Document:

FIRST AMENDMENT
                                     TO THE
                              EMPLOYMENT AGREEMENT
                                 BY AND BETWEEN
                    FIRST FEDERAL BANC OF THE SOUTHWEST, INC.
                                       AND
                               AUBREY L. DUNN, JR.

     This First Amendment (the "Amendment") to that certain employment agreement
(the "Company  Employment  Agreement")  by and between First Federal Banc of the
Southwest,  Inc., a Delaware  corporation  (the  "Company"),  with its principal
administrative  office at 300 North  Pennsylvania  Avenue,  Roswell,  New Mexico
88201,  and Aubrey L. Dunn, Jr. (the  "Executive")  is made effective as of this
10th day of October, 2006.

     WHEREAS,  the  Executive  is  currently  employed  as  President  and Chief
Executive Officer of the Company; and

     WHEREAS,  the Board of Directors of the Company has met and has  determined
that it is in the best  interests of the  Executive and the Company to amend the
Company Employment Agreement in accordance with the terms of this Amendment; and

     WHEREAS,  Section  12(b) of the Company  Employment  Agreement  permits the
Company and the Executive to amend the Company Employment Agreement at any time.

     NOW,  THEREFORE,  in consideration of the premises and the mutual covenants
and conditions  hereinafter set forth, the Company and Executive hereby agree to
the  following  amendments  to  the  Company  Employment  Agreement,   it  being
understood  and agreed that except to the amendments  specifically  provided for
herein, the remaining terms of the Company Employment  Agreement shall remain in
full force and effect:

     1. Section 4(b)(iii) of the Company Employment Agreement is hereby replaced
in its entirety with the following:

     "(iii)  at the  Company's  expense,  continued  medical,  dental  and  life
insurance  coverage  substantially  identical to the coverage  maintained by the
Company or the Bank for Executive prior to his  termination of employment.  Such
coverage  shall  continue for each of  Executive  and his spouse and shall cease
thirty-six (36) months following the Event of Termination."

     2. A new Section 4(c) is hereby added to the Company Employment  Agreement,
that reads as follows:

     "(c)(i) In the event of a Change in Control of the Bank or the Company, the
independent  accountants of the Company shall  determine if an excess  parachute
payment  (as defined in Section  4999 of the Code)  exists.  Such  determination
shall be made after taking any reductions  permitted pursuant to Section 280G of
the Code and the regulations  thereunder.  Any amount determined to be an excess
parachute  payment after taking into account such reductions  shall be hereafter
<PAGE>
referred to as the "Initial  Excess  Parachute  Payment." As soon as practicable
after a Change  in  Control,  the  Initial  Excess  Parachute  Payment  shall be
determined. For purposes of this determination, Executive shall be deemed to pay
federal  income  taxes  at the  highest  marginal  rate of  federal  income  tax
(including,  but not limited to, the Alternative Minimum Tax under Code Sections
55-59,  if  applicable)  and state and local income tax, if  applicable,  at the
highest  marginal  rate of  taxation in the state and  locality  of  Executive's
residence on the date such payment is payable,  net of the maximum  reduction in
the federal income taxes which could be obtained from any available deduction of
such state and local taxes.  Any  determination  by the independent  accountants
shall be binding on the Company and  Executive.  Within five (5) days after such
determination,   the  Company  shall  pay   Executive,   subject  to  applicable
withholding  requirements  under applicable state or federal law an amount equal
to:

     (A) twenty (20) percent of the Initial  Excess  Parachute  Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code), and

     (B)  such  additional  amount  (tax  allowance)  as  may  be  necessary  to
compensate  Executive  for the payment by Executive of state and federal  income
and excise  taxes on the payment  provided  under Clause (A) and on any payments
under this Clause (B). In computing such tax  allowance,  the payment to be made
under Clause (A) shall be multiplied by the "gross up percentage"  ("GUP").  The
GUP shall be determined as follows:

                                       Tax Rate
                              GUP = ---------------
                                      1- Tax Rate

The Tax Rate for  purposes of  computing  the GUP shall be the highest  marginal
federal  and  state  income  and  employment-related  tax  rate,  including  any
applicable  excise tax rate,  applicable  to  Executive in the year in which the
payment under Clause (A) is made.

     (ii) Notwithstanding the foregoing,  if it shall subsequently be determined
in a final judicial determination or a final administrative  settlement to which
Executive  is a party  that the excess  parachute  payment as defined in Section
4999 of the Code,  reduced as described  above,  is  different  from the Initial
Excess Parachute  Payment (such different amount being hereafter  referred to as
the  "Determinative  Excess Parachute  Payment") then the Company's  independent
accountants shall determine the amount (the "Adjustment  Amount") Executive must
pay to the  Company  or the  Company  must  pay to  Executive  in  order  to put
Executive (or the Company, as the case may be) in the same position as Executive
(or the  Company,  as the case may be)  would  have been if the  Initial  Excess
Parachute Payment had been equal to the Determinative  Excess Parachute Payment.
In determining the Adjustment  Amount,  the independent  accountants  shall take
into account any and all taxes (including any penalties and interest) paid by or
for Executive or refunded to Executive or for  Executive's  benefit.  As soon as
practicable  after the  Adjustment  Amount has been so  determined,  the Company
shall pay the  Adjustment  Amount to  Executive  or  Executive  shall  repay the
Adjustment  Amount  to the  Company,  as the case may be.  The  purpose  of this
paragraph is to assure that (i) Executive is not reimbursed  more for the golden
parachute  excise tax than is  necessary  to make him  whole,  and (ii) if it is
subsequently  determined that additional  golden parachute excise tax is owed by
him, additional reimbursement payments will be made to him to make him whole for
the additional excise tax.

                                       2
<PAGE>
     (iii) In each calendar year that  Executive  receives  payments or benefits
under this Agreement  and/or a Company or Bank sponsored  employee benefit plan,
Executive  shall  report  on his state  and  federal  income  tax  returns  such
information  as is consistent  with the  determination  made by the  independent
accountants of the Company as described  above.  The Company shall indemnify and
hold Executive harmless from any and all losses,  costs and expenses  (including
without limitation,  reasonable attorney's fees, interest,  fines and penalties)
that Executive  incurs as a result of so reporting such  information.  Executive
shall promptly notify the Company in writing whenever  Executive receives notice
of the  institution  of a  judicial  or  administrative  proceeding,  formal  or
informal,  in which the federal tax treatment  under Section 4999 of the Code of
any  amount  paid or  payable  under this  Section  is being  reviewed  or is in
dispute.  The Company  shall  assume  control at its expense  over all legal and
accounting  matters  pertaining  to such  federal tax  treatment  (except to the
extent  necessary or  appropriate  for Executive to resolve any such  proceeding
with respect to any matter unrelated to amounts paid or payable pursuant to this
contract).  Executive  shall  cooperate  fully  with  the  Company  in any  such
proceeding.  Executive  shall not enter into any  compromise  or  settlement  or
otherwise  prejudice  any rights the  Company may have in  connection  therewith
without prior consent of the Company.

     IN WITNESS WHEREOF, the Company has caused this Amendment to be executed on
its behalf by its duly authorized officers, and Executive has set his hand as of
the date first written above.

                                       EXECUTIVE

Dated:   October 10, 2006              By: /s/ Aubrey L. Dunn, Jr.
         ------------------------         --------------------------------------
                                          Aubrey L. Dunn, Jr.

                                       FIRST FEDERAL BANC
                                       OF THE SOUTWEST INC.

Dated:   October 10, 2006              By:/s/ Edward K. David
         ------------------------         --------------------------------------
                                          Edward K. David, Chairman of the Board

                                       3FIRST FEDERAL BANC OF THE SOUTHWEST, INC.
                             2006 RETENTION PAY PLAN

     THIS RETENTION PAY PLAN is entered into this 10th day of  October, 2006, by
First Federal Banc of the  Southwest,  Inc. (the  "Company")  for the benefit of
certain key  employees of First  Federal Bank (the "Bank")  listed on Schedule A
hereto (each of whom shall be referred to herein as "Employee").

                                    RECITALS

     WHEREAS,  the  Company  desires to be ensured of the  Employees'  continued
active participation in the business of the Bank and the Company in the event of
a Change in Control; and

     WHEREAS,  in order to induce  the  Employee  to remain in the employ of the
Bank  and the  Company  and  any  successors  thereto,  and to  provide  further
incentive to preserve and maintain  the Bank's  ongoing  operations  and project
stability  and  soundness to the Bank's  customers  and  employees,  the Company
desires to provide  benefits which shall be due the Employee in the event his or
her employment  with the Bank and Company and any successors  thereto  continues
for a specified period of time following a Change in Control.

     NOW THEREFORE, the First Federal Banc of the Southwest, Inc. 2006 Retention
Pay Plan (the "Plan") provides as follows:

     1.  Purpose.  The Plan  provides a  Retention  Bonus to  certain  executive
officers and key  employees  who  maintain  their  employment  with the Bank and
Company,  or any successor to the Bank or the Company,  for a minimum  specified
period following a Change in Control.

     2. Term of Plan.  The term of the Plan  expires  December  31,  2007 in the
event a Change in Control has not occurred in 2007.

     3.  Definitions.  The following words and terms shall have the meanings set
forth below for the purposes of this Plan:

          (a)  Acquiror. Any company, bank or person that acquires 50% or more
               --------
               of the Company's outstanding common stock.

          (b)  Change in Control.  "Change in Control"  shall  be deemed to have
               -----------------
               occurred at such time as (a) any "person" (as the term is used in
               Sections 13(d) and l4(d) of the  Securities  Exchange Act of 1934
               ("Exchange  Act"))  is or  becomes  the  "beneficial  owner"  (as
               defined  in Rule  l3d-3  under the  Exchange  Act),  directly  or
               indirectly, of securities of the Company representing 50% or more
               of  the  combined  voting  power  of  the  Company's  outstanding
               securities  except  for any  securities  purchased  by the Bank's
               employee stock  ownership plan or trust;  or (b)  individuals who
               constitute the Board on the date hereof (the  "Incumbent  Board")
               cease for any reason to constitute  at least a majority  thereof,
               provided  that any person  becoming a director  subsequent to the
               date hereof  whose  election  was  approved by a vote of at least
               three-quarters  of the directors  comprising the Incumbent Board,
               or whose  nomination  for election by the Company's  stockholders
      <PAGE>
               was approved by the same  Nominating  Committee  serving under an
               Incumbent  Board,  shall be, for  purposes  of this  clause  (b),
               considered as though he were a member of the Incumbent  Board; or
               (c)   consummation   of  a  plan   of   reorganization,   merger,
               consolidation, sale of all or substantially all the assets of the
               Bank or the Company or similar  transaction  unless,  immediately
               following such transaction, at least a majority of the members of
               the board of directors or other  governing  body of the resulting
               or surviving entity are individuals who were members of the Board
               immediately   prior  to  the  transaction  and  equity  interests
               representing  at  least a  majority  of the  voting  power in the
               election of directors or other  members of the board of directors
               or other governing board of the resulting or surviving entity are
               owned,  immediately  following such  transaction,  by persons who
               owned  common  stock  of the  Company  immediately  prior to such
               transaction and in substantially the same relative proportions as
               their ownership of common stock of the Company  immediately prior
               to  such  transaction;  or (d)  consummation  of a  tender  offer
               pursuant  to which the  shareholders  owning  beneficially  or of
               record 50% or more of the  outstanding  securities of the Company
               have tendered their shares pursuant to such tender offer and such
               tendered shares have been accepted by the tender offeror;  or (e)
               consummation of a dissolution or complete liquidation of the Bank
               or  the  Company,  or  shareholder  approval  of a plan  for  the
               dissolution or complete liquidation of the Bank or the Company.

          (c)  Cause.  Cause  means  personal  dishonesty, incompetence, willful
               -----
               misconduct,  any  breach of  fiduciary  duty  involving  personal
               profit,  intentional  failure to perform  stated  duties,  or the
               willful  violation of any law,  rule, or  regulation  (other than
               traffic violations or similar offenses) or final cease-and-desist
               order, any of which results in a material loss to the Bank or the
               Company.

          (d)  Bonus Employment  Period. The period of time as set forth in  the
               ------------------------
               attached  Schedule A in which an Employee  must work for the Bank
               and  Company,  or any  successor  thereto,  following a Change in
               Control, in order to receive the Retention Bonus under this Plan.
               Notwithstanding the prior sentence,  if the length of post-Change
               in Control  employment set forth in the attached Schedule A would
               extend an  Employee's  Bonus  Employment  Period beyond April 30,
               2007, such Employee's Bonus Employment Period will  automatically
               end on April 30,  2007 and the  Retention  Bonus  will be paid on
               such date.

          (e)  Retention Bonus. Retention Bonus means the bonus set forth in the
               ---------------
               attached Schedule A.

                                       2
<PAGE>
     4. Participation.  Participation in the Plan shall be approved by the Board
of Directors of the Company ("Board") and limited to the Employees listed in the
attached Schedule A.

     5. Eligibility for Benefits.  An Employee listed on the attached Schedule A
shall be eligible to receive the Retention Bonus set forth thereunder as long as
such  Employee  remains  employed  with the Bank and Company,  or any  successor
thereto,  for the full Bonus Employment Period, and performs his or her assigned
duties in a professional and satisfactory manner.

     6. Timing and Method of Payment.  The  Employee   shall  receive his or her
Retention  Bonus in a single  lump sum  payment by the  earlier of (i) April 30,
2007, or (ii) the thirtieth  (30th) day after the  expiration of the  Employee's
Bonus Employment Period.

     7. Source of Benefits.  The  Acquiror  shall pay the  Employee's  Retention
Bonus under the Plan from its general assets.

     8. No Effect on Severance  Plan. Any right to a Retention  Bonus under this
Plan shall not affect an Employee's  right,  if any, to benefits under the First
Federal Banc of the Southwest, Inc. Severance Plan.

     9. No Guarantee of Employment. Nothing contained in this Plan herein alters
any of the other terms of an Employee's employment. Accordingly, any benefits an
Employee would be entitled  hereunder are in addition to such Employee's current
salary and other  employee  benefits  and/or  other  compensation.  Furthermore,
nothing  contained  herein shall be construed as a contract of  employment.  The
Bank and Company are free to terminate an Employee's  employment at any time and
an  Employee  is  free to  terminate  his or her  employment  at any  time.  Any
termination  of Employee by the Bank or the Company prior to the effective  date
of a Change in Control would not entitle the Employee to a payment hereunder. In
the event of termination of an Employee by an Acquiror, other than for Cause, on
the effective  date of, or following a Change in Control but prior to the end of
the Bonus Employment  Period,  the Acquiror shall pay the Retention Bonus to the
Employee on the Employee's last day of employment.

     10. Arbitration.  Any dispute or controversy arising under or in connection
with this Plan shall be settled  exclusively  by  arbitration,  conducted  by an
arbitrator  selected  jointly by the Bank or the Acquiror and the  Employee,  in
accordance  with  the  rules of the  American  Arbitration  Association  then in
effect.  Judgment may be entered on the  arbitrator's  award in any court having
jurisdiction.

     11. Required Provisions.

          (a)  The Bank may terminate the Employee's employment at any time. The
               Employee  shall not have the  right to  receive  compensation  or
               other  benefits  for any period  after  termination  for Cause as
               defined hereinabove.

          (b)  If the  Employee  is  suspended   from office and/or  temporarily
               prohibited  from  participating  in the  conduct  of  the  Bank's
               affairs  by  a  notice  served  under  Section  8(e)(3)  (12  USC

                                       3
<PAGE>
               ss.1818(e)(3))  or 8(g)(1) (12 USC  ss.1818(g)(1)) of the Federal
               Deposit  Insurance Act, the Company's  obligations under the Plan
               shall be  suspended as of the date of service,  unless  stayed by
               appropriate  proceedings.  If  the  charges  in  the  notice  are
               dismissed,  the Bank may in its  discretion  (i) pay the Employee
               all or part  of the  compensation  withheld  while  its  contract
               obligations  were  suspended  and (ii)  reinstate (in whole or in
               part) any of its obligations which were suspended.

          (c)  If  the  Employee  is removed and/or permanently prohibited from
               participating  in the  conduct of the Bank's  affairs by an order
               issued under Section  8(e)(4) (12 USC  ss.1818(e)(4))  or 8(g)(1)
               (12 USC  ss.1818(g)(1)) of the Federal Deposit Insurance Act, all
               obligations of the Bank, if any,  under the Plan shall  terminate
               as of the effective  date of the order,  but vested rights of the
               contracting parties shall not be affected.

          (d)  If the Bank is  in  default as defined in  Section 3(x)(1)(12 USC
               ss.1813(x)(1))   of  the  Federal  Deposit   Insurance  Act,  all
               obligations of the Bank, if any, under this Plan shall  terminate
               as of the date of default,  but this  paragraph  shall not affect
               any vested rights of the Plan participants.

          (e)  All obligations of the Bank, if any, under this contract shall be
               terminated,  except to the extent determined that continuation of
               the  contract is  necessary  for the  continued  operation of the
               Bank,  (i) by the  Director of the OTS or his or her  designee at
               the time the FDIC enters into an agreement to provide  assistance
               to or on behalf  of the Bank  under the  authority  contained  in
               Section  13(c)  (12  USC   ss.1823(c))  of  the  Federal  Deposit
               Insurance  Act; or (ii) by the Director or his or her designee at
               the  time  the  Director  or  his  or  her  designee  approves  a
               supervisory  merger to resolve  problems  related to operation of
               the Bank or when the Bank is  determined by the Director to be in
               an unsafe or unsound  condition.  Any rights of the parties  that
               have  already  vested,  however,  shall not be  affected  by such
               action.

          (f)  Notwithstanding  anything herein   contained to the contrary, any
               payments  to the  Employee  by the Bank or the  Company,  whether
               pursuant  to  this  Plan  or   otherwise,   are  subject  to  and
               conditioned  upon  their  compliance  with  Section  18(k) of the
               Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and the
               regulations promulgated thereunder in 12 C.F.R. Part 359.

          (g)  Following  a  Change in Control, the foregoing paragraphs of this
               Section 11, shall be read by substituting the term "Acquiror" for
               the term "Bank" wherever the latter appears herein.

     12.  Amendment.  The  Company  reserves  the right to amend the Plan at any
time, with or without  advance  notice,  provided such amendment does not reduce
the benefits to any Employee under the Plan.

                                       4
<PAGE>
     13.  Governing  Law.  This  validity,   interpretation,   construction  and
performance  of the Plan  shall  be  governed  by the  laws of the  State of New
Mexico,  except to the extent that such laws contravene or are inconsistent with
Federal laws.

     14.  Successors  and Assigns.  The  provisions  of this Plan shall bind and
inure to the benefit of the Bank and Company and their  successors  and assigns.
The term  "successors" as used herein shall include an Acquiror or any corporate
or other business entity which shall, whether by merger, consolidation, purchase
or otherwise  acquire all or substantially all of the business and assets of the
Bank and Company,  and  successors of any such  corporations  or other  business
entities.

                                       5
<PAGE>

     IN WITNESS WHEREOF, the Bank has caused the Plan to be executed by its duly
authorized  officers and the corporate seal to be affixed and duly attested,  as
of the 10th day of October, 2006.

Effective Date:   October 10, 2006.

ATTEST:                           FIRST FEDERAL BANC OF THE SOUTHWEST, INC.

/s/ George A. Rosenbaum, Jr.      /s/ Aubrey L. Dunn, Jr.
____________________________      _____________________________________________
Secretary                         President and Chief Executive Officer

                                       6
<PAGE>

                                   SCHEDULE A

Employee              Bonus Employment Period                   Retention Bonus
--------              -----------------------                   ---------------

                                       7

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