10-KT 1 v405333_10kt.htm 10-KT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

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

For the transition period from July 1, 2014 to December 31, 2014

Commission File Number: 000-29655

Alamogordo Financial Corp.

(Exact Name of Registrant as Specified in its Charter)

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

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

(575) 437-9334

(Registrant’s Telephone Number Including Area Code)

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes ¨ No x

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

Yes x No ¨

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of March 25, 2015 there were 1,679,500 shares outstanding of the registrant’s common stock. The aggregate value of the voting and non-voting common stock held by non-affiliates of the registrant, computed by reference to the closing price of the common stock as of June 30, 2014 at $15.70, was $5.7 million.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2015 Annual Meeting of Stockholders. (Part III)

TABLE OF CONTENTS

		PAGE

PART I		3
ITEM 1.	Business	3
ITEM 1A.	Risk Factors	17
ITEM 1B.	Unresolved Staff Comments	17
ITEM 2.	Properties	18
ITEM 3.	Legal Proceedings	18
ITEM 4.	Mine Safety Disclosures	18
PART II		18
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
ITEM 6.	Selected Financial Data	19
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	46
ITEM 8.	Financial Statements and Supplementary Data	47
ITEM 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	91
ITEM 9A.	Controls and Procedures	91
ITEM 9B.	Other Information	91
PART III		91
ITEM 10.	Directors, Executive Officers and Corporate Governance	91
ITEM 11.	Executive Compensation	91
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	91
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	92
ITEM 14.	Principal Accountant Fees and Services	92
ITEM 15.	Exhibits and Financial Statement Schedules	92
SIGNATURES		94

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PART I

ITEM 1. Business

Forward Looking Statements

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

statements of our goals, intentions and expectations;

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

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

estimates of our risks and future costs and benefits.

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

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

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

competition among depository and other financial institutions;

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

adverse changes in the securities or secondary mortgage markets;

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

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

our ability to manage operations in current economic conditions;

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

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

our ability to implement changes in our business strategies;

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

changes in consumer spending, borrowing and savings habits;

our ability to access cost-effective funding;

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

changes in the level of government support for housing finance;

changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses;

fluctuations in real estate values and both residential and commercial real estate market conditions;

demand for loans and deposits in our market area;

our ability to attract and retain key employees;

changes in our organization, compensation and benefit plans; and

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

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

Alamogordo Financial Corp.

Alamogordo Financial Corp. (the “Company”), a federal corporation that was organized in 1997, is a savings and loan holding company headquartered in Alamogordo, New Mexico. Alamogordo Financial Corp.’s common stock is quoted on the OTCQB under the symbol “ALMG.” Approximately 54.7% of Alamogordo Financial Corp.’s outstanding shares are owned by AF Mutual Holding Company, a federal corporation and a mutual holding company. Alamogordo Financial Corp. conducts its operations primarily through its wholly owned subsidiary, Bank’34, a federally chartered savings association. Alamogordo Financial Corp. manages its operations as one unit, and thus does not have separate operating segments. At December 31, 2014, Alamogordo Financial Corp. had total assets of $247.0 million, loans held for investment of $175.7 million, available-for-sale securities of $29.0 million, deposits of $201.9 million, and stockholders’ equity of $29.3 million.

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

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Bank’34

Bank’34 operates four full-service banking centers, one each in Otero and Dona Ana counties in New Mexico and two in Maricopa County, Arizona. Bank’34’s New Mexico offices include the main office and corporate headquarters located in Alamogordo and a branch office in Las Cruces. The Bank’s Arizona branch offices include the regional headquarters located in Scottsdale and a branch office in Peoria.

Bank’34’s business model focuses on two primary areas. The commercial focus is on the credit, deposit and treasury management needs of small business operating companies and real estate professionals and investors. Bank’34 originates both conventional and SBA loans primarily within its defined regulatory legal lending areas. Commercial loan types offered include owner and non-owner occupied real estate (including construction loans); multi-family; and commercial and industrial loans.

The consumer focus is on residential construction and mortgage loan needs together with deposit, online banking and ancillary financial service needs of families and businesses served by Bank’34. While Bank’34 originates most of its residential mortgage loans in the counties served by its branch offices, it does actively seek business in other areas of New Mexico and Arizona which have been added as regulatory legal lending areas. Residential mortgage lending outside of Bank’34’s legal lending areas is generally related to current customers or on a case-by-case basis.

Bank’34 originates deposits from its business and consumer customers predominantly from the areas where its branch offices are located. While Bank’34’s thrift origins still reflect a relatively high percentage of certificate of deposit balances to total deposits, the recent emphasis on business operating accounts and checking and money market accounts of consumers is consistent with Bank’34’s ongoing migration to a bank business model. Bank’34 does not solicit brokered deposits and generally does not solicit public funds. A modest amount of brokered deposits are on Bank’34’s balance sheet as a result of the acquisition of Bank 1440 in 2014.

Bank’34 is subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency. Bank’34 is a member of the Federal Home Loan Bank system. Its website address is www.Bank’34.com. Information on their website is not considered a part of this report.

Change in Fiscal Year

On December 19, 2014, the Boards of Directors of Alamogordo Financial Corp, AF Mutual Holding Company, and Bank’34 voted to change their fiscal year end from June 30 to December 31.

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 (loss).

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

Competition

We face significant competition in originating loans and attracting deposits. Our primary market area and other areas in which we operate have a high concentration of financial institutions, many of which are significantly larger institutions that have greater financial resources than we have, and many of which are our competitors to varying degrees. Our competition for loans and leases comes principally from commercial banks, savings banks, mortgage banking companies, the U.S. Government, credit unions, leasing companies, insurance companies, real estate conduits and other companies that provide financial services to businesses and individuals. Our most direct competition for deposits has historically come from commercial banks, savings banks and credit unions. We face additional competition for deposits from online financial institutions and non-depository competitors such as the mutual fund industry, securities and brokerage firms and insurance companies.

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

As of June 30, 2014 (the latest date for which information is available), Bank’34’s deposit market share was 18.99% of total deposits in Otero County, New Mexico, representing the second largest market share of ten institutions in Otero County; 1.95% of total deposits in Dona Ana County, New Mexico, representing the thirteenth largest market share of eighteen institutions in Dona Ana County; and 0.11% of total deposits in Maricopa County, Arizona, representing the thirty-eighth largest market share of fifty-seven institutions in Maricopa County.

Market Area

Arizona

During calendar 2014, the Arizona market, including Maricopa County, grew faster than the national averages in employment, income and population, but slower than historical recoveries coming out of economic downturns. Arizona State University business forecasts indicate that recovery of jobs lost during the recession will take another 12-18 months. The slower recovery compared to previous downturns is considered by many commercial real estate professionals to be a more stable outcome for the longer term. All sectors of the Maricopa County commercial market reported continued improvement through year end 2014 from high water mark vacancy levels reported in 2009, but all still remain above historical averages. In particular, the commercial multi-family market recovery remains strong which is important due to Bank’34’s history of strong penetration in this segment. Following a leading pace nationally for both home loan closings and home price increases during calendar 2013 and the first half of calendar 2014, Maricopa County experienced a lower supply/weakening demand anomaly in the second half of calendar 2014, a situation considered by mortgage forecasters to indicate a more balanced and rationale market between buyers and sellers.

New Mexico

New Mexico’s population trends and forecasts lagged the nation in 2014 and continued to slow compared to New Mexico historical norms. According to University of New Mexico economic research, New Mexico’s growth rate is now under 1% and is expected to remain so until at least 2018. The state is currently ranking 48^th in job growth. By comparison, in the past four decades, New Mexico ranked in the top 15 for all states in job growth. A significant pull-back in government transfer programs and low population and job growth impacting housing formation and construction are major contributors to the recent economic environment in New Mexico. While still lagging historical levels, a bright spot for Bank’34 is local real estate development in its Las Cruces, New Mexico market, benefitting on a relative basis from proximity to El Paso, trade ties with Mexico, and stronger employment growth. The residential mortgage sector in both of the New Mexico counties served by Bank’34 experienced reduced demand for both new and existing homes. Despite this trend, Bank’34’s residential mortgage origination volume growth exceeded the national average for calendar 2014 and Bank’34 increased its origination volume in the fourth quarter of calendar 2014 compared to the same quarter a year earlier.

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Lending Activities

Our loans held for investment portfolio consists of residential real estate loans (including multi-family), as well as commercial loans (including commercial business and commercial), construction loans, consumer and other loans. At December 31, 2014, $33.0 million, or 18.7%, of our gross loans held for investment portfolio consisted of residential real estate loans; $129.9 million, or 73.7%, of our gross loans held for investment portfolio consisted of commercial real estate loans; and $8.6 million, or 4.9%, of our gross loans held for investment portfolio consisted of commercial and industrial loans and $4.8 million, or 2.7%, of our gross loans held for investment portfolio consisted of consumer and other loans.

At December 31, 2014, commercial real estate loans included construction loans of $13.0 million.

We currently sell a significant majority of our originated residential mortgage loans in the secondary market. Our residential mortgage loans held for sale portfolio totaled $9.4 million at December 31, 2014.

Deposit Activities

Our deposit accounts consist principally of certificates of deposit, savings accounts, checking accounts and money market accounts. We provide commercial checking accounts and related services, such as online cash management. We also provide low-cost checking account services.

At December 31, 2014, our deposits totaled $201.9 million. Interest-bearing deposits totaled $183.9 million and noninterest-bearing deposits totaled $18.0 million. Savings, money market and checking deposits totaled $118.5 million, and certificates of deposit totaled $83.4 million, of which $44.1 million had maturities of one year or less.

Subsidiary Activities

Alamogordo Financial Corp. has no subsidiaries other than Bank 34.

Personnel

At December 31, 2014, Bank 34 had 74 full-time employees and two part-time employees, none of whom was party to a collective bargaining agreement. Bank 34 believes it has a good working relationship with its employees.

FEDERAL AND STATE TAXATION

General. Alamogordo Financial Corp. reports its income on a calendar year basis using the accrual method of accounting.

Federal Taxation. The federal income tax laws apply to Alamogordo Financial Corp. in the same manner as to other corporations. Alamogordo Financial Corp. files a consolidated federal income tax return with Bank’34. For the six months ended December 31, 2014, there was a consolidated federal net operating loss of $1.4 million and an ending consolidated federal net operating loss carryforward of $9.4 million. The federal net operating loss may be carried over for utilization against federal taxable income in future years, subject to some limitations, for 20 years from the date of origination of the loss.

New Mexico State Taxation. AF Mutual Holding Company and Alamogordo Financial Corp. are subject to the New Mexico corporation income tax and state corporation license tax (franchise tax). The current New Mexico corporate tax rates use a graduated rate structure with 4.8% being the lowest rate on New Mexico taxable income not over $500,000, and 7.3% being the highest rate on New Mexico income in excess of $1.0 million.

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

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

New Mexico net operating losses generally may only be carried forward for nineteen years or until the amount of loss carryover has been used, whichever occurs first. Also, New Mexico no longer provides for an alternative minimum tax. However, there is a $50 annual New Mexico franchise tax required for each corporation. Bank 34 is also subject to the annual $50 New Mexico franchise tax.

Arizona State Taxation. Due to Bank’34 having offices in Arizona, an Arizona consolidated income tax return must also be filed. The current Arizona corporate tax rate is 6.5% of Arizona taxable income. If there is an Arizona loss for the year, then a minimum tax of $50 is due. A taxpayer filing a combined or consolidated return is considered a single taxpayer, subject to one minimum tax.

Taxable income for corporations subject to Arizona income tax is similar to the computation of taxable income reported for federal income tax purposes less certain modifications with the most significant adjustment pertaining to calculation of Arizona depreciation.

If a corporation is doing business outside of the State of Arizona, an apportionment percentage is applied to the Arizona tax. The apportionment uses the average of a four-factor apportionment of sales (included twice), property and payroll to determine a percentage of the Arizona taxable income that is subject to tax. Since both Alamogordo Financial Corp. and Bank 34 are also doing business in New Mexico, such operations reduce the Arizona net operating loss or Arizona taxable income for each year.

Arizona net operating losses may only be carried over. The carry forward period is five succeeding taxable years for net operating losses arising in taxable periods through December 31, 2011 and 20 succeeding taxable years for net operating losses arising in taxable periods from and after December 31, 2011.

SUPERVISION AND REGULATION

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

Bank 34 also is regulated to a lesser extent by the Federal Reserve Board, which governs the reserves to be maintained against deposits and other matters. In addition, Bank 34 is a member of and owns stock in the Federal Home Loan Bank of Dallas, which is one of the 12 regional banks in the Federal Home Loan Bank System. Bank’34’s relationship with its depositors and borrowers also is regulated to a great extent by federal law and, to a lesser extent, state law, including in matters concerning the ownership of deposit accounts and the form and content of Bank’34’s loan documents.

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

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

Dodd-Frank Act. The Dodd-Frank Act made significant changes to the regulatory structure for and regulation of depository institutions and their holding companies. The Dodd-Frank Act requires the Federal Reserve Board to set minimum capital levels for both bank holding companies and savings and loan holding companies that are as stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital for holding companies are restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. The legislation also established a floor for capital of insured depository institutions that cannot be lower than the standards in effect upon passage, and directed the federal banking regulators to implement new leverage and capital requirements that take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives.

The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as Bank’34, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets continue to be examined for compliance by their applicable bank regulators. The new legislation also weakened the federal preemption available for national banks and federal savings associations, and gave state attorneys general the ability to enforce applicable federal consumer protection laws.

The Dodd-Frank Act broadened the base for FDIC insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution. The legislation also increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008. The Dodd-Frank Act increased shareholder influence over boards of directors by requiring companies to give shareholders a non-binding vote on executive compensation and so-called “golden parachute” payments. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not. Further, the legislation requires that originators of securitized loans retain a percentage of the risk for transferred loans, directs the Federal Reserve Board to regulate pricing of certain debit card interchange fees and contains a number of reforms related to mortgage originations.

Many provisions of the Dodd-Frank Act involve delayed effective dates and/or require implementing regulations. Their impact on operations cannot yet fully be assessed. However, it is likely that the Dodd-Frank Act will result in increased regulatory burdens and compliance, as well as operating and interest expense for Bank’34 and Alamogordo Financial Corp.

Federal Banking Regulation

Business Activities. A federal savings association derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and applicable federal regulations. Under these laws and regulations, Bank’34 may invest in mortgage loans secured by residential and commercial real estate, commercial business and consumer loans, certain types of debt securities and certain other assets, subject to applicable limits. The Dodd-Frank Act authorized, for the first time, the payment of interest on commercial checking accounts, effective July 21, 2011. Bank’34 may also establish subsidiaries that may engage in certain activities not otherwise permissible for Bank’34, including real estate investment and securities and insurance brokerage.

Capital Requirements. Federal regulations generally require savings associations to meet three minimum capital standards: a 4% core capital to assets leverage ratio, a 4% Tier 1 risk-based capital ratio and an 8% Total risk-based capital ratio.

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

At December 31, 2014, Bank’34’s capital exceeded all applicable requirements.

New Capital Rule. On July 9, 2013, the OCC and the other federal bank regulatory agencies issued a final rule that has revised their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more and top-tier savings and loan holding companies (such as Alamogordo Financial Corp.). Among other things, the rule established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), sets a uniform 4.0% leverage ratio regardless of examination rating, increased the minimum Tier 1 capital to risk-based assets requirement (from 4.0% to 6.0% of risk-weighted assets) and assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule was effective for Bank’34 on January 1, 2015. The capital conservation buffer requirement will be phased in at 0.625% per year beginning January 1, 2016 and ending January 1, 2019, when the full 2.5% capital conservation buffer requirement will be effective.

Loans-to-One Borrower. Generally, a federal savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2014, Bank’34 was in compliance with the loans-to-one borrower limitations.

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

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

A savings association that fails the qualified thrift lender test must operate under specified restrictions set forth in the Home Owners’ Loan Act. The Dodd-Frank Act made noncompliance with the QTL test subject to agency enforcement action for a violation of law. At December 31, 2014, Bank’34 satisfied the QTL test.

Capital Distributions. Federal regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the savings association’s capital account. A federal savings association must file an application with the OCC for approval of a capital distribution if:

the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus the savings association’s retained net income for the preceding two years;

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

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

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

Even if an application is not otherwise required, every savings association that is a subsidiary of a savings and loan holding company, such as Bank’34, must still file a notice with the Federal Reserve Board at least 30 days before the board of directors declares a dividend or approves a capital distribution.

A notice or application related to a capital distribution may be disapproved if:

the federal savings association would be undercapitalized following the distribution;

the proposed capital distribution raises safety and soundness concerns; or

the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

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

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

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

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

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

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

not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Bank’34’s capital.

In addition, extensions of credit in excess of certain limits must be approved by Bank’34’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.

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

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

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Prompt Corrective Action Regulations. Under the Federal Prompt Corrective Action statute, the OCC is required to take supervisory actions against undercapitalized savings institutions under its jurisdiction, the severity of which depends upon the institution’s level of capital. The final capital rule adopted in July 2013 revised the prompt corrective action categories to incorporate the revised minimum capital requirements of that rule. See “—New Capital Rule.”

A savings institution that has total risk-based capital of less than 8%, a leverage ratio less than 4%, or a Tier 1 risk-based capital ratio that is less than 6% or a common equity Tier 1 ratio of less than 4.5% is considered to be undercapitalized. A savings institution that has total risk-based capital less than 6%, a Tier 1 risk-based capital ratio of less than 4%, a leverage ratio that is less than 3% or a common equity Tier 1 ratio of less than 3% is considered to be “significantly undercapitalized.” A savings institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be “critically undercapitalized.”

Generally, the OCC is required to appoint a receiver or conservator for a savings association that is “critically undercapitalized” within specific time frames. The regulations also provide that a capital restoration plan must be filed with the OCC within 45 days of the date that a federal savings association is deemed to have received notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Any holding company of a federal savings association that is required to submit a capital restoration plan must guarantee performance under the plan in an amount of up to the lesser of 5% of the savings association’s assets at the time it was deemed to be undercapitalized by the OCC or the amount necessary to restore the savings association to adequately capitalized status. This guarantee remains in place until the OCC notifies the savings association that it has maintained adequately capitalized status for each of four consecutive calendar quarters. Institutions that are undercapitalized become subject to certain mandatory measures such as a restrictions on capital distributions and asset growth. The OCC may also take any one of a number of discretionary supervisory actions against undercapitalized federal savings associations, including the issuance of a capital directive and the replacement of senior executive officers and directors.

At December 31, 2014, Bank’34 met the criteria for being considered “well capitalized.”

Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC insured financial institutions such as Bank’34. Deposit accounts in Bank’34 are insured by the FDIC generally up to a maximum of $250,000 per separately insured depositor. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund.

Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other risk factors. Rates are based on each institution’s risk category and certain specified risk adjustments. Institutions deemed to be less risky pay lower rates while institutions deemed riskier pay higher rates.

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

In addition to the FDIC assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter ended December 31, 2014, the annualized FICO assessment was approximately $10,000.

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The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of Bank’34. Management cannot predict what assessment rates will be in the future.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not currently know of any practice, condition or violation that may lead to termination of our deposit insurance.

Prohibitions Against Tying Arrangements. Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

Federal Home Loan Bank System. Bank’34 is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. As a member of the Federal Home Loan Bank of Dallas, Bank’34 is required to acquire and hold a specified number of shares of capital stock in the Federal Home Loan Bank. As of December 31, 2014, Bank’34 was in compliance with this requirement.

Other Regulations

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

Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;

Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

Truth in Savings Act; and

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

The operations of Bank’34 also are subject to the:

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

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

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

The USA PATRIOT Act, which requires savings associations to, among other things, establish broadened anti-money laundering compliance programs, and due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements that also apply to financial institutions under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and

The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.

Holding Company Regulation

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

Permissible Activities. The business activities of savings and loan holding companies are generally limited to those activities permissible for financial holding companies under Section 4(k) of the Bank Holding Company Act of 1956, as amended, provided certain conditions are met, or for multiple savings and loan holding companies. A financial holding company may engage in activities that are financial in nature, including underwriting equity securities and insurance as well as activities that are incidental to financial activities or complementary to a financial activity. A multiple savings and loan holding company is generally limited to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to regulatory approval, and certain additional activities authorized by federal regulations.

Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of another savings institution or holding company thereof, without prior regulatory approval. It also prohibits the acquisition or retention of, with certain exceptions, more than 5% of a non-subsidiary company engaged in activities that are not closely related to banking or financial in nature, or acquiring or retaining control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider the financial and managerial resources, future prospects of the company and institution involved, the effect of the acquisition on the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors.

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

the approval of interstate supervisory acquisitions by savings and loan holding companies; and

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the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisition.

The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

Capital. Savings and loan holding companies historically have not been subject to consolidated regulatory capital requirements. The Dodd-Frank Act, however, requires the Federal Reserve Board to establish for all depository institution holding companies minimum consolidated capital requirements that are as stringent as those required for the insured depository subsidiaries. The components of Tier 1 capital are restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions, which excludes instruments such as trust preferred securities and cumulative preferred stock. Instruments issued before May 19, 2010 are grandfathered in for companies with consolidated assets of $15 billion or less. The final capital rule discussed above implements the consolidated capital requirements for savings and loan holding companies, effective January 1, 2015. See “—Federal Banking Regulation—New Capital Rule.”

Source of Strength. The Dodd-Frank Act extended the “source of strength” doctrine to savings and loan holding companies. The Federal Reserve Board has issued regulations requiring that all bank and savings and loan holding companies serve as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

Dividends. The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to dividends in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate or earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary depository institution becomes undercapitalized. The guidance also states that a holding company should inform the Federal Reserve Board supervisory staff prior to redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, as of the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability of Alamogordo Financial Corp. to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.

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

Acquisitions. Under the Federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve Board if any person (including a company), or group acting in concert, seeks to acquire direct or indirect “control” of a savings and loan holding company. Under certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the company’s outstanding voting stock, unless the Federal Reserve Board has found that the acquisition will not result in control of the company. A change in control occurs upon the acquisition of 25% or more of the company’s outstanding voting stock. Under the Change in Bank Control Act, the Federal Reserve Board generally has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition.

Federal Securities Laws

Alamogordo Financial Corp.’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Alamogordo Financial Corp. is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

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Emerging Growth Company Status

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

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

A company loses emerging growth company status on the earlier of: (i) the last day of the fiscal year of the company during which it had total annual gross revenues of $1.0 billion or more; (ii) the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the company pursuant to an effective registration statement under the Securities Act of 1933; (iii) the date on which such company has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which such company is deemed to be a “large accelerated filer” under Securities and Exchange Commission regulations (generally, at least $700 million of voting and non-voting equity held by non-affiliates).

ITEM 1A. Risk Factors

Not applicable, as Alamogordo Financial Corp. is a “Smaller Reporting Company.”

ITEM 1B. Unresolved Staff Comments

None.

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ITEM 2. Properties

Bank’34 conducts its business through four offices. The following table sets forth certain information relating to our offices at December 31, 2014.

Net

Year

Owned or

Book Value at

Approximate

Opened/Acquired

Leased

December 31, 2014

Square Footage

(Dollars in thousands)

Main Office:

500 East 10th Street

1997

Owned

4,534

19,000

Alamogordo, New Mexico 88310

Branch Office:

220 North Telshor Boulevard

2010

Owned

2,549

7,555

Las Cruces, New Mexico 88011

Branch Office:

14155 North 83^rd Avenue, Suite 117

2014

Leased

—

6,799

Peoria, Arizona 85381

Branch Office:

7010 East Chauncey Lane, Suite 120

2014

Leased

194

3,947

Phoenix, Arizona 85054

The net book value of our investment in premises and equipment was $10.0 million at December 31, 2014.

On January 5, 2015 the Bank closed its branch office at 7010 East Chauncey Lane, Suite 120 in Phoenix, Arizona and began operations at a new leased location with approximately 10,504 square feet of space in Kierland Commons at 14850 North Scottsdale Road, Suite 100, Scottsdale, Arizona.

ITEM 3. Legal Proceedings

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

ITEM 4. Mine Safety Disclosures

Not applicable

PART II

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on the OTCQB under the symbol “ALMG.” As of March 22, 2015, we had 677 stockholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms), and 1,679,500 shares of common stock outstanding. The following table sets forth market price information for our common stock. We did not declare a dividend for any of the periods listed.

Quarter Ended	High		Low
December 31, 2014	$	16.50	$	14.95
September 30, 2014	$	16.00	$	15.51
June 30, 2014	$	15.75	$	15.17
March 31, 2014	$	15.75	$	15.30

Quarter Ended	High		Low
December 31, 2013	$	15.90	$	15.75
September 30, 2013	$	16.25	$	14.10
June 30, 2013	$	16.50	$	14.00
March 31, 2013	$	14.70	$	12.55

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Quarter Ended	High		Low
December 31, 2012	$	15.00	$	12.50
September 30, 2012	$	16.00	$	13.80

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

There were no sales of unregistered securities during the quarter ended December 31, 2014.

There were no repurchases of shares of common stock during the quarter ended December 31, 2014.

ITEM 6. Selected Financial Data

You should read the following summary financial information in connection with our historical financial information, which appears elsewhere in this annual report. The selected historical financial data as of December 31, 2014 and June 30, 2014 and 2013 and for the six month period ended December 31, 2014 and years ended June 30, 2014 and 2013 is derived from our audited financial statements, and for the six month period ended December 31, 2013 is derived from our unaudited financial statements that are included in Item 8 of this report.

	At December 31,		At June 30,
	2014		2014		2013
	(Dollars in Thousands)
Selected Financial Condition Data:

Total assets	$	246,954	$	167,785	$	174,310
Cash and cash equivalents		14,824		9,946		4,216
Available-for-sale securities		29,018		38,959		55,340
Loans held for investment, net		173,990		90,998		89,390
Loans held for sale		9,429		10,279		6,295
Deposits		201,939		134,673		135,517
Federal Home Loan Bank advances		12,500		8,810		13,327
Stockholders' equity		29,336		22,184		23,597

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	Six Months Ended December 31,					Years Ended June 30,
	2014		2013			2014			2013
	(In thousands, except per share data)
Selected Operating Data:

Interest income	$	4,894	$	3,467		$	6,940		$	7,503
Interest expense		767		736			1,363			1,831
Net interest income		4,127		2,731			5,577			5,672
Provision for (credit to) loan losses		50		-			-			(121	)
Net interest income after provision for (credit to) loan losses		4,077		2,731			5,577			5,793
Noninterest income		4,473		1,314			3,083			3,596
Noninterest expense		7,528		4,656			9,895			9,486
Income (loss) before income taxes		1,023		(611	)		(1,235	)		(97	)
Income taxes		74		-			-			36
Net income (loss)	$	949	$	(611	)	$	(1,235	)	$	(133	)
Income (loss) per share - basic	$	0.61	$	(0.47	)	$	(0.95	)	$	(0.10	)
Income (loss) per share - diluted	$	0.61	$	(0.47	)	$	(0.95	)	$	(0.10	)

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	Six Months Ended December 31,						Years Ended June 30,
	2014 (5)			2013 (5)			2014			2013
	(In thousands, except per share data)
Selected Financial Ratios and Other Data:

Performance Ratios:
Return on average assets (ratio of net income (loss) to average total assets )		0.84	%		(0.71	)%		(0.73	)%		(0.07	)%
Return on average equity (ratio of net income (loss) to average stockholders' equity)		6.77	%		(5.36	)%		(5.46	)%		(0.55	)%
Interest rate spread (1)		3.84			3.39			3.52			3.34
Net interest margin (2)		3.96			3.52			3.66			3.50
Noninterest expense to average assets		6.68			5.39			5.84			5.29
Dividend payout ratio		-			-			-			-
Efficiency ratio (3)		87.53	%		115.10	%		114.26	%		102.34	%
Average interest-earning assets to average interest-bearing liabilities		116.27			113.73			114.88			114.50

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

Asset Quality Ratios:
Allowance for loan losses to total loans (4)		0.97	%		1.85	%		1.77	%		2.00	%
Allowance for loan losses to non-performing loans (4)		209.50	%		288.83	%		371.33	%		242.23	%
(Net Charge-offs) recoveries to average loans		0.02	%		(0.19	)%		(0.18	)%		(0.45	)%
Non-performing loans to total loans		0.46	%		0.64	%		0.48	%		0.82	%
Non-performing loans to total assets		0.33	%		0.36	%		0.26	%		0.43	%
Non-performing assets and accruing troubled debt restructurings to total assets		0.86	%		1.43	%		1.05	%		1.52	%

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

(1)

Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of average interest-bearing liabilities.

(2)

Represents net interest income as a percentage of average interest-earning assets.

(3)

Represents noninterest expense divided by the sum of net interest income and noninterest income.

(4)

There is no allowance for loan losses on loans acquired in the acquisition of Bank 1440.

(5)

Ratios for six-month periods have been annualized.

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

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

Merger

Further information regarding the merger transaction can be found in Note 2 of the Audited Consolidated Financial Statements in Item 8 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 securities, the valuation of and our ability to realize deferred tax assets and the measurement of fair values of financial instruments.

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

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

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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, trends in historical loss experience 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. 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 operations. The amount of other-than-temporary impairment related to other factors is recognized in other comprehensive 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.

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.

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Average Balance Sheet

The following tables set 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. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income.

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

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

Net interest income			$	4,127						$	2,731
Net interest rate spread (2)						3.84	%						3.39	%
Net interest-earning assets (3)	$	28,933						$	18,581
Net interest margin (4)						3.96	%						3.52	%
Average interest-earning assets to average interest-bearing liabilities						116.27	%						113.73	%

(1)

Ratios for the six month periods 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.

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

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

Net interest income			$	5,577						$	5,672
Net interest rate spread (1)						3.52	%						3.34	%
Net interest-earning assets (2)	$	19,758						$	20,497
Net interest margin (3)						3.66	%						3.50	%
Average interest-earning assets to average interest-bearing liabilities						114.88	%						114.50	%

(1)

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.

(2)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3)

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

Refer to Management’s Discussion of Financial Condition and Results of Operations section, “Source of Funds – Deposits,” for our average cost of all deposits, including non-interest bearing accounts, for the six month periods ended December 31, 2014 and 2013, and the years ended June 30, 2014 and 2013.

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.

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	Six Months Ended December 31,									Years Ended June 30,
	2014 vs. 2013									2014 vs. 2013
	Increase (Decrease)						Total			Increase (Decrease)						Total
	Due to						Increase			Due to						Increase
	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
	(In Thousands)									(In Thousands)

Interest-earning assets:
Loans	$	1,639		$	(195	)	$	1,444		$	(656	)	$	(114	)	$	(770	)
Interest-earning deposits		5			-			5			(10	)		7			(3	)
Securities		(73	)		42			(31	)		(19	)		229			210
Federal Home Loan Bank of Dallas stock		-			9			9			-			-			-
Other		-			-			-			-			-			-
Total interest-earning assets		1,571			(144	)		1,427			(685	)		122			(563	)

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

Comparison of Financial Condition at December 31, 2014 and June 30, 2014

Total assets increased $79.2 million, or 47.2%, to $247.0 million at December 31, 2014 from $167.8 million at June 30, 2014. Assets increased $84.5 million due to the acquisition of Bank 1440 on August 29, 2014. Asset changes for the six-month period other than related to the merger were a reduction of $5.3 million, or 3.2%.

Since the largest changes in the balance sheet for the six month period ended December 31, 2014 were the result of the merger, the following table provides a summary of changes in the assets and liabilities separately identifying those changes due to the merger and all other changes:

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				Change
	December 31,			Due to									June 30,
	2014			Merger			Other			Total			2014
	(Dollars in Thousands)
Summary Balance Sheet:

Cash and cash equivalents	$	14,824		$	(1,582	)	$	6,460		$	4,878		$	9,946
Loans held for investment		175,697			67,384			15,671			83,055			92,643
Allowance for loan losses		(1,707	)		-			(63	)		(63	)		(1,645	)
Loans held for sale		9,429			-			(850	)		(850	)		10,279
Available-for-sale securities		29,018			17,366			(27,307	)		(9,941	)		38,959
Other assets		19,693			1,310			779			2,090			17,603
Total Assets	$	246,954		$	84,478		$	(5,309	)	$	79,169		$	167,785

Deposits	$	201,939		$	75,505		$	(8,239	)	$	67,266		$	134,673
Borrowings		12,500			-			3,690			3,690			8,810
Other liabilities		3,179			291			769			1,060			2,119
Total Liabilities	$	217,618		$	75,796		$	(3,780	)	$	72,016		$	145,602

Stockholders' Equity	$	29,336		$	8,682		$	(1,529	)	$	7,153		$	22,183

Total Liabilities and Stockholders' Equity	$	246,954		$	84,478		$	(5,309	)	$	79,169		$	167,785

The $1.6 million decrease in cash and cash equivalents due to merger was caused by the $3.8 million cash portion of merger consideration paid less the $1.3 million option and warrant consideration paid by Bank 1440 just prior to the merger, partially offset by the addition of the $900,000 of cash and cash equivalents held by Bank 1440 on the merger date. The $8.7 million addition to stockholders equity in the table above in the “Due to Merger” column includes the $5.8 million estimated fair market value of shares issued to former stockholders of Bank 1440 in the merger (the stock consideration) and the $2.9 million bargain purchase gain recorded in the statement of comprehensive income (loss).. For further information regarding the merger, see Note 2 – Business Combination in Item 8 of this report.

The $5.3 million decrease in total assets not due to the merger was primarily due to a $27.3 million decrease in available-for-sale securities, partially offset by increases of $15.7 million in loans held for investment and $6.5 million in cash and cash equivalents, each of which is discussed in more detail below.

Cash and cash equivalents increased $4.9 million, or 49.0%, to $14.8 million at December 31, 2014 from $9.9 million at June 30, 2014. As noted above, the merger reduced cash and cash equivalents by $1.6 million due to the cash portion of the merger consideration and option and warrant payments. The $6.5 million increase not related to the merger was primarily the result of December 2014 balance sheet repositioning which included a $23.9 million reduction in available-for-sale securities, partially offset by a $6.4 million decrease in FHLB advances and a $6.2 million increase in loans held for investment, net.

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Loans held for investment increased $83.1 million in the six months ended December 31, 2014 including $67.4 million acquired in the merger and $15.7 million from organic growth. This organic loan growth was achieved despite an acute focus on improving and maintaining asset quality, and remaining cautious on pricing and underwriting risk. We have taken steps to enhance our commercial lending teams and bank-wide credit risk management processes consistent with our plans to grow our commercial loan portfolio. Major changes in the mix of loans from June 30, 2014 to December 31, 2014 included an increase in commercial real estate loans from 59.3% to 73.7% of the gross loan portfolio and a decrease in residential real estate loans from 36.6% of the portfolio to 18.7%. Both these changes were primarily due to the mix of loans acquired in the merger since Bank 1440 held primarily commercial real estate loans and virtually no residential real estate loans; however, the residential mortgage loan portfolio also experienced natural run-off as the Bank continued to focus on the secondary mortgage lending program, whereby new loans were originated and sold for fee income as opposed to being held in portfolio.

Loans held for sale at December 31, 2014 totaled $9.4 million in residential mortgage loans. We currently sell a significant majority of our residential mortgage loans in the secondary market. At June 30, 2014 loans held for sale totaled $10.3 million and included $7.7 million in residential mortgage loans and $2.6 million of SBA loans. The balances at any month end vary based upon the timing and volume of current loan originations and sales.

Available for sale securities decreased $9.9 million in the six months ended December 31, 2014 as the $17.4 million increase from the addition of the Bank 1440 portfolio in the merger was more than offset by a $27.3 million decrease from December 2014 sales. The Bank initiated a major repositioning of its available-for-sale securities portfolio in December 2014 designed to reduce the risk in the portfolio by selling corporate bonds acquired in the merger, selling smaller positions and longer duration securities in favor of larger, shorter duration mortgage backed issues. December 2014 repositioning activities reduced the portfolio by $23.9 million including sales of $29.1 million and purchases of $5.5 million. Losses realized on the sale of securities in the December restructuring actions were $357,000; however, together with some favorable market movement, this facilitated a $402,000 decrease in net unrealized portfolio market value losses for the six month period ended December 31, 2014. The securities portfolio restructuring was completed in January 2015 when the portfolio grew by $7.2 million including additional purchases of $9.8 million and sales of $2.3 million.

A core deposit intangible of $502,000 was recorded in the August 2014 acquisition of Bank 1440. After four months of amortization, the net carrying amount was $465,000 at December 31, 2014, compared to $0 at June 30, 2014.

Deposits increased $67.3 million for the six months ended December 31, 2014 with $75.5 million added in the merger, partially offset by other reductions of $8.2 million. The reductions included some lost deposits in the Arizona market after the merger, but were primarily the result of the Company allowing non-core certificates of deposit to run off at maturity to improve the deposit mix and reduce the cost of funds. Due to the merger and these deposit initiatives, during the six month period time deposits as a percent of total deposits decreased from 50.4% at June 30, 2014 to 41.3% of total deposits at December 31, 2014 and savings and NOW account balances increased from 39.3% to 49.8%, respectively.

Borrowings, consisting solely of Federal Home Loan Bank advances, increased $3.7 million during the six month period to $12.5 million at December 31, 2014 from $8.8 million at June 30, 2014. No borrowings were assumed in the acquisition, although Bank 1440 came into the merger with a light cash position due to $1.3 million in payments made to retire options and warrants immediately prior to the merger. Short term borrowings at favorable rates supplemented organic liquidity for merger purposes and helped fund loan growth. Borrowings peaked at $19.0 million in October and November and were reduced in December 2014 when $6.4 million in long term FHLB advances with rates averaging 4.0% were prepaid as part of the balance sheet restructuring. Prepayment penalties of $532,000 were incurred as a result of these prepayments.

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Total stockholders’ equity increased $7.2 million, or 32.2%, to $29.3 million at December 31, 2014 from $22.2 million at June 30, 2014. The increase was due to the issuance of shares in the acquisition of Bank 1440, representing 80% of the acquisition consideration given to their shareholders and net income of $949,000 for the six month period. As noted above, favorable market conditions and sales in the December portfolio restructuring activities facilitated a $402,000 decrease in net unrealized available-for-sale securities portfolio value losses for the six month period ended December 31, 2014.

Comparison of Financial Condition at June 30, 2014 and 2013

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

Cash and cash equivalents increased $5.7 million, or 135.9%, to $9.9 million at June 30, 2014 from $4.2 million at June 30, 2013. The increase resulted from maintaining higher levels of liquidity for funding loan originations and the cash portion of the upcoming merger with Bank 1440.

Securities decreased $16.4 million, or 29.6%, to $38.9 million at June 30, 2014 from $55.3 million at June 30, 2013. Proceeds from sale and repayment of securities were used to fund loan originations for both loans held for sale and our loans held for investment, and for repayment of Federal Home Loan Bank advances.

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

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

The decreases in the other loan categories resulted from a combination of many factors, with the primary factor being our acute focus on improving and maintaining asset quality. Simultaneously, we remained cautious on pricing and underwriting risk despite significant competitive factors, especially from larger banks offering exceptionally low rates and very competitive longer terms on commercial and industrial loans. This conservative approach has limited our new loan growth and resulted in our losing some existing commercial and industrial loan clients who were targeted by our competition.

Our residential loan portfolio is also experiencing a natural run-off as we continue to pursue our mortgage banking program, whereby loans are originated and sold for fee income as opposed to being held in our portfolio. Residential real estate loans decreased $4.4 million, or 11.5%, to $34.0 million at June 30, 2014 from $38.4 million at June 30, 2013. We have taken steps to enhance our commercial lending teams and bank-wide credit risk management processes consistent with our plans to grow our commercial loan portfolio.

Deposits decreased $844,000, or 0.6%, to $134.7 million at June 30, 2014 from $135.5 million at June 30, 2013. The decrease was caused primarily by a decrease in certificates of deposit of $5.8 million, or 7.9%, to $67.9 million at June 30, 2014 from $73.7 million at June 30, 2013, mostly offset by increases in savings and NOW accounts of $3.4 million, or 7.0%, and demand deposits of $1.5 million, or 12.5%. During the year we allowed non-core certificates of deposit to run off at maturity replacing them with savings, NOW and demand deposits when possible.

Borrowings, consisting solely of Federal Home Loan Bank advances, decreased $4.5 million, or 33.9%, to $8.8 million at June 30, 2014 from $13.3 million at June 30, 2013. The decrease was due to contractual maturities of FHLB advances during the year, which were not replaced due to the available funds from the repayments, sales and contractual maturities in available-for-sale securities.

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Total stockholders’ equity decreased $1.4 million, or 6.0%, to $22.2 million at June 30, 2014 from $23.6 million at June 30, 2013. The decrease was due primarily to the net loss of $1.2 million for the 2014 fiscal year.

Comparison of Operating Results for the Six Months Ended December 31, 2014 and 2013

General. Since the merger was consummated on August 29, 2014, income for the six months ended December 31, 2014 includes two months without and four months with the operating results of Bank 1440. The merger increased assets $84.5 million, representing a 50.4% increase over June 30, 2014’s total assets. This material increase in assets from Bank 1440 and the timing of the merger within the six months period ended of December 31, 2014 will make direct comparisons between the two periods less meaningful..

We generated net income of $949,000 in the six months ended December 31, 2014, compared to a net loss of $611,000 for the six months ended December 31, 2013, a favorable change of $1.56 million. Larger unusual variance items representing net favorable variances of $1.59 million include:

A $2.9 million bargain purchase gain on the acquisition of Bank 1440 recorded in August 2014.

Penalties of $532,000 were incurred in December 2014 on the prepayments of $6.4 million in long-term FHLB advances with average interest rates of 4.0% initiated to reduce the Bank’s go-forward cost of funds.

Out-of-pocket merger-related expenses increased $457,000 to $801,000 in the six month period ended December 31, 2014, compared to $344,000 in last six months of calendar 2013.

Available-for-sale securities losses on sales increased $325,000 to $357,000 in the six months ended December 31, 2014 due to the portfolio restructuring, compared to $32,000 in the six months ended December 31, 2013.

Interest Income. Interest income increased $1.4 million, or 41.2%, to $4.9 million for the six months ended December 31, 2014 from $3.5 million for the six months ended December 31, 2013. Most of the increase was due to interest and fees on loans which increased $1.4 million, or 48.4%, to $4.4 million for the six months ended December 31, 2014, from $3.0 million for the six months ended December 31, 2013, partially offset by a $30,000 or 6.3% decrease in available-for-sale securities interest. The loan interest income increase was primarily due to 59.7% increase in average loan balances, due to the merger, and organic growth, partially offset by a 45 basis point decrease in loan yields from 6.31% to 5.86% as market rates continued to decline. The average interest rates on loans acquired in the merger were somewhat higher than those already in our portfolio. The average balance of securities decreased 12.8% to $46.4 million for the six months ended December 31, 2014, compared to $53.2 million in 2013 but the average yield increased 13 basis points. The average interest rates on securities acquired in the merger were higher than those already in our portfolio, but this was partially offset by the shortening of the duration and the sales of corporate securities in the December 2014 portfolio restructuring.

Interest Expense. Interest expense increased $31,000, or 4.2%, to $767,000 for the six months ended December 31, 2014 from $736,000 for the six months ended December 31, 2013. The increase was due to an increase of $98,000 or 19.4% in interest expense on deposits, partially offset by a $67,000, or 29.5% decrease in borrowing costs.

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Average balances of interest bearing deposits increased by $41.4 million or 33.9%, while the average cost of those deposits decreased nine basis points, to 0.73% from 0.82%, or 11.0% due to efforts to let higher rate certificates of deposit roll off to improve deposit mix. Interest paid on certificates of deposit decreased $37,000, or 9.6%, to $350,000 for the six months ended December 31, 2014 from $387,000 for the six months ended December 31, 2013. The average rate we paid on certificates of deposit decreased 21 basis points to 0.87% for the six months ended December 31, 2014 from 1.08% for the six months ended December 31, 2013 and the average balance increased $8.9 million, or 12.5%, to $79.8 million for the six months ended December 31, 2014 from $71.0 million for the six months ended December 31, 2013.

The average cost of borrowings decreased 121 basis points to 2.26% and was partially offset by a $1.1 million, or 8.7%, increase in average balances. We reduced borrowings gradually from $13.9 million on September 30, 2013 to $8.8 million on August 31, 2014, and then borrowed $7.5 million in low-rate, short-term FHLB advances in September 2014 due to loan demand and the cash requirements of the merger. No borrowings were assumed in the merger. Borrowings peaked at $19.0 million in October and November and were reduced in December 2014 when $6.4 million in long term FHLB advances with rates averaging 4.0% were prepaid as part of the balance sheet restructuring. Prepayment penalties of $532,000 were incurred as a result of these prepayments.

Net Interest Income. Net interest income increased $1.4 million or 51.1%, to $4.1 million for the six months ended December 31, 2014, compared to $2.7 million in the six months ended December 31, 2013 due to higher average interest-earning assets as a result of the merger, and the impact of a 45 basis point increase in our interest rate spread to 3.84% from 3.39%.

Provision for Loan Losses. Provisions for loan losses are charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. If allowance for loan losses is larger than necessary, we post a negative provision, a benefit to earnings. 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.

After an evaluation of these factors, we made a $50,000 provision for loan losses for the six months ended December 31, 2014 and no provision for the six months ended December 31, 2013. The provision in the six months ended December 31, 2014 was due to loan portfolio growth. No provision was considered necessary in the six months ended December 31, 2013 due to loan portfolio shrinkage.

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

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Noninterest Income. Noninterest income increased $3.2 million, or 240.3%, to $4.5 million for the six months ended December 31, 2014 from $1.3 million for the six months ended December 31, 2013. The bargain purchase gain from the merger in 2014 accounted for $2.9 million of the increase. In addition, gain on sale of loans increased $518,000, or 46.0%, to $1.6 million for the six months ended December 31, 2014 from $1.1 million for the six months ended December 31, 2013. We sold $48.9 million of mortgage loans and $1.6 million of SBA loans during the six months ended December 31, 2014, compared to sales of $45.7 million of mortgage loans and no sales of SBA loans during the six months ended December 31, 2013. We realized a more attractive average premium (gain on sale/sold loans) on mortgage loan sales for 2014. The premium increased to 3.3% of mortgage loans sold for the six months ended December 31,2014, compared to 2.5% for the six months ended December 31,2013. 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. Available-for-sale securities losses on sales increased $325,000 to $357,000 in the six months ended December 31, 2014 compared to $32,000 in the six months ended December 31, 2013 due to the 2014 portfolio restructuring.

Noninterest Expense. Noninterest expense increased $2.9 million, or 61.7%, to $7.5 million for the six months ended December 31, 2014 from $4.7 million for the six months ended December 31, 2013. Salaries and benefits were $3.8 million for the six months ended December 31, 2014, an increase of $1.2 million over the six months ended December 31, 2013, due primarily to the additional expense related to the Bank 1440 personnel for the four months ended December 31, 2014, higher commissions on loans originated for sale due to larger volumes and severance and related expenses in 2014. Penalties incurred on the prepayment of FHLB advances to benefit future funding costs were $532,000 in December 2014, compared to $0 in the six months ended December 31, 2013. Out-of-pocket merger-related expenses (including legal fees) related to our merger with Bank 1440 during the six months ended December 31, 2014 were $801,000, an increase of $457,000 over the $344,000 incurred in the six months ended December 31, 2013. Other noninterest expense in the six months ended December 31, 2014 was $791,000, an increase of $326,000 over the six months ended December 31, 2013, due primarily to increases in loan related expenses and the additional expenses from Bank 1440 operations beginning in September 2014.

Income Tax Expense. In the six months ended December 31, 2014, it was determined income tax receivables were overstated by $74,000 and that amount was written off as tax expense. Due to past and recent pre-tax losses incurred, and the inability to project future taxable income, no other income tax expense or income tax benefits were recorded in the six months ended December 31, 2014 and 2013.

Comparison of Operating Results for the Fiscal Years Ended June 30, 2014 and 2013

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

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

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The decrease in interest and fees on loans was due primarily to a decrease in average balances, which decreased $10.6 million, or 9.8%, to $98.4 million for 2014 from $109.0 million for 2013. The average balance of loans decreased for the reasons described in “—Comparison of Financial Condition at June 30, 2014 and June 30, 2013.” Our average loan yield decreased 10 basis points to 6.15% for 2014 from 6.25% for 2013 due primarily to a decrease in market rates on new originated loans and principal payments on older, higher yielding loans.

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

Interest expense on Federal Home Loan Bank advances decreased $177,000, or 30.5%, to $404,000 for 2014 from $581,000 for 2013. The average balance of Federal Home Loan Bank advances decreased $3.1 million, or 21.5%, to $11.3 million for 2014 from $14.4 million for 2013. In addition, the average rate paid on Federal Home Loan Bank advances decreased 46 basis points to 3.57% for 2014 from 4.03% for 2013. In 2014, we were able to decrease average Federal Home Loan Bank advances as our securities portfolio balances declined.

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

Provision for Loan Losses. We made no provision for loan losses for 2014, compared to a credit to the provision for loan losses of $121,000 in 2013. The credit to the provision in 2013 was due to both reduced loan portfolio balances and improving credit quality, including reductions in nonaccrual loans, impaired loans and total aggregate loans classified as special mention and substandard. In 2014, credit quality continued to improve and no increase in the allowance for loan losses was considered necessary as the reduction in the experience loss ratio offset the 1.6% increase in loans held for investment for the 2014 fiscal year. Net charge- offs to average loans were 0.18% for 2014, compared to 0.45% for 2013.

We had an allowance for loan losses of $1.6 million, or 1.77% of total loans held for investment and 371.33% of non-performing loans at June 30, 2014, compared to an allowance for loan losses of $1.8 million, or 2.00% of total loans held for investment and 242.23% of non-performing loans at June 30, 2013.

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

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

Salaries and benefits decreased $294,000 to $5.3 million for 2014 due primarily to reductions in retirement benefits and other employee benefits and incentive pay, partially offset by a 4% increase in base pay. Data processing fees increased $207,000 due primarily to higher core data processing fees and the completion of some special programming projects including the implementation of a secure web portal.

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Income Tax Expense. Income tax expense was $0 for fiscal 2014, compared to $36,000 in 2013. No income tax expense was recorded in 2014 due to the pre-tax net loss of $1.2 million and no income tax benefit was recorded since the ability to receive a future tax benefit utilizing those losses was uncertain.

Loans Held for Investment

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

	At December 31,						At June 30,
	2014						2014						2013						2012						2011						2010
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in Thousands)

Residential real estate loans	$	32,959			18.69	%	$	34,015			36.61	%	$	38,432			42.07	%	$	45,154			39.63	%	$	53,294			38.54	%	$	50,829			36.01	%
Commercial real estate loans		129,949			73.70			55,103			59.31			48,081			52.64			62,666			54.99			76,325			55.19			84,604			59.94
Commercial and industrial loans		8,594			4.88			2,787			3.00			3,346			3.66			5,622			4.93			7,868			5.69			4,787			3.39
Consumer and other loans		4,816			2.73			1,007			1.08			1,487			1.63			510			0.45			805			0.58			930			0.66
Total gross loans	$	176,318			100.00	%	$	92,912			100.00	%	$	91,346			100.00	%	$	113,952			100.00	%	$	138,292			100.00	%	$	141,150			100.00	%

Less:
Unamoritzed loan fees		(621	)					(269	)					(132	)					(249	)					(289	)					-
Allowance for loan losses		(1,707	)					(1,645	)					(1,824	)					(2,437	)					(2,568	)					(1,196	)
Total loans held for investment,net	$	173,990					$	90,998					$	89,390					$	111,266					$	135,435					$	139,954

The following table sets forth the contractual maturities of our loans held for investment at December 31, 2014. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. The table presents contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.

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	Residential real estate					Commercial real estate
			Weighted					Weighted
			Average					Average
	Amount		Rate			Amount		Rate
	(Dollars in thousands)

Due during the years ending December 31,
2015	$	1,546		6.31	%	$	15,924		6.08	%
2016 to 2019		5,717		4.94			64,132		5.44
2020 and beyond		25,696		5.88			49,893		5.33
Total	$	32,959		5.74	%	$	129,949		5.48	%

	Commercial and industrial					Consumer and other					Total
			Weighted					Weighted					Weighted
			Average					Average					Average
	Amount		Rate			Amount		Rate			Amount		Rate
	(Dollars in thousands)

Due during the years ending December 31,
2015	$	4,795		5.84	%	$	171		6.63	%	$	22,436		6.05	%
2016 to 2019		3,098		5.98			4,116		4.67			77,063		5.38
2020 and beyond		701		5.54			529		3.07			76,819		5.50
Total	$	8,594		5.86	%	$	4,816		4.56	%	$	176,318		5.52	%

The following table sets forth our fixed and adjustable-rate loans at December 31, 2014 that are contractually due after December 31, 2015.

	Due After December 31, 2015
	Fixed		Adjustable		Total
	(Dollars in Thousands)

Residential real estate	$	31,413	$	-	$	31,413

Commercial real estate		44,515		69,510		114,025

Commercial and industrial		2,762		1,037		3,799

Consumer and other		1,376		3,269		4,645
Total gross loans	$	80,066	$	73,816	$	153,882

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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, or earlier if we do not expect to receive full payment of interest or principal. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Once a loan is placed on nonaccrual status, the borrower must generally demonstrate at least six months of payment performance before the loan is eligible to return to accrual status.

Non-Performing Assets. The following table sets forth information regarding our non-performing assets.

	At December 31,			At June 30,
	2014			2014			2013			2012			2011			2010
	(Dollars in Thousands)

Non-accrual loans:
Real estate loans:
One-to-four-family residential	$	181		$	99		$	120		$	701		$	450		$	540
Commercial		617			327			633			3,111			6,347			5,669
Commercial and industrial loans		17			17			-			-			180			180
Consumer and other loans		-			-			-			-			-			-
Total loans	$	815		$	443		$	753		$	3,812		$	6,977		$	6,389

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		815			443			753			3,812			6,977			6,389

Other real estate owned ("ORE"):
One-to-four-family residential		-			17			297			24			330			140
Commercial		820			820			1,095			2,031			2,554			-
Total real estate owned		820			837			1,392			2,055			2,884			140
Other non-performing assets		-			-			-			-			-			-
Total non-performing assets	$	1,635		$	1,280		$	2,145		$	5,867		$	9,861		$	6,529

Ratios:
Non-performing loans to gross loans held for investment		0.46	%		0.48	%		0.82	%		3.35	%		5.05	%		4.53	%
Non-performing assets to total assets		0.66	%		0.76	%		1.23	%		3.18	%		5.37	%		3.60	%
Nonperforming assets to gross loans held for investment and ORE		0.92	%		1.37	%		2.31	%		5.06	%		6.98	%		4.62	%

Due to loan portfolio and asset growth, the non-performing asset ratios decreased from June 30, 2014 to December 31, 2014 despite nonaccrual loan increases of $290,000 or 89% in commercial real estate loans and $82,000 or 83% in one-to-four family real estate loans.

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Interest income that would have been recorded for the six months ended December 31, 2014, had nonaccruing loans been current according to their original terms amounted to $34,000. Interest income that would have been recorded for the year ended June 30, 2014, had nonaccruing loans been current according to their original terms amounted to $40,000. We recognized no interest income on these loans for the six months ended December 31, 2014 or the year ended June 30, 2014. Of such amounts, $23,000 was related to troubled debt restructurings in the six months ended December 31, 2014 and $32,000 for the year ended June 30, 2014.

In addition to non-performing assets, as of December 31, 2014 and June 30, 2014 and 2013 we had $483,000, $489,000 and $505,000 of accruing troubled debt restructurings. Troubled debt restructurings include loans for which either a portion of interest or principal has been forgiven, or for loans modified at interest rates materially less than current market rates. The troubled debt restructurings as of December 31, 2014 and June 30, 2014 consisted of three commercial real estate loans and one commercial and industrial loan. As of December 31, 2014 and June 30, 2014 and 2013 there were no specific allowances related to these loans, and at each date we had no commitments to lend additional amounts to the customers.

Delinquent Loans. The following table sets forth our loan delinquencies by type and amount at the dates indicated.

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	30-59		60-89		90 Days
	Days		Days		or More
	Past Due		Past Due		Past Due
	(In Thousands)
At December 31, 2014
Residential real estate loans	$	945	$	150	$	113
Commercial real estate loans		-		894		-
Commercial and industrial loans		-		-		-
Consumer and other loans		-		-		-
Total loans	$	945	$	1,044	$	113

At June 30, 2014
Residential real estate loans	$	-	$	43	$	-
Commercial real estate loans		162		-		-
Commercial and industrial loans		-		-		-
Consumer and other loans		-		-		-
Total loans	$	162	$	43	$	-

At June 30, 2013
Residential real estate loans	$	-	$	45	$	65
Commercial real estate loans		-		-		137
Commercial and industrial loans		-		-		-
Consumer and other loans		-		-		-
Total loans	$	-	$	45	$	202

At June 30, 2012
Residential real estate loans	$	339	$	142	$	-
Commercial real estate loans		153		-		-
Commercial and industrial loans		-		-		-
Consumer and other loans		-		-		-
Total loans	$	492	$	142	$	-

At June 30, 2011
Residential real estate loans	$	68	$	25	$	-
Commercial real estate loans		-		-		4,487
Commercial and industrial loans		-		-		610
Consumer and other loans		-		-		-
Total loans	$	68	$	25	$	5,097

At June 30, 2010
Residential real estate loans	$	70	$	105	$	421
Commercial real estate loans		1,834		-		3,548
Commercial and industrial loans		110		-		70
Consumer and other loans		-		-		-
Total loans	$	2,014	$	105	$	4,039

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

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The following table sets forth our amounts of classified assets and assets designated as special mention as of December 31, 2014 and June 30, 2014 and 2013. The classified assets total at December 31, 2014 includes $815,000 of nonperforming loans.

	At December 31,		At June 30,
	2014		2014		2013
			(In Thousands)

Classified assets:
Substandard (1)	$	3,841	$	3,274	$	3,575
Doubtful		-		-		-
Loss		-		-		-
Total classified assets		3,841		3,274		3,575

Special mention	$	657	$	854	$	2,031

(1)

Includes other real estate at December 31, 2014 and June 30, 2014 and 2013 of $820,000, $837,000 and $1.4 million, respectively.

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

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

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

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

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

	Six Months Ended December 31,						At or For the Years Ended June 30,
	2014 (1)			2013 (1)			2014			2013			2012			2011			2010
	(Dollars in Thousands)

Balance at beginning of period	$	1,645		$	1,824		$	1,824		$	2,437		$	2,568		$	1,196		$	734

Provision for loan losses		50			-			-			(121	)		2,939			2,097			469

Charge-offs:
Residential real estate loans		(14	)		-			(86	)		(111	)		(172	)		(55	)		(10	)
Commercial real estate loans		-			(76	)		(76	)		(383	)		(2,917	)		(657	)		-
Commercial and industrial loans		-			-			-			-			-			-			-
Consumer and other loans		(1	)		(16	)		(48	)		(187	)		(13	)		(14	)		(17	)
Total charge-offs		(15	)		(92	)		(210	)		(681	)		(3,102	)		(726	)		(27	)

Recoveries:
Residential real estate loans		26			-			-			46			3			-			9
Commercial real estate loans		-			-			30			66			29			-			-
Commercial and industrial loans		-			-			-			-			-			-			-
Consumer and other loans		1			1			1			77			-			1			11
Total recoveries		27			1			31			189			32			1			20
Net (charge-offs) recoveries		12			(91	)		(179	)		(492	)		(3,070	)		(725	)		(7	)

Balance at end of period	$	1,707		$	1,733		$	1,645		$	1,824		$	2,437		$	2,568		$	1,196

Allowance for loan losses to non-performing loans at end of period		209.50	%		288.83			371.33	%		242.23	%		63.93	%		34.82	%		19.54
Allowance for loan losses to total gross loans at end of period		0.97	%		1.85			1.77	%		2.00	%		2.14	%		1.86	%		0.85
Net (charge-offs) recoveries to average loans outstanding during the period		0.02	%		(0.19	)		(0.18	)%		(0.45	)%		(2.35	)%		(0.53	)%		(0.00	)

(1)

Ratios for the six month period have been annualized.

The allowance for loan losses to non-performing loans ratio decreased due to an increase in non-performing loans. The allowance for loan losses to total loans decreased as a result of charge-offs recognized during 2014 and due to the absence of any allowance for loan losses on loans acquired in the purchase of Bank 1440 as such loans were marked to market on acquisition.

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Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses allocated by loan category and the percent of loans in each category to total loans held for investment at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

	At December 31,					At June 30,
	2014					2014					2013
			Percent of					Percent of					Percent of
			Loans in Each					Loans in Each					Loans in Each
	Allowance for		Category to			Allowance for		Category to			Allowance for		Category to
	Loan Losses		Total Loans			Loan Losses		Total Loans			Loan Losses		Total Loans
	(Dollars in Thousands)

Residential real estate loans	$	388		18.69	%	$	375		36.61	%	$	196		42.07	%
Commercial real estate loans		1,125		73.70			1,126		59.31			1,568		52.64
Commercial and industrial loans		178		4.88			129		3.00			55		3.66
Consumer and other loans		16		2.73			15		1.08			5		1.63
Total allocated allowance		1,707		100.00	%		1,645		100.00	%		1,824		100.00	%
Unallocated		-					-					-
Total	$	1,707				$	1,645				$	1,824

	At June 30,
	2012					2011					2010
			Percent of					Percent of					Percent of
			Loans in Each					Loans in Each					Loans in Each
	Allowance for		Category to			Allowance for		Category to			Allowance for		Category to
	Loan Losses		Total Loans			Loan Losses		Total Loans			Loan Losses		Total Loans
	(Dollars in Thousands)

Residential real estate loans	$	262		39.63	%	$	196		38.54	%	$	266		36.01	%
Commercial real estate loans		2,006		54.99			1,436		55.19			905		59.94
Commercial and industrial loans		55		4.93			925		5.69			11		3.39
Consumer and other loans		114		0.45			11		0.58			14		0.66
Total allocated allowance		2,437		100.00	%		2,568		100.00	%		1,196		100.00	%
Unallocated		-					-					-
Total	$	2,437				$	2,568				$	1,196

Investments

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

The following table sets forth the amortized cost and estimated fair value of our available-for-sale securities portfolio at the dates indicated.

	At December 31,				At June 30,
	2014				2014				2013				2012
	Amortized		Estimated		Amortized		Estimated		Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value		Cost		Fair Value

Mortgage-backed securities (1)		21,797		21,728		30,094		29,819		45,497		45,306		33,687		33,866
Agency securities		4,926		4,856		9,106		8,831		10,385		10,034		7,382		7,405
Municipal obligations		2,443		2,434		309		309		-		-		-		-
Total		29,166		29,018		39,509		38,959		55,882		55,340		41,069		41,271

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

Page 40 of 94

At December 31, 2014 and June 30, 2014 and 2013, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

Portfolio Maturities and Yields. The composition and maturities of the securities portfolio at December 31, 2014, are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur. Tax-equivalent yield adjustments have not been made for tax-exempt securities, as the effect thereof was not material.

					More than One Year					More than Five Years
	One Year or Less				through Five Years					through Ten Years					More than Ten Years				Total
	Amortized		Weighted-		Amortized		Weighted-			Amortized		Weighted-			Amortized		Weighted-		Amortized		Fair		Weighted-
	Cost		Average Yield		Cost		Average Yield			Cost		Average Yield			Cost		Average Yield		Cost		Value		Average Yield

Mortgage-backed securities (1)		-		-		13,719		1.56	%		8,078		2.07	%		-		-		21,797		21,728		1.75	%
Agency securities		-		-		2,300		1.35	%		2,626		2.59	%		-		-		4,926		4,856		2.01	%
Municipal obligations		-		-		2,443		2.64	%		-		-			-		-		2,443		2,434		2.64	%
Total		-		-		18,462		1.68	%		10,704		2.20	%		-		-		29,166		29,018		1.87	%

(1) Includes Freddie Mac, Ginnie Mae and Fannie Mae

Sources of Funds

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

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

Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. Personalized customer service and long-standing relationships with customers are relied upon to attract and retain deposits.

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

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The following tables set forth the distribution of total deposits by account type, for the periods indicated.

	For The Six Months Ended								For The Six Months Ended
	December 31, 2014								December 31, 2013
						Weighted								Weighted
	Average					Average			Average					Average
	Balance		Percent			Rate			Balance		Percent			Rate
	(dollars in thousands)
Deposit type:
Non-interest bearing	$	17,134		9.48	%		-	%	$	12,937		9.57	%		-	%
Checking		23,335		12.91			0.44			12,727		9.41			0.20
Money market		30,040		16.61			0.87			9,155		6.77			0.65
Savings		30,457		16.84			0.48			29,412		21.75			0.53
Certificates of deposit		79,844		44.16			0.87			70,987		52.50			1.08
Total deposits	$	180,810		100.00	%		0.66	%	$	135,218		100.00	%		0.75	%

	For The Year Ended								For The Year Ended								For The Year Ended
	June 30, 2014								June 30, 2013								June 30, 2012
						Weighted								Weighted								Weighted
	Average					Average			Average					Average			Average					Average
	Balance		Percent			Rate			Balance		Percent			Rate			Balance		Percent			Rate
	(Dollars in Thousands)
Deposit type:
Non-interest bearing	$	12,372		9.24	%		-	%	$	12,514		8.97	%		-	%	$	12,638		8.80	%		-	%
Checking		12,783		9.55			0.20			12,038		8.63			0.22			12,243		8.53			0.23
Money market		9,365		7.00			0.65			9,919		7.11			0.68			10,363		7.22			0.83
Savings		29,625		22.14			0.51			27,194		19.50			0.67			26,415		18.40			0.70
Certificates of deposit		69,674		52.07			1.04			77,805		55.79			1.25			81,913		57.05			1.74
Total deposits	$	133,819		100.00	%		0.72	%	$	139,470		100.00	%		0.90	%	$	143,572		100.00	%		1.17	%

As of December 31, 2014, the aggregate amount of all our certificates of deposit in amounts greater than or equal to $250,000 was approximately $12.8 million. The following table sets forth the maturity of these certificates as of December 31, 2014.

	At
	December 31,
	2014

Three months or less	$	1,903
Over three through six months		2,745
Over six through twelve months		1,767
Over twelve months		6,405
Total	$	12,820

Borrowings. As of December 31, 2014 and June 30, 2014 and 2013, our borrowings consisted solely of Federal Home Loan Bank of Dallas advances. The following table sets forth information concerning balances and interest rates on our Federal Home Loan Bank advances at the dates and for the periods indicated.

Page 42 of 94

	At and for Six Months Ended December 31,						At and for Years Ended June 30,
	2014			2013			2014			2013			2012

Average amount outstanding during the period	$	14,147		$	13,018		$	11,309		$	14,415		$	16,692
Highest amount outstanding at any month end during the period	$	18,960		$	13,281		$	13,281		$	15,452		$	20,045
Weighted average interest rate during the period		2.26	%		3.47	%		3.57	%		4.03	%		3.09	%
Balance outstanding at end of period	$	12,500		$	11,973		$	8,810		$	13,327		$	15,502
Weighted average interest rate at end of period		0.22	%		2.84	%		3.39	%		3.11	%		3.25	%

Management of Market Risk

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

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk:

offering a variety of adjustable rate loan products;

using alternate funding sources, such as advances from the Federal Home Loan Bank of Dallas;

maintaining pricing strategies that encourage “core” deposits; and

selling longer-term, fixed rate loans into the secondary market.

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

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

The table below sets forth, as of December 31, 2014, the estimated changes in our EVE that would result from the designated instantaneous changes in market interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

Page 43 of 94

At December 31, 2014
Change in			Estimated Increase
Interest Rates	Estimated		(Decrease) in EVE
(basis points)(1)	EVE (2)		Amount			Percent
	(Dollars in Thousands)
+300	$	26,379	$	(5,315	)		(16.77	)%
+200		28,754		(2,940	)		(9.28	)
+100		30,525		(1,169	)		(3.69	)
0		31,694		-			-
-100		33,981		2,287			7.22

(1)

Assumes an instantaneous uniform change in interest rates at all maturities.

(2)

EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

The table above indicates that at December 31, 2014, in the event of a 100 basis point decrease in interest rates, we would experience a 7.22% increase in EVE. In the event of a 200 basis point increase in interest rates at December 31, 2014, we would experience a 9.28% decrease in EVE.

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

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

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest 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- and long-term liquidity needs as of December 31, 2014.

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 December 31, 2014, cash and cash equivalents totaled $14.8 million. Additional cash is being carried to replace available for sale securities sold in December 2014 and to cover loan funding requirements, especially construction loan draws. Available-for-sale securities, which provide additional sources of liquidity, totaled $29.0 million at December 31, 2014. In addition, at December 31, 2014, we had $12.5 million of advances outstanding from the Federal Home Loan Bank of Dallas and the ability to borrow an additional $99.2 million .

Page 44 of 94

At December 31, 2014, we had $19.3 million in loan commitments outstanding, of which $12.6 million is for construction loans, and an additional $9.4 million in loans held for sale. In addition to commitments to originate loans, we had $4.3 million in unused lines of credit and $72,000 of commitments issued under standby letters of credit.

Certificates of deposit due within one year of December 31, 2014 totaled $44.1 million, or 52.9% 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 December 31, 2015. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us, either as certificates of deposit or as other deposit products. We expect that we will be able 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.

During the six months ended December 31, 2014 net cash provided by operating activities was $1.4 million representing net income adjusted for non-cash and investing items. The largest outgoing cash flow therein was $48.0 million in fundings of loans held for sale and the largest cash inflow was the $50.5 million in proceeds from sales of loans held for sale.

Our primary investing activities are the origination of loans and the purchase of securities. In the six months ended December 31, 2014 and fiscal years ended June 30, 2014 and 2013, we originated $81.9 million, $136.8 million and $125.9 million of loans, respectively, and purchased $5.8 million, $6.9 million and $31.3 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 increase in total deposits of $67.3 million during the six months ended December 31, 2014 due primarily to the acquisition of Bank 1440 and net decreases in total deposits of $844,000 and $7.9 million during the years ended June 30, 2014 and 2013, respectively. 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.

Federal Home Loan Bank advances increased $3.7 million, decreased $4.5 million and decreased $2.2 million during the six months ended December 31, 2014 and the years ended June 30, 2014 and 2013, respectively. Advances increased in the six months ended December 31, 2014 due to healthy loan growth even though we experienced a decrease in available-for-sale securities. Despite the increases in cash and cash equivalents, loans held for sale and loans held for investment in the fiscal year ended June 30, 2014, we were able to decrease our Federal Home Loan Bank advances due to a much larger decrease in our securities portfolio.

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

Page 45 of 94

Off-Balance Sheet Arrangements and Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. In addition, we enter into commitments to sell mortgage loans. For additional information, see Note 12 of the Notes to the Consolidated Financial Statements.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment, agreements with respect to borrowings and deposits and agreements with respect to securities.

Recent Accounting Pronouncements

For recent accounting pronouncements see Note 1 of the Notes to the Consolidated Financial Statements.

Impact of Inflation and Changing Prices

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

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

For information regarding market risk, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Page 46 of 94

ITEM 8. Financial Statements and Supplementary Data

The financial statements, the report thereon and the notes thereto commence at page 48 of this Annual Report on Form 10-KT.

CONTENTS

		Page

Report of Independent Registered Public Accounting Firm		48

Consolidated Balance Sheets		49

Consolidated Statements of Comprehensive Income (Loss)		50

Consolidated Statements of Changes in Stockholders’ Equity		51

Consolidated Statements of Cash Flows		52

Notes to Consolidated Financial Statements		53

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.

Management, including the principal executive officer and principal financial officer, has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal control — Integrated Framework (2013). Based on such assessment, management concluded that, as of December 31, 2014, the Company’s internal control over financial reporting is effective based upon those criteria.

Because the Company is a smaller reporting company, it is not required to receive, and has not received, a report with respect to the effectiveness of internal control over financial reporting from an independent registered public accounting firm.

/s/ Jill Gutierrez		/s/ Jan R. Thiry
Jill Gutierrez		Jan R. Thiry
Chief Executive Officer		Executive Vice President, Chief Financial Officer & Treasurer

Page 47 of 94

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Alamogordo Financial Corp.

Alamogordo, New Mexico

We have audited the accompanying consolidated balance sheets of Alamogordo Financial Corp. (the “Company”) as of December 31, 2014 and June 30, 2014 and 2013 and the related consolidated statements of comprehensive income (loss), changes in stockholders’ equity, and cash flows for the six months ended December 31, 2014 and for the years ended June 30, 2014 and 2013. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based upon our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alamogordo Financial Corp. as of December 31, 2014 and June 30, 2014 and 2013, and the results of their operations and their cash flows for the six months ended December 31, 2014 and for the years ended June 30, 2014 and 2013, in conformity with accounting principles generally accepted in the United States of America.

/s/ Briggs & Veselka Co.
Briggs & Veselka Co.
Houston, Texas

March 30, 2015

Page 48 of 94

ALAMOGORDO FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

	December 31, 2014			June 30, 2014			June 30, 2013

ASSETS
Cash and due from banks	$	12,708,542		$	9,367,899		$	3,920,096
Interest-bearing deposits with banks		2,115,431			577,861			296,200
Total cash and cash equivalents		14,823,973			9,945,760			4,216,296

Loans held for investment		175,697,082			92,642,550			91,214,232
Allowance for loan losses		(1,707,282	)		(1,644,550	)		(1,824,388	)
Loans held for investment, net		173,989,800			90,998,000			89,389,844

Loans held for sale		9,429,090			10,278,801			6,295,062
Available-for-sale securities		29,017,912			38,958,910			55,339,595
Other real estate		820,000			836,888			1,391,713
Premises and equipment, net		10,031,492			9,979,320			10,458,581
Stock in financial institutions		1,905,935			648,235			955,987
Accrued interest receivable		655,201			476,962			463,630
Income taxes receivable		-			224,111			534,442
Bank owned life insurance		5,223,189			5,151,898			5,003,521
Core deposit intangible		465,168			-			-
Prepaid and other assets		592,225			286,531			261,050

TOTAL ASSETS	$	246,953,985		$	167,785,416		$	174,309,721

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Demand deposits	$	17,975,857		$	13,926,745		$	12,376,976
Savings and NOW deposits		100,574,790			52,886,361			49,443,794
Time deposits		83,388,039			67,859,876			73,696,551
Total deposits		201,938,686			134,672,982			135,517,321

Federal Home Loan Bank advances		12,500,000			8,809,932			13,327,199
Escrows		271,141			266,409			280,693
Accrued interest and other liabilities		2,907,827			1,852,487			1,587,188
Total liabilities		217,617,654			145,601,810			150,712,401

Commitments and contingencies		-			-			-

Stockholders’ equity
Common stock, $0.10 par value; 20,000,000 shares authorized,		168,552			132,411			132,411
1,685,132 issued, 1,679,500 outstanding at December 31, 2014, 1,324,106 issued and 1,318,474 and 1,304,526 outstanding at June 30, 2014 and 2013, respectively.
Additional paid-in capital		9,714,459			3,969,421			4,090,889
Retained earnings		20,084,266			19,135,293			20,369,869
Accumulated other comprehensive loss		(148,446	)		(549,627	)		(511,443	)
Treasury stock, at cost; 5,632, 5,632 and 19,580 shares.		(139,332	)		(139,332	)		(484,406	)
Unearned employee stock ownership plan (ESOP) shares		(343,168	)		(364,560	)		-
Total stockholders’ equity		29,336,331			22,183,606			23,597,320

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	246,953,985		$	167,785,416		$	174,309,721

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

Page 49 of 94

ALAMOGORDO FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Six Months Ended December 31,						Years Ended June 30,
	2014			2013			2014			2013

Interest income					Unaudited
Interest and fees on loans	$	4,429,322		$	2,985,043		$	6,048,268		$	6,819,081
Interest on securities		445,056			475,044			873,239			662,709
Interest on other interest-earning assets		19,880			6,845			18,271			20,717
Total interest income		4,894,258			3,466,932			6,939,778			7,502,507

Interest expense
Interest on deposits		606,050			507,727			959,395			1,249,672
Interest on borrowings		161,216			228,714			403,820			581,119
Total interest expense		767,266			736,441			1,363,215			1,830,791

Net interest income		4,126,992			2,730,491			5,576,563			5,671,716
Provision for (credit to) loan losses		50,000			-			-			(121,000	)

Net interest income after provision for (credit to) loan losses		4,076,992			2,730,491			5,576,563			5,792,716

Noninterest income
Gain on sale of loans		1,643,230			1,125,220			2,501,821			3,125,796
Service charges and fees		119,025			99,893			250,256			199,452
Gain on sale and impairments of other real estate		-			1,329			23,846			(14,388	)
Loss on sale of securities		(356,645	)		(31,731	)		(3,000	)		(81,572	)
Bank owned life insurance income		71,353			77,834			148,377			196,972
Bargain purchase gain		2,898,847			-			-			-
Other		97,547			41,850			162,302			170,130
Total noninterest income		4,473,357			1,314,395			3,083,602			3,596,390

Noninterest expense
Salaries and benefits		3,760,807			2,589,535			5,305,419			5,599,006
Occupancy		728,654			560,172			1,107,211			1,145,149
Data processing fees		471,658			343,546			754,833			548,172
FDIC and other insurance expense		108,499			87,360			231,180			308,727
Professional fees		266,783			104,316			356,662			383,943
Merger-related expenses		800,965			344,217			920,420			234,007
Advertising		59,616			122,161			192,705			178,853
Net other real estate expenses		7,030			39,699			58,509			102,752
Prepayment penalty, FHLB advances		532,125			-			-			-
Other		791,479			465,067			967,802			985,492
Total noninterest expense		7,527,616			4,656,073			9,894,741			9,486,101

Income (loss) before income taxes		1,022,733			(611,187	)		(1,234,576	)		(96,995	)
Provision for income taxes		73,760			-			-			35,527

NET INCOME (LOSS)		948,973			(611,187	)		(1,234,576	)		(132,522	)

Other comprehensive income (loss)
Unrealized gain (loss) on available-for-sale securities		401,181			(553,355	)		(38,184	)		(635,904	)

COMPREHENSIVE INCOME (LOSS)	$	1,350,154		$	(1,164,542	)	$	(1,272,760	)	$	(768,426	)

Income (loss) per common share:
Basic	$	0.61		$	(0.47	)	$	(0.95	)	$	(0.10	)
Diluted	$	0.61		$	(0.47	)	$	(0.95	)	$	(0.10	)

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

Page 50 of 94

ALAMOGORDO FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

SIX MONTHS ENDED DECEMBER 31, 2014 AND YEARS ENDED JUNE 30, 2014 AND 2013

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

BALANCE, JUNE 30, 2012	$	132,411	$	4,090,889		$	20,502,391		$	124,461		$	(10,280	)	$	(163,625	)	$	-		$	24,676,247
																						-
Net loss		-		-			(132,522	)		-			-			-			-			(132,522	)
Stock repurchases		-		-			-			-			-			(320,781	)		-			(320,781	)
Stock-based compensation		-		-			-			-			10,280			-			-			10,280
Unrealized loss on available-for-sale securities		-		-			-			(635,904	)		-			-			-			(635,904	)

BALANCE, JUNE 30, 2013	$	132,411	$	4,090,889		$	20,369,869		$	(511,443	)	$	-		$	(484,406	)	$	-		$	23,597,320

Net loss		-		-			(1,234,576	)		-			-			-			-			(1,234,576	)
Unrealized loss on available-for-sale securities		-		-			-			(38,184	)		-			-			-			(38,184	)
Unallocated/unearned ESOP shares		-		-			-			-			-			-			(160,895	)		(160,895	)
Amortization of ESOP award		-		(4,165	)		-			-			-			-			24,106			19,941
Sale of treasury shares to ESOP		-		(117,303	)		-			-			-			345,074			(227,771	)		-

BALANCE, JUNE 30, 2014	$	132,411	$	3,969,421		$	19,135,293		$	(549,627	)	$	-		$	(139,332	)	$	(364,560	)	$	22,183,606

Net income		-		-			948,973			-			-			-			-			948,973
Unrealized gain on available-for-sale securities		-		-			-			401,181			-			-			-			401,181
Issuance of common stock in merger		36,141		5,747,287			-			-			-			-			-			5,783,428
Amortization of ESOP award		-		(2,249	)		-			-			-			-			21,392			19,143

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

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

Page 51 of 94

ALAMOGORDO FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended December 31,						Years Ended June 30,
	2014			2013			2014			2013

Cash flows from operating activities					Unaudited
Net income (loss)	$	948,973		$	(611,187	)	$	(1,234,576	)	$	(132,522	)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization		285,318			256,495			506,932			530,614
Stock dividend on financial institution stock		-			-			-			(5,816	)
Gain on sale and impairments of other real estate		-			(1,329	)		(23,846	)		14,388
Amortization of premiums and discounts on securities, net		870,747			450,528			730,956			1,065,162
ESOP expense		19,143			-			19,941			-
Amortization of core deposit intangible		36,832			-			-			-
Bargain purchase gain		(2,898,847	)		-			-			-
Loss on sale of available-for-sale securities		356,645			31,731			3,000			81,572
Gain on sale of loans		(1,643,230	)		(1,125,220	)		(2,501,821	)		(3,125,796	)
Stock-based compensation		-			-			-			10,280
Proceeds from sale of loans held for sale		50,497,855			45,743,063			93,554,202			102,865,408
Funding of loans held for sale		(48,004,914	)		(44,664,844	)		(95,036,120	)		(99,149,636	)
Provision for (credit to) loan losses		50,000			-			-			(121,000	)
Earnings on bank-owned life insurance		(71,353	)		(77,834	)		(148,377	)		(196,972	)
Changes in operating assets and liabilities:
Accrued interest receivable		180,395			(2,081	)		(13,332	)		23,065
Income taxes receivable		224,111			-			310,331			74,600
Prepaid and other assets		(181,974	)		(21,899	)		(18,166	)		912,713
Accrued interest and other liabilities		764,374			(207,669	)		204,008			770,445
Other		(90	)		(21	)		-			-
Net cash (used for) provided by operating activities		1,433,985			(230,267	)		(3,646,868	)		3,616,505

Cash flows from investing activities
Proceeds from principal payments on available-for-sale securities		2,569,444			4,784,395			7,441,124			11,729,090
Proceeds from sales of available-for-sale securities		29,108,517			13,037,151			15,092,151			3,685,377
Purchases of available-for-sale securities		(5,848,077	)		(6,924,730	)		(6,924,730	)		(31,265,472	)
Funding of ESOP		-			-			(106,919	)		-
Net change in loans held for investment		(15,657,885	)		(2,125,010	)		(1,689,674	)		19,488,012
Purchases of premises and equipment		(11,063	)		(15,336	)		(27,671	)		(255,872	)
Redemption (purchases) of stock in financial institutions		(593,500	)		105,567			307,752			(19,771	)
Net proceeds from sales of other real estate		16,888			106,188			660,189			3,158,151
Cash paid for acquisition		(3,804,414	)		-			-			-
Cash received for acquisition		2,208,730			-			-			-
Net cash provided by investing activities		7,988,640			8,968,225			14,752,222			6,519,515

Cash flows from financing activities
Net change in deposits		(8,239,213	)		(4,556,449	)		(844,339	)		(7,903,880	)
Net increase in escrows		4,732			(12,778	)		(14,284	)		(69,259	)
Stock repurchases		-			-			-			(320,781	)
Net increase in Federal Home Loan Bank advances		3,690,068			(1,353,854	)		(4,517,267	)		(2,175,048	)
Purchase of treasury stock		-			(17,023	)		-			-
Net cash used for financing activities		(4,544,413	)		(5,940,104	)		(5,375,890	)		(10,468,968	)

Net increase (decrease) in cash and cash equivalents		4,878,212			2,797,854			5,729,464			(332,948	)

Cash and cash equivalents, beginning of period		9,945,760			4,216,296			4,216,296			4,549,244

Cash and cash equivalents, end of period	$	14,823,973		$	7,014,150		$	9,945,760		$	4,216,296

Supplemental disclosures:
Interest on deposits and advances paid	$	792,846		$	743,411		$	1,373,379		$	1,864,243
Income taxes paid (refund)	$	-		$	-		$	(310,331	)	$	-
Noncash investing and financing activities:
Transfers of loans to other real estate	$	-		$	-		$	81,518		$	-
Sale and financing of other real estate	$	-		$	-		$	-		$	2,509,570
Sale of treasury shares to ESOP	$	-		$	-		$	345,074		$	-
Issuance of common stock in merger	$	5,783,428		$	-		$	-		$	-

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

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Alamogordo Financial Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND JUNE 30, 2014 AND 2013

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

Alamogordo Financial Corp. is a savings and loan holding company that owns 100% of Bank’34 (the “Bank”). On March 31, 2008, the Bank changed its name from Alamogordo Federal Savings and Loan Association to Bank’34. Alamogordo Financial Corp. (the “Parent”) was incorporated on April 30, 1997 and is a majority-owned subsidiary of AF Mutual Holding Company. As of December 31, 2014, AF Mutual Holding Company owned 53.6% of the Parent’s outstanding shares of common stock. All three companies changed their fiscal year ends to December 31 from June 30.

The Bank provides a variety of banking services to individuals and businesses through its full-service branches in Alamogordo and Las Cruces, New Mexico and Scottsdale and Peoria, Arizona. A large portion of the Bank’s loans are secured by real estate in Otero and Dona Ana Counties, New Mexico. The economy for these Counties’ is heavily dependent on two U.S. Government military installations located in the Counties. Accordingly, the ultimate collectability of the Bank’s loan portfolio is susceptible to changes in market conditions in southern New Mexico.

The primary deposit products are demand deposits, certificates of deposit, NOW and money market accounts. The primary lending products are real estate mortgages and commercial loans. The Bank is subject to competition from other financial institutions and regulations by certain federal agencies and undergoes periodic examinations by these 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. Relative changes in interest rates occur when the Bank’s various assets and liabilities reprice causing unscheduled repayments of loans, early withdrawals of deposits and other factors.

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

Basis of Consolidation – The consolidated financial statements include the accounts of Alamogordo Financial Corp. and the Bank (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated.

Reclassifications – Certain reclassifications have been made to the 2013 financial information to conform to the 2014 presentation.

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

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

Cash and Cash Equivalents – Cash and cash equivalents include cash, due from banks, and federal funds sold. Generally, the Company considers all highly-liquid instruments with original maturities of three months or less to be cash equivalents. In monitoring credit risk associated with deposits in other banks, the Bank periodically evaluates the stability of the correspondent financial institutions.

Securities – The Company reviews its financial position, liquidity, and future plans in evaluating the criteria for classifying securities. Available-for-sale securities consist of bonds, notes, debentures, mortgage-backed securities, municipal obligations and certain equity securities not classified as trading securities or as held-to-maturity securities. Unrealized holding gains and losses, net of tax, on available-for-sale securities are reported as a net amount in a separate component of stockholders’ equity. Gains and losses on the sale of available-for-sale securities are determined using the specific-identification method. Declines in the fair value of individual available-for-sale securities below their cost that are other-than-temporary result in write-downs of the individual securities to their fair value. The related write-downs are included in earnings as realized losses. Premiums and discounts are recognized in interest income using the interest method over the expected life of the security.

Loans Held for Investment, Net – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances reduced by any charge-offs or specific allowances and net of any deferred fees or costs. Loans are considered past due or delinquent based on the contractual terms in the loan agreement and how recently repayments have been received. Interest income is recognized based upon principal amounts outstanding. The accrual of interest is discontinued at the time the loan is 90 days past due or when, in the opinion of management, there is doubt about the ability of the borrower to pay interest or principal, unless the credit is well secured and in process of collection. Interest previously accrued but uncollected on such loans is reversed and charged against current income. Subsequent interest collected on such loans is credited to loan principal if, in the opinion of management, collectability of principal is doubtful; otherwise, the interest collected is recognized as income and resumption of interest accruals may occur. Loans are charged-off as uncollectible when, in the opinion of management, collectability of principal is improbable. Personal loans are typically charged off when no later than 180 days past due.

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

Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

Loans Held for Sale – Loans held for sale includes mortgage loans and a portion of Small Business Administration (“SBA”) loans the Company intends to sell. They are carried at the lower of aggregate cost or fair value. Gains and losses on the sale of mortgage loans are recognized upon sale and are determined by the difference between the sales proceeds and carrying value of the loans. These loans are generally sold within 7 to 14 days of origination. Net unrealized losses, if any, are recorded as a valuation allowance and charged to operations. The December 31, 2014 loans held for sale portfolio totaled $9.4 million, all of which were residential mortgage loans. The loans held for sale portfolio totaled $10.3 million at June 30, 2014, including $7.7 million of residential mortgage loans and $2.6 million of SBA loans. The June 30, 2013 loans held for sale portfolio totaled $6.3 million, all of which were residential mortgage loans.

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Transfers of Financial Assets – Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Other Real Estate (ORE) – ORE consists of properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. These properties are carried at fair market value based on appraisal value less estimated sales costs. Loan losses arising from the acquisition of such properties are charged against the allowance for loan losses; any subsequent valuation adjustments are charged to expense, and the basis of the properties is reduced accordingly. These properties are not held for the production of income and, therefore, are not depreciated. Significant improvements expected to increase the resale value are capitalized and added to the value of the property.

Premises and Equipment – Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method in amounts sufficient to relate the cost of depreciable assets to operations over the estimated useful lives of the assets which range from three to seven years for equipment and fifteen to forty years for leasehold improvements and buildings. Maintenance and repairs that do not extend the useful lives of premises and equipment are charged to expense as incurred.

Bank Owned Life Insurance (BOLI) – The Bank holds BOLI representing life insurance on the lives of certain executives of the Bank purchased in order to help offset the costs of the Bank’s benefit expenses. BOLI is carried on our consolidated balance sheets at the net cash surrender value of the policies and increases in the net cash surrender value are recorded in noninterest income in the consolidated statements of comprehensive income (loss) as bank owned life insurance income.

Core deposit intangible (CDI) – Core deposit intangible represents a premium paid to acquire core deposits representing the net present value of core deposits acquired over their book value on the acquisition date. The core deposit intangible is amortized using the double declining balance method over the 9- year estimated useful lives of the core deposits. Core deposit intangibles are tested for impairment whenever events or changes in circumstances indicate the carrying value of the assets may be larger than the value of the future undiscounted cash flows.

Income Taxes – Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Accrued interest and penalties associated with uncertain tax positions are recognized as part of the income tax provision. The Company has no uncertain tax provisions.

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 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 is actively traded in over-the-counter markets.

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

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

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Financial Instruments with Off-Balance-Sheet Risk – In the ordinary course of business, the Bank enters into off-balance-sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received. The credit risk associated with these instruments is evaluated using the same methodology as for loans held for investment.

Advertising Cost – The Company conducts direct and non-direct response advertising. These costs are expensed as incurred. Advertising costs for the six months ended December 31, 2014 and the fiscal years ended June 30, 2014 and 2013 were $60,000, $193,000 and $179,000, respectively.

Comprehensive Income (Loss) – Comprehensive income (loss) consists of net income (loss) and net unrealized gains and losses on securities available-for-sale, net of taxes.

Stock-Based Compensation – The Company has a Stock Option Plan and a Recognition and Retention Plan which each award shares of the Company’s stock to directors and key employees.

The Company separates each award into vesting tranches and recognizes expense on the fair value of the option for each tranche over the vesting period. The fair value of options granted are estimated using the Black-Scholes option pricing model with the following assumptions: expected dividend yield, expected stock price volatility, risk-free rate of return, and the expected life of options.

During the six months ended December 31, 2014 and 2013 and the fiscal years ended June 30, 2014 and 2013, there were no options granted.

Employee Stock Ownership Plan (ESOP) – The cost of shares issued to the ESOP, but not yet committed to be released, is shown as a reduction of stockholders’ equity. For ESOP shares committed to be released, the Bank recognizes compensation expense equal to the average fair value of the shares committed to be released during the period in accordance with the provisions of FASB ASC 718-40-30, “Compensation-Stock Compensation-Employee Stock Ownership Plans.” To the extent that the fair value of the ESOP shares differs from the cost of such shares, the difference is charged or credited to stockholders’ equity as additional paid-in capital. The Bank makes contributions equal to the ESOP's debt service, less dividends on unallocated and allocated (if any) shares used to repay the loan. Dividends on allocated ESOP shares are charged to retained earnings.

Business Combinations – The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “Business Combinations” (“ASC 805”). The Company recognizes the full estimated fair value of the assets received and liabilities assumed, immediately expenses transaction costs and accounts for restructuring plans separately from the business combination. There is no recognition of the acquired allowance for loan losses on our consolidated balance sheet as credit related factors are incorporated directly into the estimated fair value of the loans recorded at the effective date of the business combination. The excess of the cost of the merger over the fair value of the net tangible and intangible assets acquired, if any, is recorded as goodwill. Alternatively, a bargain purchase gain is recorded equal to the amount by which the estimated fair value of assets received exceeds the estimated fair value of liabilities assumed and consideration paid. Results of operations of the acquired business are included in our statement of comprehensive income (loss) from the effective date of the business combination.

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Subsequent Events – Subsequent events have been evaluated through the date of the Report of Independent Registered Public Accounting Firm which is the date the consolidated financial statements were issued.

Recent Accounting Pronouncements – In February 2013, the FASB issued ASU No. 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. This ASU requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under US GAAP that provide additional detail about these amounts. The new guidance was effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

In July 2013, the FASB issued ASU No. 2013-11 “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”. This ASU provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 with early adoption permitted. Since the Company does not have any unrecognized tax benefits, the adoption of the ASU did not have a material impact on the Company’s Consolidated Financial Statements.

In January 2014, the FASB issued ASU No. 2014-04, "Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure." The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of ASU No. 2014-04 is not expected to have a material impact on the Company's Consolidated Financial Statements.

NOTE 2 – BUSINESS COMBINATION

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

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

A bargain purchase gain of $2.9 million was recognized in noninterest income, 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 the Company and Bank 1440 both have 100% valuation allowances against their net deferred tax assets and neither has 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. These fair value measurements are based on third-party valuations that are subject to refinement for up to one year after the acquisition date based on additional information obtained by management that existed as of the acquisition date.

	August 29,
	2014
Purchase Price
Gross AFC Shares Issued on Exchange		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 and Cash in Lieu		2,105,785
Dissenters Payments		400,000

Cash Consideration	$	3,804,414

Total purchase price	$	9,574,574

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Statement of Net Assets Acquired at Fair Value:

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

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

Net identifiable assets acquired			$	12,473,421

Total purchase price			$	(9,574,574	)

Bargain purchase gain			$	2,898,847

The operating results of the Company for the six month period ended December 31, 2014 include the operating results of the acquired assets and assumed liabilities subsequent to the Acquisition Date. The operations of Bank 1440 provided approximately $1.3 million in interest income on loans and approximately $215,000 in interest income on securities for the period from the Acquisition Date to December 31, 2014, ignoring purchase accounting fair value adjustment amortization. Bank 1440’s results of operations prior to the Acquisition Date are not included in the Company’s consolidated statements of comprehensive income (loss).

Merger-related charges of $801,000 and $344,000 were recorded in the Company’s consolidated statements of comprehensive income (loss) as noninterest expense for the six months ended December 31, 2014 and 2013, respectively, and include incremental costs to integrate the operations of the Company and Bank 1440. Such expenses were for professional services including legal fees, costs related to termination of existing contractual arrangements for various services including the write off of tenant improvements as a result of planned relocation of the Phoenix office, travel costs, printing, supplies and other costs. The integration of Bank 1440 into the Company continues to progress as scheduled. Core operating systems are expected to be converted in March 2015.

The following table provides the unaudited pro forma information for the results of operations for the six months ended December 31, 2014 and 2013 as if the acquisition had occurred July 1 of each year. These adjustments include the impact of certain purchase accounting adjustments including accretion of loan discounts, core deposit intangible amortization, fixed asset depreciation and deposit premium amortization as well as a bargain purchase gain of $2.9 million in August 2014. In addition, the merger expenses previously discussed are included in each period presented. The Company expects to achieve further 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.

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Pro-Forma Results of Operations

	In 000's
	Six Months Ended December 31,
	2014		2013

Total revenue, net of interest expense	$	9,242	$	6,790
Net income	$	1,133	$	(16	)

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

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

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

NOTE 3 – RESTRICTIONS ON CASH AND DUE FROM BANKS

Banks are required to maintain reserve funds in cash or on deposit with the Federal Reserve Bank. The reserve required at December 31, 2014 and June 30, 2014 and 2013 was $308,000, $296,000 and $360,000, respectively, and is included in cash and cash equivalents in the consolidated balance sheets.

NOTE 4 – AVAILABLE-FOR-SALE SECURITIES

Available-for-sale securities have been classified in the consolidated balance sheets according to management’s intent at December 31, 2014 and June 30, 2014 and 2013. The carrying amount of such securities and their approximate fair values were as follows:

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	Gross		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value

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

June 30, 2014
Available-for-sale securities
Mortgage-backed securities	$	30,094,054	$	150,181	$	(425,084	)	$	29,819,151
U.S. Government agencies		9,105,345		-		(274,499	)		8,830,846
Municipal obligations		309,138		-		(225	)		308,913

	$	39,508,537	$	150,181	$	(699,808	)	$	38,958,910

June 30, 2013
Available-for-sale securities
Mortgage-backed securities	$	45,497,230	$	224,727	$	(415,444	)	$	45,306,513
U.S. Government agencies		10,384,942		-		(351,860	)		10,033,082

	$	55,882,172	$	224,727	$	(767,304	)	$	55,339,595

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

	Six Months Ended December 31,						Years Ended June 30,
	2014			2013			2014			2013
				Unaudited
Proceeds from sale	$	29,108,517		$	13,037,151		$	15,092,151		$	3,685,377
Losses, net	$	(356,645	)	$	(31,731	)	$	(3,000	)	$	(81,572	)

Amortized cost and fair value of securities by contractual maturity as of December 31, 2014 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.

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The scheduled maturities of available-for-sale securities at December 31, 2014 were as follows:

	Available-for-Sale Securities
	Amortized		Fair
	Cost		Value

Due in one year or less	$	-	$	-
Due after one to five years		18,462,435		18,353,451
Due after five to ten years		10,703,923		10,664,461
Due after ten years		-		-

Totals	$	29,166,358	$	29,017,912

At December 31, 2014, mortgage-backed securities included collateralized mortgage obligations of $5.5 million, which are backed by single-family mortgage loans. The Company does not hold any securities backed by commercial real estate loans.

Gross Unrealized Losses and Fair Value – The following tables show the gross unrealized losses and fair values of securities by length of time that individual securities in each category have been in a continuous loss position.

	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	)

	June 30, 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	$	7,092,004	$	(144,288	)	$	15,296,013	$	(280,796	)	$	22,388,017	$	(425,084	)
U.S. Government agencies		939,203		(3,258	)		7,891,643		(271,241	)		8,830,846		(274,499	)
Municipal obligations		308,913		(225	)		-		-			308,913		(225	)

Total temporarily impaired securities	$	8,340,120	$	(147,771	)	$	23,187,656	$	(552,037	)	$	31,527,776	$	(699,808	)

Page 62 of 94

	June 30, 2013
	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	$	24,251,762	$	(411,413	)	$	508,846	$	(4,031	)	$	24,760,608	$	(415,444	)
U.S. Government agencies		10,033,082		(351,860	)				-			10,033,082		(351,860	)

Total temporarily impaired securities	$	34,284,844	$	(763,273	)	$	508,846	$	(4,031	)	$	34,793,690	$	(767,304	)

At December 31, 2014 and June 30, 2014 and 2013, all of the government agencies and mortgage-backed securities held by the Company were issued by U.S. Government-sponsored entities and agencies, primarily Fannie Mae and Freddie Mac, institutions which the government has affirmed its commitment to support. 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 December 31, 2014 and June 30, 2014 and June 30, 2013.

Loans and securities carried at approximately $111.7 million at December 31, 2014 were pledged to secure FHLB advances. In addition, securities carried at approximately $3.4 million at December 31, 2014 were pledged to secure public deposits.

NOTE 5 – LOANS HELD FOR INVESTMENT, NET

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

	December 31, 2014						June 30, 2014						June 30, 2013
	Amount			Percent			Amount			Percent			Amount			Percent

Loans held for investment, net:
Commercial real estate	$	129,948,473			73.7	%	$	55,103,109			59.3	%	$	48,081,339			52.6	%
Residential real estate		32,959,380			18.7	%		34,014,516			36.6	%		38,432,370			42.1	%
Commercial and industrial		8,594,344			4.9	%		2,786,992			3.0	%		3,345,819			3.7	%
Consumer and other		4,816,230			2.7	%		1,007,106			1.1	%		1,486,688			1.6	%
Total gross loans		176,318,427			100.0	%		92,911,723			100.0	%		91,346,216			100.0	%
Unamortized loan fees		(621,345	)					(269,173	)					(131,984	)
Loans held for investment		175,697,082						92,642,550						91,214,232
Allowance for loan losses		(1,707,282	)					(1,644,550	)					(1,824,388	)

Loans held for investment, net	$	173,989,800					$	90,998,000					$	89,389,844

At December 31, 2014 and June 30, 2014 and 2013, commercial real estate loans include construction loans of $13.0 million, $4.8 million and $4.9 million, respectively.

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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 December 31, 2014 and June 30, 2014 and 2013:

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

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

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

Gross loans
Ending balance: individually evaluated for impairment	$	2,512,377	$	491,780	$	16,795	$	-	$	3,020,953
Ending balance: collectively evaluated for impairment		127,436,096		32,467,600		8,577,548		4,816,230		173,297,474
Total	$	129,948,473	$	32,959,380	$	8,594,344	$	4,816,230	$	176,318,427

	As of June 30, 2014
	Commercial		Residential		Commercial		Consumer and
	Real Estate		Real Estate		and Industrial		Other		Total

Allowance for loan losses
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment		1,125,650		374,476		129,309		15,115		1,644,550

Total	$	1,125,650	$	374,476	$	129,309	$	15,115	$	1,644,550

Gross loans
Ending balance: individually evaluated for impairment	$	326,958	$	-	$	16,795	$	-	$	343,753
Ending balance: collectively evaluated for impairment		54,776,151		34,014,516		2,770,197		1,007,106		92,567,970

Total	$	55,103,109	$	34,014,516	$	2,786,992	$	1,007,106	$	92,911,723

	As of June 30, 2013
	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		1,568,721		196,485		54,506		4,676		1,824,388

Total	$	1,568,721	$	196,485	$	54,506	$	4,676	$	1,824,388

Gross loans
Ending balance: individually evaluated for impairment	$	633,202	$	-	$	-	$	-	$	633,202
Ending balance: collectively evaluated for impairment		47,448,137		38,432,370		3,345,819		1,486,688		90,713,014

Total	$	48,081,339	$	38,432,370	$	3,345,819	$	1,486,688	$	91,346,216

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The following is a summary of activities for the allowance for loan losses for the six months ended December 31, 2014 and 2013 and the years ended June 30, 2014 and 2013:

	Six Months Ended December 31,						Years Ended June 30,
	2014			2013			2014			2013
				Unaudited
Beginning balance	$	1,644,550		$	1,824,388		$	1,824,388		$	2,436,785

Provision for (credit to) loan losses		50,000			-			-			(121,000	)

Charge-offs:
Commercial real estate		-			(76,000	)		(76,000	)		(382,592	)
Residential real estate		(14,252	)		-			(86,710	)		(111,237	)
Consumer and other		(872	)		(16,291	)		(47,981	)		(187,397	)
Total charge-offs		(15,124	)		(92,291	)		(210,691	)		(681,226	)

Recoveries:
Commercial real estate		-			-			29,700			66,265
Residential real estate		26,153			-			-			45,820
Consumer and other		1,703			1,000			1,153			77,744
Total recoveries		27,856			1,000			30,853			189,829
Net recoveries (charge-offs)		12,732			(91,291	)		(179,838	)		(491,397	)

Ending balance	$	1,707,282		$	1,733,097		$	1,644,550		$	1,824,388

Nonperforming Assets – The following tables present an aging analysis of the recorded investment of past due loans as of December 31, 2014 and June 30, 2014 and 2013. Payment activity is reviewed by management on a monthly basis to determine the performance of each loan. Per Company policy, loans past due 90 days or more no longer accrue interest.

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

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	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
June 30, 2014
Commercial real estate	$	162,403	$	-	$	-	$	162,403	$	54,940,706	$	55,103,109
Residential real estate		-		43,123		-		43,123		33,971,393		34,014,516
Commercial and industrial		-		-		-		-		2,786,992		2,786,992
Consumer and other		-		-		-		-		1,007,106		1,007,106

Totals	$	162,403	$	43,123	$	-	$	205,526	$	92,706,197	$	92,911,723

	Past Due										Total
					90 Days						Financing
	30 - 59 Days		60 - 89 Days		or More		Total		Current		Receivables
June 30, 2013
Commercial real estate	$	-	$	-	$	137,066	$	137,066	$	47,944,273	$	48,081,339
Residential real estate		-		44,509		64,566		109,075		38,323,295		38,432,370
Commercial and industrial		-		-		-		-		3,345,819		3,345,819
Consumer and other		-		-		-		-		1,486,688		1,486,688

Totals	$	-	$	44,509	$	201,632	$	246,141	$	91,100,075	$	91,346,216

The following table sets forth nonaccrual loans and other real estate at December 31, 2014 and June 30, 2014 and 2013:

	December 31,			June 30,			June 30,
	2014			2014			2013

Nonaccrual loans
Commercial real estate	$	616,605		$	326,958		$	633,202
Residential real estate		181,284			99,209			120,225
Commercial and industrial		16,795			16,795			-
Consumer and other		-			-			-
Total nonaccrual loans		814,684			442,962			753,427
Other real estate (ORE)		820,000			836,888			1,391,713

Total nonperforming assets	$	1,634,684		$	1,279,850		$	2,145,140

Nonperforming assets to gross loans held for investment and ORE		0.92	%		1.37	%		2.31	%
Nonperforming assets to total assets		0.66	%		0.76	%		1.23	%

Credit Quality Indicators – The following table represents the credit exposure by internally assigned grades at December 31, 2014 and June 30, 2014 and 2013. 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.

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The Bank’s internally assigned grades are as follows:

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

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

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

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

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

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

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

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

	As of June 30, 2014
	Commercial		Residential		Commercial		Consumer and
	Real Estate		Real Estate		and Industrial		Other		Total

Grade
Pass	$	52,371,807	$	33,471,548	$	2,770,197	$	1,007,106	$	89,620,658
Special mention		853,708		-		-		-		853,708
Substandard		1,877,594		542,968		16,795		-		2,437,357
Doubtful		-		-		-		-		-
Loss		-		-		-		-		-

Totals	$	55,103,109	$	34,014,516	$	2,786,992	$	1,007,106	$	92,911,723

Page 67 of 94

	As of June 30, 2013
	Commercial		Residential		Commercial		Consumer and
	Real Estate		Real Estate		and Industrial		Other		Total

Grade
Pass	$	44,608,653	$	37,690,632	$	3,345,819	$	1,486,688	$	87,131,792
Special mention		1,807,893		223,317		-		-		2,031,210
Substandard		1,664,793		518,421		-		-		2,183,214
Doubtful		-		-		-		-		-
Loss		-		-		-		-		-

Totals	$	48,081,339	$	38,432,370	$	3,345,819	$	1,486,688	$	91,346,216

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 collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the allocated allowance recorded.

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	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		-		-		-		-

	As of June 30, 2014
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment

With no related allowance recorded:
Commercial real estate	$	326,958	$	326,958	$	-	$	341,606
Residential real estate		-		-		-		-
Commercial and industrial		16,795		16,795		-		23,866
Consumer and other		-		-		-		-

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

Total:
Commercial real estate	$	326,958	$	326,958	$	-	$	341,606
Residential real estate		-		-		-		-
Commercial and industrial		16,795		16,795		-		23,866
Consumer and other		-		-		-		-

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	As of June 30, 2013
			Principal				Average
	Recorded		Net of		Related		Recorded
	Investment		Charge-offs		Allowance		Investment

With no related allowance recorded:
Commercial real estate	$	633,202	$	633,202	$	-	$	571,243
Residential real estate		-		-		-		-
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-

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

Total:
Commercial real estate	$	633,202	$	633,202	$	-	$	571,243
Residential real estate		-		-		-		-
Commercial and industrial		-		-		-		-
Consumer and other		-		-		-		-

During the six months ended December 31, 2014 and fiscal years 2014 and 2013, no interest income was recognized on these loans as interest collected was credited to loan principal.

Certain loans within the Company’s loan and ORE 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 December 31, 2014 and June 30, 2014 and 2013.

Troubled Debt Restructurings – Restructured loans are considered “troubled debt restructurings” if due to the borrower’s financial difficulties, the Bank has granted a concession that they 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 continue to be reported as such until the loan is paid in full.

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The following is a summary of total troubled debt restructurings by class as of December 31, 2014 and June 30, 2014 and 2013:

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

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

June 30, 2014
Commercial real estate		3	$	859,028	$	985,048	$	816,563
Residential real estate		-		-		-		-
Commercial and industrial		1		99,040		113,053		16,795
Consumer and other		-		-		-		-

Totals		4	$	958,068	$	1,098,101	$	833,358

June 30, 2013
Commercial real estate		2	$	799,674	$	902,342	$	851,302
Residential real estate		-		-		-		-
Commercial and industrial		1		99,040		113,053		51,796
Consumer and other		-		-		-		-

Totals		3	$	898,714	$	1,015,395	$	903,098

Troubled debt restructurings (post-modification) were the result of adding real estate taxes to the loan, along with legal costs related to bankruptcies. There were no allocated specific allowances related to these credits and there were no commitments to lend additional amounts to these customers as of December 31, 2014 and June 30, 2014 and 2013.

During the six months ended December 31, 2014, there was one commercial real estate loan of $231,000, which was modified as a troubled debt restructuring. This restructuring was not in default during the six months ended December 31, 2014. During the year ended June 30, 2014, there was one commercial real estate loan of $83,000, which was modified as a troubled debt restructuring. This restructuring was not in default during the year ended June 30, 2014.

Nonaccrual troubled debt restructurings as of December 31, 2014 and June 30, 2014 and 2013 amounted to $498,000, $344,000 and $398,000, respectively.

In 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.

NOTE 6 – STOCK IN FINANCIAL INSTITUTIONS

The Bank has acquired stock in the Federal Home Loan Bank (FHLB) of Dallas, the Federal Home Loan Bank of San Francisco, The Independent Bankers Bank (TIB) and Pacific Coast Bankers’ Bancshares (PCBB). The carrying value of the stocks at December 31, 2014 and June 30, 2014 and 2013 was $1,905,935, $648,235 and $955,987, respectively, and is accounted for using the cost basis of accounting. The Bank is required to maintain minimum levels of FHLB stock based on various factors, including the amount of mortgage assets and the Bank’s total assets.

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NOTE 7 – OTHER REAL ESTATE

Other real estate is summarized as follows:

	December 31,		June 30,
	2014		2014		2013

Other real estate:
Commercial	$	820,000	$	820,000	$	1,095,147
Residential		-		16,888		296,566

Total other real estate	$	820,000	$	836,888	$	1,391,713

An analysis of the change in other real estate follows:

	Six Months Ended			Years Ended June 30,
	December 31, 2014			2014			2013

Beginning balance, July 1	$	836,888		$	1,391,713		$	2,054,771
Foreclosures and additions		-			117,517			2,509,570
Impairments		-			-			(14,388	)
Sales		(16,888	)		(672,342	)		(3,158,240	)

Ending balance	$	820,000		$	836,888		$	1,391,713

NOTE 8 – PREMISES AND EQUIPMENT, NET

Components of premises and equipment, net included in the consolidated balance sheets at December 31, 2014 and June 30, 2014 and 2013 were as follows:

	At December 31,			At June 30,
	2014			2014			2013

Cost:
Land	$	2,043,881		$	2,043,881		$	2,043,881
Building and improvements		11,400,145			11,192,591			11,180,536
Furniture and equipment		1,933,912			1,803,975			1,788,359
Automobiles		129,902			129,902			129,902
Total cost		15,507,839			15,170,349			15,142,678
Accumulated depreciation and amortization		(5,476,347	)		(5,191,029	)		(4,684,097	)

Net book value	$	10,031,492		$	9,979,320		$	10,458,581

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Depreciation and amortization expense was $285,318, $506,932 and $530 ,614 for the six months ended December 31, 2014 and years ended June 30, 2014 and 2013, respectively.

NOTE 9 – CORE DEPOSIT INTANGIBLE

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

	December 31,			June 30,
	2014			2014		2013

Gross carrying value	$	502,000		$	-	$	-
Less accumulated amortization		(36,832	)		-		-

Core deposit intangible	$	465,168		$	-	$	-

Amortization of core deposit intangible was $36,832, $0 and $0 for the six months ended December 31, 2014 and years ended June 30, 2014 and 2013, respectively.

The future amortization expense related to core deposit intangible remaining as of December 31, 2014 is as follows:

Year one	$	102,392
Year two		79,847
Year three		62,266
Year four		48,556
Year five		39,057
Thereafter		133,050

	$	465,168

NOTE 10 – TIME DEPOSITS

Following are maturities of time deposits at December 31, 2014 and June 30, 2014 and 2013:

	At December 31, 2014					At June 30,
						2014					2013
	Weighted-					Weighted-					Weighted-
	Average					Average					Average
Maturity	Rate			Amount		Rate			Amount		Rate			Amount

One year or less		0.66	%	$	44,146,102		0.89	%	$	31,377,583		1.10	%	$	31,052,088
Over one through three years		0.88	%		37,195,516		0.97	%		31,849,509		1.14	%		35,908,596
Over three through five years		1.10	%		2,046,421		1.20	%		4,632,784		1.31	%		6,735,867
Over five years		-			-		-			-		-			-

		0.77	%	$	83,388,039		0.95	%	$	67,859,876		1.14	%	$	73,696,551

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At December 31, 2014 and June 30, 2014 and 2013, the Bank had $12.8 million, $9.4 million and $8.8 million, respectively, in time deposits of $250,000 or more. At December 31, 2014, $6.4 million of such time deposits mature within one year. At December 31, 2014, $1.1 million were brokered time deposits.

Interest expense on time deposits in denominations of $250,000 or more amounted to $45,000, $77,000 and $79,000 for the six months ended December 31, 2014 and years ended June 30, 2014 and 2013, respectively.

NOTE 11 – BORROWINGS

The Bank has established a borrowing line with the FHLB of Dallas. As of December 31, 2014 and June 30, 2014 and 2013, the Bank had outstanding advances totaling $12,500,000, $8,809,932 and $13,327,199, respectively, carrying interest rates from 0.15% to 5.15%. As of December 31, 2014, the Bank had unused credit available under the FHLB blanket pledge agreement of $99.2 million. The following are maturities of outstanding FHLB advances at December 31, 2014 and June 30, 2014 and 2013:

	At December 31,		At June 30,
Maturity	2014		2014		2013
Year one	$	12,500,000	$	2,564,242	$	4,517,269
Year two		-		1,673,997		2,564,242
Year three		-		296,440		1,673,997
Year four		-		488,003		296,440
Year five		-		3,026,057		488,003
Thereafter		-		761,193		3,787,248

	$	12,500,000	$	8,809,932	$	13,327,199

In addition, the Bank has a line of credit with another financial institution of $2.0 million.

In an effort to improve the future net interest margin, in December 2014 the Bank prepaid $6.4 million of long term FHLB advances with average interest rates of 4.0% and incurred prepayment penalties of $532,125.

NOTE 12 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

In the normal course of business, the Bank has outstanding commitments to extend credit and standby letters of credit, which are not included in the accompanying 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.

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Financial instruments whose contract amounts represent off-balance-sheet credit risk are as follows as of December 31, 2014 and June 30, 2014 and 2013:

	December 31,		June 30,
	2014		2014		2013

Commitments to extend credit	$	19,319,363	$	19,286,473	$	6,318,884
Unused lines of credit		4,319,272		3,446,483		10,870,351
Standby letters of credit		71,579		144,560		193,038

Totals	$	23,710,214	$	22,877,516	$	17,382,273

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

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

NOTE 13 – LEASES

The Bank has noncancelable operating leases that expire over the next five years that require the payment of base lease amounts and executory costs such as taxes, maintenance and insurance. Rental expense for these leases was $146,340, $156,060 and $142,506 for the six months ended December 31, 2014 and fiscal years ended June 30, 2014 and 2013, respectively.

Approximate future minimum rental commitments under noncancelable leases are:

For the Calendar Year Ending
December 31,	Amount
2015	$	412,366
2016		408,378
2017		222,341
2018		400,207
2019		404,222
	$	1,847,514

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NOTE 14 – EMPLOYEE RETIREMENT BENEFIT PLANS

Profit Sharing Plan – The Company has established a profit-sharing 401(k) type salary reduction plan (Plan) for all employees that meet the necessary eligibility requirements and participants are fully vested after six years of service. For Company matching contributions made for plan years prior to 2014, annual Company contributions were at the discretion of the Board of Directors. Effective January 1, 2014, the Company adopted a Safe Harbor matching contribution provision, whereby it agreed to match 100% of participant’s contributions up to the first 3% of salary and 50% of the next 2%, for a total maximum Company matching contribution of 4% of participant salary, as defined by the Plan. The Safe Harbor matching contribution is guaranteed.

Profit sharing plan expense was $67,400, $57,300 and $68,875 for the six months ended December 31, 2014 and the fiscal years ended June 30, 2014 and 2013, respectively.

Employee Stock Ownership Plan – Employees participate in a leveraged Employee Stock Ownership Plan (ESOP). In the six months ended December 31, 2014, there were no sales of shares to the ESOP and no repurchases of shares from the ESOP. In the fiscal year ended June 30, 2014, the Company sold 13,948 treasury shares to the ESOP. In the fiscal year ended June 30, 2013, the Company repurchased 1,135 ESOP shares related to terminating participants. The Company makes discretionary contributions to the ESOP and the ESOP uses funds it receives to repay the loan. When loan payments are made, ESOP shares are allocated to participants based on relative compensation. Participants may receive the shares, cash, or a combination at the end of employment.

ESOP expense was $60,900, $20,000 and $70,400 for the six months ended December 31, 2014 and the years ended June 30, 2014 and 2013, respectively. Shares held by the ESOP at December 31, 2014 and June 30, 2014 and 2013 were as follows:

	At December 31,		At June 30,
	2014		2014		2013

Allocated and committed to be allocated to participants		6,306		6,097		5,900
Unallocated/unearned		22,273		22,482		8,731

Total ESOP shares		28,579		28,579		14,631

Fair value of unallocated/unearned shares	$	334,095	$	352,965	$	141,879

Defined Benefit Plan – The Company contributes to a multiemployer defined benefit pension plan, the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra DB Plan”, EIN 13-5645888 and, Plan No. 333). On June 1, 2006, the Company froze the benefits available under the defined benefit pension plan. The risk of participating in the Pentegra DB Plan is different from single-employer plans in the following aspects:

·	Assets contributed to the Pentegra DB Plan may be used to provide benefits to employees of other participating employers.

·	If a participating employer stops contributing to the Pentegra DB Plan, the unfunded obligations may be borne by the remaining participating employers.

·	If the Company chooses to stop participating in the Pentegra DB Plan, it may be required to pay a withdrawal liability.

The Company’s cash contributions to the Pentegra DB Plan were $240,000 during the six months ended December 31, 2014, $204,000 in the year ended June 30, 2014 and $150,000 in the year ended June 30, 2013, which represented less than 5% of the total plan contributions. As of July 1, 2014 (the most recent valuation report available), the unfunded pension liability was approximately $171,000 (96.2% funded). As of June 30, 2013 and 2012, the unfunded pension liability was approximately $551,000 (88.1% funded) and $223,000 (94.9% funded), respectively. A net pension plan benefit of $16,000 was booked for the six months ended December 31, 2014 due to an accrual adjustment. Pension plan expense for the years ended June 30, 2014 and 2013 was $231,300 and $225,400, respectively. There are no funding improvement or rehabilitation plans pending, and no future minimum contributions required by collective-bargaining or other contractual agreements.

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NOTE 15 – BOARD OF DIRECTORS’ RETIREMENT POLICY

The Bank has entered into director retirement agreements with three current Board members, which were amended in 2013. Each agreement provides for a normal retirement benefit equal to each director’s accrual balance of $74,238 amortized with interest and payable upon the later of the director’s normal retirement date (age 70) or his separation from service, in monthly installments over a 15-year period. The director’s account balance is payable to the director or the director’s beneficiary under certain circumstances as set forth in the director’s individual agreement.

The Board previously had a deferred compensation policy (Policy) to compensate Board members for their service to the Company. The retirement date for directors was the later of the last month in which they reached age 70 or completion of their term if they were elected to the Board during the annual meeting resulting in service beyond age 70. Upon retirement, Board members receive deferred compensation for the remainder of their life up to a maximum of $2,000 per month. Board members vested in the Policy based on service as follows: zero to four years of service (20%), five years of service (40%), six years of service (60%), seven years of service (80%) and eight years of service (100%). On September 21, 2011, the Board rescinded this retirement policy for current directors.

The total liability for the combined policies and agreements at December 31, 2014 and June 30, 2014 and 2013 was $259,000, $289,000 and $259,000, respectively.

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NOTE 16 – INCOME TAXES

The provision for income taxes for the six months ended December 31, 2014 and years ended June 30, 2014 and 2013 includes these components:

	Six Months Ended
	December 31,		Years Ended June 30,
	2014		2014		2013

Current
Federal	$	73,760	$	-	$	-
State		-		-		35,527
Deferred		-		-		-

Total income tax expense	$	73,760	$	-	$	35,527

Federal income tax expense for the six months ended December 31, 2014 was $73,760 due to the correction of an overstated Federal income tax receivable. The income tax expense for the six months ended December 31, 2014 and years ended June 30, 2014 and 2013 differs from the amounts computed by applying the federal income tax rate of 34% to earnings before federal income tax expense. These differences are primarily caused by expenses that are not deductible for tax purposes and tax adjustments related to prior federal income tax returns.

A reconciliation of income tax expense at the Federal statutory rate to the Company’s actual income tax expense for the six months ended December 31, 2014 and the fiscal years ended June 30, 2014 and 2013 is shown below:

	Six Months Ended
	December 31,			Years Ended June 30,
	2014			2014			2013

Federal tax at the statutory rate (34%)	$	366,130		$	(419,758	)	$	(45,057	)
Benefit from permanent differences:
State income taxes, net of Federal tax benefit		-			-			23,448
Bargain purchase gain		(985,608	)		-			-
Bank-owned life insurance		(31,399	)		(63,470	)		(60,943	)

Change in valuation allowance		465,739			196,600			209,745
Other, net		258,898			286,628			(91,666	)

Total income tax expense	$	73,760		$	-		$	35,527

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The tax effects of temporary differences related to deferred taxes were:

	At December 31,			At June 30,
	2014			2014			2013
Deferred tax assets:
Allowance for loan losses	$	664,127		$	645,018		$	287,314
Stock awards		46,940			46,940			32,104
Board of Directors retirement plan		126,788			118,268			98,977
Tax credits		27,965			27,965			27,965
Other		131,043			153,197			60,881
Deferred compensation		151,282			191,584			149,708
Purchase accounting		243,308			-			-
Organizational costs		680,030			-			-
Net operating loss carryforwards		3,456,274			1,278,230			1,738,758
Total deferred tax assets		5,527,757			2,461,202			2,395,707

Deferred tax liabilities:
FHLB stock dividends		(59,888	)		(57,082	)		(53,706	)
Depreciation and amortization		(405,423	)		(544,741	)		(741,620	)
Loan origination costs		(49,708	)		(19,751	)		(19,751	)
Other		(156,192	)		(91,343	)		(28,945	)
Total deferred tax liabilities		(671,211	)		(712,917	)		(844,022	)

Net deferred tax asset before valuation allowance		4,856,546			1,748,285			1,551,685

Valuation allowance:
Beginning balance		(1,748,285	)		(1,551,685	)		(1,341,940	)
Increase due to merger		(2,642,522	)		-			-
Increase during the period		(465,739	)		(196,600	)		(209,745	)
Ending balance		(4,856,546	)		(1,748,285	)		(1,551,685	)

Net deferred tax asset	$	-		$	-		$	-

A valuation allowance for deferred tax assets is recorded when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible. Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income, NOL carry-back potential, and tax planning strategies in making this assessment. At December 31, 2014, June 30, 2014 and 2013, management established a deferred tax asset valuation allowance of approximately $4.9 million, $1.7 million and $1.6 million, respectively, based on its assessment of the amount of net deferred tax assets that are more-likely-than-not to be realized.

At December 31, 2014, the Company had federal operating loss carry-forwards of approximately $9.4 million. Bank’34 acquired net operating loss carryforwards of approximately $11.0 million. The acquired losses are subject to IRC 382 limitations, which limit the annual use of acquired losses to $250,000 per year, and begin to expire in 2027. As such, Bank’34 has recorded deferred tax assets and related valuation allowance for $5.0 million of net operating losses related to the merger. Previously held loss carryforwards are not subject to the same limitations and begin to expire in 2033.

It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. As of December 31, 2014, June 30, 2014 and 2013, there were no material uncertain tax positions related to federal and state income tax matters. The Company does not expect the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months. The Company files consolidated U.S. federal, Arizona and New Mexico income tax returns. At December 31, 2014, the Company’s tax returns open for review by the taxing authorities were 2011 to 2013 for federal and 2010 to 2013 for states.

NOTE 17 – REGULATORY MATTERS

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.

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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. Management believes, as of December 31, 2014 and June 30, 2014 and 2013, the Bank meets all capital adequacy requirements to which it is subject.

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

As of 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 has to maintain minimum total risk-based, 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.

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

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

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%

As of June 30, 2014:
(Dollars in thousands)

Total Capital
(to Risk-Weighted Assets)	$	23,739		23.89	%	$	7,948		³8.00%	$	9,935		³10.00%

Tier I Capital
(to Risk-Weighted Assets)	$	22,492		22.64	%	$	3,974		³4.00%	$	5,961		³6.00%

Tier I Capital
(to Average Assets)	$	22,492		13.36	%	$	6,734		³4.00%	$	8,417		³5.00%

As of June 30, 2013:
(Dollars in thousands)

Total Capital
(to Risk-Weighted Assets)	$	25,090		25.77	%	$	7,788		³8.00%	$	9,735		³10.00%

Tier I Capital
(to Risk-Weighted Assets)	$	23,866		24.51	%	$	3,894		³4.00%	$	5,841		³6.00%

Tier I Capital
(to Average Assets)	$	23,866		13.63	%	$	7,004		³4.00%	$	8,755		³5.00%

NOTE 18 – RELATED PARTY TRANSACTIONS

The Bank has entered into transactions with its executive officers, directors, significant stockholders, and their affiliates (related parties).

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The activity of loans to such related parties is as follows:

	Six Months Ended
	December 31,			Years Ended June 30,
	2014			2014			2013

Beginning balance	$	1,881,139		$	54,375		$	733,452
New loans		-			1,800,663			-
Repayments		(55,219	)		(53,899	)		(814,077	)
Credit line, net activity		(80,000	)		80,000			135,000

Ending balance	$	1,745,920		$	1,881,139		$	54,375

Fees and bonuses paid to directors during the period	$	104,587		$	199,765		$	165,093

Deposits from related parties held by the Bank at end of period	$	1,545,341		$	1,316,248		$	1,224,937

In management’s opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features.

NOTE 19 – STOCK-BASED COMPENSATION

The Bank’s Employee Stock Option Plan (the “Plan”), which is stockholder approved, permits the grant of stock options and shares to its employees or directors for up to 63,749 shares of common stock. The exercise price equaled the market price on the date the options were granted. The directors are 100% vested. The options become exercisable for the key employees at a vesting rate of 20% per year over five years and have an expiration date of the earlier of ten years from the date of grant or five years from termination.

A summary of option activity under the Plan during the six months ended December 31, 2014 and fiscal years ended June 30, 2014 and 2013 is presented below:

	For the Six Months Ended December 31, 2014
						Average
				Weighted-		Remaining
				Average		Contractual
	Shares			Exercise Price		Term

Outstanding, beginning of period		21,420		$	19.75		3.9
Granted		-
Exercised		-
Forfeited or expired		(3,400	)		19.75		0.4

Outstanding, end of period		18,020		$	19.75		4.1

Exercisable, end of period		18,020		$	19.75		4.1

Page 82 of 94

	For the Year Ended June 30, 2014
					Average
			Weighted-		Remaining
			Average		Contractual
	Shares		Exercise Price		Term

Outstanding, beginning of year		21,420	$	19.75		4.9
Granted		-
Exercised		-
Forfeited or expired		-

Outstanding, end of year		21,420	$	19.75		3.9

Exercisable, end of year		21,420	$	19.75		3.9

	For the Year Ended June 30, 2013
						Average
				Weighted-		Remaining
				Average		Contractual
	Shares			Exercise Price		Term

Outstanding, beginning of year		26,424		$	19.75		6.1
Granted		-
Exercised		-
Forfeited or expired		(5,004	)		19.75		7.0

Outstanding, end of year		21,420		$	19.75		4.9

Exercisable, end of year		21,420		$	19.75		4.9

In November 2007, the Company contributed $323,068 allowing the Recognition and Retention Plan (RRP) to acquire 9,502 shares of common stock of the Company, at $34.00 per share, which were subsequently awarded to directors and key employees. Stock awards for 3,670 shares to the directors vested 50% on January 1, 2008 and the remaining 50% vested on January 1, 2009. Stock awards for 5,832 shares to key employees vest at 20% per year over five years beginning July 1, 2008. The un-amortized cost of shares not yet earned (vested) is reported as a reduction of stockholders’ equity.

In July 2009, the Company contributed $126,558 allowing the RRP to acquire 6,408 shares of common stock of the Company, at $19.25 per share, which were subsequently awarded to directors and key employees. Stock awards for 2,000 shares to the directors vested 50% on July 1, 2009 and the remaining 50% vested on July 1, 2011. Stock awards for 4,408 shares to key employees vest at 20% per year over five years beginning July 1, 2009. The unamortized cost of shares not yet earned (vested) is reported as a reduction of stockholders’ equity.

As of June 30, 2013 and all subsequent periods all shares were vested.

The RRP expense for the six months ended December 31, 2014 and years ended June 30, 2014 and 2013 was $0, $0 and $10,280, respectively.

NOTE 20 – FAIR VALUES OF FINANCIAL INSTRUMENTS

The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2014 and June 30, 2014 and 2013.

Page 83 of 94

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

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

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.

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.

Page 84 of 94

The following table sets forth by level, within the fair value hierarchy, the Company’s assets at fair 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

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

June 30, 2014
Recurring basis
Mortgage-backed securities	$	-	$	29,819,151	$	-	$	29,819,151
U.S. Government agencies		-		8,830,846		-		8,830,846
Municipal obligations		-		308,913		-		308,913
Nonrecurring basis
Loans held for sale		-		10,278,801		-		10,278,801
Other real estate		-		-		836,888		836,888
Impaired loans		-		-		343,753		343,753

Totals	$	-	$	49,237,711	$	1,180,641	$	50,418,352

June 30, 2013
Recurring basis
Mortgage-backed securities	$	-	$	45,306,513	$	-	$	45,306,513
U.S. Government agencies		-		10,033,082		-		10,033,082
Nonrecurring basis
Loans held for sale		-		6,295,062		-		6,295,062
Other real estate		-		-		1,391,713		1,391,713
Impaired loans		-		-		633,202		633,202

Totals	$	-	$	61,634,657	$	2,024,915	$	63,659,572

Page 85 of 94

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.

The following tables present estimated fair values of the Company’s financial instruments at December 31, 2014 and June 30, 2014 and 2013.

	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 deposits, 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		-

Page 86 of 94

	June 30, 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	$	9,368	$	9,368	$	9,368	$	-	$	-
Interest-bearing deposits with banks		578		578	$	578		-		-
Available-for-sale securities		38,959		38,959		-		38,959		-
Loans held for sale		10,279		10,279		-		10,279		-
Loans held for investment, net		90,998		92,593		-		-		92,593
Stock in financial institutions		648		648		-		648		-

Financial liabilities:
Demand deposits, savings and NOW deposits	$	66,813	$	66,063	$	66,063	$	-	$	-
Time deposits		67,860		68,061		-		68,061		-
Federal Home Loan Bank advances		8,810		9,187		-		9,187		-

	June 30, 2013
					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	$	3,920	$	3,920	$	3,920	$	-	$	-
Interest-bearing deposits with banks		296		296	$	296		-		-
Available-for-sale securities		55,340		55,340		-		55,340		-
Loans held for sale		6,295		6,295		-		6,295		-
Loans held for investment, net		89,390		92,385		-		-		92,385
Stock in financial institutions		956		956		-		956		-

Financial liabilities:
Demand deposits, savings and NOW deposits	$	61,821	$	61,272	$	61,272	$	-	$	-
Time deposits		73,697		74,042		-		74,042		-
Federal Home Loan Bank advances		13,327		14,357		-		14,357		-

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.

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Deposits and Federal Home Loan Bank (FHLB) Advances – Deposits include demand deposits, savings accounts, NOW accounts and money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity 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 21 – CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

Financial information as of December 31, 2014 and June 30, 2014 and 2013 and for the six months ended December 31, 2014 and 2013 and years ended June 30, 2014 and 2013, pertaining only to Alamogordo Financial Corp. is as follows:

BALANCE SHEETS

	December 31,			June 30,
	2014			2014			2013

ASSETS
Cash and due from banks	$	514,887		$	427,146		$	444,227
Investment in wholly owned subsidiary		29,185,530			21,942,186			23,376,987
ESOP note receivable		331,790			360,987			-
Prepaid and other assets		5,799			47,169			-

TOTAL ASSETS	$	30,038,006		$	22,777,488		$	23,821,214

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Income taxes payable	$	651,675		$	501,323		$	190,993
Accrued interest and other liabilities		50,000			92,559			32,901
Total liabilities		701,675			593,882			223,894

Stockholders’ equity
Common stock, $.10 par value; 20,000,000 shares authorized, 1,685,132 shares issued, 1,679,500 outstanding at December 31, 2014; 1,324,106 shares issued, and 1,318,474 and 1,304,526 outstanding at June 30,2014 and 2013, respectively		168,552			132,411			132,411
Additional paid-in capital		9,714,459			3,969,421			4,090,889
Retained earnings		20,084,266			19,135,293			20,369,869
Accumulated other comprehensive loss		(148,446	)		(549,627	)		(511,443	)
Treasury stock, at cost; 5,632, 5,632 and 19,580 shares		(139,332	)		(139,332	)		(484,406	)
Unearned employee stock ownership plan (ESOP) shares		(343,168	)		(364,560	)		-
Total stockholders’ equity		29,336,331			22,183,606			23,597,320

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	30,038,006		$	22,777,488		$	23,821,214

Page 88 of 94

STATEMENTS OF COMPREHENSIVE INCOME ( LOSS)

	Six Months Ended December 31,					Years Ended June 30,
	2014		2013			2014			2013
			Unaudited
Interest income on ESOP note receivable	$	11,560	$	-		$	18,862		$	-
Noninterest income
Equity in income (loss) of subsidiary		1,047,091		(521,106	)		(1,027,871	)		12,600

Noninterest expense
Professional fees and other		109,678		90,081			225,567			145,122

Income (loss) before income taxes		948,973		(611,187	)		(1,234,576	)		(132,522	)

Provision for income taxes		-		-			-			-

Net Income / (Loss)		948,973		(611,187	)		(1,234,576	)		(132,522	)

Other comprehensive income (loss)
Unrealized gain (loss) on available-for-sale securities		401,181		(553,355	)		(38,184	)		(635,904	)

COMPREHENSIVE INCOME (LOSS)	$	1,350,154	$	(1,164,542	)	$	(1,272,760	)	$	(768,426	)

STATEMENTS OF CASH FLOWS

	Six Months Ended December 31,						Years Ended June 30,
	2014			2013			2014			2013
				Unaudited
Cash flows from operating activities
Net income (loss)	$	948,973		$	(611,187	)	$	(1,234,576	)	$	(132,522	)
Adjustments to reconcile net income (loss) to net cash from operating activities
Equity in (income) loss of subsidiary		(1,047,091	)		521,106			1,027,871			(12,600	)
Changes in operating assets and liabilities
Income taxes payable		150,352			-			310,330			190,943
Prepaid and other assets		41,370			-			(47,169	)		360,804
Accrued interest and other liabilities		(42,559	)		(80,155	)		33,361			(211,792	)
Other, net		7,499			(17,025	)		21			-
Net cash from operating activities		58,544			(187,261	)		89,838			194,833

Cash flows from investing activities -
Principal collections on ESOP note receivable		29,197			-			-			-
Funding of ESOP		-			-			(106,919	)		-
Net cash from investing activities		29,197			-			(106,919	)		-

Cash flows from financing activities -
Stock repurchases		-			-			-			(320,781	)

Net increase (decrease) in cash and due from banks		87,741			(187,261	)		(17,081	)		(125,948	)

Cash and cash equivalents, beginning of period		427,146			444,227			444,227			570,175

Cash and cash equivalents, end of period	$	514,887		$	256,966		$	427,146		$	444,227

Supplemental disclosures:
Noncash investing and financing activities:
Sale of treasury shares to ESOP	$	-		$	-		$	345,074		$	-
Issuance of common stock in merger	$	5,783,428		$	-		$	-		$	-

Page 89 of 94

NOTE 22 – EARNINGS (LOSS) PER SHARE

Earnings (Loss) Per Share – Basic earnings (loss) per share have been calculated based upon the weighted-average number of common shares outstanding. ESOP shares, which have been committed to be released, are considered outstanding. The calculation of diluted weighted-average shares outstanding for the six months ended December 31, 2014 and 2013(unaudited) and years ended June 30, 2014 and 2013 excludes 20,487, 21,420, 21,420, and 21,420 shares issuable pursuant to outstanding stock options because their effect would be anti-dilutive.

	Six Months Ended					Years Ended
	December 31,					June 30,
	2014		2013			2014			2013
			Unaudited
Net income (loss)	$	948,973	$	(611,187	)	$	(1,234,576	)	$	(132,522	)

Weighted-average shares outstanding		1,561,623		1,304,526			1,295,518			1,311,500

Income (loss) per common share:
Basic	$	0.61	$	(0.47	)	$	(0.95	)	$	(0.10	)
Diluted	$	0.61	$	(0.47	)	$	(0.95	)	$	(0.10	)

Page 90 of 94

ITEM 9.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

ITEM 9A.

Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

There were no changes made in our internal controls during the quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

See Management’s Report On Internal Control Over Financial Reporting - filed herewith under Part II, Item 8, “Financial Statements and Supplementary Data.”

ITEM 9B.

Other Information

None.

PART III

ITEM 10.

Directors, Executive Officers and Corporate Governance

Alamogordo Financial Corp. has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. A copy of the Code is available on Alamogordo Financial Corp.’s website at www.Bank’34online.com under “About Bank’34 – Investor Relations.”

The information contained under the sections captioned “Proposal I – Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive Proxy Statement for the 2015 Annual Meeting of Stockholders (The “Proxy Statement”) is incorporated herein by reference.

ITEM 11.

Executive Compensation

The information contained under the section captioned “Executive Compensation” in the definitive Proxy Statement is incorporated herein by reference.

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

(a)

Securities Authorized for issuance under Stock-Based Compensation Plans

Set forth below is information as of December 31, 2014 with respect to compensation plans (other than our employee stock ownership plan) under which equity securities of the Registrant are authorized for issuance. Other than our Employee Stock Ownership Plan, we do not have any equity compensation plans that were not approved by our stockholders.

Page 91 of 94

Equity Compensation Plan Information
	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under stock-based compensation plans (excluding securities reflected in first column)
Equity compensation plans approved by security holders		18,020	$	19.75		—
Equity compensation plans not approved by security holders		N/A		N/A		N/A
Total		18,020	$	19.75		—

(b)

Security Ownership of Certain Beneficial Owners

The information required by this item is incorporated herein by reference to the section captioned “Voting Securities and Principal Holders” in the Proxy Statement.

(c)

Security Ownership of Management

The information required by this item is incorporated herein by reference to the section captioned “Proposal I – Election of Directors” in the Proxy Statement.

(d)

Changes in Control

Management of the Company know of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated herein by reference to the section captioned “Proposal I – Election of Directors – Certain Relationships and Related Transactions” of the Proxy Statement.

ITEM 14.

Principal Accountant Fees and Services

The information required by this item is incorporated herein by reference to the section captioned “Proposal II – Ratification of Appointment of Independent Registered Public Accounting Firm” of the Proxy Statement.

PART IV

ITEM 15.

Exhibits and Financial Statement Schedules

3.1	Charter of Alamogordo Financial Corp. (1)
3.2	Bylaws of Alamogordo Financial Corp. (1)
3.3	Amendment to Bylaws of Alamogordo Financial Corp. (4)
4	Form of Common Stock Certificate of Alamogordo Financial Corp. (1)
10.1	Deferred Compensation Agreement with Jill Gutierrez † (2)

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10.2	Deferred Compensation Agreement with Jan R. Thiry † (2)
10.3	Deferred Compensation Agreement with William P. Kauper † (2)
10.4	Split Dollar Life Insurance Agreement with Jill Gutierrez † (2)
10.5	Form of Director Retirement Agreement, as amended † (2)
10.6	Form of Director Split Dollar Life Insurance Agreement † (2)
10.7	Alamogordo Financial Corp. 2001 Stock Option Plan (3) †
10.8	Alamogordo Financial Corp. 2001 Recognition and Retention Plan (3) †
21	Subsidiaries of Registrant
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials from the Company’s Annual Report on Form 10-K/T, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements

†

Management contract or compensation plan or arrangement.

(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 Registration Statement on Form S-4 of Alamogordo Financial Corp. (File No. 333-192233), originally filed with the Securities and Exchange Commission on November 8, 2013.

(3)

Incorporated by reference to the exhibits to Alamogordo Financial Corp.’s Definitive Proxy Statement for the Special Meeting of Stockholders (File No. 000-29655) as filed with the Securities and Exchange Commission on May 5, 2001.

(4)

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 Commision on December 24, 2014.

Page 93 of 94

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		ALAMOGORDO FINANCIAL CORP.

Date: March 30, 2015	By:	/s/ Jill Gutierrez
		Jill Gutierrez
		Chief Executive Officer and Director
		(Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures	Title	Date

/s/ Jill Gutierrez	Chief Executive Officer	March 30, 2015
Jill Gutierrez	and Director (Principal Executive
	Officer)

/s/ Jan R. Thiry	Executive Vice President, Chief	March 30, 2015
Jan R. Thiry	Financial Officer and Treasurer
	(Principal Financial and
	Accounting Officer)

/s/ Randal L. Rabon	Chairman	March 30, 2015
Randal L. Rabon

/s/ William F. Burt	Vice Chairman	March 30, 2015
William F. Burt

/s/ Wortham A. Cook	Director	March 30, 2015
Wortham A. Cook

/s/ James D. Harris	Director	March 30, 2015
James D. Harris

/s/ Elaine E. Ralls	Director	March 30, 2015
Elaine E. Ralls

/s/ Don P. Van Winkle	Director	March 30, 2015
Don P. Van Winkle

Page 94 of 94