055
|
6.00
|
9,407
|
8.00
|
||||||||||||||||||
Tier I Capital
|
||||||||||||||||||||||||
to Total Assets
|
18,198
|
12.44
|
5,853
|
4.00
|
7,316
|
5.00
|
||||||||||||||||||
Common equity Tier 1 Capital to
|
||||||||||||||||||||||||
Risk-Weighted Assets
|
18,198
|
15.48
|
5,292
|
4.50
|
7,643
|
6.50
|
||||||||||||||||||
At December 31, 2014:
|
||||||||||||||||||||||||
Total Capital to Risk-
|
||||||||||||||||||||||||
Weighted Assets
|
19,211
|
19.33
|
7,949
|
8.00
|
9,937
|
10.00
|
||||||||||||||||||
Tier I Capital to Risk-
|
||||||||||||||||||||||||
Weighted Assets
|
18,124
|
18.24
|
3,975
|
4.00
|
5,962
|
6.00
|
||||||||||||||||||
Tier I Capital
|
||||||||||||||||||||||||
to Total Assets
|
18,124
|
12.21
|
5,936
|
4.00
|
7,420
|
5.00
|
||||||||||||||||||
Savings and loan 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 savings and loan 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.
22
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward-Looking Statements
When used in this report and in future filings by Sunshine Financial Inc. ("Sunshine Financial") with the U.S. Securities and Exchange Commission ("SEC"), in Sunshine Financial's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases, "anticipate," "believes," "expects," "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "projected," or similar expressions are intended to identify forward-looking statements." These forward-looking statements include, but are not limited to:
·
|
statements of our goals, intentions and expectations;
|
·
|
statements regarding our business plans, prospects, growth and operating strategies;
|
·
|
statements regarding the asset quality of our loan and investment portfolios; and
|
·
|
estimates of our risks and future costs and benefits.
|
These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
·
|
the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets;
|
·
|
changes in general economic conditions, either nationally or in our market area;
|
·
|
changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources;
|
·
|
fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market area;
|
·
|
results of examinations of us by the Office of the Comptroller of the Currency ("OCC") or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings;
|
·
|
legislative or regulatory changes that adversely affect our business, 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;
|
23
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
· | our ability to control operating costs and expenses; |
· | the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; |
· | difficulties in reducing risks associated with the loans on our balance sheet; |
· | staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; |
· | computer systems on which we depend could fail or experience a security breach; |
· | our ability to retain key members of our senior management team; |
· | costs and effects of litigation, including settlements and judgments; |
· | our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and out ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; |
· | increased competitive pressures among financial services companies; |
· | changes in consumer spending, borrowing and savings habits; |
· | the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; |
· | our ability to pay dividends on our common stock; |
· | adverse changes in the securities markets; |
· | inability of key third-party providers to perform their obligations to us; |
· | 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 loan loss reserve requirements; and |
· | other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described elsewhere in this report and our Form 10-K for the year ended December 31, 2014 filed on March 30, 2015 ("2014 Form 10-K") and our other reports filed with the SEC. |
Any of the 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.
24
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
General
Sunshine Financial is the holding company for its wholly owned subsidiary, Sunshine Savings Bank. Sunshine Savings 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, and in 2009 reorganized into the non-stock mutual holding company structure. On April 5, 2011, Sunshine Financial completed a public offering as part of Sunshine Saving Bank's conversion and reorganization from a non-stock mutual holding company to a stock holding company structure. References to we, us and our throughout this document refer to Sunshine Financial and Sunshine Savings Bank, as the context requires.
We currently operate out of six 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.
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.
Sunshine Financial is regulated by the Board of Governors of the Federal Reserve System (the "Federal Reserve") and Sunshine Savings Bank is regulated by the OCC and the Federal Deposit Insurance Corporation ("FDIC").
25
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Critical Accounting Policies
The Company has identified several accounting policies that as a result of judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company's Condensed Consolidated Financial Statements. Critical accounting policies and estimates are discussed in the Company's 2014 Form 10-K under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation – Critical Accounting Policies." That discussion highlights estimates the Company makes that involve uncertainty or potential for substantial change. There have been no material changes in the Company's critical accounting policies and estimates as previously disclosed in the Company's 2014 Form 10-K.
Comparison of Financial Condition at March 31, 2015 and December 31, 2014
General. Total assets increased $3.3 million, or 2.2%, to $154.3 million at March 31, 2015 from $151.0 million at December 31, 2014. The increase in total assets was due primarily to increases in interest-bearing deposits with banks. The net increase in assets was primarily funded by a $2.9 million increase in deposits.
Loans. Our net loan portfolio decreased $109,000, to $102.7 million at March 31, 2015 from $102.8 million at December 31, 2014. The decrease in loans was due to a $1.4 million increase in commercial real estate loans, as well as a $395,000 increase in commercial business loans offset by decreases in one- to four-family loans, lot loans, construction loans and consumer loans. We originate and sell one- to four-family real estate mortgage loans to Freddie Mac to generate additional income. For the three-months ended March 31, 2015, we originated $2.5 million of one- to four-family mortgage loans for sale, and $2.2 million were sold to Freddie Mac at a gain on sale of $62,000.
Allowance for Loan Losses. Our allowance for loan losses at March 31, 2015 was $1.1 million, or 1.05% of loans, compared to $1.1 million, or 1.04% of loans, at December 31, 2014. Nonperforming loans decreased slightly to $2.0 million at March 31, 2015 from $2.1 million at December 31, 2014. Nonperforming loans to total loans decreased to 1.87% at March 31, 2015 from 2.01 % at December 31, 2014. Loans on nonaccrual which were less than ninety days past due totaled $41,000 at March 31, 2015 compared to $534,000 at December 31, 2014.
Deposits. Total deposits increased $2.9 million, or 2.3%, to $130.8 million at March 31, 2015 from $127.9 million at December 31, 2014. This increase was primarily due to increases in noninterest bearing deposits and savings accounts, partially offset by decreases in time deposits.
Equity. Total stockholders' equity increased $8,000 to $22.4 million at March 31, 2015. This increase was primarily due to net earnings of $24,000 and stock-based compensation of $53,000, partially offset by the repurchase of 4,000 shares of common stock totaling $72,000 for the three-months ended March 31, 2015.
26
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Results of Operations
The following tables set forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) interest-rate spread; and (v) net interest margin. Income and yields on tax-exempt obligations have not been computed on a tax equivalent basis. All average balances are daily average balances.
Three Months Ended March 31,
|
||||||||||||||||||||||||
2015
|
2014
|
|||||||||||||||||||||||
Average
Balance |
Interest
and Dividends |
Average
Yield/ Rate |
Average
Balance |
Interest
and Dividend |
Average
Yield/ Rate |
|||||||||||||||||||
($ in thousands)
|
||||||||||||||||||||||||
Interest-earning assets:
|
||||||||||||||||||||||||
Loans receivable (1)
|
$
|
102,532
|
$
|
1,346
|
5.25
|
%
|
$
|
96,343
|
$
|
1,284
|
5.33
|
%
|
||||||||||||
Securities held to maturity
|
25,513
|
130
|
2.04
|
28,382
|
152
|
2.14
|
||||||||||||||||||
Other interest-earning assets (2)
|
9,708
|
7
|
0.27
|
9,420
|
6
|
0.27
|
||||||||||||||||||
Total interest-earning assets
|
137,753
|
1,483
|
4.31
|
134,145
|
1,442
|
4.30
|
||||||||||||||||||
Noninterest-earning assets
|
11,666
|
11,437
|
||||||||||||||||||||||
Total assets
|
$
|
149,419
|
$
|
145,582
|
||||||||||||||||||||
Interest-bearing liabilities:
|
||||||||||||||||||||||||
MMDA and statement savings
|
75,570
|
61
|
0.32
|
71,582
|
60
|
0.34
|
||||||||||||||||||
Time deposits
|
26,414
|
32
|
0.49
|
28,251
|
33
|
0.47
|
||||||||||||||||||
Total interest-bearing liabilities
|
101,984
|
93
|
0.37
|
99,833
|
93
|
0.37
|
||||||||||||||||||
Noninterest-bearing liabilities
|
25,080
|
22,398
|
||||||||||||||||||||||
Equity
|
22,355
|
23,351
|
||||||||||||||||||||||
Total liabilities and equity
|
$
|
149,419
|
$
|
145,582
|
||||||||||||||||||||
Net interest income
|
$
|
1,390
|
$
|
1,349
|
||||||||||||||||||||
Net interest rate spread (3)
|
3.94
|
%
|
3.93
|
%
|
||||||||||||||||||||
Net interest margin (4)
|
4.04
|
%
|
4.02
|
%
|
||||||||||||||||||||
Ratio of average interest-earning assets
|
||||||||||||||||||||||||
to average interest-bearing liabilities
|
1.35
|
x
|
1.34
|
x
|
||||||||||||||||||||
(1)
|
Includes nonaccrual loans.
|
(2)
|
Other interest-earnings assets consist of Federal Home Loan Bank stock and interest-bearing deposits.
|
(3)
|
Interest-rate spread represents the difference between the average yield on interest-earning assets and the average rate of interest-bearing liabilities.
|
(4)
|
Net interest margin is net interest income divided by average interest-earning assets (annualized).
|
27
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Comparison of the Three Months Ended March 31, 2015 and 2014
General. Net earnings for the three months ended March 31, 2015 was $24,000 compared to a net loss of $21,000 for the three months ended March 31, 2014, resulting in an annualized return on average assets of 0.06% for the three months ended March 31, 2015 and (0.06)% for the three months ended March 31, 2014. The increase in net earnings was due primarily to an increase in net interest income, a decrease in our provision for loan loss and a decrease in our noninterest expense.
Net Interest Income. Net interest income increased $41,000, or 3.0%, to $1.4 million for the three months ended March 31, 2015 from $1.3 million for the same period in 2014, primarily due to a $6.2 million increase in average loans for 2015, offset somewhat by an eight basis point decrease in our average yield on loans. Our net interest rate spread increased to 3.94% for the three months ended March 31, 2015 from 3.93% for the same period in 2014, while our net interest margin increased to 4.04% at March 31, 2015 from 4.02% at March 31, 2014. The ratio of average interest-earning assets to average interest-bearing liabilities for the three months ended March 31, 2015 increased to 1.35, from 1.34 for the three months ended March 31, 2014.
Interest Income. Interest income for the three months ended March 31, 2015 increased $41,000, or 2.8%, to $1.5 million from $1.4 million for the same period ended March 31, 2014. The increase in interest income for the three months ended March 31, 2015 was primarily due to a $6.2 million increase in average loans for 2015, offset somewhat by an eight basis point decrease in our average yield on loans. Average loans increased to $102.5 million, or $6.2 million, for the three months ended March 31, 2015, from $96.3 million for the same period in 2014. The average rate on loans receivable decreased to 5.25% for the three months ended March 31, 2015 compared to 5.33% for the three months ended March 31, 2014.
Interest Expense. Interest expense for the three months ended March 31, 2015 and March 31, 2014 was $93,000. The total cost of funds for both the three months ended March 31, 2015 and March 31, 2014 was 0.37%.
Provision for Loan Losses. We recorded a provision for loan losses of $30,000 for the three months ended March 31, 2015 compared to $50,000 for the three months ended March 31, 2014. The provision for loan losses reflected historical and expected future loan losses, the slight increase in the size of our loan portfolio as well as the change in the mix of loans. Net charge-offs for the three months ended March 31, 2015 were $15,000 compared to a net charge-offs of $131,000 for the three months ended March 31, 2014. Nonperforming loans to total loans at March 31, 2015 were 1.87% compared to 1.69% at March 31, 2014. The allowance for loan losses to loans was 1.05% at March 31, 2015 compared to 1.04% at December 31, 2014.
28
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Comparison of the Three Months Ended March 31, 2014 and 2013, Continued
Management considers the allowance for loan losses at March 31, 2015 to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio. While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future losses will not exceed the amount of the established allowance for loan losses or that any increased allowance for loan losses that may be required will not adversely impact our financial condition and results of operations. In addition, the determination of the amount of our allowance for loan losses is subject to review by bank regulators, as part of the routine examination process, which may result in additions to our provision for loan losses based upon their judgment of information available to them at the time of their examination.
Noninterest Income. Noninterest income for the three months ended March 31, 2015 increased $5,000, or 1.1%, to $465,000 compared to $460,000 for the same period in 2014. The gain on loan sales increased $35,000, the gain on sale of foreclosed assets increased $10,000, fees and charges on loans increased $16,000 and fees and service charges on deposit accounts decreased $52,000 for the three months ended March 31, 2015, compared to the three months ended March 31, 2014. The primary cause for the increase in the gain on loan sales was an increase in the volume of loans sold to Freddie Mac refinancing activity increased due to lower mortgage rates as compared to the same period last year. There was no gain on sale of foreclosed assets during the three months ended March 31, 2014. The primary cause for a decrease in fees from deposit accounts was a decrease in income from debit card activity.
Noninterest Expense. Noninterest expense for the three months ended March 31, 2015 decreased $28,000, or 1.6%, as compared to the same period in 2014. The largest decreases were in data processing services and occupancy and equipment. The decrease in data processing services was primarily due to lower software maintenance costs and disaster recovery costs due to migrating to a service bureau for core processing, offset by higher item processing costs. The decrease in occupancy and equipment expense primarily was due to a decrease in ATM maintenance.
Income Taxes. For the three months ended March 31, 2015, we recorded income taxes of $33,000 on before tax earnings of $57,000. For the three months ended March 31, 2014, we recorded an income tax benefit of $16,000 on a before tax loss of $37,000. Our effective tax rate for the three months ended March 31, 2015 was 57.9% compared to 43.2% for the same time period in 2014.
29
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company provided information about market risk in Item 7A of its 2014 Form 10-K. There have been no material changes in our market risk since our 2014 Form 10-K.
Item 4. Controls and Procedures
An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Act")) as of March 31, 2015, was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and several other members of the Company's senior management. The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures in effect as of March 31, 2015, were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is: (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.
In addition, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended March 31, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
30
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business, the Company occasionally becomes involved in various legal proceedings. In the opinion of management, any liability from such proceedings would not have a material adverse effect on the business or financial condition of the Company.
Item 1A. Risk Factors
Not required for smaller reporting companies.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) The following table sets forth information for the three months ended March 31, 2014 with respect to our repurchases of our outstanding common shares:
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
|
||
January 1, 2015 – January 31, 2015
|
4,000
|
$18.00
|
4,000
|
52,351
|
|
February 1, 2015 – February 28, 2015
|
---
|
---
|
---
|
---
|
|
March 1, 2015 – March 31, 2015
|
---
|
---
|
---
|
---
|
|
Total
|
4,000
|
$18.00
|
4,000
|
52,351
|
On October 1, 2014, the Company announced that its board of directors authorized the Company to purchase up to 115,351 shares, or approximately 10%, of its common stock in the open market or privately negotiated transaction from time to time over a twelve month period, subject to market conditions and other factors. The stock repurchase program is continuing.
Item 3. Defaults Upon Senior Securities
Nothing to report.
Item 4. Mine Safety Disclosures
Nothing to report.
Item 5. Other Information
Nothing to report.
Item 6. Exhibits
See Exhibit Index
31
SUNSHINE FINANCIAL, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SUNSHINE FINANICAL, INC.
|
||
Date: May 13, 2015
|
By:
|
/s/ Louis O. Davis, Jr.
|
Louis O. Davis, Jr.
|
||
President and Chief Executive Officer
|
||
(Duly Authorized Officer)
|
||
Date: May 13, 2015
|
By:
|
/s/ Scott A. Swain
|
Scott A, Swain
|
||
Senior Vice President, Treasurer and
|
||
Chief Financial Officer
|
||
(Principal Financial Officer)
|
32
EXHIBIT INDEX
Exhibits:
|
|
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 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
|
Director Fee Arrangements (incorporated herein by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 (File No. 000-54280))
|
10.5
|
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))
|
10.6
|
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))
|
10.7
|
Commercial Contract for the acquisition of property located at 3641 Coolidge Ct., Tallahassee, FL. (incorporated by reference to the Registrant's Current Report on Form 8-K filed on May 20, 2013 (File No. 000-54280))
|
10.8
|
Commercial Contract for the acquisition of property located at 503 Appleyard Dr., Tallahassee, FL. (incorporated by reference to the Registrant's Current Report on Form 8-K filed on May 20, 2013 (File No. 000-54280))
|
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 *
|
¯In accordance with Rule 406T of Regulation S-T, these interactive data files are deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
33