UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM10-Q  (Mark One)x Quarterly Report Pursuant to Section13 or 15(d)of the Securities Exchange Act of 1934for the quarterly period ended June 30, 2009.OroTransition Report Pursuant to Section13 or 15(d)of the Securities Exchange Act of 1934for the transition period fromtoCommission File Number 000-50266
    TRINITY CAPITAL CORPORATION (Exact name of registrant as specified in its charter)  New Mexico

                        

                        85-0242376(State of incorporation)

                        

                        (I.R.S. Employer Identification Number)1200 Trinity Drive, Los Alamos, New Mexico 87544(Address of principal executive offices)(505)662-5171Telephone number
  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No o  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No
            o  Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer,” “large accelerated filer” and “Smaller Reporting Company” in Rule 12b-2 of the Exchange Act.   
  
  Large Accelerated Filer  o

                        Accelerated FilerxNon-Accelerated Filer  o

                        Smaller Reporting Companyo
  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) o  YesxNo APPLICABLE ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 6,440,784 shares of common stock, no par value, outstanding as of August 14, 2009. 
  
 TRINITY CAPITAL CORPORATION AND SUBSIDIARIES  PART I. FINANCIAL INFORMATIONItem 1.

                        Financial StatementsItem 2.

                        Management’s Discussion and Analysis of Financial Condition and Results of OperationsItem 3.

                        Quantitative and Qualitative Disclosures About Market RiskItem 4.

                        Controls and ProceduresPART II. OTHER INFORMATIONItem 1.

                        Legal ProceedingsItem 1A.

                        Risk FactorsItem 2.

                        Unregistered Sales of Equity Securities and Use of ProceedsItem 3.

                        Defaults Upon Senior SecuritiesItem 4.

                        Submission of Matters to a Vote of Securities HoldersItem 5.

                        Other InformationItem 6.

                        ExhibitsSIGNATURESCERTIFICATIONS
   
  
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  PARTI – FINANCIAL INFORMATION  Item 1. Financial Statements  TRINITY CAPITAL CORPORATION& SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2009 and December31, 2008 (Amounts in thousands, except share data)  June 30,2009

                        

                        

                        

                        December 31,2008(Unaudited)ASSETSCash and due from banks

                        

                        $

                        15,531

                        

                        

                        

                        $

                        18,259Interest-bearing deposits with banks

                        

                        

                        108,551

                        

                        

                        

                        

                        6,800Federal funds sold and securities purchased under resell agreements

                        

                        

                        821

                        

                        

                        

                        

                        203Cash and cash equivalents

                        

                        

                        124,903

                        

                        

                        

                        

                        25,262Investment securities available for sale

                        

                        

                        108,162

                        

                        

                        

                        

                        103,007Investment securities held to maturity, at amortized cost (fair value of $8,842 at June 30, 2009 and $9,780 at December 31, 2008)

                        

                        

                        8,805

                        

                        

                        

                        

                        8,927Other investments

                        

                        

                        7,838

                        

                        

                        

                        

                        5,643Loans (net of allowance for loan losses of $24,864 at June 30, 2009 and $15,230 at December 31, 2008)

                        

                        

                        1,233,733

                        

                        

                        

                        

                        1,215,304Loans held for sale

                        

                        

                        12,537

                        

                        

                        

                        

                        8,603Premises and equipment, net

                        

                        

                        29,293

                        

                        

                        

                        

                        24,406Leased property under capital leases, net

                        

                        

                        2,211

                        

                        

                        

                        

                        2,211Accrued interest receivable

                        

                        

                        7,368

                        

                        

                        

                        

                        7,889Mortgage servicing rights, net

                        

                        

                        7,070

                        

                        

                        

                        

                        5,271Other intangible assets

                        

                        

                        626

                        

                        

                        

                        

                        759Other real estate owned

                        

                        

                        7,668

                        

                        

                        

                        

                        2,354Other assets

                        

                        

                        12,971

                        

                        

                        

                        

                        8,091Total assets

                        

                        $

                        1,563,185

                        

                        

                        

                        $

                        1,417,727LIABILITIES AND STOCKHOLDERS' EQUITYLiabilitiesDeposits:Noninterest-bearing

                        

                        $

                        83,753

                        

                        

                        

                        $

                        84,038Interest-bearing

                        

                        

                        1,249,863

                        

                        

                        

                        

                        1,167,556Total deposits

                        

                        

                        1,333,616

                        

                        

                        

                        

                        1,251,594Short-term borrowings

                        

                        

                        40,000

                        

                        

                        

                        

                        —Long-term borrowings

                        

                        

                        13,513

                        

                        

                        

                        

                        23,532Long-term capital lease obligations

                        

                        

                        2,211

                        

                        

                        

                        

                        2,211Junior subordinated debt owed to unconsolidated trusts

                        

                        

                        37,116

                        

                        

                        

                        

                        37,116Accrued interest payable

                        

                        

                        5,338

                        

                        

                        

                        

                        5,821Other liabilities

                        

                        

                        7,505

                        

                        

                        

                        

                        6,168Total liabilities

                        

                        

                        1,439,299

                        

                        

                        

                        

                        1,326,442
  (Continued on following page)  1
  
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  TRINITY CAPITAL CORPORATION& SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2009 and December31, 2008 (Amounts in thousands, except share data) (Continued from prior page)  June 30,2009

                        

                        

                        

                        December 31,2008(Unaudited)Stock owned by Employee Stock Ownership Plan (ESOP) participants; 614,982 shares and 602,514 shares at June 30, 2009 and December 31, 2008, respectively, at fair value

                        

                        $

                        13,370

                        

                        

                        

                        $

                        13,105Commitments and contingencies (Note 11)Stockholders' equityPreferred stock, no par, authorized 1,000,000 sharesSeries A, 5% cumulative perpetual, 35,539 shares issued and outstanding at June 30, 2009, $1,000.00 liquidation value, at amortized cost

                        

                        

                        33,492

                        

                        

                        

                        

                        —Series B, 9% cumulative perpetual, 1,777 shares issued and outstanding at June 30, 2009, $1,000.00 liquidation value, at amortized cost

                        

                        

                        2,093

                        

                        

                        

                        

                        —Common stock, no par, authorized 20,000,000 shares; issued 6,856,800 shares, shares outstanding 6,440,784 and 6,448,548 at June 30, 2009 and December 31, 2008, respectively

                        

                        

                        6,836

                        

                        

                        

                        

                        6,836Additional paid-in capital

                        

                        

                        1,796

                        

                        

                        

                        

                        1,797Retained earnings

                        

                        

                        77,266

                        

                        

                        

                        

                        79,233Accumulated other comprehensive gain

                        

                        

                        247

                        

                        

                        

                        

                        1,419Total stockholders' equity before treasury stock

                        

                        

                        121,730

                        

                        

                        

                        

                        89,285Treasury stock, at cost, 416,016 shares and 408,252 shares at June 30, 2009 and December 31, 2008, respectively

                        

                        

                        (11,214

                        )

                        

                        

                        

                        (11,105

                        )Total stockholders' equity

                        

                        

                        110,516

                        

                        

                        

                        

                        78,180Total liabilities and stockholders' equity

                        

                        $

                        1,563,185

                        

                        

                        

                        $

                        1,417,727
  The accompanying notes are an integral part of these unaudited consolidated financial statements.  2
  
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  TRINITY CAPITAL CORPORATION& SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 2009 and 2008 (Amounts in thousands except share and per share data) (Unaudited)  Three Months Ended June 30,

                        

                        

                        

                        Six Months Ended June 30,2009

                        

                        

                        

                        2008

                        

                        

                        

                        2009

                        

                        

                        

                        2008Interest income:Loans, including fees

                        

                        $

                        18,998

                        

                        

                        

                        $

                        19,525

                        

                        

                        

                        $

                        37,990

                        

                        

                        

                        $

                        40,197Investment securities:Taxable

                        

                        

                        946

                        

                        

                        

                        

                        845

                        

                        

                        

                        

                        1,144

                        

                        

                        

                        

                        1,677Nontaxable

                        

                        

                        263

                        

                        

                        

                        

                        195

                        

                        

                        

                        

                        480

                        

                        

                        

                        

                        391Federal funds sold

                        

                        

                        —

                        

                        

                        

                        

                        34

                        

                        

                        

                        

                        1

                        

                        

                        

                        

                        111Other interest-bearing deposits

                        

                        

                        77

                        

                        

                        

                        

                        129

                        

                        

                        

                        

                        86

                        

                        

                        

                        

                        440Investment in unconsolidated trusts

                        

                        

                        21

                        

                        

                        

                        

                        22

                        

                        

                        

                        

                        42

                        

                        

                        

                        

                        44Total interest income

                        

                        

                        20,305

                        

                        

                        

                        

                        20,750

                        

                        

                        

                        

                        39,743

                        

                        

                        

                        

                        42,860Interest expense:Deposits

                        

                        

                        5,017

                        

                        

                        

                        

                        7,942

                        

                        

                        

                        

                        9,933

                        

                        

                        

                        

                        17,051Short-term borrowings

                        

                        

                        189

                        

                        

                        

                        

                        322

                        

                        

                        

                        

                        252

                        

                        

                        

                        

                        645Long-term borrowings

                        

                        

                        213

                        

                        

                        

                        

                        288

                        

                        

                        

                        

                        524

                        

                        

                        

                        

                        578Long-term capital lease obligations

                        

                        

                        67

                        

                        

                        

                        

                        67

                        

                        

                        

                        

                        134

                        

                        

                        

                        

                        134Junior subordinated debt owed to unconsolidated trusts

                        

                        

                        697

                        

                        

                        

                        

                        726

                        

                        

                        

                        

                        1,406

                        

                        

                        

                        

                        1,476Total interest expense

                        

                        

                        6,183

                        

                        

                        

                        

                        9,345

                        

                        

                        

                        

                        12,249

                        

                        

                        

                        

                        19,884Net interest income

                        

                        

                        14,122

                        

                        

                        

                        

                        11,405

                        

                        

                        

                        

                        27,494

                        

                        

                        

                        

                        22,976Provision for loan losses

                        

                        

                        12,632

                        

                        

                        

                        

                        1,200

                        

                        

                        

                        

                        16,793

                        

                        

                        

                        

                        2,250Net interest income after provision for loan losses

                        

                        

                        1,490

                        

                        

                        

                        

                        10,205

                        

                        

                        

                        

                        10,701

                        

                        

                        

                        

                        20,726Other income:Mortgage loan servicing fees

                        

                        

                        435

                        

                        

                        

                        

                        617

                        

                        

                        

                        

                        1,222

                        

                        

                        

                        

                        1,231Trust fees

                        

                        

                        329

                        

                        

                        

                        

                        226

                        

                        

                        

                        

                        705

                        

                        

                        

                        

                        493Loan and other fees

                        

                        

                        706

                        

                        

                        

                        

                        703

                        

                        

                        

                        

                        1,319

                        

                        

                        

                        

                        1,289Service charges on deposits

                        

                        

                        453

                        

                        

                        

                        

                        439

                        

                        

                        

                        

                        860

                        

                        

                        

                        

                        863Gain on sale of loans

                        

                        

                        2,426

                        

                        

                        

                        

                        712

                        

                        

                        

                        

                        5,495

                        

                        

                        

                        

                        1,366Gain on sale of securities

                        

                        

                        36

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        734

                        

                        

                        

                        

                        555Title insurance premiums

                        

                        

                        424

                        

                        

                        

                        

                        249

                        

                        

                        

                        

                        865

                        

                        

                        

                        

                        474Other operating income

                        

                        

                        152

                        

                        

                        

                        

                        75

                        

                        

                        

                        

                        255

                        

                        

                        

                        

                        198Total other income

                        

                        

                        4,961

                        

                        

                        

                        

                        3,021

                        

                        

                        

                        

                        11,455

                        

                        

                        

                        

                        6,469
  (Continued on following page)  3
  
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  TRINITY CAPITAL CORPORATION& SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 2009 and 2008 (Amounts in thousands except share and per share data) (Unaudited) (Continued from prior page)  Three Months Ended June 30,

                        

                        

                        

                        Six Months Ended June 30,2009

                        

                        

                        

                        2008

                        

                        

                        

                        2009

                        

                        

                        

                        2008Other expenses:Salaries and employee benefits

                        

                        $

                        4,658

                        

                        

                        

                        $

                        4,740

                        

                        

                        

                        $

                        9,702

                        

                        

                        

                        $

                        9,647Occupancy

                        

                        

                        789

                        

                        

                        

                        

                        794

                        

                        

                        

                        

                        1,613

                        

                        

                        

                        

                        1,627Data processing

                        

                        

                        693

                        

                        

                        

                        

                        585

                        

                        

                        

                        

                        1,324

                        

                        

                        

                        

                        1,124Marketing

                        

                        

                        440

                        

                        

                        

                        

                        565

                        

                        

                        

                        

                        888

                        

                        

                        

                        

                        1,186Amortization and valuation of mortgage servicing rights

                        

                        

                        (99

                        )

                        

                        

                        

                        335

                        

                        

                        

                        

                        887

                        

                        

                        

                        

                        1,240Amortization and valuation of other intangible assets

                        

                        

                        10

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        133

                        

                        

                        

                        

                        —Supplies

                        

                        

                        166

                        

                        

                        

                        

                        141

                        

                        

                        

                        

                        352

                        

                        

                        

                        

                        309Loss on sale of other real estate owned

                        

                        

                        313

                        

                        

                        

                        

                        (14

                        )

                        

                        

                        

                        531

                        

                        

                        

                        

                        18Postage

                        

                        

                        117

                        

                        

                        

                        

                        124

                        

                        

                        

                        

                        284

                        

                        

                        

                        

                        300Bankcard and ATM network fees

                        

                        

                        324

                        

                        

                        

                        

                        331

                        

                        

                        

                        

                        654

                        

                        

                        

                        

                        660Legal, professional and accounting fees

                        

                        

                        613

                        

                        

                        

                        

                        312

                        

                        

                        

                        

                        981

                        

                        

                        

                        

                        591FDIC insurance premiums

                        

                        

                        937

                        

                        

                        

                        

                        204

                        

                        

                        

                        

                        1,184

                        

                        

                        

                        

                        238Other

                        

                        

                        686

                        

                        

                        

                        

                        806

                        

                        

                        

                        

                        1,603

                        

                        

                        

                        

                        1,386Total other expense

                        

                        

                        9,647

                        

                        

                        

                        

                        8,923

                        

                        

                        

                        

                        20,136

                        

                        

                        

                        

                        18,326(Loss) income before income taxes

                        

                        

                        (3,196

                        )

                        

                        

                        

                        4,303

                        

                        

                        

                        

                        2,020

                        

                        

                        

                        

                        8,869Income taxes

                        

                        

                        (1,392

                        )

                        

                        

                        

                        1,576

                        

                        

                        

                        

                        593

                        

                        

                        

                        

                        3,288Net (loss) income

                        

                        $

                        (1,804

                        )

                        

                        

                        $

                        2,727

                        

                        

                        

                        $

                        1,427

                        

                        

                        

                        $

                        5,581Dividends and discount accretion on preferred shares

                        

                        

                        529

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        552

                        

                        

                        

                        

                        —Net (loss) income available to common shareholders

                        

                        $

                        (2,333

                        )

                        

                        

                        $

                        2,727

                        

                        

                        

                        $

                        875

                        

                        

                        

                        $

                        5,581Basic (loss) earnings per common share

                        

                        $

                        (0.36

                        )

                        

                        

                        $

                        0.42

                        

                        

                        

                        $

                        0.14

                        

                        

                        

                        $

                        0.86Diluted (loss) earnings per common share

                        

                        $

                        (0.36

                        )

                        

                        

                        $

                        0.42

                        

                        

                        

                        $

                        0.14

                        

                        

                        

                        $

                        0.86
  The accompanying notes are an integral part of these unaudited consolidated financial statements.  4
  
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  TRINITY CAPITAL CORPORATION& SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2009 and 2008 (Amounts in thousands) (Unaudited)  Six Months Ended June 30,2009

                        

                        

                        

                        2008Cash Flows From Operating ActivitiesNet income

                        

                        $

                        1,427

                        

                        

                        

                        $

                        5,581Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization

                        

                        

                        1,244

                        

                        

                        

                        

                        1,203Net amortization of:Mortgage servicing rights

                        

                        

                        1,289

                        

                        

                        

                        

                        1,421Other intangible assets

                        

                        

                        133

                        

                        

                        

                        

                        —Premium and discounts on investment securities, net

                        

                        

                        10

                        

                        

                        

                        

                        435Junior subordinated debt owed to unconsolidated trusts issuance costs

                        

                        

                        7

                        

                        

                        

                        

                        7Provision for loan losses

                        

                        

                        16,793

                        

                        

                        

                        

                        2,250Change in mortgage servicing rights valuation allowance

                        

                        

                        (402

                        )

                        

                        

                        

                        (181

                        )Loss on disposal of premises and equipment

                        

                        

                        —

                        

                        

                        

                        

                        1(Gain) loss on sale of investment securities

                        

                        

                        (734

                        )

                        

                        

                        

                        (555

                        )Federal Home Loan Bank (FHLB) stock dividends received

                        

                        

                        (3

                        )

                        

                        

                        

                        (72

                        )Loss on venture capital investments

                        

                        

                        274

                        

                        

                        

                        

                        36Gain on sale of loans

                        

                        

                        (5,495

                        )

                        

                        

                        

                        (1,366

                        )Loss on disposal of other real estate owned

                        

                        

                        270

                        

                        

                        

                        

                        11Write-down of value of other real estate owned

                        

                        

                        270

                        

                        

                        

                        

                        15(Increase) decrease in other assets

                        

                        

                        (3,603

                        )

                        

                        

                        

                        325Increase (decrease) in other liabilities

                        

                        

                        609

                        

                        

                        

                        

                        (500

                        )Release of Employee Stock Ownership Plan (ESOP) shares

                        

                        

                        —

                        

                        

                        

                        

                        312Stock options and stock appreciation rights expenses

                        

                        

                        73

                        

                        

                        

                        

                        109Tax benefit recognized for exercise of stock options

                        

                        

                        (10

                        )

                        

                        

                        

                        (43

                        )Net cash provided by operating activities before originations and gross sales of loans

                        

                        

                        12,152

                        

                        

                        

                        

                        8,989Gross sales of loans held for sale

                        

                        

                        262,068

                        

                        

                        

                        

                        146,496Origination of loans held for sale

                        

                        

                        (263,193

                        )

                        

                        

                        

                        (139,599

                        )Net cash provided by operating activities

                        

                        

                        11,027

                        

                        

                        

                        

                        15,886
  (Continued on following page)  5
  
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  TRINITY CAPITAL CORPORATION& SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2009 and 2008 (Amounts in thousands) (Unaudited) (Continued from prior page)  Six Months Ended June 30,2009

                        

                        

                        

                        2008Cash Flows From Investing ActivitiesProceeds from maturities and paydowns of investment securities, available for sale

                        

                        $

                        3,109

                        

                        

                        

                        $

                        61,793Proceeds from maturities and paydowns of investment securities, held to maturity

                        

                        

                        122

                        

                        

                        

                        

                        109Proceeds from sale of investment securities, available for sale

                        

                        

                        42,910

                        

                        

                        

                        

                        48,980Purchase of investment securities available for sale

                        

                        

                        (52,385

                        )

                        

                        

                        

                        (110,083

                        )Purchase of investment securities other

                        

                        

                        (2,466

                        )

                        

                        

                        

                        (55

                        )Proceeds from sale of other real estate owned

                        

                        

                        3,907

                        

                        

                        

                        

                        519Loans funded, net of repayments

                        

                        

                        (43,882

                        )

                        

                        

                        

                        (30,980

                        )Purchases of loans

                        

                        

                        (1,101

                        )

                        

                        

                        

                        —Purchases of premises and equipment

                        

                        

                        (6,131

                        )

                        

                        

                        

                        (1,302

                        )Net cash (used in) investing activities

                        

                        

                        (55,917

                        )

                        

                        

                        

                        (31,019

                        )Cash Flows From Financing ActivitiesNet (decrease) increase in demand deposits, NOW accounts and savings accounts

                        

                        

                        (25,621

                        )

                        

                        

                        

                        21,090Net increase (decrease) in time deposits

                        

                        

                        107,643

                        

                        

                        

                        

                        (7,514

                        )Proceeds from issuances of borrowings

                        

                        

                        30,000

                        

                        

                        

                        

                        —Repayment of borrowings

                        

                        

                        (19

                        )

                        

                        

                        

                        (18

                        )Repayment of ESOP debt

                        

                        

                        —

                        

                        

                        

                        

                        (271

                        )Purchase of treasury stock

                        

                        

                        (473

                        )

                        

                        

                        

                        (1,034

                        )Issuance of common stock for stock option plan

                        

                        

                        290

                        

                        

                        

                        

                        323Issuance of preferred stock

                        

                        

                        35,539

                        

                        

                        

                        

                        —Common shares dividend payments

                        

                        

                        (2,580

                        )

                        

                        

                        

                        (2,599

                        )Preferred shares dividend payments

                        

                        

                        (258

                        )

                        

                        

                        

                        —Tax benefit recognized for exercise of stock options

                        

                        

                        10

                        

                        

                        

                        

                        43Net cash provided by financing activities

                        

                        

                        144,531

                        

                        

                        

                        

                        10,020Net increase (decrease) in cash and cash equivalents

                        

                        

                        99,641

                        

                        

                        

                        

                        (5,113

                        )Cash and cash equivalents:Beginning of period

                        

                        

                        25,262

                        

                        

                        

                        

                        45,524End of period

                        

                        $

                        124,903

                        

                        

                        

                        $

                        40,411Supplemental Disclosures of Cash Flow InformationCash payments for:Interest

                        

                        $

                        12,732

                        

                        

                        

                        $

                        19,683Income taxes

                        

                        

                        4,623

                        

                        

                        

                        

                        4,100Non-cash investing and financing activities:Transfers from loans to other real estate owned

                        

                        

                        9,761

                        

                        

                        

                        

                        1,439Dividends declared, not yet paid

                        

                        

                        2,824

                        

                        

                        

                        

                        2,592Change in unrealized gain on investment securities, net of taxes

                        

                        

                        (1,935

                        )

                        

                        

                        

                        (1,642

                        )
  The accompanying notes are an integral part of these unaudited consolidated financial statements.  6
  
 Table of contents
  TRINITY CAPITAL CORPORATION& SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Note1. Basis of Presentation  The accompanying unaudited consolidated financial statements include the consolidated balances and results of operations of Trinity Capital Corporation (“Trinity”) and its wholly owned subsidiaries: Los Alamos National Bank (the “Bank”), Title Guaranty & Insurance Company (“Title Guaranty”), TCC Advisors Corporation (“TCC Advisors”)
            and TCC Funds, collectively referred to as the “Company.” Trinity Capital Trust I (“Trust I”), Trinity Capital Trust III (“Trust III”), Trinity Capital Trust IV (“Trust IV”) and Trinity Capital Trust V (“Trust V”), collectively referred to as the “Trusts,” are trust subsidiaries of Trinity but are not consolidated in these financial statements (see “Consolidation” accounting policy below).
            Trinity sold the assets of TCC Appraisals as of May 1, 2008 and terminated the business of TCC Appraisals in January 2009. Termination of TCC Appraisals has had an immaterial effect on Trinity’s financial results. In August 2008, the Bank obtained a 26% interest in Cottonwood Technology Group, LLC (“Cottonwood”) and on July 13, 2009 the Bank assigned 2% of its interests to the other members of the company. This entity is owned by the Bank, the Los Alamos Commerce
            & Development Corporation and an individual not otherwise associated with Trinity or the Bank. Cottonwood is focused on assisting new technologies, primarily those developed at New Mexico’s research and educational institutions, reach the market by providing management advice and capital consulting. The Bank’s full capital investment of $150 thousand was made in July 2009 and as a result is not reflected in these financial statements. In October 2008, the Bank
            purchased the assets of Allocca & Brunett, Inc., an investment advisory company in Santa Fe, New Mexico. Management expects to continue to integrate the assets of Allocca & Brunett into the Bank’s existing Trust and Investment Services Department over the next three to seven months.  The business activities of the Company consist solely of the operations of its wholly owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and
            cash flows for the interim periods have been made. The results of operations for the three and six months ended June 30, 2009, are not necessarily indicative of the results to be expected for the entire fiscal year.  The unaudited consolidated interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and industry practice. Certain information in footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America and
            industry practice has been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s December 31, 2008 audited financial statements in its Form 10-K (as amended) filed with the SEC on March 16, 2009.  The consolidated financial statements include the accounts of the Company. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and general practices within the financial services industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the
            reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the year. Actual results could differ from those estimates. Areas involving the use of management’s estimates and assumptions, and which are more susceptible to change in the near term include the allowance for loan losses and initial recording and subsequent valuation for impairment of mortgage servicing rights.  Certain items have been reclassified from prior period presentations in conformity with the current classification. In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through August 17, 2009, the date the financial statements were issued.  7
  
 Table of contents
  Note 2. Comprehensive Income  Comprehensive income includes net income, as well as the change in net unrealized gain on investment securities available for sale, net of tax. Comprehensive income is presented in the following table:  Three Months Ended June 30,

                        

                        

                        

                        SixMonthsEndedJune30,2009

                        

                        

                        

                        2008

                        

                        

                        

                        2009

                        

                        

                        2008(In thousands)Net (loss) income

                        

                        $

                        (1,804

                        )

                        

                        

                        $

                        2,727

                        

                        

                        

                        $

                        1,427

                        

                        

                        $

                        5,581Securities available for sale:Net change in unrealized (losses)

                        

                        $

                        (736

                        )

                        

                        

                        $

                        (2,110

                        )

                        

                        

                        $

                        (1,201

                        )

                        

                        $

                        (1,087

                        )Related income tax expense

                        

                        

                        286

                        

                        

                        

                        

                        834

                        

                        

                        

                        

                        548

                        

                        

                        

                        444Net securities gains reclassified into earnings

                        

                        $

                        (36

                        )

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        (734

                        )

                        

                        $

                        (555

                        )Related income tax benefit

                        

                        

                        16

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        215

                        

                        

                        

                        206Net effect on other comprehensive income for the period

                        

                        

                        (470

                        )

                        

                        

                        

                        (1,276

                        )

                        

                        

                        

                        (1,172

                        )

                        

                        

                        (992

                        )Comprehensive (loss) income

                        

                        $

                        (2,274

                        )

                        

                        

                        $

                        1,451

                        

                        

                        

                        $

                        255

                        

                        

                        $

                        4,589
  Note 3. Earnings Per Share Data  The following table sets forth the computation of basic and diluted earnings per share for the periods indicated:  Three Months Ended June 30,

                        

                        

                        

                        SixMonthsEndedJune30,2009

                        

                        

                        

                        2008

                        

                        

                        

                        2009

                        

                        

                        

                        2008(In thousands, except share and per share data)Net (loss) income

                        

                        $

                        (1,804

                        )

                        

                        

                        $

                        2,727

                        

                        

                        

                        $

                        1,427

                        

                        

                        

                        $

                        5,581Dividends and discount accretion on preferred shares

                        

                        

                        529

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        552

                        

                        

                        

                        

                        —Net (loss) income available to common shareholders

                        

                        $

                        (2,333

                        )

                        

                        

                        $

                        2,727

                        

                        

                        

                        $

                        875

                        

                        

                        

                        $

                        5,581Weighted average common shares issued

                        

                        

                        6,856,800

                        

                        

                        

                        

                        6,856,800

                        

                        

                        

                        

                        6,856,800

                        

                        

                        

                        

                        6,856,800LESS: Weighted average treasury stock shares

                        

                        

                        (409,720

                        )

                        

                        

                        

                        (366,305

                        )

                        

                        

                        

                        (408,990

                        )

                        

                        

                        

                        (361,759

                        )LESS: Weighted average unearned Employee Stock Ownership Plan (ESOP) stock shares

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        (1,210

                        )Weighted average common shares outstanding, net

                        

                        

                        6,447,080

                        

                        

                        

                        

                        6,490,495

                        

                        

                        

                        

                        6,447,810

                        

                        

                        

                        

                        6,493,831Basic (loss) earnings per common share

                        

                        $

                        (0.36

                        )

                        

                        

                        $

                        0.42

                        

                        

                        

                        $

                        0.14

                        

                        

                        

                        $

                        0.86Weighted average dilutive shares from stock option plan

                        

                        

                        —

                        

                        

                        

                        

                        17,531

                        

                        

                        

                        

                        7,922

                        

                        

                        

                        

                        23,388Weighted average common shares outstanding including derivative shares

                        

                        

                        6,447,080

                        

                        

                        

                        

                        6,508,026

                        

                        

                        

                        

                        6,455,732

                        

                        

                        

                        

                        6,517,219Diluted (loss) earnings per common share

                        

                        $

                        (0.36

                        )

                        

                        

                        $

                        0.42

                        

                        

                        

                        $

                        0.14

                        

                        

                        

                        $

                        0.86
  Certain stock options were not included in the above calculation, pursuant to FAS 128, as these stock options would have an anti-dilutive effect as the exercise price is greater than current market prices, or because a net loss is reported for the period. The total number of shares excluded was 421,395 and 262,500 as of June 30, 2009 and June 30, 2008, respectively.  8
  
 Table of contents
  Note 4. Recent Accounting Pronouncements and Regulatory Developments  In April 2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2,Recognition and Presentation of Other-Than-Temporary Impairments.FSP SFAS 115-2 and SFAS 124-2 (i) changes existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entity’s
            management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under FSP SFAS 115-2 and SFAS 124-2, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are
            reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. FSP SFAS 115-2 and SFAS 124-2 are effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of the provisions of FSP SFAS 115-2 and SFAS 124-2 did not have a material impact on the
            Company’s financial statements.  Also in April 2009, the FASB issued FSP SFAS 157-4,Determining Fair value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Indentifying Transactions That Are Not Orderly. FSP SFAS 157-4 relates to determining fair values when there is no active market or where the price inputs being
            used represent distressed sales. It reaffirms what SFAS 157 states is the objective of fair value measurement—to reflect how much an asset would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become
            inactive. FSP SFAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of the provisions of FSP SFAS 157-4 did not have a material impact on the Company’s financial statements.  Also in April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1,Interim Disclosures about Fair Value of Financial Instruments. FSP SFAS 107-1 and APB 28-1 amends SFAS 107,Disclosures about Fair Value of Financial Instruments, to require an entity to provide disclosures about fair
            value of financial instruments in interim financial information and amends Accounting Principles Board (APB) Opinion No. 28,Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. Under FSP SFAS 107-1 and APB 28-1, a publicly traded company shall include disclosures about the fair value of its financial instruments whenever it issues summarized financial
            information for interim reporting periods. In addition, entities must disclose, in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods, the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position, as required by SFAS 107. The new interim disclosures required
            by FSP SFAS 107-1and APB 28-1 are included in the Company’s interim financial statements beginning with the second quarter of 2009. Since this change only resulted in the additional disclosure of information, adoption did not have a significant impact on the Company’s financial statements.  In May 2009, the FASB has issued FASB Statement No. 165,Subsequent Events (SFAS 165).SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.
            Specifically, SFAS 165 provides:  •

                        The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements;
 •

                        The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and
 •

                        The disclosures that an entity should make about events or transactions that occurred after the balance sheet date.
  SFAS 165 became effective for the Company on June 30, 2009 and did not have a significant impact on the Company’s financial statements.  9
  
 Table of contents
  In June 2009 the FASB issued the following two standards which change the way entities account for securitizations and special-purpose entities:  •

                        FASB Statement No. 166,Accounting for Transfers of Financial Assets (SFAS 166);
 •

                        FASB Statement No. 167,Amendments to FASB Interpretation No. 46(R) (SFAS 167).
  SFAS 166 is a revision to FASB Statement No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred
            financial assets. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures.  SFAS 167 is a revision to FASB Interpretation No. 46 (Revised December 2003),Consolidation of Variable Interest Entities, and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a
            reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance.  The new standards will require a number of new disclosures. SFAS 167 will require a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting
            entity’s financial statements. SFAS 166 enhances information reported to users of financial statements by providing greater transparency about transfers of financial assets and an entity’s continuing involvement in transferred financial assets.  SFAS 166 and SFAS 167 will be effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009, or January 1, 2010, for a calendar year-end entity. Early application is not permitted. Management is currently evaluating the provisions of SFAS 166 and SFAS 167 and their potential effect on its financial statements.  Also in June 2009, the FASB issued FASB Statement No. 168, the “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles (SFAS 168). SFAS 168 establishes theFASB Accounting Standards Codification (Codification) as the single source of authoritative U.S. generally accepted
            accounting principles (U.S. GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. SFAS 168 and the Codification are effective for financial statements issued for interim and annual periods ending after September 15, 2009.  When effective, the Codification will supersede all existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. Following SFAS 168, the FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, the
            FASB will issue Accounting Standards Updates, which will serve only to: (a) update the Codification; (b) provide background information about the guidance; and (c) provide the bases for conclusions on the change(s) in the Codification. Management is currently evaluating the provisions of SFAS 168 and its potential effect on its financial statements.  Also in June 2009, the FASB issued FASB Accounting Standards Update 2009-01, Topic 105-Generally Accepted Accounting Principles amendments based on Statement of Financial Accounting Standards No. 168-The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (SFAS 168). FASB Accounting
            Standards Update 2009-01 amends the Codification for the issuance of Statement 168.  Also in June 2009, the FASB issued FASB Accounting Standards Update 2009-02,Omnibus Update-Amendments to Various Topics for Technical Corrections.FASB Accounting Standards Update 2009-02 makes a number of technical corrections to various topics in the Codification.  10
  
 Table of contents
  Note 5. Investment Securities  Carrying amounts and fair values of investment securities are summarized as follows:  AVAILABLE FOR SALE

                        

                        AmortizedCost

                        

                        

                        

                        GrossUnrealizedGains

                        

                        

                        

                        GrossUnrealizedLosses

                        

                        

                        

                        FairValue(In thousands)June 30, 2009Government sponsored agencies

                        

                        $

                        46,205

                        

                        

                        

                        $

                        1,381

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        47,586States and political subdivisions

                        

                        

                        29,257

                        

                        

                        

                        

                        239

                        

                        

                        

                        

                        (286

                        )

                        

                        

                        

                        29,210Mortgage-backed securities

                        

                        

                        32,290

                        

                        

                        

                        

                        391

                        

                        

                        

                        

                        (1,315

                        )

                        

                        

                        

                        31,366Equity securities

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —Totals

                        

                        $

                        107,752

                        

                        

                        

                        $

                        2,011

                        

                        

                        

                        $

                        (1,601

                        )

                        

                        

                        $

                        108,162December 31, 2008Government sponsored agencies

                        

                        $

                        87,890

                        

                        

                        

                        $

                        2,297

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        90,187States and political subdivisions

                        

                        

                        12,771

                        

                        

                        

                        

                        86

                        

                        

                        

                        

                        (37

                        )

                        

                        

                        

                        12,820Equity securities

                        

                        

                        1

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        (1

                        )

                        

                        

                        

                        —Totals

                        

                        $

                        100,662

                        

                        

                        

                        $

                        2,383

                        

                        

                        

                        $

                        (38

                        )

                        

                        

                        $

                        103,007
   HELD TO MATURITY

                        

                        AmortizedCost

                        

                        

                        

                        GrossUnrealizedGains

                        

                        

                        

                        GrossUnrealizedLosses

                        

                        

                        

                        FairValue(In thousands)June 30, 2009States and political subdivisions

                        

                        $

                        8,805

                        

                        

                        

                        $

                        383

                        

                        

                        

                        $

                        (346

                        )

                        

                        

                        $

                        8,842Totals

                        

                        $

                        8,805

                        

                        

                        

                        $

                        383

                        

                        

                        

                        $

                        (346

                        )

                        

                        

                        $

                        8,842December 31, 2008States and political subdivisions

                        

                        $

                        8,927

                        

                        

                        

                        $

                        1,179

                        

                        

                        

                        $

                        (326

                        )

                        

                        

                        $

                        9,780Totals

                        

                        $

                        8,927

                        

                        

                        

                        $

                        1,179

                        

                        

                        

                        $

                        (326

                        )

                        

                        

                        $

                        9,780
   OTHER INVESTMENTS

                        

                        AmortizedCost

                        

                        

                        

                        GrossUnrealized

                            Gains

                        

                        

                        

                        GrossUnrealizedLosses

                        

                        

                        

                        FairValue(In thousands)June 30, 2009Non-marketable equity securities (including FRB and FHLB stock)

                        

                        $

                        6,722

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        6,722Investment in unconsolidated trusts

                        

                        

                        1,116

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        1,116Totals

                        

                        $

                        7,838

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        7,838December 31, 2008Non-marketable equity securities (including FRB and FHLB stock)

                        

                        $

                        4,527

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        4,527Investment in unconsolidated trusts

                        

                        

                        1,116

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        1,116Totals

                        

                        $

                        5,643

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        5,643
   11
  
 Table of contents
  Realized net gains on sale of securities available for sale are summarized as follows:  Three MonthsEnded June 30,

                        

                        

                        

                        Six MonthsEnded June 30,2009

                        

                        

                        

                        2008

                        

                        

                        

                        2009

                        

                        

                        

                        2008(In thousands)Gross realized gains

                        

                        $

                        36

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        734

                        

                        

                        

                        $

                        555Gross realized losses

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —Net gains

                        

                        $

                        36

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        734

                        

                        

                        

                        $

                        555
  A summary of unrealized loss information for investment securities, categorized by security type, at June 30, 2009 and December 31, 2008 is as follows:  Less than 12 Months

                        

                        

                        

                        12MonthsorLonger

                        

                        

                        

                        TotalAVAILABLE FOR SALE

                        

                        FairValue

                        

                        

                        

                        UnrealizedLosses

                        

                        

                        

                        FairValue

                        

                        

                        

                        UnrealizedLosses

                        

                        

                        

                        FairValue

                        

                        

                        

                        UnrealizedLosses(In thousands)June 30, 2009Government sponsored agencies

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —States and political subdivisions

                        

                        

                        12,870

                        

                        

                        

                        

                        (286

                        )

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        12,870

                        

                        

                        

                        

                        (286

                        )Mortgage-backed securities

                        

                        

                        25,417

                        

                        

                        

                        

                        (1,315

                        )

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        25,417

                        

                        

                        

                        

                        (1,315

                        )Equity securities

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —Totals

                        

                        $

                        38,287

                        

                        

                        

                        $

                        (1,601

                        )

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        38,287

                        

                        

                        

                        $

                        (1,601

                        )December 31, 2008Government sponsored agencies

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —States and political subdivisions

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        947

                        

                        

                        

                        

                        (37

                        )

                        

                        

                        

                        947

                        

                        

                        

                        

                        (37

                        )Equity securities

                        

                        

                        1

                        

                        

                        

                        

                        (1

                        )

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        1

                        

                        

                        

                        

                        (1

                        )Totals

                        

                        $

                        1

                        

                        

                        

                        $

                        (1

                        )

                        

                        

                        $

                        947

                        

                        

                        

                        $

                        (37

                        )

                        

                        

                        $

                        948

                        

                        

                        

                        $

                        (38

                        )
   Less than 12 Months

                        

                        

                        

                        12 Months or Longer

                        

                        

                        

                        TotalHELD TO MATURITY

                        

                        FairValue

                        

                        

                        

                        UnrealizedLosses

                        

                        

                        

                        FairValue

                        

                        

                        

                        UnrealizedLosses

                        

                        

                        

                        FairValue

                        

                        

                        

                        UnrealizedLosses(In thousands)June 30, 2009States and political subdivisions

                        

                        $

                        1,227

                        

                        

                        

                        $

                        (346

                        )

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        1,227

                        

                        

                        

                        $

                        (346

                        )Totals

                        

                        $

                        1,227

                        

                        

                        

                        $

                        (346

                        )

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        1,227

                        

                        

                        

                        $

                        (346

                        )December 31, 2008States and political subdivisions

                        

                        $

                        1,315

                        

                        

                        

                        $

                        (326

                        )

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        1,315

                        

                        

                        

                        $

                        (326

                        )Totals

                        

                        $

                        1,315

                        

                        

                        

                        $

                        (326

                        )

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        1,315

                        

                        

                        

                        $

                        (326

                        )
  No securities held as of June 30, 2009 had unrealized losses for twelve months or longer. The $37 thousand unrealized losses in available for sale securities twelve months or longer as of December 31, 2008 relates to unrealized losses on securities issued by local municipal issues with an S&P quality rating of AAA. The Company has the ability to hold these securities until they
            mature.  12
  
 Table of contents
  Note 6. Stock Option Plan  The Company’s 1998 Stock Option Plan (“1998 Plan”) and Trinity Capital Corporation 2005 Stock Incentive Plan (“2005 Plan”) were created for the benefit of key management and select employees. Under the 1998 Plan, 400,000 shares (as adjusted for the stock split of December 19, 2002) from shares held in treasury or authorized but unissued common stock are
            reserved for granting options. Under the 2005 Plan, 500,000 shares from shares held in treasury or authorized but unissued common stock are reserved for granting stock-based incentive awards. Both of these plans were approved by the Company’s shareholders. The Board of Directors determine vesting and pricing of the awards. All stock options granted through December 31, 2005 were granted at or above the market value of the stock at the date of the grant, with the exception of
            the July 1998 stock option grant which was granted at $0.25 below the last reported sale price on the date of grant. All stock options vest in equal amounts over a three year period and must be exercised within ten years of the date of grant. Stock appreciation rights granted through December 31, 2008 were also granted at or above the market value of the stock at the date of the grant, with the exception of the January 1, 2006 stock appreciation right grants which were approved on
            December 15, 2005 and granted at the December 31, 2005 closing price to take advantage of accounting changes favorable to Trinity. All stock appreciation rights vest and mature at five years.  Under the provisions of SFAS 123(R), the Company is required to recognize compensation expense for share-based compensation that vests after adoption of the standard. The Company uses the Black-Scholes model to value the stock options and stock appreciation rights on the date of the grant, and recognizes this expense over the remaining vesting term for the stock options or stock
            appreciation rights. Key assumptions used in this valuation method (detailed below) are the volatility of the Company’s stock price, a risk-free rate of return (using the U.S. Treasury yield curve) based on the expected term from grant date to exercise date and an annual dividend rate based upon the current market price. Expected term from grant date is based upon the historical time from grant to exercise experienced by the Company. Because share-based compensation vesting in
            the current periods was granted on a variety of dates, the assumptions are presented as weighted averages in those assumptions.  There were no stock incentives granted during the three or six months ended June 30, 2009 or 2008.  A summary of stock option and stock appreciation right activity under the 1998 Plan and the 2005 Plan as of June 30, 2009, and changes during the year is presented below:  Shares

                        

                        

                        

                        Weighted-AverageExercise Price

                        

                        

                        

                        Weighted-AverageRemainingContractual Term,in years

                        

                        

                        

                        Aggregate IntrinsicValue (in thousands)Outstanding at January 1, 2009

                        

                        435,395

                        

                        

                        

                        $

                        26.58Granted

                        

                        —

                        

                        

                        

                        

                        —Exercised

                        

                        (14,000

                        )

                        

                        

                        

                        20.00Forfeited or expired

                        

                        —

                        

                        

                        

                        

                        —Outstanding at June 30, 2009

                        

                        421,395

                        

                        

                        

                        $

                        26.80

                        

                        

                        

                        4.22

                        

                        

                        

                        $

                        1,780Exercisable at June 30, 2009

                        

                        237,895

                        

                        

                        

                        $

                        26.37

                        

                        

                        

                        3.96

                        

                        

                        

                        $

                        941
  Steve W. Wells exercised 14,000 non-qualified stock options at $20.00 per share during the three months ended June 30, 2009. The total intrinsic value of options exercised during the six months ended June 30, 2009 and June 30, 2008 was $52 thousand and $62 thousand, respectively.  As of June 30, 2009, there was $331 thousand of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2005 Plan. There was no unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 1998 plan. The unrecognized compensation cost is expected to be recognized over a
            weighted-average vesting period of 2.35 years. In the three month period ended June 30, 2009, $37 thousand was expensed for stock appreciation rights that will vest in 2011 and 2012.  13
  
 Table of contents
  Certain restrictions on future grants of share based compensation have been imposed by the U. S. Treasury as part of its Capital Purchase Program (“CPP”). These limitations include restrictions on the amount that may be granted (no more than 1/3 of the executive's annual compensation), the type (restricted stock only may be granted to executives) and vesting (such grants
            may not vest prior to the repayment of the CPP funds). Interim Final Rules were issued by the Treasury on June 10, 2009, and were made immediately effective. Because Trinity has historically granted stock options and stock appreciation rights to certain of its executive officers and the rules as presented will prohibit continuing those grants, Trinity is evaluating its incentive compensation for executive officers and it is likely that Trinity will change its program during the time
            Trinity retains CPP funds.  Note 7. Short-Term Borrowings  The Company had Federal Home Loan Bank (FHLB) advances with maturity dates of less than one year of $40.0 million as of June 30, 2009. There were no such advances outstanding as of December 31, 2008. As of June 30, 2009, the advances had fixed interest rates ranging from 1.00% to 4.67%.  Note 8. Long-Term Borrowings  The Company had FHLB advances with maturity dates greater than one year of $13.5 million as of June 30, 2009 and $23.5 million as of December 31, 2008. As of June 30, 2009, the advances had fixed interest rates ranging from 2.57% to 6.34%.  Note 9. Long-term Capital Lease Obligations  The Company is leasing land in Santa Fe and is currently building an office on the site. In July of 2009, Trinity sold the improvements to the Bank and entered into a sublease with the Bank. The construction of the office is underway and expected to be completed in September of 2009. The lease has an 8 year term, expiring in 2014, and contains an option to purchase the land at a set
            price at the termination of the initial term of the lease. This lease is classified as a capital lease. The Company also holds a note and mortgage on this land, and the interest payments received on the note are approximately equal to the payments made on the lease. The principal due on the note at maturity (simultaneous with the lease maturity) will largely offset the option purchase price. This lease is classified as a capital lease. Lease payments for each of the three months
            ended June 30, 2009 and 2008 were $46 thousand. Lease payments for each of the six months ended June 30, 2009 and 2008 were $92 thousand. As of June 30, 2009, the Company had an estimated $1.8 million in construction costs remaining to complete the building.  Note10. Junior Subordinated Debt Owed to Unconsolidated Trusts  The following table presents details on the junior subordinated debt owed to unconsolidated trusts as of June 30, 2009.  Trust I

                        

                        Trust III

                        

                        Trust IV

                        

                        Trust V(Dollars in thousands)Date of issue

                        

                        March 23, 2000

                        

                        May 11, 2004

                        

                        June 29, 2005

                        

                        September 21, 2006Amount of trust preferred securities issued

                        

                        $

                        10,000

                        

                        $

                        6,000

                        

                        $

                        10,000

                        

                        $

                        10,000Rate on trust preferred securities

                        

                        10.875

                        %

                        3.37% (variable

                        )

                        6.88

                        %

                        6.83

                        %Maturity

                        

                        March 8, 2030

                        

                        September 8, 2034

                        

                        November 23, 2035

                        

                        December 15, 2036Date of first redemption

                        

                        March 8, 2010

                        

                        September 8, 2009

                        

                        August 23, 2010

                        

                        September 15, 2011Common equity securities issued

                        

                        $

                        310

                        

                        $

                        186

                        

                        $

                        310

                        

                        $

                        310Junior subordinated deferrable interest debentures owed

                        

                        $

                        10,310

                        

                        $

                        6,186

                        

                        $

                        10,310

                        

                        $

                        10,310Rate on junior subordinated deferrable interest debentures

                        

                        10.875

                        %

                        3.3675% (variable

                        )

                        6.88

                        %

                        6.83

                        %
   14
  
 Table of contents
  On the dates of issue indicated above, the Trusts, being Delaware statutory business trusts, issued trust preferred securities (the “trust preferred securities”) in the amount and at the rate indicated above. These securities represent preferred beneficial interests in the assets of the Trusts. The trust preferred securities will mature on the dates indicated, and are
            redeemable in whole or in part at the option of Trinity at any time after the date of first redemption indicated above, with the approval of the Federal Reserve Board and in whole at any time upon the occurrence of certain events affecting their tax or regulatory capital treatment. The Trusts also issued common equity securities to Trinity in the amounts indicated above. The Trusts used the proceeds of the offering of the trust preferred securities to purchase junior subordinated
            deferrable interest debentures (the “debentures”) issued by Trinity, which have terms substantially similar to the trust preferred securities. Trinity has the right to defer payments of interest on the debentures at any time or from time to time for a period of up to ten consecutive semi-annual periods with respect to each interest payment deferred. Under the terms of the debentures, under certain circumstances of default or if Trinity has elected to defer interest on
            the debentures, Trinity may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock. Trinity used the majority of the proceeds from the sale of the debentures to add to Tier 1 and Tier 2 capital in order to support the Bank's growth and to purchase treasury stock.  Trinity owns all of the outstanding common securities of the Trusts. The Trusts are considered variable interest entities (VIEs) underFinancial Accounting Standards Board Interpretation (FIN) No.46, “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin
            No.51,” as revised. Because Trinity is not the primary beneficiary of the Trusts, the financial statements of the Trusts are not included in the consolidated financial statements of the Company.  In March 2005, the Board of Governors of the Federal Reserve System issued a final rule allowing bank holding companies to continue to include qualifying trust preferred securities in their Tier 1 Capital for regulatory capital purposes, subject to a 25% limitation to all core (Tier I) capital elements, net of goodwill less any associated deferred tax liability. The final
            rule provides a five-year transition period, ending March 31, 2009, for application of the aforementioned quantitative limitation. In April 2009, this five-year transition period was extended for an additional year. As of June 30, 2009, 100% of the trust preferred securities noted in the table above qualified as Tier 1 capital under the final rule adopted in March 2005.  Payments of distributions on the trust preferred securities and payments on redemption of the trust preferred securities are guaranteed by Trinity on a limited basis. Trinity also entered into an agreement as to expenses and liabilities with the Trusts pursuant to which it agreed, on a subordinated basis, to pay any costs, expenses or liabilities of the Trusts other than those arising
            under the trust preferred securities. The obligations of Trinity under the junior subordinated debentures, the related indenture, the trust agreement establishing the Trusts, the guarantee and the agreement as to expenses and liabilities, in the aggregate, constitute a full and unconditional guarantee by Trinity of the Trusts’ obligations under the trust preferred securities.  Issuance costs of $406 thousand related to Trust I and Trust III were deferred and are being amortized over the period until mandatory redemption of the securities in March 2030 and September 2034, respectively. During each of the three month periods ended June 30, 2009 and 2008, $3 thousand of these issuance costs were amortized. During each of the six month periods ended
            June 30, 2009 and 2008, $7 thousand of these issuance costs were amortized. Unamortized issuance costs were $290 thousand and $297 thousand at June 30, 2009 and December 31, 2008, respectively. There were no issuance costs associated with the other trust preferred security issues.  Dividends accrued and unpaid to securities holders totaled $479 thousand and $485 thousand on June 30, 2009 and December 31, 2008, respectively.  Note11. Commitments, Contingencies and Off-Balance Sheet Activities  Credit-related financial instruments:The Company is a party to credit-related commitments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These credit-related commitments include commitments to extend credit, standby letters of credit and commercial letters of credit. Such credit-related
            commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.  15
  
 Table of contents
  The Company’s exposure to credit loss is represented by the contractual amount of these credit-related commitments. The Company follows the same credit policies in making credit-related commitments as it does for on-balance-sheet instruments.  At June 30, 2009 and December 31, 2008, the following credit-related commitments were outstanding:  Contract AmountJune 30, 2009

                        

                        

                        

                        December 31, 2008(In thousands)Unfunded commitments under lines of credit

                        

                        $

                        193,638

                        

                        

                        

                        $

                        201,001Commercial and standby letters of credit

                        

                        

                        18,726

                        

                        

                        

                        

                        20,468
  Commitments to extend credit under lines of 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 a payment of a fee. The commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment
            amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Company, is based on management’s credit evaluation of the customer. Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. Overdraft protection agreements are uncollateralized, but most other unfunded commitments
            under lines of credit have collateral. These unfunded lines of credit usually do not contain a specified maturity date and may not necessarily be drawn upon to the total extent to which the Company is committed.  Commercial and standby letters of credit are conditional credit-related commitments issued by the Company to guarantee the performance of a customer to a third party. Letters of credit are primarily issued to support public and private borrowing arrangements. Typically, letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of
            credit is the same as that involved in extending loans to customers. The Company holds collateral supporting those credit-related commitments, if deemed necessary. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the credit-related commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount shown
            in the summary above. If the credit-related commitment is funded, the Company would be entitled to seek recovery from the customer. At June 30, 2009 and December 31, 2008, no amounts have been recorded as liabilities for the Company’s potential obligations under these credit-related commitments. The fair value of these credit-related commitments is approximately equal to the fees collected when granting these letters of credit. These fees collected were $28 thousand and $38
            thousand as of June 30, 2009 and December 31, 2008, respectively, and are included in “other liabilities” on the Company’s balance sheet.  Concentrations of credit risk:The majority of the loans, commitments to extend credit, and standby letters of credit have been granted to customers in Los Alamos, Santa Fe and surrounding communities. Although the Company has a diversified loan portfolio, a substantial portion of its loans are made to businesses and individuals associated with, or
            employed by, Los Alamos National Laboratory (“the Laboratory”) as further discussed within Item 1A of Part I of Trinity’s Form 10-K (as amended) for the year ended December 31, 2008. The ability of such borrowers to honor their contracts is predominately dependent upon the continued operation and funding of the Laboratory. Investments in securities issued by states and political subdivisions involve governmental entities within the state of New Mexico. The
            distribution of commitments to extend credit approximates the distribution of loans outstanding. Standby letters of credit were granted primarily to commercial borrowers.  16
  
 Table of contents
  Note 12. Preferred Equity Issues  On March 27, 2009, the Company issued two series of preferred shares to the Treasury under the Capital Purchase Program (“CPP”). Below is a table disclosing the information on these two series:  Number ofshares issued

                        

                        

                        

                        Dividend rate

                        

                        

                        Liquidationvalue per share

                        

                        

                        

                        Original cost,in thousandsSeries A cumulative perpetual preferred shares

                        

                        35,539

                        

                        

                        

                        5 % for the first 5 years, thereafter 9%

                        

                        

                        $

                        1,000

                        

                        

                        

                        $

                        33,437Series B cumulative perpetual preferred shares

                        

                        1,777

                        

                        

                        

                        9%

                        

                        

                        

                        1,000

                        

                        

                        

                        

                        2,102
  Dividends are paid quarterly to Treasury, and the amount of any unpaid dividends outstanding at the end of the quarter is an outstanding liability in “other liabilities” on the balance sheet. The amount of dividends accrued and unpaid as of June 30, 2009 was $247 thousand.  The difference between the liquidation value of the preferred shares and the original cost is being accreted (for series A) or amortized (for series A) over 10 years. The net difference of this amortization and accretion is posted directly to capital. During the three months ended June 30, 2009, a net amount of $44 thousand was accreted to equity. During the six months ended June 30,
            2009, a net amount of $46 thousand was accreted to equity.  Both the dividends and net accretion on the preferred shares reduce the amount of net income available to common shareholders. During the three months ended June 30, 2009, the total of these two amounts was $529 thousand. During the six months ended June 30, 2009, the total of these two amounts was $552 thousand.  Note 13. Litigation  Trinity, the Bank, Title Guaranty, TCC Advisors and TCC Funds were not involved in any pending legal proceedings, other than routine legal proceedings occurring in the normal course of business and those otherwise specifically stated herein, which, in the opinion of management, in the aggregate, were material to the Company’s consolidated financial condition.  Note 14. Fair Value Measurements  Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157,Fair Value Measurements for financial assets and financial liabilities. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value
            measurements. Valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about market value. These two types of inputs create the following fair value hierarchy:  •

                        Level 1 - Quoted prices for identical instruments in active markets.
 •

                        Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable.
 •

                        Level 3- Instruments whose significant value drivers are unobservable.
  17
  
 Table of contents
  The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring basis at June 30, 2009:  Level 1 Inputs

                        

                        Level 2 Inputs

                        

                        Level 3 Inputs

                        

                        Total Fair Value(In thousands)Foreign currency in vault

                        $

                        350

                        

                        $

                        —

                        

                        $

                        —

                        

                        $

                        350Securities available for sale

                        

                        —

                        

                        

                        108,162

                        

                        

                        —

                        

                        

                        108,162Derivative assets

                        

                        —

                        

                        

                        192

                        

                        

                        —

                        

                        

                        192Derivative liabilities

                        

                        —

                        

                        

                        (16

                        )

                        

                        —

                        

                        

                        (16

                        )
  Foreign currency in vault is valued at current market values in actively traded currency markets. Changes in fair market values are recorded in other income.  Securities available for sale are valued based upon open-market quotes obtained from reputable third-party brokers. Market pricing is based upon specific CUSIP identification for each individual security. Changes in fair market value are recorded in other comprehensive income as the securities are available for sale.  Derivative assets and liabilities represent interest rate contracts between the Company and loan customers, and between the Company and outside parties to whom we have made a commitment to sell residential mortgage loans at a set interest rate. These are valued based upon the differential between the interest rates upon the inception of the contract and the current market interest
            rates for similar products. Changes in market value are recorded in current earnings.  Certain financial and non-financial assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). These assets are recorded at the lower of amortized cost or current market
            value, and a valuation allowance reflects any unrealized market value losses, offset to an expense account. The following table summarizes the Company’s financial instruments that were measured at fair value on a non-recurring basis at June 30, 2009:  Level 1 Inputs

                        

                        Level 2 Inputs

                        

                        Level 3 Inputs

                        

                        Total Fair Value(In thousands)Impaired loans

                        $

                        —

                        

                        $

                        —

                        

                        $

                        10,317

                        

                        $

                        10,317Loans held for sale

                        

                        —

                        

                        

                        4,356

                        

                        

                        —

                        

                        

                        4,356Mortgage servicing rights

                        

                        —

                        

                        

                        —

                        

                        

                        3,186

                        

                        

                        3,186Foreclosed assets

                        

                        —

                        

                        

                        —

                        

                        

                        1,027

                        

                        

                        1,027
  Fair value measurements for impaired loans are performed pursuant to SFAS No. 114, and are based upon one of three methods to measure impairment: the fair value of the collateral less disposition costs, the present value of expected future cash flows method, or the observable market price of a loan method. A loan may be considered impaired, but the value is considered sufficient to
            support a fair value equal to or greater than the carrying value of the loan, and no specific reserve is deemed necessary to record such impairment. In addition, impaired loans are generally written down to the impaired value rather than carrying a specific allocation in the reserve for loan losses. There was $577 thousand in allocations for specific identified loans on June 30, 2009 and no allocations for specific identified loans on December 31, 2008. Adjustments to the estimated
            fair value of impaired loans may result in increases or decreases to the provision for loan losses recorded in current earnings. All other impaired loans included in the table above have been charged down to estimated fair value.  Loans held for sale are valued based upon open market quotes obtained from the Federal National Mortgage Association (FNMA). Market pricing is based upon mortgage loans with similar terms and interest rates. The change in market value (up to the amortized value of the loans held for sale) is recorded as an adjustment to the loans held for sale valuation allowance, with the offset
            being recorded as an addition or a reduction in current earnings.  18
  
 Table of contents
  Mortgage servicing rights (MSRs) are valued based upon the value of MSRs that are traded on the open market and a current market value for each risk tranche in our portfolio is assigned. We then compare that market value to the current amortized book value for each tranche. The change in market value (up to the amortized value of the MSR) is recorded as an adjustment to the MSR
            valuation allowance, with the offset being recorded as an addition or a reduction in current earnings. Only the tranches that are deemed impaired are included in the above table.  Non-Financial Assets and Non-Financial Liabilities: Certain non-financial assets measured at fair value on a non-recurring basis included foreclosed assets (upon initial recognition or subsequent impairment) and intangible assets measured at fair value for impairment assessment.  During the second quarter of 2009, certain foreclosed assets, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed asset, less estimated costs of disposal. The fair value of foreclosed asset, upon initial recognition, is estimated using Level 2 inputs based on observable
            market data or Level 3 inputs based on customized discounting criteria. Foreclosed assets measured at fair value (less estimated disposal costs) upon initial recognition totaled $7.0 million and $9.8 million (utilizing Level 3 valuation inputs) during the three and six months ended June 30, 2009, respectively. In connection with the measurement and initial recognition of the foregoing foreclosed assets, the Company recognized charge-offs of the allowance for loan losses totaling
            $1.8 million and $2.0 million, in each respective period. Other than foreclosed assets measured at fair value (less estimated disposal costs) upon initial recognition, a total of $917 thousand and $1.8 million in foreclosed assets were remeasured at fair value during the three and six months ended June 30, 2009, respectively, resulting in a charge of $148 thousand and $270 thousand to current earnings in each respective period.  In accordance with FSP SFAS 107-1 and APB 28-1,Interim Disclosures about Fair Value of Financial Instruments, below is a table on fair values of financial instruments as of June 30, 2009 and December 31, 2008.  June 30, 2009

                        

                        

                        

                        December31,2008CarryingAmount

                        

                        

                        

                        EstimatedFairValue

                        

                        

                        

                        CarryingAmount

                        

                        

                        

                        EstimatedFairValue(In thousands)Financial Assets:Cash and due from banks

                        

                        $

                        15,531

                        

                        

                        

                        $

                        15,531

                        

                        

                        

                        $

                        18,259

                        

                        

                        

                        $

                        18,259Interest-bearing deposits with banks

                        

                        

                        108,551

                        

                        

                        

                        

                        108,551

                        

                        

                        

                        

                        6,800

                        

                        

                        

                        

                        6,800Federal funds sold and securities purchased under resell agreements

                        

                        

                        821

                        

                        

                        

                        

                        821

                        

                        

                        

                        

                        203

                        

                        

                        

                        

                        203Investments:Available for sale

                        

                        

                        108,162

                        

                        

                        

                        

                        108,162

                        

                        

                        

                        

                        103,007

                        

                        

                        

                        

                        103,007Held to maturity

                        

                        

                        8,805

                        

                        

                        

                        

                        8,842

                        

                        

                        

                        

                        8,927

                        

                        

                        

                        

                        9,780Other investments

                        

                        

                        7,838

                        

                        

                        

                        

                        7,838

                        

                        

                        

                        

                        5,643

                        

                        

                        

                        

                        5,643Loans, net

                        

                        

                        1,233,733

                        

                        

                        

                        

                        1,250,021

                        

                        

                        

                        

                        1,215,304

                        

                        

                        

                        

                        1,234,426Loans held for sale

                        

                        

                        12,537

                        

                        

                        

                        

                        12,794

                        

                        

                        

                        

                        8,603

                        

                        

                        

                        

                        8,716Accrued interest receivable

                        

                        

                        7,368

                        

                        

                        

                        

                        7,368

                        

                        

                        

                        

                        7,889

                        

                        

                        

                        

                        7,889Mortgage servicing rights

                        

                        

                        7,070

                        

                        

                        

                        

                        8,001

                        

                        

                        

                        

                        5,271

                        

                        

                        

                        

                        5,730Interest rate lock commitments, mandatory forward delivery commitments and pair offs, net asset

                        

                        

                        192

                        

                        

                        

                        

                        192

                        

                        

                        

                        

                        58

                        

                        

                        

                        

                        58
  (Continued on following page)  19
  
 Table of contents
  (Continued from prior page)  June 30, 2009

                        

                        

                        

                        December31,2008CarryingAmount

                        

                        

                        

                        EstimatedFairValue

                        

                        

                        

                        CarryingAmount

                        

                        

                        

                        EstimatedFairValue(In thousands)Financial Liabilities:Non-interest bearing deposits

                        

                        $

                        83,753

                        

                        

                        

                        $

                        83,753

                        

                        

                        

                        $

                        84,038

                        

                        

                        

                        $

                        84,038Interest-bearing deposits

                        

                        

                        1,249,863

                        

                        

                        

                        

                        1,255,281

                        

                        

                        

                        

                        1,167,556

                        

                        

                        

                        

                        1,171,202Short-term borrowings

                        

                        

                        40,000

                        

                        

                        

                        

                        40,585

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —Long-term borrowings

                        

                        

                        13,513

                        

                        

                        

                        

                        14,523

                        

                        

                        

                        

                        23,532

                        

                        

                        

                        

                        25,148Junior subordinated debt owed to unconsolidated trusts

                        

                        

                        37,116

                        

                        

                        

                        

                        23,192

                        

                        

                        

                        

                        37,116

                        

                        

                        

                        

                        19,015Accrued interest payable

                        

                        

                        5,338

                        

                        

                        

                        

                        5,338

                        

                        

                        

                        

                        5,821

                        

                        

                        

                        

                        5,821Interest rate lock commitments, mandatory forward delivery commitments and pair offs, net liability

                        

                        

                        16

                        

                        

                        

                        

                        16

                        

                        

                        

                        

                        118

                        

                        

                        

                        

                        118Off-balance-sheet instruments:Loan commitments and standby letters of credit

                        

                        $

                        —

                        

                        

                        

                        $

                        28

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        38
   20
  
 Table of contents
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  This discussion is intended to focus on certain financial information regarding the Company and is written to provide the reader with a more thorough understanding of its financial statements. The following discussion and analysis of the Company’s financial position and results of operations should be read in conjunction with the information set forth in
            Item3, Quantitative and Qualitative Disclosures about Market Risk and the annual audited consolidated financial statements filed on Form 10-K (as amended) for the year ended December 31, 2008.  This report contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (GAAP). These measures include net operating income before provision for loan losses, income taxes and dividends and discount accretion on preferred shares; net interest margin on a fully tax-equivalent basis
            and net interest income on a fully tax-equivalent basis. Management uses these non-GAAP measures in its analysis of the Company’s performance. Net operating income before provision for loan losses, income taxes and dividends and discount accretion on preferred shares represent net income on the core operations of the Company. The tax-equivalent adjustment to net interest margin and net interest income recognizes the income tax savings when comparing taxable and tax-exempt
            assets and adjusting for federal and state exemption of interest income and certain other permanent income tax differences. Management believes that it is a standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis, and accordingly believes the presentation of the financial measures may be useful for peer comparison purposes. This disclosure should not be viewed as a substitute for the results determined to be in
            accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of net interest income on a fully tax-equivalent basis to net interest income and net interest margin on a fully tax-equivalent basis to net interest margin are contained in tables under “Net Interest Income.”  Special Note Concerning Forward-Looking Statements  This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and
            business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,”
            “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.  The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. The factors, which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries are detailed in the “Risk Factors” section included under Item 1A of Part I of the Company’s Form 10-K (as amended)
            for the year ended December 31, 2008. In addition to the risk factors described in that section, there are other factors that may impact any public company, including ours, which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries. These additional factors include, but are not limited to, the following:   •

                    

                    The economic impact of past and any future terrorist attacks, acts of war or threats thereof and the response of the United States to any such threats and attacks.•

                    

                    The costs, effects and outcomes of existing or future litigation.•

                    

                    Consumer spending and savings habits which may change in a manner that affects our business adversely.•

                    

                    Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board.•

                    

                    The ability of the Company to manage the risks associated with the foregoing as well as anticipated.    21
  
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  These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  Critical Accounting Policies  Allowance for Loan Losses:The allowance for loan losses is that amount which, in management’s judgment, is considered appropriate to provide for probable losses in the loan portfolio. In analyzing the adequacy of the allowance for loan losses, management uses a comprehensive loan grading system to determine risk potential in the
            portfolio, and considers the results of periodic internal and external loan reviews. Historical loss experience factors and specific reserves for impaired loans, combined with other considerations, such as delinquency, non-accrual, trends on criticized and classified loans, economic conditions, concentrations of credit risk, and experience and abilities of lending personnel, are also considered in analyzing the adequacy of the allowance. Management uses a systematic methodology,
            which is applied at least quarterly, to determine the amount of allowance for loan losses and the resultant provisions for loan losses it considers adequate to provide for anticipated loan losses. This methodology includes a periodic detailed analysis of the loan portfolio, a systematic loan grading system and a periodic review of the summary of the allowance for loan and lease loss balance. In the event that different assumptions or conditions were to prevail, and depending upon
            the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood.  Three methods are used to evaluate the adequacy of the allowance for loan losses: (1) specific identification, based on management’s assessment of loans in our portfolio and the probability that a charge-off will occur in the upcoming quarter, per SFAS 114; (2) losses probable in the loan portfolio besides those specifically identified, based upon a migration analysis of the
            percentage of loans currently performing that have probable losses, as set forth in SFAS 5; and (3) qualitative adjustments based on management’s assessment of certain risks such as delinquency trends, watch-list and classified trends, changes in concentrations, economic trends, industry trends, non-accrual trends, exceptions and loan-to-value guidelines, management and staff changes and policy or procedure changes (as set forth in SFAS 5).  While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, as an integral part of their examination process regulatory agencies periodically review our allowance for loan losses and may require us to make additions to the allowance based on their
            evaluation of information available at the time of their examinations.  During the three month period ending June 30, 2009, the Company has experienced continued deterioration in asset quality, as measured by non-performing assets and classified loans that are still performing. As the Company has consistently maintained a high percentage of real-estate loans, the weak real estate market in the areas of the Company’s operations has resulted in a
            significant number of loans being downgraded or placed on non-accrual status. Management remains concerned about possible losses in its real estate loan portfolio, and as a result, has greatly increased the provision for loan losses during the quarter. Although the Company experienced positive net operating income before income taxes and loan loss provision, the additional loan loss provision has resulted in a net operating loss during the quarter. Management deemed the additional
            allocations to be a necessary and prudent step to reserve against further deterioration in asset quality. Management will continue to closely monitor asset quality in general and real estate loan quality in particular and is committed to act aggressively to minimize further losses.  22
  
 Table of contents
  Mortgage Servicing Right (MSR) Assets:Servicing residential mortgage loans for third-party investors represents a significant business activity of the Bank. As of June 30, 2009, mortgage loans serviced for others totaled $973.0 million. The net carrying amount of the MSRs on these loans total $7.1 million as of June 30, 2009. The expected and
            actual rates of mortgage loan prepayments are the most significant factors driving the value of MSRs. Increases in mortgage loan prepayments reduce estimated future net servicing cash flows because the life of the underlying loan is reduced. In determining the fair value of the MSRs, mortgage interest rates, which are used to determine prepayment rates and discount rates, are held constant over the estimated life of the portfolio. Fair values of the MSRs are calculated on a monthly
            basis. The values are based upon current market conditions and assumptions, which incorporate the expected life of the loans, estimated costs to service the loans, servicing fees to be received and other factors. MSRs are carried at the lower of the initial capitalized amount, net of accumulated amortization, or fair value.  The fair value of the MSRs is driven primarily by the effect current mortgage interest rates have on the likelihood borrowers will prepay the underlying mortgages by refinancing at a lower rate. Accordingly, higher interest rates decrease the likelihood of prepayment, extending the life of the MSRs and increasing the value of these assets. Lower interest rates increase the likelihood
            of prepayment, contracting the life of the MSRs and decreasing the value of these assets. This can have a significant impact on our income. There is no certainty on the direction and amount of interest rate changes looking forward, and therefore, there is no certainty on the amount or direction of the change in valuation.  An analysis of changes in mortgage servicing rights asset follows:  Three Months Ended June 30,

                        

                        

                        

                        Six Months Ended June 30,2009

                        

                        

                        

                        2008

                        

                        

                        

                        2009

                        

                        

                        

                        2008(In thousands)Balance at beginning of period

                        

                        $

                        7,746

                        

                        

                        

                        $

                        8,086

                        

                        

                        

                        $

                        6,908

                        

                        

                        

                        $

                        8,250Servicing rights originated and capitalized

                        

                        

                        1,206

                        

                        

                        

                        

                        440

                        

                        

                        

                        

                        2,686

                        

                        

                        

                        

                        995Amortization

                        

                        

                        (647

                        )

                        

                        

                        

                        (702

                        )

                        

                        

                        

                        (1,289

                        )

                        

                        

                        

                        (1,421

                        )$

                        8,305

                        

                        

                        

                        $

                        7,824

                        

                        

                        

                        $

                        8,305

                        

                        

                        

                        $

                        7,824
  Below is an analysis of changes in the mortgage servicing right asset valuation allowance:  Three Months Ended June 30,

                        

                        

                        

                        Six Months Ended June 30,2009

                        

                        

                        

                        2008

                        

                        

                        

                        2009

                        

                        

                        

                        2008(In thousands)Balance at beginning of period

                        

                        $

                        (1,981

                        )

                        

                        

                        $

                        (370

                        )

                        

                        

                        $

                        (1,637

                        )

                        

                        

                        $

                        (184

                        )Aggregate reductions credited to operations

                        

                        

                        746

                        

                        

                        

                        

                        384

                        

                        

                        

                        

                        1,250

                        

                        

                        

                        

                        1,344Aggregate additions charged to operations

                        

                        

                        —

                        

                        

                        

                        

                        (17

                        )

                        

                        

                        

                        (848

                        )

                        

                        

                        

                        (1,163

                        )$

                        (1,235

                        )

                        

                        

                        $

                        (3

                        )

                        

                        

                        $

                        (1,235

                        )

                        

                        

                        $

                        (3

                        )
  The fair values of the MSRs were $8.0 million and $5.7 million on June 30, 2009 and December 31, 2008, respectively.  The primary risk characteristics of the underlying loans used to stratify the servicing assets for the purposes of measuring impairment are interest rate and original term.  Our valuation allowance is used to recognize impairments of our MSRs. An MSR is considered impaired when the market value of the MSR is below the amortized book value of the MSR. The MSRs are accounted by risk tranche, with the interest rate and term of the underlying loan being the primary strata used in distinguishing the tranches. Each tranche is evaluated separately for
            impairment.  23
  
 Table of contents
  We have our MSRs analyzed for impairment on a monthly basis. The underlying loans on all serviced loans are analyzed and, based upon the value of MSRs that are traded on the open market, a current market value for each risk tranche in our portfolio is assigned. We then compare that market value to the current amortized book value for each tranche. The change in market value (up to the
            amortized value of the MSR) is recorded as an adjustment to the MSR valuation allowance, with the offset being recorded as an addition or a reduction to income.  The impairment is analyzed for other than temporary impairment on a quarterly basis. The MSRs would be considered other than temporarily impaired if there is likelihood that the impairment would not be recovered before the expected maturity of the asset. If the underlying mortgage loans have been amortized at a rate greater than the amortization of the MSR, the MSR may be other than
            temporarily impaired. As of June 30, 2009, none of the MSRs were considered other than temporarily impaired.  The following assumptions were used to calculate the market value of the MSRs as of June 30, 2009, December 31, 2008 and June 30, 2008:  At June 30,

                        

                        

                        

                        At December 31,

                        

                        

                        

                        At June 30,2009

                        

                        

                        

                        2008

                        

                        

                        

                        2008Prepayment Standard Assumption (PSA) speed

                        

                        253.00

                        %

                        

                        

                        390.00

                        %

                        

                        

                        190.00

                        %Discount rate

                        

                        10.76

                        

                        

                        

                        10.76

                        

                        

                        

                        10.25Earnings rate

                        

                        2.75

                        

                        

                        

                        3.50

                        

                        

                        

                        4.00
  Overview  The Company’s net income available to common shareholders decreased by $5.5 million (172.7%) from the quarter ended March 31, 2009 to the quarter ended June 30, 2009. In addition, the Company’s net income available to common shareholders decreased $5.1 million (185.6%) from the second quarter of 2008 to the second quarter of 2009. The decrease from the first quarter of
            2009 was mainly due to an increase in the provision for loan losses and a decrease in non-interest income. The decrease from the second quarter of 2008 was primarily due to an increase in the provision for loan losses and an increase in non-interest expense, which was partially offset by an increase in net interest income and an increase in non-interest income. Total assets grew $145.5 million (10.3%) from December 31, 2008 to June 30, 2009.  24
  
 Table of contents
  Results of Operations  General.The Company experienced net operating income before income taxes, provision for loan losses and dividends and discount accretion on preferred shares of $9.4 million during the second quarter of 2009, compared to net operating income of $5.5 million during the same period in 2008. This represented an increase of $3.9 million (71.5%). Net
            income available to common shareholders for the second quarter of 2009 decreased to a loss of $(2.3) million or $(0.36) diluted earnings per share, compared to $2.7 million or $0.42 diluted earnings per share for the same period in 2008, a decrease of $5.1 million (185.6%) in net income and a decrease in earnings per share of $0.78 (185.7%). This decrease in net income was primarily due to an increase in the provision for loan losses of $11.4 million (952.7%) and an increase in
            non-interest expense of $724 thousand (8.1%). The provision for loan losses increased pursuant to management’s loan loss reserve analysis, which indicated that it would be prudent to increase the allowance to help insure that probable losses inherent in the Bank’s loan portfolio are adequately covered. For further information on the provision for loan losses, please see discussion in “Critical Accounting Policies –Allowance for Loan Losses” above. The
            increase in non-interest expense was mainly due to an increase in FDIC insurance premiums which was experienced industry-wide. These items were partially offset by an increase in net interest income of $2.7 million (23.8%) and an increase in non-interest income of $1.9 million (64.2%). The increase in net interest income was primarily due to a decline in interest expense due to a lower interest rate environment. The increase in non-interest income was primarily due to an increase in
            the gain on sale of loans, caused by a large volume of mortgage loan sales due to heavy refinancing volume in the lower interest rate environment. Income tax expenses decreased $3.0 million (188.3%) due to lower pre-tax income. Additionally, during the second quarter of 2009 there were dividends and discount accretion on preferred shares issued to the Treasury as part of Trinity’s participation in the Capital Purchase Program (“CPP”) of $529 thousand; there were no
            such dividends and discount accretion in the second quarter of 2008.  The Company experienced net operating income before income taxes, provision for loan losses and dividends and discount accretion on preferred shares of $18.8 million during the first six months of 2009, compared to net operating income of $11.1 million during the same period in 2008. This represented an increase of $7.7 million (69.2%). Net income available to common shareholders for
            the first six months of 2009 decreased to $875 thousand or $0.14 diluted earnings per share, compared to $5.6 million or $0.86 diluted earnings per share for the same period in 2008, a decrease of $4.7 million (84.3%) in net income and a decrease in earnings per share of $0.72 (83.7%). This decrease in net income was primarily due to an increase in the provision for loan losses of $14.5 million (646.4%) and an increase in non-interest expense of $1.8 million (9.9%). For further
            information on the provision for loan losses, please see discussion in “Critical Accounting Policies –Allowance for Loan Losses” above. In addition to the factors that affected the Company in the second quarter discussed above, the increase in non-interest expense was also affected by an increase in losses on sale of real estate acquired through foreclosure. Partially offsetting these losses was an increase in non-interest income of $5.0 million (77.1%) and an
            increase in net interest income of $4.5 million (19.7%). The increase in non-interest income was primarily due to an increase in the gain on sale of loans, and the increase in net interest income was primarily due to a decline in interest expense due to a lower interest rate environment. Income tax expenses decreased $2.7 million (82.0%) due to lower pre-tax income. Additionally, during the first six months of 2009 there were dividends and discount accretion on preferred shares
            issued to the Treasury as part of Trinity’s participation in the CPP; there were no such dividends and discount accretion in the first six months of 2008.  The profitability of the Company’s operations depends primarily on its net interest income, which is the difference between total interest earned on interest-earning assets and total interest paid on interest-bearing liabilities. The Company’s net income is also affected by its provision for loan losses as well as other income and other expenses. The provision for loan
            losses reflects the amount management believes to be adequate to cover probable credit losses in the loan portfolio. Non-interest income or other income consists of mortgage loan servicing fees, trust fees, loan and other fees, service charges on deposits, gain on sale of loans, gain on sale of securities, title insurance premiums and other operating income. Other expenses include salaries and employee benefits, occupancy expenses, data processing expenses, marketing, amortization
            and valuation of mortgage servicing rights, amortization and valuation of other intangible assets, supplies expense, loss on other real estate owned, postage, bankcard and ATM network fees, legal, professional and accounting fees, FDIC insurance premiums and other expenses.  25
  
 Table of contents
  The amount of net interest income is affected by changes in the volume and mix of interest-earning assets, the level of interest rates earned on those assets, the volume and mix of interest-bearing liabilities, and the level of interest rates paid on those interest-bearing liabilities. The provision for loan losses is dependent on changes in the loan portfolio and management’s
            assessment of the collectability of the loan portfolio, as well as economic and market conditions. Other income and other expenses are impacted by growth of operations and growth in the number of accounts through both acquisitions and core banking business growth. Growth in operations affects other expenses as a result of additional employees, branch facilities and promotional marketing expenses. Growth in the number of accounts affects other income including service fees as well as
            other expenses such as computer services, supplies, postage, telecommunications and other miscellaneous expenses.  Net Interest Income.The following tables present, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, and the resultant costs, expressed both in dollars and rates:  Three Months Ended June 30,2009

                        

                        

                        

                        2008AverageBalance

                        

                        

                        

                        Interest

                        

                        

                        

                        Yield/Rate

                        

                        

                        

                        AverageBalance

                        

                        

                        

                        Interest

                        

                        

                        

                        Yield/Rate(Dollars in thousands)Interest-earning Assets:Loans(1)

                        

                        $

                        1,217,988

                        

                        

                        

                        $

                        18,998

                        

                        

                        

                        6.26

                        %

                        

                        

                        $

                        1,191,046

                        

                        

                        

                        $

                        19,525

                        

                        

                        

                        6.59

                        %Taxable investment securities

                        

                        

                        75,643

                        

                        

                        

                        

                        946

                        

                        

                        

                        5.02

                        

                        

                        

                        

                        110,747

                        

                        

                        

                        

                        845

                        

                        

                        

                        3.07Investment securities exempt from federal income taxes (2)

                        

                        

                        30,526

                        

                        

                        

                        

                        419

                        

                        

                        

                        5.51

                        

                        

                        

                        

                        15,459

                        

                        

                        

                        

                        311

                        

                        

                        

                        8.09Federal funds sold

                        

                        

                        346

                        

                        

                        

                        

                        —

                        

                        

                        

                        —

                        

                        

                        

                        

                        6,439

                        

                        

                        

                        

                        34

                        

                        

                        

                        2.12Other interest-bearing deposits

                        

                        

                        138,123

                        

                        

                        

                        

                        77

                        

                        

                        

                        0.22

                        

                        

                        

                        

                        25,710

                        

                        

                        

                        

                        129

                        

                        

                        

                        2.02Investment in unconsolidated trust subsidiaries

                        

                        

                        1,116

                        

                        

                        

                        

                        21

                        

                        

                        

                        7.55

                        

                        

                        

                        

                        1,116

                        

                        

                        

                        

                        22

                        

                        

                        

                        7.93Total interest-earning assets

                        

                        

                        1,463,742

                        

                        

                        

                        

                        20,461

                        

                        

                        

                        5.61

                        

                        

                        

                        

                        1,350,517

                        

                        

                        

                        

                        20,866

                        

                        

                        

                        6.21Non-interest-earning assets

                        

                        

                        98,278

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        63,669Total assets

                        

                        $

                        1,562,020

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        $

                        1,414,186Interest-bearing Liabilities:Deposits:NOW deposits

                        

                        $

                        108,534

                        

                        

                        

                        $

                        116

                        

                        

                        

                        0.43

                        %

                        

                        

                        $

                        96,208

                        

                        

                        

                        $

                        290

                        

                        

                        

                        1.21

                        %Money market deposits

                        

                        

                        190,510

                        

                        

                        

                        

                        276

                        

                        

                        

                        0.58

                        

                        

                        

                        

                        197,364

                        

                        

                        

                        

                        587

                        

                        

                        

                        1.20Savings deposits

                        

                        

                        319,512

                        

                        

                        

                        

                        281

                        

                        

                        

                        0.35

                        

                        

                        

                        

                        286,083

                        

                        

                        

                        

                        1,222

                        

                        

                        

                        1.72Time deposits over $100,000

                        

                        

                        393,183

                        

                        

                        

                        

                        2,915

                        

                        

                        

                        2.97

                        

                        

                        

                        

                        325,593

                        

                        

                        

                        

                        3,595

                        

                        

                        

                        4.44Time deposits under $100,000

                        

                        

                        206,515

                        

                        

                        

                        

                        1,429

                        

                        

                        

                        2.78

                        

                        

                        

                        

                        217,248

                        

                        

                        

                        

                        2,248

                        

                        

                        

                        4.16Short-term borrowings, including ESOP borrowings under 1 year

                        

                        

                        39,566

                        

                        

                        

                        

                        189

                        

                        

                        

                        1.92

                        

                        

                        

                        

                        40,027

                        

                        

                        

                        

                        322

                        

                        

                        

                        3.24Long-term borrowings, including ESOP borrowings over 1 year

                        

                        

                        12,889

                        

                        

                        

                        

                        213

                        

                        

                        

                        6.63

                        

                        

                        

                        

                        23,554

                        

                        

                        

                        

                        288

                        

                        

                        

                        4.92Long-term capital lease obligations

                        

                        

                        2,211

                        

                        

                        

                        

                        67

                        

                        

                        

                        12.15

                        

                        

                        

                        

                        2,211

                        

                        

                        

                        

                        67

                        

                        

                        

                        —Junior subordinated debt owed to unconsolidated trusts

                        

                        

                        37,116

                        

                        

                        

                        

                        697

                        

                        

                        

                        7.53

                        

                        

                        

                        

                        37,116

                        

                        

                        

                        

                        726

                        

                        

                        

                        7.87Total interest-bearing liabilities

                        

                        

                        1,310,036

                        

                        

                        

                        

                        6,183

                        

                        

                        

                        1.89

                        

                        

                        

                        

                        1,225,404

                        

                        

                        

                        

                        9,345

                        

                        

                        

                        3.07
  (Continued on following page)  26
  
 Table of contents
  (Continued from prior page)  Three Months Ended June 30,2009

                        

                        

                        

                        2008AverageBalance

                        

                        

                        

                        Interest

                        

                        

                        

                        Yield/Rate

                        

                        

                        

                        AverageBalance

                        

                        

                        

                        Interest

                        

                        

                        

                        Yield/Rate(Dollars in thousands)Demand deposits--non-interest-bearing

                        

                        $

                        40,432

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        $

                        40,482Other non-interest-bearing liabilities

                        

                        

                        82,675

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        57,047Stockholders' equity, including stock owned by ESOP

                        

                        

                        128,877

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        91,253Total liabilities and stockholders equity

                        

                        $

                        1,562,020

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        $

                        1,414,186Net interest income on a fully tax-equivalent basis/interest rate Spread(3)

                        

                        

                        

                        

                        

                        

                        $

                        14,278

                        

                        

                        

                        3.71

                        %

                        

                        

                        

                        

                        

                        

                        

                        $

                        11,521

                        

                        

                        

                        3.15

                        %Net interest margin on a fully tax-equivalent basis(4)

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        3.91

                        %

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        3.43

                        %Net interest margin(4)

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        3.87

                        %

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        3.40

                        %
  ________________  (1)

                        Average loans include non-accrual loans of $41.4 million and $22.3 million for June 30, 2009 and 2008, respectively.  Interest income includes loan origination fees of $954 thousand and $649 thousand for the three months ended June 30, 2009 and 2008, respectively.
 (2)

                        Non-taxable investment income is presented on a fully tax-equivalent basis, adjusting for federal and state exemption of interest income and certain other permanent tax differences.
 (3)

                        Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities and is presented on a fully tax-equivalent basis.
 (4)

                        Net interest margin represents net interest income as a percentage of average interest-earning assets.
  For the second quarter of 2009, net interest income on a fully tax-equivalent basis increased $2.8 million (23.9%) to $14.3 million from $11.5 million for the second quarter of 2008. The increase in net interest income on a fully tax-equivalent basis resulted from a decrease in interest expense of $3.2 million (33.8%), which was partially offset by a decrease in interest income on a
            fully tax-equivalent basis of $405 thousand (1.9%). Interest expense decreased mainly due to a decrease in the cost on interest-bearing liabilities of 118 basis points, which accounted for a decrease in interest expense of $3.7 million. This was partially offset by an increase in average interest-bearing liabilities of $84.6 million (6.9%), which accounted for an increase of $527 thousand in interest expense. Interest income on a fully tax-equivalent basis decreased due to a
            decrease in the yield of interest-earning assets of 60 basis points, which accounted for $878 thousand of the decrease. This was partially offset by an increase in average total interest-earning assets of $147.8 million (10.5%), accounting for an increase in $473 thousand in interest income on a fully tax-equivalent basis. The net interest margin expressed on a fully tax-equivalent basis increased 48 basis points to 3.91% for the quarter ended June 30, 2009 from 3.43% for the
            quarter ended June 30, 2008.  27
  
 Table of contents
   Six Months Ended June 30,2009

                        

                        

                        

                        2008AverageBalance

                        

                        

                        

                        Interest

                        

                        

                        

                        Yield/Rate

                        

                        

                        

                        AverageBalance

                        

                        

                        

                        Interest

                        

                        

                        

                        Yield/Rate(Dollars in thousands)Interest-earning Assets:Loans(1)

                        

                        $

                        1,250,334

                        

                        

                        

                        $

                        37,990

                        

                        

                        

                        6.13

                        %

                        

                        

                        $

                        1,181,477

                        

                        

                        

                        $

                        40,197

                        

                        

                        

                        6.84

                        %Taxable investment securities

                        

                        

                        69,919

                        

                        

                        

                        

                        1,144

                        

                        

                        

                        3.30

                        

                        

                        

                        

                        98,734

                        

                        

                        

                        

                        1,677

                        

                        

                        

                        3.42Investment securities exempt from federal income taxes (2)

                        

                        

                        26,356

                        

                        

                        

                        

                        767

                        

                        

                        

                        5.87

                        

                        

                        

                        

                        15,489

                        

                        

                        

                        

                        621

                        

                        

                        

                        8.06Federal funds sold

                        

                        

                        1,295

                        

                        

                        

                        

                        1

                        

                        

                        

                        0.16

                        

                        

                        

                        

                        7,793

                        

                        

                        

                        

                        111

                        

                        

                        

                        2.86Other interest-bearing deposits

                        

                        

                        88,115

                        

                        

                        

                        

                        86

                        

                        

                        

                        0.20

                        

                        

                        

                        

                        32,802

                        

                        

                        

                        

                        440

                        

                        

                        

                        2.70Investment in unconsolidated trust subsidiaries

                        

                        

                        1,116

                        

                        

                        

                        

                        42

                        

                        

                        

                        7.59

                        

                        

                        

                        

                        1,116

                        

                        

                        

                        

                        44

                        

                        

                        

                        7.93Total interest-earning assets

                        

                        

                        1,437,135

                        

                        

                        

                        

                        40,030

                        

                        

                        

                        5.62

                        

                        

                        

                        

                        1,337,411

                        

                        

                        

                        

                        43,090

                        

                        

                        

                        6.48Non-interest-earning assets

                        

                        

                        57,875

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        62,715Total assets

                        

                        $

                        1,495,010

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        $

                        1,400,126Interest-bearing Liabilities:Deposits:NOW deposits

                        

                        $

                        107,881

                        

                        

                        

                        $

                        237

                        

                        

                        

                        0.44

                        

                        

                        

                        $

                        93,771

                        

                        

                        

                        $

                        672

                        

                        

                        

                        1.44

                        %Money market deposits

                        

                        

                        193,502

                        

                        

                        

                        

                        450

                        

                        

                        

                        0.47

                        

                        

                        

                        

                        197,692

                        

                        

                        

                        

                        1,471

                        

                        

                        

                        1.50Savings deposits

                        

                        

                        319,816

                        

                        

                        

                        

                        661

                        

                        

                        

                        0.42

                        

                        

                        

                        

                        279,000

                        

                        

                        

                        

                        2,694

                        

                        

                        

                        1.94Time deposits over $100,000

                        

                        

                        366,812

                        

                        

                        

                        

                        5,627

                        

                        

                        

                        3.09

                        

                        

                        

                        

                        324,287

                        

                        

                        

                        

                        7,478

                        

                        

                        

                        4.64Time deposits under $100,000

                        

                        

                        209,027

                        

                        

                        

                        

                        2,958

                        

                        

                        

                        2.85

                        

                        

                        

                        

                        216,767

                        

                        

                        

                        

                        4,736

                        

                        

                        

                        4.39Short-term borrowings, including ESOP borrowings under 1 year

                        

                        

                        29,938

                        

                        

                        

                        

                        252

                        

                        

                        

                        1.70

                        

                        

                        

                        

                        40,033

                        

                        

                        

                        

                        645

                        

                        

                        

                        3.24Long-term borrowings, including ESOP borrowings over 1 year

                        

                        

                        20,980

                        

                        

                        

                        

                        524

                        

                        

                        

                        5.04

                        

                        

                        

                        

                        23,558

                        

                        

                        

                        

                        578

                        

                        

                        

                        4.93Long-term capital lease obligations

                        

                        

                        2,211

                        

                        

                        

                        

                        134

                        

                        

                        

                        12.22

                        

                        

                        

                        

                        2,211

                        

                        

                        

                        

                        134

                        

                        

                        

                        12.19Junior subordinated debt owed to unconsolidated trusts

                        

                        

                        37,116

                        

                        

                        

                        

                        1,406

                        

                        

                        

                        7.64

                        

                        

                        

                        

                        37,116

                        

                        

                        

                        

                        1,476

                        

                        

                        

                        8.00Total interest-bearing liabilities

                        

                        

                        1,287,283

                        

                        

                        

                        

                        12,249

                        

                        

                        

                        1.92

                        

                        

                        

                        

                        1,214,435

                        

                        

                        

                        

                        19,884

                        

                        

                        

                        3.29
  (Continued on following page)  28
  
 Table of contents
  (Continued from prior page)  Six Months Ended June 30,2009

                        

                        

                        

                        2008AverageBalance

                        

                        

                        

                        Interest

                        

                        

                        

                        Yield/Rate

                        

                        

                        

                        AverageBalance

                        

                        

                        

                        Interest

                        

                        

                        

                        Yield/Rate(Dollars in thousands)Demand deposits--non-interest-bearing

                        

                        $

                        45,058

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        $

                        41,233Other non-interest-bearing liabilities

                        

                        

                        45,156

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        53,739Stockholders' equity, including stock owned by ESOP

                        

                        

                        117,513

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        90,719Total liabilities and stockholders equity

                        

                        $

                        1,495,010

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        $

                        1,400,126Net interest income on a fully tax-equivalent basis/interest rate Spread(3)

                        

                        

                        

                        

                        

                        

                        $

                        27,781

                        

                        

                        

                        3.70

                        %

                        

                        

                        

                        

                        

                        

                        

                        $

                        23,206

                        

                        

                        

                        3.19

                        %Net interest margin on a fully tax-equivalent basis(4)

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        3.90

                        %

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        3.49

                        %Net interest margin(4)

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        3.86

                        %

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        

                        3.45

                        %
  ________________  (1)

                        Average loans include non-accrual loans of $39.4 million and $17.4 million for June 30, 2009 and 2008, respectively.  Interest income includes loan origination fees of $1.9 million and $1.3 million for the six months ended June 30, 2009 and 2008, respectively.
 (2)

                        Non-taxable investment income is presented on a fully tax-equivalent basis, adjusting for federal and state exemption of interest income and certain other permanent tax differences.
 (3)

                        Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities and is presented on a fully tax-equivalent basis.
 (4)

                        Net interest margin represents net interest income as a percentage of average interest-earning assets.
  For the first six months of 2009, net interest income on a fully tax-equivalent basis increased $4.6 million (19.7%) to $27.8 million from $23.2 million for the first six months of 2008. The increase in net interest income on a fully tax-equivalent basis resulted from a decrease in interest expense of $7.6 million (38.4%), which was partially offset by a decrease in interest income on
            a fully tax-equivalent basis of $3.1 million (7.1%). Interest expense decreased mainly due to a decrease in the cost on interest-bearing liabilities of 137 basis points, which accounted for a decrease in interest expense of $8.6 million. This was partially offset by an increase in average interest-bearing liabilities of $72.8 million (6.0%), which accounted for an increase of $929 thousand in interest expense. Interest income on a fully tax-equivalent basis decreased due to a
            decrease in the yield of interest-earning assets of 86 basis points, which accounted for $5.4 million of the decrease. This was partially offset by an increase in average total interest-earning assets of $99.7 million (7.5%), accounting for an increase in $2.4 million in interest income on a fully tax-equivalent basis. The net interest margin expressed on a fully tax-equivalent basis increased 41 basis points to 3.90% for the six months ended June 30, 2009 from 3.49% for the six
            months ended June 30, 2008.  29
  
 Table of contents
  The following table reconciles net interest income on a fully tax-equivalent basis for the periods presented:  Three Months Ended June 30,

                        

                        

                        

                        Six Months Ended June 30,2009

                        

                        

                        

                        2008

                        

                        

                        

                        2009

                        

                        

                        

                        2008(In thousands)Net interest income

                        

                        $

                        14,122

                        

                        

                        

                        $

                        11,405

                        

                        

                        

                        $

                        27,494

                        

                        

                        

                        $

                        22,976Tax-equivalent adjustment to net interest income

                        

                        

                        156

                        

                        

                        

                        

                        116

                        

                        

                        

                        

                        287

                        

                        

                        

                        

                        230Net interest income, fully tax-equivalent basis

                        

                        $

                        14,278

                        

                        

                        

                        $

                        11,521

                        

                        

                        

                        $

                        27,781

                        

                        

                        

                        $

                        23,206
   30
  
 Table of contents
  Volume, Mix and Rate Analysis of Net Interest Income.The following tables present the extent to which changes in volume, changes in interest rates, and changes in the interest rates times the changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company’s interest income and interest expense during
            the periods indicated. Information is provided on changes in each category due to (i) changes attributable to changes in volume (change in volume times the prior period interest rate), (ii) changes attributable to changes in interest rate (changes in rate times the prior period volume) and (iii) changes attributable to changes in rate/volume (changes in interest rate times changes in volume). Changes attributable to the combined impact of volume and rate have been
            allocated proportionally to the changes due to volume and the changes due to rate.  Three Months Ended June 30,

                        

                        

                        

                        SixMonthsEndedJune30,2009 Compared to 2008

                        

                        

                        

                        2009Comparedto2008Change Dueto Volume

                        

                        

                        

                        ChangeDuetoRate

                        

                        

                        

                        TotalChange

                        

                        

                        

                        ChangeDuetoVolume

                        

                        

                        

                        ChangeDuetoRate

                        

                        

                        

                        TotalChange(In thousands)Interest-earning Assets:Loans

                        

                        $

                        435

                        

                        

                        

                        $

                        (962

                        )

                        

                        

                        $

                        (527

                        )

                        

                        

                        $

                        2,254

                        

                        

                        

                        $

                        (4,461

                        )

                        

                        

                        $

                        (2,207

                        )Taxable investment securities

                        

                        

                        (325

                        )

                        

                        

                        

                        426

                        

                        

                        

                        

                        101

                        

                        

                        

                        

                        (473

                        )

                        

                        

                        

                        (60

                        )

                        

                        

                        

                        (533

                        )Investment securities exempt from federal income taxes(1)

                        

                        

                        231

                        

                        

                        

                        

                        (123

                        )

                        

                        

                        

                        108

                        

                        

                        

                        

                        349

                        

                        

                        

                        

                        (203

                        )

                        

                        

                        

                        146Federal funds sold

                        

                        

                        (16

                        )

                        

                        

                        

                        (18

                        )

                        

                        

                        

                        (34

                        )

                        

                        

                        

                        (52

                        )

                        

                        

                        

                        (58

                        )

                        

                        

                        

                        (110

                        )Other interest bearing deposits

                        

                        

                        148

                        

                        

                        

                        

                        (200

                        )

                        

                        

                        

                        (52

                        )

                        

                        

                        

                        298

                        

                        

                        

                        

                        (652

                        )

                        

                        

                        

                        (354

                        )Investment in unconsolidated trust subsidiaries

                        

                        

                        —

                        

                        

                        

                        

                        (1

                        )

                        

                        

                        

                        (1

                        )

                        

                        

                        

                        —

                        

                        

                        

                        

                        (2

                        )

                        

                        

                        

                        (2

                        )Total increase (decrease) in interest income

                        

                        $

                        473

                        

                        

                        

                        $

                        (878

                        )

                        

                        

                        $

                        (405

                        )

                        

                        

                        $

                        2,376

                        

                        

                        

                        $

                        (5,436

                        )

                        

                        

                        $

                        (3,060

                        )Interest-bearing Liabilities:Now deposits

                        

                        $

                        33

                        

                        

                        

                        $

                        (207

                        )

                        

                        

                        $

                        (174

                        )

                        

                        

                        $

                        89

                        

                        

                        

                        $

                        (524

                        )

                        

                        

                        $

                        (435

                        )Money market deposits

                        

                        

                        (19

                        )

                        

                        

                        

                        (292

                        )

                        

                        

                        

                        (311

                        )

                        

                        

                        

                        (30

                        )

                        

                        

                        

                        (991

                        )

                        

                        

                        

                        (1,021

                        )Savings deposits

                        

                        

                        128

                        

                        

                        

                        

                        (1,069

                        )

                        

                        

                        

                        (941

                        )

                        

                        

                        

                        345

                        

                        

                        

                        

                        (2,378

                        )

                        

                        

                        

                        (2,033

                        )Time deposits over $100,000

                        

                        

                        651

                        

                        

                        

                        

                        (1,331

                        )

                        

                        

                        

                        (680

                        )

                        

                        

                        

                        889

                        

                        

                        

                        

                        (2,740

                        )

                        

                        

                        

                        (1,851

                        )Time deposits under $100,000

                        

                        

                        (106

                        )

                        

                        

                        

                        (713

                        )

                        

                        

                        

                        (819

                        )

                        

                        

                        

                        (163

                        )

                        

                        

                        

                        (1,615

                        )

                        

                        

                        

                        (1,778

                        )Short-term borrowings, including ESOP borrowings under 1 year

                        

                        

                        (4

                        )

                        

                        

                        

                        (129

                        )

                        

                        

                        

                        (133

                        )

                        

                        

                        

                        (136

                        )

                        

                        

                        

                        (257

                        )

                        

                        

                        

                        (393

                        )Long-term borrowings, including ESOP borrowings over 1 year

                        

                        

                        (156

                        )

                        

                        

                        

                        81

                        

                        

                        

                        

                        (75

                        )

                        

                        

                        

                        (65

                        )

                        

                        

                        

                        11

                        

                        

                        

                        

                        (54

                        )Long-term capital lease obligations

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —Junior subordinated debt owed to unconsolidated trusts

                        

                        

                        —

                        

                        

                        

                        

                        (29

                        )

                        

                        

                        

                        (29

                        )

                        

                        

                        

                        —

                        

                        

                        

                        

                        (70

                        )

                        

                        

                        

                        (70

                        )Total increase (decrease) in interest expense

                        

                        $

                        527

                        

                        

                        

                        $

                        (3,689

                        )

                        

                        

                        $

                        (3,162

                        )

                        

                        

                        $

                        929

                        

                        

                        

                        $

                        (8,564

                        )

                        

                        

                        $

                        (7,635

                        )Increase (decrease) in net interest income

                        

                        $

                        (54

                        )

                        

                        

                        $

                        2,811

                        

                        

                        

                        $

                        2,757

                        

                        

                        

                        $

                        1,447

                        

                        

                        

                        $

                        3,128

                        

                        

                        

                        $

                        4,575
  ____________________  (1)

                        Non-taxable investment income is presented on a fully tax-equivalent basis, adjusting for federal and state exemption of interest income and certain other permanent income tax differences.
  31
  
 Table of contents
  Other Income.Changes in other income between the three and six months ended June 30, 2009 and 2008 were as follows:  Three Months EndedJune 30,

                        

                        

                        

                        

                        

                        

                        

                        SixMonthsEndedJune30,2009

                        

                        

                        

                        2008

                        

                        

                        

                        Netdifference

                        

                        

                        

                        2009

                        

                        

                        

                        2008

                        

                        

                        

                        Netdifference(In thousands)Other income:Mortgage loan servicing fees

                        

                        $

                        435

                        

                        

                        

                        $

                        617

                        

                        

                        

                        $

                        (182

                        )

                        

                        

                        $

                        1,222

                        

                        

                        

                        $

                        1,231

                        

                        

                        

                        $

                        (9

                        )Trust fees

                        

                        

                        329

                        

                        

                        

                        

                        226

                        

                        

                        

                        

                        103

                        

                        

                        

                        

                        705

                        

                        

                        

                        

                        493

                        

                        

                        

                        

                        212Loan and other fees

                        

                        

                        706

                        

                        

                        

                        

                        703

                        

                        

                        

                        

                        3

                        

                        

                        

                        

                        1,319

                        

                        

                        

                        

                        1,289

                        

                        

                        

                        

                        30Service charges on deposits

                        

                        

                        453

                        

                        

                        

                        

                        439

                        

                        

                        

                        

                        14

                        

                        

                        

                        

                        860

                        

                        

                        

                        

                        863

                        

                        

                        

                        

                        (3

                        )Gain on sale of loans

                        

                        

                        2,426

                        

                        

                        

                        

                        712

                        

                        

                        

                        

                        1,714

                        

                        

                        

                        

                        5,495

                        

                        

                        

                        

                        1,366

                        

                        

                        

                        

                        4,129Gain on sale of securities

                        

                        

                        36

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        36

                        

                        

                        

                        

                        734

                        

                        

                        

                        

                        555

                        

                        

                        

                        

                        179Title insurance premiums

                        

                        

                        424

                        

                        

                        

                        

                        249

                        

                        

                        

                        

                        175

                        

                        

                        

                        

                        865

                        

                        

                        

                        

                        474

                        

                        

                        

                        

                        391Other operating income

                        

                        

                        152

                        

                        

                        

                        

                        75

                        

                        

                        

                        

                        77

                        

                        

                        

                        

                        255

                        

                        

                        

                        

                        198

                        

                        

                        

                        

                        57$

                        4,961

                        

                        

                        

                        $

                        3,021

                        

                        

                        

                        $

                        1,940

                        

                        

                        

                        $

                        11,455

                        

                        

                        

                        $

                        6,469

                        

                        

                        

                        $

                        4,986
   In the second quarter of 2009, other income increased from the second quarter of 2008 by $1.9 million (64.2%) from $3.0 million to $5.0 million. Gain on sale of loans increased $1.7 million (240.7%) from 2008 to 2009 due to a higher volume of loans sold between the two periods, as well as higher gains on each loan sold. Title insurance premiums increased $175 thousand (70.3%) due to a
            higher volume of policies written in the second quarter of 2009 compared to the same period in 2008. Both of these items were influenced by a high volume of mortgage refinancing business due to historically low interest rates. Mortgage loan servicing fees decreased $182 thousand (29.5%) due to a large amount of loans in the process of being refinanced associated with this high volume of mortgage loan refinancing. Trust fees increased $103 thousand (45.6%) largely due to fees on
            additional assets under management obtained through the Allocca and Brunett acquisition (discussed in the notes to the financial statements above).  In the first six months of 2009, other income increased from the first six months of 2008 by $5.0 million (77.1%) from $6.5 million to $11.5 million. Gain on sale of loans increased $4.1 million (302.3%) from 2008 to 2009 due to a higher volume of loans sold between the two periods, as well as higher gains on each loan sold. Title insurance premiums increased $391 thousand (82.5%) due
            to a higher volume of policies written in the first six months of 2009 compared to the same period in 2008. Both of these items were influenced by a high volume of mortgage refinancing business due to historically low interest rates. Trust fees increased $212 thousand (43.0%) largely due to fees on additional assets under management obtained through the Allocca and Brunett acquisition (discussed in the notes to the financial statements above). Gain on sale of securities increased
            $179 thousand (32.3%) due to higher gains on securities sold for each security, as the volume of securities sold was slightly lower in the first six months of 2009 than in the same period in 2008.  32
  
 Table of contents
  Other Expenses.Changes in other expenses between the three and six months ended June 30, 2009 and 2008 were as follows:  Three Months EndedJune 30,

                        

                        

                        

                        

                        

                        

                        

                        SixMonthsEndedJune30,2009

                        

                        

                        

                        2008

                        

                        

                        

                        Netdifference

                        

                        

                        

                        2009

                        

                        

                        

                        2008

                        

                        

                        

                        Netdifference(In thousands)Other expenses:Salaries and employee benefits

                        

                        $

                        4,658

                        

                        

                        

                        $

                        4,740

                        

                        

                        

                        $

                        (82

                        )

                        

                        

                        $

                        9,702

                        

                        

                        

                        $

                        9,647

                        

                        

                        

                        $

                        55Occupancy

                        

                        

                        789

                        

                        

                        

                        

                        794

                        

                        

                        

                        

                        (5

                        )

                        

                        

                        

                        1,613

                        

                        

                        

                        

                        1,627

                        

                        

                        

                        

                        (14

                        )Data processing

                        

                        

                        693

                        

                        

                        

                        

                        585

                        

                        

                        

                        

                        108

                        

                        

                        

                        

                        1,324

                        

                        

                        

                        

                        1,124

                        

                        

                        

                        

                        200Marketing

                        

                        

                        440

                        

                        

                        

                        

                        565

                        

                        

                        

                        

                        (125

                        )

                        

                        

                        

                        888

                        

                        

                        

                        

                        1,186

                        

                        

                        

                        

                        (298

                        )Amortization and valuation of mortgage servicing rights

                        

                        

                        (99

                        )

                        

                        

                        

                        335

                        

                        

                        

                        

                        (434

                        )

                        

                        

                        

                        887

                        

                        

                        

                        

                        1,240

                        

                        

                        

                        

                        (353

                        )Amortization and valuation of other intangible assets

                        

                        

                        10

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        10

                        

                        

                        

                        

                        133

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        133Supplies

                        

                        

                        166

                        

                        

                        

                        

                        141

                        

                        

                        

                        

                        25

                        

                        

                        

                        

                        352

                        

                        

                        

                        

                        309

                        

                        

                        

                        

                        43Loss on sale of other real estate owned

                        

                        

                        313

                        

                        

                        

                        

                        (14

                        )

                        

                        

                        

                        327

                        

                        

                        

                        

                        531

                        

                        

                        

                        

                        18

                        

                        

                        

                        

                        513Postage

                        

                        

                        117

                        

                        

                        

                        

                        124

                        

                        

                        

                        

                        (7

                        )

                        

                        

                        

                        284

                        

                        

                        

                        

                        300

                        

                        

                        

                        

                        (16

                        )Bankcard and ATM network fees

                        

                        

                        324

                        

                        

                        

                        

                        331

                        

                        

                        

                        

                        (7

                        )

                        

                        

                        

                        654

                        

                        

                        

                        

                        660

                        

                        

                        

                        

                        (6

                        )Legal, professional and accounting fees

                        

                        

                        613

                        

                        

                        

                        

                        312

                        

                        

                        

                        

                        301

                        

                        

                        

                        

                        981

                        

                        

                        

                        

                        591

                        

                        

                        

                        

                        390FDIC insurance premiums

                        

                        

                        937

                        

                        

                        

                        

                        204

                        

                        

                        

                        

                        733

                        

                        

                        

                        

                        1,184

                        

                        

                        

                        

                        238

                        

                        

                        

                        

                        946Other

                        

                        

                        686

                        

                        

                        

                        

                        806

                        

                        

                        

                        

                        (120

                        )

                        

                        

                        

                        1,603

                        

                        

                        

                        

                        1,386

                        

                        

                        

                        

                        217$

                        9,647

                        

                        

                        

                        $

                        8,923

                        

                        

                        

                        $

                        724

                        

                        

                        

                        $

                        20,136

                        

                        

                        

                        $

                        18,326

                        

                        

                        

                        $

                        1,810
  For the second quarter of 2009, other expenses increased $724 thousand (8.1%) to $9.6 million in 2009 from $8.9 million in the second quarter of 2008. FDIC insurance premiums increased $733 thousand (359.3%), reflecting an increase which was experienced industry-wide and not due to a change in the risk profile of the Bank (see further discussion below). Loss on sale of other real
            estate owned increased $327 thousand (2,335.7%) due to a higher volume of other real estate owned transactions and at lower returns due to the slower real estate market. Legal, professional and accounting fees increased $301 thousand (96.5%) primarily due to higher legal expenses associated with collection efforts. Amortization and valuation of mortgage servicing rights decreased $434 thousand (129.6%) primarily due to the recovery of impairment on these servicing rights previously
            recorded during the second quarter of 2009 due to the lower interest rate environment. Marketing expenses decreased $125 thousand (22.1%) due to an increase in advertising expenses from advertising campaigns in the second quarter of 2008 that was not repeated in the second quarter of 2009. Other expenses decreased $120 thousand (14.9%) mainly due to a decrease in interest rate contracts expenses associated with mortgage loan refinancing, due to a higher market value of these
            contracts at the end of the second quarter of 2009 compared to the end of the second quarter of 2008 For the first six months of 2009, other expenses increased $1.8 million (9.9%) to $20.1 million in 2009 from $18.3 million in the first six months of 2008. FDIC insurance premiums increased $946 thousand (397.5%), reflecting an increase which was experienced industry-wide (see further discussion below). Loss on sale of other real estate owned increased $513 thousand (2,850.0%) due to
            a higher volume of other real estate owned transactions and at lower returns due to the slower real estate market. Legal, professional and accounting fees increased $390 thousand (66.0%) primarily due to higher legal expenses associated with collection efforts. Amortization and valuation of mortgage servicing rights decreased $353 thousand (28.5%) primarily due to the recovery of impairment on these servicing rights previously recorded during the first six months of 2009 due to the
            lower interest rate environment. Marketing expenses decreased $298 thousand (25.1%) due to an increase in advertising expenses from advertising campaigns in the first six months of 2008 that was not repeated in the first six months of 2009.  33
  
 Table of contents
  In February 2009, the FDIC issued final rules to amend the deposit insurance fund restoration plan, change the risk-based assessment system and set assessment rates for Risk Category 1 institutions to begin in the second quarter of 2009. Effective April 1, 2009, for Risk Category 1 institutions, the methodology for establishing assessment rates for large
            institutions such as LANB will determine the initial base assessment rate using an equally-weighted combination of weighted-average CAMELS component ratings, long-term debt issuer ratings (converted to numbers and averaged) and certain financial ratios. The new initial base assessment rates for Risk Category 1 institutions will range from 12 to 16 basis points, on an annualized basis, and from 7 to 24 basis points after the effect of potential base-rate adjustments, in
            each case depending upon various factors. Additionally, the FDIC issued an interim rule that resulted in an emergency special assessment equal to 5 basis points of total assets on June 30, 2009 with the potential for additional emergency special assessments of up to 10 basis points at the end of any calendar quarter thereafter. In accordance with this special assessment, the Company expensed an additional $685 thousand in FDIC insurance premiums. The Company cannot provide
            any assurance as to the ultimate amount or timing of any further emergency special assessments, should any further special assessments occur, as such special assessments are dependent upon a variety of factors which are beyond the Company’s control.  Income Taxes.In the second quarter of 2009, income tax expense decreased $3.0 million (188.3%) from the second quarter of 2008, decreasing from $1.6 million in 2008 to a benefit of $1.4 million in 2009. This was due to lower pretax income in the second quarter of 2009 compared to the second quarter of 2008. The effective tax rate increased from
            36.6% to 43.6% between the two periods. The main reason for this increase in effective tax rate was due to the effect of the exercise of stock options, which was greater in 2008 than in 2009. In the first six months of 2009, income tax expense decreased $2.7 million (82.0%) from the first six months, decreasing from $3.3 million in 2008 to $593 thousand in 2009. This was largely due to lower pretax income in the first six months of 2009 compared to the same period in 2008. The effective tax rate decreased from 37.1% in the first six months of 2008 compared to 29.4% for
            the same period in 2009. The main reason for this decrease in effective tax rate was due to the relatively larger amount of permanent book to tax differences, due to lower income in the first six months of 2009 compared to the first six months of 2008. Financial Condition  General.Total assets at June 30, 2009 were $1.6 billion, an increase of $145.5 million (10.3%) from December 31, 2008. Cash and cash equivalents accounted for most of this change, increasing $99.6 million (394.4%) during the first six months of 2009. Net loans also increased $18.4 million (1.5%) during the same period. Total investment
            securities increased $7.2 million (6.1%) during the same period. Other real estate owned increased $5.3 million (225.7%) during the same period. A large portion of this increase was funded by the increase in deposits ($82.0 million) and the proceeds from the issuance of preferred shares under the CPP ($35.5 million). During the same period, total liabilities increased by $112.9 million (8.5%), increasing to $1.4 billion on June 30, 2009 from $1.3 billion on December 31, 2008. The
            increase in total liabilities was primarily due to an increase in deposits of $82.0 million (6.6%) and an increase in borrowings of $30.0 million (127.4%). Stockholders’ equity (including stock owned by the Employee Stock Ownership Plan) increased $32.6 million (35.7%) to $123.9 million on June 30, 2009 compared to $91.3 million on December 31, 2008. The increase was primarily due to the issuance of $35.5 million in preferred shares to the Treasury under the
            CPP.  Investment Securities.The primary purposes of the investment portfolio are to provide a source of earnings for the purpose of managing liquidity, to provide collateral to pledge against public deposits and to control interest rate risk. In managing the portfolio, the Company seeks to obtain the objectives of safety of principal, liquidity,
            diversification and maximized return on funds. For an additional discussion with respect to these matters, see “Liquidity and Sources of Capital” under Item 2 and “Asset Liability Management” under Item 3 below.  34
  
 Table of contents
  The following tables set forth the amortized cost and fair value of the Company’s securities by accounting classification category and by type of security as indicated:  At June 30, 2009

                        

                        

                        

                        AtDecember31,2008

                        

                        

                        

                        AtJune30,2008AmortizedCost

                        

                        

                        

                        FairValue

                        

                        

                        

                        AmortizedCost

                        

                        

                        

                        FairValue

                        

                        

                        

                        AmortizedCost

                        

                        

                        

                        FairValue(In thousands)Securities Available for Sale:Government sponsored agencies

                        

                        $

                        46,205

                        

                        

                        

                        $

                        47,586

                        

                        

                        

                        $

                        87,890

                        

                        

                        

                        $

                        90,187

                        

                        

                        

                        $

                        92,521

                        

                        

                        

                        $

                        91,020States and political subdivisions

                        

                        

                        29,257

                        

                        

                        

                        

                        29,210

                        

                        

                        

                        

                        12,771

                        

                        

                        

                        

                        12,820

                        

                        

                        

                        

                        6,381

                        

                        

                        

                        

                        6,356Mortgage-backed securities

                        

                        

                        32,290

                        

                        

                        

                        

                        31,366

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —Equity securities

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        1

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        1

                        

                        

                        

                        

                        2Total securities available for sale

                        

                        $

                        107,752

                        

                        

                        

                        $

                        108,162

                        

                        

                        

                        $

                        100,662

                        

                        

                        

                        $

                        103,007

                        

                        

                        

                        $

                        98,903

                        

                        

                        

                        $

                        97,378Securities Held to MaturityGovernment sponsored agencies

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —States and political subdivisions

                        

                        

                        8,805

                        

                        

                        

                        

                        8,842

                        

                        

                        

                        

                        8,927

                        

                        

                        

                        

                        9,780

                        

                        

                        

                        

                        9,050

                        

                        

                        

                        

                        9,050Total securities held to maturity

                        

                        $

                        8,805

                        

                        

                        

                        $

                        8,842

                        

                        

                        

                        $

                        8,927

                        

                        

                        

                        $

                        9,780

                        

                        

                        

                        $

                        9,050

                        

                        

                        

                        $

                        9,050Other securities:Non-marketable equity securities (including FRB and FHLB stock)

                        

                        $

                        6,722

                        

                        

                        

                        $

                        6,722

                        

                        

                        

                        $

                        4,527

                        

                        

                        

                        $

                        4,527

                        

                        

                        

                        $

                        6,355

                        

                        

                        

                        $

                        6,355Investment in unconsolidated trusts

                        

                        

                        1,116

                        

                        

                        

                        

                        1,116

                        

                        

                        

                        

                        1,116

                        

                        

                        

                        

                        1,116

                        

                        

                        

                        

                        1,116

                        

                        

                        

                        

                        1,116Total other securities

                        

                        $

                        7,838

                        

                        

                        

                        $

                        7,838

                        

                        

                        

                        $

                        5,643

                        

                        

                        

                        $

                        5,643

                        

                        

                        

                        $

                        7,471

                        

                        

                        

                        $

                        7,471
  The Company had a total of $32.3 million in Collateralized Mortgage Obligations (“CMO”) as of June 30, 2009. All of these CMOs are private label issues and are considered “Investment Grade” (rating of “BBB” or higher). At the time of purchase, the ratings of these securities ranged from AAA to Aaa. As of June 30, 2009, the ratings of these
            securities ranged from AAA to Baa3. At the time of purchase and on a monthly basis these securities are reviewed for impairment on an other than temporary basis. As of June 30, 2009, none of these securities were deemed to have other than temporary impairment. The Company continues to closely monitor the performance and ratings of these securities.  Loan Portfolio.The following tables set forth the composition of the loan portfolio:  At June 30, 2009

                        

                        

                        

                        AtDecember31,2008

                        

                        

                        

                        AtJune30,2008Amount

                        

                        

                        

                        Percent

                        

                        

                        

                        Amount

                        

                        

                        

                        Percent

                        

                        

                        

                        Amount

                        

                        

                        

                        Percent(Dollars in thousands)Commercial

                        

                        $

                        119,780

                        

                        

                        

                        9.50

                        %

                        

                        

                        $

                        116,588

                        

                        

                        

                        9.46

                        %

                        

                        

                        $

                        114,202

                        

                        

                        

                        9.51

                        %Commercial real estate

                        

                        

                        433,744

                        

                        

                        

                        34.40

                        

                        

                        

                        

                        412,184

                        

                        

                        

                        33.43

                        

                        

                        

                        

                        401,710

                        

                        

                        

                        33.46Residential real estate

                        

                        

                        438,715

                        

                        

                        

                        34.80

                        

                        

                        

                        

                        388,776

                        

                        

                        

                        31.54

                        

                        

                        

                        

                        371,756

                        

                        

                        

                        30.96Construction real estate

                        

                        

                        208,116

                        

                        

                        

                        16.51

                        

                        

                        

                        

                        254,444

                        

                        

                        

                        20.64

                        

                        

                        

                        

                        250,611

                        

                        

                        

                        20.87Installment and other

                        

                        

                        60,385

                        

                        

                        

                        4.79

                        

                        

                        

                        

                        60,746

                        

                        

                        

                        4.93

                        

                        

                        

                        

                        62,446

                        

                        

                        

                        5.20Total loans

                        

                        

                        1,260,740

                        

                        

                        

                        100.00

                        

                        

                        

                        

                        1,232,738

                        

                        

                        

                        100.00

                        

                        

                        

                        

                        1,200,725

                        

                        

                        

                        100.00Unearned income

                        

                        

                        (2,143

                        )

                        

                        

                        

                        

                        

                        

                        

                        (2,204

                        )

                        

                        

                        

                        

                        

                        

                        

                        (1,995

                        )Gross loans

                        

                        

                        1,258,597

                        

                        

                        

                        

                        

                        

                        

                        

                        1,230,534

                        

                        

                        

                        

                        

                        

                        

                        

                        1,198,730Allowance for loan losses

                        

                        

                        (24,864

                        )

                        

                        

                        

                        

                        

                        

                        

                        (15,230

                        )

                        

                        

                        

                        

                        

                        

                        

                        (13,866

                        )Net loans

                        

                        $

                        1,233,733

                        

                        

                        

                        

                        

                        

                        

                        $

                        1,215,304

                        

                        

                        

                        

                        

                        

                        

                        $

                        1,184,864
   35
  
 Table of contents
  The Company continues its long-standing commitment to prudently lend in its market areas. Total loans increased $28.0 million (2.3%) from December 31, 2008 to June 30, 2009, increasing to $1.3 billion from $1.2 billion between the two periods. The increase was primarily in the residential real estate and commercial real estate loan portfolios. During the same period, there was a
            decrease in the construction real estate and installment and other loan portfolios. Specific risks inherent in the large concentrations of real estate loans are discussed in Item 1A of Part I of the Company’s Form 10-K (as amended) for the year ending December 31, 2008 filed with the SEC on March 16, 2009.  Asset Quality.The following table sets forth the amounts of non-performing loans and non-performing assets at the dates indicated:  At June 30,2009

                        

                        

                        

                        AtDecember31,2008

                        

                        

                        

                        AtJune30,2008(Dollars in thousands)Non-accruing loans

                        

                        $

                        60,506

                        

                        

                        

                        $

                        33,387

                        

                        

                        

                        $

                        32,801Loans 90 days or more past due, still accruing interest

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —Restructured loans, still accruing interest

                        

                        

                        1,548

                        

                        

                        

                        

                        940

                        

                        

                        

                        

                        753Total non-performing loans

                        

                        

                        62,054

                        

                        

                        

                        

                        34,327

                        

                        

                        

                        

                        33,554Other real estate owned

                        

                        

                        7,668

                        

                        

                        

                        

                        2,354

                        

                        

                        

                        

                        2,252Other repossessed assets

                        

                        

                        411

                        

                        

                        

                        

                        692

                        

                        

                        

                        

                        481Total non-performing assets

                        

                        $

                        70,133

                        

                        

                        

                        $

                        37,373

                        

                        

                        

                        $

                        36,287Total non-performing loans to total loans

                        

                        

                        4.92

                        %

                        

                        

                        

                        2.78

                        %

                        

                        

                        

                        2.79

                        %Allowance for loan losses to non-performing loans

                        

                        

                        40.07

                        %

                        

                        

                        

                        44.37

                        %

                        

                        

                        

                        41.32

                        %Total non-performing assets to total assets

                        

                        

                        4.49

                        %

                        

                        

                        

                        2.64

                        %

                        

                        

                        

                        2.55

                        %
  At June 30, 2009, total non-performing assets increased $32.8 million (87.7%) to $70.1 million from $37.4 million at December 31, 2008, primarily due to an increase in non-accruing loans of $27.1 million (81.2%) and an increase in other real estate owned of $5.3 million (225.7%). Non-accruing loans increased mainly due to an increase in non-accruing construction real estate loans of
            $10.5 million, an increase in non-accruing residential real estate loans of $9.9 million, an increase in non-accruing commercial real estate loans of $6.7 million, an increase in non-accruing consumer and other loans of $967 thousand. Partially offsetting these increases was a decrease in non-accruing commercial non-real estate loans of $1.0 million. Other real estate owned increased mainly due to an increase in foreclosed construction real estate properties. There was $577 thousand
            in specifically identified losses in the non-accrual loans that has not already been charged-off. As of June 30, 2009, all other collateral-dependent impaired loans have been charged down to the collateral value, less selling costs. For further information, please see discussion in “Critical Accounting Policies –Allowance for Loan Losses” and “Results of Operations—Income Statement Analysis” above.  Restructured loans are defined as those loans whose terms have been modified, because of a deterioration in the financial condition of the borrower, to provide for a reduction of either interest or principal, regardless of whether such loans are secured or unsecured, regardless of whether such credits are guaranteed by the government or others, and regardless of the effective interest
            rate on such credits. Such a loan is considered restructured until paid in full. However, a loan that is restructured with an interest rate similar to current market interest rates and is in compliance with the modified terms need not be reported as restructured beginning the year after the year in which it was restructured. Total loans which were considered restructured totaled $5.8 million and $4.3 million as of June 30, 2009 and December 31, 2008, respectively. Those restructured
            loans considered performing loans totaled $1.5 million and $940 thousand as of June 30, 2009 and December 31, 2008, respectively.  Allowance for Loan Losses.Management believes the allowance for loan losses accounting policy is critical to the portrayal and understanding of the Company’s financial condition and results of operations. As such, selection and application of this “critical accounting policy” involves judgments, estimates, and uncertainties
            that are susceptible to change. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood.  36
  
 Table of contents
  The allowance for loan losses is maintained at an amount that management believes will be appropriate to absorb probable losses on existing loans, based on an evaluation of the collectability of loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, the value of underlying collateral,
            overall portfolio quality, review of specific problem loans and current economic conditions that may affect the borrower’s ability to pay. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, as an integral part of their examination process regulatory agencies periodically review the Company’s allowance for loan losses and may
            require the Company to make additions to the allowance based on their evaluation of information available at the time of their examinations. The following table presents an analysis of the allowance for loan losses for the periods presented:  Three Months Ended June 30,

                        

                        

                        

                        SixMonthsEndedJune30,2009

                        

                        

                        

                        2008

                        

                        

                        

                        2009

                        

                        

                        

                        2008(Dollars in thousands)

                        

                        (Dollars in thousands)Balance at beginning of period

                        

                        $

                        17,963

                        

                        

                        

                        $

                        13,952

                        

                        

                        

                        $

                        15,230

                        

                        

                        

                        $

                        13,533Provision for loan losses

                        

                        

                        12,632

                        

                        

                        

                        

                        1,200

                        

                        

                        

                        

                        16,793

                        

                        

                        

                        

                        2,250Total charge-offs

                        

                        

                        (5,791

                        )

                        

                        

                        

                        (1,479

                        )

                        

                        

                        

                        (7,310

                        )

                        

                        

                        

                        (2,201

                        )Total recoveries

                        

                        

                        60

                        

                        

                        

                        

                        193

                        

                        

                        

                        

                        151

                        

                        

                        

                        

                        284Net charge-offs

                        

                        

                        (5,731

                        )

                        

                        

                        

                        (1,286

                        )

                        

                        

                        

                        (7,159

                        )

                        

                        

                        

                        (1,917

                        )Balance at end of period

                        

                        $

                        24,864

                        

                        

                        

                        $

                        13,866

                        

                        

                        

                        $

                        24,864

                        

                        

                        

                        $

                        13,866Gross loans at end of period

                        

                        $

                        1,258,597

                        

                        

                        

                        $

                        1,198,730

                        

                        

                        

                        $

                        1,258,597

                        

                        

                        

                        $

                        1,198,730Ratio of allowance to total loans

                        

                        

                        1.97

                        %

                        

                        

                        

                        1.15

                        %

                        

                        

                        

                        1.97

                        %

                        

                        

                        

                        1.15

                        %Ratio of net charge-offs to average loans(1)

                        

                        

                        1.89

                        %

                        

                        

                        

                        0.43

                        %

                        

                        

                        

                        1.15

                        %

                        

                        

                        

                        0.33

                        %
  ____________________ (1)

                        Net charge-offs are annualized for the purposes of this calculation.
  Net charge-offs for the three months ended June 30, 2009 totaled $5.7 million, an increase of $4.4 million (345.6%), from $1.3 million for the three months ended June 30, 2008. The majority of the net charge-offs were construction real estate ($3.1 million), commercial non-real estate ($1.4 million), residential real estate ($791 thousand) and installment and other ($379 thousand)
            loans. The increase in net charge-offs for the first six months of 2009 was primarily due to an increase of charge-offs in the construction real estate and commercial non-real estate portfolios. The provision for loan losses increased $11.4 million (952.7%) based upon management’s estimate of the adequacy of the reserve for loan losses. For further information, please see discussion in “Critical Accounting Policies –Allowance for Loan Losses” and
            “Results of Operations—Income Statement Analysis” above.  Net charge-offs for the six months ended June 30, 2009 totaled $7.2 million, an increase of $5.2 million (273.4%), from $1.9 million for the six months ended June 30, 2008. The majority of the charge-offs were construction real estate ($3.3 million), commercial non-real estate ($1.9 million), residential real estate ($1.1 million) and installment and other ($791 thousand) loans. The
            increase in net charge-offs for the first six months of 2009 was primarily due to an increase of charge-offs in the construction real estate and commercial non-real estate portfolios. The provision for loan losses increased $14.5 million (646.4%) based upon management’s estimate of the adequacy of the reserve for loan losses. For further information, please see discussion in “Critical Accounting Policies –Allowance for Loan Losses” and “Results of
            Operations—Income Statement Analysis” above.  37
  
 Table of contents
  The following table sets forth the allocation of the allowance for loan losses in each loan category for the periods presented and the percentage of loans in each category to total loans. An allocation for a loan classification is only for internal analysis of the adequacy of the allowance and is not an indication of expected or anticipated losses:  At June 30, 2009

                        

                        

                        

                        At December 31, 2008

                        

                        

                        

                        At June 30, 2008Amount

                        

                        

                        

                        Percent

                        

                        

                        

                        Amount

                        

                        

                        

                        Percent

                        

                        

                        

                        Amount

                        

                        

                        

                        Percent(Dollars in thousands)Commercial

                        

                        $

                        4,483

                        

                        

                        

                        9.50

                        %

                        

                        

                        $

                        2,200

                        

                        

                        

                        9.46

                        %

                        

                        

                        $

                        3,495

                        

                        

                        

                        9.51

                        %Commercial and residential real estate

                        

                        

                        7,725

                        

                        

                        

                        69.20

                        

                        

                        

                        

                        5,215

                        

                        

                        

                        64.97

                        

                        

                        

                        

                        4,103

                        

                        

                        

                        64.42Construction real estate

                        

                        

                        9,146

                        

                        

                        

                        16.51

                        

                        

                        

                        

                        6,512

                        

                        

                        

                        20.64

                        

                        

                        

                        

                        5,073

                        

                        

                        

                        20.87Installment and other

                        

                        

                        3,510

                        

                        

                        

                        4.79

                        

                        

                        

                        

                        1,303

                        

                        

                        

                        4.93

                        

                        

                        

                        

                        1,195

                        

                        

                        

                        5.20Total

                        

                        $

                        24,864

                        

                        

                        

                        100.00

                        %

                        

                        

                        $

                        15,230

                        

                        

                        

                        100.00

                        %

                        

                        

                        $

                        13,866

                        

                        

                        

                        100.00

                        %
  _______________  N/A—not applicable  The allowance for loan losses increased $11.0 million (79.3%) from June 30, 2008 to June 30, 2009. This was mainly due to an increase in the allowance allocated to construction real estate, commercial and residential real estate, and installment and other loans. The allocation for construction real estate loans increased $4.1 million (80.3%) mainly due to an increase in the allocation
            for qualitative adjustments of $2.3 million and an increase in historical loss experience (based on regression analysis) of $1.8 million. These increases were partially offset by a decrease in specifically identified loans of $81 thousand. The allocation for commercial and residential loans increased $3.6 million (88.3%) from June 30, 2008 to June 30, 2009, mainly due to an increase in the allocation for qualitative adjustments of $2.3 million and an increase in the allocation for
            historical loss experience (based on regression analysis) of $1.5 million. These increases were partially offset by a decrease in specifically identified loans of $211 thousand. The allocation for installment and other loans increased $2.3 million (193.7%), mainly due to an increase in the allocation for historical loss experience (based on regression analysis) of $1.2 million and an increase in the allocation for qualitative adjustments of $1.1 million. For further information,
            please see discussion in “Critical Accounting Policies—Allowance for Loan Losses” above.  A loan is considered impaired when, based on current information and events, it is probable that the bank will be unable to collect all amounts due according to the original contractual terms of the loan agreement, including both principal and interest. The impairment amount of the loan is equal to the recorded investment in the loan less the net fair value. The bank generally uses
            one of three methods to measure impairment; the fair value of the collateral less disposition costs, the present value of expected future cash flows method, or the observable market price of a loan method. The impairment amount above collateral value is normally charged to the allowance for loan and lease losses in the quarter it is identified. Total loans which were deemed to have been impaired as of June 30, 2009 were $46.6 million. Collateral associated with these impaired loans
            (less estimated selling costs) exceeded this amount, with the exception of loans identified as doubtful in the construction loan portfolio for a specifically identified loss allocation of $577 thousand.  The Bank anticipates the volume of outstanding commercial real estate and construction loans to continue to decline. Overall, management’s outlook for the New Mexico economy in 2009 is expected to be a recession less severe than experienced by much of the country followed by a moderate recovery in advance of other areas of the country. Nonfarm employment growth was -0.3% in
            2008, and is expected to be -0.2% in 2009. Housing construction overall is expected to remain depressed throughout the remainder of 2009, but experience a modest recovery toward the middle of 2010.  Additions to the allowance for loan losses, which are charged to earnings through the provision for loan losses, are determined based on a variety of factors, as indicated above. Although the Company believes the allowance for loan losses is sufficient to cover probable losses inherent in the loan portfolio, there can be no assurance that the allowance will prove sufficient to cover
            actual loan losses.  38
  
 Table of contents
  Potential Problem Loans. The Company utilizes an internal asset classification system as a means of reporting problem and potential problem assets. At Board of Directors meetings each quarter, a list of total adversely classified assets is presented showing OREO, other repossessed assets, and all loans listed as “Substandard,”
            “Doubtful” and “Loss.”  All non-accrual loans are classed either as “Substandard” or “Doubtful” and are thus included in total adversely classified assets. A separate watch list of loans classified as “Special Mention” is also presented. An asset is classified Substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Substandard assets
            have well-defined weaknesses that jeopardize liquidation of the debt and there is a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all the weaknesses inherent in those classified Substandard, but weaknesses are so pronounced that collection or liquidation is highly questionable and improbable. Assets classified as Loss are those considered uncollectible and viewed as non-bankable assets worthy of
            charge-off. Special Mention Assets are those that have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date.  The Company’s determinations as to the classification of its assets and the amount of its valuation allowances are subject to review by the Bank’s primary regulators, which can order the establishment of additional general or specific loss allowances. The OCC, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the
            allowance for loan losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that (i) institutions have effective systems and controls to identify, monitor and address asset quality problems;
            (ii) management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner; and (iii) management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Management believes it has established an adequate allowance for probable loan losses. The Company analyzes its process regularly with modifications made as necessary and reports those results quarterly at Board of Directors
            meetings. However, there can be no assurance that regulators, in reviewing the Company’s loan portfolio, will not request the Company to materially increase its allowance for loan losses. Although management believes that adequate specific and general loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may become necessary.  The following table shows the amounts of adversely classified assets and special mention loans (not already counted in non-performing loans above) as of the periods indicated:  At June 30, 2009

                        

                        

                        

                        AtDecember31,2008

                        

                        

                        

                        AtJune30,2008(Dollars in thousands)Performing loans classified as:Substandard

                        

                        $

                        62,187

                        

                        

                        

                        $

                        38,815

                        

                        

                        

                        $

                        12,152Doubtful

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        9Total performing adversely classified loans

                        

                        $

                        62,187

                        

                        

                        

                        $

                        38,815

                        

                        

                        

                        $

                        12,161Special mention loans

                        

                        $

                        5,418

                        

                        

                        

                        $

                        24,836

                        

                        

                        

                        $

                        25,703
  Total performing adversely classified assets increased $50.0 million (411.7%) from June 30, 2008 to June 30, 2009. The reason for the increase was an increase of $50.0 million in substandard loans. This was primarily due to the downgrading of several borrowing relationships in the residential land development, residential construction, and raw land property (all included under
            “construction real estate” in the preceding tables) loan concentrations, as well as downgrading several loan relationships in the commercial real estate loan portfolio. Special mention loans decreased $20.3 million (78.9%) between June 30, 2008 and June 30, 2009, primarily due to downgrades of credits from the special mention grade to substandard in the residential development of infrastructure, construction of speculative housing and residential developed lots
            concentrations. All of these loans are collateralized by real estate, and in many cases the loans have personal guarantees and additional collateral. As of June 30, 2009, the underlying collateral was deemed adequate so that no impairment was recognized.  39
  
 Table of contents
  Management is carefully monitoring the adversely classified assets it has in its portfolio. Management believes the increase in classified assets is a result of current national and regional economic difficulties, particularly in the area of real estate sales. Although we do not have direct exposure from subprime mortgages, we have significant concentrations in real estate lending
            (through construction, residential and commercial loans). Though the New Mexico real estate environment is currently more favorable than most areas of the nation, there is still a concern that real estate values may continue to stagnate or fall within our market areas. As a result, we will continue to closely monitor market conditions, our loan portfolio and make any adjustments to our allowance for loan losses deemed necessary to adequately provide for our exposure in these
            areas.  Sources of Funds  Liquidity and Sources of Capital  The Company’s cash flows are comprised of three classifications: cash flows from operating activities, cash flows from investing activities and cash flows from financing activities. Net cash provided by operating activities was $11.0 million and $15.9 million for the six months ended June 30, 2009 and June 30, 2008, respectively. Net cash provided by operating activities
            decreased $4.9 million in the first six months of 2009 compared to the first six months of 2008 largely due to an increase in the origination of loans held for sale, net of sales, of $8.0 million, and an increase in cash used by other assets of $3.9 million. This was partially offset by an increase in cash provided by net income, net of adjustments for non-cash items, of $6.3 million, and an increase in cash provided by other liabilities of $1.1 million. Net cash used in investing
            activities was $(55.9) million and ($31.0) million for the six months ended June 30, 2009 and June 30, 2008, respectively. The $24.9 million increase in cash used in investing activities was largely due to a decrease in the proceeds from the maturities and paydowns of investment securities of $58.7 million, an increase in loans funded, net of repayments of $12.9 million, and a decrease in the proceeds from the sale of investment securities of $6.1 million. These items were partially
            offset by a decrease in cash used in the purchase of investment securities of $55.3 million Net cash provided by financing activities was $144.5 million and $10.0 million for the six months ended June 30, 2009 and June 30, 2008, respectively. The $134.5 million increase in cash provided by financing activities was mainly due to an increase in cash provided by net growth of deposits of $68.4 million, the issuance of preferred stock of $35.5 million and an increase in cash provided by
            the issuance of borrowings of $30.0 million.  The most significant growth in deposits from December 31, 2008 to June 30, 2009 occurred in time deposits over $100,000 ($99.3 million), with smaller growth in time deposits under $100,000 ($8.3 million) and MMDA accounts ($2.9 million). There was a decline in savings accounts ($17.9 million), NOW accounts ($5.5 million), and DDA accounts ($5.0 million).  In the event that additional short-term liquidity is needed, we have established relationships with several large regional banks to provide short-term borrowings in the form of federal funds purchases. We have borrowed at various points of time $112.0 million for a short period (15 to 60 days) from these banks on a collective basis. Management believes that we will be able to
            continue to borrow federal funds from our correspondent banks in the future. Additionally, we are a member of the FHLB and have the ability to borrow from the FHLB up to a total of $155.2 million in additional funds. As a contingency plan for significant funding needs, the Asset/Liability Management committee may also consider the sale of investment securities, selling securities under agreement to repurchase, sale of certain loans and/or the temporary curtailment of lending
            activities.  At June 30, 2009 Trinity’s total risk-based capital ratio was 14.46%, the Tier 1 capital to risk-weighted assets ratio was 13.19%, and the Tier 1 capital to average assets ratio was 10.19%. At December 31, 2008, Trinity’s total risk-based capital ratio was 11.80%, the Tier 1 capital to risk-weighted assets ratio was 10.08%, and the Tier 1 capital to average assets ratio
            was 8.35%.  At June 30, 2009, the Bank’s total risk-based capital ratio was 13.64%, the Tier 1 capital to risk-weighted assets ratio was 12.38%, and the Tier 1 capital to average assets ratio was 9.54%. At December 31, 2008, the Bank’s total risk-based capital ratio was 11.33%, the Tier 1 capital to risk-weighted assets ratio was 10.08%, and the Tier 1 capital to average assets ratio
            was 8.34%. The Bank was categorized as “well-capitalized” under Federal Deposit Insurance Corporation regulations at June 30, 2009 and December 31, 2008.  At June 30, 2009 and December 31, 2008, Trinity’s book value per common share was $14.03 and $14.16.  40
  
 Table of contents
  Item3. Quantitative and Qualitative Disclosures About Market Risk  Asset Liability Management  Our net interest income is subject to “interest rate risk” to the extent that it can vary based on changes in the general level of interest rates. It is our policy to maintain an acceptable level of interest rate risk over a range of possible changes in interest rates while remaining responsive to market demand for loan and deposit products. The strategy we employ to
            manage our interest rate risk is to measure our risk using an asset/liability simulation model and adjust the maturity of securities in its investment portfolio to manage that risk.  Interest rate risk can also be measured by analyzing the extent to which the repricing of assets and liabilities are mismatched to create an interest sensitivity “gap.” An asset or liability is considered to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the
            difference between the amount of interest earning assets maturing or repricing within a specific time period and the amount of interest bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets.
            During a period of rising interest rates, therefore, a negative gap would tend to adversely affect net interest income. Conversely, during a period of falling interest rates, a negative gap position would tend to result in an increase in net interest income.  The following tables set forth the amounts of interest earning assets and interest bearing liabilities outstanding at June 30, 2009, which we anticipate, based upon certain assumptions, to reprice or mature in each of the future time periods shown. Except as stated below, the amount of assets and liabilities shown which reprice or mature during a particular period were determined
            based on the earlier of the term to repricing or the term to repayment of the asset or liability. These tables are intended to provide an approximation of the projected repricing of assets and liabilities at June 30, 2009 on the basis of contractual maturities and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be reinvested and/or repriced as a result of contractual
            amortization and rate adjustments on adjustable-rate loans. The contractual maturities and amortization of loans and investment securities reflect modest prepayment assumptions. While NOW, money market and savings deposit accounts have adjustable rates, it is assumed that the interest rates on these accounts will not adjust immediately to changes in other interest rates. Therefore, the table is calculated assuming that these accounts will reprice based upon an historical analysis of
            decay rates of these particular accounts, with repricing assigned to these accounts from 1 to 10 months.  41
  
 Table of contents
   Time to Maturity or RepricingAs of June 30, 2009:

                        

                        0-90 Days

                        

                        

                        

                        91-365Days

                        

                        

                        

                        1-5Years

                        

                        

                        

                        Over5Years

                        

                        

                        

                        Total(Dollars in thousands)Interest-earning Assets:Loans

                        

                        $

                        516,778

                        

                        

                        

                        $

                        402,258

                        

                        

                        

                        $

                        276,512

                        

                        

                        

                        $

                        63,049

                        

                        

                        

                        $

                        1,258,597Loans held for sale

                        

                        

                        12,537

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        12,537Investment securities

                        

                        

                        15,824

                        

                        

                        

                        

                        9,493

                        

                        

                        

                        

                        73,256

                        

                        

                        

                        

                        25,116

                        

                        

                        

                        

                        123,689Securities purchased under agreements to resell

                        

                        

                        821

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        821Interest-bearing deposits with banks

                        

                        

                        97,470

                        

                        

                        

                        

                        11,081

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        108,551Investment in unconsolidated trusts

                        

                        

                        186

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        930

                        

                        

                        

                        

                        1,116Total interest-earning assets

                        

                        $

                        643,616

                        

                        

                        

                        $

                        422,832

                        

                        

                        

                        $

                        349,768

                        

                        

                        

                        $

                        89,095

                        

                        

                        

                        $

                        1,505,311Interest-bearing Liabilities:NOW deposits

                        

                        $

                        41,000

                        

                        

                        

                        $

                        75,281

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        —

                        

                        

                        

                        $

                        116,281Money market deposits

                        

                        

                        79,605

                        

                        

                        

                        

                        99,525

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        179,130Savings deposits

                        

                        

                        136,850

                        

                        

                        

                        

                        181,313

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        318,163Time deposits over $100,000

                        

                        

                        115,946

                        

                        

                        

                        

                        227,945

                        

                        

                        

                        

                        73,453

                        

                        

                        

                        

                        5,936

                        

                        

                        

                        

                        423,280Time deposits under $100,000

                        

                        

                        50,358

                        

                        

                        

                        

                        134,680

                        

                        

                        

                        

                        24,773

                        

                        

                        

                        

                        3,198

                        

                        

                        

                        

                        213,009Short-term borrowings

                        

                        

                        20,000

                        

                        

                        

                        

                        20,000

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        40,000Long-term borrowings

                        

                        

                        9

                        

                        

                        

                        

                        27

                        

                        

                        

                        

                        11,100

                        

                        

                        

                        

                        2,377

                        

                        

                        

                        

                        13,513Capital lease obligations

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        2,211

                        

                        

                        

                        

                        2,211Junior subordinated debt owed to unconsolidated trusts

                        

                        

                        6,186

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        —

                        

                        

                        

                        

                        30,930

                        

                        

                        

                        

                        37,116Total interest-bearing liabilities

                        

                        $

                        449,954

                        

                        

                        

                        $

                        738,771

                        

                        

                        

                        $

                        109,326

                        

                        

                        

                        $

                        44,652

                        

                        

                        

                        $

                        1,342,703Rate sensitive assets (RSA)

                        

                        $

                        643,616

                        

                        

                        

                        $

                        1,066,448

                        

                        

                        

                        $

                        1,416,216

                        

                        

                        

                        $

                        1,505,311

                        

                        

                        

                        

                        1,505,311Rate sensitive liabilities (RSL)

                        

                        

                        449,954

                        

                        

                        

                        

                        1,188,725

                        

                        

                        

                        

                        1,298,051

                        

                        

                        

                        

                        1,342,703

                        

                        

                        

                        

                        1,342,703Cumulative GAP (GAP=RSA-RSL)

                        

                        

                        193,662

                        

                        

                        

                        

                        (122,277

                        )

                        

                        

                        

                        118,165

                        

                        

                        

                        

                        162,608

                        

                        

                        

                        

                        162,608RSA/Total assets

                        

                        

                        41.17

                        %

                        

                        

                        

                        68.22

                        %

                        

                        

                        

                        90.60

                        %

                        

                        

                        

                        96.30

                        %

                        

                        

                        

                        96.30

                        %RSL/Total assets

                        

                        

                        28.78

                        %

                        

                        

                        

                        76.05

                        %

                        

                        

                        

                        83.04

                        %

                        

                        

                        

                        85.90

                        %

                        

                        

                        

                        85.90

                        %GAP/Total assets

                        

                        

                        12.39

                        %

                        

                        

                        

                        -7.82

                        %

                        

                        

                        

                        7.56

                        %

                        

                        

                        

                        10.40

                        %

                        

                        

                        

                        10.40

                        %GAP/RSA

                        

                        

                        30.09

                        %

                        

                        

                        

                        -11.47

                        %

                        

                        

                        

                        8.34

                        %

                        

                        

                        

                        10.80

                        %

                        

                        

                        

                        10.80

                        %
  Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market
            interest rates, while interest rates on other types of assets may lag behind changes in market rates. Additionally, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Therefore, we do not rely solely on a gap analysis to manage our interest rate risk, but rather we use what we believe to be the more reliable simulation model relating to changes in net interest
            income.  42
  
 Table of contents
  Based on simulation modeling at June 30, 2009 and December 31, 2008, our net interest income would change over a one-year time period due to changes in interest rates as follows:  Change in Net Interest Income over One Year Horizon  Changes in

                        

                        

                        

                        At June 30, 2009

                        

                        

                        

                        At December 31, 2008Levels ofInterest Rates

                        

                        

                        

                        Dollar Change

                        

                        

                        

                        Percent Change

                        

                        

                        

                        Dollar Change

                        

                        

                        

                        Percent Change(Dollars in thousands)+2.00%

                        

                        

                        

                        $

                        (4,507

                        )

                        

                        

                        (8.25

                        )%

                        

                        

                        $

                        (1,084

                        )

                        

                        

                        (2.11

                        )%+1.00

                        

                        

                        

                        

                        (3,010

                        )

                        

                        

                        (5.51

                        )

                        

                        

                        

                        257

                        

                        

                        

                        0.50(1.00)

                        

                        

                        

                        

                        (611

                        )

                        

                        

                        (1.21

                        )

                        

                        

                        

                        (627

                        )

                        

                        

                        (4.27

                        )(2.00)

                        

                        

                        

                        

                        (1,158

                        )

                        

                        

                        (2.12

                        )

                        

                        

                        

                        (1,177

                        )

                        

                        

                        (2.29

                        )
  Our simulations used assume the following:  1.

                        Changes in interest rates are immediate.
  2.

                        It is our policy that interest rate exposure due to a 2% interest rate rise or fall be limited to 15% of our annual net interest income, as forecasted by the simulation model. As demonstrated by the table above, our interest rate risk exposure was within this policy at June 30, 2009.
  Changes in net interest income between the periods above reflect changes in the composition of interest earning assets and interest bearing liabilities, related interest rates, repricing frequencies, and the fixed or variable characteristics of the interest earning assets and interest bearing liabilities. Projections of income given by the model are not actual predictions, but rather
            show our relative interest rate risk. Actual interest income may vary from model projections.  Item 4. Controls and Procedures.  Evaluation of Disclosure Controls and Procedures  We have established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and the board of directors and to ensure that information that is required to be disclosed in reports we file with the SEC
            is properly and timely recorded, processed, summarized and reported. A review and evaluation was performed by our management, including the Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2009 pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934. Based upon and as of the date of that review and
            evaluation, the CEO and CFO have concluded that our current disclosure controls and procedures were effective as of June 30, 2009.  Changes in Internal Control over Financial Reporting.  There have been no changes to the Company’s internal control over financial reporting during the last fiscal quarter that have affected, or are reasonably likely to affect, its internal control over financial reporting.  43
  
 Table of contents
  PART II — OTHER INFORMATION  Item 1. Legal Proceedings  Trinity, the Bank, Title Guaranty, TCC Advisors and TCC Funds were not involved in any pending legal proceedings other than routine legal proceedings occurring in the normal course of business except as otherwise stated herein, which, in the opinion of management, in the aggregate, were material to the Company’s consolidated financial condition.  Item 1A. Risk Factors  In addition to the other information in this Quarterly Report on Form 10-Q, shareholders or prospective investors should carefully consider the risk factors disclosed in Item 1A to Part I of Trinity’s Form 10-K (as amended) for the year ended December 31, 2008 filed with the Securities and Exchange Commission on March 16, 2009.  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  During the second quarter of 2009, we repurchased the following securities:  Period

                        

                        (a)Total number of sharespurchased

                        

                        (b)Average price

                            paid pershare

                        

                        (c)Total number of sharespurchased as part ofpublicly announced plansor programs

                        

                        (d)Maximum approximatedollar value that may yet bepurchased under the plans orprogramsApril 1-April 30, 2009

                        

                        —

                        

                        $

                        —

                        

                        —

                        

                        $

                        —May 1-May 31, 2009

                        

                        —

                        

                        

                        —

                        

                        —

                        

                        

                        —June 1-June 30, 2009

                        

                        21,764

                        (1), (2)

                        

                        21.75

                        

                        —

                        

                        

                        —Total

                        

                        21,764

                        

                        $

                        21.75

                        

                        —

                        

                        $

                        —
  _________________________ (1)

                        Of the shares repurchased in the second quarter of 2009, 8,534 were related to Employee Stock Ownership Plan participants exercising the put option on the stock held in the plan.  Under this put option, Trinity has up to five years to repurchase the shares from the participants at the last appraised value of the stock.  Trinity elected to
                            repurchase these shares immediately from the plan participants.
 (2)

                        In connection with the exercise of options by an executive officer, on June 10, 2009, the executive officer delivered 13,230 shares of common stock to the Company to pay for a portion of the exercise price of the options and the withholding taxes associated with the exercise.
  Item 3. Defaults Upon Senior Securities  None  Item 4. Submission of Matters to a Vote of Security Holders  At the Annual Meeting of Stockholders held on May 21, 2009, Jeffrey F. Howell, Arthur B. Montoya, Jr. and Stanley D. Primak were elected to serve as Class III Directors of the Company until the 2012 Annual Meeting. Continuing as Class I Directors, with a term expiring in 2010, are: William C. Enloe, Deborah U. Johnson, Lewis A. Muir and Charles A. Slocomb. Continuing as Class II
            Directors, with a term expiring in 2011, are: Jerry Kindsfather, Steve W. Wells, and Robert P. Worcester. In addition, the shareholders ratified the appointment of Moss Adams, LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2009 and approved an advisory resolution on the 2008 compensation of the Company's executive officers.  44
  
 Table of contents
  The voting for each matter was as follows:  1.

                        Election of directors:
  NOMINEE

                        FOR

                        WITHHOLDJeffrey F. Howell

                        4,364,919 (98.58%)

                        62,799 (1.41%)Arthur B. Montoya, Jr.

                        4,404,096 (99.46%)

                        23,622 (0.53%)Stanley D. Primak

                        4,400,746 (99.39%)

                        26,972 (0.60%)
  2.

                        Ratification of the appointment of Moss Adams, LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2009:
  For

                        Against

                        Abstain4,400,479 (99.38%)

                        1,681 (0.03%)

                        25,558 (0.57%)
  3.

                        Approval of the advisory resolution on the 2008 compensation of the Company's Named Executive Officers:
  For

                        Against

                        Abstain4,292,205 (96.93%)

                        53,030 (1.19%)

                        82,483 (1.86%)
  Item 5. Other Information  None  Item 6. Exhibits  31.1

                        Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
 31.2

                        Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
 32.1

                        Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 32.2

                        Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 SIGNATURES  Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned thereunto duly authorized.  TRINITY CAPITAL CORPORATIONDate: August 17, 2009

                        By:

                        /s/ WILLIAM C. ENLOEWilliam C. EnloePresident and Chief Executive OfficerDate: August 17, 2009

                        By:

                        /s/ DANIEL R. BARTHOLOMEWDaniel R. BartholomewChief Financial Officer
   45