UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly ~~period~~ period ended ~~September~~March 3031, ~~2015~~2016

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

For the transition period from _______________ to ______________________

Commission File No. 000-29655

Alamogordo Financial Corp.

(Exact name of registrant as specified in its charter)

United States		74-2819148
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
500 East 10th Street, Alamogordo, New Mexico		88310
(Address of Principal Executive Offices)		Zip Code

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

(575) 437-9334

(Registrant’s telephone number)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YES x NO ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES x NO ¨.

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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

Shares of the Registrant’s common stock, par value $0.10 per share, issued and outstanding as of ~~November~~April 230, ~~2015~~2016 were 1,679,500.

Table of Contents

Alamogordo Financial Corp.
FORM 10-Q

Index

		Page
~~Part I. Financial Information~~	Part I. Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014 (unaudited)	2
	Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015	2
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014 (unaudited)	3
	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2016 and 2015 (unaudited)	3
	Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2015 and 2014 (unaudited)	4
	Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2016 and 2015 (unaudited)	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (unaudited)	5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2621
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4333
Item 4.	Controls and Procedures	4333
~~Part II. Other Information~~	Part II. Other Information
Item 1.	Legal Proceedings	4333
Item 1A.	Risk Factors	4333
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4333
Item 3.	Defaults upon Senior Securities	4333
Item 4.	Mine Safety Disclosures	4333
Item 5.	Other Information	4333
Item 6.	Exhibits	4434
Signatures		4535

~~Item~~Table 1.of ~~Financial Statements~~Contents

ALAMOGORDO FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS ~~(Unaudited)~~

	September 30, 2015			December 31, 2014
	March 31, 2016			December 31, 2015
ASSETS
Cash and due from banks	$	3,~~779~~772,~~919~~798		$	125,~~708~~959,~~542~~864
Interest-bearing deposits with banks		712,~~330~~145,000			213,~~115~~865,~~431~~000
Total cash and cash equivalents		1115,~~109~~917,~~919~~798			1419,~~823~~824,~~973~~864
Loans held for investment		196,~~974~~956,~~084~~689			~~175~~194,~~697~~031,~~082~~590
Allowance for loan losses		(12,~~853~~052,~~796~~365	)		(1,~~707~~894,~~282~~196	)
Loans held for investment, net		~~195~~194,~~120~~904,~~288~~324			~~173~~192,~~989~~137,~~800~~394
Loans held for sale		1217,~~284~~597,~~189~~841			911,~~429~~380,~~090~~627
Available-for-sale securities		3029,~~488~~481,~~960~~319			2928,~~017~~630,~~912~~551
Other real estate		~~418~~501,~~000~~558			~~820~~306,000
Premises and equipment, net		9,~~918~~800,~~790~~123			109,~~031~~801,~~492~~328
Stock in financial institutions		1,~~545~~552,~~847~~961			1,~~905~~546,~~935~~847
Accrued interest receivable		~~703~~678,~~693~~287			~~655~~698,~~201~~904
Bank owned life insurance		5,~~321~~386,~~899~~242			5,~~223~~355,~~189~~013
Core deposit intangible		~~384~~341,~~323~~237			~~465~~362,~~168~~780
Prepaid and other assets		~~773~~2,~~395~~344,340			~~592~~940,~~225~~099
TOTAL ASSETS	$	~~268~~278,~~069~~506,~~303~~030		$	~~246~~270,~~953~~984,~~985~~407
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Demand deposits	$	2740,~~517~~758,~~532~~662		$	1737,~~975~~969,~~857~~000
Savings and NOW deposits		~~108~~122,~~515~~114,~~633~~090			~~100~~113,~~574~~624,~~790~~419
Time deposits		7671,~~174~~756,~~075~~018			8374,~~388~~106,~~039~~894
Total deposits		~~212~~234,~~207~~628,~~240~~770			~~201~~225,~~938~~700,~~686~~313
Federal Home Loan Bank advances		2311,~~500~~000,000			1213,~~500~~000,000
Escrows		~~398~~370,~~005~~154			~~271~~277,~~141~~370
Accrued interest and other liabilities		2,~~287~~616,~~367~~782			2,~~907~~363,~~827~~000
Total liabilities		~~238~~248,~~392~~615,~~612~~706			~~217~~241,~~617~~340,~~654~~683
Commitments and contingencies		-			-
Stockholders’ equity
Common stock, $0.10 par value; 20,000,000 shares authorized, 1,685,132 issued, 1,679,500 outstanding at September 30, 2015 and December 31, 2014, respectively		168,513			168,552
Common stock, $0.10 par value; 20,000,000 shares authorized,		168,513			168,513
Additional paid-in capital		9,713,749			9,714,459
1,685,132 issued, 1,679,500 outstanding at
Retained earnings		20,310,150			20,084,266
March 31, 2016 and December 31, 2015.
Accumulated other comprehensive loss		(74,459	)		(148,446	)
Additional paid-in capital		9,715,209			9,713,894
Retained earnings		20,410,736			20,404,880
Accumulated other comprehensive income (loss)		9,636			(216,047	)
Treasury stock, at cost; 5,632 shares		(139,332	)		(139,332	)
Unearned employee stock ownership plan (ESOP) shares		(~~301~~274,~~930~~438	)		(~~343~~288,~~168~~184	)
Total stockholders’ equity		29,~~676~~890,~~691~~324			29,~~336~~643,~~331~~724
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	~~268~~278,~~069~~506,~~303~~030		$	~~246~~270,~~953~~984,~~985~~407

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

~~ALAMOGORDO~~Table ~~FINANCIAL~~of ~~CORP.~~Contents

~~CONSOLIDATED~~ALAMOGORDO ~~STATEMENTS~~FINANCIAL ~~OF COMPREHENSIVE INCOME (Unaudited)~~CORP.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Interest income
Interest and fees on loans	$	2,925,824		$	1,772,820		$	8,396,366		$	4,836,045
Interest on securities		106,597			209,156			399,409			607,351
Interest on other interest-earning assets		7,772			5,462			60,321			16,888
Total interest income		3,040,193			1,987,438			8,856,096			5,460,284
Interest expense
Interest on deposits		339,220			260,162			1,008,730			711,830
Interest on borrowings		19,516			91,660			46,248			266,766
Total interest expense		358,736			351,822			1,054,978			978,596
Net interest income		2,681,457			1,635,616			7,801,118			4,481,688
Provision for loan losses		125,000			-			300,000			-
Net interest income after provision for loan losses		2,556,457			1,635,616			7,501,118			4,481,688
Noninterest income
Gain on sale of loans		1,180,097			976,248			3,231,290			2,352,849
Service charges and fees		77,239			50,804			187,771			201,167
Impairments of other real estate, net of gain on sale		(205,863	)		-			(405,863	)		60,332
Gain on sale of securities		20,214			-			6,414			28,730
Bank owned life insurance income		33,267			35,648			98,709			106,191
Bargain purchase gain		-			2,898,847			-			2,898,847
Other		30,511			50,594			109,243			133,232
Total noninterest income		1,135,465			4,012,141			3,227,564			5,781,348
Noninterest expense
Salaries and benefits		2,059,732			1,561,595			5,894,934			4,277,479
Occupancy		367,259			323,257			1,201,738			870,296
Data processing fees		446,072			181,941			1,180,625			593,228
FDIC and other insurance expense		66,196			47,899			177,454			191,719
Professional fees		200,538			101,751			657,331			354,097
Merger-related expenses		-			311,441			99,577			887,644
Advertising		68,866			34,559			172,087			105,103
Net other real estate expenses		521			12,310			14,275			31,120
Other		354,325			347,522			1,104,777			850,257
Total noninterest expense		3,563,509			2,922,275			10,502,798			8,160,943
Income before income taxes		128,413			2,725,482			225,884			2,102,093
Provision for income taxes		-			-			-			-
NET INCOME		128,413			2,725,482			225,884			2,102,093
Other comprehensive income (loss)
Unrealized gain (loss) on available-for-sale securities		127,844			(132,492	)		73,987			382,679
COMPREHENSIVE INCOME	$	256,257		$	2,592,990		$	299,871		$	2,484,772
Earnings per common share:
Basic	$	0.08		$	1.89		$	0.13		$	1.55
Diluted	$	0.08		$	1.89		$	0.13		$	1.55

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

See accompanying notes.

	Three Months Ended March 31,
	2016		2015

Interest income
Interest and fees on loans	$	2,918,231	$	2,637,116
Interest on securities		120,407		164,609
Interest on other interest-earning assets		22,299		21,454
Total interest income		3,060,937		2,823,179

Interest expense
Interest on deposits		364,808		332,866
Interest on borrowings		10,808		8,926
Total interest expense		375,616		341,792

Net interest income		2,685,321		2,481,387
Provision for loan losses		52,000		100,000

Net interest income after provision for loan losses		2,633,321		2,381,387

Noninterest income
Gain on sale of loans		1,688,434		888,200
Service charges and fees		99,157		50,119
Loss on sale and impairments of other real estate		-		(200,000	)
Loss on sale of securities		-		(13,800	)
Bank owned life insurance income		43,024		32,414
Other		53,151		44,894
Total noninterest income		1,883,766		801,827

Noninterest expense
Salaries and benefits		2,581,184		1,925,621
Occupancy		451,529		426,300
Data processing fees		358,690		312,335
FDIC and other insurance expense		71,400		60,600
Professional fees		402,951		232,301
Merger-related expenses		-		94,324
Advertising		52,389		37,569
Net other real estate expenses		2,756		6,945
Other		575,332		351,476
Total noninterest expense		4,496,231		3,447,471

Income (loss) before income taxes		20,856		(264,257	)
Provision for income taxes		15,000		-

NET INCOME (LOSS)		5,856		(264,257	)

Other comprehensive income (loss)
Unrealized gain (loss) on available-for-sale securities		225,683		(19,914	)

COMPREHENSIVE INCOME (LOSS)	$	231,539	$	(284,171	)

Income (loss) per common share:
Basic	$	0.00	$	(0.16	)
Diluted	$	0.00	$	(0.16	)

3The accompanying notes are an integral part of these consolidated financial statements.

~~ALAMOGORDO FINANCIAL CORP.~~3

~~CONSOLIDATED~~Table ~~STATEMENTS~~of ~~OF STOCKHOLDERS' EQUITY (Unaudited)~~Contents

~~NINE~~ALAMOGORDO ~~MONTHS~~FINANCIAL ~~ENDED SEPTEMBER 30, 2015 AND 2014~~CORP.

									Accumulated
				Additional					Other						Unearned			Total
	Common			Paid-In			Retained		Comprehensive			Treasury			ESOP			Stockholders'
	Stock			Capital			Earnings		Loss			Stock			Shares			Equity
BALANCE, December 31, 2013	$	132,411		$	4,073,845		$	19,758,682	$	(1,064,798	)	$	(484,406	)	$	-		$	22,415,734
Net income		-			-			2,102,093		-			-			-			2,102,093
Unrealized gain on available-for-sale securities		-			-			-		382,679			-			-			382,679
Unearned/unallocated ESOP Shares		-			-			-		-			-			(160,895	)		(160,895	)
Amortization of ESOP award		-			(5,137	)		-		-			-			34,802			29,665
Sale of treasury shares to ESOP		-			(117,303	)		-		-			345,074			(227,771	)		-
Issuance of common stock in merger		36,063			5,747,365			-		-			-			-			5,783,428
Other		-			17,044			-		-			-			-			17,044
BALANCE, September 30, 2014	$	168,474		$	9,715,814		$	21,860,775	$	(682,119	)	$	(139,332	)	$	(353,864	)	$	30,569,748
BALANCE, December 31, 2014	$	168,552		$	9,714,459		$	20,084,266	$	(148,446	)	$	(139,332	)	$	(343,168	)	$	29,336,331
Net income		-			-			225,884		-			-			-			225,884
Unrealized gain on available-for-sale securities		-			-			-		73,987			-			-			73,987
Amortization of ESOP award		-			(749	)		-		-			-			41,238			40,489
Other		(39	)		39			-		-			-			-			-
BALANCE, September 30, 2015	$	168,513		$	9,713,749		$	20,310,150	$	(74,459	)	$	(139,332	)	$	(301,930	)	$	29,676,691

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

See accompanying notes.

									Accumulated
									Other
			Additional						Comprehensive						Unearned			Total
	Common		Paid-In			Retained			Income			Treasury			ESOP			Stockholders’
	Stock		Capital			Earnings			(Loss)			Stock			Shares			Equity

BALANCE, DECEMBER 31, 2014	$	168,552	$	9,714,459		$	20,084,266		$	(148,446	)	$	(139,332	)	$	(343,168	)	$	29,336,331

Net loss		-		-			(264,257	)		-			-			-			(264,257	)
Unrealized (loss) on available-for-sale securities		-		-			-			(19,914	)		-			-			(19,914	)
Amortization of ESOP award		-		(1,605	)		-			-			-			13,746			12,141

BALANCE, MARCH 31, 2015	$	168,552	$	9,712,854		$	19,820,009		$	(168,360	)	$	(139,332	)	$	(329,422	)	$	29,064,301

BALANCE, DECEMBER 31, 2015	$	168,513	$	9,713,894		$	20,404,880		$	(216,047	)	$	(139,332	)	$	(288,184	)	$	29,643,724

Net income		-		-			5,856			-			-			-			5,856
Unrealized gain on available-for-sale securities		-		-			-			225,683			-			-			225,683
Amortization of ESOP award		-		1,315			-			-			-			13,746			15,061
BALANCE, MARCH 31, 2016	$	168,513	$	9,715,209		$	20,410,736		$	9,636		$	(139,332	)	$	(274,438	)	$	29,890,324

4The accompanying notes are an integral part of these consolidated financial statements.

~~ALAMOGORDO FINANCIAL CORP.~~4

~~CONSOLIDATED~~Table ~~STATEMENTS~~of ~~OF CASH FLOWS (Unaudited)~~Contents

	Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities
Net income	$	225,884		$	2,102,093
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		481,459			382,150
Stock dividend on financial institution stock		(6,112	)		-
Impairments of other real estate, net of (gain) loss on sale		405,863			(60,332	)
Amortization of premiums and discounts on securities, net		470,861			442,401
Non-cash element of ESOP expense		40,489			29,665
Amortization of core deposit intangible		80,845			-
Bargain purchase gain		-			(2,898,847	)
Gain on sale of available-for-sale securities		(6,414	)		(28,730	)
Gain on sale of loans		(3,231,290	)		(2,352,849	)
Proceeds from sale of loans held for sale		111,895,180			70,985,257
Funding of loans held for sale		(110,106,173	)		(72,210,601	)
Provision for loan losses		300,000			-
Earnings on bank-owned life insurance		(98,709	)		(106,191	)
Changes in operating assets and liabilities:
Accrued interest receivable		(48,492	)		68,977
Income taxes receivable		-			310,331
Prepaid and other assets		(181,172	)		(7,346	)
Accrued interest and other liabilities		(620,459	)		404,287
Other		23,365			54,859
Net cash used for operating activities		(374,875	)		(2,884,876	)
Cash flows from investing activities
Proceeds from principal payments on available-for-sale securities		5,081,993			4,185,331
Proceeds from sales of available-for-sale securities		2,799,336			2,054,999
Purchases of available-for-sale securities		(9,742,836	)		-
Funding of ESOP		-			(106,919	)
Net (increase) decrease in loans held for investment		(22,894,381	)		(2,788,933	)
Purchases of premises and equipment		(368,756	)		(16,988	)
Redemption (purchases) of stock in financial institutions		366,200			(88,315	)
Net proceeds from sales of other real estate		24,454			570,889
Cash paid for acquisition		-			(3,804,414	)
Cash received for acquisition		-			2,208,730
Net cash (used for) provided by investing activities		(24,733,990	)		2,214,380
Cash flows from financing activities
Net increase in deposits		10,268,554			(1,800,785	)
Net increase in escrows		126,257			109,231
Net increase in Federal Home Loan Bank advances		11,000,000			4,246,886
Net cash provided by financing activities		21,394,811			2,555,332
Net increase in cash and cash equivalents		(3,714,054	)		1,884,836
Cash and cash equivalents, beginning of period		14,823,973			7,014,150
Cash and cash equivalents, end of period	$	11,109,919		$	8,898,986
Supplemental disclosures:
Interest paid on deposits and advances	$	1,059,325		$	966,776
Income taxes paid		-			(310,331	)
Noncash investing and financing activities:
Transfers of loans to other real estate		28,317			81,518
Sale of treasury shares to ESOP		-			345,074

ALAMOGORDO FINANCIAL CORP.

~~See~~CONSOLIDATED ~~accompanying~~STATEMENTS ~~notes.~~OF CASH FLOWS

	Three Months Ended March 31,
	2016			2015
Cash flows from operating activities
Net income (loss)	$	5,856		$	(264,257	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization		151,091			169,228
Stock dividend on financial institution stock		(6,114	)		(4,212	)
Loss on sale and impairments of other real estate		-			200,000
Amortization of premiums and discounts on securities, net		122,978			131,367
ESOP expense		15,061			12,141
Amortization of core deposit intangible		21,543			27,624
Loss on sale of available-for-sale securities		-			13,800
Gain on sale of loans		(1,688,434	)		(888,200	)
Proceeds from sale of loans held for sale		44,263,954			30,161,715
Funding of loans held for sale		(47,590,265	)		(32,021,824	)
Provision for loan losses		52,000			100,000
Net increase in bank-owned life insurance		(31,229	)		(32,414	)
Changes in operating assets and liabilities:
Accrued interest receivable		20,617			(36,487	)
Prepaid and other assets		(1,404,241	)		(25,281	)
Accrued interest and other liabilities		97,019			(399,281	)
Net cash used for operating activities		(5,970,164	)		(2,856,081	)

Cash flows from investing activities
Proceeds from principal payments on available-for-sale securities		1,354,204			1,330,908
Proceeds from sales of available-for-sale securities		-			2,286,200
Purchases of available-for-sale securities		(2,102,266	)		(9,742,836	)
Net change in loans held for investment		(4,060,195	)		(6,225,233	)
Purchases of premises and equipment		(149,886	)		(39,421	)
Redemption of stock in financial institutions		-			432,000
Net cash used for investing activities		(4,958,143	)		(11,958,382	)

Cash flows from financing activities
Net change in deposits		8,928,457			(1,090,324	)
Net change in escrows		92,784			95,162
Net change in Federal Home Loan Bank advances		(2,000,000	)		7,500,000
Net cash provided by financing activities		7,021,241			6,504,838

Net decrease in cash and cash equivalents		(3,907,066	)		(8,309,625	)

Cash and cash equivalents, beginning of period		19,824,864			14,823,973

Cash and cash equivalents, end of period	$	15,917,798		$	6,514,348

Supplemental disclosures:
Interest on deposits and advances paid	$	378,436		$	335,632
Income taxes paid	$	15,000		$	-
Noncash investing and financing activities:
Transfers of loans to other real estate	$	195,558		$	-

~~ALAMOGORDO~~The ~~FINANCIAL~~accompanying ~~CORP.~~notes ~~NOTES~~are TOan ~~CONSOLIDATED~~integral ~~FINANCIAL~~part ~~STATEMENTS~~of ~~SEPTEMBER~~these ~~30,~~consolidated financial ~~2015 AND DECEMBER 31, 2014~~statements.

~~NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES~~5

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

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

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

~~Effective~~NOTE ~~December~~1 ~~31,~~– ~~2014,~~NATURE ~~the~~OF ~~Company~~OPERATIONS ~~changed~~AND ~~its~~SUMMARY ~~fiscal~~OF ~~year~~SIGNIFICANT ~~from~~ACCOUNTING ~~the~~AND ~~twelve~~REPORTING ~~months ended June 30 to the twelve months ended December 31.~~POLICIES

~~These~~Alamogordo ~~consolidated~~Financial ~~financial~~Corp. ~~statements~~(the “Company”) ~~should~~is bea ~~read~~savings inand ~~conjunction~~loan ~~with~~holding company that owns 100% of Bank 34 (the ~~audited~~“Bank”). ~~consolidated~~On ~~financial~~June ~~statements~~30, 2008, the Bank changed its name from Alamogordo Federal Savings and ~~notes~~Loan ~~thereto~~Association ~~included~~to inBank 34. Alamogordo Financial Corp. (the ~~Company’s~~“Parent”) was ~~transition~~incorporated ~~report~~ on ~~Form~~April 1030, 1997 and is a majority-KTowned ~~for~~subsidiary ~~the~~of ~~period~~AF ~~July~~Mutual 1,Holding ~~2014~~Company. ~~through~~As ~~December~~of March 31, ~~2014~~2016, asAF ~~filed~~Mutual Holding ~~with~~Company ~~the~~owned ~~Securities~~54.7% ~~Exchange~~of ~~Commission (“SEC”)~~the onCompany’s ~~March~~outstanding ~~30,~~shares ~~2015~~of common stock.

The Bank provides a variety of ~~banking~~ banking services to individuals and businesses through its full-service branches in Alamogordo and Las Cruces, New Mexico, and Scottsdale and Peoria, Arizona. The Bank ~~opened~~also aoperates seven loan production ~~office~~offices in El Paso, Texas, Phoenix and Tucson, Arizona, Albuquerque, New Mexico, Kirkland and Puyallup, Washington, and Medford, Oregon. The loan production offices in ~~the~~Kirkland ~~first~~and ~~quarter~~Puyallup, ofWashington, ~~2015~~Medford, Oregon, and Tucson, Arizona were opened in early 2016.

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

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

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

6On March 7, 2016, the Boards of Directors of AF Mutual Holding Company, the Parent and the Bank adopted a Plan of Conversion and Reorganization (the “Plan”). Pursuant to the Plan, AF Mutual Holding Company will convert from the mutual holding company form of organization to the fully public form in a “second-step” stock offering. AF Mutual Holding Company will be merged into the Parent, and AF Mutual Holding Company will no longer exist. The Parent will then merge into a new Maryland corporation named Bancorp 34, Inc. The existing publicly held shares of the Parent, which represent the remaining ownership interest in the Parent, will be exchanged for new shares of common stock of the new Maryland corporation.

~~ALAMOGORDO~~Basis ~~FINANCIAL~~of ~~CORP~~Presentation – The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). ~~NOTES~~In TOthe ~~CONSOLIDATED~~opinion ~~FINANCIAL~~of ~~STATEMENTS~~management, ~~SEPTEMBER~~the 30accompanying consolidated financial statements include all adjustments, consisting ~~2015~~of ~~AND~~only ~~DECEMBER~~normal recurring adjustments, necessary for a fair presentation of the financial condition and results of operations at the dates and for the periods presented. The results of operations for the three months ended March 31, ~~2014~~2016 are not necessarily indicative of the results of operations for the full fiscal year. This information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Basis of ~~Presentation~~Consolidation – The ~~accompanying~~ consolidated financial statements ~~have~~include ~~been prepared on~~ the ~~accrual~~accounts ~~basis~~ of ~~accounting~~Alamogordo inFinancial ~~accordance~~Corp. ~~with~~and ~~accounting principles~~the ~~generally~~Bank. ~~accepted~~All insignificant ~~the~~intercompany accounts ~~United~~and ~~States~~transactions ofhave ~~America~~been ~~(GAAP)~~eliminated.

~~Basis~~Reclassifications ~~of Consolidation~~ – ~~The~~Certain ~~consolidated~~reclassifications ~~financial~~have ~~statements~~been ~~include~~made ~~the~~to ~~accounts~~prior ofperiods ~~Alamogordo~~financial ~~Financial~~information ~~Corp.~~to ~~and~~conform to the ~~Bank.~~current ~~All~~period ~~significant intercompany accounts and transactions have been eliminated~~presentation.

~~Provision~~Use ~~for~~of ~~Income~~Estimates ~~Taxes~~– -The Nopreparation ~~provision~~of ~~for~~financial ~~income~~statements ~~taxes~~in ~~was~~conformity ~~recorded~~with ~~for~~GAAP ~~the~~requires ~~three~~management ~~and~~to ~~nine~~make ~~months~~estimates ~~ended September 30, 2015~~ and ~~2014.~~assumptions ~~The~~that ~~Company~~affect ~~had~~the ~~pre-tax~~reported ~~income~~amounts ~~for~~of ~~all~~assets ~~periods~~and ~~presented~~liabilities and nodisclosure ~~provision~~of ~~for~~contingent ~~income~~assets ~~taxes~~and ~~was~~liabilities ~~recorded~~at ~~due~~the todate ~~net~~of ~~operating~~the ~~loss~~financial ~~carry-forwards~~statements ~~from prior~~and ~~periods~~the ~~available to offset that income.~~reported

~~Reclassifications – Certain reclassifications have been made to prior period financial information to conform to the current period presentation.~~6

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

~~Significant~~amounts ~~estimates~~of ~~include,~~revenues ~~but are not limited to, allowance for loan losses, useful lives used in depreciation~~ and ~~amortization,~~expenses ~~deferred income taxes and related~~during ~~valuation~~the ~~allowance,~~reporting ~~valuation~~period. ofActual ~~other~~results ~~real~~could ~~estate~~differ ~~and~~from ~~core~~those ~~deposit intangibles~~estimates.

~~Recent~~Significant ~~Accounting~~estimates ~~Pronouncements – In January 2014~~include, ~~the~~but ~~Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-04, "Reclassification~~are ofnot ~~Residential~~limited ~~Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure." The objective of this guidance is~~ to ~~clarify when an in substance repossession or foreclosure occurs~~, ~~that~~allowance ~~is,~~for ~~when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage~~ loan ~~such~~losses, ~~that~~useful ~~the~~lives ~~loan~~used ~~receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 states that an~~ in ~~substance~~depreciation ~~repossession or foreclosure occurs,~~ and ~~a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan~~amortization, ~~upon~~deferred ~~either~~income ~~(1)~~taxes ~~the~~and ~~creditor obtaining legal title to the residential real estate property upon completion~~related ofvaluation a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionallyallowance, ~~ASU~~valuation ~~No. 2014-04 requires interim and annual disclosure~~ of ~~both~~other ~~(1) the amount of foreclosed residential~~ real estate ~~property held by the creditor~~ and ~~(2)~~core ~~the~~deposit ~~recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction~~intangibles. ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of ASU No. 2014-04 did not have a material impact on the Company's Consolidated Financial Statements.

7Subsequent Events – Subsequent events have been evaluated through the date the consolidated financial statements were issued.

~~ALAMOGORDO~~Summary ~~FINANCIAL~~of ~~CORP.~~Recent ~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND DECEMBER 31, 2014~~Accounting Pronouncements:

~~NOTE~~Debt 2Issuance –Costs - ~~BUSINESS~~In ~~COMBINATION~~April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). This update requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt and would be applied using a retrospective approach. This guidance is effective for public companies for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other companies, including emerging growth companies, the amendments are effective for fiscal years beginning after December 15, 2015, and interim periods beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The adoption of ASU 2015-03 did not have a material impact on the Company’s financial statements.

OnBusiness ~~August~~Combinations 29- In September 2015, ~~2014~~the FASB issued ASU 2015-16, Business Combinations (~~the~~Topic ~~“acquisition date”~~805),: Simplifying the ~~Company~~Accounting ~~acquired~~for Measurement-Period ~~100%~~Adjustments. ofASU 2015-16 eliminates the ~~outstanding~~requirement ~~stock~~for ofan ~~Bank~~acquirer ~~1440,~~to retrospectively adjust provisional amounts recorded in a ~~state-chartered~~business ~~commercial~~combination ~~bank~~to ~~headquartered~~reflect new information about the facts and circumstances that existed as of inthe ~~Phoenix~~acquisition date and that, ~~Arizona~~if ~~with~~known, ~~approximately~~would ~~$88~~have affected measurement or recognition of amounts initially recognized.3 ~~million~~As an inalternative, ~~assets~~the atamendment ~~fair~~requires ~~value~~that ~~and~~an ~~two~~acquirer ~~branches.~~recognize ~~Bank~~adjustments ~~1440~~to ~~shareholders~~provisional ~~received~~amounts that are identified ~~$0.94~~during the measurement period in ~~cash~~the ~~and~~reporting 0period in which the adjustment amounts are determined.~~17064~~ ~~shares~~The ofamendments require that the ~~Company’s~~acquirer ~~common~~record, ~~stock~~in the financial statements of the period in ~~exchange~~which ~~for~~adjustments ~~each~~to ~~share~~provisional amounts are determined, the effect on earnings of ~~Bank~~changes ~~1440~~in ~~common~~depreciation, ~~stock~~amortization, ~~and~~or ~~Series~~other income effects, if any, as a result of Athe ~~preferred~~change ~~stock~~to the provisional amounts, ~~resulting~~calculated inas if the ~~Company~~accounting ~~issuing~~had ~~360~~been completed at the acquisition date. The new standard is effective for public companies prospectively for fiscal years beginning after December 15,~~635~~ 2015, ~~shares~~including ofinterim ~~its~~periods ~~common~~within ~~stock~~those fiscal years, ~~subject~~with toearly ~~adjustment~~adoption permitted. For all other companies, including emerging growth companies, the amendments are effective for ~~cash~~fiscal ~~paid~~years inbeginning after December 15, 2016, and ~~lieu~~interim periods within fiscal years beginning after December 15, 2017. The adoption of ~~fractional~~ASU ~~shares~~2015-16 did not have a material impact on the Company’s financial statements.

~~The~~Leases ~~Bank~~- ~~1440~~In ~~transaction~~February ~~was~~2016, ~~accounted~~the FASB ~~for~~issued ~~using~~ASU 2016-02, Leases (Topic 842). This standard requires entities that lease assets to recognize on the ~~acquisition~~balance ~~method~~sheet ofthe ~~accounting~~assets and ~~accordingly~~liabilities for the rights and obligations created by those leases. The standard is effective for public companies for fiscal years and the interim periods within those fiscal years beginning after December 15, ~~assets~~2018. ~~acquired~~For all other companies, ~~liabilities~~including ~~assumed~~emerging growth companies, the amendments are effective for fiscal years beginning after December 15, 2019, and ~~consideration~~interim ~~exchanged~~periods within fiscal years beginning after December ~~were~~15, ~~recorded~~2020. The atguidance ~~estimated~~is ~~fair~~required ~~value~~to onbe applied by the ~~acquisition~~modified ~~date~~retrospective transition approach. Early adoption is permitted. We are currently assessing the impact of the adoption of this authoritative guidance on our consolidated financial statements.

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

	August 29,
	2014
Purchase Price
Gross Company Shares Issued		360,635
Closing price per share of the Company's Common Stock	$	16.00
Stock Consideration (0.17064 ratio)	$	5,770,160
Option and Warrant consideration	$	1,298,629
20% Cash & Cash in Lieu		2,105,785
Dissenters Payments		400,000
Cash Consideration	$	3,804,414
Total purchase price	$	9,574,574

Available-for-sale securities have been classified in the consolidated balance sheets according to management’s intent at March 31, 2016 and December 31, 2015. The carrying amount of such securities and their approximate fair values were as follows:

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

Statement of Net Assets Acquired at Fair Value:

	Gross		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value

March 31, 2016
Available-for-sale securities
Mortgage-backed securities	$	24,309,721	$	103,826	$	(141,879	)	$	24,271,668
U.S. Government agencies		3,274,868		32,999		(5,249	)		3,302,618
Municipal obligations		1,887,094		20,592		(653	)		1,907,033

	$	29,471,683	$	157,417	$	(147,781	)	$	29,481,319

December 31, 2015
Available-for-sale securities
Mortgage-backed securities	$	23,449,558	$	52,498	$	(231,560	)	$	23,270,496
U.S. Government agencies		3,498,469		10,429		(50,085	)		3,458,813
Municipal obligations		1,898,571		3,317		(646	)		1,901,242

	$	28,846,598	$	66,244	$	(282,291	)	$	28,630,551

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

Proceeds from the sale of available-for-sale securities and resulting net gains and net losses were as follows:

Only one month of Bank 1440’s results of operations are included in the Company’s consolidated statements of comprehensive income for the three and nine months ended September 30, 2014 since the merger was completed in late August 2014.

	Three Months Ended March 31,
	2016		2015

Proceeds from sale	$	-	$	2,286,200
(Losses), net	$	-	$	(13,800	)

~~Merger-related~~Amortized ~~charges~~cost ~~of $100,000~~ and ~~$888,000~~ ~~were~~fair ~~recorded~~value ~~in the Company’s consolidated statements~~ of ~~comprehensive income as noninterest expense for the nine~~securities ~~months~~by ~~ended~~contractual ~~September~~maturity ~~30,~~as ~~2015~~of ~~and~~March ~~2014~~31, ~~respectively,~~2016 ~~and~~are ~~include~~shown ~~incremental~~below. ~~costs~~For topurposes ~~integrate~~of the ~~operations~~maturity oftable, ~~the~~mortgage-backed ~~Company~~securities, which ~~and~~are ~~Bank~~not ~~1440.~~due ~~Such~~at ~~expenses~~a ~~were~~single ~~for~~maturity ~~professional~~date, ~~services~~have ~~including~~been ~~legal~~allocated ~~fees,~~over ~~costs~~maturity ~~related~~groupings tobased ~~termination~~on ofthe ~~existing~~actual contractual maturities of ~~arrangements~~underlying ~~for~~collateral. ~~various~~Expected ~~services~~maturities ~~and~~may ~~other~~differ ~~costs.~~from ~~Core~~contractual ~~operating~~maturities ~~systems~~because ~~were~~borrowers ~~converted~~may incall ~~March~~or ~~2015~~prepay obligations.

The ~~following~~scheduled ~~table~~maturities ~~provides the unaudited pro forma information for the results~~ of ~~operations~~ available-for ~~the nine months ended September 30, 2015, compared to the nine months ended~~-sale ~~September~~securities ~~30,~~at ~~2014~~March ~~as if the acquisition had occurred January 1~~31, ~~2014.~~2016 ~~These~~were adjustments include the impact of certain purchase accounting adjustments including accretion of loan discounts, core deposit intangible amortization, fixed asset depreciation and deposit premium amortization. In addition, the merger expenses previously discussed are included in each period presented. The Company expects to achieve operating cost savings and other business synergies as a result of the acquisition, which are not reflected in the pro forma amounts. These unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined corporation that would have been achieved had the acquisition occurred at the beginning of each period presented, nor are they intended to represent or be indicative of future results of operations.follows:

	March 31, 2016
	Amortized		Fair
	Cost		Value

Due in one year or less	$	-	$	-
Due after one to five years		28,207,821		28,193,363
Due after five to ten years		1,263,862		1,287,956
Due after ten years		-		-

Totals	$	29,471,683	$	29,481,319

~~ALAMOGORDO~~At ~~FINANCIAL~~March ~~CORP.~~31, ~~NOTES~~2016 TOand ~~CONSOLIDATED~~December ~~FINANCIAL~~31, ~~STATEMENTS~~2015, there ~~SEPTEMBER~~were 30no holdings of securities of any one issuer, ~~2015~~other ~~AND~~than ~~DECEMBER~~the 31U.S. Government and its agencies, ~~2014~~in an amount greater than 10% of stockholders’ equity.

~~Pro Forma Results of Operations~~8

	In thousands
	Nine Months Ended September 30,
	2015		2014
Total revenue, net of interest expense	$	11,029	$	12,259
Net income	$	226	$	2,220

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InAt ~~many~~March ~~cases~~31, ~~determining~~2016 ~~the fair value of the acquired assets~~ and ~~assumed~~December ~~liabilities~~31, ~~required~~2015, ~~the~~mortgage-backed ~~Company to estimate cash flows expected to result from those assets~~securities ~~and~~included ~~liabilities~~collateralized ~~and~~mortgage toobligations ~~discount those cash flows at appropriate rates~~ of ~~interest~~$6.7 ~~The~~million ~~most~~and ~~significant of those determinations relates to the valuation of acquired loans~~$5.9 ~~For~~million, ~~such loans~~respectively, ~~the~~which ~~excess~~are ofbacked ~~cash~~by ~~flows expected at acquisition over the estimated~~single-family ~~fair~~mortgage ~~value is recognized as interest income over the remaining lives of the~~ loans. The ~~difference~~Company ~~between~~does ~~contractually~~not ~~required payments~~hold atany ~~acquisition~~securities ~~and~~backed ~~the~~by ~~cash~~commercial ~~flows~~real ~~expected~~estate ~~to be collected at acquisition reflects the impact of estimated credit losses and other factors, such as prepayments~~loans. ~~In accordance with GAAP, there was no carry-over of Bank 1440’s previously established allowance for loan losses.~~

~~All~~Gross ofUnrealized ~~the~~Losses ~~acquired loans were evaluated for evidence of credit quality deterioration~~ and ~~none~~Fair ~~were found to be accountable under ASC 310-30 (acquired impaired). All acquired~~Value ~~loans~~– ~~are~~The ~~accounted~~following ~~for~~tables ~~under~~show ~~ASC~~the ~~310-20~~gross ~~(acquired~~unrealized ~~non-impaired).~~losses ~~The~~and fair ~~value~~values of ~~the~~securities ~~acquired~~by ~~loans~~length atof ~~the~~time ~~acquisition~~that ~~date~~individual securities ~~was~~in ~~$67.4~~each ~~million.~~category ~~The~~have ~~gross~~been ~~contractually~~in ~~required~~a ~~principal~~continuous ~~and~~loss ~~interest payments receivable for acquired loans was $68~~position.~~5 million.~~

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

	March 31, 2016
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
Description of			Unrealized					Unrealized					Unrealized
Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses

Available-for-sale securities:
Mortgage-backed securities	$	3,556,124	$	(25,291	)	$	8,423,645	$	(116,588	)	$	11,979,769	$	(141,879	)
U.S. Government agencies		-		-			1,364,141		(5,249	)		1,364,141		(5,249	)
Municipal obligations		35,300		(653	)		-		-			35,300		(653	)

Total temporarily impaired securities	$	3,591,424	$	(25,944	)	$	9,787,786	$	(121,837	)	$	13,379,210	$	(147,781	)

NOTE 3 – DEBT SECURITIES

	December 31, 2015
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
Description of			Unrealized					Unrealized					Unrealized
Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses

Available-for-sale securities:
Mortgage-backed securities	$	13,002,963	$	(133,816	)	$	5,833,352	$	(97,744	)	$	18,836,315	$	(231,560	)
U.S. Government agencies		1,242,250		(6,715	)		1,477,876		(43,370	)		2,720,126		(50,085	)
Municipal obligations		35,541		(646	)		-		-			35,541		(646	)

Total temporarily impaired securities	$	14,280,754	$	(141,177	)	$	7,311,228	$	(141,114	)	$	21,591,982	$	(282,291	)

~~Debt~~At ~~securities~~March ~~have~~31, ~~been~~2016, ~~classified~~all in of the ~~consolidated~~government agencies ~~balance~~and ~~sheets~~mortgage-backed ~~according~~securities toheld ~~management’s~~by ~~intent~~the atCompany ~~September~~were 30issued by U.S. Government-sponsored entities and agencies, ~~2015~~primarily Fannie Mae and ~~December~~Freddie 31Mac, ~~2014~~institutions which the government has affirmed its commitment to support. ~~The~~Because ~~following~~the decline in fair ~~table~~value ~~provides~~is attributable to changes in interest rates and illiquidity, and not credit quality, and because the ~~carrying~~Company ~~amount~~does ofnot have the intent to sell these securities and it is likely that it will not be required to sell the securities before their ~~approximate~~anticipated recovery, ~~fair~~the ~~values~~Company does not consider these securities to be other-than-temporarily impaired at March 31, 2016 or December 31, 2015.

10Loans and securities carried at approximately $115.6 million at March 31, 2016 were pledged to secure FHLB advances. In addition, securities carried at approximately $6.7 million at March 31, 2016 were pledged to secure public deposits.

~~ALAMOGORDO~~NOTE ~~FINANCIAL~~3 ~~CORP.~~– ~~NOTES~~LOANS TOHELD ~~CONSOLIDATED~~FOR ~~FINANCIAL STATEMENTS SEPTEMBER 30~~INVESTMENT, ~~2015 AND DECEMBER 31, 2014~~ NET

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

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

~~Proceeds from the sale of available-for-sale securities and resulting net gains were as follows:~~9

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Proceeds from sale	$	513,136	$	-	$	2,799,336	$	2,054,999
Gains, net	$	20,214	$	-	$	6,414	$	28,730

Table of Contents

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

	March 31, 2016						December 31, 2015
	Amount			Percent			Amount			Percent

Loans held for investment, net:
Commercial real estate	$	149,189,698			75.5	%	$	146,643,998			75.3	%
One- to four-family residential real estate		29,930,302			15.1			31,412,437			16.1
Commercial and industrial		10,798,417			5.5			10,235,492			5.3
Consumer and other		7,703,009			3.9			6,428,765			3.3
Total gross loans		197,621,426			100.0	%		194,720,692			100.0	%
Unamortized loan fees		(664,737	)					(689,102	)
Loans held for investment		196,956,689						194,031,590
Allowance for loan losses		(2,052,365	)					(1,894,196	)
Loans held for investment, net	$	194,904,324					$	192,137,394

~~The~~At ~~scheduled~~March ~~maturities~~31, of2016 ~~available-for-sale securities~~and atDecember ~~September 30~~31, 2015 commercial ~~were~~real asestate ~~follows:~~loans include construction loans of $7.7 million and $7.8 million, respectively.

	Available-for-Sale Securities
	Amortized		Fair
	Cost		Value
Due in one year or less	$	-	$	-
Due after one to five years		26,741,357		26,678,973
Due after five to ten years		3,822,063		3,809,987
Due after ten years		-		-
Totals	$	30,563,420	$	30,488,960

Allowance for Loan Losses and Recorded Investment in Loans – The following is a summary of the allowance for loan losses and recorded investment in loans as of March 31, 2016 and December 31, 2015:

	As of March 31, 2016
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Allowance for loan losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment		1,241,068		567,465		197,713		46,119		2,052,365

Total		1,241,068		567,465		197,713		46,119		2,052,365

Gross loans
Ending balance: individually evaluated for impairment	$	3,122,828	$	1,289,486	$	630,195	$	23,247	$	5,065,756
Ending balance: collectively evaluated for impairment		146,066,870		28,640,816		10,168,222		7,679,762		192,555,670
Ending balance: loans acquired with deteriorated credit quality		-		-		-		-		-

Total	$	149,189,698	$	29,930,302	$	10,798,417	$	7,703,009	$	197,621,426

~~ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND DECEMBER 31, 2014~~10

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

At September 30, 2015, mortgage-backed securities included collateralized mortgage obligations of $6.2 million, which are backed by one-to-four family mortgage loans. The Company does not hold any securities backed by commercial real estate loans.

	As of December 31, 2015
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Allowance for loan losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment		1,136,458		656,089		63,527		38,122		1,894,196
Total	$	1,136,458	$	656,089	$	63,527	$	38,122	$	1,894,196

Gross loans
Ending balance: individually evaluated for impairment	$	2,221,619	$	1,830,826	$	354,208	$	-	$	4,406,653
Ending balance: collectively evaluated for impairment		144,422,379		29,581,611		9,881,284		6,428,765		190,314,039
Ending balance: loans acquired with deteriorated credit quality		-		-		-		-		-
Total	$	146,643,998	$	31,412,437	$	10,235,492	$	6,428,765	$	194,720,692

~~Gross Unrealized Losses and Fair Value –~~ The following ~~tables~~is ~~show~~a ~~the~~summary ~~gross unrealized losses and fair values~~ of ~~securities by length of time that individual securities~~activities infor ~~each~~the ~~category~~allowance ~~have~~for ~~been~~loan inlosses afor ~~continuous loss position. At September 30, 2015, 94% of~~ the ~~securities~~three ~~held~~months byended ~~the~~March ~~Company were issued by U.S. Government-sponsored enterprises and agencies~~31, ~~primarily~~2016 ~~Fannie Mae~~ and ~~Freddie Mac, institutions which the government has affirmed its commitment to support.~~2015:

Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2015 or December 31, 2014.

	Three Months Ended March 31,
	2016			2015

Beginning balance	$	1,894,196		$	1,707,282

Provision for loan losses		52,000			100,000

Charge-offs:
Commercial real estate		-			-
One- to four-family residential real estate		(10,756	)		-
Commercial and industrial		-			-
Consumer and other		-			(160	)
Total charge-offs		(10,756	)		(160	)

Recoveries:
Commercial real estate		116,125			183,546
One- to four-family residential real estate		800			-
Commercial and industrial		-			-
Consumer and other		-			-
Total recoveries		116,925			183,546
Net recoveries		106,169			183,386

Ending balance	$	2,052,365		$	1,990,668

	September 30, 2015
	Less Than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
Description of			Unrealized					Unrealized					Unrealized
Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available-for-sale securities:
Mortgage-backed securities	$	11,835,136	$	(124,279	)	$	6,735,690	$	(82,932	)	$	18,570,826	$	(207,211	)
U.S. Government agencies		-		-			1,506,929		(19,199	)		1,506,929		(19,199	)
Municipal obligations		301,412		(3,992	)		-		-			301,412		(3,992	)
Total temporarily impaired securities	$	12,136,548	$	(128,271	)	$	8,242,619	$	(102,131	)	$	20,379,167	$	(230,402	)

Nonperforming Assets – The following tables present an aging analysis of the recorded investment of past due loans as of March 31, 2016 and December 31, 2015. Payment activity is reviewed by management on a monthly

	December 31, 2014
	Less Than 12 Months					12 Months or More				Total
			Gross					Gross				Gross
Description of			Unrealized					Unrealized				Unrealized
Securities	Fair Value		Losses			Fair Value		Losses		Fair Value		Losses
Available-for-sale securities:
Mortgage-backed securities	$	12,923,685	$	(142,394	)	$	-	$	-	$	12,923,685	$	(142,394	)
U.S. Government agencies		3,969,042		(73,798	)		-		-		3,969,042		(73,798	)
Municipal obligations		1,300,632		(18,652	)		-		-		1,300,632		(18,652	)
Total temporarily impaired securities	$	18,193,359	$	(234,844	)	$	-	$	-	$	18,193,359	$	(234,844	)

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

12basis to determine the performance of each loan. Per Company policy, loans past due 90 days or more no longer accrue interest.

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

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables

March 31, 2016
Commercial real estate	$	-	$	-	$	-	$	-	$	149,189,698	$	149,189,698
One- to four-family residential real estate		434,237		-		634,087		1,068,324		28,861,978		29,930,302
Commercial and industrial		304,144		-		-		304,144		10,494,273		10,798,417
Consumer and other		-		-		-		-		7,703,009		7,703,009

Totals	$	738,381	$	-	$	634,087	$	1,372,468	$	196,248,958	$	197,621,426

NOTE 4 – LOANS HELD FOR INVESTMENT, NET

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables

December 31, 2015
Commercial real estate	$	-	$	-	$	-	$	-	$	146,643,998	$	146,643,998
One- to four-family residential real estate		314,541		173,467		788,159		1,276,167		30,136,270		31,412,437
Commercial and industrial		-		-		-		-		10,235,492		10,235,492
Consumer and other		-		-		-		-		6,428,765		6,428,765

Totals	$	314,541	$	173,467	$	788,159	$	1,276,167	$	193,444,525	$	194,720,692

The ~~components~~following oftable sets forth nonaccrual loans ~~held~~and ~~for~~other ~~investment, net~~real inestate ~~the~~at ~~consolidated~~March ~~balance~~31, ~~sheets~~2016 ~~were~~and asDecember ~~follows~~31, 2015:

	September 30, 2015						December 31, 2014
	March 31,			December 31,
	Amount			Percent			Amount			Percent
	2016			2015
Loans held for investment, net:
Nonaccrual loans
Commercial real estate	$	~~151,186,975~~-		$	~~76.5~~-	%	$	~~129,948,473~~			~~73.7~~	%
Residential real estate		31,125,404			15.7	%		32,959,380			18.7	%
One- to four-family residential real estate		1,048,451			1,489,851
Commercial and industrial		9304,~~807,878~~144			~~5.0~~354,208	%		~~8,594,344~~			~~4.9~~	%
Consumer and other		~~5,560,295~~-			~~2.8~~-	%		~~4,816,230~~			~~2.7~~	%
Total gross loans		197,680,552			100.0	%		176,318,427			100.0	%
Total nonaccrual loans		1,352,595			1,844,059
Unamortized loan fees		(706,468	)					(621,345	)
Other real estate (ORE)		501,558			306,000
Loans held for investment		196,974,084						175,697,082
Total nonperforming assets	$	1,854,153		$	2,150,059
Allowance for loan losses		(1,853,796	)					(1,707,282	)
Nonperforming assets to gross loans held for investment and ORE		0.94	%		1.10	%
Loans held for investment, net	$	195,120,288					$	173,989,800
Nonperforming assets to total assets		0.67	%		0.79	%

AtOther ~~September~~real ~~30,~~estate ~~2015~~consisted ~~and~~of ~~December~~one ~~31,~~commercial ~~2014,~~property ~~commercial~~and ~~real~~one ~~estate~~1-4 ~~loans~~family ~~include~~residence ~~construction~~at ~~loans~~March of31, ~~$13.4~~2016 ~~million~~ and ~~$13.0~~one ~~million~~commercial property at December 31, ~~respectively~~2015.

~~Allowance for Loan Losses and Recorded Investment in Loans – The following is a summary of the allowance for loan losses and recorded investment in loans:~~12

	As of September 30, 2015
	Commercial		Residential		Commercial		Consumer and
	Real Estate		Real Estate		and Industrial		Other		Total
Allowance for loan losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment		1,258,884		523,336		42,587		28,989		1,853,796
Total	$	1,258,884	$	523,336	$	42,587	$	28,989	$	1,853,796
Gross loans
Ending balance: individually evaluated for impairment	$	1,855,354	$	1,138,968					$	2,994,322
Ending balance: collectively evaluated for impairment		149,331,621		29,986,436		9,807,878		5,560,295		194,686,230
Total	$	151,186,975	$	31,125,404	$	9,807,878	$	5,560,295	$	197,680,552

Table of Contents

13Credit Quality Indicators – The following table represents the credit exposure by internally assigned grades at March 31, 2016 and December 31, 2015. This grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements in accordance with the loan terms. The Bank’s internal credit risk grading system is based on management’s experiences with similarly graded loans. Credit risk grades are reassessed each quarter based on any recent developments potentially impacting the creditworthiness of the borrower, as well as other external statistics and factors, which may affect the risk characteristics of the respective loan.

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

	As of March 31, 2016
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total

Grade
Pass	$	144,577,449	$	28,427,054	$	10,078,247	$	7,679,762	$	190,762,512
Special mention		1,489,421		213,762		89,975		-		1,793,158
Substandard		3,122,828		1,289,486		326,051		23,247		4,761,612
Doubtful		-		-		304,144		-		304,144
Loss		-		-		-		-		-

Totals	$	149,189,698	$	29,930,302	$	10,798,417	$	7,703,009	$	197,621,426

	As of December 31, 2014
	As of December 31, 2015
	Commercial		Residential		Commercial		Consumer and
	Commercial Real Estate		One- to Four- Family Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
	Real Estate		Real Estate		and Industrial		Other		Total
Grade
Allowance for loan losses
Pass	$	142,560,320	$	29,434,236	$	9,785,619	$	6,428,765	$	188,208,940
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Special mention		1,862,059		147,375		95,665		-		2,105,099
Ending balance: collectively evaluated for impairment		1,125,491		387,801		177,820		16,170		1,707,282
Substandard		2,221,619		1,830,826		-		-		4,052,445
Total	$	1,125,491	$	387,801	$	177,820	$	16,170	$	1,707,282
Doubtful		-		-		354,208		-		354,208
Gross loans
Loss		-		-		-		-		-
Ending balance: individually evaluated for impairment	$	2,512,377	$	491,780	$	16,796	$	-	$	3,020,953
Totals	$	146,643,998	$	31,412,437	$	10,235,492	$	6,428,765	$	194,720,692
Ending balance: collectively evaluated for impairment		127,436,096		32,467,600		8,577,548		4,816,230		173,297,474
Total	$	129,948,473	$	32,959,380	$	8,594,344	$	4,816,230	$	176,318,427

The ~~following~~Bank’s isinternally aassigned ~~summary~~grades ofare ~~activities for~~as ~~the allowance for loan losses for the three and nine months ended September 30, 2015 and 2014~~follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Beginning balance	$	2,068,148		$	1,644,550		$	1,707,282		$	1,733,097
Provision for loan losses		125,000			-			300,000			-
Charge-offs:
Commercial real estate		-			-			-			-
Residential real estate		(339,352	)		-			(339,352	)		(86,710	)
Consumer and other		-			(722	)		(160	)		(32,412	)
Total charge-offs		(339,352	)		(722	)		(339,512	)		(119,122	)
Recoveries:
Commercial real estate		-			1,264			183,546			30,964
Residential real estate		-			23,089			2,400			23,089
Consumer and other		-			400			80			553
Total recoveries		-			24,753			186,026			54,606
Net (charge-offs) recoveries		(339,352	)		24,031			(153,486	)		(64,516	)
Ending balance	$	1,853,796		$	1,668,581		$	1,853,796		$	1,668,581

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

14Special Mention – Potential weaknesses that deserve management’s close attention. Borrower and guarantor’s capacity to meet all financial obligations is marginally adequate or deteriorating.

~~ALAMOGORDO~~Substandard ~~FINANCIAL~~– ~~CORP~~Inadequately protected by the paying capacity of the Borrower and/or collateral pledged. ~~NOTES~~The TOborrower ~~CONSOLIDATED~~or ~~FINANCIAL~~guarantor ~~STATEMENTS~~is ~~SEPTEMBER~~unwilling ~~30,~~or ~~2015~~unable ~~AND~~to meet ~~DECEMBER~~loan ~~31,~~terms ~~2014~~or loan covenants for the foreseeable future.

~~Nonperforming~~Doubtful ~~Assets~~ – ~~The following~~All ~~table presents an aging analysis of~~ the ~~recorded~~weakness inherent ~~investment~~ in ~~past~~one ~~due~~classified ~~loans~~ as ofsubstandard ~~September~~with ~~30,~~the ~~2015~~added ~~and~~characteristic ~~December~~that ~~31, 2014.~~those ~~Payment~~weaknesses ~~activity~~in isplace ~~reviewed~~make bythe ~~management~~collection onor aliquidation in ~~monthly~~full, ~~basis~~on ~~to determine~~ the ~~performance~~basis of ~~each~~current ~~loan. As of September 30~~conditions, ~~2015~~highly questionable and ~~December 31, 2014, all loans past due 90 days or more are no longer accruing interest~~improbable.

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
September 30, 2015
Commercial real estate	$	-	$	-	$	-	$	-	$	151,186,975	$	151,186,975
Residential real estate		-		265,295		641,263		906,558		30,218,846		31,125,404
Commercial and industrial		-		-		-		-		9,807,878		9,807,878
Consumer and other		-		-		-		-		5,560,295		5,560,295
Totals	$	-	$	265,295	$	641,263	$	906,558	$	196,773,994	$	197,680,552

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

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
December 31, 2014
Commercial real estate	$	-	$	894,137	$	-	$	894,137	$	129,054,336	$	129,948,473
Residential real estate		945,427		149,832		113,239		1,208,498		31,750,882		32,959,380
Commercial and industrial		-		-		-		-		8,594,344		8,594,344
Consumer and other		-		-		-		-		4,816,230		4,816,230
Totals	$	945,427	$	1,043,969	$	113,239	$	2,102,635	$	174,215,792	$	176,318,427

Impaired Loans – The following table includes the recorded investment and unpaid principal balances, net of charge-offs for impaired loans with the associated allowance amount, if applicable. Management determined the allocated allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the

~~The following table sets forth nonaccrual loans and other real estate (ORE) at September 30, 2015 and December 31, 2014:~~13

	September 30,			December 31,
	2015			2014
Nonaccrual loans
Commercial real estate	$	-		$	616,605
Residential real estate		803,625			181,284
Commercial and industrial		-			16,795
Consumer and other		-			-
Total nonaccrual loans		803,625			814,684
Other real estate (ORE)		418,000			820,000
Total nonperforming assets	$	1,221,625		$	1,634,684
Nonperforming assets to gross loans held for investment and ORE		0.62	%		0.92	%
Nonperforming assets to total assets		0.46	%		0.66	%

Table of Contents

~~Other real estate at September 30, 2015 and December 31, 2014 consisted of one commercial property~~collateral. AtIn ~~September~~those 30cases, ~~2015,~~ the ~~recorded investment in residential real~~current ~~estate~~fair ~~loans~~value ~~that~~of isthe incollateral, ~~the~~less ~~process~~selling ofcosts ~~foreclosure~~was ~~according~~used to ~~local~~determine ~~jurisdiction~~the ~~requirements~~allocated ~~was~~allowance ~~$593,000~~recorded.

	As of March 31, 2016
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment

With no related allowance recorded:
Commercial real estate	$	-	$	-	$	-	$	-
One- to four-family residential real estate		1,048,451		1,048,451		-		1,395,991
Commercial and industrial		304,144		304,144		-		380,998
Consumer and other		-		-		-		-

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

Total:
Commercial real estate	$	-	$	-	$	-	$	-
One- to four-family residential real estate		1,048,451		1,048,451		-		1,395,991
Commercial and industrial		304,144		304,144		-		380,998
Consumer and other		-		-		-		-

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

	As of December 31, 2015
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment

With no related allowance recorded:
Commercial real estate	$	-	$	-	$	-	$	-
One- to four-family residential real estate		1,489,851		1,489,851		-		1,949,279
Commercial and industrial		354,208		354,208		-		733,940
Consumer and other		-		-		-		-

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

Total:
Commercial real estate	$	-	$	-	$	-	$	-
One- to four-family residential real estate		1,489,851		1,489,851		-		1,949,279
Commercial and industrial		354,208		354,208		-		733,940
Consumer and other		-		-		-		-

~~Credit~~During ~~Quality Indicators – The following tables represent~~ the ~~credit~~three ~~exposure~~months byended ~~internally~~March ~~assigned grades at September 30~~31, 2016 ~~2015~~ and ~~December 31~~2015, ~~2014.~~no ~~This grading~~interest ~~analysis~~income ~~estimates~~was ~~the~~recognized ~~capability of the borrower to repay the contractual obligations of the loan agreements in accordance with the loan terms. The Bank’s internal credit risk grading system is based~~ on ~~management’s~~these ~~experiences with similarly graded~~ loans. ~~Credit risk grades are reassessed each quarter based on any recent developments potentially impacting the creditworthiness of the borrower,~~ as ~~well~~interest ascollected ~~other~~was ~~external~~credited ~~statistics~~to ~~and factors, which may affect the risk characteristics of the respective~~ loan principal.

~~The~~Certain ~~Bank~~loans within the Company’s loan ~~internally~~and ~~assigned~~ORE ~~grades~~portfolios are asguaranteed ~~follows:~~by the Veterans Administration (VA). In the event of default by the borrower, the VA can elect to pay the guaranteed amount or take possession of the property. If the VA takes possession of the property, the Company is entitled to be reimbursed for the outstanding

~~Pass – Strong credit with no existing or known potential weaknesses deserving of management’s close attention.~~14

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

~~Substandard~~principal –balance, ~~Inadequately protected~~accrued byinterest ~~the paying capacity of the borrower~~ and~~/or~~ certain ~~collateral~~other ~~pledged~~expenses. ~~The~~There ~~borrower~~were orno ~~guarantor~~commitments isfrom ~~unwilling~~the orVA ~~unable~~to take title to ~~meet~~ ~~loan~~foreclosed ~~terms~~VA orproperties ~~loan~~at ~~covenants~~March ~~for~~31, ~~the~~2016 ~~foreseeable~~and ~~future~~December 31, 2015.

~~Doubtful~~Troubled Debt Restructurings – Restructured ~~All~~loans ~~the~~are ~~weakness inherent~~considered in“troubled ~~one~~debt ~~classified~~restructurings” asif ~~substandard~~due ~~with~~to the ~~added~~borrower’s ~~characteristic~~financial difficulties, the Bank has granted a concession that ~~those~~they ~~weaknesses~~would innot ~~place~~otherwise ~~make~~consider. ~~the~~This ~~collection~~may include a transfer of real estate or ~~liquidation~~other inassets ~~full~~from the borrower, ona modification of loan terms, rates, or a combination of the ~~basis~~two. All troubled debt restructurings placed on ~~current~~nonaccrual ~~conditions~~status must show no less than six consecutive months of repayment performance by the borrower in accordance with contractual terms to return to accrual status. Once a loan has been identified as a troubled debt restructuring, ~~highly~~it ~~questionable~~will continue ~~and~~to ~~improbable~~be reported as such until the loan is paid in full.

~~Loss~~There –were ~~Considered uncollectible or~~ no ~~longer~~troubled ~~a bankable~~debt ~~asset. This classification does not mean that the asset has absolutely no recoverable value. In fact, a certain salvage~~restructurings ~~value~~as isof ~~inherent~~March ~~in these loans. Nevertheless~~31, it2016 ~~is not practical~~ or ~~desirable~~December to31, ~~defer writing off a portion or all of a perceived asset even though partial recovery may be collected in the future~~2015.

16In the normal course of business, the Company may modify a loan for a credit worthy borrower where the modified loan is not considered a troubled debt restructuring. In these cases, the modified terms are consistent with loan terms available to credit worthy borrowers and within normal loan pricing. The modifications to such loans are done according to existing underwriting standards which include review of historical financial statements, including current interim information if available, an analysis of the causes of the borrower’s decline in performance, and projections intended to assess repayment ability going forward.

~~ALAMOGORDO~~NOTE ~~FINANCIAL~~4 ~~CORP.~~– ~~NOTES~~CORE TODEPOSIT ~~CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND DECEMBER 31, 2014~~INTANGIBLE

	As of September 30, 2015
	Commercial		Residential		Commercial		Consumer and
	Real Estate		Real Estate		and Industrial		Other		Total
Grade
Pass	$	147,104,724	$	29,838,319	$	9,807,878	$	5,560,295	$	192,311,216
Special mention		2,226,897		148,117		-		-		2,375,014
Substandard		1,855,354		1,138,968		-		-		2,994,322
Doubtful		-		-		-		-		-
Loss		-		-		-		-		-
Totals	$	151,186,975	$	31,125,404	$	9,807,878	$	5,560,295	$	197,680,552

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

	As of December 31, 2014
	March 31,			December 31,
	Commercial			Residential			Commercial		Consumer and
	2016			2015
	Real Estate			Real Estate			and Industrial		Other		Total
Gross carrying value	$	502,000		$	502,000
Grade
Less accumulated amortization		(160,763	)		(139,220	)
Pass	$	126,864,801		$	32,382,072		$	8,577,548	$	4,816,230	$	172,640,651
Core deposit intangible	$	341,237		$	362,780
Special mention		571,294			85,528			-		-		656,823
Substandard		2,512,377			491,780			16,795		-		3,020,953
Doubtful		-			-			-		-		-
Loss		-			-			-		-		-
Totals	$	129,948,473		$	32,959,380		$	8,594,344	$	4,816,230	$	176,318,427

~~Impaired~~Amortization ~~Loans~~of –core ~~The~~deposit ~~following~~intangible ~~table~~was ~~includes~~$21,543 ~~the recorded investment~~ and ~~unpaid principal balances for impaired loans with the associated allowance amount~~$27,624 if applicable. Management determined the specific allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the ~~loan~~three ismonths ~~the~~ended ~~operation~~March ~~or liquidation of the collateral. In those cases~~31, ~~the~~2016 ~~current~~and ~~fair value of the collateral~~2015, ~~less selling costs was used to determine the specific allowance recorded~~respectively.

~~During~~NOTE ~~the~~5 ~~nine~~– ~~months~~FINANCIAL ~~ended September~~INSTRUMENTS ~~30,~~WITH ~~2015~~OFF-BALANCE-SHEET ~~and 2014, no interest income was recognized on these loans subsequent to their classification as impaired.~~RISK

17In the normal course of business, the Bank has outstanding commitments to extend credit and may have standby letters of credit, which are not included in the accompanying consolidated financial statements. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making commitments as it does for instruments that are included in the consolidated balance sheets.

~~ALAMOGORDO~~Financial ~~FINANCIAL~~instruments ~~CORP.~~whose ~~NOTES~~contract TOamounts represent ~~CONSOLIDATED~~off-balance-sheet ~~FINANCIAL~~credit ~~STATEMENTS~~risk ~~SEPTEMBER~~are 30as follows as of March 31, ~~2015~~2016 ~~AND~~and ~~DECEMBER~~December 31, ~~2014~~2015:

	As of September 30, 2015
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	-	$	-	$	-	$	-
Residential real estate		803,625		803,625		-		1,131,738
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-
With an allowance recorded:
Residential real estate	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	-	$	-	$	-	$	-
Residential real estate		803,625		803,625		-		1,131,738
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-

	As of December 31, 2014
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment
With no related allowance recorded:
Commercial real estate	$	1,099,680	$	1,099,680	$	-	$	1,103,367
Residential real estate		181,284		181,284		-		186,279
Commercial and industrial		16,795		16,795		-		16,795
Consumer and other		-		-		-		-
With an allowance recorded:	$	-	$	-	$	-	$	-
Total:
Commercial real estate	$	1,099,680	$	1,099,680	$	-	$	1,103,367
Residential real estate		181,284		181,284		-		186,279
Commercial and industrial		16,795		16,795		-		16,795
Consumer and other		-		-		-		-

Table of Contents

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

	March 31,		December 31,
	2016		2015

Commitments to originate and sell mortgage loans	$	31,960,061	$	15,661,263
Commitments to extend credit		22,994,407		18,695,121
Unused lines of credit		4,819,999		4,591,908

Totals	$	59,774,467	$	38,948,292

18Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation. Collateral held varies by and may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.

~~ALAMOGORDO~~Standby ~~FINANCIAL~~letters ~~CORP~~of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third-party. ~~NOTES~~Standby TOletters ~~CONSOLIDATED~~of ~~FINANCIAL~~credit ~~STATEMENTS~~generally have ~~SEPTEMBER~~fixed 30expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank’s policy for obtaining collateral, ~~2015~~and ~~AND~~the ~~DECEMBER~~nature of such collateral, is essentially the same as that involved in making commitments to extend credit. There were no standby letters of credit at March 31, ~~2014~~2016 and December 31, 2015.

~~Troubled~~NOTE ~~Debt~~6 ~~Restructurings~~ – ~~Restructured~~ ~~loans~~REGULATORY are considered “troubled debt restructurings” if due to the borrower’s financial difficulties, the Bank has granted a concession that we would not otherwise consider. This may include a transfer of real estate or other assets from the borrower, a modification of loan terms, rates, or a combination of the two. All troubled debt restructurings placed on nonaccrual status must show no less than six months of repayment performance by the borrower in accordance with contractual terms to return to accrual status. Once a loan has been identified as a troubled debt restructuring, it will generally continue to be reported as such until the loan is paid in full. However, a troubled debt restructuring that is performing in accordance with its modified terms for at least one year and yielded a market rate of interest at the time of restructuring may be removed from such classification.MATTERS

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

Bank 34 is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

~~There~~Quantitative ~~were~~measures noestablished ~~troubled~~by ~~debt restructurings~~regulation asto ofensure ~~September~~capital ~~30,~~adequacy ~~2015.~~require ~~The~~the ~~troubled~~Bank ~~debt~~to ~~restructurings~~maintain ~~(post-modification)~~minimum atamounts ~~December~~and ~~31,~~ratios ~~2014~~of ~~were~~total ~~the~~risk-based ~~result~~capital ofand ~~adding real~~Tier ~~estate~~1 ~~taxes~~ capital to ~~the~~risk-weighted ~~loans~~assets, ~~along~~and ~~with~~Tier ~~legal~~1 ~~costs~~capital ~~related~~ to ~~bankruptcies.~~adjusted ~~There~~total ~~were~~assets. noManagement ~~allocated~~believes, ~~specific~~as ~~allowances~~of ~~related to~~March ~~these~~31, ~~credits~~2016 and ~~there~~December ~~were~~31, 2015, nothe ~~commitments~~Bank tomeets ~~lend~~all ~~additional~~capital ~~amounts~~adequacy requirements to ~~these~~which ~~customers~~it asis ~~of December 31, 2014~~subject.

~~During~~Banks ~~the~~are ~~nine~~also ~~months~~subject ~~ended~~to ~~September~~certain restrictions ~~30,~~on ~~2015, no loans were modified as a troubled debt restructurings and~~ the ~~three~~amount ~~commercial~~of ~~real~~dividends ~~estate~~that ~~loans~~they ~~and~~may ~~one~~declare ~~commercial business~~without ~~loan~~prior ~~classified~~regulatory ~~as troubled debt restructurings at December 31, 2014 were paid off~~approval.

~~During~~As ~~the~~of ~~nine~~March ~~months~~31, ~~ended~~2016, ~~September~~the Bank was categorized ~~30,~~as ~~2014~~well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, ~~there~~the ~~was~~Bank has ~~one~~to ~~commercial~~maintain ~~real~~minimum ~~estate~~total ~~loan~~risk-based, ofTier ~~$83~~1 risk-based,~~000~~ ~~modified~~and Tier 1 leverage ratios as adisclosed ~~troubled~~in ~~debt~~the ~~restructuring~~table below. ~~This~~There are ~~restructuring~~no ~~was not~~conditions inor ~~default~~events ~~during~~that ~~the~~management ~~nine~~believes ~~months~~have ~~ended~~changed ~~September~~the ~~30,~~Bank’s ~~2014~~prompt corrective action category.

~~Nonaccrual~~The ~~troubled~~Bank’s ~~debt~~actual ~~restructurings as~~and ofrequired ~~December~~capital amounts ~~31,~~and ~~2014~~ratios ~~amounted~~are toas ~~$498,000.~~follows:

In the normal course of business, the Company may modify a loan for a creditworthy borrower where the modified loan is not considered a troubled debt restructuring. In these cases, the modified terms are consistent with loan terms available to creditworthy borrowers and within normal loan pricing. The modifications to such loans are done according to existing underwriting standards, which include review of historical financial statements, including current interim information, if available, an analysis of the causes of the borrower’s decline in performance and projections, to assess repayment ability going forward.16

19Table of Contents

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

											To be Well
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio

As of March 31, 2016:
(Dollars in thousands)

Total Capital
(to Risk-Weighted Assets)	$	31,687		16.26	%	$	15,592		³8.00	%	$	19,490		³10.00	%

Tier I Capital
(to Risk-Weighted Assets)	$	29,635		15.21	%	$	11,694		³6.00	%	$	15,592		³8.00	%

Common Equity Tier 1 Capital
(to Risk-Weighted Assets)	$	29,635		15.21	%	$	8,771		³4.50	%	$	12,669		³6.50	%

Tier I Capital
(to Average Assets)	$	29,635		11.09	%	$	10,690		³4.00	%	$	13,363		³5.00	%

As of December 31, 2015:
(Dollars in thousands)

Total Capital
(to Risk-Weighted Assets)	$	31,584		16.93	%	$	14,928		³8.00	%	$	18,660		³10.00	%

Tier I Capital
(to Risk-Weighted Assets)	$	29,690		15.91	%	$	11,196		³6.00	%	$	14,928		³8.00	%

Common Equity Tier 1 Capital
(to Risk-Weighted Assets)	$	29,690		15.91	%	$	8,397		³4.50	%	$	12,129		³6.50	%

Tier I Capital
(to Average Assets)	$	29,690		11.06	%	$	10,742		³4.00	%	$	13,428		³5.00	%

NOTE 57 – ~~CORE~~FAIR ~~DEPOSIT~~VALUES ~~INTANGIBLE~~OF FINANCIAL INSTRUMENTS

The ~~gross~~following ~~carrying~~is ~~value~~a ~~and~~description ~~accumulated~~of the valuation ~~amortization~~methodologies ofused for assets measured at fair value. There have been no changes in the ~~core~~methodologies ~~deposit~~used ~~intangible~~at isMarch as31, ~~follows:~~2016 and December 31, 2015.

	September 30,			December 31,
	2015			2014
Gross carrying value	$	502,000		$	502,000
Less accumulated amortization		(117,677	)		(36,832	)
Core deposit intangible	$	384,323		$	465,168

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

~~Amortization of the core deposit intangible began in September 2014 and was $81,000 and $9,000 for the nine months ended September 30, 2015 and 2014, respectively.~~17

~~NOTE~~Table 6of ~~– FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK~~Contents

InLoans ~~the~~Held ~~normal~~for ~~course~~Sale of– ~~business, the~~The ~~Bank~~fair ~~has~~value ~~outstanding~~of ~~commitments~~loans toheld ~~extend~~for ~~credit~~sale ~~and~~is ~~standby~~based ~~letters~~on ofquoted ~~credit,~~market ~~which~~prices ~~are~~from ~~not included in the accompanying financial statements~~FHLMC. ~~The~~FHLMC ~~Bank’s~~quotes ~~exposure~~are toupdated ~~credit~~daily ~~loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit~~ and ~~standby~~represent ~~letters of credit is represented by the contractual or notional amount of those instruments.~~prices ~~The~~at ~~Bank~~which ~~uses~~loans ~~the~~are ~~same~~exchanged ~~credit policies~~ in ~~making~~high ~~commitments~~volumes asand ~~it does for instruments that are included~~ in ~~the~~a ~~consolidated balance~~liquid ~~sheets~~market.

~~Financial~~Other ~~instruments~~Real ~~whose~~Estate ~~contractual~~– Other ~~amounts~~real ~~represent~~estate ~~off-balance-sheet~~is ~~credit~~fair ~~risk~~valued ~~are~~under asLevel ~~follows~~3 asbased ofon ~~September~~property 30appraisals less estimated disposition costs, ~~2015~~which include both observable and ~~December~~unobservable 31inputs, ~~2014:~~at the time of transfer and as appropriate thereafter.

	September 30,		December 31,
	2015		2014
Commitments to originate and sell mortgage loans	$	19,089,551	$	9,426,644
Commitments to extend credit		15,939,554		19,319,363
Unused lines of credit		4,600,375		4,319,272
Standby letters of credit		35,849		71,579
Totals	$	39,665,329	$	33,136,858

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The ~~Bank evaluates~~following ~~each~~table ~~customer’s~~sets ~~creditworthiness~~forth ~~on a case-~~by~~-case~~ ~~basis. The amount of collateral obtained~~level, ~~if deemed necessary~~ bywithin the ~~Bank~~fair ~~upon~~value ~~extension of credit~~hierarchy, isthe ~~based on management~~Company’s ~~credit~~assets ~~evaluation.~~at ~~Collateral~~fair ~~held varies and may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.~~value:

	Fair Value Measurements Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	Level 1		Level 2		Level 3		Fair Value

March 31, 2016
Recurring basis
Mortgage-backed securities	$	-	$	24,271,668	$	-	$	24,271,668
U.S. Government agencies		-	$	3,302,618		-		3,302,618
Municipal obligations		-	$	1,907,033		-		1,907,033
Nonrecurring basis
Loans held for sale		-		17,597,841		-		17,597,841
Other real estate		-		-		501,558		501,558
Impaired loans		-		-		1,352,595		1,352,595

Totals	$	-	$	47,079,160	$	1,854,153	$	48,933,314

December 31, 2015
Recurring basis
Mortgage-backed securities	$	-	$	23,270,496	$	-	$	23,270,496
U.S. Government agencies		-		3,458,813		-		3,458,813
Municipal obligations		-		1,901,242		-		1,901,242
Nonrecurring basis
Loans held for sale		-		11,380,627		-		11,380,627
Other real estate		-		-		306,000		306,000
Impaired loans		-		-		1,844,059		1,844,059

Totals	$	-	$	40,011,178	$	2,150,059	$	42,161,237

~~ALAMOGORDO~~The ~~FINANCIAL~~fair ~~CORP~~values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. ~~NOTES~~Fair value TOis ~~CONSOLIDATED~~the ~~FINANCIAL~~estimated ~~STATEMENTS~~amount ~~SEPTEMBER~~at 30which financial assets or liabilities could be exchanged in a current transaction between willing parties, ~~2015~~other ~~AND~~than ~~DECEMBER~~in 31a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, ~~2014~~the Bank does not know whether the fair values shown represent values at which the respective financial instruments could be sold individually or in the aggregate.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third-party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.18

~~NOTE~~Table 7of ~~– REGULATORY MATTERS~~ Contents

The ~~Bank~~following istables ~~subject~~present ~~to various regulatory~~estimated ~~capital~~fair ~~requirements~~values ~~administered~~of by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators, that if undertaken, could have a direct material effect on the BankCompany’s financial ~~statements.~~instruments ~~Under~~at ~~capital~~March ~~adequacy guidelines and the regulatory framework for prompt corrective action~~31, ~~the~~2016 ~~Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities~~ and ~~certain~~December off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components31, ~~risk-weightings and other factors~~2015.

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

					Quoted Prices		Significant
					in Active		Other		Significant
					Markets for		Observable		Unobservable
	Carrying				Identical Assets		Inputs		Inputs
	Amount		Fair Value		Level 1		Level 2		Level 3
	(Dollars in thousands)
At March 31, 2016
Financial assets:
Cash and due from banks	$	3,773	$	3,773	$	3,773	$	-	$	-
Interest-bearing deposits with banks		12,145		12,145		12,145		-		-
Available-for-sale securities		29,481		29,481		-		29,481		-
Loans held for sale		17,598		17,598		-		17,598		-
Loans held for investment, net		194,904		194,934		-		-		194,934
Stock in financial institutions		1,553		1,553		-		1,553		-

Financial liabilities:
Demand deposits, savings and NOW deposits		162,873		160,198		160,198		-		-
Time deposits		71,756		71,791		-		71,791		-
Federal Home Loan Bank advances		11,000		10,998		-		10,998		-

At December 31, 2015
Financial assets:
Cash and due from banks	$	5,960	$	5,960	$	5,960	$	-	$	-
Interest-bearing deposits with banks		13,865		13,865		13,865		-		-
Available-for-sale securities		28,631		28,631		-		28,631		-
Loans held for sale		11,381		11,381		-		11,381		-
Loans held for investment, net		192,137		195,631		-		-		195,631
Stock in financial institutions		1,547		1,547		-		1,547		-

Financial liabilities:
Demand deposits, savings and NOW deposits		151,593		147,947		147,947		-		-
Time deposits		74,107		74,149		-		74,149		-
Federal Home Loan Bank advances		13,000		13,004		-		13,004		-

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

~~Management~~Cash ~~believes, as of September 30, 2015~~ and ~~December~~Due ~~31,~~from ~~2014~~Banks, ~~that~~Interest-Bearing Deposits ~~the~~with ~~Bank~~Banks ~~meets~~and ~~all~~Stock ~~capital~~in ~~adequacy~~Financial ~~requirements~~Institutions– toThe ~~which~~carrying itamount isapproximates ~~subject~~fair value.

~~Banks~~Deposits ~~are~~and ~~also~~Federal ~~subject~~Home toLoan ~~certain restrictions~~Bank on(FHLB) ~~the~~Advances – Deposits include demand deposits, savings accounts, NOW accounts and money market deposits. The carrying amount approximates fair value. The fair value of ~~dividends~~fixed-maturity time deposits and FHLB advances is estimated using a discounted cash flow calculation that ~~they~~applies ~~may~~the ~~declare~~rates ~~without~~currently ~~prior~~offered ~~regulatory~~for ~~approval~~deposits orand ~~non-objection~~advances of similar remaining maturities.

AsNOTE of8 ~~September~~–EARNINGS ~~30,~~(LOSS) ~~2015~~PER and December 31, 2014, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank will have to maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as disclosed in the table below. There are no conditions or events that management believes have changed the Bank’s prompt corrective action category.SHARE

21Earnings (Loss) Per Share – Basic earnings (loss) per share have been calculated based upon the weighted-average number of common shares outstanding. For earning per share computations, unallocated ESOP shares are treated like treasury shares and not considered outstanding. The calculation of diluted weighted-average shares outstanding

~~ALAMOGORDO FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2015 AND DECEMBER 31, 2014~~19

~~The~~Table ~~Bank’s~~of ~~actual and required capital amounts and ratios are as follows:~~Contents

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

for the three months ended March 31, 2016 and 2015 excludes 18,020 shares issuable pursuant to outstanding stock options because their effect would be anti-dilutive.

NOTE 8 – FAIR VALUES OF FINANCIAL INSTRUMENTS

	Three Months Ended
	March 31,
	2016		2015

Net income (loss)	$	5,856	$	(264,257	)

Weighted-average shares outstanding		1,662,105		1,657,227

Income (loss) per common share:
Basic	$	0.00	$	(0.16	)
Diluted	$	0.00	$	(0.16	)

~~The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at September 30, 2015 and December 31, 2014.~~20

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

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

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

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

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

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

	Fair Value Measurements Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	Level 1		Level 2		Level 3		Fair Value
September 30, 2015
Recurring basis
Mortgage-backed securities	$	-	$	24,826,308	$	-	$	24,826,308
U.S. Government agencies		-		3,741,162		-		3,741,162
Municipal obligations		-		1,921,490		-		1,921,490
Nonrecurring basis
Loans held for sale		-		12,284,189		-		12,284,189
Other real estate		-		-		418,000		418,000
Impaired loans		-		-		803,625		803,625
Totals	$	-	$	42,773,149	$	1,221,625	$	43,994,774
December 31, 2014
Recurring basis
Mortgage-backed securities	$	-	$	21,727,811	$	-	$	21,727,811
U.S. Government agencies		-		4,856,529		-		4,856,529
Municipal obligations		-		2,433,572		-		2,433,572
Nonrecurring basis
Loans held for sale		-		9,429,090		-		9,429,090
Other real estate		-		-		820,000		820,000
Impaired loans		-		-		1,297,759		1,297,759
Totals	$	-	$	38,447,002	$	2,117,759	$	40,564,761

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

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

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

	September 30, 2015
					Quoted Prices		Significant
					in Active		Other		Significant
					Markets for		Observable		Unobservable
	Carrying				Identical Assets		Inputs		Inputs
	Amount		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	3,780	$	3,780	$	3,780	$	-	$	-
Interest-bearing deposits with banks		7,330		7,330		7,330		-		-
Available-for-sale securities		30,489		30,489		-		30,489		-
Loans held for sale		12,284		12,284		-		12,284		-
Loans held for investment, net		195,120		198,456		-		-		198,456
Stock in financial institutions		1,546		1,546		-		1,546		-
Financial liabilities:
Demand, savings and NOW deposits	$	136,033	$	135,217	$	135,217	$	-	$	-
Time deposits		76,174		76,126		-		76,126		-
Federal Home Loan Bank advances		23,500		23,506		-		23,506		-

	December 31, 2014
					Quoted Prices		Significant
					in Active		Other		Significant
					Markets for		Observable		Unobservable
	Carrying				Identical Assets		Inputs		Inputs
	Amount		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	12,709	$	12,709	$	12,709	$	-	$	-
Interest-bearing deposits with banks		2,115		2,115	$	2,115		-		-
Available-for-sale securities		29,018		29,018		-		29,018		-
Loans held for sale		9,429		9,429		-		9,429		-
Loans held for investment, net		173,990		175,417		-		-		175,417
Stock in financial institutions		1,906		1,906		-		1,906		-
Financial liabilities:
Demand, savings and NOW deposits	$	118,551	$	117,285	$	117,285	$	-	$	-
Time deposits		83,388		83,571		-		83,571		-
Federal Home Loan Bank advances		12,500		12,503		-		12,503		-

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

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

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

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

NOTE 9 – EARNINGS PER SHARE

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
Net income	$	128,413	$	2,725,482	$	225,884	$	2,102,093
Weighted-average shares outstanding		1,679,500		1,443,903		1,679,500		1,357,882
Earnings per common share:
Basic	$	0.08	$	1.89	$	0.13	$	1.55
Diluted	$	0.08	$	1.89	$	0.13	$	1.55

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

Management’s discussion and analysis of financial condition and results of operations at ~~September~~March 3031, ~~2015~~2016 and December 31, ~~2014~~2015 and for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2015~~2016 and ~~2014~~2015 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Unaudited Consolidated Financial Statements and the notes thereto, appearing in Part 1, Item 1 of this report.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

Merger

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

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

Critical Accounting Policies

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

26Allowance for Loan Losses. The allowance for loan losses is calculated with the objective of maintaining an allowance necessary to absorb credit losses inherent in the loan portfolio. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective, as it requires an estimate of the loss content 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.

~~Allowance~~We have established a systematic method of periodically reviewing the credit quality of the loan portfolio in order to establish an allowance for ~~Loan~~loan ~~Losses~~losses. The ~~allowance~~ allowance for loan losses is ~~maintained~~based toon ~~absorb~~our current judgments about the credit ~~losses~~quality ~~inherent~~of inindividual loans and segments of the loan portfolio. The ~~Management’s~~allowance ~~determination of~~for ~~the~~loan ~~adequacy~~losses ofis ~~the~~established ~~allowance~~through isa provision for loan losses based on ~~periodic~~our ~~evaluations~~evaluation of the probable losses inherent in the loan portfolio, and ~~other~~considers ~~relevant~~all known internal and external factors. ~~However,~~that ~~this~~affect loan collectability as of the reporting date. Our evaluation, iswhich ~~inherently~~includes ~~subjective~~a review of loans on which full collectability may not be reasonably assured, asconsiders among itother ~~requires~~matters, ~~establishing~~the ~~risk~~estimated ~~ratings~~net ~~for~~realizable ~~each~~value ~~loan~~or ~~and~~the anfair ~~estimate~~value of ~~losses~~the ~~for~~underlying ~~each impaired~~collateral, economic conditions, historical loan loss experience, anour ~~estimate~~knowledge of inherent losses in the ~~amounts~~portfolio that are probable and ~~timing~~reasonably ofestimable ~~expected~~and ~~future~~other ~~cash~~factors that ~~flows,~~warrant ~~and~~recognition in providing an ~~estimate~~appropriate ofloan ~~the~~loss ~~value~~allowance. Management believes this is a critical accounting policy because this evaluation involves a high degree of ~~collateral.~~complexity and

We have established a method of periodically reviewing the credit quality of the loan portfolio in order to establish an allowance for loan losses. The allowance for loan losses is based on our current judgments about the credit quality of individual loans and segments of the loan portfolio. The allowance for loan losses is established through a provision for loan losses based on our evaluation of the probable losses inherent in the loan portfolio, and considers all known internal and external factors that affect loan collectability as of the reporting date. Our evaluation, which includes a review of loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, our knowledge of inherent losses in the portfolio that are probable and reasonably estimable and other factors that warrant recognition in providing an appropriate loan loss allowance. Management believes this is a critical accounting policy because this evaluation involves a high degree of complexity and requires us to make subjective judgments that often require assumptions or estimates about various matters.21

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requires us to make subjective judgments that often require assumptions or estimates about various matters.

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

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

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

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

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

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

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

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

Average Balance Sheets

The following ~~tables~~table ~~set~~sets forth average balances, average yields and costs, and certain other information for the periods 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. ~~Nonaccrual~~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 ~~loan~~ fees, discounts and premiums that are amortized or ~~accreted~~ accreted to interest income.

	Three Months Ended September 30,
	Three Months Ended March 31,
	2015							2014
	2016							2015
	Average							Average
	Outstanding				Yield/			Outstanding				Yield/
	Balance		Interest		Rate (1)			Balance		Interest		Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	203,~~426~~741	$	2,~~926~~918		5.7176	%	$	~~123~~187,~~013~~491	$	12,~~773~~637		5.7270	%
Interest-earning deposits		~~7,486~~496		416		013.2105	%		95,~~486~~368		54		0.2130	%
Securities		3128,~~860~~259		~~107~~120		1.3371	%		4434,~~169~~362		~~208~~165		1.8795	%
Federal Home Loan Bank stock		1,~~146~~167		3		10.0490	%		~~489~~889		19		04.8111	%
Other		~~380~~382		04		03.0080	%		~~206~~788		-8		04.0012	%
Total interest-earning assets		~~244~~234,~~298~~045		3,~~040~~061		45.9426	%		~~177~~228,~~363~~898		12,~~987~~823		45.4400	%
Noninterest-earning assets		1959,~~214~~765							1719,~~262~~574
Total assets	$	~~263~~293,~~512~~811						$	~~194~~248,~~625~~472
Interest-bearing liabilities:
Checking, money market and savings accounts	$	~~105~~117,~~231~~325		~~180~~214		0.6873	%	$	68100,~~837~~407	$	94163		0.5466	%
Certificates of deposit		7672,~~886~~637		~~159~~151		0.8284	%		7380,~~020~~899		~~166~~170		0.9085	%
Total deposits		~~182~~189,~~117~~962		~~339~~365		0.7477	%		~~141~~181,~~857~~306		~~260~~333		0.7374	%
Advances from FHLB of Dallas		229,~~500~~764		2011		0.3445	%		1015,~~254~~832		929		30.5623	%
Total interest-bearing liabilities		~~204~~199,~~617~~726		~~359~~376		0.7076	%		~~152~~197,~~111~~138		~~352~~342		0.9270	%
Non-interest bearing deposits		2634,~~807~~133							1519,~~027~~172
Non-interest bearing liabilities		2,~~460~~592							2,~~156~~786
Total liabilities		~~233~~236,~~884~~451							~~169~~219,~~294~~096
Stockholders' equity		29,628							25,331
Stockholders’ equity		30,182							29,376
Total liabilities and stockholders' equity	$	263,512						$	194,625
Total liabilities and stockholders’ equity	$	266,633						$	248,472
Net interest income			$	2,~~681~~685						$	12,~~635~~481
Net interest rate spread (2)						4.2450	%						34.5230	%
Net interest-earning assets (3)	$	3934,~~680~~319						$	2531,~~252~~760
Net interest margin (4)						4.3561	%						34.6640	%
Average interest-earning assets to average interest- bearing liabilities						~~119~~117.3918	%						116.6011	%

	(1)	Ratios have been annualized.
	(2)	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
	(3)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
	(4)	Net interest margin represents net interest income divided by average total interest-earning assets.

29Table of Contents

	Nine Months Ended September 30,
	2015							2014
	Average							Average
	Outstanding				Yield/			Outstanding				Yield/
	Balance		Interest		Rate (1)			Balance		Interest		Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	196,680	$	8,396		5.71	%	$	109,756	$	4,836		5.89	%
Interest-earning deposits		6,452		11		0.23			7,794		11		0.19
Securities		33,443		399		1.60			41,664		607		1.95
Federal Home Loan Bank stock		1,094		36		4.36			547		3		0.73
Other		549		14		3.46			205		3		1.95
Total interest-earning assets		238,218		8,856		4.97			159,967		5,460		4.56
Noninterest-earning assets		18,811							15,742
Total assets	$	257,029						$	175,709
Interest-bearing liabilities:
Checking, money market and savings accounts	$	102,439	$	519		0.68		$	57,846	$	210		0.49
Certificates of deposit		78,803		490		0.83			69,916		502		0.96
Total deposits		181,242		1,009		0.74			127,763		712		0.74
Advances from FHLB of Dallas		21,426		46		0.29			9,802		266		3.63
Total interest-bearing liabilities		202,668		1,055		0.70			137,565		978		0.95
Non-interest bearing deposits		22,463							12,886
Non-interest bearing liabilities		2,498							1,863
Total liabilities		227,629							152,314
Stockholders' equity		29,400							23,395
Total liabilities and stockholders' equity	$	257,029						$	175,709
Net interest income			$	7,801						$	4,482
Net interest rate spread (2)						4.27	%						3.61	%
Net interest-earning assets (3)	$	35,550						$	22,403
Net interest margin (4)						4.38	%						3.75	%
Average interest-earning assets to average interest-bearing liabilities						117.54	%						116.29	%

(1)

Yield/Rate for the three month periods have been annualized.

	(1)	Ratios have been annualized.
	(2)	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
	(3)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
	(4)	Net interest margin represents net interest income divided by average total interest-earning assets.

(2)

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

30(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

~~Comparison~~(4) ofNet ~~Financial~~interest ~~Condition~~margin atrepresents ~~September~~net ~~30,~~interest ~~2015 and~~income ~~December~~as ~~31,~~a ~~2014~~percentage of average total interest-earning assets.

~~Cash~~Comparison ~~and~~of ~~cash~~Financial ~~equivalents~~Condition ~~decreased $3.7 million, or 25.1%, to $11.1 million~~ at ~~September~~March ~~30, 2015 from $14.8 million at December~~ 31, ~~2014.~~2016 ~~The decrease was due primarily~~and ~~to extra liquid funds held on~~ December 31, ~~2014 as a result of December securities sales that were not reinvested in replacement securities until January~~ 2015.

~~Loans~~Cash ~~held~~and ~~for~~cash ~~investment~~equivalents ~~increased~~decreased $213.19 million, or 1219.17%, ~~in the nine months ended September 30, 2015, due~~ to ~~organic growth, primarily in our Arizona market. Commercial real estate loans increased~~ $2115.29 million toat ~~$151.2~~March ~~million~~31, ~~which~~2016 ~~represented an increase~~ from 73$19.7%8 ofmillion ~~the~~at ~~gross~~December ~~loan~~31, ~~portfolio to 76~~2015.5% ~~while residential real estate loans decreased from 18.7% of the portfolio to 15.7%.~~ The ~~residential~~decrease ~~mortgage~~is ~~loan~~due ~~portfolio also experienced run-off as the Bank continued~~ to ~~focus on~~ the ~~secondary mortgage lending program whereby new loans were originated~~variability ~~and sold, recognizing a gain on sale, as opposed to being held~~ in ~~the~~timing ~~portfolio~~of deposits.

Loans held for ~~sale~~investment atincreased ~~September~~$2.9 million, 30or 1.5%, ~~2015 totaled~~to $12197.30 million. Weat ~~sell~~March a31, ~~significant~~2016 ~~majority~~from of$194.0 ~~our~~million ~~newly~~at ~~originated~~December ~~residential~~31, ~~mortgage~~2015, ~~loans~~due into ~~the~~organic ~~secondary market~~growth. During Atthe ~~December~~quarter ended March 31, ~~2014~~2016, commercial real estate loans ~~held~~increased ~~for~~to ~~sale~~75.5% ~~totaled~~of $9the gross loan portfolio from 75.43%, ~~million~~while one- to four-family residential real estate loans decreased to 15.1% of the portfolio from 16.1%. The ~~balances~~residential atmortgage ~~any~~loan portfolio ~~date~~experienced ~~vary~~natural ~~based~~run-off ~~upon~~as the ~~timing~~Bank ~~and~~continued ~~volume of~~to ~~current~~focus ~~loan~~on ~~originations~~the secondary mortgage lending program whereby new loans are originated and ~~sales~~sold for fee income as opposed to being held in the portfolio.

~~Available~~Loans held for sale ~~securities~~at ~~increased~~March 31, 2016 totaled $117.56 million, ~~during~~consisting entirely of residential mortgage loans. We currently sell a significant majority of our residential mortgage loans in the ~~nine~~secondary ~~months~~market. ~~ended~~At ~~September~~December 3031, 2015, asloans ~~the~~held ~~Bank~~for ~~completed~~sale atotaled ~~balance~~$11.4 ~~sheet~~million. ~~repositioning~~The ~~begun~~balances inat ~~December~~any date ~~2014~~vary bybased ~~purchasing~~upon ~~mortgage-backed~~the ~~securities~~timing inand ~~January~~volume ~~2015~~of current loan originations and sales; however, ~~including~~the ~~collateralized~~record ~~mortgage~~high ~~obligations.~~quarter Noend ~~securities~~balance ~~have~~at ~~been~~March ~~purchased~~31, ~~since~~2016 ~~January~~was ~~2015~~partially due to the addition of four new loan production offices in February 2016.

~~Other~~Available ~~real~~for ~~estate~~sale ~~decreased~~securities ~~$402,000 to~~increased $~~418~~851,000, ator ~~September 30~~3.0%, ~~2015,~~during ~~primarily~~the asthree amonths ~~result~~ended ofMarch ~~$406~~31,~~000~~ in2016, ~~write-downs~~due onto ~~one~~the ~~property~~investment ~~secured~~of byexcess ~~commercial~~funds ~~real~~from ~~estate~~deposits.

~~Deposits~~Other ~~increased~~real ~~$10.3~~estate ~~million~~increased ~~for the nine months ended September 30~~$196,000 ~~2015 with increases of $9.5 million in demand deposits and $7.9 million in savings and NOW deposits~~to ~~partially offset by a~~ $~~7.2~~502,000 ~~million decrease in time deposits. The Company has been allowing certain certificates of deposit to run off~~ at ~~maturity~~March to31, ~~improve~~2016 ~~the deposit mix and reduce the cost of funds. Time deposits~~ as a ~~percent~~result of ~~total~~a ~~deposits~~foreclosure ~~decreased from 41.3% at December 31, 2014 to 35.9% at September 30, 2015 as demand deposit balances increased from 8.9% to 13.0%. The Company has concentrated~~ on ~~increasing~~a ~~commercial~~one- ~~business accounts. Wholesale deposits increased $1.8 million from December 31, 2014~~ to ~~September~~four-family ~~30,~~residential ~~2015.~~property Atduring ~~September~~the ~~30,~~quarter ~~2015, wholesale deposits were $19.1 million, including $16.9 million in QwickRate certificates~~ended ofMarch ~~deposit, compared to $17.3 million and $15.2 million at December~~ 31, ~~2014, respectively~~2016. ~~The majority of our wholesale deposits are time deposits with denominations between $200,000 and $250,000.~~

~~Federal~~Total ~~Home~~deposits ~~Loan Bank advances~~ increased $118.09 million, or 4.0%, to $23234.56 million at ~~September~~March 3031, ~~2015~~2016 from $12225.57 million at December 31, ~~2014~~2015. ~~Short~~The ~~term~~increase ~~borrowings~~included ata ~~favorable~~$2.8 million, or ~~rates~~7.3% ~~are~~increase ~~being~~in ~~used~~non-interest tobearing ~~fund~~demand ~~loans~~deposits ~~held~~and ~~for~~an ~~sale~~$8.5 ~~The~~million, ~~Company~~or ~~prepaid $6~~7.45% ~~million~~increase in ~~long-term~~savings ~~FHLB~~and ~~advances~~money atmarket ~~rates averaging~~deposits, partially offset by a $2.4 million, or 3.02% decrease in ~~December~~time ~~2014~~deposits. The increase in savings and ~~replaced~~money ~~them~~market indeposits ~~January~~is ~~2015~~primarily due ~~with~~to ~~short-~~maturing certificates of deposit customers preferring not to lock into term deposits, ~~lower~~and ~~rate~~growth ~~advances~~from new and existing Arizona customers. We have been growing noninterest

Total stockholders’ equity increased $340,000, or 1.2%, to $29.7 million at September 30, 2015 from $29.3 million at December 31, 2014. The increase was due primarily to net income of $226,000 and a $74,000 decrease in unrealized losses on available for sale securities.24

31Table of Contents

~~Comparison~~bearing ofdemand ~~Operating~~and ~~Results~~saving ~~for~~and money market ~~the~~balances ~~Three~~while ~~Months~~allowing ~~Ended~~certificates ~~September~~of ~~30,~~deposit ~~2015~~to run off at maturity to improve the deposit mix and ~~2014~~reduce the cost of funds.

~~General. The acquisition of Bank 1440 was consummated on August 29~~Borrowings, ~~2014~~consisting ~~and~~solely ~~the~~of ~~material~~Federal Home ~~increase~~Loan ~~in assets from~~ Bank ~~1440 makes direct comparisons between the two periods less meaningful. The Company had net income of $128~~advances,~~000~~ indecreased ~~the three months ended September 30, 2015, compared to~~ $2.70 million ~~for~~to ~~the three months ended September 30, 2014~~$11.0 Inmillion ~~the~~at ~~September~~March ~~2014 quarter~~31, a2016 ~~bargain~~from ~~purchase gain of~~ $213.9 0 million ~~was~~at ~~recorded.~~December ~~We incurred no out-of-pocket merger-related expenses in the quarter ended September 30~~31, 2015,. ~~compared to~~Excess ~~$311,000~~funds offrom ~~such~~deposit ~~expenses~~growth inwere ~~the~~used ~~quarter~~to ~~ended~~pay ~~September~~down ~~30,~~advances ~~2014.~~during ~~Other than~~ the ~~bargain purchase gain and merger-related expenses, the Company had $138,000 of net income in the quarter ended September 30, 2014~~period.

~~Interest~~Total ~~Income.~~stockholders’ ~~Interest income~~equity increased $~~1.0 million~~247,000, or ~~53.~~0.8%, to $329.09 million ~~for~~at ~~the~~March ~~three months ended September 30~~31, ~~2015~~2016 from $229.06 million ~~for~~at ~~the three~~December ~~months ended September 30~~31, ~~2014~~2015. The increase was ~~due~~primarily due to aan ~~37.7%~~ increase in ~~average~~accumulated ~~interest-earning~~other ~~assets~~comprehensive ~~and~~income anresulting ~~improvement in asset mix as loans, our highest yielding assets, increased~~ from ~~68.3% of average interest-earning assets to 83.3%. The yield on average interest-earning assets increased 50 basis points to 4.94% for~~ the ~~three months ended September 30, 2015 from 4.44% for the three months ended September 30, 2014 due mostly to the~~ improvement in ~~asset mix. Interest and fees on loans increased $1.2 million, or 65.0%, to $2.9 million for~~ the ~~three~~fair ~~months~~value ~~ended~~of ~~September 30, 2015, from $1.8 million for the three months ended September 30, 2014, partially offset by a $103,000, or 49.0%, decrease in interest income on~~ available-for-sale ~~securities.~~ ~~Interest~~securities ~~income on loans increased due primarily to a 65.4% increase in average loan balances, due to both the merger and organic growth. The average balance~~ of ~~securities decreased 27.9% to~~ $~~31.9~~226,000 ~~million~~ for the ~~three~~quarter ~~months~~ ended ~~September~~March 3031, ~~2015, compared to the three months ended September 30, 2014, and the average yield decreased 54 basis points~~2016. The securities yield in the quarter ended September 30, 2015 was negatively affected by accelerated prepayments on mortgage-backed securities which had been purchased at premiums, accelerating premium amortization expense in the quarter.

~~Interest~~Comparison ~~Expense.~~of ~~Interest expense~~Operating ~~increased~~Results ~~$7,000, or 2.0%, to $359,000~~ for ~~the three months ended September 30, 2015 from $352,000 for the three months~~ ~~ended September 30, 2014. The increase was caused by an increase in interest expense on deposits, which increased $79,000, or 30.4%, to $339,000 for~~ the ~~three~~Three ~~months~~Months ~~ended~~Ended ~~September~~March 3031, ~~2015~~2016 ~~from~~and $260,000 for the three months ended September 30, 2014, partially offset by a decrease in interest expense on borrowings. Interest on borrowings decreased $72,000, or 78.3%, to $20,000 for the three months ended September 30, 2015 from $92,000 for the three months ended September 30, 2014 despite a 194.3% increase in average balances due to the replacement of longer-term, higher rate borrowings with shorter term, lower rate borrowings in December 2014. Prepayment penalties of $532,000 were recognized in December 2014.

~~Interest~~General. ~~paid~~In onthe ~~checking,~~fall ~~money market~~of 2015 and ~~savings~~again ~~accounts~~in ~~increased~~February ~~$86~~2016,~~000,~~ orthe ~~91.5%,~~Company toannounced ~~$180,000 for~~ the ~~three~~expansion ~~months~~of ~~ended~~its ~~September~~mortgage ~~30,~~banking ~~2015 from $94~~program,~~000~~ ~~for~~which included the addition ~~three~~of ~~months~~new ~~ended~~loan ~~September~~production ~~30,~~offices ~~2014.~~in ~~The~~Scottsdale ~~average~~and ~~rate~~Tucson, weArizona, ~~paid~~Albuquerque, onNew ~~such~~Mexico, ~~deposit~~Kirkland ~~accounts~~and ~~increased~~Puyallup, 14Washington, and ~~basis~~Medford, ~~points to 0~~Oregon.~~68%~~ ~~for the~~Operating ~~three~~results ~~months~~were ~~ended~~negatively ~~September~~affected ~~30,~~as ~~2015 from 0.54% for~~ the ~~three~~start-up ~~months~~period ~~ended~~operating ~~September~~costs ~~30,~~exceeded ~~2014~~revenue generated ~~and~~by ~~the~~this ~~average~~new ~~balance increased $36~~operation.4 ~~million,~~We orhad ~~52.9%,~~net toincome of $~~105.2~~6,000 ~~million~~in ~~for~~ the three months ended ~~September~~March 3031, ~~2015~~2016, ~~from~~compared ~~$68.8~~to ~~million~~a ~~for~~net ~~the three months~~loss ~~ended~~of ~~September 30~~$264,000 ~~2014.~~for ~~The average rates we pay on these accounts is considerably higher in~~ the ~~Arizona~~three ~~market~~months weended ~~entered~~March ~~with the~~31, ~~Bank 1440 acquisition in August 2014~~2015.

Interest ~~expense~~Income. onInterest income ~~borrowings~~increased ~~decreased significantly~~$238,000, ~~due~~or ~~primarily~~8.4%, to $3.1 million for the ~~prepayment~~three ofmonths ended March 31, 2016 from $62.48 million for the three months ended March 31, 2015. The increase was due to a $5.1 million, or 2.2% increase in ~~long~~average interest-~~term~~earning ~~FHLB~~assets ~~advances~~and an improvement in ~~December~~asset ~~2014~~mix ~~with~~as loans, our highest yielding assets, increased to 87.1% of average interest ~~rates~~-earning ofassets 4from 81.009% of average interest-earning assets. The ~~average~~yield ~~rate~~on ~~paid~~average oninterest-earning ~~borrowings~~assets ~~decreased~~increased ~~322~~26 basis points to 05.3426% for the three months ended March 31, 2016 from 5.00% for the three months ended ~~September~~March 3031, 2015 ~~from~~due 3primarily to the improvement in asset mix.56 Interest and fees on loans increased $281,000, or 10.7%, to $2.9 million for the three months ended ~~September~~March 3031, ~~2014~~2016, from $2.6 million Infor the three months ended March 31, 2015, wepartially ~~were~~offset ~~able~~by toa ~~fund~~$44,000, or 26.9%, decrease in interest income on available-for-sale securities. Interest income on loans ~~with~~increased ~~low~~due ~~cost~~primarily to a $16.3 million, ~~short-term~~or ~~borrowings~~8.7%, increase in average loan balances, due asto ~~our~~organic growth and a six basis point increase in yield. The average ~~FHLB~~balance ~~advances~~of ~~increased~~securities decreased $126.21 million, or ~~119~~17.48%, to $28.3 million for the three months ended March 31, 2016, compared to $2234.54 million for the three months ended ~~September~~March 3031, 2015, and the average yield decreased from ~~$10~~1.395% ~~million~~to 1.71% for the three months ended ~~September~~March 3031, ~~2014~~2015 and 2016, respectively. The securities yield for the three months ended March 31, 2016 was negatively affected by accelerated prepayments on mortgage-backed securities purchased at premiums, accelerating premium amortization expense in the period.

Interest Expense. Interest expense increased $34,000, or 9.9%, to $376,000 for the three months ended March 31, 2016 from $342,000 for the three months ended March 31, 2015. The increase was the result of an increase in interest expense on deposits, which increased $32,000, or 9.6%, to $365,000 for the three months ended March 31, 2016 from $333,000 for the three months ended March 31, 2015.

Net Interest Income. Net interest income increased $1.0 million, or 63.9%, to $2.7 million for the three months ended September 30, 2015 from $1.7 million for the three months ended September 30, 2014, as a result of a higher balance of net interest-earning assets and a higher net interest rate spread. Our average net interest-earning assets increased by $14.4 million, or 57.1%, to $39.7 million for the three months ended September 30, 2015 from $25.3 million for the three months ended September 30, 2014 due primarily to the merger. Our net interest rate spread improved by 72 basis points to 4.24% for the three months ended September 30, 2015 from 3.52% for the three months ended September 30, 2014, as we carried 83.3% of our average interest-earning assets in loans, our highest yielding assets, for the three months ended September 30, 2015, compared to 69.4% in loans for the same quarter in 2014. This repositioning of our asset portfolio was achieved principally through the merger in August 2014, organic loan growth and sales of securities in December 2014 and early 2015, which were not completely replaced during reinvestment. Our cost of borrowings was reduced from 3.56% for the quarter ended September 30, 2014 to 0.34% for the quarter ended September 30, 2015 due to the prepayment of longer-term, higher rate FHLB advances in December 2014 and the continued low interest rate environment.

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

~~See~~Interest ~~“Asset~~paid ~~Quality-~~on ~~Allowance~~checking, money market and savings accounts increased $51,000, or 31.3%, to $214,000 for the three months ended March 31, 2016 from $163,000 for the ~~Loan~~three ~~Losses”~~months ended March 31, 2015. The average rate we paid on such deposit accounts increased seven basis points to 0.73% for the ~~additional~~three ~~information~~months ended March 31, 2016 from 0.66% for the three months ended March 31, 2015 and the average balance increased $16.9 million, or 16.8%, to $117.3 million for the three months ended March 31, 2016 from $100.4 million for the three months ended March 31, 2015. The average rates we pay on these accounts is considerably higher in the Arizona market we entered with the Bank 1440 acquisition.

~~After~~Net anInterest ~~evaluation~~Income. Net ofinterest ~~these~~income ~~factors~~increased $204, we000, ~~recorded~~or a8.2%, ~~provision~~to $2.7 million for ~~loan~~the ~~losses~~three ofmonths ~~$125~~ended March 31,~~000~~ 2016 from $2.5 million for the three months ended ~~September~~March 3031, 2015, ~~compared~~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 $2.5 million, or 8.1%, to no$34.3 ~~provision~~million for the three months ended March 31, 2016 from $31.8 million for the three months ended ~~September~~March 3031, ~~2014~~2015 due primarily to organic growth. ~~The~~Our ~~provision~~net ~~for~~interest rate ~~loan~~spread ~~losses~~improved inby 20 basis points to 4.50% for the ~~quarter~~three months ended ~~September~~March 31, 2016 from 4.30% for the three months ended March 31, 2015, ~~was~~as ~~recorded~~we carried 87.1% of our average interest-earning assets in loans, our highest yielding assets, for the three ~~due~~months ended March 31, 2016, compared to ~~growth~~81.9% in loans for the ~~loan~~comparable quarter in 2015. This repositioning of our asset portfolio was achieved principally through organic loan growth. Our cost of $8borrowings increased to 0.945% ~~million~~for the quarter ended March 31, 2016 orfrom 40.723%, ~~and~~for the ~~increased~~quarter ~~percentage~~ended ofMarch ~~commercial~~31, ~~loans~~2015 due to the increase in short term interest rates following the ~~portfolio, which~~25 ~~generally~~basis ~~carry~~point increase ain ~~higher~~the ~~risk~~target ~~than~~Federal ~~residential~~Funds ~~real~~rate ~~estate~~in ~~loans~~December 2015.

ToProvision ~~the~~for ~~best~~Loan ofLosses. ~~our~~ Provisions ~~knowledge,~~for weloan ~~have recorded~~losses ~~all~~are charged to operations to establish an allowance for loan losses ~~that~~at ~~are~~a ~~both~~level ~~probable~~necessary to absorb known and ~~reasonable~~inherent tolosses ~~estimate. However,~~that ~~future~~are ~~changes~~both inprobable ~~the~~and ~~factors described~~reasonably ~~above,~~estimable ~~including,~~at ~~but~~the ~~not~~date ~~limited~~of ~~to,~~the ~~actual~~financial ~~loss~~statements. ~~experience~~If ~~with~~allowance for ~~respect~~loan tolosses ~~our~~is ~~loan~~larger ~~portfolio~~than necessary, ~~could~~we ~~result~~post ina ~~material increases~~negative inprovision ~~our~~as ~~provision~~a ~~for~~benefit ~~loan~~to ~~losses~~earnings. In ~~addition,~~evaluating the ~~Office~~level of the allowance ~~Comptroller~~for ofloan ~~the Currency~~losses, asmanagement ananalyzes ~~integral~~several ~~part~~qualitative ~~of its~~loan ~~examination~~portfolio ~~process,~~risk ~~will~~factors ~~periodically~~including ~~review~~but ~~our~~not ~~allowance~~limited ~~for~~to, ~~loan~~charge-off history ~~losses~~over ~~and~~a ~~may~~relevant ~~require~~period, uschanges toin ~~recognize~~management ~~adjustments~~or ~~to the~~underwriting ~~allowance~~policies, ~~based~~current oneconomic ~~its~~conditions, ~~judgments~~delinquency ~~about~~statistics, geographic ~~the~~and ~~recoverability~~industry ofconcentrations, ~~our~~the ~~loan~~adequacy ~~balances~~of ~~based~~the ~~upon~~underlying ~~information~~collateral, ~~available~~the tofinancial itstrength atof the borrower and ~~time~~results of ~~its~~internal ~~examination~~and external loan reviews.

~~Noninterest~~See ~~Income.~~“- ~~Noninterest income~~Allowance ~~decreased $2.9 million, or 71.7%, to $1.1 million~~ for ~~the~~Loan ~~three months ended September 30, 2015 from $4.0 million~~ Losses” for ~~the three~~additional ~~months ended September 30, 2014 due primarily to the $2~~information.~~9 million bargain purchase gain from the merger recorded in the September 2014 quarter.~~

~~Gain~~After onan ~~sale~~evaluation of ~~loans~~these ~~increased $204~~factors,~~000~~ orwe ~~20.9%,~~recorded toa ~~$1.2~~provision ~~million~~ for ~~the~~loan ~~three~~losses ~~months~~of ~~ended September 30, 2015 from~~ $~~976~~52,000 for the three months ended ~~September~~March 3031, ~~2014~~ as2016, ~~the~~compared ~~Company has continued~~ to ~~expand its secondary mortgage loan operation. We sold~~ $~~38.1~~100,000 ~~million~~for ~~of mortgage loans during~~ the three months ended ~~September~~March 3031, 2015 ~~for a gain of $1~~.1 ~~million~~In ~~and~~the ~~one~~quarter ~~SBA~~ended ~~loan~~March ~~for~~31, ~~$655~~2016,~~000~~ atgross aloans ~~gain~~held offor ~~$62,000,~~investment ~~compared to~~grew $212.69 million, ofor ~~mortgage loan sales and $~~1.65%. In ~~million of SBA loan sales during the three months ended September 30~~addition, ~~2014 for total gains of~~ $~~976~~117,000. Wein ~~realized~~recoveries ~~a 2.9% average premium (gain on sale/sold loans) on the sales~~ of ~~mortgage~~previously ~~loans~~charged-off ~~for~~balances ~~the~~were ~~third quarter~~received ofduring ~~2015 compared to 3.2% for~~ the ~~comparable~~ quarter inended ~~2014.~~March ~~Premiums~~31, ~~vary~~2016 ~~from period to period based upon the mix of~~compared ~~government FHA and VA loans~~ to ~~conventional loans~~$184,000 ~~geographic~~during ~~markets~~the ~~and~~quarter ~~market~~ended ~~interest~~March ~~rates~~31, ~~specifically 10-year Treasury rates~~2015.

33To the best of our knowledge, we have recorded all loan losses that are both probable and reasonable to estimate at March 31, 2016. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in

Noninterest Expense. Noninterest expense increased $641,000, or 21.9%, to $3.6 million for the three months ended September 30, 2015 from $2.9 million for the three months ended September 30, 2014 due primarily to higher salaries and benefits, occupancy, data processing fees, professional fees and other noninterest expense, partially offset by lower merger-related expenses. The increases in expenses resulted primarily from the acquisition of Bank 1440. Average assets for the quarter ended September 30, 2015 were 35.4% larger than the same quarter in the prior year.26

~~There~~Table were no merger-related expenses for the quarter ended September 30, 2015, compared to $311,000 in the quarter ended September 30, 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 systems were converted. The systems conversions are expected to result in enhanced operating efficiencies going forward. Internal costs incurred cannot be quantified and are therefore not included in merger-related expense. 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. With the late March 2015 systems conversions, the Company has eliminated all duplicative systems. The Company does not expect to incur any merger-related expenses related to the Bank 1440 transaction in the future.Contents

~~Provision~~our provision for ~~Income~~loan ~~Taxes~~losses. NoIn addition, ~~provision~~the ~~for~~Office ~~income~~of ~~tax~~the ~~expense~~Comptroller ~~was~~of ~~recorded for~~ the ~~three~~Currency, ~~months~~as ~~ended~~an ~~September~~integral ~~30,~~part ~~2015~~of ~~and~~its ~~2014~~examination ~~due~~process, towill ~~net~~periodically ~~operating~~review ~~loss~~our allowance ~~carry-forwards~~for ~~from~~loan ~~prior~~losses ~~periods~~and ~~available~~may require us to ~~offset~~recognize ~~their~~adjustments ~~income.~~to ~~The~~the ~~Company~~allowance ~~had~~based ~~pre-tax~~on ~~and~~its ~~after-tax~~judgments ~~income~~about ofthe ~~$2.7~~recoverability ~~million~~of ~~for~~our ~~the~~loan ~~three~~balances ~~months~~based ~~ended~~upon ~~September~~information ~~30,~~available ~~2014~~to ~~and~~it ~~$128,000~~at ~~for~~ the ~~three~~time ~~months~~of ~~ended~~its ~~September 30, 2015~~examination.

~~Comparison~~Noninterest ofIncome. ~~Operating~~Noninterest income ~~Results~~increased $1.1 million, or 134.9%, to $1.9 million for the ~~Nine~~three months ~~Ended~~ended ~~September~~March 3031, 2016 from $802,000 for the three months ended March 31, 2015 due to a higher volume of loan sales and ~~2014~~related gains, and no impairment charge on other real estate compared to a charge of $200,000 for the comparable quarter in 2015.

~~General.~~Gain ~~The~~on ~~acquisition~~ sale of ~~Bank~~loans ~~1440~~increased ~~was~~$800,000, or ~~consummated~~90.1%, onto ~~August~~$1.7 ~~29,~~million ~~2014~~for ~~and~~ the ~~material~~three ~~increase~~months inended ~~assets~~March 31, 2016 from ~~Bank~~$888,000 ~~1440~~for ~~makes~~the ~~direct~~three ~~comparisons~~months ~~between~~ended March 31, 2015 as the ~~two~~Company ~~periods~~has ~~less~~continued ~~meaningful.~~to Weexpand ~~had~~its ~~net~~secondary ~~income~~mortgage ofloan ~~$226,000~~operation. ~~for~~During the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016, we sold $41.5 million of mortgage loans for a gain of $1.6 million and $1.0 million of SBA loans for a gain of $99,000, compared to $229.13 million ~~for~~of mortgage loan sales during the ~~nine~~three months ended ~~September~~March 3031, ~~2014~~2015 for a gain of $888,000. ~~The~~There ~~nine~~were ~~month~~no ~~results~~SBA ~~for~~loans ~~2014~~sold during ~~included~~the three months ended March 31, 2015. We realized a $23.98% ~~million~~average ~~bargain~~premium ~~purchase~~ (gain on sale/sold loans) on the ~~acquisition~~sales of ~~Bank~~mortgage loans ~~1440~~for the three months ended March 31, 2016 and ~~$888~~3.0% for the three months ended March 31,~~000~~ in2015. ~~merger~~The Bank has experienced higher premiums on sales of mortgage loans since mid-~~related~~2015 ~~expenses~~when we enhanced our pipeline management with the addition of more experienced personnel. ~~Merger-related~~Premiums ~~expenses~~vary infrom period to period based upon the ~~nine~~mix ~~months~~of ~~ended~~government Federal Housing Administration ~~September~~(FHA) 30and VA loans to conventional loans, ~~2015~~geographic ~~were~~markets ~~$100~~and market interest rates,~~000~~ specifically 10-year Treasury rates.

~~Interest~~Noninterest ~~Income~~Expense. ~~Interest~~Noninterest ~~income~~expense increased $31.41 million, or 6230.24%, to $84.95 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016 from $53.54 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2014.~~2015 ~~The increase was~~ due primarily to ahigher ~~48.9%~~salaries ~~increase~~and inbenefits, ~~average~~professional ~~interest-earning~~fees ~~assets~~ and aother 41noninterest ~~basis~~expense, ~~point~~partially ~~increase~~offset inby ~~yields~~lower ~~due~~merger-related ~~primarily~~expenses. toThe ~~improvement~~increases inwere ~~asset~~primarily ~~mix~~related asto ~~loans,~~expansion of our ~~highest~~mortgage ~~yielding~~banking ~~assets,~~operations in ~~increased~~the ~~from~~fall ~~68.6%~~ of ~~average~~2015 ~~interest-earning assets to 82.6%. Interest~~ and ~~fees~~again onin ~~loans~~February ~~increased~~2016, ~~$3.6~~which ~~million,~~included orthe ~~73.6%,~~addition toof ~~$8.4~~new ~~million~~loan ~~for the~~production ~~nine~~offices ~~months~~in ~~ended~~Scottsdale ~~September~~and 30Tucson, Arizona, ~~2015~~Albuquerque, ~~from~~New ~~$4.8~~Mexico, ~~million~~Kirkland ~~for~~and ~~the nine months ended September 30~~Puyallup, ~~2014~~Washington, ~~partially~~and ~~offset by a $208~~Medford,~~000,~~ ~~or 34~~Oregon.~~3%,~~ ~~decrease~~Average inassets ~~interest income on available-~~for~~-sale~~ ~~securities.~~the ~~Interest~~quarter ended ~~income~~March on31, ~~loans~~2016 ~~increased~~were ~~due primarily to a 79~~7.23% ~~increase~~larger inthan ~~average~~for ~~loan balances, due to both~~ the ~~merger~~quarter ~~and~~ended ~~organic~~March ~~growth~~31, ~~partially~~2015. ~~offset~~Coinciding bywith anthe 18increase ~~basis point decrease~~ in ~~loan~~noninterest ~~yields~~ expense from ~~5.89%~~the toexpansion ~~5.71%~~of asour ~~market~~mortgage ~~rates~~banking ~~continued~~operations towas ~~decline.~~a ~~The average balance of securities decreased 19~~90.71% toincrease ~~$33.4~~in ~~million~~gain ~~for~~on ~~the~~sale ~~nine~~of ~~months ended September 30, 2015, compared to $41~~loans.~~7 million for the nine months ended September 30, 2014 and the average yield decreased 35 basis points.~~

~~Interest~~We ~~Expense.~~incurred ~~Interest expense~~no ~~increased~~outside ~~$77,000,~~merger-related orexpenses ~~7.9%, to $1.1 million~~ for the ~~nine months ended September 30, 2015 from $978,000 for the nine months~~quarter ended ~~September~~March 3031, ~~2014.~~2016 ~~The~~compared ~~increase was caused by an increase in interest expense on deposits, which increased $297,000, or 41.7%,~~ to $~~1.0 million for the nine months ended September 30~~94, ~~2015 from $712,~~000 for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2014, partially offset by a decrease in interest expense on borrowings. Interest on borrowings decreased $220,000, or 82.7%, to $46,000 for the nine months ended September 30,~~ 2015 ~~from $266,000 for the nine months ended September 30, 2014 due to the replacement of longer-term, higher-rate borrowings with shorter-term borrowings, despite a 118~~.~~6% increase in average balances.~~

34Income Tax Expense. Income tax expense was $15,000 and $0 for the quarters ended March 31, 2016 and 2015, respectively. The $15,000 income tax expense for the quarter ended March 31, 2016 represented a tax extension payment expected to be applied to cover an alternative minimum tax liability. 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.

Interest paid on checking, money market and savings accounts increased $309,000, or 147.1%, to $519,000 for the nine months ended September 30, 2015 from $210,000 for the nine months ended September 30, 2014. The average rate we paid on such deposit accounts increased 19 basis points to 0.68% for the nine months ended September 30, 2015 from 0.49% for the nine months ended September 30, 2014 and the average balance increased $44.6 million, or 77.1%, to $102.4 million for the nine months ended September 30, 2015 from $57.8 million for the nine months ended September 30, 2014. The average rates we pay on these accounts is considerably higher in the Arizona market we entered with the Bank 1440 acquisition.27

~~Interest~~Table ~~expense on borrowings decreased significantly due primarily to the prepayment~~ of $6.4 million in long-term FHLB advances in December 2014 with average interest rates of 4.00%. The average rate paid on borrowings decreased 334 basis points to 0.29% for the nine months ended September 30, 2015 from 3.63% for the nine months ended September 30, 2014. In 2015, we were able to fund some of the growth in portfolio loans and mortgage loans held for sale with low cost, short-term borrowings as our average FHLB advances increased $11.6 million, or 118.6%, to $21.4 million for the nine months ended September 30, 2015 from $9.8 million for the nine months ended September 30, 2014.Contents

Net Interest Income. Net interest income increased $3.3 million, or 74.1%, to $7.8 million for the nine months ended September 30, 2015 from $4.5 million for the nine months ended September 30, 2014, as a result of a higher balance of net interest-earning assets and a higher net interest rate spread. Our average net interest-earning assets increased by $13.1 million, or 58.7%, to $35.6 million for the nine months ended September 30, 2015 from $22.4 million for the nine months ended September 30, 2014 due primarily to the merger and loan growth. Our net interest rate spread improved by 66 basis points to 4.27% for the nine months ended September 30, 2015 from 3.61% for the nine months ended September 30, 2014, as we carried 82.6% of our average interest-earning assets in loans, our highest yielding asset, for the nine months ended September 30, 2015 compared to 68.6% in loans for the comparable period in 2014. This repositioning of our asset portfolio was achieved principally through the merger in August 2014, organic loan growth and sales of securities in December 2014 and early 2015, which were not completely replaced during reinvestment. Our cost of borrowings was reduced from 3.63% for the nine months ended September 30, 2014 to 0.29% for the nine months ended September 30, 2015 due to the prepayment of longer-term, higher rate FHLB advances in December 2014.

Provision for Loan Losses. We recorded a provision for loan losses of $300,000 for the nine months ended September 30, 2015, compared to no provision for the nine months ended September 30, 2014. The provision for 2015 was due to portfolio loan growth of $21.0 million, or 12.0%, and a specific allowance added in March 2015 that was followed by a $339,000 partial charge-off in the third quarter on one first mortgage loan with a pre-charge off balance of $932,000 due to an expected bankruptcy filing, partially offset by $186,000 in recoveries. Recoveries of $55,000 were received in the nine months ended September 30, 2014.

Noninterest Income. Noninterest income decreased $2.6 million, or 44.2%, to $3.2 million for the nine months ended September 30, 2015 from $5.8 million for the nine months ended September 30, 2014 primarily due to the $2.9 million bargain purchase gain recorded in the nine months ended September 30, 2014 and $406,000 in impairment charges on other real estate in the nine months ended September 30, 2015, partially offset by a higher volume of loan sales and related gains during the nine months ended September 30, 2015.

Gain on sale of loans increased $878,000, or 37.3%, to $3.2 million for the nine months ended September 30, 2015 from $2.4 million for the nine months ended September 30, 2014, as the Company has continued to expand its secondary mortgage loan operation. We sold $107.3 million of mortgage loans during the nine months ended September 30, 2015, compared to $68.6 million during the nine months ended September 30, 2014. The average premium (gain on sale/sold loans) for 2015 was 2.9% compared to 3.2% for 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. We sold $1.6 million of SBA loans in each of the nine month periods ended September 30, 2015 and 2014, recognizing gains on sale of $148,000 in 2015 and $168,000 in 2014.

Noninterest Expense. Noninterest expense increased $2.3 million, or 28.7%, to $10.5 million for the nine months ended September 30, 2015 from $8.2 million for the nine months ended September 30, 2014 due primarily to higher salaries and benefits, occupancy, data processing fees, professional fees and other noninterest expense, partially offset by lower merger-related expenses. These increases in expenses resulted primarily from the acquisition of Bank 1440. Average assets for the nine months ended September 30, 2015 were 46.3% larger than the nine months ended September 30, 2014.

Merger-related expenses decreased $788,000, or 88.7%, to $100,000 for the nine months ended September 30, 2015, compared to $888,000 for the nine months ended September 30, 2014.

Provision for Income Taxes. No provision for income tax expense was recorded for the nine months ended September 30, 2015 and 2014. The Company had pre-tax income of $2.1 million for the nine months ended September 30, 2014 and $226,000 for the nine months ended September 30, 2015 and no provision for income tax expense was recorded due to net operating loss carry-forwards from prior periods available to offset that income.

Arizona Mortgage Banking Program Expansion

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

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

Asset Quality

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

~~Nonperforming~~Non-Performing Loans and Non-Performing Assets. The following table sets forth information regarding our ~~nonperforming~~non-performing assets. InAs ~~addition~~of toMarch ~~the assets listed below~~31, as2016 ofand ~~September~~December 3031, 2015 ~~and December 31~~, ~~2014~~ we had $0no ~~and $483,000 of~~ accruing troubled debt restructurings~~, respectively~~. Troubled debt restructurings include loans for which either a portion of interest or principal has been forgiven, or for loans modified at interest rates materially less than current market rates. The troubled debt restructurings as of December 31, 2014 consisted of three commercial real estate loans and one commercial and industrial loan. As of September 30, 2015 and December 31, 2014, there were no specific allowances related to these loans, and at each date we had no commitments to lend additional amounts to those customers.

	At March 31,			At December 31,
	2016			2015
	(Dollars in thousands)
Nonaccrual loans
Real estate loans:
One- to four-family residential real estate	$	1,048		$	1,490
Commercial real estate		-			-
Commercial and industrial loans		304			354
Consumer and other loans		-			-
Total nonaccrual loans		1,352			1,844
Accruing loans past due 90 days or more:
Total accruing loans past due 90 days or more		-			-
Total nonaccrual loans and accruing loans past due 90 days or more		1,352			1,844
Other real estate (ORE)
One- to four-family residential real estate		196			-
Commercial real estate		306			306
Total other real estate		502			306
Other nonperforming assets		-			-
Total nonperforming assets	$	1,854		$	2,150

Ratios:
Nonperforming loans to gross loans held for investment		0.68	%		0.95	%
Nonperforming assets to total assets		0.67	%		0.79	%
Nonperforming assets to gross loans held for investment and ORE		0.94	%		1.10	%

	At September 30,			At December 31,
	2015			2014
	(Dollars in Thousands)
Nonaccrual loans:
Real estate loans:
One-to-four-family residential	$	804		$	181
Commercial		-			617
Commercial and industrial loans		-			17
Consumer and other loans		-			-
Total loans	$	804		$	815
Accruing loans past due 90 days or more:
Total accruing loans past due 90 days or more		-			-
Total of nonaccrual loans and accruing loans past due 90 days or more		804			815
Other real estate owned ("ORE"):
One-to-four-family residential		-			-
Commercial		418			820
Total real estate owned		418			820
Other nonperforming assets		-			-
Total nonperforming assets	$	1,222		$	1,635
Ratios:
Nonperforming loans to gross loans held for investment		0.41	%		0.46	%
Nonperforming assets to total assets		0.46	%		0.66	%
Nonperforming assets to gross loans held for investment and ORE		0.62	%		0.92	%

The nonperforming asset ratios decreased due to the $492,000 decrease in nonaccrual loans, as well as increases in loans and assets, partially offset by a $196,000 increase in other real estate. In the quarter ended March 31, 2016 one one- to four-family residential property was added to other real estate.

~~The~~Interest ~~ratio~~income ofthat ~~nonperforming~~would ~~loans~~have tobeen ~~gross~~recorded ~~loans held~~ for ~~investment decreased due to a 1.4% decrease in nonaccrual loans and 12.1% increase in gross loans. In~~ the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016, ~~one~~had ~~first~~nonaccruing ~~mortgage~~loans ~~loan~~been ~~with~~current aaccording ~~balance~~to oftheir ~~$932,000~~original ~~was~~terms ~~placed~~amounted ~~on nonaccrual status due~~ to ~~non-payment and an expected bankruptcy filing and a partial charge-off of~~ $~~339~~21,000 ~~was recorded to cover the difference between the loan balance~~. ~~and~~We ~~the~~recognized ~~estimated~~no ~~net~~interest ~~sales~~income ~~value~~on ofthese ~~the property. Also in the nine month period, two~~ nonaccrual ~~commercial~~ loans ~~with~~for ~~recorded balances~~the ofthree ~~$366,000~~months ~~were~~ended ~~paid~~March ~~in full. At September 30~~31, ~~2015, the Company did not have any nonaccrual commercial loans~~2016.

~~Interest~~At ~~income~~March ~~that would have been recorded for the nine months ended September 30~~31, ~~2015~~2016, we had ~~nonaccruing~~no loans ~~been~~that were ~~current~~not ~~according~~currently toclassified ~~their~~as ~~original terms amounted to $41~~nonaccrual,~~000.~~ Of90 ~~such~~days ~~amount,~~past ~~none~~due isor ~~related to~~ troubled debt restructurings. Wewhere ~~recognized~~known noinformation ~~interest~~about ~~income on these nonaccrual~~possible ~~loans~~credit ~~for~~problems ~~the~~of ~~nine~~borrowers ~~months ended September 30, 2015.~~caused

At September 30, 2015, we had no loans that were not currently classified as nonaccrual, 90 days past due or troubled debt restructurings where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with existing loan repayment terms and that could result in disclosure as nonaccrual, 90 days past due or troubled debt restructurings. 28

38Table of Contents

~~Allowance for Loan Losses. The allowance for loan losses is maintained at a level which, in~~ management’s ~~judgment, is adequate~~ to ~~absorb~~have ~~credit~~serious ~~losses~~concerns ~~inherent~~as into the ~~loan~~ability ~~portfolio. The amount~~ of the ~~allowance~~borrowers isto ~~based~~comply onwith ~~management’s~~existing ~~evaluation of the collectability of the~~ loan ~~portfolio,~~ ~~including~~repayment ~~the~~terms ~~nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans,~~ and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on impaired loans, it is possible that ~~management’s~~could ~~estimate~~result ~~of credit losses inherent~~ in ~~the~~disclosure ~~loan~~as ~~portfolio and the related allowance may change materially in the near~~non-~~term. The allowance is increased by a provision for loan losses~~accrual, ~~which~~ is90 ~~charged~~days topast ~~expense~~due ~~and reduced by charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged~~ or ~~credited~~troubled todebt ~~the provision for loan losses~~restructurings.

~~Adjustable-rate~~Allowance ~~mortgage~~for ~~loans~~Loan ~~decrease~~Losses. The ~~the~~allowance ~~risk~~for ~~associated~~loan ~~with~~losses ~~changes~~is inmaintained ~~market~~at ~~interest~~a ~~rates~~level bywhich, ~~periodically~~in ~~repricing~~management’s judgment, ~~but~~is ~~involve~~adequate ~~other~~to ~~risks~~absorb ~~because,~~credit ~~as interest~~losses ~~rates~~inherent ~~increase,~~in the ~~underlying~~loan ~~payments~~portfolio. byThe ~~the~~amount ~~borrower~~of ~~increase,~~the ~~thus~~allowance ~~increasing~~is ~~the~~based ~~potential~~on ~~for~~management’s ~~default~~evaluation byof the ~~borrower.~~collectability Atof the ~~same~~loan ~~time~~portfolio, including the ~~marketability~~nature of the ~~underlying~~portfolio, ~~collateral~~credit ~~may~~concentrations, betrends ~~adversely~~in ~~affected~~historical byloss ~~higher~~experience, ~~interest~~specific impaired ~~rates~~loans, and economic conditions. ~~Upward~~Allowances ~~adjustment~~for impaired loans are generally determined based on collateral values or the present value of ~~the~~estimated ~~contractual~~cash ~~interest~~flows. ~~rate~~Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on impaired loans, it is ~~also~~reasonably ~~limited~~possible bythat management’s estimate of credit losses inherent in the ~~maximum~~loan ~~periodic~~portfolio and ~~lifetime~~the ~~interest~~related ~~rate~~allowance ~~adjustments~~may ~~permitted~~change materially in the near-term. The allowance is increased by ~~our~~a provision for loan ~~documents~~losses, which is charged to expense and, ~~therefore~~reduced by charge-offs, net of recoveries. Changes in the ~~effectiveness~~allowance relating to impaired loans are charged or credited to the provision for loan losses. Management’s periodic evaluation of ~~adjustable-rate~~the ~~mortgage~~adequacy of ~~loans~~the ~~may~~allowance beis ~~limited~~based ~~during~~on ~~periods~~the current level of ~~rapidly~~net ~~rising~~loan losses, known and inherent risks in the portfolio, adverse situations ~~interest~~that ~~rates~~may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions.

Loans secured by commercial real estate and multi-family real estate generally involve larger principal amounts and a greater degree of risk than one- to four-family residential mortgage loans. Because payments on loans secured by commercial real estate and multi-family real estate are often dependent on successful operation or management of the properties, repayment of such loans may be affected by adverse conditions in the real estate market or the economy.29

~~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 business loans generally are made on the basis of the borrower’s ability to repay the loan from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may depend substantially on the success of the business itself. Further, any collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value.Contents

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

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2015			2014
	2016			2015
	(Dollars in Thousands)
	(Dollars in thousands)
Balance at beginning of period	$	1,~~707~~894		$	1,~~733~~707
Provision for loan losses		~~300~~52			-100
Charge-offs:
Residential real estate loans		(339	)		(87	)
One- to four-family residential real estate loans		(11	)		-
Commercial real estate loans		-			-
Commercial and industrial loans		-			-
Consumer and other loans		-			~~(31~~-	)
Total charge-offs		(~~339~~11	)		~~(118~~-	)
Recoveries:
Residential real estate loans		2			23
One- to four-family residential real estate loans		1			184
Commercial real estate loans		~~184~~116			31-
Commercial and industrial loans		-			-
Consumer and other loans		-			-
Total recoveries		~~186~~117			54184
Net (charge-offs) recoveries		(153	)		(64	)
Net recoveries		106			184
Balance at end of period	$	12,~~854~~052		$	1,~~669~~991	$
Allowance for loan losses to non- performing loans at end of period		230.58	%		274.32	%
ALLL to nonperforming loans		151.81	%		134.55	%
Allowance for loan losses to total gross loans at end of period		0.94	%		1.02	%
ALLL to total gross loans		1.04	%		1.09	%
Allowance for loan losses to total gross loans less acquired loans at end of period		1.31	%		1.77	%
ALLL to total gross loans less acquired loans		1.27	%		1.46	%
Net (charge-offs) recoveries to average loans outstanding during the period (annualized)		(0.10	)%		(0.08	)%
Net (charge-offs) recoveries to average loans outstanding during the period		0.21	%		0.39	%

The allowance for loan losses to nonperforming loans ratio ~~decreased~~increased due primarily to ana ~~increase~~26.7% decrease in nonperforming loans ~~from September 30, 2014 to September 30, 2015~~. The allowance for loan losses to total ~~gross~~ loans ~~ratio~~ ratios decreased due to ~~the~~a ~~absence~~larger ofincrease ~~any allowance for loan losses on loans acquired~~ in ~~the~~total ~~purchase of~~gross ~~Bank 1440 as such~~ loans ~~were~~compared ~~marked~~ to ~~market on~~ the ~~date~~increase ~~of the acquisition, partially offset by recoveries recognized during the first nine months of 2015. The decrease~~ in the allowance for loan losses to total gross loans less acquired loans was due to improvement in the economy, favorable credit quality and a $339,000 partial charge off of one large residential loan in the quarter ended September 30, 2015. The net ~~(charge-offs)~~ recoveries to average loans outstanding ratio ~~increased~~decreased due ~~mostly~~ to aan ~~$339,000 residential~~8.7% ~~real~~increase ~~estate~~in ~~loan~~average ~~partial~~loans ~~charge-off~~outstanding inbetween the ~~third~~periods, ~~quarter~~and ofa ~~2015~~42.1% decrease in net recoveries.

4030

Table of Contents

Liquidity and Capital Resources

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

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

We believe that we have enough sources of liquidity to satisfy our short-term liquidity needs as of ~~September~~March 3031, ~~2015~~2016.

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At ~~September~~March 3031, ~~2015~~2016, cash and cash equivalents totaled $1115.19 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $3029.5 million at ~~September~~March 3031, ~~2015; however, securities carried at $3~~2016.~~0 million~~ ~~were pledged to secure public deposits.~~ In addition, at ~~September~~March 3031, ~~2015~~2016, we had the ability to borrow an additional $96104.46 million from the Federal Home Loan Bank of Dallas. On that date, we had $2311.50 million of advances outstanding. The Bank also has two lines of credit available with other financial institutions of $6.0 million and 2.0 million, respectively.

At ~~September~~March 3031, ~~2015~~2016, we had $1523.90 million in loan commitments outstanding, and an additional $1932.10 million in commitments to originate and sell mortgage loans. In addition, we had $4.68 million in unused lines of credit and ~~$36,000~~no in commitments issued under standby letters of credit. ~~Certificates~~Time ~~of deposit~~deposits due within one year as of ~~September~~March 3031, ~~2015~~2016 totaled $3844.81 million, or 18.38% 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 ~~September~~March 3031, ~~2016~~2017. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us, either as certificates of deposit or as other deposit products. We have the ability to attract and retain deposits by adjusting the interest rates offered.

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

Our primary investing activities are the origination of loans and the purchase of securities. InDuring the ~~nine~~three months ended ~~September~~March 3031, ~~2015 and 2014~~2016, we originated $~~114~~20.9 2 million of loans held for investment and $9247.6 million of mortgage loans held for sale, ~~respectively~~compared to $8.5 million of loans held for investment and $32.0 million of mortgage loans held for sale during the three months ended March 31, 2015. In the three months ended March 31, 2016 and 2015, we purchased $92.71 million and $09.7 million of securities, respectively. We have not purchased any whole loans in recent periods.

Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances. We experienced a net ~~increases~~increase of $108.39 million and a net decrease of $731.71 million in total deposits for the ~~nine~~three months ended ~~September~~March 3031, ~~2015~~2016 and ~~2014~~2015, respectively. ~~Excluding the $75.5 million in deposits acquired in the Bank 1440 merger in August 2014, the Company had a net decrease in deposits of $1.8 million in the nine months ended September 30, 2014.~~ Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits so that we are competitive in our market area. Wholesale deposits, which are generally not from our primary market areas, represented $19.1 million, or 9.0% of deposits at September 30, 2015. This included $16.9 million in QwickRate certificates of deposit. The majority of our wholesale deposits are time deposits with denominations between $200,000 and $250,000.

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~~Federal~~Table ~~Home~~of ~~Loan Bank advances increased by $11.0 million and $4.3 million for the nine months ended September 30, 2015 and 2014, respectively.~~Contents

InFederal ~~the~~Home ~~first~~Loan ~~nine~~Bank ~~months~~advances ofdecreased by ~~2015,~~$2.0 wemillion ~~utilized deposit~~and ~~growth,~~increased ~~excess~~by ~~liquid~~$7.5 ~~funds~~million ~~held~~for atthe ~~December~~three months ended March 31, ~~2014~~2016 and ~~proceeds~~2015, ~~from~~respectively. ~~FHLB~~In ~~advances~~the tofirst ~~fund~~three months ~~new~~of ~~loan~~2016, ~~originations and~~ the ~~purchase of~~ $98.79 million in ~~available-for-sale~~deposit ~~securities~~growth decreased our reliance on FHLB borrowings. During ~~2014~~the three months ended March 31, 2015, we were able to ~~decrease~~utilize ~~our~~proceeds ~~borrowings~~from asFHLB weadvances ~~used cash~~and ~~provided~~excess byliquid ~~loan~~funds ~~repayments~~held at December 31, 2014 to fund ~~our~~new ~~operations~~loan originations ~~without~~and ~~negatively~~the ~~affecting~~purchase ~~our~~of ~~levels~~$9.7 ofmillion ~~liquidity~~in available-for-sale securities.

~~Bank’34~~Alamogordo isFinancial ~~subject~~Corp. tois ~~various~~a ~~regulatory~~separate ~~capital~~legal ~~requirements,~~entity ~~including~~from athe ~~risk-based~~Bank ~~capital~~and ~~measure.~~must ~~The~~provide ~~risk-based~~for ~~capital~~its ~~guidelines~~own ~~include~~liquidity ~~both~~to apay ~~definition~~any ofdividends ~~capital and~~to astockholders, ~~framework~~to ~~for~~repurchase ~~calculating~~its ~~risk-weighted~~common stock, ~~assets~~and byfor ~~assigning~~other ~~balance~~corporate ~~sheet~~purposes. ~~assets~~Alamogordo ~~and~~Financial ~~off-balance~~Corp’s. ~~sheet~~primary ~~items~~source toof ~~broad~~liquidity ~~risk~~is dividend payments it ~~categories.~~may Atreceive ~~September~~from ~~30,~~the ~~2015~~Bank. ~~and~~At ~~December~~March 31, ~~2014~~2016, ~~Bank’34~~Alamogordo ~~exceeded~~Financial ~~all~~Corp. ~~regulatory~~(on ~~capital~~an ~~requirements.~~unconsolidated ~~Bank’34 is~~basis) ~~considered~~had ~~“well-capitalized”~~liquid ~~under~~assets ~~regulatory~~of ~~guidelines~~$416,000.

42The net proceeds from the “second-step” stock offering will significantly increase our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including funding loans. Our financial condition and results of operations will be enhanced by the net proceeds from the stock offering, which will increase our net interest-earning assets and net interest income. However, due to the increase in equity resulting from the net proceeds raised in the stock offering, as well as other factors associated with the stock offering, our return on equity will be adversely affected following the stock offering.

The Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2016 and December 31, 2015, Bank 34 exceeded all regulatory capital requirements. Bank 34 is considered “well-capitalized” under regulatory guidelines.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Item 4. Controls and Procedures

An evaluation was performed under the ~~supervision~~ supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities ~~and~~ Exchange Act of 1934, as amended) as of March ~~September 30~~31, ~~2015~~2016. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Executive Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended ~~September~~March 3031, ~~2015,~~ 2016, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

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

(a)

Not applicable.

(b)

Not applicable.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

3.1	~~Charter of Alamogordo Financial Corp. (1)~~	Charter of Alamogordo Financial Corp. (1)
3.2	~~Bylaws of Alamogordo Financial Corp. (1)~~	Bylaws of Alamogordo Financial Corp. (1)
3.3	~~Amendment to Bylaws of Alamogordo Financial Corp. (2)~~	Amendment to Bylaws of Alamogordo Financial Corp. (2)
3.4	Amendment to Bylaws of Alamogordo Financial Corp. (3)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		The following financial statements from the Alamogordo Financial Corp. Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Comprehensive Income (Loss); (iii) Consolidated Statements of Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.
101	The following financial statements from the Alamogordo Financial Corp. Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Comprehensive Income; (iii) Consolidated Statements of Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.

(1)

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

(2)

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

~~(3) Incorporated by reference to the Current Report on Form 8-K of Alamogordo Financial Corp. (File No. 000-29655), filed with the Securities and Exchange Commission on March 31, 2014.~~34

44Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		ALAMOGORDO FINANCIAL CORP.
Date:	~~November~~May 204, ~~2015~~2016	/s/ Jill Gutierrez
		Jill Gutierrez
		Chief Executive Officer
Date:	~~November~~May 204, ~~2015~~2016	/s/ Jan R. Thiry
		Jan R. Thiry
		Executive Vice President and Chief Financial Officer

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