UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~June~~September 30, 2015

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. 000-29655

Alamogordo Financial Corp.

(Exact name of registrant as specified in its charter)

United States		74-2819148
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

500 East 10^th Street, Alamogordo, New Mexico		88310
(Address of Principal Executive Offices)		Zip Code

(575) 437-9334

(Registrant’s telephone number)

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

(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 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES x NO ¨.

Indicate by 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)

	Large accelerated filer	¨	Accelerated filer	¨
	Non-accelerated filer	¨	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

Shares of the Registrant’s common stock, par value $0.10 per share, issued and outstanding as of ~~July~~November 302, 2015 were 1,679,500.

Alamogordo Financial Corp. FORM 10-Q

FORM 10-Q

Index

		Page
Part I. Financial Information	~~Part I. Financial Information~~
Item 1.	Financial Statements
	Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 (unaudited)	3
	Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014 (unaudited)	2
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2015 and 2014 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)	3
	Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2015 and 2014 (unaudited)	5
	Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2015 and 2014 (unaudited)	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014 (unaudited)	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2726
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 4.	Controls and Procedures	43
Part II. Other Information	~~Part II. Other Information~~
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
Signatures		45

(2)

Item 1. Financial Statements

ALAMOGORDO FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS (Unaudited)

	June 30, 2015			December 31, 2014
	September 30, 2015			December 31, 2014
ASSETS
Cash and due from banks	$	3,~~837~~779,~~486~~919		$	12,708,542
Interest-bearing deposits with banks		157,~~860~~330,000			2,115,431
Total cash and cash equivalents		1911,~~697~~109,~~486~~919			14,823,973
Loans held for investment		~~187~~196,~~912~~974,~~221~~084			175,697,082
Allowance for loan losses		(21,~~068~~853,~~148~~796	)		(1,707,282	)
Loans held for investment, net		~~185~~195,~~844~~120,~~073~~288			173,989,800
Loans held for sale		12,~~403~~284,~~963~~189			9,429,090
Available-for-sale securities		3230,~~923~~488,~~417~~960			29,017,912
Other real estate		~~648~~418,~~317~~000			820,000
Premises and equipment, net		9,~~910~~918,~~749~~790			10,031,492
Stock in financial institutions		1,~~709~~545,~~547~~847			1,905,935
Accrued interest receivable		~~664~~703,~~799~~693			655,201
Bank owned life insurance		5,~~288~~321,~~632~~899			5,223,189
Core deposit intangible		~~409~~384,~~920~~323			465,168
Prepaid and other assets		1773,~~003,067~~395			592,225
TOTAL ASSETS	$	~~270~~268,~~503~~069,~~970~~303		$	246,953,985
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Demand deposits	$	2927,~~670~~517,~~635~~532		$	17,975,857
Savings and NOW deposits		~~102~~108,~~072~~515,~~200~~633			100,574,790
Time deposits		7976,~~385~~174,~~741~~075			83,388,039
Total deposits		~~211~~212,~~128~~207,~~576~~240			201,938,686
Federal Home Loan Bank advances		2723,500,000			12,500,000
Escrows		~~301~~398,~~409~~005			271,141
Accrued interest and other liabilities		2,~~168~~287,~~041~~367			2,907,827
Total liabilities		~~241~~238,~~098~~392,~~026~~612			217,617,654
Commitments and contingencies		-			-
Stockholders’ equity
Common stock, $0.10 par value; 20,000,000 shares authorized, 1,685,132 issued, 1,679,500 outstanding at June 30, 2015 and December 31, 2014, respectively		168,513			168,552
Common stock, $0.10 par value; 20,000,000 shares authorized, 1,685,132 issued, 1,679,500 outstanding at September 30, 2015 and December 31, 2014, respectively		168,513			168,552
Additional paid-in capital		9,713,~~006~~749			9,714,459
Retained earnings		20,~~181~~310,~~736~~150			20,084,266
Accumulated other comprehensive loss		(~~202~~74,~~303~~459	)		(148,446	)
Treasury stock, at cost; 5,632 shares		(139,332	)		(139,332	)
Unearned employee stock ownership plan (ESOP) shares		(~~315~~301,~~676~~930	)		(343,168	)
Total stockholders’ equity		29,~~405~~676,~~944~~691			29,336,331
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	~~270~~268,~~503~~069,~~970~~303		$	246,953,985

See accompanying notes.

~~(3)~~2

ALAMOGORDO FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME~~ ~~(LOSS)~~INCOME (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Interest income
Interest and fees on loans	$	2,~~833~~925,~~426~~824		$	1,~~537~~772,~~552~~820		$	58,~~470~~396,~~542~~366		$	34,~~063~~836,~~225~~045
Interest on securities		~~128~~106,~~203~~597			~~203~~209,~~503~~156			~~292~~399,~~812~~409			~~398~~607,~~195~~351
Interest on other interest-earning assets		317,~~095~~772			45,~~667~~462			5260,~~549~~321			1116,~~426~~888
Total interest income		23,~~992~~040,~~724~~193			1,~~745~~987,~~722~~438			58,~~815~~856,~~903~~096			35,~~472~~460,~~846~~284
Interest expense
Interest on deposits		~~336~~339,~~644~~220			~~220~~260,~~890~~162			~~669~~1,~~510~~008,730			~~451~~711,~~668~~830
Interest on borrowings		1719,~~807~~516			8591,~~749~~660			2646,~~733~~248			~~175~~266,~~106~~766
Total interest expense		~~354~~358,~~451~~736			~~306~~351,~~639~~822			~~696~~1,~~243~~054,978			~~626~~978,~~774~~596
Net interest income		2,~~638~~681,~~273~~457			1,~~439~~635,~~083~~616			57,~~119~~801,~~660~~118			24,~~846~~481,~~072~~688
Provision for loan losses		75125,000			-			~~175~~300,000			-
Net interest income after provision for loan losses		2,~~563~~556,~~273~~457			1,~~439~~635,~~083~~616			47,~~944~~501,~~660~~118			24,~~846~~481,~~072~~688
Noninterest income
Gain on sale of loans		1,~~162~~180,~~993~~097			~~808~~976,~~306~~248			23,~~051~~231,~~193~~290			12,~~376~~352,~~601~~849
Service charges and fees		6077,~~413~~239			9550,~~119~~804			~~110~~187,~~532~~771			~~150~~201,~~363~~167
Impairments of other real estate, net of gain on sale		-(205,863	)		~~56,365~~-			(~~200~~405,~~000~~863	)		60,332
(Loss) gain on sale of securities		-			-			(13,800	)		28,730
Gain on sale of securities		20,214			-			6,414			28,730
Bank owned life insurance income		33,~~028~~267			35,~~519~~648			6598,~~442~~709			70106,~~543~~191
Other		33,838			43,482			78,732			82,638
Bargain purchase gain		-			2,898,847			-			2,898,847
Total noninterest income		1,290,272			1,038,791			2,092,099			1,769,207
Other		30,511			50,594			109,243			133,232
Total noninterest income		1,135,465			4,012,141			3,227,564			5,781,348
Noninterest expense
Salaries and benefits		12,~~909~~059,~~580~~732			1,~~406~~561,~~080~~595			35,~~835~~894,~~201~~934			24,~~715~~277,~~884~~479
Occupancy		~~408~~367,~~179~~259			~~271~~323,~~295~~257			~~834~~1,~~479~~201,738			~~547~~870,~~039~~296
Data processing fees		~~369~~446,~~082~~072			~~223~~181,~~489~~941			~~734~~1,~~554~~180,625			~~411~~593,~~287~~228
FDIC and other insurance expense		5066,~~658~~196			5347,~~100~~899			~~111~~177,~~258~~454			~~143~~191,~~820~~719
Professional fees		~~224~~200,~~492~~538			~~108~~101,~~060~~751			~~456~~657,~~793~~331			~~252~~354,~~346~~097
Merger-related expenses		~~5,253~~-			~~338~~311,~~865~~441			99,577			~~576~~887,~~203~~644
Advertising		6568,~~652~~866			2934,~~103~~559			~~103~~172,~~221~~087			70105,~~544~~103
Net other real estate expenses		~~6,809~~521			112,~~630~~310			1314,~~754~~275			1831,~~810~~120
Other		~~452~~354,~~113~~325			~~232~~347,~~679~~522			~~750~~1,~~452~~104,777			~~502~~850,~~735~~257
Total noninterest expense		3,~~491~~563,~~818~~509			2,~~664~~922,~~301~~275			610,~~939~~502,~~289~~798			58,~~238~~160,~~668~~943
Income (Loss) before income taxes		361,727			(186,427	)		97,470			(623,389	)
Income before income taxes		128,413			2,725,482			225,884			2,102,093
Provision for income taxes		-			-			-			-
NET INCOME (LOSS)		361,727			(186,427	)		97,470			(623,389	)
NET INCOME		128,413			2,725,482			225,884			2,102,093
Other comprehensive (loss) income
Other comprehensive income (loss)
Unrealized (loss) gain on available-for-sale securities		(33,943	)		373,932			(53,857	)		515,171
Unrealized gain (loss) on available-for-sale securities		127,844			(132,492	)		73,987			382,679
COMPREHENSIVE INCOME (LOSS)	$	327,784		$	187,505		$	43,613		$	(108,218	)
COMPREHENSIVE INCOME	$	256,257		$	2,592,990		$	299,871		$	2,484,772
Earnings (loss) per common share:
Earnings per common share:
Basic	$	0.2208		$	(01.1489	)	$	0.0613		$	(01.4755	)
Diluted	$	0.2208		$	(01.1489	)	$	0.0613		$	(01.4755	)

See accompanying notes.

~~(4)~~3

ALAMOGORDO FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2015 AND 2014

										Accumulated
				Additional						Other						Unearned			Total
	Common			Paid-In			Retained			Comprehensive			Treasury			ESOP			Stockholders'
	Stock			Capital			Earnings			Loss			Stock			Shares			Equity
BALANCE, December 31, 2013	$	132,411		$	4,073,845		$	19,758,682		$	(1,064,798	)	$	(484,406	)	$	-		$	22,415,734
																				-
Net income		-			-			2,102,093			-			-			-			2,102,093
Net loss		-			-			(623,389	)		-			-			-			(623,389	)
Unrealized gain on available-for-sale securities		-			-			-			382,679			-			-			382,679
Unrealized gain on available-for-sale securities		-			-			-			515,171			-			-			515,171
Unearned/unallocated ESOP Shares		-			-			-			-			-			(160,895	)		(160,895	)
Unearned/unallocated ESOP Shares																	(160,895	)		(160,895	)
Amortization of ESOP award		-			(5,137	)		-			-			-			34,802			29,665
Amortization of ESOP award		-			(4,165	)		-			-			-			24,106			19,941
Sale of treasury shares to ESOP		-			(117,303	)		-			-			345,074			(227,771	)		-
Sale of treasury shares to ESOP					(117,303	)								345,074			(227,771	)		-
Issuance of common stock in merger		36,063			5,747,365			-			-			-			-			5,783,428
Other		-			17,044			-			-			-			-			17,044
BALANCE, June 30, 2014	$	132,411		$	3,969,421		$	19,135,293		$	(549,627	)	$	(139,332	)	$	(364,560	)	$	22,183,606
BALANCE, September 30, 2014	$	168,474		$	9,715,814		$	21,860,775		$	(682,119	)	$	(139,332	)	$	(353,864	)	$	30,569,748
BALANCE, December 31, 2014	$	168,552		$	9,714,459		$	20,084,266		$	(148,446	)	$	(139,332	)	$	(343,168	)	$	29,336,331
Net income		-			-			97225,~~470~~884			-			-			-			97225,~~470~~884
Unrealized loss on available-for-sale securities		-			-			-			(53,857	)		-			-			(53,857	)
Unrealized gain on available-for-sale securities		-			-			-			73,987			-			-			73,987
Amortization of ESOP award		-			(~~1,492~~749	)		-			-			-			2741,~~492~~238			2640,~~000~~489
Other		(39	)		39			-			-			-			-			-
BALANCE, June 30, 2015	$	168,513			9,713,006			20,181,736			(202,303	)		(139,332	)		(315,676	)		29,405,944
BALANCE, September 30, 2015	$	168,513		$	9,713,749		$	20,310,150		$	(74,459	)	$	(139,332	)	$	(301,930	)	$	29,676,691

See accompanying notes.

~~(5)~~4

ALAMOGORDO FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities
Net income (loss)	$	97,470		$	(623,389	)
Net income	$	225,884		$	2,102,093
Adjustments to reconcile net income (loss) to net cash from operating activities:
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		~~327~~481,~~963~~459			~~250~~382,~~437~~150
Stock dividend on financial institution stock		(56,~~012~~112	)		-
Impairments of other real estate, net of (gain) loss on sale		~~200~~405,~~000~~863			(60,332	)
Amortization of premiums and discounts on securities, net		~~300~~470,~~008~~861			~~280~~442,~~428~~401
Non-cash element of ESOP expense		2640,~~000~~489			1929,~~941~~665
Amortization of core deposit intangible		5580,~~248~~845			-
Loss (gain) on sale of available-for-sale securities		13,800			(28,730	)
Bargain purchase gain		-			(2,898,847	)
Gain on sale of loans		(2,051,193	)		(1,376,601	)
Gain on sale of available-for-sale securities		(6,414	)		(28,730	)
Proceeds from sale of loans held for sale		71,948,919			47,811,139
Gain on sale of loans		(3,231,290	)		(2,352,849	)
Funding of loans held for sale		(72,114,938	)		(50,371,276	)
Proceeds from sale of loans held for sale		111,895,180			70,985,257
Provision for loan losses		175,000			-
Funding of loans held for sale		(110,106,173	)		(72,210,601	)
Earnings on bank-owned life insurance		(65,442	)		(70,543	)
Provision for loan losses		300,000			-
Earnings on bank-owned life insurance		(98,709	)		(106,191	)
Changes in operating assets and liabilities:
Accrued interest receivable		(948,~~598~~492	)		~~(11~~68,~~251~~977	)
Income taxes receivable		-			310,331
Prepaid and other assets		(~~410~~181,~~843~~172	)		3(7,~~733~~346	)
Accrued interest and other liabilities		(~~739~~620,~~785~~459	)		~~411~~404,~~677~~287
Other		23,365			54,859
Net cash used for operating activities		(2374,~~229,038~~875	)		(32,~~399~~884,~~577~~876	)
Cash flows from investing activities
Proceeds from principal payments on available-for-sale securities		35,~~183~~081,~~467~~993			24,~~656~~185,~~729~~331
Proceeds from sales of available-for-sale securities		2,~~286~~799,~~200~~336			2,054,999
Purchases of available-for-sale securities		(9,742,836	)		-
Funding of ESOP		-			(106,919	)
Net (increase) decrease in loans held for investment		(1222,~~838~~894,~~011~~381	)		~~435~~(2,~~336~~788,933	)
Purchases of premises and equipment		(~~207~~368,~~219~~756	)		(1216,~~335~~988	)
Redemption of stock in financial institutions		201,400			202,185
Redemption (purchases) of stock in financial institutions		366,200			(88,315	)
Net proceeds from sales of other real estate		-24,454			~~554~~570,~~001~~889
Net cash (used for) provided by investing activities		(17,116,999	)		5,783,996
Cash paid for acquisition		-			(3,804,414	)
Cash received for acquisition		-			2,208,730
Net cash (used for) provided by investing activities		(24,733,990	)		2,214,380
Cash flows from financing activities
Net increase in deposits		910,~~189~~268,~~889~~554			3(1,~~712~~800,~~110~~785	)
Net increase (decrease) in escrows		29,661			(1,506	)
Net increase in escrows		126,257			109,231
Net increase (decrease) in Federal Home Loan Bank advances		15,000,000			(3,163,413	)
Net increase in Federal Home Loan Bank advances		11,000,000			4,246,886
Net cash provided by financing activities		2421,~~219~~394,~~550~~811			~~547~~2,~~191~~555,332
Net increase in cash and cash equivalents		4(3,~~873~~714,~~513~~054	)		21,~~931~~884,~~610~~836
Cash and cash equivalents, beginning of period		14,823,973			7,014,150
Cash and cash equivalents, end of period	$	1911,~~697~~109,~~486~~919		$	98,~~945~~898,~~760~~986
Supplemental disclosures:
Interest paid on deposits and advances	$	~~701~~1,~~157~~059,325		$	~~629~~966,~~968~~776
Income taxes paid		-			(310,331	)
Noncash investing and financing activities:
Transfers of loans to other real estate		28,317			81,518
Sale of treasury shares to ESOP		-			345,074

See accompanying notes.

~~(6)~~5

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~JUNE~~SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

Alamogordo Financial Corp. (the “Company”) is a savings and loan holding company that owns 100% of Bank’34 (the “Bank”). On June 30, 2008, the Bank changed its name from Alamogordo Federal Savings and Loan Association to Bank’34. Alamogordo Financial Corp. was incorporated on April 30, 1997 and is a majority-owned subsidiary of AF Mutual Holding Company. As of ~~June~~September 30, 2015, AF Mutual Holding Company owned 54.7% of the Company's outstanding shares of common stock.

The Company completed its acquisition of ~~Bank~~ Bank 1440 on August 29, 2014. Merger consideration was $9.6 million, including $3.8 million in cash and 360,635 shares of Alamogordo Financial Corp. common stock valued at $5.8 million. In the merger, the Company received assets valued at $88.3 million and assumed liabilities of $75.8 million. The transaction resulted in an increase in stockholders’ equity of $8.7 million, including $5.8 million due to the fair value of shares issued and the $2.9 million bargain purchase gain recorded in the consolidated statements of comprehensive income ~~(loss)~~.

The consolidated financial statements of ~~the~~ the Company at ~~June~~September 30, 2015 (unaudited) and for the three and ~~six~~nine months ended ~~June~~September 30, 2015 and 2014 (unaudited) have been prepared in conformity with U.S. generally accepted accounting principles for interim financial information and predominant practices followed by the financial services industry. However, in management’s opinion, the interim data at ~~June~~September 30, 2015 and for the three and ~~six~~nine months ended ~~June~~September 30, 2015 and 2014 includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of financial position and the results of operations in the interim periods. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

Effective December 31, 2014, the Company changed its fiscal year from the twelve months ended June 30 to the twelve months ended December 31.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s transition report on Form 10-KT for the period July 1, 2014 through December 31, 2014 as filed with the Securities Exchange Commission (“SEC”) on March 30, 2015.

The Bank provides a variety of banking services to individuals and businesses through its full-service branches in Alamogordo and Las Cruces, New Mexico and Scottsdale and Peoria, Arizona. The Bank opened a loan production office in El Paso, Texas in ~~early~~the first quarter of 2015.

A large portion of the Bank’s New Mexico loans are secured by real estate in Otero and Dona Ana Counties. The economy for these counties is heavily dependent on two U.S. Government military installations located in those counties. Accordingly, the ultimate collectability of the Bank’s New Mexico loans are susceptible to changes in U.S. Government military operations in southern New Mexico.

The primary deposit products are demand deposits, certificates of deposit, NOW, savings and money market accounts. The primary lending products are real estate mortgage loans and commercial loans. The Bank is subject to competition from other financial institutions, regulation by certain federal agencies and undergoes periodic examinations by regulatory authorities.

(7)

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND DECEMBER 31, 2014

Rising and falling interest rate environments can have various impacts on the Bank’s net interest income, depending on the short-term interest rate gap that the Bank maintains. The Bank’s net interest income is also effected by prepayments of loans and early withdrawals of deposits.

ALAMOGORDO FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

Basis of Presentation – The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP).

Basis of Consolidation – The consolidated financial statements include the accounts of Alamogordo Financial Corp. and the Bank. All significant intercompany accounts and transactions have been eliminated.

Provision for Income Taxes ~~– No~~- No provision for income ~~tax~~taxes ~~expense~~was ~~or income tax benefits were~~ recorded for the three and ~~six~~nine months ended ~~June~~September 30, 2015 and 2014. The Company had pre-tax ~~losses for 2014 and no income tax benefit was recorded due to the inability to project future taxable~~ income asfor ~~was~~all ~~considered~~periods ~~necessary~~presented ~~to ensure utilization of those benefits in the future. The Company had pre-tax income for 2015~~ and no provision for income ~~tax~~taxes ~~(expense)~~ was recorded due to net operating loss carry-forwards from prior periods available to offset that income.

Reclassifications – Certain reclassifications have been made to prior period financial information to conform to the current period presentation.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates include, but are not limited to, allowance for loan losses, useful lives used in depreciation and amortization, deferred income taxes and related valuation allowance, valuation of other real estate and core deposit intangibles.

Recent Accounting Pronouncements – In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-04, "Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure." The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, 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 receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 states 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 (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) 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. Additionally, ASU No. 2014-04 requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of ASU No. 2014-04 did not have a material impact on the Company's Consolidated Financial Statements.

~~(8)~~7

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~JUNE~~SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

NOTE 2 – BUSINESS COMBINATION

On August 29, 2014 (the “acquisition date”), the Company acquired 100% of the outstanding stock of Bank 1440, a state-chartered commercial bank headquartered in Phoenix, Arizona with approximately $88.3 million in assets at fair value and two branches. Bank 1440 shareholders received $0.94 in cash and 0.17064 shares of the Company’s common stock in exchange for each share of Bank 1440 common stock and Series A preferred stock, resulting in the Company issuing 360,635 shares of its common stock, subject to adjustment for cash paid in lieu of fractional shares.

The Bank 1440 transaction was accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Per the applicable accounting guidance for business combinations, these fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values become available.

A bargain purchase gain of $2.9 million was recognized in noninterest income during the quarter ended September 30, 2014, which is calculated as the excess of net identifiable assets acquired at $12.5 million over consideration transferred of $9.6 million. No tax benefit or expense was recognized on the fair market value adjustments since each of the Company and Bank 1440 had 100% valuation allowances against their net deferred tax assets and neither had been imputing tax benefits or expense on current income due to past years net operating losses. The following tables provide the purchase price calculation as of the acquisition date and the identifiable assets purchased and the liabilities assumed at their estimated fair value.

	August 29,
	2014

Purchase Price

Gross Company Shares Issued		360,635
Closing price per share of the Company's Common Stock	$	16.00

Stock Consideration (0.17064 ratio)	$	5,770,160

Option and Warrant consideration	$	1,298,629
20% Cash & Cash in Lieu		2,105,785
Dissenters Payments		400,000

Cash Consideration	$	3,804,414

Total purchase price	$	9,574,574

~~(9)~~8

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~JUNE~~SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

Statement of Net Assets Acquired at Fair Value:
ASSETS
Cash and due from banks	$	2,208,730
Available-for-sale securities		17,365,877
Loans held for investment, net		67,383,915
Premises and equipment, net		326,428
Core deposit intangible		502,000
Accrued interest receivable and other assets		482,354
Total assets	$	88,269,304	$	88,269,304
LIABILITIES
Deposits	$	75,504,917
Federal Home Loan Bank advances		-
Accrued interest and other liabilities		290,966
Total liabilities	$	75,795,883		(75,795,883	)
Net identifiable assets acquired			$	12,473,421
Total purchase price				(9,574,574	)
Bargain purchase gain			$	2,898,847

Statement of Net Assets Acquired at Fair Value:

Bank 1440’s results of operations are not included in the Company’s consolidated statements of comprehensive income (loss) for the three or six months ended June 30, 2014.

ASSETS
Cash and due from banks	$	2,208,730
Available-for-sale securities		17,365,877
Loans held for investment, net		67,383,915
Premises and equipment, net		326,428
Core deposit intangible		502,000
Accrued interest receivable and other assets		482,354
Total assets	$	88,269,304	$	88,269,304

LIABILITIES
Deposits	$	75,504,917
Federal Home Loan Bank advances		-
Accrued interest and other liabilities		290,966
Total liabilities	$	75,795,883		(75,795,883	)

Net identifiable assets acquired				12,473,421
Total purchase price				(9,574,574	)
Bargain purchase gain			$	2,898,847

~~Merger-related~~Only ~~charges~~one month of ~~$100,000~~Bank ~~and~~1440’s ~~$576,000~~results ~~were~~of ~~recorded~~operations are included in the Company’s consolidated statements of comprehensive income ~~(loss)~~for asthe ~~noninterest~~three ~~expense~~and ~~for~~nine ~~the six~~ months ended ~~June~~September 30, ~~2015 and~~ 2014, ~~respectively,~~since ~~and include incremental costs to integrate~~ the ~~operations~~merger ofwas ~~the~~completed ~~Company~~in ~~and Bank~~late ~~1440.~~August ~~Such expenses were for professional services including legal fees, costs related to termination of existing contractual arrangements for various services and other costs~~2014. ~~Core operating systems were converted in March 2015.~~

~~The~~Merger-related ~~following~~charges ~~table~~of ~~provides~~$100,000 ~~the unaudited~~and ~~pro~~$888,000 ~~forma~~were ~~information~~recorded ~~for~~in the ~~results~~Company’s ofconsolidated ~~operations~~statements ~~for~~of ~~the~~comprehensive ~~six~~income ~~months~~as ~~ended~~noninterest ~~June~~expense ~~30,~~for ~~2015 compared to~~ the ~~six~~ nine months ended ~~June~~ September 30, ~~2014~~2015 asand if2014, ~~the acquisition had occurred January 1~~respectively, ~~2014.~~and ~~These adjustments~~ include ~~the~~incremental ~~impact~~costs ofto ~~certain~~integrate ~~purchase~~the ~~accounting adjustments~~operations ~~including accretion~~ of ~~loan~~the ~~discounts, core deposit intangible amortization, fixed asset depreciation~~ Company and ~~deposit~~Bank ~~premium amortization~~1440. InSuch ~~addition, the merger~~ expenses ~~previously~~were ~~discussed~~for ~~are~~professional ~~included~~services inincluding ~~each~~legal ~~period~~fees, ~~presented.~~costs ~~The~~related ~~Company expects~~ to ~~achieve~~termination ~~operating cost savings and other business synergies as a result~~ of ~~the~~existing ~~acquisition, which are not reflected in the pro~~contractual ~~forma~~arrangements ~~amounts. These unaudited pro forma results are presented~~ for ~~illustrative~~various ~~purposes~~services and ~~are~~other ~~not~~costs. ~~intended~~Core tooperating ~~represent~~systems orwere ~~be indicative~~converted ofin ~~the~~March actual results of operations of the combined corporation that would have been achieved had the acquisition occurred at the beginning of each period presented, nor are they intended to represent or be indicative of future results of operations2015.

~~(10)~~The following table provides the unaudited pro forma information for the results of operations for the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014 as if the acquisition had occurred January 1, 2014. These adjustments include the impact of certain purchase accounting adjustments including accretion of loan discounts, core deposit intangible amortization, fixed asset depreciation and deposit premium amortization. In addition, the merger expenses previously discussed are included in each period presented. The Company expects to achieve operating cost savings and other business synergies as a result of the acquisition, which are not reflected in the pro forma amounts. These unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined corporation that would have been achieved had the acquisition occurred at the beginning of each period presented, nor are they intended to represent or be indicative of future results of operations.

~~ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND DECEMBER 31, 2014~~9

ALAMOGORDO FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

Pro Forma Results of Operations

	In thousands
	Six Months Ended June 30,
	Nine Months Ended September 30,
	2015		2014
Total revenue, net of interest expense	$	711,~~212~~029	$	612,~~505~~259
Net income (loss)	$	97	$	(31	)
Net income	$	226	$	2,220

In many cases, determining the fair value of the acquired assets and assumed liabilities required the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of those determinations relates to the valuation of acquired loans. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and other factors, such as prepayments. In accordance with GAAP, there was no carry-over of Bank 1440’s previously established allowance for loan losses.

All of the acquired loans were evaluated for evidence of credit quality deterioration and none were found to be accountable under ASC 310-30 (acquired impaired). All acquired loans are accounted for under ASC 310-20 (acquired non-impaired). The fair value of the acquired loans at the acquisition date was $67.4 million. The gross contractually required principal and interest payments receivable for acquired loans was $68.5 million.

The fair value of the investment securities acquired was approximately $17.4 million.

(11)

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND DECEMBER 31, 2014

NOTE 3 – DEBT SECURITIES

Debt securities have been classified in ~~the~~ the consolidated balance sheets according to management’s intent at ~~June~~September 30, 2015 and December 31, 2014. The following table provides the carrying amount of securities and their approximate fair values ~~were as follows:~~.

	Gross		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
June 30, 2015
Available-for-sale securities
Mortgage-backed securities	$	26,769,285	$	69,126	$	(254,690	)	$	26,583,721
U.S. Government agencies		3,940,379		7,987		(50,647	)		3,897,719
Municipal obligations		2,416,056		27,750		(1,829	)		2,441,977
	$	33,125,720	$	104,863	$	(307,166	)	$	32,923,417
December 31, 2014
Available-for-sale securities
Mortgage-backed securities	$	21,797,221	$	72,984	$	(142,394	)	$	21,727,811
U.S. Government agencies		4,925,972		4,355		(73,798	)		4,856,529
Municipal obligations		2,443,165		9,059		(18,652	)		2,433,572
	$	29,166,358	$	86,398	$	(234,844	)	$	29,017,912

~~Proceeds~~ALAMOGORDO ~~from~~FINANCIAL ~~the~~CORP. ~~sale~~NOTES ofTO ~~available-for-sale securities~~CONSOLIDATED ~~and~~FINANCIAL ~~resulting~~STATEMENTS ~~net~~SEPTEMBER ~~(losses)~~30, ~~gains~~2015 ~~were~~AND asDECEMBER ~~follows:~~31, 2014

	Three Months Ended June 30,				Six Months Ended June 30,
	Gross		Gross		Gross
	2015		2014		2015			2014
	Amortized		Unrealized		Unrealized
Proceeds from sale	$	-	$	-	$	2,286,200		$	2,054,999
	Cost		Gains		Losses			Fair Value
(Losses) gains, net	$	-	$	-	$	(13,800	)	$	28,730
September 30, 2015
Available-for-sale securities
Mortgage-backed securities	$	24,936,804	$	96,715	$	(207,211	)	$	24,826,308
U.S. Government agencies		3,716,743		43,618		(19,199	)		3,741,162
Municipal obligations		1,909,873		15,609		(3,992	)		1,921,490
	$	30,563,420	$	155,942	$	(230,402	)	$	30,488,960
December 31, 2014
Available-for-sale securities
Mortgage-backed securities	$	21,797,221	$	72,984	$	(142,394	)	$	21,727,811
U.S. Government agencies		4,925,972		4,355		(73,798	)		4,856,529
Municipal obligations		2,443,165		9,059		(18,652	)		2,433,572
	$	29,166,358	$	86,398	$	(234,844	)	$	29,017,912

~~Amortized~~Proceeds ~~cost~~from ~~and fair value of securities by contractual maturity as of June 30, 2015 are shown below. For purposes of~~ the ~~maturity~~sale ~~table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the actual contractual maturities~~ of ~~underlying~~ ~~collateral. The mortgage~~available-~~backed~~ for-sale securities ~~may~~and ~~mature~~resulting ~~earlier~~net ~~than~~gains ~~their~~were ~~actual~~as ~~contractual maturities because of principal prepayments. Expected maturities may differ from contractual maturities because borrowers may call or prepay obligations.~~follows:

The scheduled maturities of available-for-sale securities at June 30, 2015 were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014

Proceeds from sale	$	513,136	$	-	$	2,799,336	$	2,054,999
Gains, net	$	20,214	$	-	$	6,414	$	28,730

	Available-for-Sale Securities
	Amortized		Fair
	Cost		Value
Due in one year or less	$	-	$	-
Due after one to five years		26,014,935		25,853,283
Due after five to ten years		7,110,785		7,070,134
Due after ten years		-		-
Totals	$	33,125,720	$	32,923,417

Amortized cost and fair value of securities by contractual maturity as of September 30, 2015 are shown below. For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the actual contractual maturities of underlying collateral. The mortgage-backed securities may mature earlier than their actual contractual maturities because of principal prepayments. Expected maturities may differ from contractual maturities because borrowers may call or prepay obligations.

~~(12)~~The scheduled maturities of available-for-sale securities at September 30, 2015 were as follows:

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND DECEMBER 31, 2014

	Available-for-Sale Securities
	Amortized		Fair
	Cost		Value

Due in one year or less	$	-	$	-
Due after one to five years		26,741,357		26,678,973
Due after five to ten years		3,822,063		3,809,987
Due after ten years		-		-

Totals	$	30,563,420	$	30,488,960

At June 30, 2015 and December 31, 2014, there were no holdings of securities of any one issuer, other than the U.S. Government, its agencies and U.S. Government-Sponsored Enterprises (GSEs) in an amount greater than 10% of stockholders’ equity.11

AtALAMOGORDO ~~June~~FINANCIAL ~~30,~~CORP. ~~2015,~~NOTES ~~mortgage-backed~~TO ~~securities included~~CONSOLIDATED ~~collateralized~~FINANCIAL ~~mortgage~~STATEMENTS ~~obligations~~SEPTEMBER ~~of $6.5 million~~30, ~~which~~2015 ~~are~~AND ~~backed~~DECEMBER by31, ~~one-to-four family mortgage loans. The Company does not hold any securities backed by commercial real estate loans.~~2014

~~Gross~~At ~~Unrealized~~September ~~Losses~~30, 2015 and ~~Fair~~December 31, ~~Value~~2014, –there ~~The~~were ~~following~~no ~~tables~~holdings ~~show the gross unrealized losses and fair values~~ of securities ~~by length~~ of ~~time~~any ~~that individual~~one ~~securities in each category have been in a continuous loss position. At June 30~~issuer, ~~2015, 99%~~other ofthan the ~~securities held by the Company were issued by~~ U.S. Government~~-sponsored~~, ~~enterprises~~its ~~and~~ agencies, ~~primarily Fannie Mae~~ and ~~Freddie~~U.S. ~~Mac,~~Government-Sponsored ~~institutions~~Enterprises ~~which~~(GSEs) ~~the~~in ~~government~~an ~~has~~amount ~~affirmed~~greater ~~its~~than ~~commitment~~10% toof ~~support~~stockholders’ equity.

~~Because~~At ~~the~~September ~~decline in fair value is attributable to changes in interest rates and illiquidity~~30, ~~and not credit quality~~2015, ~~and because the Company does not have the intent to sell~~mortgage-backed ~~these~~ securities ~~and~~included itcollateralized ismortgage ~~likely~~obligations ~~that~~of it$6.2 ~~will~~million, ~~not~~which beare ~~required~~backed by one-to-four ~~sell~~family ~~the~~mortgage ~~securities~~loans. The ~~before their anticipated recovery, the~~ Company does not ~~consider~~hold ~~these~~any securities tobacked beby ~~other-than-temporarily~~commercial ~~impaired~~real atestate ~~June 30, 2015 or December 31, 2014~~loans.

	June 30, 2015
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
Description of			Unrealized					Unrealized					Unrealized
Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available-for-sale securities:
Mortgage-backed securities	$	14,243,795	$	(167,222	)	$	8,001,463	$	(87,468	)	$	22,245,258	$	(254,690	)
U.S. Government agencies		1,458,464		(6,118	)		1,624,081		(44,529	)		3,082,545		(50,647	)
Municipal obligations		326,398		(1,829	)		-		-			326,398		(1,829	)
Total temporarily impaired securities	$	16,028,657	$	(175,169	)	$	9,625,544	$	(131,997	)	$	25,654,201	$	(307,166	)
	December 31, 2014
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
Description of			Unrealized					Unrealized					Unrealized
Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available-for-sale securities:
Mortgage-backed securities	$	12,923,685	$	(142,394	)	$	-	$	-		$	12,923,685	$	(142,394	)
U.S. Government agencies		3,969,042		(73,798	)		-		-			3,969,042		(73,798	)
Municipal obligations		1,300,632		(18,652	)		-		-			1,300,632		(18,652	)
Total temporarily impaired securities	$	18,193,359	$	(234,844	)	$	-	$	-		$	18,193,359	$	(234,844	)

Gross Unrealized Losses and Fair Value – The following tables show the gross unrealized losses and fair values of securities by length of time that individual securities in each category have been in a continuous loss position. At September 30, 2015, 94% of the securities held by the Company were issued by U.S. Government-sponsored enterprises and agencies, primarily Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support.

~~Loans~~Because ~~and~~the ~~securities~~decline ofin ~~approximately~~fair ~~$115.4~~value ~~million~~is atattributable to ~~June~~changes 30in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell ~~2015~~these ~~were~~securities ~~pledged~~and it is likely that it will not be required to ~~secure~~sell ~~FHLB~~the ~~advances.~~securities Inbefore ~~addition~~their anticipated recovery, ~~securities~~the ~~carried~~Company does atnot ~~approximately~~consider ~~$3.2~~these ~~million~~securities to be other-than-temporarily impaired at ~~June~~September 30, 2015 ~~were pledged~~or toDecember ~~secure~~31, ~~public deposits~~2014.

(13)

	September 30, 2015
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
Description of			Unrealized					Unrealized					Unrealized
Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses

Available-for-sale securities:
Mortgage-backed securities	$	11,835,136	$	(124,279	)	$	6,735,690	$	(82,932	)	$	18,570,826	$	(207,211	)
U.S. Government agencies		-		-			1,506,929		(19,199	)		1,506,929		(19,199	)
Municipal obligations		301,412		(3,992	)		-		-			301,412		(3,992	)

Total temporarily impaired securities	$	12,136,548	$	(128,271	)	$	8,242,619	$	(102,131	)	$	20,379,167	$	(230,402	)

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND DECEMBER 31, 2014

	December 31, 2014
	Less Than 12 Months					12 Months or More				Total
			Gross					Gross				Gross
Description of			Unrealized					Unrealized				Unrealized
Securities	Fair Value		Losses			Fair Value		Losses		Fair Value		Losses

Available-for-sale securities:
Mortgage-backed securities	$	12,923,685	$	(142,394	)	$	-	$	-	$	12,923,685	$	(142,394	)
U.S. Government agencies		3,969,042		(73,798	)		-		-		3,969,042		(73,798	)
Municipal obligations		1,300,632		(18,652	)		-		-		1,300,632		(18,652	)

Total temporarily impaired securities	$	18,193,359	$	(234,844	)	$	-	$	-	$	18,193,359	$	(234,844	)

Loans and securities of approximately $119.9 million at September 30, 2015 were pledged to secure FHLB advances. In addition, securities carried at approximately $3.0 million at September 30, 2015 were pledged to secure public deposits.

ALAMOGORDO FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

NOTE 4 – LOANS HELD FOR INVESTMENT, NET

The components of loans held for investment, net in the consolidated balance sheets were as follows:

	June 30, 2015						December 31, 2014
	September 30, 2015						December 31, 2014
	Amount			Percent			Amount			Percent
Loans held for investment, net:
Commercial real estate	$	~~141~~151,~~802~~186,~~439~~975			7576.25	%	$	129,948,473			73.7	%
Residential real estate		3231,~~485~~125,~~216~~404			1715.27	%		32,959,380			18.7	%
Commercial and industrial		109,~~066~~807,~~061~~878			5.30	%		8,594,344			4.9	%
Consumer and other		45,~~268~~560,~~794~~295			2.38	%		4,816,230			2.7	%
Total gross loans		~~188~~197,~~622~~680,~~510~~552			100.0	%		176,318,427			100.0	%
Unamortized loan fees		(~~710~~706,~~289~~468	)					(621,345	)
Loans held for investment		~~187~~196,~~912~~974,~~221~~084						175,697,082
Allowance for loan losses		(21,~~068~~853,~~148~~796	)					(1,707,282	)
Loans held for investment, net	$	~~185~~195,~~844~~120,~~073~~288					$	173,989,800

At ~~June~~September 30, 2015 and December 31, 2014, commercial real estate loans include construction loans of $1413.74 million and $13.0 million, respectively.

Allowance for Loan Losses and Recorded Investment in Loans – The following is a summary of the allowance for loan losses and recorded investment in loans:

As of June 30, 2015

As of September 30, 2015

Commercial

Residential

Commercial

Consumer and

Real Estate

and Industrial

Other

Total

Allowance for loan losses

Ending balance: individually evaluated for impairment

~~331,447~~-

Ending balance: collectively evaluated for impairment

1,~~116~~258,~~290~~884

~~557~~523,~~404~~336

4542,~~992~~587

1728,~~015~~989

1,~~736~~853,~~701~~796

Total

1,~~116~~258,~~290~~884

~~888~~523,~~851~~336

4542,~~992~~587

1728,~~015~~989

21,~~068~~853,~~148~~796

Gross loans

Ending balance: individually evaluated for impairment

1,~~862~~855,~~366~~354

1,~~471~~138,~~271~~968

32,~~333~~994,~~637~~322

Ending balance: collectively evaluated for impairment

~~139~~149,~~940~~331,~~073~~621

3129,~~013~~986,~~945~~436

109,~~066~~807,~~061~~878

45,~~268~~560,~~794~~295

~~185~~194,~~288~~686,~~873~~230

Total

~~141~~151,~~802~~186,~~439~~975

3231,~~485~~125,~~216~~404

109,~~066~~807,~~061~~878

45,~~268~~560,~~794~~295

~~188~~197,~~622~~680,~~510~~552

~~(14)~~13

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~JUNE~~SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

	As of December 31, 2014
	Commercial		Residential		Commercial		Consumer and
	Real Estate		Real Estate		and Industrial		Other		Total

Allowance for loan losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment		1,125,491		387,801		177,820		16,170		1,707,282

Total	$	1,125,491	$	387,801	$	177,820	$	16,170	$	1,707,282

Gross loans
Ending balance: individually evaluated for impairment	$	2,512,377	$	491,780	$	16,796	$	-	$	3,020,953
Ending balance: collectively evaluated for impairment		127,436,096		32,467,600		8,577,548		4,816,230		173,297,474
Total	$	129,948,473	$	32,959,380	$	8,594,344	$	4,816,230	$	176,318,427

The following is a summary of activities for the allowance for loan losses for the three and ~~six~~nine months ended ~~June~~September 30, 2015 and 2014:

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Beginning balance	$	12,~~990~~068,~~668~~148		$	1,~~762~~644,~~682~~550		$	1,707,282		$	1,733,097
Provision for loan losses		75125,000			-			~~175~~300,000			-
Charge-offs:
Commercial real estate		-			-			-			-
Residential real estate		-(339,352	)		~~(86,710~~-	)		-(339,352	)		(86,710	)
Consumer and other		-			(~~31,423~~722	)		(160	)		(3132,~~690~~412	)
Total charge-offs		-(339,352	)		(~~118,133~~722	)		(~~160~~339,512	)		(~~118~~119,~~400~~122	)
Recoveries:
Commercial real estate		-			-1,264			183,546			2930,~~700~~964
Residential real estate		~~2,400~~-			-23,089			2,400			-23,089
Consumer and other		80-			1400			80			~~153~~553
Total recoveries		~~2,480~~-			124,753			186,026			2954,~~853~~606
Net recoveries (charge-offs)		2,480			(118,132	)		185,866			(88,547	)
Net (charge-offs) recoveries		(339,352	)		24,031			(153,486	)		(64,516	)
Ending balance	$	21,~~068~~853,~~148~~796		$	1,~~644~~668,~~550~~581		$	21,~~068~~853,~~148~~796		$	1,~~644~~668,~~550~~581

~~(15)~~14

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~JUNE~~SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

Nonperforming Assets – The ~~following~~ following table presents an aging analysis of the recorded investment in past due loans as of ~~June~~September 30, 2015 and December 31, 2014. Payment activity is reviewed by management on a monthly basis to determine the performance of each loan. As of ~~June~~ September 30, 2015 and December 31, 2014, all loans past due 90 days or more are no longer accruing interest.

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
June 30, 2015
September 30, 2015
Commercial real estate	$	-	$	-	$	-	$	-	$	~~141~~151,~~802~~186,~~439~~975	$	~~141~~151,~~802~~186,~~439~~975
Residential real estate		-		~~170~~265,~~072~~295		~~981~~641,~~677~~263		1906,~~151,749~~558		3130,~~333~~218,~~467~~846		3231,~~485~~125,~~216~~404
Commercial and industrial		-		-		-		-		109,~~066~~807,~~061~~878		109,~~066~~807,~~061~~878
Consumer and other		-		-		-		-		45,~~268~~560,~~794~~295		45,~~268~~560,~~794~~295
Totals	$	-	$	~~170~~265,~~072~~295	$	~~981~~641,~~677~~263	$	1906,~~151,749~~558	$	~~187~~196,~~470~~773,~~761~~994	$	~~188~~197,~~622~~680,~~510~~552
	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
December 31, 2014
Commercial real estate	$	-	$	894,137	$	-	$	894,137	$	129,054,336	$	129,948,473
Residential real estate		945,427		149,832		113,239		1,208,498		31,750,882		32,959,380
Commercial and industrial		-		-		-		-		8,594,344		8,594,344
Consumer and other		-		-		-		-		4,816,230		4,816,230
Totals	$	945,427	$	1,043,969	$	113,239	$	2,102,635	$	174,215,792	$	176,318,427

The following table sets forth nonaccrual loans and other real estate (ORE) at June 30, 2015 and December 31, 2014:

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
December 31, 2014
Commercial real estate	$	-	$	894,137	$	-	$	894,137	$	129,054,336	$	129,948,473
Residential real estate		945,427		149,832		113,239		1,208,498		31,750,882		32,959,380
Commercial and industrial		-		-		-		-		8,594,344		8,594,344
Consumer and other		-		-		-		-		4,816,230		4,816,230

Totals	$	945,427	$	1,043,969	$	113,239	$	2,102,635	$	174,215,792	$	176,318,427

	June 30,			December 31,
	2015			2014
Nonaccrual loans
Commercial real estate	$	-		$	616,605
Residential real estate		1,131,104			181,284
Commercial and industrial		-			16,795
Consumer and other		-			-
Total nonaccrual loans		1,131,104			814,684
Other real estate (ORE)		648,317			820,000
Total nonperforming assets	$	1,779,421		$	1,634,684
Nonperforming assets to gross loans held for investment and ORE		0.94	%		0.92	%
Nonperforming assets to total assets		0.66	%		0.66	%

The following table sets forth nonaccrual loans and other real estate (ORE) at September 30, 2015 and December 31, 2014:

Other real estate at June 30, 2015 consisted of one commercial and one single family residential property. Other real estate at December 31, 2014 consisted of one commercial property. At June 30, 2015, the recorded investment in residential real estate loans that is in the process of foreclosure according to local jurisdiction requirements was $932,000.

	September 30,			December 31,
	2015			2014

Nonaccrual loans
Commercial real estate	$	-		$	616,605
Residential real estate		803,625			181,284
Commercial and industrial		-			16,795
Consumer and other		-			-
Total nonaccrual loans		803,625			814,684
Other real estate (ORE)		418,000			820,000

Total nonperforming assets	$	1,221,625		$	1,634,684

Nonperforming assets to gross loans held for investment and ORE		0.62	%		0.92	%
Nonperforming assets to total assets		0.46	%		0.66	%

~~(16)~~Other real estate at September 30, 2015 and December 31, 2014 consisted of one commercial property. At September 30, 2015, the recorded investment in residential real estate loans that is in the process of foreclosure according to local jurisdiction requirements was $593,000.

~~ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND DECEMBER 31, 2014~~15

~~Credit~~ALAMOGORDO ~~Quality~~FINANCIAL ~~Indicators~~CORP. –NOTES ~~The following~~TO ~~tables~~CONSOLIDATED ~~represent~~FINANCIAL ~~the~~STATEMENTS ~~credit~~SEPTEMBER ~~exposure by internally assigned grades at June~~ 30, 2015 ~~and~~AND ~~December~~DECEMBER 31, 2014. This grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements in accordance with the loan terms. The Bank’s internal credit risk grading system is based on management’s experiences with similarly graded loans. Credit risk grades are reassessed each quarter based on any recent developments potentially impacting the creditworthiness of the borrower, as well as other external statistics and factors, which may affect the risk characteristics of the respective loan.

Credit Quality Indicators – The following tables represent the credit exposure by internally assigned grades at September 30, 2015 and December 31, 2014. This grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements in accordance with the loan terms. The Bank’s internal credit risk grading system is based on management’s experiences with similarly graded loans. Credit risk grades are reassessed each quarter based on any recent developments potentially impacting the creditworthiness of the borrower, as well as other external statistics and factors, which may affect the risk characteristics of the respective loan.

The Bank’s internally assigned grades are as follows:

Pass – Strong credit with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention – Potential weaknesses that deserve management’s close attention. Borrower and guarantor’s capacity to meet all financial obligations is marginally adequate or deteriorating.

Substandard – Inadequately protected by the paying capacity of the borrower and/or collateral pledged. The borrower or guarantor is unwilling or unable to meet loan terms or loan covenants for the foreseeable future.

Doubtful – All the weakness inherent in one classified as substandard with the added characteristic that those weaknesses in place make the collection or liquidation in full, on the basis on current conditions, highly questionable and improbable.

Loss – Considered uncollectible or no longer a bankable asset. This classification does not mean that the asset has absolutely no recoverable value. In fact, a certain salvage value is inherent in these loans. Nevertheless, it is not practical or desirable to defer writing off a portion or all of a perceived asset even though partial recovery may be collected in the future.

~~(17)~~16

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~JUNE~~SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

	As of June 30, 2015
	As of September 30, 2015
	Commercial		Residential		Commercial		Consumer and
	Real Estate		Real Estate		and Industrial		Other		Total
Grade
Pass	$	~~138~~147,~~792~~104,~~651~~724	$	3129,~~013~~838,~~945~~319	$	109,~~066~~807,~~061~~878	$	45,~~268~~560,~~794~~295	$	~~184~~192,~~141~~311,~~451~~216
Special mention		12,~~147~~226,~~422~~897		-148,117		-		-		12,~~147~~375,~~422~~014
Substandard		1,~~862~~855,~~366~~354		1,~~471~~138,~~271~~968		-		-		32,~~333~~994,~~637~~322
Doubtful		-		-		-		-		-
Loss		-		-		-		-		-
Totals	$	~~141~~151,~~802~~186,~~439~~975	$	3231,~~485~~125,~~216~~404	$	109,~~066~~807,~~061~~878	$	45,~~268~~560,~~794~~295	$	~~188~~197,~~622~~680,~~510~~552
	As of December 31, 2014
	Commercial		Residential		Commercial		Consumer and
	Real Estate		Real Estate		and Industrial		Other		Total
Grade
Pass	$	126,864,801	$	32,382,072	$	8,577,548	$	4,816,230	$	172,640,651
Special mention		571,294		85,528		-		-		656,823
Substandard		2,512,377		491,780		16,795		-		3,020,953
Doubtful		-		-		-		-		-
Loss		-		-		-		-		-
Totals	$	129,948,473	$	32,959,380	$	8,594,344	$	4,816,230	$	176,318,427

	As of December 31, 2014
	Commercial		Residential		Commercial		Consumer and
	Real Estate		Real Estate		and Industrial		Other		Total

Grade
Pass	$	126,864,801	$	32,382,072	$	8,577,548	$	4,816,230	$	172,640,651
Special mention		571,294		85,528		-		-		656,823
Substandard		2,512,377		491,780		16,795		-		3,020,953
Doubtful		-		-		-		-		-
Loss		-		-		-		-		-

Totals	$	129,948,473	$	32,959,380	$	8,594,344	$	4,816,230	$	176,318,427

Impaired Loans – The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable. Management determined the specific allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the specific allowance recorded.

During the ~~six~~nine months ended ~~June~~ September 30, 2015 and 2014, no interest income was recognized on these loans subsequent to their classification as impaired.

~~(18)~~17

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~JUNE~~SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

	As of June 30, 2015
	As of September 30, 2015
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	~~476,032~~-	$	~~476,032~~-	$	-	$	~~477,208~~-
Residential real estate		~~198~~803,~~877~~625		~~198~~803,~~877~~625		-		~~200~~1,~~809~~131,738
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
With an allowance recorded:
Residential real estate	$	~~932,227~~-	$	~~932,227~~-	$	~~331,447~~-	$	~~932,227~~-
Total:
Commercial real estate	$	~~476,032~~-	$	~~476,032~~-	$	-	$	~~477,208~~-
Residential real estate		1803,~~131,104~~625		1803,~~131,104~~625		~~331,447~~-		1,~~133~~131,~~036~~738
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
	As of December 31, 2014
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	1,099,680	$	1,099,680	$	-	$	1,103,367
Residential real estate		181,284		181,284		-		186,279
Commercial and industrial		16,795		16,795		-		16,795
Consumer and other		-		-		-		-
With an allowance recorded:	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	1,099,680	$	1,099,680	$	-	$	1,103,367
Residential real estate		181,284		181,284		-		186,279
Commercial and industrial		16,795		16,795		-		16,795
Consumer and other		-		-		-		-

Certain loans within the Company’s loan and real estate owned portfolios are guaranteed by the Veterans Administration (VA). In the event of default by the borrower, the VA can elect to pay the guaranteed amount or take possession of the property. If the VA takes possession of the property, the Company is entitled to be reimbursed for the outstanding principal balance, accrued interest and certain other expenses. There were no commitments from the VA to take title to foreclosed VA properties at June 30, 2015 and December 31, 2014.

	As of December 31, 2014
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment

With no related allowance recorded:
Commercial real estate	$	1,099,680	$	1,099,680	$	-	$	1,103,367
Residential real estate		181,284		181,284		-		186,279
Commercial and industrial		16,795		16,795		-		16,795
Consumer and other		-		-		-		-

With an allowance recorded:	$	-	$	-	$	-	$	-

Total:
Commercial real estate	$	1,099,680	$	1,099,680	$	-	$	1,103,367
Residential real estate		181,284		181,284		-		186,279
Commercial and industrial		16,795		16,795		-		16,795
Consumer and other		-		-		-		-

Certain loans within the Company’s loan and real estate owned portfolios are guaranteed by the Veterans Administration (19VA). In the event of default by the borrower, the VA can elect to pay the guaranteed amount or take possession of the property. If the VA takes possession of the property, the Company is entitled to be reimbursed for the outstanding principal balance, accrued interest and certain other expenses. There were no commitments from the VA to take title to foreclosed VA properties at September 30, 2015 and December 31, 2014.

~~ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND DECEMBER 31, 2014~~18

~~Troubled~~ALAMOGORDO ~~Debt~~FINANCIAL Restructurings – Restructured loans are considered “troubled debt restructurings” if due to the borrower’s financial difficulties, the Bank has granted a concession that we would not otherwise considerCORP. ~~This~~NOTES ~~may~~TO ~~include~~CONSOLIDATED aFINANCIAL ~~transfer~~STATEMENTS ofSEPTEMBER ~~real estate or other assets from the borrower~~30, a2015 ~~modification~~AND ofDECEMBER ~~loan terms~~31, rates, or a combination of the two. All troubled debt restructurings placed on nonaccrual status must show no less than six months of repayment performance by the borrower in accordance with contractual terms to return to accrual status. Once a loan has been identified as a troubled debt restructuring, it will continue to be reported as such until the loan is paid in full.2014

	Number of Modifications		Recorded Investment Pre-Modification		Recorded Investment Post-Modification		Principal Net of Charge-offs
June 30, 2015
Commercial real estate		1	$	506,995	$	525,258	$	476,032
Residential real estate		-		-		-		-
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
Totals		1	$	506,995	$	525,258	$	476,032
December 31, 2014
Commercial real estate		3	$	1,016,728	$	1,137,660	$	963,844
Residential real estate		-		-		-		-
Commercial and industrial		1		99,040		113,053		16,795
Consumer and other		-		-		-		-
Totals		4	$	1,115,768	$	1,250,712	$	980,639

Troubled Debt Restructurings – Restructured loans are considered “troubled debt restructurings” if due to the borrower’s financial difficulties, the Bank has granted a concession that we would not otherwise consider. This may include a transfer of real estate or other assets from the borrower, a modification of loan terms, rates, or a combination of the two. All troubled debt restructurings placed on nonaccrual status must show no less than six months of repayment performance by the borrower in accordance with contractual terms to return to accrual status. Once a loan has been identified as a troubled debt restructuring, it will generally continue to be reported as such until the loan is paid in full. However, a troubled debt restructuring that is performing in accordance with its modified terms for at least one year and yielded a market rate of interest at the time of restructuring may be removed from such classification.

Troubled debt restructurings (post-modification) were the result of adding real estate taxes to the loan, along with legal costs related to bankruptcies. There were no allocated specific allowances related to these credits and there were no commitments to lend additional amounts to these customers as of June 30, 2015 and December 31, 2014.

	Number of Modifications		Recorded Investment Pre-Modification		Recorded Investment Post-Modification		Principal Net of Charge-offs

September 30, 2015
Commercial real estate		-	$	-	$	-	$	-
Residential real estate		-		-		-		-
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-

Totals		-	$	-	$	-	$	-

December 31, 2014
Commercial real estate		3	$	1,016,728	$	1,137,660	$	963,844
Residential real estate		-		-		-		-
Commercial and industrial		1		99,040		113,053		16,795
Consumer and other		-		-		-		-

Totals		4	$	1,115,768	$	1,250,712	$	980,639

~~During~~There ~~the~~were ~~six~~no ~~months~~troubled ~~ended~~debt ~~June~~restructurings as of September 30, 2015~~, no~~. ~~loans~~The ~~were~~troubled ~~modified~~debt asrestructurings a(post-modification) ~~troubled~~at ~~debt~~December ~~restructurings~~31, ~~and~~2014 ~~two~~were ~~commercial~~the result of adding real estate taxes to the loans, ~~and~~along ~~one~~with ~~commercial~~legal ~~business~~costs ~~loan~~related to bankruptcies. There were no allocated specific allowances related ~~classified~~to asthese ~~troubled~~credits ~~debt~~and ~~restructurings~~there were ~~paid~~no ~~off~~commitments to lend additional amounts to these customers as of December 31, 2014.

During the ~~six~~nine months ended ~~June~~ September 30, ~~2014~~2015, ~~there~~ ~~was~~no ~~one~~loans ~~commercial~~were ~~real estate loan of $83,000~~ modified as a troubled debt ~~restructuring.~~restructurings ~~This~~and ~~restructuring~~the ~~was~~three ~~not~~commercial inreal ~~default~~estate loans and one commercial ~~during~~business ~~the~~loan ~~six~~classified ~~months~~as ~~ended~~troubled ~~June~~debt 30restructurings at December 31, 2014 were paid off.

~~Nonaccrual~~During ~~troubled~~the ~~debt~~nine ~~restructurings as~~months ofended ~~June~~ September 30, ~~2015~~2014, ~~and~~there ~~December~~was ~~31,~~one ~~2014~~commercial ~~amounted~~real toestate $0loan ~~and~~of $~~498~~83,000, ~~respectively.~~modified ~~There~~as ~~were~~a notroubled ~~commitments~~debt torestructuring. ~~lend~~This ~~additional~~restructuring was ~~amounts~~not toin ~~these~~default ~~customers~~during asthe ofnine ~~June~~months ~~30,~~ended ~~2015~~September ~~and December 31~~30, 2014.

Nonaccrual troubled debt restructurings as of December 31, 2014 amounted to $498,000.

In the normal course of business, the Company may modify a loan for a creditworthy borrower where the modified loan is not considered a troubled debt restructuring. In these cases, the modified terms are consistent with loan terms available to creditworthy borrowers and within normal loan pricing. The modifications to such loans are done according to existing underwriting standards, which include review of historical financial statements, including current interim information, if available, an analysis of the causes of the borrower’s decline in performance and projections, to assess repayment ability going forward.

~~(20)~~19

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~JUNE~~SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

NOTE 5 – CORE DEPOSIT INTANGIBLE

The gross carrying value and accumulated ~~amortization~~ amortization of the core deposit intangible is as follows:

	June 30,			December 31,
	September 30,			December 31,
	2015			2014
Gross carrying value	$	502,000		$	502,000
Less accumulated amortization		(92117,~~080~~677	)		(36,832	)
Core deposit intangible	$	~~409~~384,~~920~~323		$	465,168

Amortization of the core deposit intangible began in September 2014 and was $5581,~~248~~000 and $09,000 for the ~~six~~nine months ended ~~June~~September 30, 2015 and 2014, respectively.

NOTE 6 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

In the normal course of business, the Bank has outstanding commitments to extend credit and standby letters of credit, which are not included in the accompanying financial statements. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making commitments as it does for instruments that are included in the consolidated balance sheets.

Financial instruments whose contractual ~~amounts~~ amounts represent off-balance-sheet credit risk are as follows as of ~~June~~September 30, 2015 and December 31, 2014:

	June 30,		December 31,
	September 30,		December 31,
	2015		2014
Commitments to originate and sell mortgage loans	$	1819,~~236~~089,~~970~~551	$	9,426,644
Commitments to extend credit		2015,~~104~~939,~~931~~554		19,319,363
Unused lines of credit		54,~~590~~600,~~081~~375		4,319,272
Standby letters of credit		35,849		71,579
Totals	$	4339,~~967~~665,~~831~~329	$	33,136,858

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 many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies and may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.

~~(21)~~20

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~JUNE~~SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third-party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.

NOTE 7 – REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators, that if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

Prior to January 1, 2015, quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total risk-based capital and Tier 1 capital to risk-weighted assets, and Tier 1 capital to adjusted total assets.

Effective January 1, 2015, regulatory ~~capital~~ capital rules promulgated under Basel III ~~establish~~established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), set a uniform 4.0% leverage ratio regardless of examination rating, increase the minimum Tier 1 capital to risk-based assets requirement (from 4.0% to 6.0% of risk-weighted assets) and ~~assign~~assigned a higher risk weight (150%) to exposures (excludes residential mortgages), that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement will be phased in at 0.625% per year beginning January 1, 2016 and ending January 1, 2019, when the full 2.5% capital conservation buffer requirement will be effective.

Management believes, as of ~~June~~September 30, 2015 and December 31, 2014, that the Bank meets all capital adequacy requirements to which it is subject.

Banks are also subject to certain restrictions on the amount of dividends that they may declare without prior regulatory approval or non-objection.

As of ~~June~~September 30, 2015 and December 31, 2014, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as as well capitalized, the Bank will have to maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based ~~and~~ and Tier 1 leverage ratios as disclosed in the table below. There are no conditions or events that management believes have changed the Bank’s prompt corrective action category.

~~(22)~~21

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~JUNE~~SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

The Bank’s actual and required capital amounts and ratios are as follows:

										To be Well		~~To be Well~~
										Capitalized Under		~~Capitalized Under~~
						For Capital				Prompt Corrective		~~Prompt Corrective~~
	Actual					Adequacy Purposes				Action Provisions		~~Action Provisions~~
	Amount		Ratio			Amount		Ratio		Amount		~~Amount~~		Ratio	~~Ratio~~
As of June 30, 2015:
As of September 30, 2015:
(Dollars in thousands)
Total Capital
Total Capital (to Risk-Weighted Assets)	$	31,414		16.58	%	$	15,157	³8.00%		$	18,946			³10.00%
(to Risk-Weighted Assets)	$	31,436		16.03	%	$	15,688		³8.00	%		$	19,610			³10.00	%
Tier I Capital (to Risk-Weighted Assets)	$	29,560		15.60	%	$	11,368	³6.00%		$	15,157			³8.00%
Tier I Capital
Common Equity Tier I Capital (to Risk-Weighted Assets)	$	29,560		15.60	%	$	8,526	³4.50%		$	12,315			³6.50%
(to Risk-Weighted Assets)	$	29,368		14.98	%	$	11,766		³6.00	%		$	15,688			³8.00	%
Tier I Capital (to Average Assets)	$	29,560		11.18	%	$	10,574	³4.00%		$	13,217			³5.00%
Common Equity Tier I Capital
As of December 31, 2014: (Dollars in thousands)
(to Risk-Weighted Assets)	$	29,368		14.98	%	$	8,824		³4.50	%		$	12,746			³6.50	%
Total Capital (to Risk-Weighted Assets)	$	30,574		17.09	%	$	14,313	³8.00%		$	17,891			³10.00%
Tier I Capital
Tier I Capital (to Risk-Weighted Assets)	$	28,867		16.13	%	$	7,157	³4.00%		$	10,735			³6.00%
(to Average Assets)	$	29,368		11.29	%	$	10,402		³4.00	%		$	13,003			³5.00	%
Tier I Capital (to Average Assets)	$	28,867		11.68	%	$	9,887	³4.00%		$	12,359			³5.00%
As of December 31, 2014:
(Dollars in thousands)
Total Capital
(to Risk-Weighted Assets)	$	30,574		17.09	%	$	14,313		³8.00	%		$	17,891			³10.00	%
Tier I Capital
(to Risk-Weighted Assets)	$	28,867		16.13	%	$	7,157		³4.00	%		$	10,735			³6.00	%
Tier I Capital
(to Average Assets)	$	28,867		11.68	%	$	9,887		³4.00	%		$	12,359			³5.00	%

NOTE 8 – FAIR VALUES OF FINANCIAL INSTRUMENTS

The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at ~~June~~September 30, 2015 and December 31, 2014.

Available for sale Securities – Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly-liquid government bonds, mortgage products and exchange-traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include certain collateralized mortgage and debt obligations and certain municipal securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include certain residual municipal securities and other less liquid securities.

Loans Held for Sale – The fair value of loans held for sale is based on quoted market prices from FHLMC. FHLMC quotes are updated daily and represent prices at which loans are exchanged in high volumes and in a liquid market.

(23)

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND DECEMBER 31, 2014

Other Real Estate – Other real estate is fair valued under Level 3 based on property appraisals less estimated disposition costs, which include both observable and unobservable inputs, at the time of transfer and as appropriate thereafter.

ALAMOGORDO FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

Loans Held for Investment – Loans held for investment are generally not recorded at fair value on a recurring basis. Periodically, the Bank records nonrecurring adjustments to the carrying value of these -loans based on fair value measurements for loans subject to impairment. The valuation of fair value for impaired loans is typically determined using a combination of observable inputs, such as interest rates, contract terms, appraisals of collateral supporting the loan and recent comparable sales of similar properties, and unobservable inputs such as creditworthiness, disposition costs and underlying cash flows associated with the loan. Since the estimates of fair value utilized for loans also involve unobservable inputs, valuations of impaired loans have been classified as Level 3.

The following table sets forth by level, ~~within~~ within the fair value hierarchy, the Bank’s assets at fair value as of the dates indicated:

	Fair Value Measurements Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	Level 1		Level 2		Level 3		Fair Value
June 30, 2015
September 30, 2015
Recurring basis
Mortgage-backed securities	$	-	$	2624,~~583~~826,~~721~~308	$	-	$	2624,~~583~~826,~~721~~308
U.S. Government agencies		-		3,~~897~~741,~~719~~162		-		3,~~897~~741,~~719~~162
Municipal obligations		-		21,~~441~~921,~~977~~490		-		21,~~441~~921,~~977~~490
Nonrecurring basis
Loans held for sale		-		12,~~403~~284,~~963~~189		-		12,~~403~~284,~~963~~189
Other real estate		-		-		~~648~~418,~~317~~000		~~648~~418,~~317~~000
Impaired loans		-		-		1803,~~607,136~~625		1803,~~607,136~~625
Totals	$	-	$	4542,~~327~~773,~~380~~149	$	21,~~255~~221,~~453~~625	$	4743,~~582~~994,~~833~~774
December 31, 2014
Recurring basis
Mortgage-backed securities	$	-	$	21,727,811	$	-	$	21,727,811
U.S. Government agencies		-		4,856,529		-		4,856,529
Municipal obligations		-		2,433,572		-		2,433,572
Nonrecurring basis
Loans held for sale		-		9,429,090		-		9,429,090
Other real estate		-		-		820,000		820,000
Impaired loans		-		-		1,297,759		1,297,759
Totals	$	-	$	38,447,002	$	2,117,759	$	40,564,761

The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Bank does not know whether the fair values shown represent values at which the respective financial instruments could be sold individually or in the aggregate.

~~(24)~~23

ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~JUNE~~SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

The following table presents estimated ~~fair~~ fair values of the Company’s financial instruments as of ~~June~~September 30, 2015 and December 31, 2014.

	June 30, 2015
	September 30, 2015
					Quoted Prices		Significant
					in Active		Other		Significant
					Markets for		Observable		Unobservable
	Carrying				Identical Assets		Inputs		Inputs
	Amount		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	3,~~837~~780	$	3,~~837~~780	$	3,~~837~~780	$	-	$	-
Interest-bearing deposits with banks		157,~~860~~330		157,~~860~~330		157,~~860~~330		-		-
Available-for-sale securities		3230,~~923~~489		3230,~~923~~489		-		3230,~~923~~489		-
Loans held for sale		12,~~404~~284		12,~~404~~284		-		12,~~404~~284		-
Loans held for investment, net		~~185~~195,~~844~~120		~~189~~198,~~733~~456		-		-		~~189~~198,~~733~~456
Stock in financial institutions		1,~~710~~546		1,~~710~~546		-		1,~~710~~546		-
Financial liabilities:
Demand, savings and NOW deposits	$	~~131~~136,~~743~~033	$	~~130~~135,~~953~~217	$	~~130~~135,~~953~~217	$	-	$	-
Time deposits		7976,~~386~~174		7976,~~444~~126		-		7976,~~444~~126		-
Federal Home Loan Bank advances		2723,500		2723,~~524~~506		-		2723,~~524~~506		-
	December 31, 2014
					Quoted Prices		Significant
					in Active		Other		Significant
					Markets for		Observable		Unobservable
	Carrying				Identical Assets		Inputs		Inputs
	Amount		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	12,709	$	12,709	$	12,709	$	-	$	-
Interest-bearing deposits with banks		2,115		2,115	$	2,115		-		-
Available-for-sale securities		29,018		29,018		-		29,018		-
Loans held for sale		9,429		9,429		-		9,429		-
Loans held for investment, net		173,990		175,417		-		-		175,417
Stock in financial institutions		1,906		1,906		-		1,906		-
Financial liabilities:
Demand, savings and NOW deposits	$	118,551	$	117,285	$	117,285	$	-	$	-
Time deposits		83,388		83,571		-		83,571		-
Federal Home Loan Bank advances		12,500		12,503		-		12,503		-

(25)

	December 31, 2014
					Quoted Prices		Significant
					in Active		Other		Significant
					Markets for		Observable		Unobservable
	Carrying				Identical Assets		Inputs		Inputs
	Amount		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	12,709	$	12,709	$	12,709	$	-	$	-
Interest-bearing deposits with banks		2,115		2,115	$	2,115		-		-
Available-for-sale securities		29,018		29,018		-		29,018		-
Loans held for sale		9,429		9,429		-		9,429		-
Loans held for investment, net		173,990		175,417		-		-		175,417
Stock in financial institutions		1,906		1,906		-		1,906		-

Financial liabilities:
Demand, savings and NOW deposits	$	118,551	$	117,285	$	117,285	$	-	$	-
Time deposits		83,388		83,571		-		83,571		-
Federal Home Loan Bank advances		12,500		12,503		-		12,503		-

~~ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 AND DECEMBER 31, 2014~~24

ALAMOGORDO FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

The following methods and assumptions were used to estimate the fair value of the additional classes of financial instruments shown:

Cash and Due from Banks, Interest-Bearing Deposits with Banks and Stock in Financial Institutions – The carrying amount approximates fair value.

Deposits and Federal Home Loan Bank (FHLB) Advances – For demand, savings and NOW deposits, the carrying amount approximates fair value. The fair value of time deposits and FHLB advances is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits and advances of similar remaining maturities.

NOTE 9 – EARNINGS ~~(LOSS)~~ PER SHARE

Basic earnings ~~(loss)~~ per share have been ~~calculated~~ calculated based upon the weighted-average number of common shares outstanding. All ESOP shares, including those not yet committed to be released or allocated to participants, are considered outstanding. The calculation of diluted weighted-average shares outstanding for the three and ~~six~~nine months ended ~~June~~September 30, 2015 and 2014 excludes 18,020 and 21,420 shares issuable pursuant to outstanding ~~stock~~ stock options because their effect would be anti-dilutive as the weighted average price of those options exceeds the weighted ~~average~~ average market price for the periods presented.

	Three Months Ended					~~Six~~Nine Months Ended
	June 30,					June 30,
	September 30,					September 30,
	2015		2014			2015		2014
Net income (loss)	$	361,727	$	(186,427	)	$	97,470	$	(623,389	)
Net income	$	128,413	$	2,725,482		$	225,884	$	2,102,093
Weighted-average shares outstanding		1,679,500		1,~~318~~443,~~474~~903			1,679,500		1,~~314~~357,~~159~~882
Earnings (loss) per common share:
Earnings per common share:
Basic	$	0.2208	$	(01.1489	)	$	0.0613	$	(01.4755	)
Diluted	$	0.2208	$	(01.1489	)	$	0.0613	$	(01.4755	)

~~(26)~~25

Item 2. Management’s Discussion of Financial Condition and Results of Operations

Management’s discussion and analysis of financial condition and results of operations at ~~June~~September 30, 2015 and December 31, 2014 and for the three and ~~six~~nine months ~~ended~~ ~~June~~ended September 30, 2015 and 2014 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Unaudited Consolidated Financial Statements and the notes thereto, appearing in Part 1, Item 1 of this report.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions. Factors which could have a material effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the credit quality and composition of the loan and investment portfolios, valuation of assets acquired through foreclosure, deposit flows, competition, demand for loan products and for financial services in the Company’s market area, changes in real estate market values in the Company’s market area, changes in relevant accounting principles and guidelines and inability of third party providers to perform as required. Because of these and other uncertainties, Alamogordo Financial Corp.’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. You should not place undue reliance on any forward-looking statements, which speak only as of the dates on which they were made. Alamogordo Financial Corp. is not undertaking an obligation to update these forward-looking statements, even though its situation may change in the future, except as required under federal securities law. Alamogordo Financial Corp. qualifies all of its forward-looking statements by these cautionary statements.

Merger

The Company completed its acquisition of Bank 1440 on August 29, 2014. Merger consideration was $9.6 million, including $3.8 million in cash and 360,635 shares of Alamogordo Financial Corp. common stock valued at $5.8 million. In the merger, the Company received assets valued at $88.3 million and assumed liabilities of $75.8 million. The transaction resulted in an increase in stockholders’ equity of of $8.7 million, including $5.8 million due to the fair value of shares issued and the $2.9 million bargain purchase gain recorded in the consolidated statements of comprehensive income ~~(loss)~~.

Further information regarding the merger transaction can be found in Note 2 of the Unaudited Consolidated Financial Statements in Item 1 of this document.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on our income or the carrying value of our assets. Our critical accounting policies are those related to our allowance for loan losses, the evaluation of other-than-temporary impairment of investment securities, the valuation of and our ability to realize deferred tax assets and the measurement of fair values of financial instruments.

~~(27)~~26

Allowance for Loan Losses. The allowance for loan losses is maintained to absorb credit losses inherent in the loan portfolio. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective, as it requires establishing risk ratings for each loan and an estimate of losses for each impaired loan, an estimate of the amounts and timing of expected future cash flows, and an estimate of the value of collateral.

We have established a method of periodically reviewing the credit quality of the loan portfolio in order to establish an allowance for loan losses. The allowance for loan losses is based on our current judgments about the credit quality of individual loans and segments of the loan portfolio. The allowance for loan losses is established through a provision for loan losses based on our evaluation of the probable losses inherent in the loan portfolio, and considers all known internal and external factors that affect loan collectability as of the reporting date. Our evaluation, which includes a review of loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, our knowledge of inherent losses in the portfolio that are probable and reasonably estimable and other factors that warrant recognition in providing an appropriate loan loss allowance. Management believes this is a critical accounting policy because this evaluation involves a high degree of complexity and requires us to make subjective judgments that often require assumptions or estimates about various matters.

The allowance for loan losses consists primarily of specific allocations and general allocations. Specific allocations are made for loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral, including adjustments for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans by type of loan, risk weighting and payment history. We also analyze delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general allowance. The principal assumption used in calculating the allowance for loan losses is the estimate of loss for each risk rating. Actual loan losses may be significantly more than the allowance we have established, which could have a material negative effect on our financial results.

Other-Than-Temporary Impairment. In estimating other-than-temporary impairment of investment securities, securities are evaluated on at least a quarterly basis, to determine whether a decline in their value is other-than-temporary. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether or not we intend to sell or expect that it is more likely than not that we ~~will~~ will be required to sell the investment security prior to an anticipated recovery in fair value. Once a decline in value for a ~~debt~~ debt security is determined to be other than temporary, the other-than-temporary impairment is separated in (a) the amount of ~~total~~ total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the ~~credit~~ credit loss) and (b) the amount of other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to credit loss is recognized in earnings. The amount of other-than-temporary impairment related to other factors is recognized in other comprehensive income ~~(loss)~~.

(28)

Valuation of Deferred Tax Assets. In evaluating our ability to realize deferred tax assets, management considers all positive and negative information, including our past operating results and our forecast of future taxable income. In determining future taxable income, management utilizes a budget process that makes business assumptions and the implementation of feasible and prudent tax planning strategies. We also utilize a monthly forecasting tool to incorporate activity throughout the calendar year. These assumptions require us to make judgments about our future taxable income that are consistent with the plans and estimates we use to manage our business. The net deferred tax asset is offset by an equal valuation allowance. Any change in estimated future taxable income may result in a reduction of the valuation allowance against the deferred tax asset, which would result in income tax benefit in the period.

Fair Value Measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A three-level of fair value hierarchy prioritizes the inputs used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities; includes certain U.S. Treasury and other U.S. Government agency debt that is highly liquid and actively traded in over-the-counter markets.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

~~(29)~~28

Average Balance Sheets

The following ~~table~~tables ~~sets~~set forth ~~average~~ average balances, average yields and costs, and certain other information for the periods indicated. Tax-equivalent yield ~~adjustments~~ adjustments have not been made for tax-exempt securities, as the effect thereof was not material. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred loan fees, discounts and premiums that are amortized or accreted to interest income.

	Three Months Ended June 30,
	Three Months Ended September 30,
	2015							2014
	Average							Average
	Outstanding				Yield/			Outstanding				Yield/
	Balance		Interest		Rate (1)			Balance		Interest		Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	~~199~~203,~~060~~426		2,~~833~~926		5.71	%	$	~~102~~123,~~092~~013	$	1,~~538~~773		65.0472	%
Interest-earning deposits		67,~~495~~486		34		0.1921			79,~~302~~486		45		0.2221
Securities		3431,~~108~~860		~~128~~107		1.5133			3944,~~467~~169		~~203~~208		21.0687
Federal Home Loan Bank stock		1,~~245~~146		243		71.7304			~~508~~489		1		0.7981
Other		~~481~~380		50		40.1700			~~203~~206		-		0.00
Total interest-earning assets		~~241~~244,~~389~~298		23,~~993~~040		4.9794			~~149~~177,~~572~~363		1,~~746~~987		4.6844
Noninterest-earning assets		1719,~~656~~214							1617,~~361~~262
Total assets	$	~~259~~263,~~045~~512						$	~~165~~194,~~933~~625
Interest-bearing liabilities:
Checking, money market and savings accounts	$	~~101~~105,~~673~~231		~~176~~180		0.6968		$	5268,~~839~~837	$	5894		0.4454
Certificates of deposit		7876,~~636~~886		~~161~~159		0.82			6873,~~295~~020		~~163~~166		0.9690
Total deposits		~~180~~182,~~309~~117		~~337~~339		0.7574			~~121~~141,~~134~~857		~~221~~260		0.73
Advances from FHLB of Dallas		2522,~~890~~500		1820		0.2834			810,~~840~~254		8692		3.9056
Total interest-bearing liabilities		~~206~~204,~~199~~617		~~355~~359		0.6970			~~129~~152,~~974~~111		~~307~~352		0.9592
Non-interest bearing deposits		2126,~~395~~807							1115,~~987~~027
Non-interest bearing liabilities		2,~~253~~460							12,~~761~~156
Total liabilities		~~229~~233,~~847~~884							~~143~~169,~~722~~294
Stockholders' equity		29,~~198~~628							2225,~~211~~331
Total liabilities and stockholders' equity	$	~~259~~263,~~045~~512						$	~~165~~194,~~933~~625
Net interest income			$	2,~~638~~681						$	1,~~439~~635
Net interest rate spread (2)						4.2824	%						3.7452	%
Net interest-earning assets (3)	$	3539,~~190~~680						$	1925,~~598~~252
Net interest margin (4)						4.3835	%						3.8666	%
Average interest-earning assets to average interest-bearing liabilities						117.07	%						115.08	%
Average interest-earning assets to average interest- bearing liabilities						119.39	%						116.60	%

(1) Ratios have been annualized.

	(1)	Ratios have been annualized.

	(2)	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

	(3)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

	(4)	Net interest margin represents net interest income divided by average total interest-earning assets.

~~(2) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.~~29

(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

	Nine Months Ended September 30,
	2015							2014
	Average							Average
	Outstanding				Yield/			Outstanding				Yield/
	Balance		Interest		Rate (1)			Balance		Interest		Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	196,680	$	8,396		5.71	%	$	109,756	$	4,836		5.89	%
Interest-earning deposits		6,452		11		0.23			7,794		11		0.19
Securities		33,443		399		1.60			41,664		607		1.95
Federal Home Loan Bank stock		1,094		36		4.36			547		3		0.73
Other		549		14		3.46			205		3		1.95
Total interest-earning assets		238,218		8,856		4.97			159,967		5,460		4.56
Noninterest-earning assets		18,811							15,742
Total assets	$	257,029						$	175,709

Interest-bearing liabilities:
Checking, money market and savings accounts	$	102,439	$	519		0.68		$	57,846	$	210		0.49
Certificates of deposit		78,803		490		0.83			69,916		502		0.96
Total deposits		181,242		1,009		0.74			127,763		712		0.74
Advances from FHLB of Dallas		21,426		46		0.29			9,802		266		3.63
Total interest-bearing liabilities		202,668		1,055		0.70			137,565		978		0.95
Non-interest bearing deposits		22,463							12,886
Non-interest bearing liabilities		2,498							1,863
Total liabilities		227,629							152,314
Stockholders' equity		29,400							23,395
Total liabilities and stockholders' equity	$	257,029						$	175,709

Net interest income			$	7,801						$	4,482
Net interest rate spread (2)						4.27	%						3.61	%
Net interest-earning assets (3)	$	35,550						$	22,403
Net interest margin (4)						4.38	%						3.75	%
Average interest-earning assets to average interest-bearing liabilities						117.54	%						116.29	%

(4) Net interest margin represents net interest income divided by average total interest-earning assets.

	(1)	Ratios have been annualized.

	(2)	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

	(3)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

	(4)	Net interest margin represents net interest income divided by average total interest-earning assets.

(30)

	Six Months Ended June 30,
	2015							2014
	Average							Average
	Outstanding				Yield/			Outstanding				Yield/
	Balance		Interest		Rate (1)			Balance		Interest		Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	193,307	$	5,471		5.71	%	$	103,018	$	3,063		6.00	%
Interest-earning deposits		5,935		7		0.24			6,934		7		0.20
Securities		34,234		293		1.73			40,391		398		1.99
Federal Home Loan Bank stock		1,068		33		6.17			577		2		0.70
Other		634		12		3.88			205		3		2.95
Total interest-earning assets		235,178		5,816		4.99			151,125		3,473		4.63
Noninterest-earning assets		18,610							14,969
Total assets	$	253,788						$	166,094
Interest-bearing liabilities:
Checking, money market and savings accounts	$	101,044	$	338		0.67		$	52,260	$	116		0.45
Certificates of deposit		79,761		331		0.84			68,339		336		0.99
Total deposits		180,805		669		0.75			120,599		452		0.76
Advances from FHLB of Dallas		20,889		27		0.26			9,572		175		3.69
Total interest-bearing liabilities		201,694		696		0.70			130,171		627		0.97
Non-interest bearing deposits		20,290							11,798
Non-interest bearing liabilities		2,518							1,714
Total liabilities		224,502							143,683
Stockholders' equity		29,286							22,411
Total liabilities and stockholders' equity	$	253,788						$	166,094
Net interest income			$	5,120						$	2,846
Net interest rate spread (2)						4.29	%						3.66	%
Net interest-earning assets (3)	$	33,484						$	20,954
Net interest margin (4)						4.39	%						3.80	%
Average interest-earning assets to average interest-bearing liabilities						116.60	%						116.10	%

Comparison of Financial Condition at September 30, 2015 and December 31, 2014

(Cash and cash equivalents decreased $3.7 million, or 25.1)%, ~~Ratios~~to ~~have~~$11.1 ~~been~~million ~~annualized~~at September 30, 2015 from $14.8 million at December 31, 2014. The decrease was due primarily to extra liquid funds held on December 31, 2014 as a result of December securities sales that were not reinvested in replacement securities until January 2015.

(Loans held for investment increased $21.1 million, or 12.1%, in the nine months ended September 30, 2015, due to organic growth, primarily in our Arizona market. Commercial real estate loans increased $21.2) ~~Net~~million ~~interest~~to ~~rate~~$151.2 ~~spread~~million, ~~represents~~which represented an increase from 73.7% of the ~~difference~~gross ~~between~~loan portfolio to 76.5% while residential real estate loans decreased from 18.7% of the ~~weighted~~portfolio ~~average~~to ~~yield~~15.7%. onThe ~~interest~~residential mortgage loan portfolio also experienced run-~~earning~~off ~~assets~~as ~~and~~the Bank continued to focus on the ~~weighted~~secondary ~~average~~mortgage ~~rate~~lending ofprogram ~~interest-bearing~~whereby ~~liabilities~~new loans were originated and sold, recognizing a gain on sale, as opposed to being held in the portfolio.

(Loans held for sale at September 30, 2015 totaled $12.3) ~~Net~~million. ~~interest-earning~~We ~~assets~~sell ~~represent~~a ~~total~~significant ~~interest-earning~~majority ~~assets~~of ~~less~~our ~~total~~newly ~~interest-bearing~~originated ~~liabilities~~residential mortgage loans in the secondary market. At December 31, 2014, loans held for sale totaled $9.4 million. The balances at any date vary based upon the timing and volume of current loan originations and sales.

~~(4)~~Available ~~Net~~for ~~interest~~sale ~~margin~~securities ~~represents~~increased $1.5 ~~net~~million ~~interest~~during ~~income~~the ~~divided~~nine bymonths ~~average~~ended ~~total~~September ~~interest~~30, 2015, as the Bank completed a balance sheet repositioning begun in December 2014 by purchasing mortgage-~~earning~~backed ~~assets~~securities in January 2015, including collateralized mortgage obligations. No securities have been purchased since January 2015.

~~(31)~~Other real estate decreased $402,000 to $418,000 at September 30, 2015, primarily as a result of $406,000 in write-downs on one property secured by commercial real estate.

~~Comparison~~Deposits increased $10.3 million for the nine months ended September 30, 2015 with increases of ~~Financial~~$9.5 ~~Condition~~million in demand deposits and $7.9 million in savings and NOW deposits partially offset by a $7.2 million decrease in time deposits. The Company has been allowing certain certificates of deposit to run off at ~~June~~maturity to improve the deposit mix and reduce the cost of funds. Time deposits as a percent of total deposits decreased from 41.3% at December 31, 2014 to 35.9% at September 30, 2015 ~~and~~as demand deposit balances increased from 8.9% to 13.0%. The Company has concentrated on increasing commercial business accounts. Wholesale deposits increased $1.8 million from December 31, 2014 to September 30, 2015. At September 30, 2015, wholesale deposits were $19.1 million, including $16.9 million in QwickRate certificates of deposit, compared to $17.3 million and $15.2 million at December 31, 2014, respectively. The majority of our wholesale deposits are time deposits with denominations between $200,000 and $250,000.

~~Cash~~Federal ~~and~~Home ~~cash~~Loan ~~equivalents~~Bank ~~increased~~advances increased $411.9 0 million, ~~or 32.9%,~~ to $1923.75 million at ~~June~~September 30, 2015 from $1412.85 million at December 31, 2014. ~~The~~Short ~~increase~~term ~~was~~borrowings ~~due~~at ~~primarily~~favorable rates are being used to a fund loans held for sale. The Company prepaid $6.34 million ~~deposit~~in ~~received~~long-term FHLB advances at rates averaging 4.0% in aDecember ~~commercial~~2014 ~~noninterest~~and ~~bearing~~replaced ~~demand~~them ~~account~~in atJanuary ~~quarter~~2015 ~~end~~with short-term, lower rate advances.

~~Loans~~Total ~~held~~stockholders’ ~~for~~equity ~~investment~~ increased ~~$12.2~~ ~~million~~$340,000, or 71.02%, into ~~the~~$29.7 ~~six~~million ~~months~~at ~~ended~~September ~~June~~ 30, 2015 from ~~organic growth~~$29.3 Wemillion ~~have~~at taken steps to enhance our commercial lending teams and bank-wide credit risk management processes consistent with our plans to grow our commercial loan portfolio. Our loan mix reflects the implementation of this plan. From December 31, 2014 ~~to June 30, 2015, commercial real estate loans increased $11~~.9 ~~million~~The ~~to $141.8 million, which represented an~~ increase ~~from~~was ~~73.7%~~due primarily to ~~75.2%~~net ofincome ~~the gross loan portfolio while residential real estate loans decreased from 18.7%~~ of ~~the~~$226,000 ~~portfolio~~and toa ~~17.2%.~~$74,000 ~~The residential~~decrease ~~mortgage~~in ~~loan~~unrealized ~~portfolio~~losses ~~also experienced run-off as the Bank continued to focus~~ on ~~the~~available ~~secondary mortgage lending program whereby new loans were originated and sold~~ for ~~fee~~ ~~income~~sale ~~as opposed to being held in the portfolio~~securities.

~~Loans held for sale at June 30, 2015 totaled $12.4 million. We currently sell a significant majority of our newly originated residential mortgage loans in the secondary market. At December~~ 31~~, 2014, loans held for sale totaled $9.4 million. The balances at any date vary based upon the timing and volume of current loan originations and sales.~~

~~Available~~Comparison ~~for~~of ~~sale~~Operating ~~securities~~Results ~~increased~~for ~~$3.9 million during~~ the ~~six~~Three ~~months~~Months ~~ended~~Ended ~~June~~September 30, 2015, asand ~~the Bank completed a balance sheet repositioning begun in December by purchasing mortgage-backed securities in January 2015, including collateralized mortgage obligations.~~2014

~~Other~~General. ~~real~~The ~~estate~~acquisition of ~~decreased~~Bank ~~primarily~~1440 aswas consummated on August 29, 2014 and the material increase in assets from Bank 1440 makes direct comparisons between athe ~~result~~two periods less meaningful. The Company had net income of $128,000 in the three months ended September 30, 2015, compared to $2.7 million for the three months ended September 30, 2014. In the September 2014 quarter, a bargain purchase gain of $~~200~~2.9 million was recorded. We incurred no out-of-pocket merger-related expenses in the quarter ended September 30, 2015, compared to $311,000 ~~write-down~~of onsuch ~~one~~expenses ~~property~~in ~~secured~~the byquarter ~~commercial~~ended ~~real~~September ~~estate~~30, 2014. Other than the bargain purchase gain and merger-related expenses, the Company had $138,000 of net income in ~~March~~the ~~2015~~quarter ended September 30, 2014.

~~Deposits~~Interest Income. Interest income increased $91.20 million, or 53.0%, to $3.0 million for the ~~six~~ three months ended ~~June~~September 30, 2015, ~~with~~from $62.30 million offor ~~that~~the three months ended September 30, 2014. The increase ~~from~~was due to a ~~deposit~~37.7% ~~received~~increase in aaverage ~~commercial~~interest-earning ~~noninterest~~assets ~~bearing~~and an improvement ~~demand~~in ~~account~~asset atmix ~~quarter~~as ~~end.~~loans, ~~The~~our ~~Company~~highest ~~has~~yielding ~~been~~assets, ~~allowing~~increased ~~certain~~from ~~certificates~~68.3% of ~~deposit~~average tointerest-earning ~~run~~assets ~~off~~to at83.3%. ~~maturity~~The ~~to improve~~yield ~~the~~on ~~deposit~~average ~~mix~~interest-earning ~~and~~assets ~~reduce~~increased ~~the~~50 ~~cost~~basis ofpoints ~~funds~~to 4.94% ~~Time~~for ~~deposits~~the asthree amonths ~~percent~~ended ofSeptember ~~total~~30, ~~deposits~~2015 ~~decreased~~ from 414.344% for atthe ~~December~~three 31months ended September 30, 2014 todue ~~37.6%~~mostly ofto ~~total~~the ~~deposits~~improvement atin ~~June~~asset ~~30,~~mix. ~~2015~~Interest asand ~~demand~~fees ~~deposit~~on ~~balances~~loans increased $1.2 ~~from~~million, 8or 65.90%, to 14$2.~~1%.~~9 Inmillion ~~addition~~for to the ~~$6.3 million~~three ~~commercial~~months ~~deposit,~~ended ~~demand~~September ~~deposit~~30, ~~balances~~2015, ~~increased~~from $51.48 million, orfor ~~30.0%,~~the ~~from~~three ~~December~~months ended 31September 30, 2014, topartially ~~June~~offset 30by a $103,000, ~~2015~~or ~~as the~~49.0%, ~~Company~~decrease ~~has~~in ~~concentrated~~interest income on ~~bringing~~available-for-sale securities. Interest income on ~~commercial~~loans ~~business~~increased ~~accounts.~~due ~~Wholesale~~primarily ~~deposits~~to ~~increased~~a $165.84% ~~million~~increase ~~from~~in ~~December 31~~average loan balances, ~~2014~~due to ~~June~~both ~~30,~~the ~~2015~~merger and organic growth. AtThe ~~June~~average ~~30,~~balance ~~2015,~~of ~~wholesale~~securities ~~deposits~~decreased ~~were~~27.9% to $1931.19 million, ~~including~~for ~~$17.2~~the ~~million~~three inmonths ~~QwickRate~~ended ~~certificates of~~September ~~deposit~~30, ~~compared~~2015, compared to ~~$17.3~~the ~~million~~three ~~and~~months ~~$15.2~~ended ~~million~~September ~~at December 31~~30, 2014, ~~respectively~~and the average yield decreased 54 basis points. The ~~majority~~securities ofyield ~~our~~in ~~wholesale~~the ~~deposits~~quarter ~~are~~ended ~~time~~September ~~deposits~~30, ~~with~~2015 ~~denominations~~was ~~between~~negatively ~~$200,000~~affected ~~and~~by ~~$250~~accelerated prepayments on mortgage-backed securities which had been purchased at premiums,~~000~~ accelerating premium amortization expense in the quarter.

~~Borrowings~~Interest Expense. Interest expense increased $7,000, ~~consisting~~or ~~solely~~2.0%, ofto ~~Federal Home~~$359,000 ~~Loan~~for ~~Bank~~the ~~advances~~three months ended September 30, ~~increased~~2015 from $15352,000 for the three months ended September 30, 2014.0 ~~million~~The ~~during~~increase ~~the~~was ~~six~~caused ~~month~~by ~~period~~an toincrease in interest expense on deposits, which increased $2779,000, or 30.54%, ~~million~~to at$339,000 ~~June~~for the three months ended September 30, 2015 from $~~12.5~~260,000 ~~million at~~for ~~December~~the 31three months ended September 30, 2014., partially ~~Short~~offset ~~term~~by a decrease in interest expense on borrowings. atInterest ~~favorable~~on ~~rates~~borrowings ~~helped~~decreased ~~fund~~$72,000, ~~loan~~or ~~growth~~78.3%, ~~The~~to ~~Company~~$20,000 for ~~prepaid~~the three months ended September 30, 2015 from $~~6.4~~92,000 ~~million~~for inthe ~~long-term FHLB~~three ~~advances~~months atended ~~rates~~September ~~averaging~~30, 42014 despite a 194.03% increase in ~~December~~average ~~2014~~balances ~~and~~due ~~replaced~~to ~~them~~the inreplacement ~~January~~of ~~2015~~longer-term, higher rate borrowings with ~~short-~~shorter term, lower rate ~~advances~~borrowings in December 2014. Prepayment penalties of $532,000 were recognized in December 2014.

~~Total~~Interest ~~stockholders’~~paid ~~equity~~on ~~increased~~checking, money market and savings accounts increased $7086,000, or 091.25%, to $~~29.4~~180,000 ~~million~~for atthe ~~June~~three months ended September 30, 2015 from $~~29.3~~94,000 ~~million~~for atthe three ~~December~~months 31ended September 30, 2014. The ~~increase~~average ~~was~~rate ~~due~~we ~~primarily~~paid on such deposit accounts increased 14 basis points to 0.68% for ~~net~~the ~~income~~three ofmonths ended September 30, 2015 from 0.54% for the three months ended September 30, 2014 and the average balance increased $9736.4 million,~~000~~ or 52.9%, ~~partially~~to ~~offset~~$105.2 bymillion afor the three months ended September 30, 2015 from $5468.8 million for the three months ended September 30,~~000~~ ~~increase~~2014. inThe ~~unrealized~~average ~~losses~~rates we pay on ~~available~~these ~~for~~accounts ~~sale~~is ~~securities~~considerably higher in the Arizona market we entered with the Bank 1440 acquisition in August 2014.

~~(32)~~Interest expense on borrowings decreased significantly due primarily to the prepayment of $6.4 million in long-term FHLB advances in December 2014 with average interest rates of 4.00%. The average rate paid on borrowings decreased 322 basis points to 0.34% for the three months ended September 30, 2015 from 3.56% for the three months ended September 30, 2014. In 2015, we were able to fund loans with low cost, short-term borrowings as our average FHLB advances increased $12.2 million, or 119.4%, to $22.5 million for the three months ended September 30, 2015 from $10.3 million for the three months ended September 30, 2014.

~~Comparison of Operating Results for the Three Months Ended June 30, 2015 and 2014~~32

~~General~~Net Interest Income. Net ~~The~~interest ~~acquisition~~income increased $1.0 million, or 63.9%, to $2.7 million for the three months ended September 30, 2015 from $1.7 ofmillion ~~Bank~~for ~~1440~~the ~~was~~three ~~consummated~~months onended ~~August~~September 2930, 2014, as a result of a higher balance of net interest-earning assets and ~~the~~a ~~material~~higher net ~~increase~~interest inrate spread. Our average net interest-earning assets increased by $14.4 million, or 57.1%, to $39.7 million for the three months ended September 30, 2015 from ~~Bank~~$25.3 ~~1440~~million ~~makes~~for ~~direct~~the ~~comparisons~~three ~~between~~months ended September 30, 2014 due primarily to the merger. Our net interest rate spread improved by 72 basis points to 4.24% for the ~~two~~three ~~periods~~months ~~less~~ended ~~meaningful~~September 30, 2015 from 3.52% ~~The~~for the ~~Company~~three ~~had~~months ~~net~~ended ~~income~~September of30, ~~$362~~2014,~~000~~ as we carried 83.3% of our average interest-earning assets in loans, our highest yielding assets, for the three months ended ~~June~~September 30, 2015, compared to a69.4% in loans for the same quarter in 2014. This repositioning ~~net~~of ~~loss~~our asset portfolio was achieved principally through the merger in August 2014, organic loan growth and sales of ~~$186~~securities in December 2014 and early 2015,~~000~~ which were not completely replaced during reinvestment. Our cost of borrowings was reduced from 3.56% for the ~~three~~quarter ~~months~~ended September 30, 2014 to 0.34% for the quarter ended ~~June~~September 30, 2015 due to the prepayment of longer-term, higher rate FHLB advances in December 2014 and the continued low interest rate environment.

Interest Income. Interest income increased $1.3 million, or 71.4%, to $3.0 million for the three months ended June 30, 2015 from $1.7 million for the three months ended June 30, 2014. The increase was due to a 61.4% increase in average interest-earning assets and an improvement in mix as loans, our highest yielding assets, increased from 68.3% to 82.5% of average interest-earning assets. Despite a decrease in average loan yields, the yield on average interest-earning assets increased 29 basis points to 4.97% in the three months ended June 30, 2015 from the three months ended June 30, 2014 due mostly to the improvement in mix. Interest and fees on loans increased $1.3 million, or 84.2%, to $2.8 million for the three months ended June 30, 2015, from $1.5 million for the three months ended June 30, 2014, partially offset by a $75,000, or 37.0%, decrease in interest income on available-for-sale securities. Interest income on loans increased due primarily to a 95.0% increase in average loan balances, due to both the merger and organic growth, partially offset by a 33 basis point decrease in loan yields from 6.04% to 5.71% as market rates continued to decline. The average balance of securities decreased 13.6% to $34.1 million for the three months ended June 30, 2015, compared to the three months ended June 30, 2014, and the average yield decreased 55 basis points.

Interest Expense. Interest expense increased $48,000, or 15.6%, to $354,000 for the three months ended June 30, 2015 from $307,000 for the three months ended June 30, 2014. The increase was caused by an increase in interest expense on deposits, which increased $116,000, or 52.4%, to $337,000 for the three months ended June 30, 2015 from $221,000 for the three months ended June 30, 2014, partially offset by a decrease in interest expense on borrowings. Interest on borrowings decreased $68,000, or 79.2%, to $18,000 for the three months ended June 30, 2015 from $86,000 for the three months ended June 30, 2014 despite a 192.9% increase in average balances due to the replacement of longer-term, higher rate borrowings with shorter term, lower rate borrowings in December 2014. Prepayment penalties of $532,000 were recognized in December 2014.

Interest paid on checking, money market and savings accounts increased $118,000, or 203.4%, to $176,000 for the three months ended June 30, 2015 from $58,000 for the three months ended June 30, 2014. The average rate we paid on such deposit accounts increased 25 basis points to 0.69% for the three months ended June 30, 2015 from 0.44% for the three months ended June 30, 2014 and the average balance increased $48.9 million, or 92.4%, to $101.7 million for the three months ended June 30, 2015 from $52.8 million for the three months ended June 30, 2014. The average rates we pay on these accounts is considerably higher in the Arizona market we entered with the Bank 1440 acquisition in August 2014.

Interest expense on borrowings decreased significantly due primarily to the prepayment of $6.4 million in long-term FHLB advances with average interest rates of 4.00% in December 2014. The average rate paid on borrowings decreased 362 basis points to 0.28% for the three months ended June 30, 2015 from 3.90% for the three months ended June 30, 2014. In 2015, we were able to fund loans with low cost, short-term borrowings as our average FHLB advances increased $17.1 million, or 192.9%, to $25.9 million for the three months ended June 30, 2015 from $8.8 million for the three months ended June 30, 2014.

(33)

Net Interest Income. Net interest income increased $1.2 million, or 83.3%, to $2.6 million for the three months ended June 30, 2015 from $1.4 million for the three months ended June 30, 2014, as a result of a higher balance of net interest-earning assets and a higher net interest rate spread. Our average net interest-earning assets increased by $15.6 million, or 79.6%, to $35.2 million for the three months ended June 30, 2015 from $19.6 million for the three months ended June 30, 2014 due primarily to the merger. Our net interest rate spread improved by 54 basis points to 4.28% for the three months ended June 30, 2015 from 3.74% for the three months ended June 30, 2014, as we carried 82.5% of our average interest-earning assets in loans, our highest yielding assets, for the three months ended June 30, 2015 compared to 68.3% in loans for the comparable quarter in 2014. This repositioning of our asset portfolio was achieved principally through the merger in August 2014, organic loan growth and sales of securities in December 2014 and early 2015, which were not completely replaced during reinvestment. Our cost of borrowings was reduced from 3.90% for the quarter ended June 30, 2014 to 0.28% for the quarter ended June 30, 2015 due to the prepayment of longer-term, higher rate FHLB advances in December 2014.

Provision for Loan Losses. Provisions for loan losses are charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management analyzes several qualitative loan portfolio risk factors including but not limited to, charge-off history over a relevant period, changes in management or underwriting policies, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower and results of internal and external loan reviews.

See “Asset Quality- Allowance for Loan Losses” for additional information.

After an evaluation of these factors, we we recorded a provision for loan losses of $75125,000 for the three months ended ~~June~~September 30, 2015, compared to $0no ~~for~~provision for the three months ended ~~June~~ September 30, 2014. The provision for loan losses ~~increased~~ in the quarter ended ~~June~~September 30, 2015 ~~as:~~was ~~(1)~~recorded due ~~loans~~to ~~held~~growth ~~for~~in ~~investment~~the ~~grew~~ loan portfolio of $5.8.9 million, or 34.27%, and ~~(2)~~ the increased percentage of commercial loans in the portfolio, which generally carry a higher risk than residential real estate loans~~, increased~~. In the quarter ended March 2015, one first mortgage loan with a balance of $932,000 was placed on nonaccrual status due to non-payment and an expected bankruptcy filing. A specific allowance in the amount of $331,000 was recorded to cover the difference between the loan balance and the estimated net sales value of the property.

To the best of our knowledge, we have recorded all loan losses that are both probable and reasonable to estimate. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in our provision for loan losses. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, will periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on its judgments about the recoverability of our loan balances based upon information available to it at the time of its examination.

Noninterest Income. Noninterest income ~~increased~~decreased $~~251~~2.9 million,~~000,~~ or 2471.27%, to $1.31 million for the three months ended ~~June~~September 30, 2015 from $14.0 million for the three months ended ~~June~~September 30, 2014 due primarily to athe ~~higher~~$2.9 ~~volume~~million ofbargain ~~loan~~purchase ~~sales~~gain ~~and~~from ~~related~~the ~~gains~~merger recorded in the September 2014 quarter.

Gain on sale of loans increased $~~355~~204,000, or 4320.9%, to $1.2 million for the three months ended ~~June~~September 30, 2015 from $~~808~~976,000 for the three months ended ~~June~~September 30, 2014 as the Company has continued to expand its secondary mortgage loan operation ~~and sold its first SBA loan in calendar 2015~~. We sold $3938.9 1 million of mortgage loans during the three months ended ~~June~~September 30, 2015 for a gain of $1.1 million and one SBA loan for $655,000 ~~compared~~at a gain of $62,000, compared to $2621.36 million of mortgage loan sales and $1.6 million of SBA loan sales during the three months ended ~~June~~September 30, 2014 for total agains ~~gain~~ of $~~808~~976,000. We realized a 2.929% average premium (gain on sale/sold loans) on the sales of mortgage loans for the ~~second~~ third quarter of 2015 compared to 3.072% for the comparable quarter in 2014. Premiums vary from period to period based upon the mix of government FHA and VA loans to conventional loans, geographic markets and market interest rates, specifically 10-year Treasury rates. ~~In the quarter ended June 30, 2015, we sold 75% of one SBA loan at a gain of $86,000 compared to no sales in the second quarter of 2014.~~

~~In the quarter ended June 30, 2015, we recognized no impairment or net gains on other real estate, compared to net gains of $56,000 in the same quarter of the previous year.~~33

~~(34)~~Noninterest Expense. Noninterest expense increased $641,000, or 21.9%, to $3.6 million for the three months ended September 30, 2015 from $2.9 million for the three months ended September 30, 2014 due primarily to higher salaries and benefits, occupancy, data processing fees, professional fees and other noninterest expense, partially offset by lower merger-related expenses. The increases in expenses resulted primarily from the acquisition of Bank 1440. Average assets for the quarter ended September 30, 2015 were 35.4% larger than the same quarter in the prior year.

~~Noninterest~~There ~~Expense.~~were ~~Noninterest~~no merger-related expenses ~~expense~~for ~~increased~~the quarter ended September 30, 2015, compared to $~~828~~311,000, orin 31the quarter ended September 30, 2014.1% Legal, toconsulting and ~~$3.5~~data ~~million~~processing ~~for~~costs were the ~~three~~largest ~~months~~elements ~~ended~~of ~~June~~merger-related 30expense. Merger-related costs were being incurred over a year before the August 29, ~~2015~~2014 ~~from~~acquisition $2of Bank 1440.7 The ~~million~~Company ~~for~~operated ~~the~~on ~~three~~two core operating systems and ~~months~~numerous ~~ended~~other ~~June~~redundant 30ancillary systems from the August 29, 2014 ~~due~~merger ~~primarily~~date until late March 2015 when all the systems were converted. The systems conversions are expected to ~~higher~~result ~~salaries~~in ~~and~~enhanced ~~benefits,~~operating ~~occupancy,~~efficiencies ~~data~~going ~~processing~~forward. ~~fees,~~Internal ~~professional~~costs incurred ~~fees~~cannot be quantified and ~~other~~ ~~noninterest~~are ~~expense,~~therefore ~~partially~~not ~~offset~~included byin ~~lower~~merger-related expense. The majority of merger-related expenses., totaling ~~These~~$801,000, ~~increases~~were expensed in ~~expenses~~the ~~resulted~~six ~~primarily~~months ended December 31, 2014. Material duplicative costs and exit fees from the ~~acquisition~~old systems were expensed and classified as merger-related in our statement of ~~Bank~~comprehensive ~~1440.~~income ~~Average~~as ~~assets~~soon ~~for~~as those expense amounts were reasonably estimable and probable. With the ~~quarter~~late ~~ended~~March ~~June~~2015 30systems conversions, ~~2015~~the ~~were~~Company 56has eliminated all duplicative systems.1% The ~~larger~~Company ~~than~~does not expect to incur any merger-related expenses related to the ~~same~~Bank ~~quarter~~1440 transaction in the ~~prior~~ ~~year~~future.

~~Merger-related~~Provision ~~expenses~~for ~~decreased~~Income ~~$334,000, or 98~~Taxes.~~4%,~~ toNo provision ~~$5,000~~ for ~~the~~income ~~quarter~~tax ~~ended~~expense ~~June~~was ~~30,~~recorded ~~2015~~for ~~compared to $339,000 in~~ the ~~quarter~~three months ended ~~June~~September 30, ~~2014. Legal,~~2015 ~~consulting~~ and ~~data processing costs were the largest elements of merger-related expense. Merger-related costs were being incurred over a year before the August 29,~~ 2014 ~~acquisition~~due ofto ~~Bank~~net ~~1440. The Company operated on two core~~ operating ~~systems and numerous~~loss ~~other~~carry-forwards ~~redundant ancillary systems~~ from ~~the~~prior ~~August~~periods ~~29,~~available ~~2014 merger date until late March 2015 when all the systems were converted. The systems conversions are expected~~ to ~~result~~offset intheir ~~enhanced operating efficiencies going forward~~income. ~~Internal~~The ~~costs~~Company ~~incurred~~had ~~cannot be~~pre-tax ~~quantified~~ and ~~are therefore not included in merger~~after-~~related~~tax ~~expense. The~~income ~~majority~~ of ~~merger-related~~$2.7 ~~expenses, totaling~~million ~~$801,000,~~for ~~were expensed in~~ the ~~six~~three months ended ~~December~~September 3130, 2014~~. Material~~ ~~duplicative costs~~ and ~~exit~~$128,000 ~~fees~~for ~~from~~ the ~~old systems~~three ~~were~~months ~~expensed~~ended ~~and~~September ~~classified as merger-related in our statement of operations as soon as those expense amounts were reasonably estimable and probable. With the late March 2015 systems conversions~~30, ~~the Company has eliminated all duplicative systems~~2015. ~~The Company believes it will incur limited, if any, merger-related expenses in the future.~~

~~Provision~~Comparison ~~for~~of ~~Income~~Operating ~~Taxes.~~Results ~~No provision~~ for ~~income tax expense or income tax benefits were recorded for the three months ended June 30, 2015 and 2014. The Company~~ ~~had a pre-tax loss of $186,000 for~~ the ~~three~~Nine months ~~ended~~Ended ~~June~~September 30, 2014 and no income tax benefit was recorded due to the inability to project future taxable income as was considered necessary to ensure utilization of those benefits in the future. The Company had pre-tax income of $362,000 for the three months ended June 30, 2015 and ~~no provision for income tax (expense) was recorded due to net operating loss carry-forwards from prior periods available to offset that income.~~2014

~~Comparison~~General. The acquisition of ~~Operating~~Bank ~~Results~~1440 ~~for~~was consummated on August 29, 2014 and the material increase in assets from Bank 1440 makes direct comparisons between the ~~Six~~two ~~Months~~periods ~~Ended~~less ~~June~~meaningful. We had net income of $226,000 for the nine months ended September 30, 2015, ~~and~~compared to $2.1 million for the nine months ended September 30, 2014. The nine month results for 2014 included a $2.9 million bargain purchase gain on the acquisition of Bank 1440 and $888,000 in merger-related expenses. Merger-related expenses in the nine months ended September 30, 2015 were $100,000.

~~General~~Interest Income. ~~The acquisition~~Interest ofincome ~~Bank~~increased ~~1440~~$3.4 ~~was~~million, ~~consummated~~or on62.2%, ~~August~~to 29$8.9 million for the nine months ended September 30, ~~2014~~2015 ~~and~~from $5.5 million for the nine ~~material~~months ended September 30, 2014. The increase was due to a 48.9% increase in average interest-earning assets ~~from~~and ~~Bank~~a ~~1440~~41 ~~makes~~basis point ~~direct~~increase ~~comparisons~~in ~~between~~yields due primarily to improvement in asset mix as loans, our highest yielding assets, increased from 68.6% ~~the~~of ~~two~~average ~~periods~~interest-earning ~~less~~assets ~~meaningful~~to 82.6%. WeInterest ~~had~~and ~~net~~fees ~~income~~on ofloans increased $973.6 million,~~000~~ inor 73.6%, to $8.4 million for the ~~six~~nine months ended ~~June~~September 30, 2015, ~~compared~~from $4.8 million for the nine months ended September 30, 2014, partially offset by a $208,000, or 34.3%, decrease in interest income on available-for-sale securities. Interest income on loans increased due primarily to a ~~net~~79.2% ~~loss~~increase in average loan balances, due to both the merger and organic growth, partially offset by an 18 basis point decrease in loan yields from 5.89% to 5.71% as market rates continued to decline. The average balance of securities decreased 19.7% to $~~623,000~~33.4 million for the ~~six~~nine months ended ~~June~~September 30, 2015, compared to $41.7 million for the nine months ended September 30, 2014 and the average yield decreased 35 basis points.

Interest ~~Income~~Expense. Interest ~~income~~expense increased $~~2.3 million~~77,000, or 677.59%, to $51.81 million for the ~~six~~nine months ended ~~June~~September 30, 2015 from $~~3.5~~978,000 ~~million~~ for the ~~six~~nine months ended ~~June~~September 30, 2014. The increase was ~~due~~caused toby aan ~~55.6%~~ increase in ~~average~~ interest~~-earning~~ ~~assets~~expense ~~and~~on ~~a 36 basis point increase in yields due primarily to improvement in mix as loans~~deposits, ~~our~~which ~~highest yielding assets,~~ increased ~~from 68.2% to 82.2% of average interest-earning assets. Interest and fees on loans increased~~ $~~2.4 million~~297,000, or 78 41.67%, to $51.50 million for the ~~six~~nine months ended ~~June~~September 30, 2015, from $~~3.1~~712,000 ~~million~~ for the ~~six~~nine months ended ~~June~~September 30, 2014, partially offset by a ~~$105,000, or 26.5%,~~ decrease in interest ~~income~~expense on ~~available-for-sale securities~~borrowings. Interest ~~income~~ on ~~loans~~borrowings ~~increased~~decreased ~~due~~$220,000, ~~primarily~~or ~~to an 87~~82.67% ~~increase in average loan balances~~, ~~due~~ to ~~both~~$46,000 for the ~~merger and~~nine ~~organic~~months ~~growth,~~ended ~~partially~~September ~~offset~~30, by2015 ~~a 29 basis point decrease in loan yields~~ from ~~6.00% to 5.71% as market rates continued to decline. The average balance of securities decreased 15.2% to~~ $~~34.2~~266,000 ~~million~~ for the ~~six~~nine months ended ~~June~~September 30, ~~2015,~~2014 ~~compared~~ due to ~~$40.4~~the ~~million~~replacement of ~~for~~longer-term, ~~the~~higher-rate ~~six~~borrowings ~~months~~with ~~ended~~shorter-term ~~June 30~~borrowings, ~~2014~~despite ~~and~~a ~~the~~118.6% ~~average~~increase ~~yield~~in ~~decreased~~average ~~26 basis points~~balances.

~~(35)~~34

Interest ~~Expense.~~paid ~~Interest~~on checking, money market ~~expense~~and savings accounts increased $69309,000, or 11147.1%, to $~~696~~519,000 for the ~~six~~nine months ended ~~June~~September 30, 2015 from $~~627~~210,000 for the ~~six~~nine months ended ~~June~~ September 30, 2014. The ~~increase~~average ~~was~~rate ~~caused~~we bypaid ~~an increase in interest expense~~ on ~~deposits,~~such ~~which~~deposit accounts increased ~~$218,000,~~19 orbasis ~~48.3%,~~points to ~~$670,000~~0.68% for the ~~six~~nine months ended ~~June~~September 30, 2015 from ~~$452,000~~0.49% for the ~~six~~nine months ended ~~June~~September 30, 2014, ~~partially~~and ~~offset~~the byaverage abalance ~~decrease in~~increased ~~interest expense on borrowings~~$44.6 ~~Interest on borrowings decreased $148~~million,~~000,~~ or 8477.71%, to $~~27,000~~102.4 million for the ~~six~~nine months ended ~~June~~September 30, 2015 from $~~175,000~~57.8 million for the ~~six~~nine months ended ~~June~~September 30, 2014. ~~due~~The toaverage ~~the~~rates ~~replacement~~we ofpay ~~longer-term,~~on these accounts is considerably higher~~-rate~~ ~~borrowings~~in ~~with~~the ~~shorter-term borrowings,~~Arizona ~~despite~~market awe ~~118.2%~~entered ~~increase~~with the inBank ~~average~~1440 ~~balances~~acquisition.

Interest ~~paid~~expense on ~~checking,~~borrowings ~~money market~~decreased ~~and~~significantly ~~savings~~due ~~accounts~~primarily ~~increased~~to ~~$222,000,~~the orprepayment ~~191~~of $6.4%, tomillion ~~$338,000~~in ~~for~~long-term ~~the~~FHLB ~~six~~advances ~~months~~in ~~ended~~December ~~June~~2014 ~~30,~~with ~~2015~~average ~~from $116,000 for the six~~interest ~~months~~rates ~~ended~~of ~~June 30, 2014~~4.00%. The average rate we paid on ~~such~~borrowings ~~deposit~~decreased ~~accounts~~334 ~~increased 22~~ basis points to 0.6729% for the ~~six~~nine months ended ~~June~~September 30, 2015 from 03.4563% for the ~~six~~nine months ended ~~June~~September 30, 2014. ~~and~~In 2015, we were able to fund some of the growth in portfolio loans and mortgage loans held for sale with low cost, short-term borrowings as our average ~~balance~~FHLB advances increased $4811.86 million, or 93 118.36%, to $~~101~~21.04 million for the ~~six~~nine months ended ~~June~~September 30, 2015 from $529.38 million for the ~~six~~nine months ended ~~June~~September 30, 2014. ~~The average rates we pay on these accounts is considerably higher in the Arizona market we entered with the Bank 1440 acquisition.~~

Net Interest ~~expense~~Income. Net oninterest ~~borrowings~~income ~~decreased significantly~~increased ~~due~~$3.3 ~~primarily~~million, or 74.1%, to $7.8 million for the ~~prepayment~~nine ofmonths ended September 30, 2015 from $6.4 .5 million infor ~~long~~the nine months ended September 30, 2014, as a result of a higher balance of net interest-~~term~~earning ~~FHLB~~assets ~~advances~~and ~~with~~a higher net interest rate spread. Our average net interest-earning ~~rates~~assets ofincreased 4by $13.001 million, or 58.7%, into $35.6 million for the ~~December~~nine months ended September 30, 2015 from $22.4 million for the nine months ended September 30, 2014 due primarily to the merger and loan growth. ~~The~~Our ~~average~~net interest rate ~~paid~~spread onimproved ~~borrowings~~by ~~decreased~~66 ~~343~~ basis points to 04.2627% for the ~~six~~nine months ended ~~June~~September 30, 2015 ~~from~~ from 3.6961% for the ~~six~~nine months ended ~~June~~September 30, 2014, as we carried 82.6% Inof ~~2015~~our average interest-earning assets in loans, our wehighest ~~were~~yielding ~~able~~asset, for the nine months ended September 30, 2015 compared to ~~fund~~68.6% in loans ~~with~~for ~~low~~the ~~cost,~~comparable ~~short-term~~period in ~~borrowings~~2014. asThis repositioning of our ~~average FHLB~~asset ~~advances~~portfolio ~~increased~~was ~~$11.3~~achieved ~~million~~principally through the merger in August 2014, ororganic ~~118.2%~~loan growth and sales of securities in December 2014 and early 2015, towhich ~~$20~~were not completely replaced during reinvestment.9 ~~million~~Our cost of borrowings was reduced from 3.63% for the ~~six~~nine months ended ~~June~~September 30, ~~2015~~2014 ~~from~~to $90.629% ~~million~~ for the ~~six~~nine months ended ~~June~~September 30, 2015 due to the prepayment of longer-term, higher rate FHLB advances in December 2014.

~~Net~~Provision ~~Interest~~for ~~Income~~Loan Losses. ~~Net~~We ~~interest~~recorded ~~income~~a ~~increased~~provision ~~$2.3~~for ~~million,~~loan orlosses ~~79.9%,~~of to $~~5.1~~300,000 ~~million~~ for the ~~six~~nine months ended ~~June~~September 30, 2015, ~~from~~compared ~~$2.8~~to ~~million~~no provision for the nine ~~six~~ months ended ~~June~~September 30, 2014~~, as a result of a higher balance of net interest-earning assets and a higher net interest rate spread~~. ~~Our~~The ~~average~~provision ~~net~~for ~~interest-earning~~2015 ~~assets~~was ~~increased~~due ~~by $12.5 million, or 59.8%,~~ to ~~$33.5~~portfolio ~~million~~loan ~~for~~growth ~~the~~of ~~six months ended June 30, 2015 from~~ $21.0 million ~~for the six months ended June 30~~, ~~2014~~or ~~due primarily to the merger and loan growth~~12. ~~Our net interest rate spread improved by 63 basis points to 4.29~~0% ~~for the six months ended June 30~~, ~~2015 from 3.66% for the six months ended June~~and ~~30,~~a ~~2014,~~specific asallowance weadded ~~carried 82.2% of our average interest-earning assets~~ in ~~loans,~~March ~~our~~2015 ~~highest~~that ~~yielding~~was ~~asset,~~followed ~~for~~by ~~the~~a ~~six months ended June 30~~$339,000 ~~2015~~partial ~~compared~~charge-off ~~to 68.2%~~ in ~~loans for~~ the ~~comparable~~third ~~period~~quarter inon ~~2014.~~one ~~This repositioning of our asset portfolio was achieved~~first ~~principally~~mortgage ~~through~~loan ~~the~~with ~~merger~~a inpre-charge ~~August~~off ~~2014,~~balance ~~organic loan growth and sales~~ of ~~securities~~$932,000 indue ~~December~~to ~~2014~~an ~~and~~expected ~~early~~bankruptcy ~~2015~~filing, ~~which were~~partially ~~not~~offset ~~completely~~by ~~replaced~~$186,000 ~~during reinvestment~~in recoveries. ~~Our~~Recoveries ~~cost~~ of ~~borrowings was reduced from 3.69% for the six months ended June 30~~$55, ~~2014~~000 towere ~~0.26%~~received ~~for~~in the ~~six~~nine months ended ~~June~~September 30, ~~2015 due to the prepayment of longer-term, higher rate FHLB advances in December~~ 2014.

~~Provision~~Noninterest ~~for Loan Losses~~Income. WeNoninterest ~~recorded~~income adecreased ~~provision~~$2.6 ~~for~~million, ~~loan~~or ~~losses~~44.2%, ofto $~~175,000~~3.2 million for the ~~six~~nine months ended ~~June~~September 30, 2015, ~~compared~~from to $05.8 million for the nine ~~six~~ months ended ~~June~~ September 30, 2014. ~~The~~primarily ~~provision for 2015 was~~ due to ~~loan~~the ~~growth~~$2.9 ~~and~~million abargain ~~specific~~purchase ~~reserve~~gain ~~added,~~recorded ~~partially offset by $186,000~~ in ~~recoveries. In~~ the ~~six~~nine months ended September ~~June~~ 30, ~~2015,~~2014 ~~one~~and ~~first mortgage loan with a balance of~~ $~~932~~406,000 ~~was~~in ~~placed~~impairment charges on ~~nonaccrual~~other ~~status~~real ~~due~~estate ~~to non-payment and an expected bankruptcy filing. A specific allowance~~ in the ~~amount~~nine ofmonths ~~$331,000~~ended ~~was~~September ~~recorded~~30, to2015, ~~cover the difference~~partially ~~between~~offset ~~the~~by ~~loan~~a ~~balance~~higher ~~and~~volume ~~the estimated net sales value~~ of ~~the property. In addition, $186,000 in recoveries of previously charged-off~~ loan ~~balances~~sales ~~was~~and ~~received~~related ingains ~~the~~during ~~six months ended June 30, 2015 compared to $30,000 in~~ the ~~six~~nine months ended ~~June~~September 30, ~~2014~~2015.

~~(36)~~35

~~Noninterest~~Gain ~~Income.~~on ~~Noninterest income~~sale of loans increased $~~323~~878,000, or 1837.3%, to $23.12 million for the ~~six~~nine months ended ~~June~~September 30, 2015 from $12.84 million for the ~~six~~nine months ended ~~June~~September 30, 2014, ~~primarily~~as ~~due~~the Company has continued to aexpand ~~higher~~its ~~volume~~secondary ofmortgage loan ~~sales~~operation. ~~and~~We ~~related~~sold ~~gains,~~$107.3 ~~partially~~million ~~offset~~of bymortgage aloans ~~$200~~during the nine months ended September 30,~~000~~ ~~impairment charge~~2015, oncompared ~~other~~to ~~real~~$68.6 ~~estate~~million induring the ~~six~~nine months ended ~~June~~September 30, 2014. The average premium (gain on sale/sold loans) for 2015 was 2.9% compared to ~~gains~~3.2% for 2014. Premiums vary from period to period based upon the mix of ~~$60~~government FHA and VA loans to conventional loans,~~000~~ geographic markets and market interest rates, specifically 10-year Treasury rates. We sold $1.6 million of SBA loans in each of the ~~six~~nine ~~months~~month periods ended ~~June~~September 30, 2015 and 2014, recognizing gains on sale of $148,000 in 2015 and $168,000 in 2014.

~~Gain~~Noninterest onExpense. ~~sale~~Noninterest expense ~~of loans~~ increased $~~675~~2.3 million,~~000,~~ or 4928.07%, to $210.15 million for the ~~six~~nine months ended ~~June~~September 30, 2015 from $18.42 million for the nine ~~six~~ months ended ~~June~~September 30, 2014 asdue ~~the Company~~primarily ~~has continued~~ to ~~expand~~higher ~~its~~salaries ~~secondary~~and ~~mortgage loan operation. We sold $69.1 million of mortgage loans during the six months ended June 30~~benefits, ~~2015~~occupancy, ~~compared~~data toprocessing ~~$46.4~~fees, ~~million~~professional fees ~~during~~and ~~the~~other ~~six~~noninterest ~~months ended June 30~~expense, ~~2014.~~partially ~~The~~offset ~~average~~by ~~premium~~lower ~~(gain~~merger-related ~~on sale/sold loans) for 2015 was 2~~expenses.~~97%~~ ~~compared~~These toincreases ~~2.96%~~in ~~for~~expenses ~~2014.~~resulted ~~Premiums vary~~ primarily from ~~period to period based upon~~ the ~~mix~~acquisition of ~~government~~Bank ~~FHA and~~1440. VAAverage ~~loans~~assets tofor ~~conventional~~the ~~loans,~~nine ~~geographic~~months ~~markets~~ended ~~and~~September ~~market interest rates~~30, ~~specifically~~2015 ~~10-year~~were ~~Treasury rates~~46.3% Inlarger than the ~~six~~nine months ended ~~June~~September 30, ~~2015 we sold 75% of one SBA loan at a gain of $86,000 compared to no sales in the comparable period of~~ 2014.

~~Noninterest~~Merger-related ~~Expense.~~expenses ~~Noninterest expense~~decreased ~~increased~~ $~~1.7 million~~788, 000, or 3288.57%, to $~~6.9~~100,000 ~~million~~ for the ~~six~~nine months ended ~~June~~September 30, 2015 ~~from $5.2 million for the six months ended June 30~~, ~~2014~~compared ~~due primarily~~ to ~~higher salaries and benefits~~$888,000 occupancy, data processing fees, professional fees and other noninterest expense, partially offset by lower merger-related expenses. These increases in expenses resulted primarily from the acquisition of Bank 1440. Average assets for the ~~six~~nine months ended ~~June~~September 30, ~~2015 were 52.8% larger than the six months ended~~ ~~June 30,~~ 2014.

~~Merger-related~~Provision ~~expenses~~for ~~decreased~~Income ~~$476~~Taxes. No provision for income tax expense was recorded for the nine months ended September 30,~~000,~~ or2015 82and 2014.~~7%,~~ toThe ~~$100,000~~Company had pre-tax income of $2.1 million for the ~~six~~nine months ended ~~June~~September 30, ~~2015~~2014 ~~compared~~and to $~~576~~226,000 for the ~~six~~nine months ended ~~June~~September 30, ~~2014~~2015 and no provision for income tax expense was recorded due to net operating loss carry-forwards from prior periods available to offset that income.

~~Provision~~Arizona ~~for~~Mortgage ~~Income~~Banking ~~Taxes.~~Program No provision for income tax expense or income tax benefits were recorded for the six months ended June 30, 2015 and 2014. The Company had a pre-tax loss of $623,000 for the six months ended June 30, 2014 and no income tax benefit was recorded due to the inability to project future taxable income as was considered necessary to ensure utilization of those benefits in the future. The Company had pre-tax income of $97,000 for the six months ended June 30, 2015 and no provision for income tax expense was recorded due to net operating loss carry-forwards from prior periods available to offset that income.Expansion

~~(37)~~On September 24, 2015 the Company announced the expansion of its mortgage banking program in Arizona and Albuquerque, New Mexico. Jim Lyddon was named as the new Director of Residential Lending, overseeing all aspects of Bank’34's residential mortgage programs across all geographic markets.

Under this expansion, Bank’34 has added 22 full-time equivalent employees. In October 2015, we entered into leases for additional space in Scottsdale and Albuquerque. Management would expect the fourth quarter operating results to be negatively affected as the additional operating costs are expected to exceed the revenue generated from this new operation for the first few months.

Asset Quality

We review loans on a regular basis, and place loans on nonaccrual status when either principal or interest is 90 days or more past due unless it is both well-secured and in the process of collection. In addition, we place loans on nonaccrual status when we do not expect to receive full payment of interest or principal. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Once a loan is placed on nonaccrual status, the borrower must generally demonstrate at least six months of payment performance before the loan is eligible to return to accrual status.

Nonperforming Assets. The following table sets forth information regarding our nonperforming assets. In addition to the assets listed below, as of September ~~June~~ 30, 2015 and December 31, 2014 we had $~~476,000~~0 and $483,000 of accruing troubled debt restructurings, respectively. Troubled debt restructurings include loans for which either a portion of interest or principal has been forgiven, or for loans modified at interest rates materially less than current market rates. The troubled debt restructurings as of ~~June 30, 2015 consisted of one commercial real estate loan and at~~ December 31, 2014 consisted of three commercial real estate loans and one commercial and industrial loan. As of ~~June~~September 30, 2015 and December 31, 2014, there were no specific allowances related to these loans, and at each date we had no commitments to lend additional amounts to those customers.

	At June 30,			At December 31,
	2015			2014
	(Dollars in Thousands)
Nonaccrual loans:
Real estate loans:
One-to-four-family residential	$	1,131		$	181
Commercial		-			617
Commercial and industrial loans		-			17
Consumer and other loans		-			-
Total loans	$	1,131		$	815
Accruing loans past due 90 days or more:
Total accruing loans past due 90 days or more		-			-
Total of nonaccrual loans and accruing loans past due 90 days or more		1,131			815
Other real estate owned ("ORE"):
One-to-four-family residential		28			-
Commercial		620			820
Total real estate owned		648			820
Other nonperforming assets		-			-
Total nonperforming assets	$	1,779		$	1,635
Ratios:
Nonperforming loans to gross loans held for investment		0.60	%		0.46	%
Nonperforming assets to total assets		0.66	%		0.66	%
Nonperforming assets to gross loans held for investment and ORE		0.94	%		0.92	%

(38)

	At September 30,			At December 31,
	2015			2014
	(Dollars in Thousands)

Nonaccrual loans:
Real estate loans:
One-to-four-family residential	$	804		$	181
Commercial		-			617
Commercial and industrial loans		-			17
Consumer and other loans		-			-
Total loans	$	804		$	815

Accruing loans past due 90 days or more:
Total accruing loans past due 90 days or more		-			-
Total of nonaccrual loans and accruing loans past due 90 days or more		804			815

Other real estate owned ("ORE"):
One-to-four-family residential		-			-
Commercial		418			820
Total real estate owned		418			820
Other nonperforming assets		-			-
Total nonperforming assets	$	1,222		$	1,635

Ratios:
Nonperforming loans to gross loans held for investment		0.41	%		0.46	%
Nonperforming assets to total assets		0.46	%		0.66	%
Nonperforming assets to gross loans held for investment and ORE		0.62	%		0.92	%

The ratio of nonperforming loans to gross ~~loans~~ loans held for investment ~~increased~~decreased due to ~~the~~a 381.84% ~~increase~~decrease in nonaccrual loans and 12.1% increase in gross loans. In the ~~six~~nine months ended ~~June~~September 30, 2015, one first mortgage loan with a balance of $932,000 was placed on nonaccrual status due to non-payment and an expected bankruptcy filing. Aand ~~specific allowance~~a inpartial ~~the~~charge-off ~~amount~~ of $~~331~~339,000 was recorded to cover the difference between the loan balance and the estimated net sales value of the property. Also in the ~~six~~nine month period, two nonaccrual commercial loans with recorded balances of $366,000 were paid in full. At ~~June~~September 30, 2015, the Company did not have any nonaccrual commercial loans.

Interest income that would have been recorded for the ~~six~~nine months ended ~~June~~September 30, 2015, had nonaccruing loans been current according to their original terms amounted to $3941,000. Of such ~~amounts~~amount, $0none is related to troubled debt restructurings. We recognized no interest income on these nonaccrual loans for the ~~six~~nine months ended ~~June~~September 30, 2015.

At ~~June~~September 30, 2015, we had no loans ~~that~~ that were not currently classified as nonaccrual, 90 days past due or troubled debt restructurings where known information about ~~possible~~ possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with ~~existing~~ existing loan repayment terms and that could result in disclosure as nonaccrual, 90 days past due or troubled debt restructurings.

Allowance for Loan Losses. The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on impaired loans, it is possible that management’s estimate of credit losses inherent in the loan portfolio and the related allowance may change materially in the near-term. The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses.

Adjustable-rate mortgage loans decrease the risk associated with changes in market interest rates by periodically repricing, but involve other risks because, as interest rates increase, the underlying payments by the borrower increase, thus increasing the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate is also limited by the maximum periodic and lifetime interest rate adjustments permitted by our loan documents and, therefore, the effectiveness of adjustable-rate mortgage loans may be limited during periods of rapidly rising interest rates.

Loans secured by commercial real estate and multi-family real estate generally involve larger principal amounts and a greater degree of risk than one- to four-family residential mortgage loans. Because payments on loans secured by commercial real estate and multi-family real estate are often dependent on successful operation or management of the properties, repayment of such loans may be affected by adverse conditions in the real estate market or the economy.

Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property that is generally more marketable and whose value tends to be more easily ascertainable, commercial business loans generally are made on the basis of the borrower’s ability to repay the loan from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may depend substantially on the success of the business itself. Further, any collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value.

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The following table sets forth activity in our allowance for loan losses for the periods indicated.

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2015			2014
	(Dollars in Thousands)
Balance at beginning of period	$	1,707		$	1,733
Provision for loan losses		~~175~~300			-
Charge-offs:
Residential real estate loans		-(339	)		(87	)
Commercial real estate loans		-			-
Commercial and industrial loans		-			-
Consumer and other loans		-			(31	)
Total charge-offs		-(339	)		(118	)
Recoveries:
Residential real estate loans		2			-23
Commercial real estate loans		184			3031
Commercial and industrial loans		-			-
Consumer and other loans		-			-
Total recoveries		186			3054
Net (charge-offs) recoveries		~~186~~(153	)		(8864	)
Balance at end of period	$	21,~~068~~854		$	1,~~645~~669	$
Allowance for loan losses to non- performing loans at end of period		~~182~~230.8758	%		~~371~~274.3332	%
Allowance for loan losses to total gross loans at end of period		10.1094	%		1.7702	%
Allowance for loan losses to total gross loans less acquired loans at end of period		1.6131	%		1.77	%
Net (charge-offs) recoveries to average loans outstanding during the period (annualized)		(0.1910	)%		(0.1708	)%

The allowance for loan losses to nonperforming loans ratio decreased due to an increase in nonperforming loans from September 30, 2014 to September 30, 2015. The allowance for loan losses to total gross loans ratio decreased due to the absence of any allowance for loan losses on loans acquired in the purchase of Bank 1440 as such loans were marked to market on the date of the acquisition, partially offset by recoveries recognized during the first ~~six~~nine months of 2015. The decrease in the allowance for loan losses to total gross loans less acquired loans was due to improvement in the economy, favorable credit quality and a $339,000 partial charge off of one large residential loan in the quarter ended September 30, 2015. The net (charge-offs) recoveries to average loans outstanding ratio ~~improved~~increased due mostly to ~~recoveries recognized as~~ a ~~result of the payoff of one commercial~~$339,000 residential real estate loan ~~and~~partial ~~one~~charge-off ~~commercial business loan~~ in the ~~first~~third ~~six~~quarter ~~months~~ of 2015 ~~at amounts greater than our net carrying values~~.

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Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities and Federal Home Loan Bank advances. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits with other banks and short- and intermediate-term securities.

We believe that we have enough sources of liquidity to satisfy our short-term liquidity needs as of ~~June~~September 30, 2015.

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At ~~June~~September 30, 2015, cash and cash equivalents totaled $1911.71 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $3230.95 million at ~~June~~September 30, 2015; however, securities carried at $3.~~2 million~~0 million were pledged to secure public deposits. In addition, at ~~June~~September 30, 2015, we had the ability to borrow an additional $8796.94 million from the Federal Home Loan Bank of Dallas. On that date, we had $2723.5 million of advances outstanding.

At ~~June~~September 30, 2015, we had $2015.19 million in loan commitments outstanding, and an additional $1819.21 million in commitments to originate and sell mortgage loans. In addition, we had $54.6 million in unused lines of credit and $36,000 in commitments issued under standby letters of credit. Certificates of of deposit due within one year as of ~~June~~September 30, 2015 totaled $3938.68 million, or 18.83% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings ~~than~~ than we currently pay on the certificates of deposit due on or before ~~June~~September 30, 2016. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us, either as certificates of deposit or as other deposit products. We have the ability to attract and retain deposits by adjusting the interest rates offered.

We have no material commitments or demands that are likely to affect our liquidity other than set forth above. In the event loan demand were to increase at a pace greater than expected, or any unforeseen demand or commitment were to occur, we would access our borrowing capacity with the Federal Home Loan Bank of Dallas or increase our deposits by offering higher interest rates.

Our primary investing activities are the origination of loans and the purchase of securities. In the ~~six~~nine months ended ~~June~~September 30, 2015 and 2014, we originated $95114.~~3 million~~9 million and $6492.76 million of loans, respectively, and purchased $9.7 million and $0 of securities, respectively. We have not purchased any whole loans in recent periods.

Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances. We experienced net increases of $910.23 million and $373.7 million in total deposits for the ~~six~~nine months ended ~~June~~September 30, 2015 and 2014, respectively. ~~The~~Excluding ~~2015~~the ~~increase included a~~ $675.35 million ~~deposit~~in deposits ~~received~~acquired in the Bank 1440 merger in August 2014, the Company had a ~~commercial~~net ~~noninterest~~decrease ~~bearing~~in ~~demand~~deposits ~~account~~of at$1.8 ~~quarter~~million ~~end~~in the nine months ended September 30, 2014. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits so that we are competitive in our market area. Wholesale deposits, which are generally not from our primary market areas, represented $19.1 million, or 9.0% of deposits at ~~June~~September 30, 2015. This included $1716.29 million in QwickRate certificates of deposit. The majority of our wholesale deposits are time deposits with denominations between $200,000 and $250,000.

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Federal Home Loan Bank advances increased by $1511.0 million and ~~decreased by~~ $34.23 million for the ~~six~~nine months ended ~~June~~September 30, 2015 and 2014, respectively.

In the first ~~six~~nine months of 2015, we utilized ~~proceeds~~deposit ~~from~~growth, ~~FHLB advances and~~ excess liquid funds held at December 31, 2014 and proceeds from FHLB advances to fund new loan originations and the purchase of $9.7 million in available-for-sale securities. During 2014, we were able to decrease our borrowings as we used cash provided by loan repayments to fund our operations without negatively affecting our levels of liquidity.

Bank’34 is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At ~~June~~September 30, 2015 and December 31, 2014, Bank’34 exceeded all regulatory capital requirements. Bank’34 is considered “well-capitalized” under regulatory guidelines.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable, as the Registrant is a smaller reporting company.

Item 4. Controls and Procedures

An evaluation was performed under the ~~supervision~~ supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of ~~June~~September 30, 2015. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Executive Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended ~~June~~September 30, 2015, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – Other Information

Item 1. Legal Proceedings

The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

Item 1A. Risk Factors

Not applicable, as the Registrant is a smaller reporting company.

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

(a)

Not applicable.

(b)

Not applicable.

(c)

There were no issuer repurchases of securities during the period covered by this Report.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

3.1	Charter of Alamogordo Financial Corp. (1)	~~Charter of Alamogordo Financial Corp. (1)~~
3.2	Bylaws of Alamogordo Financial Corp. (1)	~~Bylaws of Alamogordo Financial Corp. (1)~~
3.3	Amendment to Bylaws of Alamogordo Financial Corp. (2)	~~Amendment to Bylaws of Alamogordo Financial Corp. (2)~~
3.4	Amendment to Bylaws of Alamogordo Financial Corp. (3)	~~Amendment to Bylaws of Alamogordo Financial Corp. (3)~~
10.1		Form of First Amendment to Bank’34 Deferred Compensation Arrangement for Jill Gutierrez, William P. Kauper and Jan R. Thiry
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following financial statements from the Alamogordo Financial Corp. Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Comprehensive Income; (iii) Consolidated Statements of Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.
101		The following financial statements from the Alamogordo Financial Corp. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Comprehensive Income (Loss); (iii) Consolidated Statements of Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.

(1)

Incorporated by reference to the Registration Statement on Form SB-2 of Alamogordo Financial Corp. (File No. 333-92913), originally filed with the Securities and Exchange Commission on December 16, 1999.

(2)

Incorporated by reference to the Current Report on Form 8-K of Alamogordo Financial Corp. (File No. 000-29655), filed with the Securities and Exchange Commission on December 24, 2014.

(3)

Incorporated by reference to the Current Report on Form 8-K of Alamogordo Financial Corp. (File No. 000-29655), filed with the Securities and Exchange Commission on March 31, 2014.

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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.

	~~ALAMOGORDO FINANCIAL CORP.~~	ALAMOGORDO FINANCIAL CORP.
Date: July 30, 2015	/s/ Jill Gutierrez
Date:	November 2, 2015	/s/ Jill Gutierrez
	~~Jill Gutierrez~~	Jill Gutierrez
	~~Chief Executive Officer~~	Chief Executive Officer
Date: July 30, 2015	/s/ Jan R. Thiry
Date:	November 2, 2015	/s/ Jan R. Thiry
	~~Jan R. Thiry~~	Jan R. Thiry
	~~Executive Vice President and Chief Financial Officer~~	Executive Vice President and Chief Financial Officer

(45)

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