UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended ~~June~~December 3031, ~~2014~~ 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 Number: ~~333~~000-~~192233~~29655

Alamogordo Financial Corp.

(Exact Name of Registrant as Specified in its Charter)

United States		74-~~281948~~2819148
(State or Other Jurisdiction of Incorporation		(I.R.S. Employer Identification Number)
or Organization)

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

(575) 437-9334

(Registrant’s Telephone Number Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, par value $0.10 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

Indicate by check mark ifwhether the registrant: is(1) has filed ~~not~~all reports required to ~~file~~be ~~reports~~filed ~~pursuant~~by to 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 reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ¨ No x

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 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 such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

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

~~Yes~~As ~~¨ No~~of March 22, 2016 there were 1,679,500 shares outstanding xof the registrant’s common stock. The aggregate value of the voting and non-voting common stock held by non-affiliates of the registrant, computed by reference to the closing price of the common stock as of June 30, 2015 at $20.00, was $12.9 million.

As of August 22, 2014 there were 1,318,474 shares outstanding of the registrant’s common stock. The aggregate value of the voting and non-voting common stock held by non-affiliates of the registrant, computed by reference to the closing price of the common stock as of December 31, 2013, was $6.0 million.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Proxy Statement for the ~~2014~~2016 Annual Meeting of Stockholders. (Part III)

TABLE OF CONTENTS

		PAGE
PART I		2
ITEM 1.	Business	2
ITEM 1A.	Risk Factors	1624
ITEM 1B.	Unresolved Staff Comments	1624
ITEM 2.	Properties	1724
ITEM 3.	Legal Proceedings	1725
ITEM 4.	Mine Safety Disclosures	1725
PART II		1825
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1825
ITEM 6.	Selected Financial Data	1926
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2128
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	3753
ITEM 8.	Financial Statements and Supplementary Data	3754
ITEM 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	7496
ITEM 9A.	Controls and Procedures	7496
ITEM 9B.	Other Information	7496
PART III		7496
ITEM 10.	Directors, Executive Officers and Corporate Governance	7496
ITEM 11.	Executive Compensation	7496
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	7596
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	7597
ITEM 14.	Principal Accountant Fees and Services	7597
ITEM 15.	Exhibits and Financial Statement Schedules	7697
SIGNATURES		7799

Table of Contents

PART I

ITEM 1. Business

Forward Looking Statements

This ~~Annual~~ Report contains certain “forward-looking statements” which may be identified by the use of words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated” and “potential.” These forward-looking statements include, but are not limited to:

statements of our goals, intentions and expectations;

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

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

estimates of our risks and future costs and benefits.

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

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

general economic conditions, either nationally or in our market areas, that are worse than expected;

competition among depository and other financial institutions;

inflation and changes in the interest rate environment that reduce our margins or reduce our mortgage banking revenues or the fair value of financial instruments, or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets;

adverse changes in the securities or secondary mortgage markets;

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing regulations;

our ability to manage operations in current economic conditions;

our ability to manage market risk, credit risk and operational risk;

our ability to enter new markets successfully and capitalize on growth opportunities;

our ability to implement changes in our business strategies;

2· our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we have acquired or may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any acquisition goodwill charges related thereto;

· our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we have acquired or may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any acquisition goodwill charges related thereto;2

·Table ~~changes~~of ~~in consumer spending, borrowing and savings habits;~~Contents

· ~~our~~changes ~~ability~~in toconsumer ~~access~~spending, ~~cost-effective~~borrowing ~~funding~~and savings habits;

· ~~changes~~our inability ~~accounting~~to ~~policies~~access ~~and~~cost-effective ~~practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board~~funding;

· changes in accounting policies and practices, as may be adopted by the ~~level~~bank ofregulatory ~~government~~agencies, ~~support~~the ~~for~~Financial ~~housing~~Accounting ~~finance~~Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

· changes in the level ~~and direction~~ of ~~loan~~government ~~delinquencies~~support ~~and write-offs and changes in estimates of the adequacy of the allowance~~ for ~~loan~~housing ~~losses~~finance;

· ~~fluctuations~~changes in ~~real~~the ~~estate~~level ~~values~~ and ~~both~~direction ~~residential~~of loan delinquencies and ~~commercial~~write-offs ~~real~~and ~~estate~~changes ~~market~~in ~~conditions~~estimates of the adequacy of the allowance for loan losses;

· ~~demand~~fluctuations ~~for~~in ~~loans~~real estate values and ~~deposits~~both inresidential ~~our~~and commercial real estate market ~~area~~conditions;

· ~~our~~demand ~~ability~~for toloans ~~attract~~ and ~~retain~~deposits ~~key~~in ~~employees~~our market area;

· ~~changes in~~ our ~~organization,~~ability ~~compensation~~to attract and ~~benefit~~retain ~~plans;~~key ~~and~~employees;

· changes in ~~the~~our ~~financial condition~~organization, ~~results~~compensation ofand ~~operations~~benefit orplans; ~~future prospects of issuers of securities that we own.~~and

~~Because~~· ofchanges ~~these~~in ~~and~~the ~~other uncertainties~~financial condition, ~~our actual future~~ results ~~may~~of beoperations ~~materially~~or ~~different~~future ~~from~~prospects ~~the~~of ~~results~~issuers ~~indicated~~of bysecurities ~~these~~that ~~forward-looking~~we ~~statements~~own.

~~Alamogordo~~Because ~~Financial~~of ~~Corp~~these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Alamogordo Financial Corp. (the “Company”), a federal corporation that was organized in 1997, is a savings and loan holding company headquartered in Alamogordo, New Mexico. Alamogordo Financial Corp.’s common stock is quoted on the OTCQB under the symbol “ALMG.” Approximately 69.6% of Alamogordo Financial Corp.’s outstanding shares are owned by AF Mutual Holding Company, a federal corporation and a mutual holding company. Alamogordo Financial Corp. conducts its operations primarily through its wholly owned subsidiary, BANK’34, a federally chartered savings association. Alamogordo Financial Corp. manages its operations as one unit, and thus does not have separate operating segments. At June 30, 2014, Alamogordo Financial Corp. had total assets of $167.8 million, loans held for investment of $91.0 million, available-for-sale securities of $39.0 million, deposits of $134.7 million, and stockholders’ equity of $22.2 million.

~~The executive offices of~~ Alamogordo Financial Corp. ~~are~~(the ~~located~~“Company”), ata ~~500~~federal ~~East~~corporation ~~10th~~that ~~Street~~was organized in 1997, is a savings and loan holding company headquartered in Alamogordo, New Mexico. ~~88310~~Alamogordo Financial Corp.’s common stock is quoted on the OTCQB under the symbol “ALMG.” Approximately 54.7% of Alamogordo Financial Corp.’s outstanding shares are owned by AF Mutual Holding Company, a federal corporation and a mutual holding company. Alamogordo Financial Corp. conducts its ~~telephone~~operations ~~number~~primarily isthrough ~~(575)~~its ~~437-9334~~wholly owned subsidiary, Bank 34, a federally chartered savings association. Alamogordo Financial Corp. ismanages ~~subject~~its tooperations ~~comprehensive~~as ~~regulation~~one unit, and ~~examination~~thus bydoes ~~the~~not ~~Board~~have separate operating segments. At December 31, 2015, Alamogordo Financial Corp. had total assets of ~~Governors~~$271.0 million, loans held for investment of ~~the~~$194.0 ~~Federal~~million, ~~Reserve~~available-for-sale ~~System~~securities of $28.6 million, deposits of $225.7 million, and stockholders’ equity of $29.6 million.

3The executive offices of Alamogordo Financial Corp. are located at 500 East 10th Street, Alamogordo, New Mexico 88310, and its telephone number is (575) 437-9334. Alamogordo Financial Corp. is subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System.

~~BANK’~~Bank 34

~~BANK’~~Bank 34 operates four ~~from~~full-service ~~two~~banking ~~offices~~centers, one each in ~~Alamogordo~~Otero and ~~Las~~Dona ~~Cruces,~~Ana counties in New Mexico, asand ~~well~~two ~~as a lending office~~ in ~~Scottsdale~~Maricopa County, Arizona. ~~BANK’34~~Bank is34’s aNew ~~community-oriented~~Mexico ~~savings~~offices ~~institution~~include ~~offering~~the ~~traditional~~main ~~financial~~office ~~services~~and tocorporate ~~consumers~~headquarters located in ~~Otero~~Alamogordo and ~~Dona~~a ~~Ana~~branch ~~Counties~~office ~~and~~ in ~~the~~Las ~~surrounding~~Cruces. The ~~counties~~Bank’s inArizona ~~New~~branch ~~Mexico,~~offices ~~and~~include inthe ~~Maricopa~~regional ~~and~~headquarters ~~Pinal~~located ~~Counties~~ in ~~Arizona.~~Scottsdale ~~BANK’34’s~~and ~~business~~a ~~model primarily~~branch ~~involves~~office ~~attracting~~in ~~deposits~~Peoria. Bank ~~from~~34 ~~the~~also ~~general~~operates ~~public~~three ~~and originating~~ residential ~~real~~mortgage ~~estate~~and ~~loans~~commercial ~~(including~~loan ~~multi-family residential~~production ~~real estate loans)~~offices, asone ~~well~~each asin ~~commercial~~El ~~real~~Paso, ~~estate~~Texas, ~~loans (including construction loans)~~Phoenix, ~~commercial and industrial~~Arizona ~~loans~~ and ~~consumer~~Albuquerque, ~~and~~New ~~other loans~~Mexico.

BANK’34 offers its customers a variety of financial products and services that are related or ancillary to loans and deposits, including bill payment and other online banking transactions, automated teller machines and safe deposit boxes.3

~~BANK’34~~Table originates deposits predominantly from the areas where its branch offices are located. BANK’34 relies on favorable locations, customer service, competitive pricing and online services to attract and retain these deposits. While BANK’34 accepts certificates of deposit in excess of the Federal Deposit Insurance Corporation deposit insurance limits, BANK’34 generally does not solicit such deposits because they are more difficult to retain than core deposits and at times are more costly than wholesale deposits.Contents

~~BANK’~~Bank 34’s isbusiness model ~~subject~~focuses toon ~~comprehensive regulation~~two ~~and~~primary ~~examination~~areas. byThe ~~the~~commercial ~~Office~~focus ofis on the ~~Comptroller~~credit, deposit and treasury management needs of ~~the~~small ~~Currency~~businesses and real estate professionals and investors. ~~BANK’~~Bank 34 isoriginates aboth ~~member~~conventional ofand ~~the~~SBA ~~Federal~~loans ~~Home~~within ~~Loan Bank~~its ~~system~~primary market areas. Commercial ~~Its~~loan ~~website~~types ~~address~~offered isinclude: ~~www~~owner and non-owner occupied real estate (including construction loans), multi-family loans, and commercial and industrial loans.~~Bank34online.com.~~

~~Acquisition~~The consumer focus is on residential construction and mortgage loan needs together with deposit, online banking and ancillary financial service needs of families and businesses served by Bank ~~1440~~34. While most of Bank 34’s one– to four-family residential real estate loans are secured by properties in the counties served by its branch offices and its El Paso, Texas and Albuquerque, New Mexico loan production offices, it does actively seek business in other areas of New Mexico and Arizona and surrounding states.

OnBank ~~June~~34 ~~26,~~originates deposits ~~2013~~from ~~the~~its ~~Company~~ business and ~~Bank~~consumer ~~1440,~~customers ~~headquartered~~predominantly infrom ~~Phoenix,~~the ~~Arizona,~~areas ~~jointly~~where ~~announced~~its ~~the~~branch ~~execution~~offices ofare anlocated. ~~agreement~~While ~~and~~Bank 34’s ~~plan~~thrift oforigins ~~merger~~still ~~for~~reflect ~~the~~a ~~two community~~relatively ~~banks,~~high ~~with~~percentage ~~BANK’34~~of ascertificate ~~the~~of ~~surviving~~deposit ~~entity.~~balances Onto ~~April~~total 1deposits, ~~2014~~the recent ~~they~~emphasis ~~jointly~~on ~~announced~~business anoperating ~~amendment~~accounts ofand ~~that~~checking ~~agreement~~ and ~~plan~~money market accounts of ~~merger.~~consumers ~~Under~~is ~~the~~consistent ~~amended~~with ~~terms,~~Bank ~~common~~34’s ongoing ~~and~~migration ~~preferred~~to ~~shareholders~~a ofbank business model. Bank ~~1440~~34 ~~have~~does ~~the~~not ~~right~~solicit tobrokered ~~receive~~deposits ~~0.17064~~and ~~shares~~generally does not solicit public funds. A modest amount of ~~Alamogordo~~brokered ~~Financial~~deposits ~~Corp.~~are ~~common~~on ~~stock~~Bank ~~and~~34’s ~~$0.94~~balance ofsheet ~~cash,~~as ~~for~~a ~~each~~result ~~share~~of the acquisition of Bank 1440 ~~stock~~in 2014.

~~The~~Bank ~~Company~~34 ~~has~~is ~~received~~subject to comprehensive regulation and examination by the ~~approval~~Office of the Comptroller of the Currency. Bank ~~1440~~34 ~~shareholders~~is ~~and~~a ~~applicable~~member ~~banking~~of ~~regulators~~the Federal Home Loan Bank system. ~~The~~Its ~~transaction~~website address is ~~expected~~www.Bank to34.com. ~~close~~Information on ortheir ~~about~~website ~~August~~is not considered a part of ~~29,~~this ~~2014~~report.

~~Competition~~Change in Fiscal Year

WeEffective ~~face significant competition~~December ~~in originating loans and attracting deposits. Our primary market area and some other areas in which we operate have a high concentration of financial institutions~~31, ~~many of which are significantly larger institutions that have greater financial resources than we have~~2014, ~~and~~ ~~many~~Alamogordo ofFinancial ~~which are our competitors to varying degrees. Our competition for loans and leases comes principally from commercial banks~~Corp, ~~savings~~AF ~~banks,~~Mutual ~~mortgage~~Holding ~~banking companies~~Company, ~~the U.S. Government, credit unions, leasing companies, insurance companies, real estate conduits~~ and ~~other~~Bank ~~companies~~34 ~~that~~changed ~~provide~~their ~~financial~~fiscal ~~services~~year ends to ~~businesses~~December ~~and~~31 ~~individuals. Our most direct competition for deposits has historically come~~ from ~~commercial banks, savings banks and credit unions. We face additional competition for deposits~~ ~~from~~June ~~online financial institutions and non-depository competitors such as the mutual fund industry, securities and brokerage firms and insurance companies~~30.

We seek to meet this competition by emphasizing personalized service and efficient decision-making tailored to individual needs. In addition, we reward long-standing relationships with preferred rates and terms on deposit products based on existing and prospective lending business. We do not rely on any individual, group or entity for a material portion of our loans or our deposits.Merger

AsThe Company ofcompleted ~~June~~its ~~30,~~acquisition ~~2013~~of ~~(the latest~~Bank ~~date~~1440 ~~for~~on ~~which~~August ~~information is available)~~29, ~~our~~2014. ~~market~~Merger ~~share~~consideration was 19$9.~~41%~~6 ofmillion, ~~total~~including ~~deposits~~$3.8 million in ~~Otero~~cash ~~County,~~and ~~New Mexico~~360,635 ~~giving us~~shares ~~the~~of ~~second~~Alamogordo ~~largest~~Financial ~~market~~Corp. ~~share~~common ~~out~~stock ofvalued ~~nine~~at ~~financial~~$5.8 ~~institutions~~million. inIn ~~Otero~~the ~~County~~merger, ~~New~~the ~~Mexico~~Company asreceived assets ofvalued ~~that~~at ~~date~~$88.3 Inmillion ~~addition, as~~and ofassumed ~~June~~liabilities ~~30,~~of ~~2013,~~$75.8 ~~our~~million. ~~market~~The ~~share~~transaction ~~was~~resulted ~~1.92%~~in ofan ~~total~~increase ~~deposits~~ in ~~Dona~~stockholders’ equity ~~Ana~~of ~~County~~$8.7 million, ~~New~~including ~~Mexico,~~$5.8 ~~giving~~million usdue to the ~~13th~~fair ~~largest~~value ~~market share~~of ~~out~~shares ofissued 17and ~~financial~~the ~~institutions~~$2.9 inmillion ~~Dona~~bargain ~~Ana~~purchase ~~County,~~gain recorded ~~New~~in ~~Mexico~~the asconsolidated statements of ~~that~~comprehensive ~~date~~income (loss).

4Further information regarding the merger transaction can be found in Note 2 of the Audited Consolidated Financial Statements in Item 8 of this document.

~~Market Area~~ Competition

~~Our~~We ~~southern~~face ~~New Mexico~~significant ~~banking~~competition ~~operations are primarily conducted~~ in ~~Otero~~originating loans and ~~Dona~~attracting ~~Ana Counties~~deposits. ~~Within~~Our ~~this~~primary market area, ~~the employment base~~ and ~~economy is~~other ~~concentrated~~areas in ~~federal~~which ~~defense~~we ~~facilities,~~operate ~~education~~have ~~(New~~a ~~Mexico~~high concentration ~~State~~of ~~University),~~financial ~~state and local government~~institutions, ~~agriculture and~~many ~~tourism, with the federal defense industry facilities and related military and civilian employment comprising the largest segment~~ of ~~our~~which ~~regional~~are ~~economy. Our market area remains~~ significantly ~~exposed~~larger toinstitutions ~~changes~~that inhave ~~federal~~greater ~~budget~~financial ~~spending on defense, enrollment~~resources ~~trends~~than ~~for~~we ~~higher education~~have, ~~levels of state~~ and ~~local~~many ~~government spending, health~~ of ~~the~~which ~~agriculture~~are ~~industry~~our ~~and~~competitors ~~the condition of the national economy in relation~~ to ~~tourism~~varying degrees. Our ~~market~~competition ~~area~~for ~~has~~loans ~~generally~~and ~~benefited~~leases ~~from~~comes ~~the increase in national defense spending~~principally ~~over~~from ~~the~~commercial ~~past decade~~banks, ~~evidenced~~savings bybanks, ~~recent~~mortgage ~~unemployment~~banking ~~rates~~companies, inthe ~~our~~U.S. ~~southern~~Government, ~~New~~credit ~~Mexico~~unions, ~~market~~leasing ~~area~~companies, ~~that are lower than national~~insurance ~~averages~~companies, ~~with~~real ~~the~~estate ~~Otero~~conduits ~~County~~and ~~unemployment~~other ~~rate~~companies ~~also~~that ~~below~~provide ~~the~~financial ~~statewide~~services ~~average~~to ~~(based~~businesses onand ~~available U~~individuals.S. ~~Census~~Our ~~data).~~most ~~In addition,~~direct ~~according~~competition tofor ~~U.S.~~deposits ~~Census~~has ~~data,~~historically ~~our~~come ~~southern~~from ~~New~~commercial ~~Mexico~~banks, ~~market~~savings ~~area~~banks ~~has~~and ~~recorded~~credit ~~population~~unions. ~~growth~~We inface ~~recent~~additional ~~years at rates well~~competition ~~above~~for ~~state~~deposits ~~and~~from ~~national~~online ~~averages.~~financial ~~These~~institutions ~~trends~~and ~~have~~non-depository ~~provided~~competitors ~~support~~such ~~for~~as ~~our~~the ~~banking~~mutual ~~operations~~fund industry, insecurities ~~particular~~and brokerage ~~our~~firms ~~residential mortgage~~and ~~banking~~insurance ~~activities~~companies.

We ~~also~~seek currently originate both residential and commercial loans from a loan production office in Scottsdale, Arizona. The acquisition of Bank 1440 will expand our market area and services provided in the Phoenix/Scottsdale, Arizona metropolitan area, providing access to ameet ~~substantially~~this ~~larger~~competition ~~population~~by ~~and~~emphasizing ~~economic~~personalized ~~base~~service ~~for our banking operations. The Phoenix/Scottsdale metropolitan area is one of the largest population centers in the southwestern U.S.,~~ and ~~has~~efficient adecision-making ~~broad~~tailored ~~range~~to ofindividual ~~industries, including services, government, trade, transportation and manufacturing~~needs. ~~This~~In ~~market area has also experienced the effects of the recession through lower economic activity~~addition, ~~lower~~we ~~real~~reward ~~estate prices and higher unemployment. However, the~~ long-~~term~~standing ~~attractiveness~~relationships ofwith ~~the~~preferred ~~Phoenix/Scottsdale~~rates ~~market area is evident in the steady growth of the region’s population~~ and ~~general~~terms ~~economy.~~on

Our primary market area in southern New Mexico experienced reductions in home prices and home sales activity as a result of the recession, and the recovery has been slow and modest. As an indication of recent trends in real estate values, the median price for a residential home in Otero County increased by 2.4~~% from May 2012 to May 2014. The median price for a residential home in Dona Ana County increased by 6.5% over the same time period.~~

~~The~~Table ~~residential real estate market in Phoenix/Scottsdale also experienced fluctuating real estate values since the recession. After reaching a high~~ of approximately $241,000 in 2008, the median home price in Phoenix declined to a low of approximately $80,000 in 2009. Median home prices have subsequently increased to approximately $170,000 as of July 2014. Similarly, after reaching a high of approximately $475,000 in 2008, the median home price in Scottsdale declined to a low of approximately $290,000 in 2010. Median Scottsdale home prices have subsequently increased to approximately $400,000 as of July 2014.Contents

Indeposit ~~recent~~products ~~years,~~based ~~due~~on toexisting ~~general economic~~and ~~conditions,~~prospective ~~opportunities~~lending ~~for originating quality loans in our southern New Mexico market (multi-family, commercial real estate, commercial~~ business ~~and land loans) have been limited~~. ~~The~~We ~~competitive~~do ~~environment~~not ~~also~~rely ~~has~~on ~~caused~~any aindividual, ~~reduction~~group inor ~~lending~~entity ~~volumes. Lending opportunities~~ for ~~our Scottsdale loan production office have improved in late 2013 and early 2014. For commercial lending, there remains~~ a ~~high~~material ~~level~~portion of ~~competition from other financial institutions and lenders operating in the Scottsdale market area. Limited commercial lending opportunities in New Mexico resulted in~~ our ~~decision~~loans toor ~~seek lending opportunities in the Phoenix/Scottsdale area in Arizona~~deposits.

~~Lending~~As ~~Activities~~of June 30, 2015 (the latest date for which information is available), Bank 34’s deposit market share was 18.37% of total deposits in Otero County, New Mexico, representing the second largest market share of sixteen institutions in Otero County; 1.75% of total deposits in Dona Ana County, New Mexico, representing the thirteenth largest market share of eighteen institutions in Dona Ana County; and 0.10% of total deposits in Maricopa County, Arizona, representing the 37th largest market share of 52 institutions in Maricopa County.

~~Our~~Market loans held for investment portfolio consists of residential real estate loans (including multi-family residential real estate loans), as well as commercial loans (including commercial business and commercial real estate loans), construction loans and consumer and other loans. At June 30, 2014, $34.0 million, or 36.6%, of our gross loans held for investment portfolio consisted of residential real estate loans; $55.1 million, or 59.3%, of our gross loans held for investment portfolio consisted of commercial real estate loans; and $2.8 million, or 3.0%, of our gross loans held for investment portfolio consisted of commercial and industrial loans and $1.0 million, or 1.1%, of our gross loans held for investment portfolio consisted of consumer and other loans.Area

5Bank 34 operates four full-service banking centers, one each in Otero and Dona Ana Counties, New Mexico and two in Maricopa County, Arizona. We also operate loan production offices in El Paso, Texas (El Paso County), Albuquerque, New Mexico (Bernalillo County), Scottsdale, Arizona (Maricopa County), Tucson, Arizona (Pima County), Kirkland, Washington (King County), Puyallup, Washington (Pierce County) and Medford, Oregon (Jackson County). The following describes the market areas of our banking centers.

AtArizona. The ~~June~~Arizona 30economy is expanding at a steady pace and faster than the national average. The Phoenix metropolitan statistical area (MSA) economy, ~~2014~~which includes Maricopa County, ~~commercial~~expanded at faster rate than the nation in 2015 and has done so since mid-2011. ~~real~~The ~~estate~~Phoenix ~~loans~~MSA ~~included~~accounted ~~construction~~for ~~loans~~nearly 90% of $4the net job growth statewide. According to the University of Arizona’s Economic and Business Research Center, population and household growth in Maricopa County is expected to continue this growth for the next five years. Maricopa County’s unemployment rate decreased to 5.7% as of August 2015 from 6.8% ~~million~~as of August 2014 and is below the state average of 6.8%. According to the same report, the economic forecast calls for economic growth in the Phoenix MSA to strengthen during the next two years, with job growth reaching 2.9% in 2017. Due to the speed of recovery in the housing market, Maricopa County offers a more favorable lending environment than our New Mexico counties. Maricopa County has had steadily decreasing vacancy rates in multi-family, industrial, office and retail properties. Since 2010, according to the National Association of Realtors, Maricopa County has shown the fastest housing recovery and the highest growth in median sales price of single family homes among our market counties. In addition, during 2015, housing permits in the Phoenix MSA increased by over 40%, which was the best year for single-family housing permits in the area since 2007.

WeNew Mexico. Despite currently ranking ~~sell~~as the seventh most favorable tax state for operating a ~~significant~~business, New Mexico’s employment growth has ranked among ~~majority~~the lowest nationally since 2009, largely due to an above average loss of ~~our~~government ~~originated~~transfer ~~residential~~and ~~mortgage~~subsidy ~~loans~~programs. The trend showed some signs of reversing in ~~the~~2015, ~~secondary~~with ~~market~~job growth increasing 1.4% ~~Our~~in ~~loans~~2015. ~~held~~Nearly ~~for~~65% ~~sale~~of ~~portfolio~~new ~~totaled~~jobs ~~$10~~created during 2015 were in health care, and the growth in health care jobs was fairly evenly distributed in both metropolitan and rural areas of the state.3 According ~~million~~to atthe ~~June~~University 30of New Mexico’s Bureau of Business & Economic Research, ~~2014~~,the ofoverall ~~which~~New $7Mexico employment growth forecast is 1.72% ~~million~~per ~~were~~year ~~residential~~between ~~mortgage~~2016 ~~loans~~and 2020, led by healthcare and ~~$2.6~~educational ~~million~~services ~~were~~and, ~~SBA~~secondarily, ~~loans~~by the combined contributions of leisure and hospitality, professional and technical services, retail and wholesale trade, and construction.

~~Deposit~~Otero ~~Activities~~County’s unemployment rate increased to 6.7% as of August 2015 from 6.3% as of August 2014. This was slightly lower than the state average of 6.9% but higher than the national average. Dona Ana’s unemployment rate also increased to 7.5% as of August 2015 from 7.2% as of August 2014 and is above the state and national averages. The top five employment sectors in Otero County as of December 2015were food service, health care and social assistance, public administration, retail trade and education services, while the top five employment sectors in Dona Ana County as of December 2015were health care and social assistance, educational services, retail trade, food service and public administration.

~~Our~~Housing ~~deposit~~permits ~~accounts consist~~showed ~~principally~~signs of ~~certificates~~improvement in New Mexico during the second half of ~~deposit~~2015, ~~savings~~consistent ~~accounts~~with an improved climate for housing starts, ~~checking~~which increased ~~accounts~~over 10% in the second half of 2015 from the first half of 2015. However, housing prices in Otero and ~~money~~Dona ~~market~~Ana ~~accounts~~Counties have remained relatively flat over the past five years. We ~~provide~~currently ~~commercial~~rank ~~checking~~as the top originator of residential mortgage loans in ~~accounts~~Otero County and ~~related~~rank ~~services,~~in ~~such~~the astop ~~online~~five ~~cash~~in ~~management.~~origination Wemarket ~~also~~share ~~provide~~of ~~low-cost~~residential ~~checking~~mortgage ~~account~~loans ~~services~~in Dona Ana County. According to the University of New

At June 30, 2014, our deposits totaled $134.7 million. Interest-bearing deposits totaled $120.8 million and noninterest-bearing deposits totaled $13.9 million. Savings, money market and checking deposits totaled $66.8 million, and certificates of deposit totaled $67.9 million, of which $31.4 million had maturities of one year or less.5

~~Subsidiary~~Table ~~Activities~~of Contents

~~Alamogordo~~Mexico’s ~~Financial~~Bureau ~~Corp.~~of Business and Economic ~~has~~Research, nohome ~~wholly-owned~~sales ~~subsidiaries~~are ~~other~~improving ~~than~~throughout ~~BANK’34~~New Mexico but values are expected to remain relatively flat for the foreseeable future.

~~Personnel~~Lending Activities

At ~~June~~December 3031, ~~2014~~2015, our ~~BANK’34~~gross loans held for investment consisted of $146.6 million, or 75.3%, commercial real estate loans (including multi-family); ~~had~~$31.4 63million, ~~full~~or 16.1%, one– to four-~~time~~family ~~employees~~residential real estate loans; $10.2 million, or 5.3%, commercial and ~~three~~industrial loans, ~~part-time~~and ~~employees~~$6.4 million, ~~none~~or 3.3%, consumer and other loans. At December 31, 2015, commercial real estate and multi-family loans included construction loans of ~~whom~~$7.8 ~~was~~million. ~~party~~We tocurrently sell a ~~collective~~significant ~~bargaining~~majority ~~agreement.~~of ~~BANK’34~~our originated residential mortgage loans ~~believes~~in itthe ~~has~~secondary amarket. ~~good~~Our ~~working~~residential ~~relationship~~mortgage ~~with~~loans ~~its~~held ~~employees~~for sale portfolio totaled $11.4 million at December 31, 2015.

~~FEDERAL~~Commercial ~~AND~~Real Estate ~~STATE~~Loans. ~~TAXATION~~At December 31, 2015, commercial real estate loans were $146.6 million, or 75.3%, of our total gross loans held for investment. This amount includes $29.3 million of multi-family residential real estate loans which are described below. Our commercial real estate loans are generally secured by properties used for business purposes such as office buildings, industrial and retail facilities. At December 31, 2015, $43.8 million of our commercial real estate portfolio was owner occupied commercial real estate, and $102.8 million was secured by income producing, or non-owner occupied commercial real estate. We currently target new commercial real estate loan originations to experienced, growing small- and mid-size owners and investors in our market area. The average outstanding loan in our commercial real estate portfolio was $557,000 as of December 31, 2015, although we originate commercial real estate loans with balances significantly larger than this average. At December 31, 2015, our ten largest commercial real estate loans had an average balance of $3.1 million.

~~General.~~We ~~Alamogordo~~focus ~~Financial~~our commercial ~~Corp.~~real ~~reports~~estate ~~its~~lending ~~income~~on properties within our primary market areas, but we will originate commercial real estate loans on properties located outside this area based on an established relationship with a ~~fiscal~~strong ~~year~~borrower. ~~basis~~We ~~using~~intend ~~the~~to ~~accrual~~continue ~~method~~to ofgrow ~~accounting~~our commercial real estate loan portfolio while maintaining prudent underwriting standards.

~~Federal~~We originate a variety ~~Taxation.~~of ~~The~~fixed ~~federal~~and ~~income~~adjustable ~~tax~~rate ~~laws~~commercial ~~apply~~real estate loans with terms and amortization periods generally up to ~~Alamogordo~~25 ~~Financial~~years, ~~Corp~~although our commercial real estate loans generally have balloon terms. inInterest rates and payments on our adjustable rate loans generally adjust daily and generally are indexed to the ~~same~~prime ~~manner~~rate as topublished ~~other~~in The Wall Street Journal, plus a margin. We generally ~~corporations~~include pre-payment penalties on commercial real estate loans we originate. ~~Alamogordo~~Commercial ~~Financial~~real ~~Corp~~estate loan amounts generally do not exceed 75% to 80% of the property’s appraised value at the time the loan is originated., ~~files~~Aggregate debt service ratios, including the guarantor’s cash flow and the borrower’s other projects, have a ~~consolidated~~guideline ~~federal~~minimum income ~~tax~~to ~~return~~debt ~~with~~service ~~Bank’34~~ratio of 1.30x. For ~~the~~commercial ~~2014~~real estate loans in excess of $250,000, we require independent appraisals from an approved appraisers ~~fiscal~~list. ~~year~~For such loans below $250,000, ~~there~~we isrequire aformal ~~consolidated~~evaluations ~~federal~~but ~~net~~do ~~operating~~not ~~loss~~require an independent appraisal. We require commercial real estate loan borrowers with loan relationships in excess of $~~2.8~~100,000 ~~million~~to submit annual financial statements and/or rent rolls on the subject property. ~~The~~We ~~federal~~may ~~net~~request ~~operating~~such ~~loss~~information for smaller loans on a case-by-case basis. Commercial real estate properties may also be subject to annual inspections with pictures as evidence appropriate maintenance is being performed by the owner/borrower. ~~carried~~The ~~over~~loan ~~for~~and ~~utilization~~its ~~against~~borrowers ~~federal~~and/or ~~taxable~~guarantors ~~income~~are insubject ~~future~~to ~~years~~an annual loan review verifying the loan is properly risk rated based upon covenant compliance and other terms as provided for 20in ~~years~~the loan agreements. While this process does not prevent loans from becoming delinquent, it provides us with the ~~date~~opportunity ofto ~~origination~~better ofidentify problem loans in a timely manner and to work with the ~~loss~~borrower.

Our three largest commercial real estate loans at December 31, 2015 were all secured by hotels and included a $3.7 million loan originated in May 2014, a $3.6 million loan originated in July 2015 and a $3.4 million loan originated in May 2014. The collateral securing these loans is all located in our primary lending areas. At December 31, 2015, all of these loans were performing in accordance with their terms. Hospitality loans including hotel loans, represented 15.1% of commercial real estate loans and 11.4% of our gross loans held for investment.

~~New Mexico~~Multi-Family ~~State~~Real ~~Taxation.~~Estate ~~AF Mutual Holding Company and Alamogordo Financial Corp~~Loans. ~~are~~At ~~subject~~December 31, to2015, ~~the~~multi-family ~~New~~real ~~Mexico~~estate ~~corporation income~~loans ~~tax~~were ~~and~~$29.3 ~~state~~million, ~~corporation~~or ~~license tax (franchise tax)~~15. ~~The~~0%, ~~current~~of ~~New~~our ~~Mexico corporate tax rates use a graduated~~total ~~rate~~loan ~~structure with 4~~portfolio.8% ~~being~~We ~~the~~originate ~~lowest~~individual ~~rate~~multi-family onreal ~~New~~estate ~~Mexico~~loans ~~taxable~~to ~~income~~experienced, ~~not~~growing ~~over~~small- ~~$500,000,~~ and ~~7.6%~~mid-size ~~being~~owners ~~the~~and ~~highest rate~~investors onin ~~New~~our ~~Mexico~~market ~~income~~areas. inOur ~~excess~~multi-family ofreal ~~$1.0~~estate ~~million.~~loans are

Because Alamogordo Financial Corp. and BANK’34 are currently filing a consolidated corporate federal income tax return, the consolidated group also files a consolidated New Mexico corporate income tax return.6

IfTable ~~a corporation is doing business outside~~ of the State of New Mexico, an apportionment percentage is applied to the New Mexico tax. The apportionment also allows for the subtraction of non-business income from other state sources, and uses a three-factor apportionment of sales, property and payroll to determine a percentage of the New Mexico tax that is subject to tax. Because Alamogordo Financial Corp. is currently doing business in Arizona, such operations reduce the New Mexico state taxes owed.Contents

~~New~~generally ~~Mexico~~secured ~~net operating~~by ~~losses~~properties ~~generally~~consisting ~~may~~of ~~only~~five beto ~~carried~~40 ~~forward~~rental ~~for~~units. ~~five~~The ~~years~~average oroutstanding ~~until~~loan ~~the~~size ~~amount~~in ofour ~~loss~~multi-family ~~carryover~~real ~~has~~estate ~~been~~portfolio ~~excluded, whichever~~was ~~occurs first. Also~~$791,000 ~~New~~as ~~Mexico~~of noDecember ~~longer~~31, ~~provides for an alternative minimum tax~~2015. ~~However,~~We ~~there~~generally isdo anot ~~$50~~make ~~annual~~multi-family ~~New~~real ~~Mexico~~estate ~~franchise tax~~loans ~~required~~outside ~~for~~our ~~each~~primary ~~corporation.~~market ~~BANK’34 is also subject to the annual $50 New Mexico franchise tax~~areas.

~~Arizona~~We ~~State~~originate ~~Taxation~~a variety of fixed and adjustable rate multi-family real estate loans with balloon and amortization terms up to 30 years. Interest rates and ~~Due~~payments on our adjustable rate loans generally adjust daily and generally are indexed to ~~BANK’34~~the ~~having~~prime anrate ~~office~~as published in ~~Arizona~~The Wall Street Journal, anplus ~~Arizona~~a ~~consolidated~~margin. ~~income~~We ~~tax~~generally ~~return~~include ~~must~~pre-payment ~~also~~penalties beon ~~filed~~loans we originate. ~~The~~Multi-family ~~current~~real estate ~~Arizona~~loan ~~corporate~~amounts ~~tax~~generally ~~rate~~do isnot ~~6.968~~exceed 65% to 70% of ~~Arizona~~the ~~taxable~~property’s ~~income.~~appraised Ifvalue ~~there~~at the time the loan is anoriginated. ~~Arizona~~Aggregate debt ~~loss~~service ~~for~~ratios, including the ~~year~~guarantor’s cash flow and the borrower’s other projects, ~~then~~have a guideline minimum income ~~tax~~to debt service ratio of 1.30x. We require multi-family real estate loan borrowers with loan relationships in excess of $50100,000 isto ~~due.~~submit Aannual ~~taxpayer~~financial ~~filing~~statements aand/or ~~combined~~rent orrolls ~~consolidated~~on ~~return~~the issubject ~~considered~~property. We may request such information for smaller loans on a ~~single~~case-by-case ~~taxpayer,~~basis. These properties may also be subject to ~~one~~annual ~~minimum~~inspections ~~tax~~with pictures as evidence appropriate maintenance is being performed.

~~Taxable~~Our ~~income~~largest ~~for corporations~~multi-family ~~subject~~real toestate ~~Arizona~~loan ~~income~~at ~~tax~~December 31, 2015 totaled $2.8 million, was originated in December 2014 and is ~~similar~~secured toby ~~the~~an ~~computation~~84-unit ofapartment building. ~~taxable~~At ~~income~~December ~~reported~~31, ~~for~~2015, ~~federal~~this ~~income~~loan ~~tax~~was ~~purposes~~performing in accordance with its terms.

IfCommercial aand Industrial ~~corporation~~Loans. isWe ~~doing business~~make ~~outside~~commercial ofand ~~the~~industrial ~~State~~loans. ofprimarily ~~Arizona~~in our market area, anto ~~apportionment~~a ~~percentage~~variety isof ~~applied~~professionals, sole toproprietorships ~~the~~and ~~Arizona~~small ~~tax~~businesses. ~~The~~These ~~apportionment~~loans ~~uses~~are ~~the average~~generally ofsecured aby ~~four-factor~~business ~~apportionment~~assets, ofand ~~sales~~we ~~(included~~may ~~twice),~~support ~~property~~this ~~and~~collateral with ~~payroll~~junior toliens ~~determine~~on areal ~~percentage~~property. ofAt ~~the~~December 31, ~~Arizona taxable~~2015, ~~income~~commercial ~~that~~and isindustrial ~~subject~~loans towere ~~tax~~$10.2 ~~Since~~million, ~~both~~or ~~Alamogordo~~5.3% ~~Financial~~of ~~Corp.~~our total ~~and~~loan ~~BANK’34~~portfolio. ~~are~~As ~~also~~part ~~doing~~of ~~business~~our inrelationship ~~New~~driven ~~Mexico~~focus, ~~such~~ ~~operations~~we ~~reduce~~encourage ~~the~~our ~~Arizona~~commercial ~~net~~borrowers ~~operating~~to ~~loss~~maintain ortheir ~~Arizona~~primary deposit ~~taxable~~accounts ~~income~~with ~~for~~us, ~~each~~which ~~year~~enhances our interest rate spread and profitability.

~~Arizona~~Commercial ~~net operating~~lending ~~losses~~products ~~may~~include ~~only~~term beloans ~~carried~~and ~~over~~revolving lines of credit. Commercial loans and lines of credit are made with either adjustable or fixed rates of interest. Adjustable rates and fixed rates are based on the prime rate as published in The ~~carry~~Wall ~~forward~~Street ~~period~~Journal, plus isa 20margin. ~~succeeding~~We ~~taxable~~are ~~years~~focusing our efforts on experienced, growing small- to medium-sized, privately-held companies with solid historical and projected cash flow that operate in our market areas.

7When making commercial and industrial loans, we consider the financial statements of the borrower, our lending history with the borrower, the debt service capabilities and global cash flows of the borrower and other guarantors, the projected cash flows of the business and the value of the collateral, accounts receivable, inventory and equipment. Depending on the collateral used to secure the loans, commercial and industrial loans are made in amounts of up to 80% of the value of the collateral securing the loan. All of these loans are secured by assets of the respective borrowers.

~~SUPERVISION~~A ~~AND~~portion ~~REGULATION~~ of our commercial and industrial loans are guaranteed by the U.S. Small Business Administration (“SBA”) through the SBA 7(a) loan program. The SBA 7(a) loan program supports, through a U.S. Government guarantee, some portion of the traditional commercial loan underwriting that might not be fully covered absent the guarantee. A typical example would be a business acquiring another business, where the value purchased is an enterprise value (as opposed to tangible assets), which results in a collateral shortfall under traditional loan underwriting requirements. In addition, SBA 7(a) loans, through term loans, can provide a good source of permanent working capital for growing companies.

~~General.~~Our Aslargest commercial aand ~~federal~~industrial ~~savings~~loan ~~association,~~at ~~BANK’34~~December is31, ~~subject~~2015 tototaled ~~examination~~$3.4 ~~and~~million, ~~regulation~~was byoriginated ~~the~~in ~~OCC,~~May ~~and~~2015 isto ~~also~~an ~~subject~~election toprinting-solutions ~~examination~~company byand ~~the~~is ~~Federal~~secured ~~Deposit~~by ~~Insurance~~a ~~Corporation~~first ~~(“FDIC”).~~lien ~~The~~on ~~federal~~all ~~system~~business ofassets ~~regulation~~held ~~and~~by ~~supervision~~the ~~establishes a~~company. ~~comprehensive~~At ~~framework~~December of31, ~~activities~~2015, inthis ~~which~~loan ~~BANK’34~~was ~~may~~performing ~~engage~~in ~~and is intended primarily for the protection of depositors~~accordance ~~and~~with ~~the~~its ~~FDIC’s Deposit Insurance Fund~~terms.

~~BANK’34 also is regulated to a lesser~~Construction ~~extent~~and byLand ~~the~~Development ~~Federal~~Loans. ~~Reserve~~At ~~Board~~December 31, ~~which~~2015, ~~governs~~construction ~~the~~and ~~reserves~~land todevelopment beloans ~~maintained~~were ~~against deposits and other matters~~$14.7 ~~In addition~~million, ~~BANK’34~~ isor ~~a member~~ 7.6% of ~~and~~our ~~owns~~total ~~stock~~loan inportfolio, ~~the~~consisting ~~Federal~~of ~~Home~~$1.7 ~~Loan~~million ~~Bank~~ of ~~Dallas,~~consumer ~~which is~~ one- ofto ~~the~~four-family 12residential ~~regional~~loans, ~~banks~~$5.2 inmillion ~~the~~of residential ~~Federal~~land ~~Home~~or ~~Loan~~development ~~Bank~~loans, ~~System~~and $7.8 ~~BANK’34’s~~million ~~relationship~~of ~~with~~commercial ~~its depositors~~ and ~~borrowers~~multi-family ~~also~~real isestate ~~regulated~~loans. toAt ~~a great extent by federal law and~~December 31, ~~to a lesser extent~~2015, ~~state~~none ~~law, including in matters concerning the ownership~~ of ~~deposit accounts and~~ ~~the~~our ~~form~~consumer ~~and~~one- ~~content~~to offour-family ~~BANK’34’s loan documents.~~residential

As savings and loan holding companies, Alamogordo Financial Corp. and AF Mutual Holding Company are subject to examination and supervision by, and is required to file certain reports with, the Federal Reserve Board. Alamogordo Financial Corp. is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.7

~~Set~~Table ~~forth below are certain material regulatory requirements that are applicable to BANK’34 and Alamogordo Financial Corp. This description~~ of statutes and regulations is not intended to be a complete description of such statutes and regulations and their effects on BANK’34, Alamogordo Financial Corp. and AF Mutual Holding Company. Any change in these laws or regulations, whether by Congress or the applicable regulatory agencies, could have a material adverse impact on Alamogordo Financial Corp., AF Mutual Holding Company, BANK’34 and their operations.Contents

~~Dodd-Frank~~construction ~~Act. The~~loans ~~Dodd-Frank Act made significant changes to the regulatory structure for~~ and ~~regulation of depository institutions and their holding companies~~$7.8 ~~The~~million ~~Dodd-Frank Act requires the Federal Reserve Board to set minimum capital levels for both bank holding~~of ~~companies~~our ~~and~~commercial ~~savings~~ and ~~loan~~multi-family ~~holding~~real ~~companies~~estate ~~that~~construction ~~are~~loans ~~as stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital for holding companies~~ are ~~restricted~~expected to ~~capital~~convert ~~instruments that are currently considered~~ to bepermanent ~~Tier~~loans 1upon ~~capital~~completion ~~for~~of ~~insured~~the construction ~~depository institutions~~phase. The ~~legislation~~majority ~~also established a floor for capital~~ of ~~insured depository institutions that cannot be lower than~~ the ~~standards in effect upon passage, and directed the federal banking regulators to implement new leverage and capital requirements that take into account off-~~balance ~~sheet~~of ~~activities~~these ~~and~~loans ~~other~~is ~~risks,~~secured ~~including~~by ~~risks~~properties ~~relating to~~located ~~securitized~~in ~~products~~our ~~and~~primary ~~derivatives~~lending area.

~~The~~We ~~Dodd-Frank~~primarily ~~Act~~make ~~created~~construction aloans ~~new~~for ~~Consumer~~commercial ~~Financial~~development ~~Protection~~projects, ~~Bureau~~including ~~with~~hotels, ~~broad~~small ~~powers~~industrial, toretail, ~~supervise~~office and ~~enforce~~apartment ~~consumer protection laws~~buildings. ~~The~~Most ~~Consumer Financial~~of ~~Protection~~our ~~Bureau~~construction ~~has~~loans ~~broad~~are ~~rule~~interest-~~making~~only ~~authority~~loans ~~for~~that aprovide ~~wide~~for ~~range~~the payment of ~~consumer~~interest ~~protection~~during ~~laws~~the ~~that~~construction ~~apply~~phase, towhich ~~all~~is usually ~~banks~~up ~~and~~to ~~savings institutions~~12 ~~such~~to as24 months. ~~BANK’34,~~At ~~including~~ the ~~authority~~end toof ~~prohibit~~the ~~“unfair~~construction phase, ~~deceptive~~the orloan ~~abusive”~~may ~~acts~~convert ~~and~~to ~~practices. The~~a ~~Consumer~~permanent ~~Financial~~mortgage ~~Protection~~loan ~~Bureau~~or the ~~has~~loan ~~examination~~may ~~and~~be ~~enforcement~~paid ~~authority~~in ~~over~~full. ~~all~~Construction ~~banks~~loans ~~and~~generally ~~savings~~can ~~institutions~~be made with ~~more~~ ~~than~~a ~~$10~~maximum ~~billion~~loan-to-value inratio ~~assets.~~of ~~Banks~~80% ~~and~~of ~~savings~~the ~~institutions~~estimated appraised ~~with~~market ~~$10~~value ~~billion~~upon orcompletion ~~less~~of inthe ~~assets~~project. ~~continue~~Before tomaking bea ~~examined~~commitment ~~for compliance~~to byfund ~~their~~a ~~applicable~~construction ~~bank~~loan, ~~regulators.~~we ~~The~~require ~~new~~an ~~legislation~~appraisal of ~~also~~the ~~weakened~~property ~~the~~by ~~federal~~an ~~preemption~~independent ~~available~~licensed appraiser for ~~national banks~~loans ~~and~~in ~~federal~~excess ~~savings~~of ~~associations~~$250,000. ~~and~~We ~~gave~~also ~~state~~generally ~~attorneys~~require ~~general~~inspections of the ~~ability~~property tobefore ~~enforce~~disbursements ~~applicable~~of ~~federal~~funds ~~consumer~~during ~~protection laws~~the term of the construction loan.

~~The~~We ~~Dodd-Frank~~also ~~Act~~originate ~~broadened~~construction ~~the~~and ~~base~~land ~~for~~development ~~FDIC~~loans ~~insurance~~to ~~assessments.~~contractors ~~Assessments~~and ~~are~~builders ~~now~~to ~~based~~finance on the ~~average~~construction ~~consolidated~~of ~~total~~single-family ~~assets~~homes ~~less~~and ~~tangible~~subdivisions. ~~equity~~While ~~capital~~we ofmay aoriginate ~~financial~~these ~~institution.~~loans ~~The~~whether ~~legislation~~or ~~also~~not ~~increased~~ the ~~maximum~~collateral ~~amount~~property ofunderlying ~~deposit~~the ~~insurance~~loan is under contract for ~~banks~~sale, ~~savings~~we ~~institutions~~consider ~~and~~each ~~credit~~project ~~unions~~carefully toin ~~$250,000~~light ~~per~~of ~~depositor,~~current ~~retroactive~~residential toreal ~~January~~estate 1,market ~~2008~~conditions. ~~The~~We ~~Dodd-Frank~~actively ~~Act~~monitor ~~increased~~the ~~shareholder~~number ~~influence over boards~~ of ~~directors~~unsold homes byin ~~requiring~~our ~~companies~~construction toloan ~~give~~portfolio ~~shareholders a non-binding vote on executive compensation~~ and ~~so-called “golden~~local ~~parachute”~~housing ~~payments.~~markets ~~The~~to ~~legislation~~attempt ~~also~~to ~~directs~~maintain ~~the~~an ~~Federal~~appropriate ~~Reserve~~balance ~~Board~~between tohome ~~promulgate rules prohibiting~~sales ~~excessive~~and ~~compensation~~new ~~paid~~loan tooriginations. We ~~bank~~generally ~~holding~~will ~~company~~limit ~~executives,~~the ~~regardless~~maximum number of ~~whether~~speculative ~~the~~units ~~company~~(units isthat ~~publicly~~are ~~traded or~~ not. ~~Further,~~pre-sold) ~~the~~approved ~~legislation~~for ~~requires~~each ~~that~~builder. ~~originators~~We ofhave ~~securitized~~attempted ~~loans~~to ~~retain~~diversify ~~a percentage of~~ the risk ~~for~~associated ~~transferred~~with ~~loans,~~speculative ~~directs~~construction ~~the Federal~~lending ~~Reserve~~by ~~Board~~doing tobusiness with ~~regulate~~experienced ~~pricing~~small ~~of certain debit card interchange fees~~ and ~~contains~~mid-sized abuilders ~~number~~within ofour ~~reforms~~market ~~related to mortgage originations~~area.

8Our largest construction loan at December 31, 2015 totaled $2.5 million, was originated in August 2014 and is secured by multi-family real estate located in our primary market area. At December 31, 2015, this loan was performing in accordance with its terms.

~~Many~~One- ~~provisions~~to ~~of the Dodd~~Four-~~Frank~~Family Residential ~~Act~~Real ~~involve~~Estate ~~delayed~~Loans. ~~effective~~Our ~~dates~~one- ~~and/or~~to ~~require~~four-family ~~implementing~~residential ~~regulations.~~real ~~Their~~estate ~~impact~~loan onportfolio ~~operations~~consists ~~cannot~~of ~~yet~~mortgage ~~fully~~loans bethat ~~assessed.~~enable ~~However~~borrowers to purchase or refinance existing homes, itmost isof ~~likely~~which ~~that~~serve as the ~~Dodd-Frank~~primary ~~Act~~residence ~~will~~of ~~result~~the inowner. ~~increased~~At ~~regulatory~~December 31, 2015, ~~burdens~~$31.4 million, ~~and~~or ~~compliance~~16.1% of our loan portfolio, asconsisted ~~well~~of one- to four-family residential real estate loans, compared asto ~~operating~~$33.0 ~~and~~million, ~~interest~~or ~~expense~~18.7% ~~for~~of ~~BANK’34~~total ~~and~~loans, ~~Alamogordo~~at ~~Financial~~December ~~Corp~~31, 2014.

~~Federal~~One- ~~Banking~~to ~~Regulation~~four-family residential real estate loans are generally originated with the intention of sale. By selling a large majority of the one- to four-family residential real estate loans originated through its mortgage banking operations for the past several years, the Company has been reducing the balance of those loans on the balance sheet and the percentage of residential real estate loans to total loans. This has helped diversify the portfolio and increase the relative share of shorter term fixed rate and adjustable rate commercial and commercial real estate loans.

~~Business~~Generally, ~~Activities.~~one- ~~A federal~~to ~~savings~~four-family ~~association~~residential ~~derives~~real ~~its~~estate ~~lending~~loans ~~and~~are ~~investment~~originated ~~powers~~in ~~from~~amounts ~~the~~up ~~Home~~to ~~Owners’~~80% ~~Loan~~of ~~Act,~~the aslesser ~~amended,~~of ~~and~~the ~~applicable federal~~appraised ~~regulations.~~value ~~Under~~or ~~these~~purchase price ~~laws~~of ~~and~~the ~~regulations~~property, ~~BANK’34~~with ~~may~~private ~~invest~~mortgage ininsurance ~~mortgage~~required on loans ~~secured~~with bya ~~residential~~loan-to-value ~~and~~ratio ~~commercial real~~in ~~estate,~~excess ~~commercial~~of ~~business~~80%. ~~and~~We ~~consumer~~will not make loans, ~~certain~~with ~~types~~a ofloan-to-value ~~debt~~ratio ~~securities~~in ~~and~~excess ~~certain~~of ~~other~~100% ~~assets,~~for ~~subject~~loans tosecured ~~applicable limits~~by single family homes. ~~The~~Fixed ~~Dodd~~rate one-~~Frank~~ ~~Act~~to ~~authorized,~~four-family residential ~~for~~real ~~the~~estate ~~first~~loans ~~time,~~generally ~~the~~are ~~payment~~originated offor ~~interest~~terms onof ~~commercial~~10 ~~checking~~to ~~accounts,~~30 ~~effective~~years. ~~July 21~~Generally, ~~2011.~~all ~~BANK’34~~fixed ~~may~~rate ~~also~~one- ~~establish~~to ~~subsidiaries~~four-family residential ~~that~~real ~~may~~estate ~~engage~~loans inare ~~certain~~underwritten ~~activities~~according ~~not~~to ~~otherwise~~Freddie ~~permissible~~Mac, ~~for~~FHA, ~~BANK’34~~VA, ~~including~~ ~~real~~USDA ~~estate investment~~ and ~~securities~~Correspondent ~~and~~Investors ~~insurance~~policies ~~brokerage~~and procedures.

~~Capital~~In ~~Requirements.~~an ~~Federal regulations~~effort ~~require~~to ~~savings~~provide financing ~~associations~~for tomoderate ~~meet~~income ~~three~~home ~~minimum~~buyers, ~~capital~~we ~~standards:~~offer aVeterans ~~1.5%~~Administration ~~tangible~~(VA), ~~capital~~Federal ~~ratio,~~Housing aAdministration 4%(FHA) ~~core~~and ~~capital~~bond toloans ~~assets~~specific ~~leverage~~to ~~ratio~~the ~~(3%~~states ~~for~~where ~~savings~~we ~~associations~~conduct ~~receiving~~business. ~~the~~These ~~highest~~programs ~~rating~~offer onone- ~~the~~to ~~composite,~~four-family orresidential ~~“CAMELS,”~~real ~~rating~~estate loans ~~system~~to ~~for~~qualified ~~capital~~individuals. ~~adequacy,~~These ~~asset~~loans ~~quality,~~are ~~management,~~offered ~~earnings,~~with ~~liquidity~~fixed rates of interest and ~~sensitivity~~terms of up to ~~market~~30 ~~risk)~~years, and anare 8%secured ~~risk-based~~by ~~capital~~one- ~~ratio~~to four-family residential properties. All of these loans are originated using agency underwriting guidelines.

~~The~~We ~~risk-based~~also ~~capital~~offer ~~standard for savings~~adjustable ~~associations~~rate ~~requires~~mortgage ~~the~~loans ~~maintenance~~for ofone- ~~Tier 1 (core) and total capital (which is defined as core capital and supplementary capital)~~ to ~~risk~~four-~~weighted~~family ~~assets of at least 4% and 8%~~properties, ~~respectively.~~with Inan ~~determining~~interest ~~the~~rate ~~amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 200%, assigned by the regulations,~~ based on the ~~risks~~one-year ~~believed~~Constant ~~inherent~~Maturity ~~in the type of asset. Core capital is defined as common shareholders’ equity (including~~Treasury ~~retained~~Bill ~~earnings)~~Index, ~~certain~~which ~~noncumulative~~adjusts ~~perpetual~~annually ~~preferred~~from ~~stock~~the ~~and~~outset ~~related surplus and minority interests in equity accounts~~ of ~~consolidated~~the ~~subsidiaries,~~loan ~~less~~or ~~intangibles~~which ~~other~~adjusts ~~than~~annually ~~certain~~after ~~mortgage~~a ~~servicing rights and credit card relationships. The components of supplementary capital include cumulative preferred stock~~three-, ~~long~~five-~~term perpetual preferred stock~~, ~~mandatory convertible securities~~seven-, ~~subordinated~~or ~~debt and intermediate preferred stock, the allowance for loan losses limited to a maximum of 1.25% of risk~~ten-~~weighted assets and up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair~~year ~~market~~initial ~~values.~~fixed ~~Overall,~~rate ~~the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital~~period. ~~Additionally,~~ aWe ~~savings~~originated ~~association that retains credit risk in connection with an asset sale is required to maintain additional regulatory capital because of the purchaser’s recourse against the savings association~~$2.1 Inmillion assessing an institution’s capital adequacy, the OCC takes into consideration not only these numeric factors, but qualitative factors as well and has the authority to establish higher capital requirements for individual associations where necessary.of

~~At June 30, 2014, BANK’34’s capital exceeded all applicable requirements.~~8

~~New~~Table Capital Rule. On July 9, 2013, the OCC and the other federal bank regulatory agencies issued a final rule that will revise their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more and top-tier savings and loan holding companies (such as Alamogordo Financial Corp.). Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), sets a uniform 4.0% leverage ratio regardless of examination rating, increases the minimum Tier 1 capital to risk-based assets requirement (from 4.0% to 6.0% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures 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 final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised. 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 final rule becomes effective for BANK’34 on January 1, 2015. 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.Contents

9adjustable rate one-to four-family residential loans during the year ended December 31, 2015, of which $884,000 was sold in the secondary market. Our adjustable rate mortgage loans generally provide for maximum rate adjustments of 2% per adjustment, with a lifetime maximum adjustment up to 6% above the initial rate, regardless of the initial rate. Our adjustable rate one- to four-family residential real estate loans amortize over terms of up to 30 years.

~~Loans-to-One~~Regulations ~~Borrower. Generally,~~limit the aamount ~~federal~~that ~~savings~~an ~~association~~institution may ~~not~~lend ~~make~~relative ato ~~loan~~the orappraised ~~extend~~value ~~credit~~of tothe areal ~~single~~estate orsecuring ~~related~~the ~~group~~loan, ofas ~~borrowers~~determined inby ~~excess~~an appraisal of ~~15%~~the ~~of unimpaired~~property ~~capital~~at ~~and~~the ~~surplus.~~time Anthe ~~additional~~loan ~~amount~~is ~~may~~originated. beAll ~~loaned,~~borrowers ~~equal~~are required to ~~10%~~obtain oftitle ~~unimpaired~~insurance. ~~capital~~We also require homeowner’s insurance and ~~surplus~~fire and casualty insurance and, ifwhere ~~the~~circumstances ~~loan is~~warrant, ~~secured~~flood byinsurance, ~~readily~~on ~~marketable~~properties ~~collateral~~securing real estate loans. At December 31, ~~which~~2015, ~~generally~~our ~~does~~largest ~~not~~one- ~~include~~to four-family residential real estate. Asloan had a principal balance of ~~June~~$593,000 30and was secured by a residence located in our primary market area. At December 31, ~~2014~~2015, ~~BANK’34~~this loan was in ~~compliance~~not performing in accordance with its original terms and was in the ~~loans-to-one~~process ~~borrower~~of ~~limitations~~foreclosure.

~~Qualified~~Consumer ~~Thrift~~and Other ~~Lender Test~~Loans. As We offer a ~~federal~~limited ~~savings~~range ~~association,~~of ~~BANK’34~~consumer ~~must~~and ~~satisfy~~other ~~the~~loans, ~~qualified~~principally ~~thrift~~to ~~lender,~~customers orwith ~~“QTL,”~~other ~~test.~~relationships ~~Under~~residing ~~the~~in ~~QTL~~our ~~test,~~primary ~~BANK’34~~market ~~must~~area ~~maintain~~with atacceptable ~~least~~credit ~~65%~~ratings. ofOur ~~its~~consumer ~~“portfolio~~and ~~assets”~~other inloans ~~“qualified~~generally ~~thrift~~consist ~~investments”~~of home equity loans ~~(primarily~~or ~~residential~~lines ~~mortgages~~of ~~and~~credit, ~~related~~loans ~~investments~~secured by deposit accounts, ~~including~~loans ~~mortgage-backed~~on ~~securities)~~new inand atused ~~least~~automobiles ~~nine~~and ~~months~~unsecured ofpersonal ~~the~~loans. At December 31, ~~most~~2015, ~~recent~~consumer ~~12-month~~loans ~~period~~were $6.4 ~~“Portfolio~~million, ~~assets”~~or ~~generally~~3.3% ~~means~~of total ~~assets~~loans. ofThe aunderwriting ~~savings~~standards ~~association,~~utilized ~~less~~for ~~the~~home ~~sum~~equity lines of credit include a determination of ~~specified~~the ~~liquid~~applicant’s ~~assets~~credit uphistory, toan ~~20%~~assessment of ~~total~~the ~~assets,~~applicant’s ~~goodwill~~ability to meet existing obligations and ~~other~~payments ~~intangible~~on ~~assets,~~the proposed loan and the value of ~~property~~the ~~used~~collateral insecuring the loan. The loan-to-value ratio for a ~~conduct~~home equity line of ~~the~~credit ~~savings~~is ~~association~~generally limited to 80%. The procedures for underwriting other consumer loans include an assessment of the applicant’s ~~business~~payment history on other debts and ability to meet existing obligations plus payments on the proposed loan.

~~BANK’34~~Loan ~~also~~Underwriting ~~may~~Risks satisfy the QTL test by qualifying as a “domestic building and loan association” as defined in the Internal Revenue Code of 1986, as amended. This test generally requires a savings association to have at least 75% of its deposits held by the public and earn at least 25% of its income from loans and U.S. government obligations. Alternatively, a savings association can satisfy this test by maintaining at least 60% of its assets in cash, real estate loans and U.S. Government or state obligations.

ACommercial ~~savings~~and Multi-Family ~~association~~Real ~~that~~Estate ~~fails~~Loans. ~~the~~Loans ~~qualified~~secured by commercial and multi-family real estate generally have larger balances ~~thrift~~and ~~lender~~involve ~~test~~a ~~must~~greater ~~operate~~degree ~~under~~of ~~specified~~risk ~~restrictions~~than ~~set~~one- ~~forth~~to four-family residential real estate loans. Of primary concern in ~~the~~commercial ~~Home~~and multi-family ~~Owners~~real estate lending is the borrower’s ~~Loan~~creditworthiness ~~Act.~~and ~~The~~the ~~Dodd-Frank~~feasibility ~~Act~~and ~~made~~cash flow potential of the project. ~~noncompliance~~Payments ~~with~~on loans secured by income properties often depend on successful operation and management of the ~~QTL~~properties. ~~test~~As a result, repayment of such loans may be subject to ~~agency~~a ~~enforcement~~greater ~~action~~extent ~~for~~than aresidential ~~violation~~real ofestate ~~law~~loans, to adverse conditions in the real estate market or the economy. AtTo ~~June~~monitor 30cash flows on income properties, ~~2014~~we require borrowers and loan guarantors to provide annual financial statements on commercial and multi-family real estate loans. In reaching a decision on whether to make a commercial or multi-family real estate loan, ~~BANK~~we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrower’34s ~~satisfied~~expertise, credit history and profitability and the value of the underlying property. We have generally required that the ~~QTL~~properties ~~test~~securing these real estate loans have an aggregate debt service ratio, including the guarantor’s cash flow and isthe ~~expected~~borrower’s toother ~~satisfy~~projects, of at least 1.30x. An environmental phase one report is obtained when the ~~QTL~~possibility ~~test~~exists ~~upon~~that hazardous materials may have existed on the ~~merger~~site, ~~with~~or ~~Bank~~the ~~1440~~site may have been impacted by adjoining properties that handled hazardous materials.

~~Capital~~If ~~Distributions.~~we ~~Federal~~foreclose on ~~regulations~~a ~~govern~~commercial ~~capital~~real ~~distributions~~estate byor amulti-family ~~federal~~loan, ~~savings~~the ~~association,~~marketing ~~which~~and ~~include~~liquidation period to convert the real estate asset to cash ~~dividends~~can be lengthy with substantial holding costs. In addition, ~~stock~~vacancies, ~~repurchases~~deferred maintenance, repairs and market stigma can result in ~~other~~prospective ~~transactions~~buyers ~~charged~~expecting sale price concessions to ~~the~~offset ~~savings~~their ~~association’s~~real ~~capital~~or ~~account.~~perceived Aeconomic ~~federal~~losses ~~savings~~for ~~association~~the ~~must~~time ~~file~~it antakes ~~application~~them ~~with~~to return the ~~OCC~~property ~~for~~to ~~approval~~profitability. ofDepending aon ~~capital~~the ~~distribution~~individual ~~if:~~circumstances, initial charge-offs and subsequent losses on commercial real estate loans can be unpredictable and substantial.

·Construction and ~~the~~Land ~~total~~Development ~~capital~~Loans. ~~distributions~~Our ~~for~~construction ~~the~~loans ~~applicable~~are ~~calendar~~based ~~year~~upon ~~exceed~~estimates ~~the~~of ~~sum~~costs ofand values associated with the ~~savings~~completed project. ~~association’s~~Underwriting ~~net~~is ~~income~~focused ~~for~~on ~~that~~the ~~year~~borrowers’ tofinancial ~~date~~strength, ~~plus~~credit ~~the~~history ~~savings~~and ~~association’s~~demonstrated ~~retained~~ability ~~net~~to ~~income~~produce a ~~for~~quality ~~the~~product ~~preceding~~and ~~two~~effectively ~~years;~~market and manage their operations.

~~· the savings association would not be at least adequately capitalized following the distribution;~~9

·Table ~~the~~of ~~distribution would violate any applicable statute, regulation, agreement or regulatory condition; or~~Contents

·Construction lending involves additional risks when compared with permanent lending because funds are advanced upon the ~~savings~~security ~~association~~of the project, which is ~~not~~of ~~eligible~~uncertain ~~for~~value ~~expedited~~prior ~~treatment~~to its completion. Because of ~~its~~the ~~filings~~uncertainties inherent in estimating construction costs, ~~generally~~as ~~due~~well as the market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to anevaluate ~~unsatisfactory~~accurately ~~CAMELS~~the ~~rating~~total orfunds ~~being~~required ~~subject~~to complete a project and the related loan-to-value ratio. In addition, generally during the term of a ~~cease~~construction loan, interest may be funded by the borrower or disbursed from an interest reserve set aside from the construction loan budget. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project and ~~desist~~the ~~order~~ability of the borrower to sell or ~~formal~~lease ~~written~~the ~~agreement~~property ~~that~~or ~~requires~~obtain ~~action~~permanent take-out financing, rather than the ability of the borrower or guarantor to ~~improve~~repay principal and interest. If the ~~institution’s~~appraised ~~financial~~value of ~~condition~~a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss.

~~Even~~Commercial ifand Industrial anLoans. ~~application~~Unlike isresidential ~~not~~real ~~otherwise required~~estate loans, ~~every~~which ~~savings~~generally ~~association~~are ~~that~~made ison athe ~~subsidiary~~basis of athe ~~savings~~borrower’s ability to make repayment from his or her employment or other income, and ~~loan~~which ~~holding~~are ~~company~~secured by real property whose value tends to be more easily ascertainable, ~~such~~commercial asand ~~BANK~~industrial loans are of higher risk and typically are made on the basis of the borrower’34s ability to make repayment from the cash flow of the borrower’s business and the collateral securing these loans may fluctuate in value. Our commercial and industrial loans are originated primarily based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Most often, ~~must~~this ~~still~~collateral consists of real estate, accounts receivable, ~~file~~inventory aor ~~notice~~equipment. ~~with~~Credit support provided by the ~~Federal~~borrower ~~Reserve~~for ~~Board~~most atof ~~least~~these 30loans ~~days~~and ~~before~~the probability of repayment is based on the ~~board~~liquidation of ~~directors~~the ~~declares~~pledged collateral and enforcement of a ~~dividend~~personal orguarantee, ~~approves~~if any. As a ~~capital~~result, the availability of ~~distribution~~funds for the repayment of commercial and industrial loans may depend substantially on the success of the business itself. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value.

AAdjustable ~~notice~~Rate Loans. orWhile ~~application~~we ~~related~~anticipate that adjustable rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate loans, an increased monthly payment required of adjustable rate loan borrowers in a ~~capital~~rising interest ~~distribution~~rate environment could cause an increase in delinquencies and defaults. In a high interest rate environment, the marketability of the underlying collateral may be ~~disapproved~~adversely ~~if:~~affected as the value of the underlying collateral decreases. For our adjustable rate one- to four-family real estate loans, 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 real estate loans may be limited during periods of rapidly rising interest rates.

·Consumer and Other Loans. Consumer loans may entail greater risk than residential real estate loans, particularly in the ~~federal~~case ~~savings~~of ~~association~~consumer loans ~~would~~that are unsecured or secured by assets that depreciate rapidly, such as motor vehicles. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be ~~undercapitalized~~adversely ~~following~~affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the ~~distribution;~~application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

10Loan Originations, Purchases and Sales

·Lending ~~the~~activities are ~~proposed~~conducted ~~capital~~primarily ~~distribution~~by ~~raises~~our ~~safety~~loan personnel operating at our four full-service banking offices and ~~soundness~~three ~~concerns;~~loan production centers. All loans originated by us are underwritten pursuant to our policies and procedures. We originate both adjustable rate and fixed rate loans. Our ability to originate fixed or adjustable rate loans is dependent upon competition for such loans and the relative customer demand for such loans, which is affected by current and expected future levels of market interest rates.

·We sell the ~~capital~~majority of ~~distribution~~the ~~would~~one- ~~violate~~to afour-family ~~prohibition~~residential ~~contained~~real estate loans we originate in ~~any~~the ~~statute~~secondary market. The mortgage loans that we currently originate for sale include mortgage loans which conform to the underwriting standards specified by Freddie Mac, ~~regulation~~Federal orHousing Administration ~~agreement.~~(FHA), US Department of

In addition, the Federal Deposit Insurance Act provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. A federal savings association also may not make a capital distribution that would reduce its regulatory capital below the amount required for the liquidation account established in connection with its conversion to stock form.10

~~Community~~Table ~~Reinvestment Act and Fair Lending Laws. All federal savings associations have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs~~ of their communities, including low- and moderate-income borrowers. In connection with its examination of a federal savings association, the OCC is required to assess the federal savings association’s record of compliance with the Community Reinvestment Act. A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice.Contents

~~The~~Veteran ~~Community~~Affairs ~~Reinvestment~~(VA), US ~~Act~~Department ~~requires all~~of ~~institutions~~Agriculture ~~insured~~(USDA) byand other investors. During the ~~FDIC~~year ended December 31, 2015, we originated $146.9 million of one- to ~~publicly~~four-family ~~disclose~~loans ~~their~~and ~~rating~~sold $143.6 ~~BANK’34~~million. ~~received~~We arecognize, ~~“satisfactory”~~at ~~Community~~the time of sale, the cash gain or loss on the sale of the ~~Reinvestment~~loans ~~Act~~based ~~rating~~on inthe ~~its~~difference ~~most~~between ~~recent~~the ~~federal~~net ~~examination~~cash proceeds received and the carrying value of the loans sold.

~~Transactions~~We ~~with~~participate ~~Related Parties.~~out Ainterests ~~federal~~in ~~savings~~commercial ~~association’s~~real ~~authority~~estate loans to ~~engage~~other infinancial ~~transactions~~institutions, ~~with~~primarily ~~its~~the ~~affiliates~~75% isguaranteed ~~limited~~portion byof ~~Sections~~SBA ~~23A~~loans and ~~23B~~ of the ~~Federal~~portion ~~Reserve~~of ~~Act~~other ~~and~~loans ~~federal~~exceeding ~~regulation.~~our Anborrowing ~~affiliate~~limits. isAt ~~generally~~December a31, ~~company~~2015, ~~that~~we ~~controls,~~were orservicing is$16.1 ~~under~~million ~~common~~of ~~control~~commercial ~~with~~real anestate ~~insured~~loans ~~depository~~participated ~~institution~~out ~~such~~to asother ~~BANK’34.~~financial ~~Alamogordo~~institutions, ~~Financial~~including ~~Corp~~$10.2 ~~will~~million ~~be an affiliate~~ of ~~BANK’34 because~~SBA ~~of its control of BANK’34~~loans. InFor ~~general,~~the ~~transactions~~years ~~between~~ended ~~an insured depository institution and its affiliates~~December 31, ~~are~~2015 ~~subject to certain quantitative limits~~ and ~~collateral requirements. In addition~~2014, ~~federal~~we ~~regulations~~participated ~~prohibit~~out aloan ~~savings~~participations ~~association from lending to any~~ of ~~its~~$5.1 ~~affiliates~~million ~~that are engaged in activities that are not permissible for bank holding companies~~ and ~~from purchasing~~$4.1 ~~the~~million, ~~securities of any affiliate~~respectively, ~~other~~which ~~than~~included ~~a subsidiary~~$4.4 ~~Finally, transactions with affiliates must be consistent with~~million ~~safe~~ and ~~sound~~$2.4 ~~banking~~million ~~practices, not involve the purchase~~ of ~~low-quality~~SBA ~~assets~~loans, ~~and be on terms that are as favorable to the institution as comparable transactions with non-affiliates~~respectively.

~~BANK’34’s~~Loan ~~authority~~Approval toProcedures ~~extend credit to its directors, executive officers~~ and ~~10% shareholders, as well as to entities controlled by such persons, is currently~~Authority governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders:

·Our belending ~~made~~activities follow onwritten, ~~terms~~non-discriminatory, ~~that~~underwriting ~~are~~standards ~~substantially~~and loan origination procedures established by management and approved by the ~~same~~Board asof Directors. The Board of Directors has granted loan approval authority to certain officers up to prescribed limits, depending on the officer’s experience, the type of loan and ~~follow~~whether ~~credit~~the ~~underwriting~~loan ~~procedures~~is ~~that~~secured ~~are~~or ~~not~~unsecured. ~~less~~Loans ~~stringent~~to relationships of $1.5 million and below require approval by members of senior management. Loans to relationships greater than, ~~those~~$1.5 ~~prevailing~~million ~~for~~up to ~~comparable~~our ~~transactions~~internal ~~with~~loans-to-one ~~unaffiliated~~borrower ~~persons~~limitation ~~and~~($4.7 ~~that~~million doas ~~not~~of December 31, 2015) require approval by the Director’s Loan Committee. Loans that involve ~~more~~exceptions ~~than~~to loan policy must be authorized by senior management. Loan policy exceptions are fully disclosed to the ~~normal~~approving ~~risk~~authority, ofeither ~~repayment~~an individual officer or ~~present~~the ~~other~~appropriate ~~unfavorable~~management ~~features;~~or ~~and~~Director’s Loan Committee prior to commitment. Exceptions are reported to the Board of Directors monthly.

~~· not exceed certain limitations on the amount of credit extended~~ Loans-to-One ~~such~~Borrower ~~persons,~~Limit ~~individually and in the aggregate, which limits are based, in part, on the amount of BANK’34’s capital.~~

InThe ~~addition,~~maximum ~~extensions~~amount that ofwe ~~credit~~may inlend ~~excess of~~to ~~certain~~one ~~limits~~borrower ~~must~~and bethe ~~approved~~borrower’s related entities is generally limited, by ~~BANK’34’s~~regulation, ~~board~~to 15% of ~~directors~~our unimpaired capital and surplus. ~~Extensions~~At ofDecember 31, ~~credit~~2015, our regulatory limit on loans-to-one ~~executive~~borrower ~~officers~~was ~~are~~$4.7 million. At that date, the ~~subject~~largest aggregate amount loaned to ~~additional~~one ~~limits~~borrower ~~based~~was on$4.4 ~~the~~million, ~~type~~consisting of ~~extension~~two ~~involved~~multi-family loans and a commercial loan secured by a certificate of deposit. The loans comprising this lending relationship were performing in accordance with their original repayment terms at December 31, 2015.

~~Enforcement.~~Table The OCC has primary enforcement responsibility over federal savings associations and has authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, shareholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association. Formal enforcement action by the OCC may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The FDIC also has the authority to terminate deposit insurance or recommend to the OCC that enforcement action be taken with respect to a particular savings association. If such action is not taken, the FDIC has authority to take the action under specified circumstances.Contents

~~Standards~~Investment for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.Activities

~~Prompt~~Bank ~~Corrective~~34 ~~Action~~has ~~Regulations.~~an Asset/Liability ~~Under~~Committee ~~the~~which ~~Federal~~is ~~Prompt~~responsible, ~~Corrective~~among ~~Action~~other ~~statute~~duties, for implementing the ~~OCC~~Bank’s Investment Policy. The Investment Policy is ~~required~~reviewed toannually ~~take~~and ~~supervisory~~any ~~actions~~changes ~~against~~to ~~undercapitalized~~the ~~savings institutions~~policy ~~under~~are ~~its~~recommended ~~jurisdiction~~to, and subject to the ~~severity~~approval of, ~~which~~our ~~depends~~board ~~upon~~of ~~the~~directors. While ~~institution’s~~general ~~level~~investment ofstrategies ~~capital.~~are Adeveloped ~~savings~~and ~~institution that~~authorized ~~has~~by ~~total~~the ~~risk-based~~Asset/Liability ~~capital~~Committee, the execution of ~~less~~specific ~~than~~actions rests 8%with orthe aChief ~~leverage~~Financial ~~ratio~~Officer, orwho ais ~~Tier~~Bank 134’s ~~risk-based~~designated ~~capital~~Investment ~~ratio~~Officer. ~~that~~In ~~generally~~the isabsence ~~less~~of the Chief Financial ~~than~~Officer, 4%the isChief ~~considered~~Executive toOfficer will be ~~undercapitalized~~the designated Investment Officer. AThe ~~savings~~Investment ~~institution~~Officer is responsible for ensuring that ~~has~~the ~~total~~guidelines ~~risk-based~~and ~~capital~~requirements ~~less~~included ~~than~~in ~~6%,~~the aInvestment ~~Tier~~Policy 1are ~~core risk-based~~followed ~~capital~~and ~~ratio~~that ofall ~~less~~securities ~~than~~are 3%considered orprudent for ainvestment. ~~leverage~~The ~~ratio~~Investment ~~that~~Officer is ~~less~~authorized ~~than~~to 3%execute isinvestment ~~considered~~transactions to(purchases beand ~~“significantly~~sales) ~~undercapitalized.”~~without the prior Aapproval ~~savings~~of ~~institution~~the ~~that~~Asset/Liability ~~has~~Committee aand ~~tangible~~within ~~capital~~the toscope ~~assets~~of ~~ratio~~the ~~equal~~established toinvestment orpolicy; ~~less~~however, ~~than~~all 2%transactions shall isbe ~~deemed~~reviewed toand beratified ~~“critically~~by ~~undercapitalized~~the Asset/Liability Committee and Board of Directors.”

~~Generally,~~Bank ~~the~~34 ~~OCC~~utilizes ~~is required to appoint~~the aservices ~~receiver~~of oran ~~conservator~~independent ~~for~~investment aadvisor ~~savings~~to ~~association~~assist ~~that~~in ismanaging ~~“critically~~the ~~undercapitalized”~~investment ~~within specific time frames~~portfolio. The ~~regulations~~investment ~~also~~advisor ~~provide~~is ~~that~~responsible for amaintaining ~~capital~~current ~~restoration~~information ~~plan~~regarding ~~must~~securities bedealers ~~filed~~ with ~~the~~whom ~~OCC~~they ~~within~~are 45conducting ~~days~~business ofon ~~the~~our ~~date~~behalf. ~~that~~A alist ~~federal~~of ~~savings~~appropriate ~~association~~dealers is ~~deemed~~provided annually to ~~have~~the ~~received~~board ~~notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Any holding company~~ of adirectors ~~federal~~for ~~savings~~approval ~~association~~and ~~that~~authorization isprior ~~required~~ to ~~submit~~execution ~~a capital restoration plan must guarantee performance under the plan in an amount~~ of ~~up to the lesser of 5% of the savings association’s~~trades. ~~assets~~The atinvestment ~~the~~advisor, ~~time~~through itits ~~was~~assigned ~~deemed~~portfolio tomanager, bemust ~~undercapitalized~~contact byour ~~the~~designated ~~OCC~~Investment orOfficer ~~the amount necessary~~ to ~~restore~~review ~~the~~all ~~savings association to~~investment ~~adequately~~recommendations ~~capitalized~~and ~~status.~~transactions ~~This~~and ~~guarantee~~receive ~~remains~~approval infrom ~~place until~~ the ~~OCC~~designated ~~notifies~~Investment ~~the~~Officer ~~savings~~prior ~~association~~to ~~that~~execution ~~it has maintained adequately capitalized status for each~~ of ~~four~~any ~~consecutive calendar quarters. Institutions~~ transaction that ~~are~~might ~~undercapitalized~~be ~~become subject~~executed ~~to certain mandatory measures such as a restrictions~~ on ~~capital~~our ~~distributions and asset growth~~behalf. ~~The~~Upon ~~OCC~~receipt ~~may also take any one~~ of aapproval, ~~number~~the ofinvestment ~~discretionary~~advisor, ~~supervisory~~or ~~actions~~its ~~against~~assigned ~~undercapitalized~~portfolio ~~federal savings associations~~manager, ~~including~~is ~~the issuance~~authorized ofto aconduct ~~capital~~all ~~directive~~investment ~~and~~business ~~the~~on ~~replacement~~our ~~of senior executive officers and directors~~behalf.

AtWe ~~June~~have 30legal authority to invest in various types of investment securities and liquid assets, ~~2014~~including U.S. Treasury obligations, ~~BANK’34~~securities ~~met~~of various government-sponsored enterprises, residential mortgage-backed securities and municipal governments, deposits at the Federal Home ~~criteria~~Loan ~~for~~Bank ~~being~~of ~~considered~~Dallas, ~~“well~~certificates ~~capitalized~~of deposit of federally insured institutions, investment grade corporate bonds and investment grade marketable equity securities, including common stock and money market mutual funds.” Our equity securities generally pay dividends. We also are required to maintain an investment in Federal Home Loan Bank of Dallas stock, which investment is based on the level of our Federal Home Loan Bank borrowings. While we have the authority under applicable law to invest in derivative securities, we had no investments in derivative securities at December 31, 2015 or 2014.

~~The~~Our ~~final~~investment ~~capital~~objectives are ~~rule~~to ~~adopted~~provide inand ~~July~~maintain ~~2013 revises~~liquidity, ~~the~~to ~~prompt~~establish ~~corrective~~an ~~action~~acceptable ~~categories~~level toof ~~incorporate~~interest ~~the~~rate ~~revised~~and ~~minimum~~credit ~~capital~~risk, ~~requirements~~to ofprovide ~~that~~a ~~rule~~use of funds when itdemand ~~becomes effective.~~for ~~See~~loans ~~“—New~~is ~~Capital~~weak ~~Rule~~and to generate a favorable return.”

~~Insurance~~At ofDecember ~~Deposit~~31, 2015 ~~Accounts.~~our ~~The~~investment ~~Deposit~~security ~~Insurance~~portfolio ~~Fund~~had ofa ~~the~~fair ~~FDIC~~value ~~insures~~of ~~deposits~~$28.6 atmillion, ~~FDIC~~and ~~insured~~consisted ~~financial~~primarily ~~institutions~~of ~~such~~mortgage-backed assecurities, ~~BANK’34.~~securities ~~Deposit~~of ~~accounts~~U.S. inGovernment ~~BANK’34~~Agencies ~~are~~and ~~insured~~municipal bybonds. ~~the~~All ~~FDIC~~investment ~~generally~~securities upas ~~to a maximum~~ of ~~$250~~December 31,~~000~~ ~~per~~2015 ~~separately~~were ~~insured~~classified ~~depositor~~as available-for-sale. ~~The~~Bonds ~~FDIC~~secured ~~charges~~by ~~insured~~adjustable ~~depository~~rate ~~institutions~~loans ~~premiums~~were to24.6% ~~maintain~~of the ~~Deposit~~total ~~Insurance Fund~~portfolio.

12Each reporting period, we evaluate all securities with a decline in fair value below the amortized cost to determine whether or not the impairment is deemed to be other than temporary. Other than temporary impairment is required to be recognized if (1) we intend to sell the security; (2) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. At December 31, 2015 our investment securities had a fair value of $28.6 million and a net unrealized loss of $216,000. The decline in fair value is attributable to changes in interest rates and liquidity and not credit quality. The Bank does not have the intent to sell these securities before maturity and it is unlikely that it will be required to sell them before their anticipated recovery. Therefore the Bank does not consider the decline to be other than temporary. No other-than-temporary impairment was recognized for any periods from 2012 through December 31, 2015.

~~Under~~Mortgage-Backed Securities. ~~the~~We ~~FDIC’s risk~~purchase mortgage-~~based~~backed ~~assessment~~securities ~~system,~~ insured ~~institutions~~or ~~are~~guaranteed ~~assigned~~by toFannie ~~one~~Mae, ofFreddie ~~four~~Mac ~~risk~~and ~~categories~~Ginnie ~~based~~Mae. ~~on supervisory evaluations,~~We ~~regulatory~~invest ~~capital~~in ~~levels~~mortgage-backed ~~and~~securities ~~certain~~to ~~other~~achieve ~~risk~~positive ~~factors.~~interest ~~Rates~~rate ~~are~~spreads ~~based~~with onminimal ~~each~~administrative ~~institution’s~~expense, ~~risk category~~ and ~~certain~~lower our ~~specified~~credit risk ~~adjustments.~~as ~~Institutions~~a ~~deemed~~result toof bethe ~~less~~guarantees ~~risky~~provided ~~pay~~by ~~lower~~Freddie ~~rates~~Mac, ~~while~~Fannie ~~institutions~~Mae ~~deemed~~and ~~riskier~~Ginnie ~~pay higher rates~~Mae.

In February 2011, the FDIC published a final rule under the Dodd-Frank Act to reform the deposit insurance assessment system. The rule redefined the assessment base used for calculating deposit insurance assessments effective April 1, 2011. Under the new rule, assessments are based on an institution’s average consolidated total assets minus average tangible equity instead of total deposits. The proposed rule revised the assessment rate schedule to establish assessments ranging from 2.5 to 45 basis points.12

InTable ~~addition to the FDIC assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval~~ of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter ended June 30, 2014, the annualized FICO assessment was equal to 0.62 basis points of total assets less tangible capital.Contents

~~The~~Mortgage-backed ~~FDIC~~securities are ~~has~~created ~~authority~~by the pooling of mortgages and the issuance of a security with an interest rate that is less than the interest rates toon ~~increase~~the ~~insurance~~underlying ~~assessments~~mortgages. ~~Any~~Mortgage-backed ~~significant~~securities ~~increases~~typically ~~would~~represent ~~have~~a anparticipation ~~adverse~~interest ~~effect~~in a pool of single-family or multi-family mortgages, although we focus our investments on mortgage-backed securities backed by one- to four-family mortgages. The issuers of such securities (generally U.S. government agencies and government-sponsored enterprises, including Fannie Mae, Freddie Mac and Ginnie Mae) pool and resell the ~~operating~~participation ~~expenses~~interests in the form of securities to investors such as Putnam Bank, and ~~results~~guarantee the payment of principal and interest to investors. Mortgage-backed securities generally yield less than the loans that underlie such securities because of ~~operations~~the cost of ~~BANK’34~~payment guarantees and credit enhancements. ~~Management~~However, ~~cannot~~mortgage-backed securities ~~predict~~are ~~what~~usually ~~assessment~~more ~~rates~~liquid ~~will~~than individual mortgage loans and may be inused ~~the~~to ~~future~~collateralize our specific liabilities and obligations.

~~Insurance~~At ofDecember ~~deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices~~31, ~~is in an unsafe or~~2015 ~~unsound~~mortgage-backed ~~condition~~securities tototaled ~~continue~~$23.3 ~~operations~~million, or ~~has~~81.3% ~~violated~~of ~~any~~total ~~applicable law~~securities, ~~regulation,~~of ~~rule~~which, ~~order~~31% orwere ~~condition~~backed ~~imposed~~ by ~~the~~adjustable rate mortgage ~~FDIC.~~loans Weand do69% ~~not~~were ~~currently~~backed ~~know~~by offixed ~~any~~rate ~~practice,~~mortgage ~~condition~~loans. orThe ~~violation~~mortgage-backed ~~that~~securities ~~may~~portfolio ~~lead~~had toa ~~termination~~weighted average yield of 1.55% ~~our~~at ~~deposit~~December ~~insurance~~31, 2015.

~~Prohibitions~~Investments ~~Against~~in mortgage-backed ~~Tying~~securities ~~Arrangements.~~involve ~~Federal~~a ~~savings~~risk ~~associations~~that ~~are~~actual ~~prohibited,~~prepayments ~~subject~~may todiffer ~~some~~from ~~exceptions~~estimated prepayments over the life of the security, ~~from~~which ~~extending~~may require ~~credit~~adjustments to ~~or offering~~the ~~any~~amortization ~~other~~of ~~service,~~any premium or ~~fixing~~accretion orof ~~varying~~any ~~the~~discount ~~consideration~~relating ~~for~~to such ~~extension~~instruments ofthereby ~~credit~~changing the ornet ~~service,~~yield on ~~the~~such ~~condition~~securities. ~~that the~~There ~~customer~~is ~~obtain~~also ~~some~~reinvestment ~~additional~~risk ~~service~~associated ~~from~~with the ~~institution~~cash orflows ~~its~~from ~~affiliates~~such securities or ~~not~~if ~~obtain~~such securities ~~services~~are ofredeemed aby ~~competitor~~the ofissuer. In addition, the market value of such securities may be adversely affected by changes in ~~institution~~interest rates.

~~Federal~~U.S. ~~Home~~Government and ~~Loan~~Government-Sponsored ~~Bank System~~Securities. ~~BANK’34~~ isAt aDecember ~~member~~31, of2015, ~~the~~our ~~Federal~~U.S. Government ~~Home~~and ~~Loan~~government-sponsored ~~Bank~~securities ~~System,~~portfolio totaled ~~which~~$3.5 ~~consists~~million, ofor 12.1% ~~regional~~of ~~Federal~~total ~~Home~~securities. ~~Loan~~While ~~Banks~~U.S. ~~The~~Government ~~Federal Home~~and ~~Loan~~government-sponsored ~~Bank~~securities ~~System~~generally ~~provides~~provide lower ayields ~~central~~than ~~credit facility primarily for member institutions as well as~~ other ~~entities~~investments ~~involved~~ in ~~home~~ ~~mortgage~~our ~~lending.~~securities Asinvestment aportfolio, ~~member~~we ofmaintain ~~the~~these ~~Federal Home Loan Bank of Dallas~~investments, ~~BANK’34 is required~~ to ~~acquire~~the ~~and~~extent ~~hold a specified~~appropriate, ~~number~~for ofliquidity ~~shares of capital stock in the Federal Home Loan Bank. As of June 30~~purposes, ~~2014,~~as ~~BANK’34~~collateral ~~was~~for inborrowings ~~compliance~~and ~~with~~prepayment ~~this requirement~~protection.

~~Other~~Municipal ~~Regulations~~Obligations. At December 31, our investment in municipal obligations totaled $1.9 million or 6.6% of total securities and 0.7% of total assets. The Bank’s investment in municipal bonds may not exceed 3% of total assets. Municipal obligations generally carry a higher interest rate than U. S. Government obligations but also carry a higher credit risk.

~~Interest~~Deposit and other charges collected or contracted for by BANK’34 are subject to state usury laws and federal laws concerning interest rates. BANK’34’s operations are also subject to federal laws applicable to credit transactions, such as the:Activities

· Our ~~Truth-In-Lending~~deposit accounts ~~Act,~~consist ~~governing~~principally ~~disclosures~~of certificates of ~~credit~~deposit, ~~terms~~savings toaccounts, ~~consumer~~checking ~~borrowers;~~accounts and money market accounts. We provide commercial checking accounts and related services, such as online cash management. We also provide low-cost checking account services.

·Our ~~Home~~deposits ~~Mortgage~~are ~~Disclosure~~generated mainly ~~Act,~~from ~~requiring~~residents ~~financial~~and ~~institutions~~businesses towithin ~~provide~~our ~~information~~primary todeposit ~~enable~~market ~~the~~area. ~~public~~Deposit ~~and~~account ~~public~~terms ~~officials~~vary, towith ~~determine~~the ~~whether~~principal adifferences being ~~financial~~the ~~institution~~minimum isbalance ~~fulfilling~~required, ~~its~~the ~~obligation~~amount toof ~~help~~time ~~meet~~ the ~~housing~~funds ~~needs~~must ofremain ~~the~~on ~~community~~deposit itand ~~serves;~~the interest rate.

·Interest ~~Equal~~rates, ~~Credit~~maturity terms, ~~Opportunity~~service ~~Act,~~fees ~~prohibiting~~and ~~discrimination~~withdrawal penalties are established on ~~the~~a periodic basis. ofDeposit ~~race~~rates and terms are based primarily on current operating strategies and market rates, ~~creed~~liquidity orrequirements, ~~other~~rates ~~prohibited~~paid ~~factors~~by incompetitors ~~extending~~and ~~credit;~~growth goals. Personalized customer service and long-standing relationships with customers are relied upon to attract and retain deposits.

·The ~~Fair~~flow ~~Credit~~of ~~Reporting~~deposits is ~~Act~~influenced significantly by general economic conditions, ~~governing~~changes ~~the~~in ~~use~~money market and ~~provision~~other prevailing interest rates and competition. The variety of ~~information~~deposit accounts offered allows us to ~~credit~~be ~~reporting~~competitive ~~agencies;~~in obtaining funds and responding to changes in consumer demand. Based on experience, we believe that our deposits are relatively stable. However, the ability to attract and maintain deposits and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions.

·Table ~~Fair~~of ~~Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;~~Contents

·At ~~Truth~~December in31, 2015, our deposits totaled $225.7 million. Interest-bearing deposits totaled $187.7 million and noninterest-bearing deposits totaled $38.0 million. Savings, ~~Act;~~money market and checking deposits totaled $113.6 million, and certificates of deposit totaled $74.1 million, of which $39.1 million had maturities of one year or less.

·Subsidiary ~~rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.~~Activities

~~The~~Alamogordo ~~operations~~Financial Corp. ofhas ~~BANK’34 also~~no ~~are~~subsidiaries ~~subject~~other tothan ~~the:~~Bank 34.

· Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;Personnel

·At ~~Electronic~~December ~~Funds~~31, ~~Transfer Act and Regulation E promulgated thereunder~~2015, Bank ~~which~~34 ~~govern~~had ~~automatic~~97 ~~deposits~~full-time toemployees and ~~withdrawals~~one ~~from~~part-time ~~deposit~~employee, ~~accounts~~none ~~and~~of ~~customers’~~whom ~~rights~~was ~~and~~party ~~liabilities~~to ~~arising~~a ~~from~~collective ~~the~~bargaining ~~use~~agreement. ofBank 34 ~~automated~~believes ~~teller~~it ~~machines~~has ~~and~~a ~~other~~good ~~electronic~~working ~~banking~~relationship ~~services;~~with its employees.

·FEDERAL ~~Check~~AND ~~Clearing~~STATE ~~for~~TAXATION the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

·General. Alamogordo ~~The~~Financial USA PATRIOT Act, which requires savings associations to, among other things, establish broadened anti-money laundering compliance programs, and due diligence policies and controls to ensure the detection and reporting of money launderingCorp. ~~Such~~reports ~~required~~its ~~compliance~~income ~~programs~~on ~~are~~a ~~intended~~calendar toyear ~~supplement~~basis ~~existing~~using ~~compliance requirements that also apply to financial institutions under~~ the ~~Bank~~accrual ~~Secrecy~~method ~~Act and the Office~~ of ~~Foreign Assets Control regulations; and~~accounting.

·Federal Taxation. The ~~Gramm-Leach-Bliley~~federal ~~Act,~~income ~~which~~tax ~~places~~laws ~~limitations~~apply onto Alamogordo Financial Corp. in the ~~sharing~~same ofmanner ~~consumer~~as ~~financial~~to ~~information~~other bycorporations. ~~financial~~Alamogordo Financial ~~institutions~~Corp. ~~with~~files ~~unaffiliated~~a ~~third~~consolidated ~~parties~~federal income tax return with Bank 34. ~~Specifically,~~For the ~~Gramm-Leach-Bliley~~year ~~Act~~ended ~~requires~~December ~~all~~31, ~~financial~~2015, ~~institutions~~there ~~offering~~was ~~financial~~consolidated federal ~~products~~taxable orincome ~~services~~before toapplying ~~retail~~net ~~customers~~operating toloss ~~provide~~carryforward ~~such~~of ~~customers~~$1.4 ~~with~~million ~~the~~and ~~financial~~an ~~institution’s~~ending ~~privacy~~consolidated ~~policy~~federal net ~~and~~operating ~~provide~~loss ~~such~~carryforward ~~customers~~of ~~the~~$7.6 ~~opportunity~~million. toThe ~~“opt~~federal ~~out”~~net ofoperating ~~the~~loss ~~sharing~~may ofbe ~~certain~~carried ~~personal~~over ~~financial~~for ~~information~~utilization ~~with~~against federal ~~unaffiliated~~taxable ~~third~~income ~~parties~~in future years, subject to some limitations, for 20 years from the date of origination of the loss.

New Mexico State Taxation. AF Mutual Holding Company ~~Regulation~~and Alamogordo Financial Corp. are subject to the New Mexico corporation income tax and state corporation license tax (franchise tax). The current New Mexico corporate tax rates use a graduated rate structure with 4.8% being the lowest rate on New Mexico taxable income not over $500,000, and 6.9% being the highest rate on New Mexico income in excess of $1.0 million.

~~General. Alamogordo~~Because Alamogordo Financial Corp. and AFBank ~~Mutual~~34 ~~Holding Company~~ are ~~savings~~currently ~~and~~filing ~~loan~~a ~~holding~~consolidated ~~companies~~corporate ~~within~~federal ~~the~~income ~~meaning~~tax ~~of the Home Owners’ Loan Act. As such~~return, ~~each is registered with~~ the ~~Federal~~consolidated ~~Reserve~~group ~~Board and subject to regulations, examinations, supervision~~also ~~and~~files ~~reporting~~a ~~requirements~~consolidated ~~applicable~~New toMexico ~~savings~~corporate ~~and~~income ~~loan~~tax ~~holding companies~~return. In addition, the Federal Reserve Board has enforcement authority over Alamogordo Financial Corp., AF Mutual Holding Company and their non-savings institution subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution.

~~Permissible~~If ~~Activities.~~a corporation is ~~The~~doing business ~~activities~~outside of ~~savings~~the ~~and~~State ~~loan~~of ~~holding~~New ~~companies~~Mexico, ~~are~~an ~~generally~~apportionment ~~limited~~percentage tois ~~those~~applied ~~activities~~to ~~permissible~~the ~~for financial~~New ~~holding~~Mexico ~~companies~~tax. ~~under~~The ~~Section~~apportionment also ~~4(k)~~allows offor the ~~Bank~~subtraction ~~Holding Company Act~~ of ~~1956,~~non-business asincome ~~amended,~~from ~~provided~~other ~~certain~~state ~~conditions are met~~sources, ~~or for multiple savings~~ and ~~loan~~uses ~~holding~~a ~~companies.~~three-factor Aapportionment ~~financial~~of ~~holding company may engage in activities that are financial~~sales, inproperty ~~nature, including underwriting equity securities~~ and ~~insurance~~payroll ~~as well as activities that are incidental~~ to ~~financial~~determine ~~activities or complementary to~~ a ~~financial~~percentage ~~activity.~~of Athe ~~multiple~~New ~~savings~~Mexico ~~and~~tax ~~loan~~that ~~holding company~~ is ~~generally~~subject ~~limited~~ to ~~activities~~tax. ~~permissible for~~Because ~~bank~~Alamogordo ~~holding~~Financial ~~companies~~Corp. is ~~under~~currently ~~Section~~doing ~~4(c)(8)~~business ofin ~~the~~Arizona ~~Bank~~and ~~Holding Company Act~~Texas, ~~subject~~such tooperations ~~regulatory~~reduce ~~approval,~~the ~~and~~New ~~certain~~Mexico ~~additional activities~~state ~~authorized~~taxes ~~by federal regulations~~owed.

14New Mexico net operating losses generated on or after taxable years beginning January 1, 2013 may be carried forward for twenty years or until the amount of loss carryover has been used, whichever occurs first. New Mexico net operating losses generated in taxable years beginning before January 1, 2013 may be carried forward five years. Also, New Mexico no longer provides for an alternative minimum tax. However, there is a $50 annual New Mexico franchise tax required for each corporation. Bank 34 is also subject to the annual $50 New Mexico franchise tax.

~~Federal~~Arizona ~~law prohibits~~State aTaxation. ~~savings~~Bank ~~and~~34 ~~loan~~operates ~~holding~~in ~~company,~~Arizona ~~directly~~and oris ~~indirectly,~~subject orto ~~through~~Arizona ~~one~~state orincome ~~more~~tax ~~subsidiaries,~~and ~~from~~accordingly ~~acquiring~~files ~~more~~a ~~than~~consolidate ~~5% of~~Arizona ~~another~~state ~~savings~~income ~~institution~~tax ~~or holding company thereof, without prior regulatory approval~~return. ItThe ~~also~~current ~~prohibits~~Arizona ~~the~~corporate ~~acquisition~~tax ~~or retention~~rate ~~of,~~is ~~with certain exceptions, more than 5~~6% of aArizona ~~non-subsidiary~~taxable ~~company~~income. ~~engaged~~If inthere ~~activities~~is ~~that~~an ~~are~~Arizona ~~not~~loss ~~closely related~~for tothe ~~banking or financial in nature~~year, orthen ~~acquiring~~a orminimum ~~retaining~~tax ~~control~~ of an$50 ~~institution that~~ is ~~not federally insured~~due. InA ~~evaluating applications~~taxpayer byfiling ~~holding~~a ~~companies~~combined toor ~~acquire~~consolidated ~~savings~~return ~~institutions,~~is ~~the~~considered ~~Federal~~a ~~Reserve~~single ~~Board must consider the financial and managerial resources~~taxpayer, subject ~~future prospects of the company and institution involved, the effect of the acquisition on the risk~~ to ~~the~~one ~~federal~~minimum ~~deposit insurance fund, the convenience and needs of the community and competitive factors~~tax.

The Federal Reserve Board is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions:14

·Table ~~the approval~~ of ~~interstate supervisory acquisitions by savings and loan holding companies; and~~Contents

·Taxable ~~the~~income ~~acquisition~~for corporations ofsubject ato ~~savings~~Arizona ~~institution~~income intax ~~another~~is ~~state~~similar ifto the ~~laws~~computation of ~~the~~taxable ~~state~~income ofreported for federal income tax purposes less certain modifications with the ~~target~~most ~~savings~~significant ~~institution~~adjustment ~~specifically~~pertaining ~~permit~~to ~~such~~calculation ~~acquisition~~of Arizona depreciation.

If a corporation is doing business outside of the State of Arizona, an apportionment percentage is applied to the Arizona tax. The ~~states~~apportionment ~~vary~~uses the inaverage of a four-factor apportionment of sales (included twice), property and payroll to determine a percentage of the Arizona ~~extent~~taxable income that is subject to ~~which~~tax. ~~they~~Since ~~permit~~both ~~interstate~~Alamogordo ~~savings~~Financial Corp. and ~~loan~~Bank ~~holding~~34 ~~company~~are ~~acquisitions~~also doing business in New Mexico, such operations reduce the Arizona net operating loss or Arizona taxable income for each year.

~~Capital. Savings~~Arizona ~~and~~net ~~loan~~operating losses ~~holding~~may ~~companies~~only ~~historically~~be ~~have~~carried ~~not been subject to consolidated regulatory capital requirements~~over. The ~~Dodd-Frank Act,~~carry ~~however,~~forward ~~requires~~period ~~the~~is ~~Federal~~five ~~Reserve~~succeeding ~~Board~~taxable toyears ~~establish~~ for ~~all~~net ~~depository~~operating ~~institution~~losses ~~holding~~arising ~~companies minimum consolidated~~in ~~capital~~taxable ~~requirements~~periods ~~that~~through ~~are~~December as stringent as those required for the insured depository subsidiaries. The components of Tier 1 capital are restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions31, ~~which~~ ~~excludes~~2011 ~~instruments such as trust preferred securities~~ and ~~cumulative~~20 ~~preferred~~succeeding ~~stock.~~taxable ~~Instruments~~years ~~issued~~for ~~before~~net ~~May~~operating ~~19, 2010~~losses ~~are~~arising ~~grandfathered~~ in ~~for~~taxable ~~companies~~periods ~~with consolidated assets of $15 billion or less. The final capital rule discussed above~~from ~~implements the consolidated capital requirements for savings~~ and ~~loan~~after ~~holding~~December ~~companies~~31, ~~effective January 1, 2015~~2011. See “—Federal Banking Regulation—New Capital Rule.” Unlike the case for bank holding companies, the Dodd-Frank Act did not contain an exception to the regulatory capital requirements for savings and loan holding companies with consolidated assets of less than $500 million and the Federal Reserve Board’s final rule also contains no such exception.

~~Source~~Texas ofState ~~Strength~~Taxation. ~~The~~In ~~Dodd-Frank~~2015, ~~Act~~Bank ~~extended~~34 ~~the~~opened ~~“source~~a ofloan ~~strength”~~production ~~doctrine~~office in El Paso, Texas. Due to ~~savings~~the ~~and~~physical ~~loan~~presence ~~holding~~in ~~companies.~~the ~~The~~state, ~~Federal~~AF Mutual ~~Reserve~~Holding ~~Board~~Company, ~~has~~Alamogordo ~~issued~~Financial ~~regulations~~Corp., ~~requiring~~and ~~that~~Bank ~~all~~34 ~~bank~~must ~~and~~file ~~savings~~a ~~and~~combined ~~loan~~franchise ~~holding~~tax ~~companies~~return. ~~serve~~The ascurrent aTexas ~~source~~corporate franchise tax rate is .75% of ~~strength to~~Texas ~~their~~revenue. ~~subsidiary~~If ~~depository~~a ~~institutions~~corporation byqualifies ~~providing~~for ~~capital,~~the ~~liquidity~~EZ ~~and~~franchise ~~other~~tax ~~support~~report, inthen ~~times~~the offranchise ~~financial~~tax rate ~~stress~~is .331%.

~~Dividends. The~~Taxable ~~Federal~~income ~~Reserve~~for corporations ~~Board~~subject ~~has~~to ~~issued~~Texas afranchise ~~policy~~tax ~~statement~~is ~~regarding~~based ~~the~~upon ~~payment of dividends and~~ the ~~repurchase~~gross ofmargin ~~shares~~ of ~~common stock~~gross byrevenue ~~bank~~less ~~holding~~certain ~~companies and savings and loan holding companies~~modifications. InIf ~~general,~~a ~~the policy provides that dividends should be~~corporation ~~paid~~is ~~only~~doing ~~out~~business outside of ~~current earnings and only if~~ the ~~prospective~~State ~~rate~~ of ~~earnings retention by the holding company appears consistent with the organization’s capital needs~~Texas, ~~asset~~an ~~quality~~apportionment ~~and~~percentage overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to dividends in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is ~~insufficient~~applied to ~~fully~~Texas ~~fund the dividend or the company’s overall rate or earnings retention is inconsistent with the company’s capital needs and overall financial condition~~revenue. The ~~ability~~ ofapportionment ~~a holding company to pay dividends may be restricted if a subsidiary depository institution becomes undercapitalized.~~uses ~~The guidance also states that~~ a ~~holding~~single ~~company~~sales ~~should~~factor ~~inform the Federal Reserve Board supervisory staff prior~~ to ~~redeeming~~determine ~~or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in~~ a ~~net~~percentage ~~reduction, as~~ of the ~~end~~Texas ofrevenue athat ~~quarter,~~is insubject ~~the~~to ~~amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred~~tax. ~~These~~Since ~~regulatory~~Texas ~~policies~~taxes ~~may~~corporations ~~affect~~based ~~the~~upon ~~ability of Alamogordo Financial Corp. to pay dividends~~revenue, ~~repurchase~~no ~~shares~~net ofoperating ~~common~~losses ~~stock~~are ~~or otherwise engage in capital distributions~~generated.

~~The level of any dividends~~ SUPERVISION ~~that~~AND ~~may be paid by Alamogordo Financial Corp. will also be affected by the ability of AF Mutual Holding Company, Alamogordo Financial Corp.’s majority stockholder, to waive the receipt of dividends.~~REGULATION

15General. As a federal savings association, Bank 34 is subject to examination and regulation by the OCC, and is also subject to examination by the Federal Deposit Insurance Corporation (“FDIC”). The federal system of regulation and supervision establishes a comprehensive framework of activities in which Bank 34 may engage and is intended primarily for the protection of depositors and the FDIC’s Deposit Insurance Fund.

~~Acquisitions. Under~~Bank ~~the~~34 ~~Federal~~also ~~Change~~is inregulated to ~~Bank Control Act,~~ a ~~notice~~lesser ~~must~~extent beby ~~submitted to~~ the Federal Reserve Board ~~if any person (including a company)~~, orwhich ~~group~~governs ~~acting~~the inreserves ~~concert, seeks~~ to ~~acquire~~be ~~direct~~maintained oragainst ~~indirect~~deposits ~~“control” of a savings~~ and ~~loan~~other ~~holding company~~matters. In ~~Under certain circumstances~~addition, aBank ~~change~~34 ~~of control may occur, and prior notice~~ is ~~required,~~a ~~upon~~member ~~the acquisition~~ of ~~10% or~~and ~~more~~owns ~~of the company’s outstanding voting~~ stock, ~~unless~~in the Federal ~~Reserve~~Home ~~Board~~Loan ~~has~~Bank ~~found~~of ~~that~~Dallas, ~~the~~which ~~acquisition~~is ~~will~~one ~~not result in control~~ of the ~~company.~~12 Aregional ~~change~~ banks in ~~control occurs upon~~ the ~~acquisition~~Federal ofHome ~~25%~~Loan orBank ~~more~~System. ofBank ~~the company~~34’s ~~outstanding voting~~relationship ~~stock.~~with ~~Under~~its ~~the~~depositors ~~Change~~and inborrowers ~~Bank~~also ~~Control~~is ~~Act,~~regulated ~~the~~to ~~Federal~~a ~~Reserve~~great extent ~~Board~~by ~~generally~~federal ~~has~~law 60and, ~~days~~to ~~from the filing of~~ a ~~complete notice~~lesser ~~to act~~extent, ~~taking~~state ~~into consideration certain factors~~law, including ~~the~~in ~~financial~~matters ~~and~~concerning ~~managerial~~the ~~resources~~ownership of ~~the~~deposit ~~acquirer~~accounts and the ~~competitive~~form ~~effects~~and content of ~~the~~Bank ~~acquisition~~34’s loan documents.

As savings and loan holding companies, Alamogordo Financial Corp. and AF Mutual Holding Company are subject to examination and supervision by, and is required to file certain reports with, the Federal Reserve Board. Alamogordo Financial Corp. is also subject to the rules and regulations of the Securities ~~Laws~~and Exchange Commission under the federal securities laws.

Set forth below are certain material regulatory requirements that are applicable to Bank 34 and Alamogordo Financial Corp.’s This description of statutes ~~common~~and ~~stock~~regulations ~~will~~is not intended to be ~~registered~~a ~~with~~complete ~~the~~description ~~Securities~~of ~~and~~such ~~Exchange~~statutes ~~Commission~~and ~~under~~regulations ~~the~~and ~~Securities~~their ~~Exchange~~effects ~~Act~~on ofBank ~~1934~~34, ~~as amended.~~ Alamogordo Financial Corp. ~~will~~and beAF ~~subject~~Mutual toHolding ~~the~~Company. ~~information,~~Any ~~proxy~~change ~~solicitation~~in these laws or regulations, ~~insider~~whether ~~trading~~by ~~restrictions~~Congress ~~and~~or ~~other~~the ~~requirements~~applicable regulatory ~~under~~agencies, ~~the~~could ~~Securities~~have ~~Exchange~~a ~~Act~~material ofadverse ~~1934~~impact on Alamogordo Financial Corp. , AF Mutual Holding Company, Bank 34 and their operations.

~~Emerging Growth Company Status~~15

~~The~~Table Jumpstart Our Business Startups Act (the “JOBS Act”), which was enacted in April 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” Alamogordo Financial Corp. qualifies as an emerging growth company under the JOBS Act.Contents

AnFederal ~~“emerging~~Banking ~~growth company”~~Regulation may choose not to hold shareholder votes to approve annual executive compensation (more frequently referred to as “say-on-pay” votes) or executive compensation payable in connection with a merger (more frequently referred to as “say-on-golden parachute” votes). An emerging growth company also is not subject to the requirement that its auditors attest to the effectiveness of the company’s internal control over financial reporting, and can provide scaled disclosure regarding executive compensation; however, Alamogordo Financial Corp. will also not be subject to the auditor attestation requirement or additional executive compensation disclosure so long as it remains a “smaller reporting company” under Securities and Exchange Commission regulations (generally less than $75 million of voting and non-voting equity held by non-affiliates). Finally, an emerging growth company may elect to comply with new or amended accounting pronouncements in the same manner as a private company, but must make such election when the company is first required to file a registration statement. Such an election is irrevocable during the period a company is an emerging growth company. Alamogordo Financial Corp. has elected to comply with new or amended accounting pronouncements in the same manner as a private company.

ABusiness ~~company loses emerging~~Activities. ~~growth~~A ~~company~~federal ~~status~~savings onassociation ~~the~~derives ~~earlier~~its ~~of:~~lending ~~(i)~~and ~~the~~investment ~~last~~powers ~~day~~from of the ~~fiscal~~Home ~~year~~Owners’ ofLoan ~~the~~Act, ~~company~~as ~~during which it had total annual gross~~amended, ~~revenues~~and ofapplicable $1federal regulations.0 ~~billion~~Under orthese ~~more;~~laws ~~(ii)~~and ~~the~~regulations, ~~last~~Bank ~~day~~34 ofmay ~~the~~invest ~~fiscal~~in ~~year~~mortgage ofloans ~~the~~secured ~~issuer~~by ~~following the fifth anniversary of the date~~residential ofand ~~the~~commercial ~~first~~real ~~sale~~estate, ofcommercial ~~common~~business ~~equity~~and ~~securities~~consumer ofloans, ~~the~~certain ~~company~~types ~~pursuant to an effective registration statement under the Securities Act~~ of ~~1933;~~debt ~~(iii)~~securities ~~the~~and ~~date~~certain onother ~~which such company has~~assets, subject ~~during~~to ~~the~~applicable ~~previous three-year period, issued more than $1~~limits.0 ~~billion~~Bank ~~in non-convertible~~34 ~~debt;~~may oralso ~~(iv)~~establish ~~the~~subsidiaries ~~date~~that onmay ~~which~~engage ~~such~~in ~~company~~certain isactivities ~~deemed~~not tootherwise ~~be a “large accelerated filer” under Securities~~permissible ~~and~~for ~~Exchange~~Bank ~~Commission regulations (generally~~34, atincluding ~~least~~real ~~$700~~estate ~~million~~investment ofand ~~voting~~securities and ~~non-voting~~insurance ~~equity held by non-affiliates)~~brokerage.

~~ITEM~~Capital 1ARequirements. ~~Risk~~ ~~Factors~~Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. These capital requirements were effective January 1, 2015 and are the result of a final rule implementing recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Act.

~~Not~~In ~~applicable~~determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as ~~Alamogordo~~common stockholders’ ~~Financial~~equity ~~Corp~~and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum ~~“Smaller~~of ~~Reporting~~1.25% ~~Company~~of risk-weighted assets and, for institutions that have made such an election regarding the treatment of Accumulated Other Comprehensive Income, up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.” Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the OCC takes into consideration, not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.

~~ITEM~~In 1Baddition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2. ~~Unresolved~~5% of common equity ~~Staff~~Tier ~~Comments~~1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement is being phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented at 2.5% on January 1, 2019.

~~None~~At December 31, 2015, Bank 34’s capital exceeded all applicable requirements.

16Loans-to-One Borrower. Generally, a federal savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2015, Bank 34 was in compliance with the loans-to-one borrower limitations.

~~ITEM~~Qualified 2Thrift Lender Test. ~~Properties~~ As a federal savings association, Bank 34 must satisfy the qualified thrift lender, or “QTL,” test. Under the QTL test, Bank 34 must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” (primarily residential mortgages and related investments, including mortgage-backed securities) in at least nine months of the most recent 12-month period. “Portfolio assets” generally means total assets of a savings association, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of the savings association’s business.

~~BANK’34 conducts its business through three offices. The following table sets forth certain information relating to our offices at June 30, 2014.~~16

Net

Year

Owned or

Book Value at

Approximate

Opened/Acquired

Leased

June 30, 2014

Square Footage

(Dollars in thousands)

Main Office:

500 East 10th Street

1997

Owned

6,046

19,000

Alamogordo, New Mexico 88310

Branch Office:

220 North Telshor Boulevard

2010

Owned

3,869

7,555

Las Cruces, New Mexico 88011

Lending Office:

17470 N. Pacesetter Way, Ste. 219

2012

Leased

—

869

Scottsdale, Arizona 85255

Table of Contents

~~The~~Bank ~~net~~34 ~~book~~also ~~value~~may ofsatisfy the ~~our~~QTL ~~investment~~test by qualifying as a “domestic building and loan association” as defined in the Internal Revenue Code of ~~premises~~1986, as amended. This test generally requires a savings association to have at least 75% of its deposits held by the public and earn ~~equipment~~at ~~was~~least ~~$10~~25% of its income from loans and U.0S. ~~million~~government obligations. Alternatively, a savings association can satisfy this test by maintaining at ~~June~~least 3060% of its assets in cash, ~~2014~~real estate loans and U.S. Government or state obligations.

~~ITEM~~A 3savings association that fails the qualified thrift lender test must operate under specified restrictions set forth in the Home Owners’ Loan Act. ~~Legal~~ The Dodd-Frank Act made noncompliance with the QTL test subject to agency enforcement action for a violation of law. At December ~~Proceedings~~31, 2015, Bank 34 satisfied the QTL test.

~~Periodically,~~Capital ~~we are involved~~Distributions. inFederal ~~claims~~regulations ~~and~~govern ~~lawsuits,~~capital ~~such~~distributions asby ~~claims~~a tofederal ~~enforce~~savings ~~liens~~association, ~~condemnation proceedings on properties in~~ which weinclude ~~hold~~cash ~~security interests~~dividends, ~~claims~~ ~~involving~~stock ~~the making~~ repurchases and ~~servicing of real property loans and~~ other ~~issues~~transactions ~~incident~~charged to ~~our~~the ~~business.~~savings Weassociation’s ~~are~~capital ~~not~~account. aA ~~party to~~federal ~~any~~savings ~~pending~~association ~~legal~~must ~~proceedings~~file ~~that~~an weapplication with ~~believe~~the ~~would~~OCC ~~have~~for aapproval ~~material adverse effect on our financial condition, results~~ of ~~operations or~~a ~~cash~~capital ~~flows.~~distribution if:

~~ITEM~~· ~~4. Mine Safety~~the ~~Disclosures~~total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus the savings association’s retained net income for the preceding two years;

~~Not~~· ~~applicable~~the savings association would not be at least adequately capitalized following the distribution;

17· the distribution would violate any applicable statute, regulation, agreement or regulatory condition; or

~~PART~~· IIthe savings association is not eligible for expedited treatment of its filings, generally due to an unsatisfactory CAMELS rating or being subject to a cease and desist order or formal written agreement that requires action to improve the institution’s financial condition.

~~ITEM~~Even 5.if ~~Market~~an ~~for~~application is ~~Registrant’s~~not ~~Common~~otherwise ~~Equity~~required, ~~Related~~every ~~Stockholder~~savings ~~Matters~~association that is a subsidiary of a savings and ~~Issuer~~loan ~~Purchases~~holding company, such as Bank 34, must still file a notice with the Federal Reserve Board at least 30 days before the board of ~~Equity~~directors ~~Securities~~declares a dividend or approves a capital distribution.

~~Our~~A ~~common~~notice ~~stock is listed on the OTCQB under the symbol “ALMG.” As of June 30, 2014, we had six registered market makers, 124 stockholders of record (excluding the number of persons~~ or ~~entities holding stock in street name through various brokerage firms), and 1,318,474~~application ~~shares~~related ofto ~~common stock outstanding. The following table sets forth market price information for our common stock. We did not declare~~ a ~~dividend~~capital ~~for~~distribution ~~any~~may ofbe ~~the~~disapproved ~~periods listed.~~if:

Quarter Ended	High		Low
June 30, 2014	$	15.75	$	15.17
March 31, 2014	$	15.75	$	15.30
December 31, 2013	$	15.90	$	15.75
September 30, 2013	$	16.25	$	14.10

the federal savings association would be undercapitalized following the distribution;

Quarter Ended	High		Low
June 30, 2013	$	16.50	$	14.00
March 31, 2013	$	14.70	$	12.55
December 31, 2012	$	15.00	$	12.50
September 30, 2012	$	16.00	$	13.80

the proposed capital distribution raises safety and soundness concerns; or

~~The~~· ~~declaration of dividends is at~~ the ~~discretion~~capital ofdistribution ~~our~~would ~~board~~violate ofa ~~directors~~prohibition ~~and~~contained ~~will~~in beany ~~determined after consideration of various factors~~statute, ~~including~~regulation earnings, cash requirements, our financial condition, applicable federal law and government regulations, the ability of AF Mutual Holding Company to waive the receipt of dividends and other factors deemed relevant by our board of directors. No assurance can be given that dividends will be declared or, ~~if declared, what the amount of dividends will be, or whether such dividends, once declared, will continue~~agreement.

~~There~~In ~~were~~addition, nothe ~~sales~~Federal Deposit ofInsurance Act provides that an insured depository institution may not make any capital distribution if, after making such ~~unregistered~~distribution, ~~securities~~the ~~during~~institution would fail to meet any applicable regulatory capital requirement. A federal savings association also may not make a capital distribution that would reduce its regulatory capital below the ~~quarter~~amount ~~ended~~required ~~June~~for ~~30,~~the ~~2014~~liquidation account established in connection with its conversion to stock form.

~~There~~Community ~~were~~Reinvestment Act noand ~~repurchases~~Fair Lending Laws. All federal savings associations have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of ~~shares~~their communities, including low- and moderate-income borrowers. In connection with its examination of ~~common~~a ~~stock~~federal ~~during~~savings association, the ~~quarter~~OCC ~~ended~~is ~~June~~required 30to assess the federal savings association’s record of compliance with the Community Reinvestment Act. A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, ~~2014~~at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those

1817

~~ITEM~~Table ~~6. Selected Financial~~of ~~Data~~Contents

~~You~~statutes. ~~should~~The ~~read~~failure to ~~the~~comply ~~following summary~~with ~~financial~~the ~~information~~Equal inCredit ~~connection~~Opportunity ~~with~~Act ~~our~~and ~~historical~~the ~~financial~~Fair ~~information,~~Housing ~~which~~Act ~~appears~~could ~~elsewhere~~result in ~~this~~enforcement ~~annual~~actions ~~report. The~~by ~~selected~~the ~~historical~~OCC, ~~financial~~as ~~data~~ well as ofother ~~June~~federal ~~30,~~regulatory ~~2014~~agencies and ~~2013 and for~~ the ~~years~~Department ~~then~~of ~~ended is derived from our audited financial statements that are included in this annual report~~Justice.

	At June 30,
	2014		2013		2012
	(In thousands)
Selected Financial Condition Data:
Total assets	$	167,785	$	174,310	$	184,766
Cash and cash equivalents		9,946		4,216		4,549
Securities		38,959		55,340		41,271
Loans held for investment, net		90,998		89,390		111,266
Loans held for sale		10,279		6,295		6,885
Deposits		134,673		135,517		143,421
Federal Home Loan Bank advances		8,810		13,327		15,502
Stockholders’ equity		22,184		23,597		24,676

The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating. Bank 34 received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.

	For the Years Ended June 30,
	2014			2013			2012
	(In thousands, except per share data)
Selected Operating Data:
Interest income	$	6,940		$	7,503		$	8,524
Interest expense		1,363			1,831			2,194
Net interest income		5,577			5,672			6,330
Provision for (credit to) loan losses		—			(121	)		2,939
Net interest income after provision for (credit to) loan losses		5,577			5,793			3,391
Noninterest income		3,083			3,596			1,039
Noninterest expense		9,895			9,486			7,797
Loss before income taxes		(1,235	)		(97	)		(3,367	)
Income taxes		—			36			26
Net loss	$	(1,235	)	$	(133	)	$	(3,393	)
Loss per share - basic	$	(0.95	)	$	(0.10	)	$	(2.57	)
Loss per share - diluted	$	(0.95	)	$	(0.10	)	$	(2.57	)

Transactions with Related Parties. A federal savings association’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under common control with an insured depository institution such as Bank 34. Alamogordo Financial Corp. will be an affiliate of Bank 34 because of its control of Bank 34. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates.

19Bank 34’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders:

	At or For the Years Ended June 30,
	2014			2013			2012
Performance Ratios:
Return on average assets (ratio of net loss to average total assets)		(0.73	)%		(0.07	)%		(1.84	)%
Return on average equity (ratio of net loss to average stockholders’ equity)		(5.46	)%		(0.55	)%		(12.84	)%
Interest rate spread (1)		3.52	%		3.34	%		3.65	%
Net interest margin (2)		3.66	%		3.50	%		3.82	%
Noninterest expense to average assets		5.84	%		5.29	%		4.24	%
Dividend payout ratio (4)		—	%		—	%		(4.23	)%
Efficiency ratio (3)		114.26	%		102.34	%		105.81	%
Average interest-earning assets to average interest-bearing liabilities		114.88	%		114.50	%		112.88	%
Capital Ratios:
Total capital to risk-weighted assets (Bank only)		23.89	%		25.77	%		22.06	%
Tier 1 capital to risk-weighted assets (Bank only)		22.64	%		24.51	%		20.80	%
Tier 1 capital to average assets (Bank only)		13.36	%		13.63	%		12.93	%
Average stockholders’ equity to average total assets		13.34	%		13.41	%		14.36	%
Asset Quality Ratios:
Allowance for loan losses to gross loans held for investment		1.77	%		2.00	%		2.02	%
Allowance for loan losses to non-performing loans		371.33	%		242.23	%		63.93	%
Net charge-offs to average outstanding loans during the year		(0.18	)%		(0.45	)%		(2.34	)%
Non-performing loans to gross loans held for investment		0.48	%		0.82	%		3.15	%
Non-performing loans to total assets		0.26	%		0.43	%		2.06	%
Non-performing assets and accruing troubled debt restructurings to total assets		1.05	%		1.52	%		3.46	%
Other:
Number of full-service offices		2			2			2
Number of full-time equivalent employees		65			66			59

be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and

~~(1)~~· ~~Represents~~not ~~the~~exceed ~~difference~~certain ~~between~~limitations on the ~~weighted~~amount ~~average~~of ~~yield~~credit onextended ~~average~~to ~~interest-earning~~such ~~assets~~persons, individually and in the ~~weighted~~aggregate, ~~average~~which ~~cost~~limits are based, in part, on the amount of ~~average~~Bank ~~interest-bearing~~34’s ~~liabilities~~capital.

~~(2)~~In ~~Represents~~addition, ~~net~~extensions of ~~interest~~credit ~~income~~in asexcess aof ~~percentage~~certain limits must be approved by Bank 34’s board of ~~average~~directors. ~~interest-earning~~Extensions ~~assets~~of credit to executive officers are subject to additional limits based on the type of extension involved.

~~(3)~~Enforcement. The ~~Represents~~OCC ~~noninterest~~has ~~expense~~primary ~~divided~~enforcement responsibility over federal savings associations and has authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, shareholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association. Formal enforcement action by the ~~sum~~OCC may range from the issuance of ~~net~~a ~~interest~~capital ~~income~~directive or cease and ~~noninterest~~desist ~~income~~order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The FDIC also has the authority to terminate deposit insurance or recommend to the OCC that enforcement action be taken with respect to a particular savings association. If such action is not taken, the FDIC has authority to take the action under specified circumstances.

~~(4)~~Standards ~~Represents~~for Safety ~~dividends~~and ~~declared~~Soundness. ~~divided~~Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by ~~net~~the ~~(loss)~~guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an

2018

~~ITEM~~Table ~~7. Management’s Discussion and Analysis~~ of ~~Financial Condition and Results of Operations~~Contents

~~This~~acceptable ~~discussion and analysis~~compliance ~~reflects~~plan. ~~our~~Failure ~~consolidated financial statements and other relevant statistical data, and is intended~~ to ~~enhance~~implement ~~your~~such ~~understanding of~~a ~~our~~plan ~~financial~~can ~~condition~~result ~~and results of operations. The information~~ in ~~this~~further ~~section~~enforcement ~~as of and for the years ended June 30~~action, ~~2014 and~~including ~~2013 has been derived from~~ the ~~audited~~issuance ~~consolidated~~of ~~financial~~a ~~statements~~cease ~~that appear elsewhere in this annual report. You should read the information in this section in conjunction with the business~~ and ~~financial~~desist ~~information regarding Alamogordo Financial~~order ~~Corp.~~or ~~and~~ the ~~financial~~imposition ~~statements provided in Part II, Item 8~~ of ~~this~~civil ~~annual~~money ~~report~~penalties.

~~Pending~~Interstate ~~Merger~~Banking and Branching. Federal law permits well capitalized and well managed holding companies to acquire banks in any state, subject to Federal Reserve Board approval, certain concentration limits and other specified conditions. Interstate mergers of banks are also authorized, subject to regulatory approval and other specified conditions. In addition, among other things, recent amendments made by the Dodd-Frank Act permit banks to establish de novo branches on an interstate basis provided that branching is authorized by the law of the host state for the banks chartered by that state.

OnPrompt ~~June~~Corrective Action 26Regulations. Federal law requires, ~~2013~~among other things, ~~the~~that federal bank regulators take “prompt corrective ~~Company~~action” ~~and~~with ~~Bank~~respect ~~1440~~to institutions that do not meet minimum capital requirements. For this purpose, ~~headquartered~~the inlaw ~~Phoenix~~establishes five capital categories: well capitalized, ~~Arizona~~adequately capitalized, ~~jointly~~undercapitalized, ~~announced~~significantly undercapitalized and critically undercapitalized. The applicable Office of the ~~execution~~Comptroller of anthe ~~agreement~~Currency ~~and~~regulations ~~plan~~were ofamended ~~merger~~to ~~for~~ incorporate the ~~two~~previously mentioned ~~community~~increased ~~banks~~regulatory capital standards that were effective January 1, ~~with~~2015. Under the ~~Bank~~amended asregulations, ~~the~~an ~~surviving~~institution is ~~entity~~deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% Onor ~~April~~greater, a Tier 1, ~~2014~~risk-based capital ratio of 8.0% or greater, ~~they~~a ~~jointly~~leverage ~~announced~~ratio anof ~~amendment~~5.0% or greater and a common equity Tier 1 ratio of ~~that~~6.5% ~~agreement~~or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and ~~plan~~a common equity Tier 1 ratio of ~~merger~~4.5% ~~Under~~or ~~the~~greater. ~~amended~~An ~~terms~~institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common ~~and~~equity ~~preferred~~Tier ~~shareholders~~1 ratio of ~~Bank~~less ~~1440~~than ~~have~~4.5%. ~~the~~An ~~right~~institution is deemed to ~~receive~~be 0“significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.~~17064~~0%, ~~shares~~a Tier 1 risk-based capital ratio of ~~Alamogordo~~less ~~Financial~~than ~~Corp~~4.0%, a leverage ratio of less than 3.0% or a common ~~stock~~equity ~~and~~Tier $1 ratio of less than 3.0%.94 ofAn ~~cash,~~institution is ~~for~~considered ~~each~~to ~~share~~be “critically undercapitalized” if it has a ratio of ~~Bank~~tangible ~~1440~~equity ~~stock~~(as defined in the regulations) to total assets that is equal to or less than 2.0%.

~~The~~At ~~necessary~~each ~~approvals~~successive oflower ~~Bank~~capital ~~1440~~category, ~~shareholders~~an insured depository institution is subject to more restrictions and ~~applicable~~prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking ~~regulators~~agency, ~~have~~and ~~been~~the ~~obtained~~holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the ~~transaction~~undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is ~~expected~~treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an ~~close~~order onby the Federal Reserve Board to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, cease receipt of deposits from correspondent banks or ~~about~~dismiss directors or officers, and restrictions on interest ~~August~~rates 29paid on deposits, ~~2014~~compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

~~Critical~~At ~~Accounting~~December ~~Policies~~31, 2015, Bank 34 met the criteria for being considered “well capitalized.”

~~Critical~~Insurance ~~accounting policies~~of ~~are~~Deposit ~~those~~Accounts. ~~that~~The ~~involve~~Deposit ~~significant~~Insurance ~~judgments~~Fund ~~and~~of ~~assumptions~~the byFDIC ~~management~~insures ~~and~~deposits ~~that~~at ~~have,~~FDIC orinsured ~~could~~financial ~~have,~~institutions asuch ~~material impact on our~~as ~~income~~Bank or34. ~~the~~Deposit ~~carrying~~accounts ~~value~~in ofBank ~~our~~34 ~~assets.~~are ~~Our~~insured ~~critical~~by ~~accounting~~the ~~policies~~FDIC ~~are~~generally ~~those~~up ~~related~~ to ~~our~~a ~~allowance~~maximum ~~for~~of ~~loan losses~~$250, ~~the~~000 ~~evaluation~~per ofseparately ~~other-than-temporary~~insured ~~impairment~~depositor. The ofFDIC ~~securities,~~charges ~~the~~insured ~~valuation~~depository ofinstitutions ~~and~~premiums ~~our ability~~ to ~~realize~~maintain ~~deferred tax assets and~~ the ~~measurement~~Deposit ofInsurance ~~fair values of financial instruments~~Fund.

Allowance for Loan Losses. The allowance for loan losses is calculated with the objective of maintaining an allowance necessary to absorb probable 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 an estimate of the losses for each risk rating and for each impaired loan, an estimate of the amounts and timing of expected future cash flows, and an estimate of the value of collateral.19

WeTable ~~have established a systematic 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.Contents

~~The~~Under ~~allowance~~the ~~for loan~~FDIC’s ~~losses~~risk-based ~~consists~~assessment ~~primarily~~system, ofinsured ~~specific~~institutions ~~allocations~~are ~~and~~assigned ~~general~~to ~~allocations.~~one ~~Specific~~of ~~allocations~~four ~~are~~risk ~~made~~categories ~~for~~based ~~loans~~on ~~that~~supervisory ~~are determined~~evaluations, toregulatory becapital ~~impaired.~~levels ~~Impairment~~and iscertain ~~measured~~other byrisk ~~determining~~factors. ~~the~~Rates ~~present~~are ~~value~~based ofon ~~expected~~each ~~future~~institution’s ~~cash~~risk ~~flows~~category ~~or,~~and ~~for collateral-dependent~~certain ~~loans,~~specified ~~the~~risk ~~fair value of the collateral, including~~ adjustments. ~~for~~Institutions ~~market~~deemed ~~conditions~~to ~~and~~be ~~selling~~less ~~expenses.~~risky ~~The~~pay ~~general~~lower ~~allocation is~~rates ~~determined~~while byinstitutions ~~segregating~~deemed ~~the~~riskier ~~remaining~~pay ~~loans~~higher byrates. Assessment ~~type~~rates (inclusive of ~~loan,~~possible ~~risk~~adjustments) ~~weighting~~currently ~~and~~range ~~payment~~from ~~history.~~2 1/2 Weto ~~also~~45 ~~analyze~~basis ~~delinquency~~points of ~~trends,~~each ~~general~~institution’s ~~economic~~total ~~conditions,~~assets ~~trends~~less intangible ~~historical~~capital. ~~loss~~The ~~experience~~Federal ~~and~~Deposit ~~geographic~~Insurance ~~and~~Corporation ~~industry~~may ~~concentrations.~~increase ~~This~~or ~~analysis~~decrease ~~establishes factors that are applied to~~ the ~~loan~~scale ~~groups~~uniformly, toexcept ~~determine~~that ~~the~~no ~~amount~~adjustment ofcan ~~the~~deviate ~~general~~more ~~allowance.~~than ~~The~~two ~~principal~~basis ~~assumption used~~points infrom ~~calculating~~ the ~~allowance~~base ~~for~~scale ~~loan~~without ~~losses~~notice isand ~~the~~comment rulemaking. ~~estimate~~The ofFederal ~~loss~~Deposit ~~for~~Insurance ~~each~~Corporation’s ~~risk~~current ~~rating.~~system ~~Actual~~represents ~~loan~~a ~~losses~~change, ~~may~~required beby ~~significantly more than~~ the ~~allowance~~Dodd-Frank ~~we have established~~Act, from ~~which~~its ~~could~~prior ~~have~~practice aof ~~material~~basing ~~negative~~the ~~effect~~assessment on ~~our~~an ~~financial~~institution’s ~~results~~volume of deposits.

21The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC, which has exercised that discretion by establishing a long range fund ratio of 2%.

~~Other-Than-Temporary Impairment.~~In ~~Securities~~addition ~~are evaluated on at least a quarterly basis,~~ to ~~determine whether a decline in their value is other-than-temporary.~~the InFDIC ~~estimating other-than-temporary impairment losses~~assessments, ~~management~~the ~~considers~~Financing Corporation (1“FICO”) ~~the~~is ~~length~~authorized ofto ~~time~~impose and ~~the extent to which the fair value has been less than cost~~collect, ~~(2)~~with the ~~financial~~approval ~~condition and near-term prospects~~ of the ~~issuer~~ FDIC, ~~and~~assessments ~~(3)~~for ~~whether~~anticipated orpayments, ~~not~~issuance wecosts ~~intend to~~and ~~sell~~custodial orfees ~~expect~~on ~~that~~bonds itissued isby ~~more~~the ~~likely~~FICO ~~than~~in ~~not~~the ~~that~~1980s ~~we will be required~~ to ~~sell~~ recapitalize the ~~investment~~former ~~security~~Federal ~~prior~~Savings toand anLoan ~~anticipated recovery~~Insurance ~~in fair value~~Corporation. ~~Once~~The abonds ~~decline~~issued inby ~~value for a debt security is determined to be other than temporary,~~ the ~~other-than-temporary impairment~~FICO isare ~~separated~~due ~~in (a) the amount of total other-than-temporary impairment related~~ to amature ~~decrease~~ in ~~cash~~2017 ~~flows~~through ~~expected~~2019. toFor ~~be collected from~~ the ~~debt~~quarter ~~security~~ended ~~(the~~December ~~credit~~31, ~~loss)~~2015, ~~and (b)~~ the ~~amount~~annualized ofFICO ~~other-than-temporary~~assessment ~~impairment~~was ~~related~~equal to ~~all other factors~~0.60 ~~The~~basis ~~amount~~points of ~~the~~ total ~~other-than-temporary~~assets ~~impairment~~less ~~related to credit loss is recognized in operations. The amount~~tangible ~~of other-than-temporary impairment related to other factors is recognized in other comprehensive loss~~capital.

~~Valuation~~The ofFDIC ~~Deferred Tax~~has ~~Assets. In evaluating our ability~~ authority to ~~realize~~increase ~~deferred~~insurance ~~tax~~assessments. ~~assets,~~Any ~~management~~significant ~~considers~~increases ~~all~~would ~~positive~~have ~~and~~an ~~negative~~adverse ~~information, including~~effect ~~our~~on ~~past~~the operating ~~results~~expenses and ~~our forecast~~ results of ~~future~~operations ~~taxable income. In determining future taxable income, management utilizes a budget process that makes business assumptions and the implementation~~ of ~~feasible~~Bank ~~and prudent tax planning strategies~~34. We ~~also~~Management ~~utilize~~cannot apredict ~~monthly~~what ~~forecasting~~assessment ~~tool~~rates towill ~~incorporate~~be ~~activity~~in ~~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~~Insurance ~~Value~~of ~~Measurements.~~deposits ~~Fair~~may ~~value~~be isterminated ~~defined~~by as the ~~exchange~~FDIC ~~price~~upon ~~that~~a ~~would~~finding bethat ~~received for~~ an ~~asset~~institution orhas ~~paid~~engaged toin ~~transfer~~unsafe aor ~~liability~~unsound ~~(an~~practices, ~~exit~~is ~~price)~~ in ~~the~~an ~~principal~~unsafe or unsound ~~most~~condition ~~advantageous~~to ~~market~~continue ~~for~~operations ~~the asset~~ or ~~liability~~has inviolated anany ~~orderly~~applicable ~~transaction~~law, ~~between~~regulation, ~~market~~rule, ~~participants~~order ~~on the~~or ~~measurement~~condition ~~date. Valuation~~imposed ~~techniques~~by ~~used to measure fair value must maximize~~ the FDIC. ~~use~~We ofdo ~~observable~~not ~~inputs~~currently ~~and~~know ~~minimize the use~~ of ~~unobservable~~any ~~inputs. A~~practice, ~~three-level~~condition ofor ~~fair~~violation ~~value~~that ~~hierarchy~~may ~~prioritizes~~lead ~~the~~to ~~inputs~~termination ~~used~~of toour ~~measure~~deposit ~~fair value:~~insurance.

·Privacy ~~Level~~Regulations. Federal 1regulations –generally ~~Quoted~~require ~~prices~~that inBank ~~active~~34 ~~markets~~disclose ~~for~~its ~~identical~~privacy ~~assets~~policy, orincluding ~~liabilities;~~identifying ~~includes~~with ~~certain~~whom ~~U.S.~~it ~~Treasury~~shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and ~~other~~annually Uthereafter.S. ~~Government~~In ~~agency~~addition, ~~debt~~Bank ~~that~~34 is ~~highly~~required ~~liquid~~to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and ~~actively~~not ~~traded~~to indisclose ~~over~~account numbers or access codes to non-affiliated third parties for marketing purposes. Bank 34 currently has a privacy protection policy in place and believes that such policy is in compliance with the~~-counter~~ ~~markets~~regulations.

·USA ~~Level~~Patriot 2Act. Bank –34 ~~Inputs~~is ~~other~~subject ~~than~~to ~~Level~~the 1USA ~~that~~PATRIOT ~~are observable~~Act, ~~either~~which ~~directly~~gives orfederal ~~indirectly,~~agencies ~~such~~additional aspowers ~~quoted~~to ~~prices~~address ~~for~~terrorist ~~similar~~threats through ~~assets~~enhanced ordomestic ~~liabilities~~security measures, ~~quoted~~expanded ~~prices~~surveillance inpowers, ~~markets~~increased ~~that~~information ~~are~~sharing, ~~not~~and ~~active~~broadened oranti-money laundering ~~other~~requirements. ~~inputs~~The ~~that~~USA ~~are~~PATRIOT ~~observable~~Act orcontains ~~can~~provisions beintended ~~corroborated~~to byencourage ~~observable~~information ~~market~~sharing ~~data~~among ~~for~~bank ~~substantially~~regulatory agencies ~~the~~and ~~full~~law ~~term~~enforcement bodies. Further, certain provisions impose affirmative obligations on a broad range of ~~the~~financial ~~assets~~institutions, including orbanks, ~~liabilities~~thrifts, brokers, dealers, credit unions, money transfer agents, and parties registered under the Commodity Exchange Act.

· Prohibitions Against ~~Level~~Tying 3Arrangements. –Federal ~~Unobservable~~savings ~~inputs~~associations ~~that~~ are ~~supported~~prohibited, bysubject ~~little~~to orsome noexceptions, ~~market~~from ~~activity~~extending ~~and that are significant~~ credit to ~~the~~or ~~fair~~offering ~~value~~any ofother ~~the~~service, ~~assets~~ or ~~liabilities.~~fixing ~~Level~~or 3varying ~~assets~~the ~~and~~consideration ~~liabilities~~for ~~include~~such ~~financial~~extension ~~instruments~~of ~~whose~~credit ~~value~~or isservice, ~~determined~~on ~~using~~the ~~pricing~~condition that ~~models,~~the ~~discounted~~customer ~~cash~~obtain ~~flow~~some ~~methodologies,~~additional orservice ~~similar~~from ~~techniques,~~the asinstitution ~~well~~or asits ~~instruments~~affiliates ~~for~~or ~~which~~not ~~the~~obtain ~~determination~~services of ~~fair~~a ~~value~~competitor of ~~requires~~the ~~significant management judgment or estimation~~institution.

~~The~~Federal ~~asset~~Home Loan orBank ~~liability’s fair~~System. ~~value~~Bank ~~measurement~~34 ~~level~~is ~~within~~a member of the ~~fair~~Federal ~~value~~Home ~~hierarchy~~Loan isBank ~~based~~System, onwhich consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. As a member of the ~~lowest~~Federal ~~level~~Home Loan Bank of ~~any~~Dallas, ~~input~~Bank ~~that~~34 is ~~significant~~required to ~~the~~acquire ~~fair~~and ~~value~~hold ~~measurement.~~ a specified number of shares of

~~Average Balance Sheet~~20

~~The~~Table following table sets forth average balances, average yields and costs, and certain other information for the fiscal years indicated. Tax-equivalent yield adjustments have not been made for tax-exempt securities, as the effect thereof was not material. All average balances are daily average balances. Non-accrual 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 fees, discounts and premiums that are amortized or accreted to interest income.Contents

22capital stock in the Federal Home Loan Bank. As of December 31, 2015, Bank 34 was in compliance with this requirement.

	For the Years Ended June 30,
	2014							2013
	Average Outstanding Balance		Interest		Average Yield/Rate			Average Outstanding Balance		Interest		Average Yield/Rate
	(Dollars in thousands)
Interest-earning assets:
Loans	$	98,407	$	6,049		6.15	%	$	109,054	$	6,819		6.25	%
Interest-earning deposits		6,414		12		0.19			3,563		15		0.42
Securities		46,844		873		1.86			48,307		663		1.37
Federal Home Loan Bank of Dallas stock		849		6		0.71			944		6		0.61
Total interest-earning assets		152,514		6,940		4.55			161,868		7,503		4.64
Non-interest-earning assets		17,005							17,597
Total assets	$	169,519						$	179,465
Interest-bearing liabilities:
Checking, money market and savings accounts	$	51,773		237		0.46		$	49,151		277		0.56
Certificates of deposit		69,674		722		1.04			77,805		973		1.25
Total interest-bearing deposits		121,447		959		0.79			126,956		1,250		0.98
Borrowings		11,309		404		3.57			14,415		581		4.03
Total interest-bearing liabilities		132,756		1,363		1.03			141,371		1,831		1.30
Non-interest-bearing deposits		12,372							12,514
Non-interest bearing liabilities		1,777							1,517
Total liabilities		146,905							155,402
Stockholders’equity		22,614							24,063
Total liabilities and total equity	$	169,519						$	179,465
Net interest income			$	5,577						$	5,672
Net interest rate spread (1)						3.52	%						3.34	%
Net interest-earning assets (2)	$	19,758						$	20,497
Net interest margin (3)						3.66	%						3.50	%
Average interest-earning assets to interest-bearing liabilities						114.88	%						114.50	%

Other Regulations

~~(1)~~Interest ~~Net~~and ~~interest~~other charges ~~rate~~collected ~~spread~~or ~~represents~~contracted ~~the~~for ~~difference~~by ~~between~~Bank ~~the~~34 ~~weighted~~are ~~average~~subject ~~yield~~to onstate ~~interest-earning~~usury ~~assets~~laws and ~~the~~federal ~~weighted~~laws ~~average~~concerning ~~rate of~~ interest~~-bearing~~ ~~liabilities~~rates. Bank 34’s operations are also subject to federal laws applicable to credit transactions, such as the:

~~(2)~~· ~~Net~~Home ~~interest-earning~~Mortgage ~~assets~~Disclosure ~~represent~~Act, ~~total~~requiring ~~interest-earning~~financial ~~assets~~institutions ~~less~~to ~~total~~provide ~~interest-bearing~~information ~~liabilities.~~to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

~~(3)~~· ~~Net~~Equal ~~interest~~Credit ~~margin~~Opportunity ~~represents~~Act, ~~net~~prohibiting ~~interest~~discrimination ~~income~~on ~~divided~~the bybasis ~~average~~of ~~total~~race, ~~interest-earning~~creed ~~assets.~~or other prohibited factors in extending credit;

~~Refer~~· toFair ~~Management’s Discussion~~Credit ofReporting ~~Financial Condition and Results of Operations section~~Act, ~~“Source~~governing ofthe ~~Funds~~use –and ~~Deposits,”~~provision ~~for our average cost~~ of ~~all~~information ~~deposits,~~to ~~including~~credit ~~non-interest~~reporting ~~bearing~~agencies; ~~accounts, for the years ended June 30, 2014~~ and ~~2013.~~

23· rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

~~Rate/Volume~~The ~~Analysis~~operations of Bank 34 also are subject to the:

~~The~~· ~~following~~Right ~~table presents the effects of changing rates and volumes on our net interest income for the years indicated. The rate column shows the effects attributable~~ to ~~changes~~Financial inPrivacy ~~rate~~Act, ~~(changes~~which inimposes ~~rate~~a ~~multiplied~~duty ~~by prior volume). The volume column shows the effects attributable~~ to ~~changes~~maintain ~~in volume~~confidentiality ~~(changes in volume multiplied by prior rate). The For purposes~~ of ~~this~~consumer ~~table,~~financial ~~changes~~records ~~attributable to both rate~~ and ~~volume, which~~prescribes ~~cannot~~procedures befor ~~segregated,~~complying ~~have~~with ~~been~~administrative ~~allocated~~subpoenas ~~proportionately~~of ~~based~~financial ~~on the changes due to rate and the changes due to volume.~~records;

	Year Ended June 30,
	2014 vs. 2013
	Increase (Decrease) Due to						Total
							Increase
	Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	(656	)	$	(114	)	$	(770	)
Interest-earning deposits		(10	)		7			(3	)
Securities		(19	)		229			210
Other		—			—			—
Total interest-earning assets		(685	)		122			(563	)
Interest-bearing liabilities:
Checking, money market and savings accounts		16			(56	)		(40	)
Certificates of deposit		(95	)		(156	)		(251	)
Total deposits		(79	)		(212	)		(291	)
Borrowings		(116	)		(61	)		(177	)
Total interest-bearing liabilities		(195	)		(273	)		(468	)
Change in net interest income	$	(490	)	$	395		$	(95	)

Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and

~~Comparison~~· ofCheck ~~Financial~~Clearing ~~Condition~~for atthe ~~June 30~~21st Century Act (also known as “Check 21”), ~~2014~~which gives “substitute checks,” such as digital check images and ~~2013~~copies made from that image, the same legal standing as the original paper check.

~~Total~~Holding ~~assets~~Company decreased $6.5 million, or 3.7%, to $167.8 million at June 30, 2014 from $174.3 million at June 30, 2013. The decrease in total assets was due primarily to a decrease in securities, partially offset by increases in cash and cash equivalents, loans held for sale and loans held for investment, each of which is discussed in more detail below.Regulation

~~Cash~~General. Alamogordo Financial Corp. and ~~cash~~AF ~~equivalents~~Mutual Holding Company are savings and loan holding companies within the meaning of the Home ~~increased~~Owners’ $5Loan Act.7 ~~million~~As such, oreach ~~135.9%,~~is toregistered ~~$9.9~~with ~~million~~the atFederal ~~June~~Reserve 30Board and subject to regulations, ~~2014~~examinations, ~~from~~supervision and ~~$4.2~~reporting ~~million~~requirements atapplicable ~~June~~to ~~30,~~savings ~~2013~~and loan holding companies. ~~The~~In ~~increase~~addition, ~~resulted~~the ~~from~~Federal Reserve Board has enforcement ~~maintaining~~authority ~~higher~~over ~~levels~~Alamogordo ofFinancial ~~liquidity~~Corp., ~~for~~AF ~~funding~~Mutual ~~loan~~Holding ~~originations~~Company and ~~the~~their ~~cash~~non-savings ~~portion~~institution ofsubsidiaries. Among other things, this authority permits the ~~upcoming~~Federal ~~merger~~Reserve ~~with~~Board ~~Bank~~to ~~1440~~restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution.

~~Securities~~Permissible ~~decreased $16~~Activities. The business activities of savings and loan holding companies are generally limited to those activities permissible for financial holding companies under Section 4(k) of the Bank Holding Company Act of 1956, as amended, provided certain conditions ~~million~~are met, or ~~29.6%,~~for tomultiple ~~$38~~savings and loan holding companies.9 ~~million~~A atfinancial ~~June~~holding ~~30,~~company ~~2014~~may ~~from~~engage ~~$55.3~~in ~~million~~activities atthat ~~June~~are 30financial in nature, ~~2013.~~including ~~Proceeds~~underwriting ~~from~~equity ~~sale~~securities and ~~repayment~~insurance ofas ~~securities~~well as activities that are incidental to financial activities ~~were~~or ~~used~~complementary to ~~fund~~a financial activity. A multiple savings and loan ~~originations~~holding ~~for~~company ~~both~~is ~~loans~~generally ~~held~~limited to activities permissible for ~~sale~~bank ~~and~~holding ~~our~~companies ~~loans~~under ~~held~~Section ~~for~~4(c)(8) ~~investment~~of the Bank Holding Company Act, ~~and~~subject ~~for~~to ~~repayment~~regulatory ofapproval, ~~Federal~~and certain additional ~~Home~~activities ~~Loan~~authorized ~~Bank~~by ~~advances~~federal regulations.

Loans held for investment, net, increased $1.6 million, or 1.8%, to $91.0 million at June 30, 2014 from $89.4 million at June 30, 2013. Commercial real estate loans, which include construction loans, increased $7.0 million, or 14.6%, to $55.1 million at June 30, 2014 from $48.1 million at June 30, 2013, reflecting our efforts to expand our commercial lending.21

~~Loans~~Table ~~held for sale at June 30, 2014 totaled $10.3 million and included $7.7 million in residential mortgage loans and $2.6 million~~ of ~~SBA loans. We currently sell a significant majority of our residential mortgage loans in the secondary market. At June 30, 2013 we had $6.3 million of residential mortgage loans held for sale.~~Contents

~~The~~Federal ~~decreases~~law inprohibits a ~~the~~savings ~~other~~ and loan ~~categories~~holding ~~resulted~~company, directly or indirectly, or through one or more subsidiaries, from aacquiring ~~combination~~more than 5% of another ~~many~~savings ~~factors~~institution or holding company thereof, ~~with~~without prior regulatory approval. It also prohibits the ~~primary~~acquisition ~~factor~~or retention ~~being~~of, ~~our~~with ~~acute~~certain ~~focus~~exceptions, onmore ~~improving~~than ~~and~~5% ~~maintaining~~of a non-subsidiary company engaged in activities that are not closely related ~~asset~~to ~~quality.~~banking ~~Simultaneously~~or financial in nature, weor ~~remained~~acquiring ~~cautious~~or onretaining ~~pricing~~control ~~and~~of ~~underwriting~~an ~~risk~~institution ~~despite~~that ~~significant~~is ~~competitive~~not ~~factors,~~federally ~~especially~~insured. In evaluating ~~from~~applications ~~larger~~by ~~banks~~holding ~~offering~~companies ~~exceptionally~~to ~~low~~acquire ~~rates~~savings institutions, the Federal Reserve Board must consider the financial and ~~very~~managerial resources, ~~competitive~~future ~~longer~~prospects ~~terms~~of the company and institution involved, the effect of the acquisition on ~~commercial~~the risk to the federal deposit insurance fund, the convenience and ~~industrial~~needs ~~loans~~of the community and competitive factors. ~~This~~A ~~conservative~~savings and loan holding company may not ~~approach~~acquire ~~has~~a ~~limited~~savings ~~our~~institution ~~new~~in ~~loan~~another ~~growth~~state and ~~resulted~~hold inthe ~~our~~target ~~losing~~institution ~~some~~as ~~existing~~a ~~commercial~~separate ~~and~~subsidiary ~~industrial~~unless ~~loan~~it ~~clients~~is ~~who~~a ~~were~~supervisory ~~targeted~~acquisition or the law of the state in which the target is located authorizes such acquisitions by ~~our~~out-of-state ~~competition~~companies.

~~Our~~The ~~residential~~states ~~loan~~vary ~~portfolio~~in isthe ~~also~~extent ~~experiencing a natural run-off as we continue~~ to ~~pursue~~which ~~our~~they ~~mortgage~~permit ~~banking~~interstate ~~program,~~savings ~~whereby loans are originated~~ and ~~sold~~ ~~for~~loan ~~fee~~holding ~~income~~company ~~as opposed to being held in our portfolio~~acquisitions. Residential real estate loans decreased $4.4 million, or 11.5%, to $34.0 million at June 30, 2014 from $38.4 million at June 30, 2013. We have 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.

24Capital. Savings and loan holding companies historically have not been subject to consolidated regulatory capital requirements. The Dodd-Frank Act requires the Federal Reserve Board to establish for all depository institution holding companies minimum consolidated capital requirements that are as stringent as those required for the insured depository subsidiaries. However, legislation was enacted in December 2014 that required the Federal Reserve Board to amend its “Small Bank Holding Company” exemption from consolidated holding company capital requirements to generally extend the applicability to bank and savings and loan holding companies of up to $1 billion in assets. Regulations implementing this amendment were effective May 15, 2015. Consequently, savings and loan holding companies of under $1 billion in consolidated assets remain exempt from consolidated regulatory capital requirements, unless the Federal Reserve determines otherwise in particular cases.

~~Deposits~~Source ~~decreased~~of ~~$844,000,~~Strength. orThe ~~0.6%,~~Dodd-Frank toAct ~~$134.7~~extended ~~million~~the at“source ~~June~~of ~~30,~~strength” ~~2014~~doctrine ~~from~~to ~~$135.5~~savings ~~million~~and atloan ~~June~~holding ~~30, 2013~~companies. The ~~decrease was caused primarily by a decrease~~Federal inReserve ~~certificates~~Board ofhas ~~deposit~~issued ofregulations ~~$5.8~~requiring ~~million,~~that orall ~~7.9%,~~bank toand ~~$67.9~~savings ~~million~~and atloan ~~June~~holding ~~30,~~companies ~~2014~~serve ~~from~~as ~~$73.7~~a ~~million~~source atof ~~June 30, 2013, mostly~~strength ~~offset~~to bytheir ~~increases~~subsidiary indepository ~~savings~~institutions ~~and~~by ~~NOW~~providing ~~accounts of $3.4 million~~capital, orliquidity ~~7.0%,~~ and ~~demand~~other ~~deposits~~support ofin ~~$1.5~~times ~~million, or 12.5%. During the year we allowed non-core certificates~~ of ~~deposit~~financial ~~to run off at maturity replacing them with savings, NOW and demand deposits when possible~~stress.

~~Borrowings~~Dividends. The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies. In general, ~~consisting~~the policy provides that dividends should be ~~solely~~paid only out of ~~Federal~~current ~~Home~~earnings ~~Loan~~and ~~Bank~~only ~~advances~~if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, ~~decreased~~asset $4quality and overall financial condition.5 ~~million~~Regulatory guidance provides for prior regulatory consultation with respect to dividends in certain circumstances such as where the company’s net income for the past four quarters, ornet ~~33.9%~~of dividends previously paid over that period, is insufficient to ~~$8.8~~fully ~~million~~fund atthe ~~June~~dividend ~~30,~~or ~~2014~~the ~~from~~company’s overall ~~$13~~rate or earnings retention is inconsistent with the company’s capital needs and overall financial condition.3 ~~million~~The atability ~~June~~of ~~30,~~a ~~2013.~~holding company to pay dividends may be restricted if a subsidiary depository institution becomes undercapitalized. The ~~decrease~~guidance ~~was~~also ~~due~~states that a holding company should inform the Federal Reserve Board supervisory staff prior to ~~contractual~~redeeming ~~maturities~~or repurchasing ofcommon ~~FHLB~~stock ~~advances~~or ~~during~~perpetual preferred stock if the ~~year~~holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, ~~which~~as ~~were~~of ~~not~~the ~~replaced~~end ~~due~~of a quarter, in the amount of such equity instruments outstanding tocompared with the ~~available~~beginning ~~funds~~of ~~from~~the quarter in which the ~~repayments~~redemption or repurchase occurred. These regulatory policies may affect the ability of Alamogordo Financial Corp. to pay dividends, ~~sales~~repurchase ~~and~~shares ~~contractual~~of ~~maturities~~common stock or otherwise engage in ~~available-for-sale~~capital ~~securities~~distributions.

~~Total~~The ~~stockholders’~~level of any dividends ~~equity~~that ~~decreased~~may ~~$1.4~~be ~~million,~~paid orby ~~6.0%,~~Alamogordo toFinancial ~~$22~~Corp.2 ~~million~~will atalso ~~June~~be ~~30,~~affected ~~2014~~by ~~from~~the ~~$23.6~~ability ~~million~~of atAF ~~June~~Mutual 30Holding Company, ~~2013.~~Alamogordo ~~The decrease was~~Financial ~~due~~Corp.’s ~~primarily~~majority stockholder, to waive the ~~net~~receipt ~~loss~~ of $1dividends.~~2 million for the 2014 fiscal year.~~

~~Comparison~~Acquisitions. Under ofthe ~~Operating~~Federal ~~Results~~Change ~~for~~in Bank Control Act, a notice must be submitted to the Federal Reserve Board if any person (including ~~Fiscal~~a ~~Years~~company), ~~Ended~~or ~~June~~group 30acting in concert, ~~2014~~seeks to acquire direct or indirect “control” of a savings and ~~2013~~loan holding company. Under certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the company’s outstanding voting stock, unless the Federal Reserve Board has found that the acquisition will not result in control of the company. A change in control occurs upon the acquisition of 25% or more of the company’s outstanding voting stock. Under the Change in Bank

Summary. We experienced a net loss of $1.2 million for fiscal year ended June 30, 2014, compared to a net loss of $133,000 for the fiscal year ended June 30, 2013. The change was due to a $513,000 decrease in noninterest income, a $409,000 increase in noninterest expense, a $95,000 decrease in net interest income and a $121,000 credit to the provision for loan losses in fiscal 2013, compared to none in fiscal 2014. Each of these changes is discussed in more detail below.22

~~Interest~~Table Income. Interest income decreased $563,000, or 7.5%, to $6.9 million for the fiscal year ended June 30, 2014 from $7.5 million for 2013. The decrease was caused by a decrease in interest and fees on loans, which decreased $771,000, or 11.3%, to $6.0 million for fiscal 2014 from $6.8 million for 2013, partially offset by an increase in interest income on securities of ~~$210,000, or 31.8%, to $873,000 for 2014 from $663,000 for 2013.~~Contents

~~The~~Control ~~decrease in interest and fees on loans was due primarily to a decrease in average balances~~Act, ~~which~~the ~~decreased~~Federal ~~$10.6~~Reserve ~~million,~~Board orgenerally ~~9.8%,~~has to60 ~~$98.4~~days ~~million for 2014~~ from ~~$109.0~~the ~~million~~filing ~~for 2013. The average balance~~ of ~~loans~~a ~~decreased for the reasons described in “—Comparison~~complete ofnotice ~~Financial~~to ~~Condition at June 30~~act, ~~2014~~taking ~~and~~into ~~June~~consideration 30certain factors, ~~2013.”~~including ~~Our~~the ~~average~~financial ~~loan~~and ~~yield~~managerial ~~decreased~~resources 10of ~~basis~~the ~~points~~acquirer ~~to 6.15%~~and ~~for~~the ~~2014~~competitive ~~from~~effects ~~6.25%~~of ~~for~~the ~~2013 due primarily to a decrease in market rates on new originated loans and principal payments on older, higher yielding loans~~acquisition.

~~Interest~~Federal ~~Expense. Interest~~Securities expense decreased $468,000, or 25.5%, to $1.4 million for 2014 from $1.8 million for 2013. The decrease was caused primarily by a decrease in interest expense on deposits, which decreased $291,000, or 23.2%, to $959,000 for 2014 from $1.2 million for 2013. Interest expense on certificates of deposit decreased $251,000, or 25.8%, to $722,000 for 2014 from $973,000 for 2013. Our average rate on certificates of deposit decreased 21 basis points to 1.04% for 2014 from 1.25% for 2013 and the average balance decreased $8.1 million, or 10.5%, to $69.7 million for 2014 from $77.8 million for 2013.Laws

~~Interest~~Alamogordo ~~expense on Federal~~Financial ~~Home~~Corp.’s ~~Loan~~common ~~Bank~~stock ~~advances~~is ~~decreased~~registered ~~$177,000,~~with orthe ~~30.5%,~~Securities toand ~~$404,000~~Exchange ~~for~~Commission ~~2014~~under ~~from~~the ~~$581,000~~Securities ~~for~~Exchange ~~2013.~~Act ~~The average balance~~ of ~~Federal~~1934, ~~Home~~as ~~Loan~~amended. ~~Bank~~Alamogordo ~~advances~~Financial ~~decreased $3~~Corp.1 ~~million,~~is orsubject ~~21.5%,~~ to ~~$11.3~~the ~~million~~information, ~~for~~proxy ~~2014 from $14.4 million for 2013. In addition~~solicitation, ~~the average~~insider ~~rate~~trading ~~paid~~restrictions onand ~~Federal Home Loan Bank advances decreased 46 basis points to 3.57% for 2014 from 4.03% for 2013. In 2014,~~other werequirements ~~were~~under ~~able~~the toSecurities ~~decrease~~Exchange ~~average~~Act ~~Federal~~of ~~Home Loan Bank advances as our securities portfolio balances declined~~1934.

~~Net~~Emerging ~~Interest~~Growth ~~Income. Net~~Company interest income decreased $95,000, or 1.7%, to $5.6 million for 2014 from $5.7 million for 2013 due primarily to the decreases in average interest-earning assets and interest-bearing liabilities, partially offset by the increase in the net interest margin.Status

25The Jumpstart Our Business Startups Act (the “JOBS Act”), which was enacted in April 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” Alamogordo Financial Corp. qualifies as an emerging growth company under the JOBS Act.

~~Provision~~An ~~for Loan~~“emerging ~~Losses.~~growth Wecompany” ~~made~~may nochoose ~~provision~~not ~~for~~to ~~loan~~hold ~~losses~~shareholder ~~for~~votes ~~2014,~~to ~~compared~~approve toannual aexecutive ~~credit~~compensation (more frequently referred to ~~the~~as ~~provision~~“say-on-pay” ~~for~~votes) ~~loan~~or ~~losses~~executive ofcompensation ~~$121,000~~ payable in ~~2013~~connection with a merger (more frequently referred to as “say-on-golden parachute” votes). ~~The~~An ~~credit~~emerging growth company also is not subject to the ~~provision~~requirement inthat ~~2013~~its ~~was~~auditors attest ~~due~~ to ~~both~~the ~~reduced~~effectiveness ~~loan~~of ~~portfolio~~the ~~balances~~company’s ~~and~~internal ~~improving~~control ~~credit~~over ~~quality~~financial reporting, ~~including~~and can provide scaled disclosure ~~reductions~~regarding inexecutive ~~nonaccrual~~compensation; ~~loans~~however, ~~impaired~~Alamogordo ~~loans~~Financial ~~and~~Corp. ~~total~~will ~~aggregate~~also ~~loans~~not ~~classified~~be subject to the auditor attestation requirement or additional executive compensation disclosure so long as ~~special~~it ~~mention~~remains ~~and~~a ~~substandard.~~“smaller Inreporting ~~2014,~~company” under Securities ~~credit~~and ~~quality~~Exchange ~~continued~~Commission toregulations ~~improve~~(generally less than $75 million of voting and nonon-voting ~~increase~~equity inheld ~~the~~by ~~allowance~~non-affiliates). ~~for~~Finally, an ~~loan~~emerging ~~losses~~growth ~~was~~company ~~considered~~may ~~necessary~~elect asto ~~the~~comply ~~reduction~~ with new or amended accounting pronouncements in the ~~experience~~same ~~loss~~manner ~~ratio~~as ~~offset~~a ~~the~~private 1company.6% Such ~~increase~~an inelection ~~loans~~is ~~held~~irrevocable ~~for~~during ~~investment~~the ~~for~~period ~~the~~a ~~2014~~company ~~fiscal~~is ~~year~~an emerging growth company. ~~Net~~Alamogordo ~~charge-~~Financial ~~offs~~Corp. tohas elected ~~average~~to ~~loans~~comply ~~were~~with ~~0.18%~~new ~~for~~or ~~2014,~~amended ~~compared~~accounting topronouncements ~~0.45%~~in ~~for~~the ~~2013~~same manner as a private company.

WeA company loses emerging growth company status on the earlier of: (i) the last day of the fiscal year of the company during which it had antotal ~~allowance~~annual ~~for~~gross ~~loan~~revenues ~~losses~~ of $1.60 ~~million,~~billion or ~~1.77%~~more; of(ii) ~~total~~the ~~loans~~last ~~held~~day ~~for~~of ~~investment~~the ~~and~~fiscal ~~371.33%~~year of ~~non-performing~~the ~~loans~~issuer atfollowing ~~June~~the ~~30,~~fifth ~~2014,~~anniversary of the date ~~compared~~of the first sale of common equity securities of the company pursuant to an ~~allowance~~effective ~~for~~registration ~~loan~~statement ~~losses~~under the Securities Act of 1933; (iii) the date on which such company has, during the previous three-year period, issued more than $1.80 ~~million,~~billion in non-convertible debt; or ~~2.00%~~(iv) ofthe ~~total~~date ~~loans~~on ~~held~~which ~~for~~such ~~investment~~company is deemed to be a “large accelerated filer” under Securities and ~~242.23%~~Exchange Commission regulations (generally, at least $700 million of voting and non-~~performing loans~~voting atequity ~~June~~held ~~30,~~by ~~2013~~non-affiliates).

Noninterest Income. Noninterest income decreased $513,000, or 14.3%, to $3.1 million for 2014 from $3.6 million for 2013. Gain on sale of mortgage loans decreased $624,000, or 20.0%, to $2.5 million for 2014 from $3.1 million for 2013. We sold $91.1 million of mortgage loans during 2014, a decrease of 8.7%, compared to $99.7 million of sales during 2013. We realized a more attractive average premium for the 2013 period. Average premiums decreased to 2.7% of mortgage loans sold for 2014 compared to 3.0% for 2013. Premiums vary from period to period based upon the mix of government FHA and VA loans to conventional loans, geographic market differences and market interest rates, specifically changes in 10-year Treasury rates.23

~~Noninterest~~Table ~~Expense. Noninterest~~of expense increased $409,000, or 4.3%, to $9.9 million for 2014 from $9.5 million for 2013 due primarily to a $686,000 increase in merger-related expenses (including legal fees) related to our merger with Bank 1440.Contents

~~Salaries~~ITEM ~~and benefits decreased $294,000 to $5~~1A.3 ~~million~~Risk for 2014 due primarily to reductions in retirement benefits and other employee benefits and incentive pay, partially offset by a 4% increase in base pay. Data processing fees increased $207,000 due primarily to higher core data processing fees and the completion of some special programming projects including the implementation of a secure web portal.Factors

~~Income~~Not ~~Tax Expense. Income tax expense was $0 for fiscal 2014~~applicable, ~~compared to $36,000 in 2013. No income tax expense was recorded in 2014 due~~as toAlamogordo ~~the~~Financial ~~pre-tax net loss of $1~~Corp.2 ~~million~~is ~~and no income tax benefit was recorded since the ability to receive~~ a ~~future~~“Smaller ~~tax~~Reporting ~~benefit utilizing those losses was uncertain~~Company.”

26ITEM 1B. Unresolved Staff Comments

~~Loans Held for Investment~~None.

WeITEM primarily originate residential real estate loans, including multi-family residential real estate loans, as well as commercial real estate loans, including construction loans, commercial and industrial loans and consumer and other loans2. ~~The following table sets forth the composition of our loans held for investment by type of loan at the dates indicated.~~Properties

	At June 30,
	2014						2013
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Residential real estate loans	$	34,015			36.61	%	$	38,432			42.07	%
Commercial real estate loans		55,103			59.31			48,081			52.64
Commercial and industrial loans		2,787			3.00			3,346			3.66
Consumer and other loans		1,007			1.08			1,487			1.63
Total gross loans held for investment		92,912			100.00	%		91,346			100.00	%
Less:
Unamortized loan fees		(269	)					(132	)
Loans held for investment		92,643						91,214
Allowance for loan losses		(1,645	)					(1,824	)
Loans held for investment, net	$	90,998					$	89,390

Bank 34 conducts its business through four full-service and three loan production offices. The following table sets forth certain information relating to our offices at December 31, 2015.

The following table sets forth the contractual maturities of our loans held for investment at June 30, 2014. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. The table presents contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.

Net

Year

Owned or

Book Value at

Opened/Acquired

Leased

December 31, 2015

(Dollars in thousands)

Main Office:

500 East 10th Street

1997

Owned

4,318

Alamogordo, New Mexico 88310

Branch Office:

220 North Telshor Boulevard

2010

Owned

2,474

Las Cruces, New Mexico 88011

Branch Office:

14155 N. 83rd Avenue

2014

Leased

167

Suite 117

Peoria, Arizona 85381

Branch Office:

14850 N Scottsdale Road

2015

Leased

Suite 100

Scottsdale, Arizona 85254

Scottsdale, AZ Loan Production Office:

4835 E. Cactus Road

2015

Leased

Suite 150

Scottsdale, Arizona 85254

El Paso, TX Loan Production Office:

6350 Escondido Drive

2015

Leased

Suite A15

El Paso, Texas 79912

Albuquerque, NM Loan Production Office:

6565 Americas Parkway North East

2015

Leased

Suite 204

Albuquerque, New Mexico 87110

June 30, 2014	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer and other		Total
	(In thousands)
Amounts due in:
One year or less	$	1,659	$	9,313	$	1,166	$	172	$	12,310
More than one to five years		5,922		27,922		1,459		821		36,124
More than five years		26,434		17,868		162		14		44,478
Total gross loans held for investment	$	34,015	$	55,103	$	2,787	$	1,007	$	92,912

The net book value of our investment in premises and equipment was $9.8 million at December 31, 2015.

~~The following table sets forth our fixed and adjustable-rate loans at June 30, 2014 that are contractually due after June 30, 2015.~~24

	Due After June 30, 2015
	Fixed		Adjustable		Total
	(In thousands)
Real estate loans:
One- to four-family residential	$	32,356	$	—	$	32,356
Commercial		24,199		21,591		45,790
Commercial and industrial		1,524		97		1,621
Consumer and other loans		835		—		835
Total loans	$	58,914	$	21,688	$	80,602

Table of Contents

27ITEM 3. Legal Proceedings

~~Asset~~Periodically, ~~Quality~~we are involved in claims and lawsuits, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

WeITEM review loans on a regular basis, and place loans on nonaccrual status when either principal or interest is 90 days or more past due, or earlier if we do not expect to receive full payment of interest or principal4. ~~Interest~~Mine ~~accrued~~Safety 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.Disclosures

~~Non-Performing~~Not ~~Assets. The following table sets forth information regarding our non-performing assets.~~applicable

	At June 30,
	2014			2013
	(Dollars in thousands)
Non-accrual loans:
Real estate loans:
One- to four-family residential	$	99		$	120
Commercial		327			633
Commercial and industrial loans		17			—
Consumer and other loans		—			—
Total non-accrual loans		443			753
Accruing loans past due 90 days or more		—			—
Total of nonaccrual loans and accruing loans past due 90 days or more		443			753
Other real estate owned (“ORE”):
One- to four-family residential		17			297
Commercial		820			1,095
Total ORE		837			1,392
Total non-performing assets	$	1,280		$	2,145
Non-performing loans to gross loans held for investment		0.48	%		0.82	%
Non-performing assets to total assets		0.76	%		1.23	%
Non-performing assets to gross loans held for investment and ORE		1.37	%		2.31	%

PART II

~~The~~ITEM ~~non-performing~~5. ~~asset ratios~~Market ~~decreased~~for ~~due~~Registrant’s ~~primarily~~Common toEquity, ~~reductions~~Related ofStockholder ~~39.9%~~Matters ~~in other real estate~~ and ~~41.2%~~Issuer inPurchases ~~nonaccrual~~of ~~loans.~~Equity Securities

~~Interest~~Our ~~income~~common ~~that~~stock ~~would~~is ~~have~~listed ~~been~~on ~~recorded~~the ~~for~~OTCQB under the ~~year~~symbol ~~ended~~“ALMG.” ~~June~~As 30of March 22, ~~2014~~2016, we had ~~nonaccruing~~607 ~~loans~~stockholders ~~been~~of ~~current~~record ~~according~~(excluding tothe number ~~their~~of ~~original~~persons ~~terms~~or ~~amounted to~~entities ~~$40,000.~~holding Westock ~~recognized~~in nostreet ~~interest~~name ~~income~~through onvarious ~~these~~brokerage ~~loans~~firms), ~~for~~and ~~the~~1,679,500 ~~year~~shares ~~ended~~of ~~June~~common ~~30, 2014~~stock outstanding. OfThe ~~such~~following ~~amount,~~table ~~$32,000~~sets isforth ~~related to~~market ~~troubled~~price ~~debt~~information ~~restructurings.~~for Weour ~~recognized~~common nostock. ~~interest~~We ~~income~~did onnot ~~these~~declare ~~loans~~a dividend for any of the ~~year~~periods ~~ended June 30, 2014~~listed.

In addition to non-performing assets, as of June 30, 2014 and 2013 we had $489,000 and $505,000 of accruing troubled debt restructurings. 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, 2014 consisted of three commercial real estate loans and one commercial and industrial loan and the troubled debt restructurings as of June 30, 2013 consisted of two commercial real estate loans and one commercial and industrial loan. As of June 30, 2014 and 2013 there were no specific reserves related to these loans, and at each date we had no commitments to lend additional amounts to the customers.

Quarter Ended	High		Low
December 31, 2015	$	18.00	$	16.02
September 30, 2015	$	20.00	$	16.75
June 30, 2015	$	20.38	$	14.75
March 31, 2015	$	16.10	$	14.80

December 31, 2014	$	16.50	$	14.90
September 30, 2014	$	16.00	$	15.51
June 30, 2014	$	15.75	$	15.17
March 31, 2014	$	15.75	$	15.30

28The declaration of dividends is at the discretion of our board of directors and will be determined after consideration of various factors, including earnings, cash requirements, our financial condition, applicable federal law and government regulations, the ability of AF Mutual Holding Company to waive the receipt of dividends and other factors deemed relevant by our board of directors. No assurance can be given that dividends will be declared or, if declared, what the amount of dividends will be, or whether such dividends, once declared, will continue.

~~Delinquent~~There ~~Loans. The~~were ~~following~~no ~~table~~sales of ~~sets~~unregistered ~~forth~~securities ~~our~~or ~~loan~~repurchases ~~delinquencies~~of byshares ~~type~~of ~~and~~common ~~amount~~stock atduring the ~~dates~~quarter ~~indicated~~ended December 31, 2015.

	At June 30,
	2014						2013
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due
	(In thousands)
Residential real estate loans	$	—	$	43	$	—	$	—	$	45	$	65
Commercial real estate loans		162		—		—		—		—		137
Commercial and industrial loans		—		—		—		—		—		—
Consumer and other loans		—		—		—		—		—		—
Total	$	162	$	43	$	—	$	—	$	45	$	202

~~Classified~~Table ~~Assets. Federal regulations provide that loans and other assets~~ of lesser quality should be classified as “substandard”, “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that we will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. We designate an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention.Contents

~~The~~ITEM ~~following table sets forth our amounts of classified assets and assets designated as special mention as of June 30, 2014 and 2013~~6. ~~The~~Selected ~~classified~~Financial ~~assets total at June 30, 2014 includes $443,000 of nonperforming loans.~~Data

	At June 30,
	2014		2013
	(In thousands)
Classified assets:
Substandard (1)	$	3,274	$	3,575
Doubtful		—		—
Loss		—		—
Total classified assets	$	3,274	$	3,575
Special mention	$	854	$	2,031

You should read the following summary financial information in connection with our historical financial information, which appears elsewhere in this annual report. The selected historical financial data at December 31, 2015 and 2014, for the year ended December 31, 2015, for the six months ended December 31, 2014 and for the years ended June 30, 2014 and 2013 is derived in part from the audited consolidated financial statements that appear in this report. The information at June 30, 2014, 2013, 2012 and 2011 and for the year ended June 30, 2012 is derived in part from audited consolidated financial statements that do not appear in this report. The information for the year ended December 31, 2014 and the six months ended December 31, 2013 is unaudited.

(1) Includes other real estate at June 30, 2014 and 2013 of $837,000 and $1.4 million, respectively.

	At December 31,				At June 30,
	2015		2014		2014		2013		2012		2011
	(Dollars in thousands)
Selected Financial Condition:
Total assets	$	270,984	$	246,954	$	167,785	$	174,310	$	184,766	$	183,744
Cash and cash equivalents		19,825		14,824		9,946		4,216		4,549		2,378
Available-for-sale securities		28,631		29,018		38,959		55,340		41,271		21,245
Loans held for investment, net		192,137		173,990		90,998		89,390		111,266		135,435
Loans held for sale		11,381		9,429		10,279		6,295		6,885		2,781
Deposits		225,700		201,939		134,673		135,517		143,421		136,363
Federal Home Loan Bank advances		13,000		12,500		8,810		13,327		15,502		18,093
Stockholders' equity		29,644		29,336		22,184		23,597		24,676		28,168

Allowance for Loan Losses. The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb probable 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 reasonably possible that management’s estimate of probable 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 full and paryial charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses. Management’s periodic evaluation of the adequacy of the allowance is based on the current level of net loan losses, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions.

	Years Ended				Six Months Ended					Years Ended
	December 31,				December 31,					June 30,
	2015		2014		2014		2013			2014			2013			2012
			(unaudited)				(unaudited)
	(In thousand, except per share data)
Selected Operating Data:
Interest income	$	12,224	$	8,367	$	4,894	$	3,467		$	6,940		$	7,503		$	8,524
Interest expense		1,434		1,394		767		736			1,363			1,831			2,194
Net interest income		10,790		6,973		4,127		2,731			5,577			5,672			6,330
Provision (credit) for loan losses		694		50		50		-			-			(121	)		2,939
Net interest income after provision (credit) for loan losses		10,096		6,923		4,077		2,731			5,577			5,793			3,390
Non-interest income (1)		4,903		6,243		4,473		1,314			3,083			3,596			1,039
Non-interest expense (2)		14,658		12,766		7,528		4,656			9,895			9,486			7,797
Income (loss) before income taxes		341		399		1,023		(611	)		(1,235	)		(97	)		(3,367	)
Income taxes		20		74		74		-			-			36			26
Net income	$	321	$	326	$	949	$	(611	)	$	(1,235	)	$	(133	)	$	(3,393	)
Income (loss) per share - basic	$	0.19	$	0.23	$	0.61	$	(0.47	)	$	(0.95	)	$	(0.10	)	$	(2.57	)
Income (loss) per share - diluted	$	0.19	$	0.23	$	0.61	$	(0.47	)	$	(0.95	)	$	(0.10	)	$	(2.57	)

29(1) Non-interest income for the year ended December 31, 2014 and the six months ended December 31, 2014 includes a bargain purchase gain of $2.9 million in connection with the acquisition of Bank 1440.

~~Adjustable~~(2) Non-~~rate~~interest ~~mortgage loans~~expense ~~decrease~~for the ~~risk~~years ~~associated~~ended ~~with~~December ~~changes in market interest rates by periodically repricing~~31, ~~but~~2015 ~~involve~~and ~~other risks as interest rates increase since the underlying payments by the borrower increase~~2014, ~~thus increasing~~ the ~~potential~~six ~~for~~months ~~default.~~ended AtDecember ~~the same time~~31, ~~the~~2014 ~~marketability~~and of2013 ~~the~~and ~~underlying collateral may be adversely affected by higher interest rates. Upward adjustment of~~ the ~~contractual~~years ~~interest~~ended ~~rate~~June is30, ~~also~~2014, ~~limited~~2013 ~~by the maximum periodic~~ and ~~lifetime~~2012 ~~interest~~includes ~~rate~~merger-related ~~adjustments~~expenses ~~permitted~~of by$100,000, ~~our loan~~$1.4 ~~agreements~~million, ~~and~~$801,000, ~~therefore~~$344,000, ~~the~~$920,000, ~~effectiveness~~$234,000, ofand ~~adjustable-rate~~$0, ~~mortgage loans may be limited during periods of rapidly rising interest rates~~respectively.

Loans secured by commercial real estate, including 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 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.26

~~Unlike~~Table ~~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 and industrial 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 and industrial 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.Contents

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

	At or For the
	Years Ended						Six Months Ended						Years Ended
	December 31,						December 31, (5)						June 30,
	2015			2014			2014			2013			2014			2013			2012
Performance Ratios:
Return on average assets (ratio of net income (loss) to average total assets)		0.12	%		0.17	%		0.84	%		(0.71	)%		(0.73	)%		(0.07	)%		(1.84	)%
Return on average equity (ratio of net income (loss) to average stockholders' equity)		1.08	%		1.29	%		6.77	%		(5.36	)%		(5.46	)%		(0.55	)%		(12.84	)%
Net interest rate spread (1)		4.36	%		3.77	%		3.84	%		3.39	%		3.52	%		3.34	%		3.65	%
Net interest margin (2)		4.47	%		3.89	%		3.96	%		3.52	%		3.66	%		3.50	%		3.82	%
Noninterest expense to average assets		5.64	%		6.51	%		6.68	%		5.39	%		5.84	%		5.29	%		4.24	%
Dividend payout ratio		-	%		-	%		-	%		-	%		-	%		-	%		(4.23	)%
Efficiency ratio (3)		93.41	%		96.60	%		87.53	%		115.10	%		114.26	%		102.34	%		105.81	%
Average interest-earning assets to average interest-bearing liabilities		118.80	%		116.20	%		116.27	%		113.73	%		114.88	%		114.50	%		112.88	%

Capital Ratios:
Total capital to risk-weighted assets (Bank only)		16.93	%		17.09	%		17.09	%		24.66	%		23.89	%		25.77	%		22.06	%
Tier 1 capital to risk-weighted assets (Bank only)		15.91	%		16.13	%		16.13	%		23.41	%		22.64	%		24.51	%		20.80	%
Tier 1 capital to average assets (Bank only)		11.06	%		11.68	%		11.68	%		13.89	%		13.36	%		13.63	%		12.93	%
Average stockholders' equity to average total assets		11.46	%		12.88	%		12.44	%		13.20	%		13.34	%		13.41	%		14.36	%

Asset Quality Ratios:
Allowance for loan losses to total gross loans less acquired loans (4)		1.28	%		1.50	%		1.50	%		1.85	%		1.77	%		2.00	%		2.02	%
Allowance for loan losses to nonperforming loans (4)		102.71	%		209.50	%		209.50	%		288.83	%		371.33	%		242.23	%		63.93	%
Net (charge-offs) recoveries to average loans		(0.25	)%		(0.06	)%		0.02	%		(0.19	)%		(0.18	)%		(0.45	)%		(2.34	)%
Nonperforming loans to total gross loans		0.95	%		0.46	%		0.46	%		0.64	%		0.48	%		0.82	%		3.15	%
Nonperforming assets and accruing troubled debt restructurings to total assets		0.79	%		0.86	%		0.86	%		1.43	%		1.05	%		1.52	%		3.46	%

Other Data:
Number of full service offices		4			4			4			2			2			2			2
Full time equivalent employees		98			75			75			60			65			66			59

	At or For the Years Ended June 30,
	2014			2013
	(Dollars in thousands)
Allowance at beginning of year	$	1,824		$	2,437
Provision for (credit to) loan losses		—			(121	)
Charge offs:
Residential real estate loans		(86	)		(111	)
Commercial real estate loans		(76	)		(383	)
Commercial and industrial loans		—			—
Consumer and other loans		(48	)		(187	)
Total charge-offs		(210	)		(681	)
Recoveries:
Residential real estate loans		—			46
Commercial real estate loans		30			66
Commercial and industrial loans		—			—
Consumer and other loans		1			77
Total recoveries		31			189
Net (charge-offs)		(179	)		(492	)
Allowance at end of year	$	1,645		$	1,824
Allowance for loan losses to non-performing loans at end of year		371.33	%		242.23	%
Allowance for loan losses to gross loans held for investment at the end of the year		1.77	%		2.00	%
Net (charge-offs) to average loans outstanding during the year		(0.18	)%		(0.45	)%

(1)

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

~~The~~(2) ~~allowance~~Net ~~for~~interest ~~loan losses~~margin torepresents ~~non-performing~~net ~~loans~~interest ~~ratio~~income ~~increased due to a decrease in non-performing loans. The allowance for loan losses to gross loans held for investment decreased~~ as a ~~result~~percentage of ~~charge~~average interest-~~offs~~earning ~~recognized during 2014~~assets.

30(3) Efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income.

~~Allocation~~(4) ofThere ~~Allowance for~~is ~~Loan~~no ~~Losses. The following table sets forth the~~ allowance for loan losses ~~allocated~~on ~~by loan category and the percent of~~ loans inacquired ~~each category to total loans held for investment at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses~~ in ~~any particular category and does not restrict~~ the ~~use~~acquisition of ~~the~~Bank ~~allowance to absorb losses in other categories~~1440.

	At June 30,
	2014					2013
	Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Residential real estate loans	$	375		36.61	%	$	196		42.07	%
Commercial real estate loans		1,126		59.31			1,568		52.64
Commercial and industrial loans		129		3.00			55		3.66
Consumer and other loans		15		1.08			5		1.63
Total allocated allowance		1,645		100.00	%		1,824		100.00	%
Unallocated		—					—
Total	$	1,645				$	1,824

(5)

Ratios for six-month periods have been annualized.

~~Investments~~27

~~Our~~Table ~~investment policy is established by our Board~~ of ~~Directors. The policy emphasizes safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with our interest rate risk management strategy.~~Contents

~~The~~ITEM ~~following~~7. ~~table~~Management’s ~~sets forth~~Discussion ~~the amortized cost~~ and ~~estimated~~Analysis ~~fair value~~ of ~~our~~Financial ~~available-for-sale~~Condition ~~securities~~and ~~portfolio~~Results atof ~~the dates indicated.~~Operations

	At June 30,
	2014				2013
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(In thousands)
Mortgage-backed securities (1)	$	30,094	$	29,819	$	45,497	$	45,306
Agency securities		9,106		8,831		10,385		10,034
Municipal obligations		309		309		—		—
Total	$	39,509	$	38,959	$	55,882	$	55,340

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section as of and for the year ended December 31, 2015 and 2014, for the six months ended December 31, 2014 and 2013, and as of and for the years ended June 30, 2014 and 2013 has been derived from the consolidated financial statements that appear elsewhere in this annual report. You should read the information in this section in conjunction with the business and financial information regarding Alamogordo Financial Corp. and the financial statements provided in Part II, Item 8 of this annual report.

~~(1) Includes Freddie Mac, Fannie Mae and Ginnie Mae obligations.~~Merger

AtThe Company ~~June~~completed 30its acquisition of Bank 1440 on August 29, 2014. ~~and~~Merger ~~2013~~consideration was $9.6 million, including $3.8 million ~~there~~in ~~were~~cash noand ~~holdings~~360,635 shares of ~~securities~~Alamogordo ofFinancial ~~any~~Corp. ~~one~~common ~~issuer,~~stock ~~other~~valued ~~than~~at $5.8 million. In the Umerger, the Company received assets valued at $88.S.3 ~~Government~~million and ~~its~~assumed ~~agencies,~~liabilities of $75.8 million. The transaction resulted in an ~~amount~~increase ~~greater~~in ~~than~~stockholders’ ~~10%~~equity of ~~stockholders’~~$8.7 ~~equity~~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).

31Further information regarding the merger transaction can be found in Note 2 of the Audited Consolidated Financial Statements in Part II, Item 8 of this annual report.

~~Portfolio~~Critical ~~Maturities and~~Accounting Yields. The composition and maturities of the securities portfolio at June 30, 2014, are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur. Tax-equivalent yield adjustments have not been made for tax-exempt securities, as the effect thereof was not material.Policies

	One Year or Less					More than One Year through Five Years					More than Five Years through Ten Years					More than Ten Years					Total
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)
Mortgage-backed securities (1)	$	110		2.48	%	$	10,934		1.49	%	$	17,183		2.49	%	$	1,867		2.85	%	$	30,094	$	29,819		2.15	%
Agency securities		—		—			2,300		1.35			6,806		2.20			—		—			9,106		8,831		1.98
Municipal obligations		—		—			309		1.43			—		—			—		—			309		309		1.43
Total	$	110		2.48	%	$	13,543		1.46	%	$	23,989		2.41	%	$	1,867		2.85	%	$	38,509	$	38,959		2.10	%

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 securities, the valuation of and our ability to realize deferred tax assets and the measurement of fair values of financial instruments.

~~(1)~~Allowance ~~Includes~~for Loan ~~Freddie~~Losses. The allowance for loan losses is calculated with the objective of maintaining an allowance necessary to absorb ~~Mac~~probable 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, ~~Ginnie~~this ~~Mae~~evaluation is inherently subjective, as it requires an estimate of the losses for each risk rating and ~~Fannie~~for ~~Mae~~each ~~obligations~~impaired loan, an estimate of the amounts and timing of expected future cash flows, and an estimate of the value of collateral.

32We have established a systematic 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.

~~Sources~~The allowance for loan losses consists primarily of ~~Funds~~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

General. Deposits traditionally have been our primary source of funds for use in lending and investment activities. We also use Federal Home Loan Bank of Dallas advances, to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to manage the cost of funds. Funds are derived from scheduled loan payments, securities maturities, loan prepayments, loan sales, and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.28

~~Deposits. Our~~Table ~~deposits are generated mainly from residents within our primary deposit market area. We offer a selection~~ of ~~deposit accounts. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate.~~Contents

~~Interest rates~~trends, ~~maturity~~general ~~terms~~economic conditions, ~~service~~trends ~~fees and~~in ~~withdrawal~~historical ~~penalties~~loss ~~are~~experience ~~established~~and ongeographic aand ~~periodic~~industry ~~basis~~concentrations. ~~Deposit~~This ~~rates~~analysis ~~and~~establishes ~~terms~~factors that are ~~based~~applied ~~primarily~~to onthe ~~current~~loan ~~operating~~groups to determine the amount of the general allowance. The principal assumption used in calculating ~~strategies~~the ~~and~~allowance ~~market~~for ~~rates,~~loan ~~liquidity~~losses ~~requirements,~~is ~~rates~~the ~~paid~~estimate byof ~~competitors~~loss ~~and~~for ~~growth~~each ~~goals~~risk rating. ~~Personalized~~Actual ~~customer~~loan ~~service~~losses may be significantly more than the ~~and~~allowance ~~long-standing~~we ~~relationships~~have ~~with~~established, ~~customers~~which ~~are~~could ~~relied~~have ~~upon~~a tomaterial ~~attract~~negative ~~and~~effect ~~retain~~on ~~deposits~~our financial results.

~~The~~Other-Than-Temporary Impairment. ~~flow~~Securities ofare ~~deposits~~evaluated ison ~~influenced~~at ~~significantly by~~least ~~general~~a ~~economic~~quarterly ~~conditions~~basis, ~~changes~~to determine whether a decline in ~~money~~their ~~market~~value ~~and~~is other-than-temporary. In ~~prevailing~~estimating ~~interest~~other-than-temporary ~~rates~~impairment ~~and~~losses, ~~competition.~~management ~~The~~considers ~~variety~~(1) the length of ~~deposit~~time and the extent to which the fair ~~accounts~~value ~~offered~~has ~~allows~~been usless 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 be ~~competitive~~required into ~~obtaining~~sell ~~funds~~the ~~and~~investment ~~responding~~security prior to ~~changes~~an anticipated recovery in ~~consumer~~fair ~~demand~~value. ~~Based~~Once ona ~~experience, we~~decline ~~believe~~in ~~that~~value ~~our~~for ~~deposits~~a ~~are~~debt ~~relatively~~security ~~stable.~~is ~~However~~determined to be other than temporary, the ~~ability~~other-than-temporary impairment is separated in (a) the amount of total other-than-temporary impairment related to ~~attract~~a ~~and~~decrease ~~maintain~~in ~~deposits~~cash flows expected to be collected from the debt security (the credit loss) and (b) the ~~rates~~amount ~~paid~~of onother-than-temporary impairment related to all other ~~these~~factors. ~~deposits,~~The ~~has~~amount ~~been~~of ~~and~~the ~~will~~total ~~continue~~other-than-temporary impairment related to becredit ~~significantly~~loss ~~affected~~is byrecognized ~~market~~in ~~conditions~~operations. The amount of other-than-temporary impairment related to other factors is recognized in other comprehensive loss.

~~The~~Valuation ~~following~~of Deferred ~~table~~Tax ~~sets~~Assets. ~~forth~~At ~~the~~December ~~distribution~~31, 2015, we established a valuation allowance of $4.1 million for deferred tax assets based on our assessment of ~~total~~net ~~deposits~~deferred bytax ~~account~~assets ~~type~~that are more-likely-than-not to be realized. In evaluating our ability to realize deferred tax assets, ~~for~~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 ~~years~~implementation ~~indicated~~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.

	For the Year Ended June 30,
	2014								2013
	Average Amount		Percent			Weighted Average Rate			Average Amount		Percent			Weighted Average Rate
	(Dollars in thousands)
Non-interest bearing	$	12,372		9.24	%		—	%	$	12,514		8.97	%		—	%
Checking		12,783		9.55			0.20	%		12,038		8.63			0.22	%
Money market		9,365		7.00			0.65	%		9,919		7.11			0.68	%
Savings		29,625		22.14			0.51	%		27,194		19.50			0.67	%
Certificates of deposit		69,674		52.07			1.04	%		77,805		55.79			1.25	%
Total	$	133,819		100.00	%		0.72	%	$	139,470		100.00	%		0.90	%

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:

As· ofLevel ~~June~~1 ~~30,~~– ~~2014,~~Quoted ~~the~~prices ~~aggregate~~in ~~amount of~~active ~~all~~markets ~~our~~for ~~certificates~~identical ofassets ~~deposit~~or inliabilities; ~~amounts~~includes ~~greater~~certain ~~than~~U.S. orTreasury ~~equal~~and toother ~~$100,000 was approximately $32~~U.~~7 million~~S. ~~The~~Government ~~following table~~agency ~~sets~~debt ~~forth~~that ~~the~~is ~~maturity~~highly ofliquid ~~these~~and ~~certificates~~actively astraded ofin ~~June~~over-the-counter ~~30, 2014~~markets.

	At June 30, 2014
	(In thousands)
Maturity Period:
Three months or less	$	5,259
Over three through six months		2,443
Over six through twelve months		7,455
Over twelve months		17,528
Total	$	32,685

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.

33· 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.

~~Borrowings.~~The Asasset ofor ~~June 30,~~liability’s ~~2014~~fair ~~and~~value ~~2013,~~measurement ~~our~~level ~~borrowings~~within ~~consisted~~the ~~solely~~fair ofvalue ~~Federal~~hierarchy ~~Home~~is ~~Loan~~based ~~Bank of Dallas advances. The following table sets forth information concerning balances and interest rates~~ on ~~our~~the ~~Federal~~lowest ~~Home~~level ~~Loan~~of ~~Bank~~any ~~advances~~input atthat ~~the~~is ~~dates~~significant ~~and~~to ~~for~~ the fair ~~years~~value ~~indicated~~measurement.

	At or For the Years Ended June 30,
	2014			2013
	(Dollars in thousands)
Average amount outstanding during the year	$	11,309		$	14,415
Highest amount outstanding at any month end during the year	$	13,281		$	15,452
Weighted average interest rate during the year		3.57	%		4.03	%
Balance outstanding at end of year	$	8,810		$	13,327
Weighted average interest rate at end of year		3.39	%		3.11	%

~~Management~~Table of ~~Market Risk~~Contents

~~General.~~Average ~~The~~Balance majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, our board of directors has established an Asset/Liability Management Committee, which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. Senior management monitors the level of interest rate risk on a regular basis and the Asset/Liability Management Committee reviews our asset/liability policies and position and the implementation of interest rate risk strategies.Sheet

WeThe following tables set forth average balances, average yields and costs, and certain other information for the periods indicated. Tax-equivalent yield adjustments have ~~sought~~not tobeen ~~manage~~made ~~our~~for ~~interest~~tax-exempt ~~rate~~securities, as the effect thereof was not material. All average balances are daily ~~risk~~average inbalances. ~~order~~Nonaccrual toloans ~~minimize~~were included in the ~~exposure~~computation of ~~our~~average ~~earnings~~balances, ~~and~~but ~~capital~~have tobeen ~~changes~~reflected in ~~interest~~the ~~rates~~table as loans carrying a zero yield. WeThe ~~have~~yields ~~implemented~~set forth below include the ~~following strategies~~effect toof ~~manage~~deferred ~~our~~fees, ~~interest~~discounts ~~rate~~and ~~risk:~~premiums that are amortized or accreted to interest income.

· offering a variety of adjustable rate loan products;

	For the Year Ended December 31,
	2015							2014
	Average							Average
	Outstanding				Yield/			Outstanding				Yield/
	Balance		Interest		Rate			Balance		Interest		Rate
	(Dollars in thousands)
Interest-earning assets:
Loans	$	198,999	$	11,644		5.87	%	$	126,679	$	7,492		5.91	%
Interest-earning deposits		8,010		19		0.24	%		8,043		17		0.21	%
Securities		32,635		506		1.55	%		43,398		843		1.94	%
Federal Home Loan Bank stock		1,114		42		3.81	%		628		12		1.93	%
Other		506		13		2.55	%		421		3		0.71	%
Total interest-earning assets		241,264		12,224		5.07	%		179,169		8,367		4.67	%
Noninterest-earning assets		18,691							16,831
Total assets	$	259,955						$	196,000

Interest-bearing liabilities:
Checking, money market and savings accounts	$	104,798	$	719		0.69	%	$	68,176	$	372		0.55	%
Certificates of deposit		78,091		653		0.84	%		74,139		686		0.92	%
Total deposits		182,889		1,372		0.75	%		142,315		1,058		0.74	%
Advances from FHLB of Dallas		20,196		62		0.31	%		11,878		336		2.83	%
Total interest-bearing liabilities		203,085		1,434		0.71	%		154,193		1,394		0.90	%
Non-interest bearing deposits		24,570							14,488
Non-interest bearing liabilities		2,503							2,072
Total liabilities		230,158							170,753
Stockholders' equity		29,797							25,247
Total liabilities and stockholders' equity	$	259,955						$	196,000

Net interest income			$	10,790						$	6,973
Net interest rate spread (1)						4.36	%						3.77	%
Net interest-earning assets (2)	$	38,179						$	20,954

Net interest margin (3)						4.47	%						3.89	%
Average interest-earning assets to average interest-bearing liabilities						118.80	%						116.20	%

·(1) ~~using~~Net ~~alternate~~interest ~~funding~~rate ~~sources,~~spread ~~such~~represents asthe ~~advances~~difference ~~from~~between the ~~Federal~~weighted ~~Home~~average ~~Loan~~yield ~~Bank~~on interest-earning assets and the weighted average rate of ~~Dallas;~~interest-bearing liabilities.

·(2) ~~maintaining~~Net ~~pricing~~interest-earning ~~strategies~~assets ~~that~~represent ~~encourage~~total ~~“core”~~interest-earning ~~deposits;~~assets ~~and~~less total interest-bearing liabilities.

·(3) ~~selling~~Net ~~longer-term,~~interest ~~fixed~~margin ~~rate~~represents ~~loans~~net ~~into~~interest ~~the~~income ~~secondary~~as ~~market~~a percentage of average total interest-earning assets.

~~By following these strategies, we believe that we are better positioned to react to increases in market interest rates.~~30

~~Economic~~Table ~~Value~~ of Equity. We monitor interest rate risk through the use of a simulation model that estimates the amounts by which the fair value of our assets and liabilities (our economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. The quarterly reports developed in the simulation model assist us in identifying, measuring, monitoring and controlling interest rate risk to ensure compliance within the our policy guidelines.Contents

	Six Months Ended December 31,
	2014							2013
	Average							Average
	Outstanding				Yield/			Outstanding				Yield/
	Balance		Interest		Rate (1)			Balance		Interest		Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	149,954	$	4,429		5.86	%	$	93,871	$	2,985		6.31	%
Interest-earning deposits		9,134		10		0.21	%		5,902		6		0.20	%
Securities		46,356		445		1.90	%		53,192		475		1.77	%
Federal Home Loan Bank stock		678		10		2.95	%		696		1		0.29	%
Other		634		-		0.00	%		219		-		0.00	%
Total interest-earning assets		206,756		4,894		4.70	%		153,880		3,467		4.47	%
Noninterest-earning assets		18,662							19,008
Total assets	$	225,418						$	172,888

Interest-bearing liabilities:
Checking, money market and savings accounts	$	83,832	$	256		0.61	%	$	51,294	$	121		0.47	%
Certificates of deposit		79,844		350		0.87	%		70,987		387		1.08	%
Total deposits		163,676		606		0.73	%		122,281		508		0.82	%
Advances from FHLB of Dallas		14,147		161		2.26	%		13,018		228		3.47	%
Total interest-bearing liabilities		177,823		767		0.86	%		135,299		736		1.08	%
Non-interest bearing deposits		17,134							12,937
Non-interest bearing liabilities		2,425							1,838
Total liabilities		197,382							150,074
Stockholders' equity		28,036							22,814
Total liabilities and stockholders' equity	$	225,418						$	172,888

Net interest income			$	4,127						$	2,731
Net interest rate spread (2)						3.84	%						3.39	%
Net interest-earning assets (3)	$	28,933						$	18,581

Net interest margin (4)						3.96	%						3.52	%
Average interest-earning assets to average interest-bearing liabilities						116.27	%						113.73	%

~~The~~(1) ~~table~~Ratios ~~below~~for ~~sets forth, as of June 30, 2014,~~ the ~~estimated~~six ~~changes~~month inperiods ~~our~~have ~~EVE~~been ~~that would result from the designated instantaneous changes in market interest rates~~annualized. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

At June 30, 2014
Change in Interest			Estimated Increase (Decrease)
Rates (Basis Points)			in EVE
(1)	Estimated EVE (2)		Amount			Percent
	(Dollars in thousands)
+300	$	21,185	$	(2,529	)		(10.66	)%
+200		22,725		(989	)		(4.17	)%
+100		23,562		(152	)		(0.64	)%
—		23,714		—			—
-100		24,835		1,121			4.73	%

(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.

(13) ~~Assumes~~Net aninterest-earning ~~instantaneous~~assets ~~uniform~~represent ~~change~~total in interest-earning ~~rates~~assets atless ~~all~~total ~~maturities~~interest-bearing liabilities.

(24) ~~EVE~~Net isinterest ~~the~~margin ~~discounted~~represents ~~present~~net ~~value~~interest ofincome ~~expected~~as ~~cash~~a ~~flows~~percentage ~~from~~of ~~assets,~~average ~~liabilities~~total ~~and off~~interest-~~balance~~earning ~~sheet contracts~~assets.

The table above indicates that at June 30, 2014, in the event of a 100 basis point decrease in interest rates, we would experience a 4.73% increase in EVE. In the event of a 200 basis point increase in interest rates at June 30, 2014, we would experience a 4.17% decrease in EVE.31

~~Certain~~Table shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in EVE require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the EVE table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the EVE table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on EVE and will differ from actual results.Contents

EVE calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits and borrowings.

	Years Ended June 30,
	2014							2013
	Average							Average
	Outstanding				Yield/			Outstanding				Yield/
	Balance		Interest		Rate			Balance		Interest		Rate
	(Dollars in thousands)
Interest-earning assets:
Loans	$	98,407	$	6,049		6.15	%	$	109,054	$	6,819		6.25	%
Interest-earning deposits		6,414		12		0.19	%		3,563		15		0.42	%
Securities		46,844		873		1.86	%		48,307		663		1.37	%
Federal Home Loan Bank stock		637		3		0.47	%		732		3		0.38	%
Other		212		3		1.42	%		212		3		1.43	%
Total interest-earning assets		152,514		6,940		4.55	%		161,868		7,503		4.64	%
Noninterest-earning assets		17,005							17,597
Total assets	$	169,519						$	179,465

Interest-bearing liabilities:
Checking, money market and savings accounts	$	51,773	$	237		0.46	%	$	49,151	$	277		0.56	%
Certificates of deposit		69,674		722		1.04	%		77,805		973		1.25	%
Total deposits		121,447		959		0.79	%		126,956		1,250		0.98	%
Advances from FHLB of Dallas		11,309		404		3.57	%		14,415		581		4.03	%
Total interest-bearing liabilities		132,756		1,363		1.03	%		141,371		1,831		1.30	%
Non-interest bearing deposits		12,372							12,514
Non-interest bearing liabilities		1,777							1,517
Total liabilities		146,905							155,402
Stockholders' equity		22,614							24,063
Total liabilities and stockholders' equity	$	169,519						$	179,465

Net interest income			$	5,577						$	5,672
Net interest rate spread (1)						3.52	%						3.34	%
Net interest-earning assets (2)	$	19,758						$	20,497

Net interest margin (3)						3.66	%						3.50	%
Average interest-earning assets to average interest-bearing liabilities						114.88	%						114.50	%

~~Liquidity~~(1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and ~~Capital~~the ~~Resources~~weighted average rate of interest-bearing liabilities.

~~Liquidity~~(2) isNet ~~the~~interest-earning ~~ability to~~assets ~~meet~~represent ~~current~~total ~~and future financial obligations of a short~~interest-~~term~~earning ~~nature.~~assets ~~Our~~less ~~primary~~total sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. 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-bearing ~~rates, economic conditions and competition~~liabilities.

We(3) ~~regularly~~Net ~~adjust~~interest ~~our investments~~margin inrepresents ~~liquid~~net ~~assets based upon our assessment of expected loan demand, expected deposit flows, yields available on~~ interest~~-earning deposits~~ ~~and~~income ~~securities,~~as ~~and~~a ~~the~~percentage ~~objectives~~ of ~~our~~average ~~asset/liability~~total ~~management program. Excess liquid assets are invested generally in~~ interest-earning ~~deposits with other banks and short- and intermediate-term securities~~assets.

WeRate/Volume ~~believe that we have enough sources of liquidity to satisfy our short- and long-term liquidity needs as of June 30, 2014.~~Analysis

~~Our~~The ~~most~~following ~~liquid assets~~tables ~~are~~presents ~~cash~~the ~~and~~effects ~~cash equivalents. The levels~~ of ~~these~~changing ~~assets~~rates ~~are~~and ~~dependent~~volumes on our ~~operating,~~net ~~financing,~~interest ~~lending~~income ~~and~~for ~~investing~~the ~~activities during~~periods ~~any given period~~indicated. AtThe ~~June~~rate ~~30,~~column ~~2014,~~shows the ~~cash~~effects ~~and~~attributable ~~cash equivalents totaled $9.9 million. Additional cash is being carried~~ to ~~cover~~ ~~loan~~changes ~~funding~~in ~~requirements,~~rate ~~especially~~(changes ~~construction~~in ~~loan~~rate ~~draws,~~multiplied ~~and~~by toprior ~~cover~~volume). ~~the~~The ~~cash~~volume ~~requirements~~column ~~for~~shows the ~~upcoming~~effects ~~merger~~attributable ~~with~~to ~~Bank~~changes ~~1440~~in ~~which~~volume ~~are~~(changes ~~expected to be~~ in ~~the~~volume ~~$2.0~~multiplied toby ~~$2.5~~prior ~~million range~~rate). ~~Available-for-sale~~For ~~securities,~~purposes ~~which provide additional sources~~ of ~~liquidity~~this table, ~~totaled~~changes ~~$39.0~~attributable ~~million~~to atboth ~~June~~rate and 30volume, ~~2014.~~which Incannot ~~addition,~~be ~~at June 30~~segregated, ~~2014,~~have webeen ~~had~~allocated ~~$8.8~~proportionately ~~million~~based ofon ~~advances outstanding from~~ the ~~Federal~~changes ~~Home~~due ~~Loan~~to ~~Bank~~rate ~~of Dallas~~ and the ~~ability~~changes due to ~~borrow an additional $76~~volume.~~0 million from them.~~

3532

AtTable June 30, 2014, we had $19.3 million in loan commitments outstanding, and an additional $9.3 million in commitments to originate and sell mortgage loans. In addition to commitments to originate loans, we had $3.4 million in unused lines of ~~credit and $145,000 of commitments issued under standby letters of credit.~~Contents

Certificates of deposit due within one year of June 30, 2014 totaled $31.4 million, or 23.3% 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 we currently pay on the certificates of deposit due on or before June 30, 2015. 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.

	Year Ended December 31, 2015 vs. 2014
	Increase (Decrease)						Total
	Due to						Increase
	Volume			Rate			(Decrease)
Interest-earning assets:
Loans	$	4,208		$	(56	)	$	4,152
Interest-earning deposits		(0	)		2			2
Securities		(209	)		(128	)		(337	)
Federal Home Loan Bank of Dallas stock		9			21			30
Other		1			9			10
Total interest-earning assets		4,009			(152	)		3,857

Interest-bearing liabilities:
Checking, money-market and savings accounts		200			147			347
Certificates of deposit		37			(70	)		(33	)
Total deposits		237			77			314
Advances from FHLB of Dallas		235			(509	)		(274	)
Total interest-bearing liabilities		472			(432	)		40
Change in net interest income	$	3,537		$	280		$	3,817

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.

	Six Months Ended December 31, 2014 vs. 2013									Years Ended June 30, 2014 vs. 2013
	Increase (Decrease)						Total			Increase (Decrease)						Total
	Due to						Increase			Due to						Increase
	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
Interest-earning assets:
Loans	$	1,639		$	(195	)	$	1,444		$	(656	)	$	(114	)	$	(770	)
Interest-earning deposits		5			-			5			(10	)		7			(3	)
Securities		(73	)		42			(31	)		(19	)		229			210
Federal Home Loan Bank of Dallas stock		-			9			9			-			-			-
Other		-			-			-			-			-			-
Total interest-earning assets		1,571			(144	)		1,427			(685	)		122			(563	)

Interest-bearing liabilities:

Checking, money-market and savings accounts		92			43			135			16			(56	)		(40	)
Certificates of deposit		65			(102	)		(37	)		(95	)		(156	)		(251	)
Total deposits		157			(59	)		98			(79	)		(212	)		(291	)
Advances from FHLB of Dallas		22			(89	)		(67	)		(116	)		(61	)		(177	)
Total interest-bearing liabilities		179			(148	)		31			(195	)		(273	)		(468	)
Change in net interest income	$	1,392		$	4		$	1,396		$	(490	)	$	395		$	(95	)

~~Our~~Comparison ~~primary investing activities are the origination~~ of ~~loans~~Financial ~~and~~Condition ~~the purchase of securities. In the fiscal years ended June 30, 2014 and 2013, we originated~~at ~~$136.8~~December ~~million and $125.9 million of loans~~31, ~~respectively,~~2015 and ~~purchased~~December ~~$6.9 million and $~~31~~.3 million of securities~~, ~~respectively. We have not purchased any whole loans in recent periods.~~2014

~~Financing~~Cash ~~activities consist primarily of activity in deposit accounts~~ and ~~Federal~~cash ~~Home~~equivalents increased ~~Loan Bank advances~~$5.0 Wemillion ~~experienced~~to ~~net~~$19.8 ~~decreases~~million inat ~~total~~December ~~deposits of $844~~31,~~000~~ ~~and~~2015 from $714.98 million ~~during~~at ~~the~~December ~~fiscal years ended June 30~~31, 2014 ~~and 2013, respectively~~. ~~Deposit~~The ~~flows~~increase ~~are~~is ~~affected by the~~primarily ~~overall~~the ~~level~~result of ~~interest~~an ~~rates,~~increase ~~the~~in ~~interest~~noninterest ~~rates~~bearing ~~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~~late ~~market~~December ~~area~~2015.

~~Federal~~Loans ~~Home~~held ~~Loan~~for ~~Bank~~investment ~~advances~~increased ~~decreased by~~ $418.53 million, ~~and~~or 10.4%, to $2194.20 million ~~during~~at ~~the~~December ~~fiscal~~31, ~~years~~2015 ~~ended~~from ~~June~~$175.7 ~~30,~~million ~~2014~~at ~~and~~December ~~2013~~31, ~~respectively~~2014. ~~Despite~~The increase ~~the~~was ~~increases~~primarily indue ~~cash~~to ~~and~~a ~~cash~~$16.7 ~~equivalents~~million, ~~loans~~or ~~held~~12.9%, ~~for~~increase ~~sale and loans held for investment~~ in ~~2014,~~commercial wereal ~~were~~estate ~~able~~loans. toMost ~~decrease our~~of ~~Federal~~the ~~Home~~growth ~~Loan~~was ~~Bank advances due to a much larger decrease~~ in our ~~securities portfolio~~Arizona market.

~~BANK’34~~Loans isheld ~~subject~~for sale toincreased ~~various~~$2.0 ~~regulatory~~million ~~capital~~to ~~requirements,~~$11.4 ~~including~~million aat ~~risk-based~~December ~~capital~~31, ~~measure~~2015 from $9.4 ~~The~~million ~~risk-based~~at ~~capital~~the ~~guidelines~~end ~~include~~of ~~both a~~the ~~definition~~prior ofyear. ~~capital~~We ~~and~~currently sell a ~~framework~~significant ~~for~~majority ~~calculating~~of ~~risk~~the one-~~weighted~~ ~~assets~~to byfour-family ~~assigning~~residential ~~balance~~real ~~sheet~~estate ~~assets~~loans ~~and~~we ~~off-balance sheet~~originate ~~items~~in tothe ~~broad~~secondary ~~risk categories~~market. AtThe ~~June~~balances at ~~30,~~any ~~2014,~~month ~~BANK’34~~end ~~exceeded~~vary ~~all~~based ~~regulatory~~upon ~~capital~~the ~~requirements.~~timing ~~BANK’34 is~~and ~~considered~~volume ~~“well-capitalized”~~of ~~under~~current ~~regulatory~~loan ~~guidelines~~originations and sales.

~~Off-Balance Sheet Arrangements and Contractual Obligations~~33

~~Commitments. As~~Table ~~a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines~~ of credit. While these contractual obligations represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. In addition, we enter into commitments to sell mortgage loans. For additional information, see Note 10 of the Notes to the Consolidated Financial Statements.Contents

~~Contractual~~Available ~~Obligations.~~for sale Insecurities ~~the~~decreased ~~ordinary~~$0.4 ~~course~~million ofto ~~our~~$28.6 ~~operations~~million at December 31, we2015 ~~enter~~from ~~into~~$29.0 ~~certain~~million ~~contractual~~at ~~obligations~~December 31, 2014. ~~Such~~In ~~obligations~~January ~~include~~of 2015 ~~operating~~the ~~leases~~Bank grew it securities portfolio $7.5 million by purchasing $9.8 million of securities and selling $2.3 million of securities. ~~for~~During ~~premises~~the remainder of 2015 the Bank did not initiate any purchase or sale activities and ~~equipment,~~allowed ~~agreements~~its ~~with~~portfolio ~~respect~~to decrease by using the monthly pay downs on securities to ~~borrowings~~fund ~~and~~loan ~~deposits~~growth which improves our earning asset mix and ~~agreements~~net ~~with~~interest ~~respect~~margin. The January activities were part of a repositioning of the portfolio that began in December 2014 and was designed to reduce the risk in the portfolio. We sold corporate bonds acquired in the merger, smaller positions and longer duration securities in favor of larger balance, shorter duration mortgage backed issues.

~~Recent~~The ~~Accounting~~core deposit intangible ~~Pronouncements~~recorded in connection with the merger of Bank 1440, decreased $102,000 to $363,000 at December 31, 2015 from $465,000 at December 31, 2014 reflecting normal amortization.

~~For~~Total ~~recent~~deposits ~~accounting~~increased ~~pronouncements~~$23.8 ~~see~~million, ~~Note~~or 11.8%, to $225.7 million at December 31, 2015 from $201.9 million at December 31, 2014. The increase includes a $20.0 million, or 111.2% increase in non-interest bearing demand deposits and a $13.0 million, or 13.0% increase in savings and money market deposits, partially offset by a $9.3 million, or 11.1% decrease in time deposits. The Company has been growing noninterest bearing demand and saving and money market balances while allowing non-core certificates of ~~the~~deposit ~~Notes~~to run off at maturity to improve the ~~Consolidated~~deposit ~~Financial~~mix ~~Statements~~and reduce the cost of funds. Most of the growth in noninterest bearing demand deposits was the result of efforts to encourage new commercial loan customers to move their business operating accounts to us.

36Borrowings, consisting solely of Federal Home Loan Bank advances, increased $500,000 to $13.0 million at December 31, 2015 from $12.5 million at December 31, 2014. We utilized short-term borrowings during the course of the year to fund the origination of loans held for sale and some portfolio loans, but reduced such borrowings at the end of the year.

~~Impact~~Total ofstockholders’ equity ~~Inflation~~increased $307,000, or 1.0%, to $29.6 million at December 31, 2015 from $29.3 million at December 31, 2014. The growth was ~~and~~primarily ~~Changing~~due ~~Prices~~to net income for the year of $321,000.

~~The~~Comparison ~~consolidated financial statements and related notes~~ of ~~Alamogordo~~Operating ~~Financial~~Results ~~Corp.~~for ~~have been prepared in accordance with accounting principles generally accepted in~~ the ~~United~~ ~~States~~Year ofEnded ~~America (“U.S. GAAP”). U.S. GAAP generally requires the measurement of financial position and operating~~December results in terms of historical dollars without consideration of changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies31, ~~our~~2015 ~~assets~~ and ~~liabilities~~the ~~are~~Twelve ~~primarily~~Months ~~monetary~~Ended inDecember ~~nature. As a result~~31, ~~changes in market interest rates have a greater impact on performance than the effects of inflation.~~2014

~~ITEM~~General. 7AThe acquisition of Bank 1440 was consummated on August 29, 2014 and the material increase in assets from Bank 1440 makes direct comparisons between the two periods less meaningful. ~~Quantitative~~On September 24, 2015 the Company also announced the expansion of its mortgage banking program in Scottsdale, Arizona and ~~Qualitative~~Albuquerque, ~~Disclosures~~New ~~About~~Mexico ~~Market~~adding ~~Risk~~22 full-time equivalent employees and entering into leases for additional space in Scottsdale, Arizona and Albuquerque, New Mexico. Operating results for the fourth quarter and year ended December 31, 2015 were negatively affected as the start-up period operating costs exceeded revenue generated by this new operation.

~~For~~The ~~information~~Company ~~regarding~~had ~~market~~net income ~~risk~~of $321,000 ~~see~~for the year ended December 31, 2015, compared to $326,000 for the twelve months ended December 31, 2014. In ~~“Item~~August 72014, a bargain purchase gain of $2.9 ~~Management’s~~million ~~Discussion~~was ~~and~~recorded ~~Analysis~~in connection with the acquisition. We incurred $100,000 out-of-pocket merger-related ~~Financial~~expenses ~~Condition~~in the year ended December 31, 2015, compared to $1.4 million of such expenses in the twelve months ended December 31, 2014. Other than the bargain purchase gain and ~~Results~~merger-related expenses, the Company had $420,000 of ~~Operations”~~net income in year ended December 31, 2015 compared to a net loss of $1.2 million for the twelve months ended December 31, 2014.

~~ITEM 8. Financial Statements and Supplementary Data~~34

~~The~~Table ~~financial statements, the report thereon and the notes thereto commence at page 38~~ of ~~this Annual Report on Form 10-K.~~Contents

37Interest Income. Interest income increased $3.9 million, or 46.1%, to $12.2 million for the year ended December 31, 2015 from $8.4 million for the twelve months ended December 31, 2014. The increase was due to a $62.1 million, or 34.7%, increase in average interest-earning assets and an improvement in asset mix as loans, our highest yielding assets, increased to 82.5% of average interest-earning assets from 70.7% of average interest-earning assets. The yield on average interest-earning assets increased 40 basis points to 5.07% for the year ended December 31, 2015 from 4.67% for the twelve months ended December 31, 2014 due mostly to the improvement in asset mix. Interest and fees on loans increased $4.1 million, or 55.4%, to $11.7 million for the year ended December 31, 2015, from $7.5 million for the twelve months ended December 31, 2014, partially offset by a $337,000, or 40.0%, decrease in interest income on available-for-sale securities. Interest income on loans increased due primarily to a $72.3 million, or 57.1%, increase in average loan balances, due to both the merger and organic growth. The average balance of securities decreased $10.8 million, or 24.8%, to $32.6 million for the year ended December 31, 2015, compared to $43.4 million for the twelve months ended December 31, 2014, and the average yield decreased from 1.94% in 2014 to 1.55% in 2015. The securities yield for the year ended December 31, 2015 was negatively affected by a lower interest rate environment and accelerated prepayments on mortgage-backed securities purchased at premiums, accelerating premium amortization expense in the year.

~~CONTENTS~~Interest Expense. Interest expense increased $40,000, or 2.9%, and was $1.4 million for each of the years ended December 31, 2015 and 2014. The increase was the result of an increase in interest expense on deposits, partially offset by a decrease in interest expense on borrowings.

		Page
Report of Independent Registered Public Accounting Firm		39
Consolidated Balance Sheets		40
Consolidated Statements of Comprehensive Loss		41
Consolidated Statements of Changes in Stockholders’ Equity		42
Consolidated Statements of Cash Flows		43
Notes to Consolidated Financial Statements		44

Interest paid on checking, money market and savings accounts increased $347,000, or 93%, to $719,000 for the year ended December 31, 2015 from $372,000 for the twelve months ended December 31, 2014. The average rate we paid on such deposit accounts increased 14 basis points to 0.69% for the year ended December 31, 2015 from 0.55% for the twelve months ended December 31, 2014 and the average balance increased $36.6 million, or 53.7%, to $104.8 million for the year ended December 31, 2015 from $68.2 million for the twelve months ended December 31, 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 and were in for all of 2015.

38Interest on borrowings decreased $274,000 to $62,000 for the year ended December 31, 2015 compared to $336,000 for the twelve months ended December 31, 2014, despite a 70.0% increase in average balances due to the replacement of longer-term, higher rate borrowings with shorter term, lower rate borrowings in December 2014. We prepaid $6.4 million of long-term FHLB advances in December 2014 with average interest rates of 4.00%, and incurred prepayment penalties of $532,000. There were no prepayment penalties in 2015. As a result, the average rate paid on borrowings decreased 252 basis points to 0.31% for the year ended December 31, 2015 from 2.83% for the twelve months ended December 31, 2014. In 2015, we funded the origination of loans held for sale and some portfolio loan growth with low cost, short-term borrowings as our average FHLB advances increased $8.3 million, or 70.0%, to $20.2 million for the year ended December 31, 2015 from $11.9 million for the twelve months ended December 31, 2014. Our year end December 31, 2015 loans held for sale balance and borrowing balances were approximately equal.

~~REPORT~~Net Interest OFIncome. ~~INDEPENDENT~~Net ~~REGISTERED~~interest ~~PUBLIC~~income ~~ACCOUNTING~~increased ~~FIRM~~$3.8 million, or 54.7%, to $10.8 million for the year ended December 31, 2015 from $7.0 million for the twelve months ended December 31, 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 $62.1 million, or 34.7%, to $241.3 million for the year ended December 31, 2015 from $179.2 million for the twelve months ended December 31, 2014 due primarily to the merger. Our net interest rate spread improved by 59 basis points to 4.36% for the year ended

~~To the Board of Directors and Stockholders of~~35

~~Alamogordo~~Table ~~Financial~~of ~~Corp.~~Contents

~~Alamogordo~~December 31, ~~New~~2015 ~~Mexico~~from 3.77% for the twelve months ended December 31, 2014, as we carried 82.5% of our average interest-earning assets in loans, our highest yielding assets, for the year ended December 31, 2015, compared to 70.7 % in loans for 2014. This repositioning of our asset portfolio was achieved 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 decreased to 0.71% for the year ended December 31, 2015 from 0.90% for the twelve months ended December 31, 2014 due to the prepayment of longer-term, higher rate FHLB advances in December 2014 and the continued low interest rate environment.

WeProvision ~~have~~for Loan ~~audited~~Losses. Provisions ~~the~~for ~~accompanying~~loan losses are charged to operations to establish an allowance for loan losses at a level ~~consolidated~~necessary ~~balance~~to ~~sheets~~absorb known and inherent losses that are both probable and reasonably estimable at the date of ~~Alamogordo~~the ~~Financial~~financial ~~Corp~~statements. In (evaluating the ~~“Company”)~~level as of ~~June~~the 30allowance for loan losses, ~~2014~~management ~~and~~analyzes ~~2013~~several ~~and~~qualitative ~~the~~loan portfolio risk factors including ~~related~~but ~~consolidated~~not ~~statements~~limited ofto, ~~comprehensive~~charge-off ~~loss~~history over a relevant period, changes in ~~stockholders’~~management ~~equity~~or underwriting policies, ~~and~~current ~~cash~~economic conditions, ~~flows~~delinquency ~~for~~statistics, ~~the~~geographic ~~fiscal years~~and ~~then~~industry ~~ended.~~concentrations, ~~These~~the ~~consolidated~~adequacy ~~financial~~of ~~statements~~the ~~are~~underlying collateral, the ~~responsibility~~financial strength of the ~~Company’s~~borrower ~~management.~~and ~~Our responsibility~~results isof tointernal ~~express~~and anexternal ~~opinion~~loan onreviews. ~~these~~See ~~consolidated~~“Asset ~~financial~~Quality- ~~statements~~Allowance ~~based~~for ~~upon~~Loan ~~our~~Losses” for ~~audits~~additional information.

WeAfter ~~conducted~~an ~~our audits in accordance with~~evaluation ~~the standards~~ of ~~the~~these ~~Public~~factors, ~~Company Accounting Oversight Board (United States). Those standards require that~~ we ~~plan~~recorded ~~and~~a ~~perform the~~provision ~~audit~~for toloan ~~obtain~~losses ~~reasonable~~of ~~assurance~~$694,000 ~~about~~for ~~whether~~ the ~~financial~~year ~~statements~~ended ~~are~~December ~~free~~31, of2015, ~~material~~compared ~~misstatements. The Company is not required~~ to ~~have~~$50,000 for ~~nor~~the ~~were~~twelve wemonths ~~engaged~~ended toDecember ~~perform~~31, ~~an audit of its internal control over financial reporting~~2014. ~~Our~~The ~~audits~~provision ~~included consideration of internal control over financial reporting as a basis~~ for ~~designing~~loan ~~audit~~losses ~~procedures that are appropriate~~ in the ~~circumstances,~~ ~~but~~year ~~not~~ended ~~for~~December ~~the~~31, ~~purpose~~2015 ofwas ~~expressing~~recorded andue to ~~opinion~~growth onin the ~~effectiveness~~loan portfolio of ~~the Company’s internal control over financial reporting~~$18.3 ~~Accordingly~~million, weor ~~express no such opinion~~10. ~~An audit includes examining~~4%, on a ~~test basis~~$354,000 ~~evidence~~partial ~~supporting the~~write-off ~~amounts~~of ~~and~~two ~~disclosures~~loans in the ~~financial~~fourth ~~statements.~~quarter Anof 2015, ~~audit~~and ~~also includes assessing~~ the ~~accounting~~increased ~~principles~~percentage ~~used~~of ~~and~~commercial ~~significant estimates~~loans ~~made~~in bythe ~~management~~portfolio, aswhich ~~well~~generally ascarry ~~evaluating~~a ~~the~~higher ~~overall~~risk ~~financial~~than ~~statement~~residential ~~presentation. We believe that our audits provide~~real aestate ~~reasonable basis for our opinion~~loans.

InTo the best of our knowledge, ~~opinion~~we have recorded all loan losses that are both probable and reasonable to estimate. However, ~~the~~future ~~consolidated~~changes ~~financial~~in ~~statements~~the ~~referred~~factors todescribed above, ~~present~~including, ~~fairly~~but not limited to, inactual ~~all~~loss experience with respect to our loan portfolio, could result in material ~~respects~~increases in our provision for loan losses. In addition, the ~~financial~~Office ~~position~~of the Comptroller of ~~Alamogordo Financial~~the ~~Corp.~~Currency, as an integral part of ~~June~~its 30examination process, ~~2014~~will ~~and~~periodically ~~2013,~~review ~~and~~our ~~the~~allowance ~~results~~for ~~of their~~loan ~~operations~~losses and ~~their~~ ~~cash~~may ~~flows~~require ~~for~~us ~~each~~to ofrecognize adjustments to the ~~fiscal~~ ~~years~~allowance ~~then~~based ~~ended,~~on inits ~~conformity~~judgments ~~with~~about ~~accounting~~the ~~principles~~recoverability ~~generally~~of ~~accepted~~our inloan ~~the~~balances ~~United~~based ~~States~~upon information available to it at the time of ~~America~~its examination.

~~/s/~~Noninterest Income. ~~Briggs~~Noninterest &income ~~Veselka~~decreased Co$1. 3 million, or 21.5%, to $4.9 million for the year ended December 31, 2015 from $6.2 million for the twelve months ended December 31, 2014 due primarily to the $2.9 million bargain purchase gain from the merger recorded in the September 2014 quarter.

~~Briggs~~Gain &on ~~Veselka~~sale Coof loans increased $1.8 million or 60.5%, to $4.8 million for the year ended December 31, 2015 from $3.0 million for the twelve months ended December 31, 2014 as the Company has continued to expand its secondary mortgage loan operation. During the year ended December 31, 2015, we sold $143.6 million of mortgage loans for a gain of $4.4 million and $5.1 million of SBA loans for a gain of $500,000, compared to $93.7 million of mortgage loan sales and $1.6 million of SBA loan sales during the twelve months ended December 31, 2014 for gains of $2.8 million and $168,000, respectively. We realized a 3.0% average premium (gain on sale/sold loans) on the sales of mortgage loans for the year of 2015 and to 3.0% for the twelve months ended December 31, 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.

~~Houston, Texas~~36

~~August~~Table ~~29,~~of ~~2014~~Contents

39Noninterest Expense. Noninterest expense increased $1.9 million, or 14.8%, to $14.7 million for the year ended December 31, 2015 from $12.8 million for the twelve months ended December 31, 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 as average assets for the year ended December 31, 2015 were 32.6% larger than 2014.

~~Alamogordo~~Merger-related ~~Financial~~expenses ~~Corp~~for year ended December 31, 2015 were $100,000, compared to $1.4 million for the twelve months ended December 31, 2014. Legal, 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 of Bank 1440. The Company operated on two core operating systems and numerous other redundant ancillary systems from the August 29, 2014 merger date until late March 2015 when all the prior systems were converted. The systems conversions have resulted in enhanced operating efficiencies. The majority of merger-related expenses, totaling $801,000, were expensed in the six months ended December 31, 2014. Material duplicative costs and exit fees from the old systems were expensed and classified as merger-related in our statement of comprehensive income as soon as those expense amounts were reasonably estimable and probable. The Company does not expect to incur any merger-related expenses related to the Bank 1440 transaction in the future.

~~CONSOLIDATED~~Provision ~~BALANCE~~for Income ~~SHEETS~~Taxes. The Company had pre-tax income of $341,000 for the year ended December 31, 2015 and $399,000 for the twelve months ended December 31, 2014. A provision for income tax expense of $20,000 and $74,000 was recorded for the year ended December 31, 2015 and the twelve months ended December 31, 2014, respectively. The provision for 2015 was the result of the alternative minimum tax. In the twelve months ended December 31, 2014, it was determined that income tax receivables were overstated by $74,000 and that amount was written off as tax expense. The Company has net operating loss carry-forwards from prior periods which offset income for both periods so no other income tax expense or income tax benefits were recorded.

~~JUNE~~Comparison of Operating Results for the Six Months Ended 30December 31, 2014 ~~AND~~and 2013

	2014			2013
ASSETS
Cash and due from banks	$	9,367,899		$	3,920,096
Interest-bearing deposits with banks		577,861			296,200
Total cash and cash equivalents		9,945,760			4,216,296
Loans held for investment		92,642,550			91,214,232
Allowance for loan losses		(1,644,550	)		(1,824,388	)
Loans held for investment, net		90,998,000			89,389,844
Loans held for sale		10,278,801			6,295,062
Available-for-sale securities		38,958,910			55,339,595
Other real estate		836,888			1,391,713
Premises and equipment, net		9,979,320			10,458,581
Stock in financial institutions		648,235			955,987
Accrued interest receivable		476,962			463,630
Income taxes receivable		224,111			534,442
Bank owned life insurance		5,151,898			5,003,521
Prepaid and other assets		286,531			261,050
TOTAL ASSETS	$	167,785,416		$	174,309,721
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Demand deposits	$	13,926,745		$	12,376,976
Savings and NOW deposits		52,886,361			49,443,794
Time deposits		67,859,876			73,696,551
Total deposits		134,672,982			135,517,321
Federal Home Loan Bank advances		8,809,932			13,327,199
Escrows		266,409			280,693
Accrued interest and other liabilities		1,852,487			1,587,188
Total liabilities		145,601,810			150,712,401
Commitments and contingencies		-			-
Stockholders’ equity
Common stock, $.10 par value; 20,000,000 shares authorized,
1,324,106 shares issued, and 1,318,474 and 1,304,526 outstanding		132,411			132,411
Additional paid-in capital		3,969,421			4,090,889
Retained earnings		19,135,293			20,369,869
Accumulated other comprehensive loss		(549,627	)		(511,443	)
Treasury stock, at cost; 5,632 and 19,580 shares		(139,332	)		(484,406	)
Unearned employee stock ownership plan (ESOP) shares		(364,560	)		-
Total stockholders’ equity		22,183,606			23,597,320
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	167,785,416		$	174,309,721

General. Since the merger was consummated on August 29,

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